ZILOG INC, S-4, 1997-12-12

ZILOG INC
S-4, 1997-12-12
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1
As filed with the Securities and Exchange Commission on December 12, 1997
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

<TABLE>
<S> <C> <C>
Delaware 3674 13-3092996
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

210 East Hacienda Avenue, Campbell, California 95008-6600, (408) 370-8000
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive officers)

Richard R. Pickard
Vice President, General Counsel and Secretary
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600
(408) 370-8000
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)

Copies to:

Nathaniel M. Cartmell III Daniel S. Sternberg
Katharine A. Martin Cleary, Gottlieb, Steen & Hamilton
Pillsbury Madison & Sutro LLP One Liberty Plaza
2550 Hanover Street New York, New York 10006
Palo Alto, California 94304 (212) 225-2000
(650) 233-4500

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

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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(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. [ ] --------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===========================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate offering Amount of
securities to be registered registered(1) unit(2) price(2) registration fee(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share 375,000 $20.00 $7,500,000 $2,272.73(3)
===========================================================================================================================
</TABLE>

(1) This registration statement relates to shares of Common Stock of the
registrant to be retained by holders of the registrant's Common Stock in
the proposed merger of TPG Zeus Acquisition Corporation with and into the
registrant, with the registrant continuing as the surviving corporation of
the merger.

(2) Estimated solely for the purpose of determining the amount of the
registration fee in accordance with Rule 457(f) under the Securities Act of
1933, as amended, based on the proposed offering price to existing holders
of the registrant's Common Stock.

(3) A filing fee of $101,257.13 was previously paid by the registrant pursuant
to section 14(g) of the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary Proxy Statement/Prospectus on
August 12, 1997. Pursuant to Rule 457(b) under the Securities Act of 1933,
as amended, such fee is being credited against the registration fee, and
accordingly, no filing fee is being paid in connection with this
registration statement.
---------------------

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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
ZILOG, INC.
210 East Hacienda Avenue
Campbell, California 95008-6600
(408) 370-8000

To the Stockholders of Zilog, Inc.:

You are cordially invited to attend a Special Meeting of the
stockholders of Zilog, Inc. ("Zilog") to vote on the proposed merger (the
"Merger") of TPG Zeus Acquisition Corporation, a Delaware corporation ("Merger
Sub"), organized on behalf of TPG Partners II, L.P. ("TPG"), with and into
Zilog. The Special Meeting will begin at 10:00 a.m., local time, at the
offices of Zilog, Inc., 210 East Hacienda Avenue, Campbell, California
95008-6600, on January 27, 1998.

At the Special Meeting, you will be asked to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of July
20, 1997, by and between TPG and Zilog, as amended by Amendments Number One and
Number Two to the Agreement and Plan of Merger, dated as of November 18, 1997
and December 10, 1997, respectively, by and among TPG, Merger Sub and Zilog, and
as the same may be amended from time to time (the "Merger Agreement"), and the
transactions contemplated thereby, including the Merger. The Merger Agreement
provides, among other things, for the merger of Merger Sub with and into Zilog
pursuant to which each issued and outstanding share of the common stock, par
value $0.01 per share, of Zilog (the "Common Stock") (other than (i) shares of
Common Stock held in Zilog's treasury or owned by Zilog, any subsidiary of
Zilog, TPG, Merger Sub or any other subsidiary of TPG, which will be canceled,
and (ii) shares of Common Stock which are held by a stockholder of Zilog who has
properly exercised appraisal rights under Delaware law) will be converted, at
the election of the holder thereof, into either (A) the right to receive $20.00
in cash or (B) the right to retain one share of Common Stock which, upon
consummation of the Merger, will have those rights, powers, privileges and
restrictions described in the enclosed Proxy Statement/Prospectus, subject to
the limitation that exactly 375,000 shares of Common Stock shall be retained by
existing stockholders of Zilog. In addition, the Merger Agreement requires that
each stockholder electing to retain shares of Common Stock enter into a
stockholders agreement with Zilog and TPG. Detailed information concerning the
Merger is set forth in the accompanying Proxy Statement/Prospectus, which you
are urged to read carefully. A copy of the Merger Agreement is attached as
Annex A to the accompanying Proxy Statement/Prospectus. A copy of the form of
stockholders agreement to be entered into by Zilog, TPG, affiliates of TPG and
stockholders retaining shares of Common Stock in the Merger is attached as Annex
C to the accompanying Proxy Statement/Prospectus.

Because 375,000 shares of Common Stock must be retained by existing
stockholders of Zilog either through election or proration, the right to
receive the $20.00 in cash for each share of Common Stock or to retain that
share of Common Stock is subject to proration, as set forth in the Merger
Agreement and described in the Proxy Statement/Prospectus. However, Warburg,
Pincus Capital Company, L.P. ("Warburg Pincus") has committed to elect to
retain up to 375,000 shares of Common Stock. Accordingly, stockholders not
electing to retain Common Stock will be assured that they will receive $20.00
in cash for each share of Common Stock held and stockholders electing to retain
Common Stock may be subject to proration of such shares, resulting in retention
of only a portion of the shares of Common Stock elected to be so retained and
receipt of $20.00 per share in cash for each other share of Common Stock.

The approval and adoption of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Common Stock held
by stockholders of record on December 10, 1997 (the "Record Date"). Warburg
Pincus and its affiliates beneficially owned an aggregate of 5,477,504 shares
of Common Stock as of the Record Date, constituting approximately 26.9% of the
outstanding shares of Common Stock entitled to vote at the Special Meeting.
Pursuant to a Stockholders Voting Agreement, dated as of July 20, 1997 and
amended as of November 18, 1997 (the "Stockholders Voting Agreement"), by and
among TPG, Warburg Pincus and Warburg, Pincus & Co. ("WP"), Warburg Pincus and
WP have agreed, among other things, to vote their shares in favor of the Merger
and for the adoption of the Merger Agreement. A copy of the Stockholders
Voting Agreement is attached as Annex B to the accompanying Proxy
Statement/Prospectus.

Subject to the satisfaction of certain conditions, holders of Common
Stock will be entitled to the appraisal rights provided under Delaware law in
connection with the Merger as described in the accompanying Proxy
Statement/Prospectus.

<PAGE> 3

thereby, including the Merger. In reaching its determination, the Board of
Directors considered, among other things, the opinion of Lehman Brothers as to
the fairness of the cash consideration to be received by the stockholders of
Zilog in the Merger from a financial point of view. A copy of Lehman Brothers'
opinion is attached as Annex D to the accompanying Proxy Statement/Prospectus.
You are urged to read the opinion in its entirety for further information with
respect to the assumptions made, matters considered and limits of the reviews
undertaken by Lehman Brothers.

IT IS VERY IMPORTANT THAT YOUR SHARES OF COMMON STOCK BE REPRESENTED
AT THE SPECIAL MEETING, WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY.
THEREFORE, YOU SHOULD COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT AS
SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT
YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING.

EXCEPT FOR COMMON STOCK CERTIFICATES TO BE SURRENDERED WITH THE
NON-CASH ELECTION FORM (SENT TO YOU UNDER SEPARATE COVER) PURSUANT TO AN
ELECTION TO RETAIN COMMON STOCK IN THE MERGER, STOCKHOLDERS SHOULD NOT FORWARD
STOCK CERTIFICATES TO BANKBOSTON, N.A., THE EXCHANGE AGENT, UNTIL THEY HAVE
RECEIVED A LETTER OF TRANSMITTAL AS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.

The Notice of Special Meeting of Stockholders and the Proxy
Statement/Prospectus describing these important matters are attached. If you
require assistance in completing your proxy or have questions about voting
procedures or the Proxy Statement/Prospectus, please contact Richard R.
Pickard, Zilog's Vice President, General Counsel and Secretary, at (408)
370-8000 or Corporate Investor Communications, Inc., Zilog's proxy solicitor,
at (888) 881-0529.

December 12, 1997

Sincerely,

Edgar A. Sack
Chairman of the Board
<PAGE> 4

ZILOG, INC.
210 East Hacienda Avenue
Campbell, California 95008-6600
(408) 370-8000

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 27, 1998

To the Stockholders of Zilog, Inc.:

NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders
(including any adjournments or postponements thereof, the "Special Meeting") of
Zilog, Inc., a Delaware corporation ("Zilog"), will begin at 10:00 a.m., local
time, at the offices of Zilog, Inc., 210 East Hacienda Avenue, Campbell,
California 95008-6600, on January 27, 1998, for the following purpose, which is
more fully described in the accompanying Proxy Statement/Prospectus:

To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of July 20, 1997, by and between TPG Partners II,
L.P. ("TPG") and Zilog, as amended by Amendments Number One and Number Two to
the Agreement and Plan of Merger, dated as of November 18, 1997 and December 10,
1997, respectively, by and among TPG, TPG Zeus Acquisition Corporation, a
Delaware corporation ("Merger Sub"), and Zilog, and as the same may be amended
from time to time (the "Merger Agreement"), and the transactions contemplated
thereby, including the proposed merger (the "Merger") of Merger Sub with and
into Zilog. The Merger Agreement provides, among other things, for the Merger
pursuant to which each issued and outstanding share of the common stock, par
value $0.01 per share, of Zilog (the "Common Stock") will be converted, at the
election of the holder thereof but subject to the limitations set forth in the
Merger Agreement, into either (i) the right to receive $20.00 in cash or (ii)
the right to retain one share of Common Stock which, upon consummation of the
Merger, will have those rights, powers, privileges and restrictions described in
the enclosed Proxy Statement/Prospectus, subject to the limitation that exactly
375,000 shares of Common Stock shall be retained by existing stockholders of
Zilog. In addition, the Merger Agreement requires that each stockholder
electing to retain shares of Common Stock enter into a stockholders agreement
with TPG and Zilog. A copy of the Merger Agreement is attached as Annex A to
the accompanying Proxy Statement/Prospectus and is incorporated herein by
reference. A copy of the form of stockholders agreement to be entered into by
Zilog, TPG, affiliates of TPG and stockholders retaining shares of Common Stock
in the Merger is attached as Annex C to the accompanying Proxy
Statement/Prospectus.

Information regarding the Merger and related matters is contained in
the accompanying Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.

Only holders of record of shares of Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Special Meeting. A complete list of stockholders of Zilog entitled to vote at
the Special Meeting will be available for examination, for proper purposes,
during ordinary business hours at Zilog's
<PAGE> 5
corporate offices, 210 East Hacienda Avenue, Campbell, California 95008-6600,
during the ten days prior to the Special Meeting.

In connection with the Merger, appraisal rights will be available to
those stockholders of Zilog who meet and comply with the requirements of
section 262 of the Delaware General Corporation Law (the "DGCL"), a copy of
which is included as Annex E to the accompanying Proxy Statement/Prospectus.
Reference is made to the section entitled "Stockholders' Appraisal Rights" in
the accompanying Proxy Statement/ Prospectus for a discussion of the procedures
to be followed in asserting appraisal rights under section 262 of the DGCL in
connection with the Merger.

PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.

YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF COMMON
STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING,
YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE BY (1) ATTENDING AND VOTING IN PERSON AT THE SPECIAL MEETING, (2)
GIVING NOTICE OF REVOCATION OF THE PROXY AT THE SPECIAL MEETING OR (3)
DELIVERING TO THE SECRETARY OF ZILOG (A) A WRITTEN NOTICE OF REVOCATION OR (B)
A DULY EXECUTED PROXY RELATING TO THE SAME SHARES AND MATTERS TO BE CONSIDERED
AT THE SPECIAL MEETING, BEARING A DATE LATER THAN THE PROXY PREVIOUSLY
EXECUTED. ATTENDANCE AT THE SPECIAL MEETING WILL NOT IN AND OF ITSELF
CONSTITUTE A REVOCATION OF A PROXY. ALL WRITTEN NOTICES OF REVOCATION AND
OTHER COMMUNICATIONS WITH RESPECT TO REVOCATION OF PROXIES SHOULD BE SENT TO
ZILOG'S SECRETARY AT ZILOG'S CORPORATE OFFICES AT THE ADDRESS LISTED ABOVE, AND
MUST BE RECEIVED BEFORE THE TAKING OF THE VOTE AT THE SPECIAL MEETING.

STOCKHOLDERS ELECTING TO RETAIN COMMON STOCK SHOULD RETURN THE
NON-CASH ELECTION FORM (SENT TO YOU UNDER SEPARATE COVER) TOGETHER WITH DULY
ENDORSED COMMON STOCK CERTIFICATES AS INSTRUCTED IN THE PROXY
STATEMENT/PROSPECTUS. SEE "THE MERGER--NON-CASH ELECTION" FOR INSTRUCTIONS FOR
STOCKHOLDERS ELECTING TO RETAIN SHARES OF COMMON STOCK. OTHERWISE, COMMON
STOCK CERTIFICATES SHOULD BE RETAINED UNTIL LETTERS OF TRANSMITTAL ARE RECEIVED
AFTER THE EFFECTIVE TIME OF THE MERGER. SEE "THE MERGER--PROCEDURES FOR
EXCHANGE OF CERTIFICATES."

The Board of Directors of Zilog, after careful consideration, has
approved the Merger Agreement and determined that the Merger is fair to and in
the best interests of Zilog and its stockholders and unanimously recommends
that you vote FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger. In reaching its
determination, the Board of Directors considered, among other things, the
opinion of Lehman Brothers as to the fairness of the cash consideration to be
received by the stockholders of Zilog in the Merger from a financial point of
view. A copy of Lehman Brothers' opinion is attached as Annex D to the
accompanying Proxy Statement/ Prospectus. You are urged to read the opinion in
its entirety for further information with respect to the assumptions made,
matters considered and limits of the reviews undertaken by Lehman Brothers.

If you have any questions or require additional material, please
contact Richard R. Pickard, Zilog's Vice President, General Counsel and
Secretary, at (408) 370-8000 or Corporate Investor Communications, Inc.,
Zilog's proxy solicitor, at (888) 881-0529.

Campbell, California Richard R. Pickard
December 12, 1997 Secretary

<PAGE> 6
ZILOG, INC.

PROXY STATEMENT/PROSPECTUS
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 27, 1998

This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to the stockholders of Zilog, Inc., a Delaware corporation
("Zilog"), in connection with the solicitation of proxies by the Board of
Directors of Zilog (the "Board") for use at a Special Meeting of the
stockholders (including any adjournments or postponements thereof, the "Special
Meeting") of Zilog which will begin at 10:00 a.m., local time, at the offices of
Zilog, Inc., 210 East Hacienda Avenue, Campbell, California 95008-6600, on
January 27, 1998. This Proxy Statement/Prospectus relates to the proposed
merger (the "Merger") of TPG Zeus Acquisition Corporation, a Delaware
corporation ("Merger Sub"), organized on behalf of TPG Partners II, L.P.
("TPG"), with and into Zilog pursuant to the Agreement and Plan of Merger, dated
as of July 20, 1997, by and between TPG and Zilog, as amended by Amendments
Number One and Number Two to the Agreement and Plan of Merger, dated as of
November 18, 1997 and December 10, 1997, respectively, by and among TPG, Merger
Sub and Zilog, and as the same may be amended from time to time (the "Merger
Agreement"), and the transactions contemplated thereby, including the Merger.

Pursuant to the Merger, each share of the common stock, par value
$0.01 per share, of Zilog (the "Common Stock") issued and outstanding
immediately prior to the effective time of the Merger (the "Effective Time")
(other than (i) shares of Common Stock held in Zilog's treasury or owned by
Zilog, any subsidiary of Zilog, TPG, Merger Sub or any other subsidiary of TPG
(the "Excluded Shares"), which will be canceled, and (ii) Dissenting Shares (as
defined herein)) will be converted, at the election of the holder thereof,
subject to the terms and conditions described herein and in the Merger
Agreement, into either (A) the right to receive $20.00 in cash or (B) the right
to retain one share of Common Stock which, upon consummation of the Merger,
will have those rights, powers, privileges and restrictions described herein,
subject to the limitation that exactly 375,000 shares of Common Stock shall be
retained by existing stockholders of Zilog.

Because 375,000 shares of Common Stock must be retained by existing
stockholders of Zilog either through election or proration, the right to
receive the $20.00 in cash for each share of Common Stock or to retain that
share of Common Stock is subject to proration, as set forth in the Merger
Agreement and described in this Proxy Statement/Prospectus. However, Warburg,
Pincus Capital Company, L.P. ("Warburg Pincus") has committed to elect to
retain up to 375,000 shares of Common Stock. Accordingly, stockholders not
electing to retain Common Stock will be assured that they will receive $20.00
in cash for each share of Common Stock held and stockholders electing to retain
Common Stock may be subject to proration of such shares, resulting in retention
of only a portion of the shares of Common Stock elected to be so retained and
receipt of $20.00 per share in cash for each other share of Common Stock. For
a more detailed description of the proration procedures, see "The
Merger--Merger Consideration."

A copy of the Merger Agreement is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This Proxy
Statement/Prospectus describes the material portions of the Merger Agreement.
The description of the Merger Agreement set forth herein is subject to, and is
qualified in its entirety by reference to, the text of the Merger Agreement.

The Merger Agreement requires that each stockholder electing to retain
shares of Common Stock enter into a stockholders agreement with Zilog and TPG.
A copy of the form of stockholders agreement to be entered into by Zilog, TPG,
affiliates of TPG and stockholders retaining shares of Common Stock in the
Merger as of the Effective Time (the "Stockholders Agreement") is attached as
Annex C to this Proxy Statement/Prospectus and is incorporated herein by
reference. This Proxy Statement/Prospectus describes the material portions of
the Stockholders Agreement. The description of the Stockholders Agreement set
forth herein is subject to, and is qualified in its entirety by reference to,
the text of the Stockholders Agreement.

In addition, the Merger Agreement provides that options to purchase
shares of Common Stock issued under Zilog's stock plans (the "Options")
outstanding immediately prior to the Effective Time shall become fully vested
and exercisable. At the Effective Time, each Option shall be canceled and
converted into the right to receive an amount in cash equal to the excess, if
any, of $20.00 over the per share exercise or purchase price of such Option,
less applicable withholding taxes. In the event that the amount determined
pursuant to the preceding sentence is equal to or less than zero with respect
to an Option, such Option shall be canceled by Zilog at the Effective Time
without the payment of any consideration.
<PAGE> 7
This Proxy Statement/Prospectus also constitutes a prospectus of Zilog
with respect to the 375,000 shares (subject to the elimination of fractional
shares) of Common Stock to be retained by stockholders of Zilog in the Merger.

The approval and adoption of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Common Stock held
by stockholders of record on December 10, 1997 (the "Record Date"). Warburg
Pincus and its affiliates beneficially owned an aggregate of 5,477,504 shares
of Common Stock as of the Record Date, constituting approximately 26.9% of the
outstanding shares of Common Stock entitled to vote at the Special Meeting.
Pursuant to a Stockholders Voting Agreement, dated as of July 20, 1997 and
amended as of November 18, 1997 (the "Stockholders Voting Agreement"), by and
among TPG, Warburg Pincus and Warburg, Pincus & Co. ("WP"), Warburg Pincus and
its affiliates have agreed, among other things, to vote their shares in favor
of the Merger and for the adoption of the Merger Agreement. A copy of the
Stockholders Voting Agreement is attached as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference. This Proxy
Statement/Prospectus describes the material portions of the Stockholders Voting
Agreement. The description of the Stockholders Voting Agreement set forth
herein is subject to, and is qualified in its entirety by reference to, the
text of the Stockholders Voting Agreement.

The Board of Directors of Zilog, after careful consideration, has
approved the Merger Agreement and determined that the Merger is fair to and in
the best interests of Zilog and its stockholders and unanimously recommends
that you vote FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger. In reaching its
determination, the Board of Directors considered, among other things, the
opinion of Lehman Brothers as to the fairness of the cash consideration to be
received by the stockholders of Zilog in the Merger from a financial point of
view. A copy of Lehman Brothers' opinion is attached as Annex D to the
accompanying Proxy Statement/Prospectus. You are urged to read the opinion in
its entirety for further information with respect to the assumptions made,
matters considered and limits of the reviews undertaken by Lehman Brothers.

In connection with the Merger, appraisal rights will be available in
respect of shares of Common Stock issued and outstanding immediately prior to
the Effective Time which are held by a stockholder of Zilog who has not voted
in favor of or consented to the Merger and who has complied with the
requirements of section 262 ("Section 262") of the Delaware General Corporation
Law (the "DGCL") (such shares of Common Stock being hereinafter referred to as
"Dissenting Shares"), a copy of which section is included as Annex E to this
Proxy Statement/ Prospectus. Reference is made to the section entitled
"Stockholders' Appraisal Rights" in this Proxy Statement/Prospectus for a
discussion of the procedures to be followed in asserting appraisal rights under
Section 262 in connection with the Merger.

The Common Stock is listed for trading on The New York Stock Exchange,
Inc. (the "NYSE") under the symbol "ZLG." On December 10, 1997, the closing
price of Common Stock was $ 18-11/16 per share. On July 18, 1997, the last
trading day before public announcement of the execution of the Merger Agreement,
the closing price of Common Stock on the NYSE Composite Transactions Tape was
$22-3/8 per share. On November 18, 1997, the last trading day before public
announcement of the execution of the amendment to the Merger Agreement, the
closing price of the Common Stock was $19-3/16 per share. For information
regarding the events leading up to and the reasons for the execution of the
amendment to the Merger Agreement, see "The Merger--Background of the Merger"
and "--Recommendation of the Board of Directors; Reasons for the Merger." If
the Merger is approved by the stockholders of Zilog, Zilog intends to seek to
have the Common Stock delisted from the NYSE. See "Risk Factors--
Securities-Related Risk Factors--Delisting of Common Stock from the NYSE."

This Proxy Statement/Prospectus, the accompanying Notice of Special
Meeting, the proxy and the other enclosed documents are first being mailed to
stockholders of Zilog on or about December 17, 1997.

THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER
CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY.

SEE "RISK FACTORS" BEGINNING ON PAGE 17 HEREOF FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF COMMON STOCK IN
CONNECTION WITH AN ELECTION TO RETAIN COMMON STOCK.

-2-
<PAGE> 8
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Proxy Statement/Prospectus is December 12, 1997.

-3-
<PAGE> 9
TABLE OF CONTENTS

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Page
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Securities-Related Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Company-Related Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Matters to be Considered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Record Date; Stock Entitled to Vote; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Stockholders' Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Recommendation of the Board of Directors; Reasons for the Merger . . . . . . . . . . . . . . . . 28
Opinion of Zilog's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Non-Cash Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Non-Cash Election Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Conversion of Merger Sub Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Procedures for Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Effect on Options and Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . 40
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Executive Officers and Directors of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . 42
Delisting of Common Stock from the NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Termination of SEC Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Resale of Retained Common Stock Following the Merger . . . . . . . . . . . . . . . . . . . . . . 42
Merger Financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Unaudited Pro Forma Consolidated Financial Information . . . . . . . . . . . . . . . . . . . . . 43

PRICE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Existing Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Antitakeover Effects of Provisions of the Existing Certificate of Incorporation
and Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>

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<PAGE> 10
<TABLE>
<S> <C>
Capital Stock Following the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

CERTAIN PROVISIONS OF THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Certain Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Delisting of Common Stock from the NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Board of Directors and Officers of Zilog Following the Merger . . . . . . . . . . . . . . . . . 53
Stock and Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Real Estate Transfer Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Surviving Corporation Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Conditions to the Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Amendment; Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Expenses and Certain Required Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

CERTAIN PROVISIONS OF THE STOCKHOLDERS VOTING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 58
Voting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Grant of Irrevocable Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Non-Cash Election Under Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

CERTAIN PROVISIONS OF THE STOCKHOLDERS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Permitted Transfers by TPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Permitted Transfers by Retaining Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . 59
Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Drag-Along Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Piggy Back Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Disposition of Warburg Pincus Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 62

REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

TPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

STOCKHOLDERS' APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

OTHER INFORMATION AND STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>

ANNEX A AGREEMENT AND PLAN OF MERGER, AS AMENDED
ANNEX B STOCKHOLDERS VOTING AGREEMENT, AS AMENDED
ANNEX C FORM OF STOCKHOLDERS AGREEMENT
ANNEX D OPINION OF LEHMAN BROTHERS
ANNEX E SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
ANNEX F FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE
SURVIVING CORPORATION

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<PAGE> 11
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN ANY INFORMATION OR REPRESENTATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS, IN CONNECTION WITH THE MERGER AND THE SOLICITATION
MADE BY THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES, IN ANY JURISDICTION IN
WHICH A SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.

NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER WILL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF ZILOG SINCE THE
DATE HEREOF.

AVAILABLE INFORMATION

Zilog is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by Zilog with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1034, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the web site (http://www.sec.gov) maintained by the
Commission; or at its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such reports, proxy statements and other
information are also available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005. As described herein, the Common Stock
will be deregistered under the Exchange Act following the Merger if the number
of record holders permits such deregistration. If that deregistration occurs,
Zilog does not plan to provide any reports or information to its public
stockholders other than pursuant to the right to inspect the books and records
of Zilog as required by Delaware law.

This Proxy Statement/Prospectus constitutes a prospectus of Zilog
filed as part of a Registration Statement on Form S-4 under the Securities Act
of 1933, as amended (the "Securities Act"). This Proxy Statement/Prospectus
omits certain information contained in the Registration Statement and related
exhibits with respect to Zilog and the retention of Common Stock. Any
statement herein concerning the provisions of any document are summaries of
such provisions, and in each instance such statement is qualified in its
entirety by reference to the copy of the document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.

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<PAGE> 12
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Zilog incorporates herein by reference (i) Zilog's Annual Report on
Form 10-K for the year ended December 31, 1996; (ii) Zilog's Quarterly Reports
on Form 10-Q for the periods ended March 30, 1997, June 29, 1997 and September
28, 1997; (iii) the portions of Zilog's Proxy Statement for the Annual Meeting
of Stockholders held on May 21, 1997 that have been incorporated by reference
into Zilog's Annual Report on Form 10-K for the year ended December 31, 1996;
and (iv) Zilog's Current Reports on Form 8-K dated May 22, 1997, July 22, 1997,
November 19, 1997 and December 10, 1997.

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. ZILOG WILL PROVIDE
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH
PERSON AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY AFTER RECEIPT OF SUCH REQUEST, A COPY OF ANY OR ALL DOCUMENTS
INCORPORATED HEREIN BY REFERENCE (EXCLUDING EXHIBITS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED THEREIN BY REFERENCE). WITH RESPECT TO DOCUMENTS OF
ZILOG INCORPORATED HEREIN BY REFERENCE, REQUESTS SHOULD BE DIRECTED TO ZILOG,
INC., INVESTOR RELATIONS, 210 EAST HACIENDA AVENUE, CAMPBELL, CALIFORNIA
95008-6600 (TELEPHONE (408) 370-8000). IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING TO WHICH THIS PROXY
STATEMENT/PROSPECTUS RELATES, ANY SUCH REQUEST SHOULD BE MADE BY JANUARY 17,
1998.

All reports and definitive proxy or information statements filed by
Zilog pursuant to sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/Prospectus will be deemed to be
incorporated by reference into this Proxy Statement/Prospectus from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated herein by reference will be deemed to be modified
or superseded for purposes of this Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement/Prospectus.

Zilog and Superintegration(TM) are trademarks of Zilog, Inc.
Trademarks of other corporations and organizations are also referenced in this
Proxy Statement/Prospectus.

FORWARD-LOOKING STATEMENTS

This Proxy Statement/Prospectus includes "forward-looking statements"
within the meaning of various provisions of the Securities Act and the Exchange
Act. All statements, other than statements of historical facts, included in
this Proxy Statement/Prospectus that address activities, events or developments
that Zilog expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, competitive
strengths, goals, expansion and growth of Zilog's and its subsidiaries'
business and operations, plans, references to future success and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by Zilog in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results and developments will conform to
Zilog's expectations and predictions is subject to a number of risks and
uncertainties, including the significant considerations and risks discussed in
this Proxy Statement/Prospectus; general economic, market or business
conditions; the opportunities (or lack thereof) that may be presented to and
pursued by Zilog and its subsidiaries; competitive actions by other companies;
changes in laws or regulations; and other factors, many of which are beyond the
control of Zilog and its subsidiaries. See "Risk Factors." Consequently, all
of the forward-looking statements made in this Proxy Statement/Prospectus are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by Zilog will be realized or, even
if substantially realized, that they will have the expected consequences to or
effects on Zilog and its subsidiaries or their business or operations.

-7-
<PAGE> 13
SUMMARY

The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Proxy Statement/Prospectus, in the attached Annexes hereto and in the
documents incorporated herein by reference. Stockholders of Zilog are urged to
read carefully this Proxy Statement/Prospectus and the attached Annexes in
their entirety.

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF AN ELECTION
TO RETAIN COMMON STOCK IN THE MERGER, SEE "RISK FACTORS."

THE SPECIAL MEETING

TIME AND PLACE; RECORD DATE. The Special Meeting of the stockholders
of Zilog will begin at 10:00 a.m., local time, at the offices of Zilog, Inc.,
210 East Hacienda Avenue, Campbell, California 95008-6600, on January 27, 1998.
Stockholders of record at the close of business on the Record Date are entitled
to notice of, and to vote at, the Special Meeting. The date of the mailing of
this Proxy Statement/Prospectus to stockholders of Zilog will be on or about
December 17, 1997. At the close of business on the Record Date, there were
20,333,792 shares of Common Stock outstanding and entitled to vote at the
Special Meeting. Each share of Common Stock is entitled to one vote.

MATTERS TO BE CONSIDERED. The purpose of the Special Meeting is to
vote upon a proposal to approve and adopt the Merger Agreement and the Merger,
pursuant to which Merger Sub will merge with and into Zilog and Zilog will
continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation"), the separate existence of Merger Sub will terminate
and the stockholders of Zilog will receive the consideration described below
under "The Merger--Merger Consideration." See "The Special Meeting--Matters to
be Considered."

REQUIRED VOTE. The approval and adoption of the Merger Agreement and
the transactions contemplated thereby, including the Merger, will require the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Special Meeting, provided a quorum is
present. If such approval is received, the Effective Time of the Merger is
expected to occur as soon as practicable following the Special Meeting.
Warburg Pincus and its affiliates beneficially owned an aggregate of 5,477,504
shares of Common Stock as of the Record Date, constituting approximately 26.9%
of the outstanding shares of Common Stock entitled to vote at the Special
Meeting. Pursuant to the Stockholders Voting Agreement, Warburg Pincus and its
affiliates have agreed, among other things, to vote their shares in favor of
the Merger and for the adoption of the Merger Agreement. See "The Special
Meeting--Required Vote" and "Certain Provisions of the Stockholders Voting
Agreement."

VOTING OF PROXIES. All shares of Common Stock represented by a
properly executed proxy received in time for the Special Meeting will be voted
in the manner specified in the proxy. Proxies that do not contain any
instruction to vote for or against or to abstain from voting on a particular
matter will be voted in accordance with the recommendations of the Board. See
"The Special Meeting--Voting and Revocation of Proxies."

ADJOURNMENTS; REVOCABILITY OF PROXIES. If the Special Meeting is
adjourned, for whatever reason, the approval of the Merger Agreement shall be
considered and voted upon by stockholders of Zilog at the subsequent,
reconvened meeting, if any.

You may revoke your proxy at any time prior to its exercise (i) by
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in and of itself constitute revocation of a proxy),
(ii) by giving notice of revocation of your proxy at the Special Meeting or
(iii) by delivering (A) a written notice of revocation of your proxy or (B) a
duly executed proxy relating to the matters to be considered at the Special
Meeting, bearing a date later than the proxy previously executed. All written
notices of revocation and other communications with respect to revocation of
proxies should be addressed as follows: Zilog, Inc., 210 East Hacienda Avenue,
Campbell, California 95008-6600, Attention: Secretary, and must be received
before the taking of the votes

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<PAGE> 14
at the Special Meeting. Unless revoked in one of the manners set forth above,
proxies will be voted at the Special Meeting as described above.

SOLICITATION OF PROXIES. The cost of soliciting proxies will be borne
by Zilog. Zilog may solicit proxies and Zilog's directors, officers and
employees may also solicit proxies by telephone, telegram or personal
interview. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for reasonable
out-of-pocket expenses in connection therewith. Arrangements will be made to
furnish copies of proxy materials to fiduciaries, custodians and brokerage
houses for forwarding to beneficial owners of Common Stock. Such persons will
be paid reasonable out-of-pocket expenses. Corporate Investor Communications,
Inc. ("CIC") will assist in the solicitation of proxies by Zilog for an
estimated fee of $5,000.00, plus reasonable out-of-pocket expenses. See "The
Special Meeting--Solicitation of Proxies." If you have any questions or
require additional material, please call Richard R. Pickard, Zilog's Vice
President, General Counsel and Secretary, at (408) 370-8000 or CIC at (888)
881-0529.

HOLDERS OF COMMON STOCK SHOULD NOT SEND COMMON STOCK CERTIFICATES WITH
THEIR PROXIES. HOWEVER, SEE "THE MERGER--NON-CASH ELECTION PROCEDURE" FOR
INSTRUCTIONS FOR STOCKHOLDERS ELECTING TO RETAIN SHARES OF COMMON STOCK.

For additional information relating to the Special Meeting, see "The
Special Meeting."

THE MERGER

PARTIES TO THE MERGER.

Zilog, Inc. Zilog is a worldwide designer, developer, manufacturer
and marketer of semiconductor products for use in the high-growth consumer
electronics, data communications and computer peripherals end-markets with a
leading position in several market applications. Zilog produces integrated
circuits ("ICs"), which are groups of very small, interconnected electronic
elements. Zilog's ICs are primarily application specific standard products
("ASSPs"), which are designed for a particular market application and can be
used by multiple customers. Zilog's focus is on high value-added,
solutions-oriented products. Through Zilog's proprietary Superintegration(TM)
design technology, Zilog works with its customers to develop customized ASSPs
by selecting from its extensive library of designs and then making
modifications in order to meet the customer's cost, time-to-market and product
differentiation requirements. Zilog believes that the Superintegration(TM)
process, combined with its long-standing relationships with other technology
leaders, will continue to enable it to develop significant new products and
differentiate Zilog from its competitors. Zilog's principal executive offices
are located at 210 East Hacienda Avenue, Campbell, California 95008-6600, and
Zilog's telephone number is (408) 370-8000. See "The Company."

TPG. TPG is a Delaware limited partnership organized in March 1997 to
pursue public and private investment opportunities through a variety of methods,
including leveraged buyouts, joint ventures, restructurings, bankruptcies and
strategic public securities investments. TPG together with two affiliated
partnerships currently have aggregate committed equity capital of over $3.2
billion. Merger Sub is a Delaware corporation formed solely for the purpose of
engaging in the transactions contemplated by the Merger Agreement and has
conducted its operations as contemplated thereby. TPG and Merger Sub maintain
their principal offices at 201 Main Street, Suite 2420, Fort Worth, Texas 76102.
Their telephone number at that location is (817) 871-4000. See "TPG."

EFFECT OF THE MERGER. At the Effective Time, Merger Sub will be
merged with and into Zilog, and Zilog will continue as the Surviving
Corporation in the Merger. Subject to certain provisions as described herein
with respect to Excluded Shares, and with respect to fractional shares and
Dissenting Shares, and subject to the effects of proration as described herein,
(i) each issued and outstanding share of Common Stock (other than Electing
Shares, as defined below) will be converted into the right to receive in cash
from Zilog following the Merger an amount equal to $20.00 (the "Cash Election
Price") and (ii) each issued and outstanding share of Common Stock with respect
to which an election to retain Common Stock (a "Non-Cash Election") has been
made and not revoked or lost in

-9-
<PAGE> 15
accordance with the Merger Agreement (an "Electing Share") will be converted
into the right to retain one fully paid and nonassessable share of Common Stock
(a "Non-Cash Election Share"). Each stockholder of Zilog may receive the Cash
Election Price with respect to some of the stockholder's shares of Common Stock
and Non-Cash Election Shares with respect to other shares of Common Stock;
provided, that the aggregate number of shares of Common Stock to be retained at
the Effective Time shall be 375,000 (the "Non-Cash Election Number").

Holders of Non-Cash Election Shares ("Retaining Stockholders") will be
subject to several risks, including the risk that the value of the Common Stock
may decrease below $20.00 in the future, risks associated with owning a
minority position in a highly leveraged company and risks associated with the
anticipated loss of liquidity of the Common Stock. It is expected that the
Common Stock will be delisted from trading on the NYSE and deregistered under
the Exchange Act, resulting in a significant decrease in the information
available to stockholders and in a material adverse effect on the trading
market for the Common Stock. See "Risk Factors" for additional factors holders
of Common Stock should carefully consider in connection with an evaluation of
their potential election to retain Common Stock in the Merger. Stockholders
who elect to receive $20.00 in cash for their Common Stock will lose the
opportunity to participate in future increases, if any, in the value of the
Common Stock, including in connection with any future public offering of Zilog
capital stock or a sale of all or a portion of Zilog. See "Risk Factors."

Assuming the Merger were to have been consummated as of the Record
Date, 19,958,792 of the then issued and outstanding shares of Common Stock
would have been converted into cash, as described above, and the remaining
375,000 of the then issued and outstanding shares would have been retained by
existing stockholders of Zilog, subject to the elimination of fractional
shares. Warburg Pincus has committed to elect to retain 375,000 shares of
Common Stock less the aggregate number of Electing Shares, if any, held by
stockholders of Zilog other than Warburg Pincus. Thus, all stockholders of
Zilog who do not elect to retain Common Stock will be assured that they will
receive $20.00 in cash for each share held by such stockholders, and all
stockholders of Zilog who elect to retain Common Stock may experience proration
of such shares, resulting in the retention of only a portion of the shares of
Common Stock they elect to retain and the receipt of $20.00 per share in cash
for each of their other shares of Common Stock. The 375,000 shares of Common
Stock to be retained by existing stockholders of Zilog will constitute
approximately 6.0% of the equity capital and 10% of the voting power of Zilog
following the Merger. See "The Merger--Merger Consideration" for examples
illustrating the potential effects of proration. See also "Description of
Capital Stock--Capital Stock Following the Merger."

RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board, at a meeting
duly called and held, has (i) determined that the Merger is fair to and in the
best interests of Zilog and its stockholders and (ii) unanimously recommends
that stockholders of Zilog approve and adopt the Merger Agreement and the
transactions contemplated thereby including the Merger. The recommendation of
the Board with respect to the Merger was based on a number of factors. See
"The Merger--Background of the Merger" and "--Recommendation of the Board of
Directors; Reasons for the Merger."

OPINION OF ZILOG'S FINANCIAL ADVISOR. On November 18, 1997, Lehman
Brothers delivered its opinion, which was subsequently confirmed in writing
(the "Lehman Brothers Opinion"), to the Board to the effect that, as of such
date, and based upon the assumptions made, matters considered and limits of
review set forth in such opinion, the proposed cash consideration to be
received by the holders of Common Stock in the Merger was fair to such
stockholders from a financial point of view. A copy of the Lehman Brothers
Opinion, which sets forth the assumptions made, matters considered and certain
limitations on the scope of review undertaken by Lehman Brothers, is attached
as Annex D to this Proxy Statement/Prospectus. Stockholders are urged to read
the Lehman Brothers Opinion in its entirety. See "The Merger--Opinion of
Zilog's Financial Advisor."

NON-CASH ELECTION. Record holders of shares of Common Stock will be
entitled to make a Non-Cash Election, on or prior to the Election Date (as
defined below), to retain Non-Cash Election Shares. If the number of Electing
Shares exceeds the Non-Cash Election Number, then (i) the number of Electing
Shares covered by a holder's Non-Cash Election to be converted into the right
to retain Non-Cash Election Shares will be determined by multiplying the total
number of Electing Shares covered by such Non-Cash Election by a proration
factor determined by dividing the Non-Cash Election Number by the total number
of Electing Shares and (ii) such number of Electing

-10-
<PAGE> 16
Shares will be so converted. All Electing Shares, other than those shares
converted into the right to retain Non-Cash Election Shares as described in the
immediately preceding sentence, will be converted into cash (on a consistent
basis among stockholders who made the election to retain Non-Cash Election
Shares, pro rata to the number of shares as to which they made such election)
as if such shares were not Electing Shares.

If a stockholder elects to make a Non-Cash Election and receives cash
as a result of the proration procedures described above, such stockholder may
receive dividend treatment (rather than capital gain treatment) for any cash
received in the Merger as a result of such proration procedures. See "Risk
Factors--Securities-Related Risk Factors--Certain Proration Risks" and
"--Securities-Related Risk Factors--Federal Income Tax Consequences." See also
"The Merger--Federal Income Tax Consequences."

Because Warburg Pincus has committed to elect to retain up to 375,000
shares of Common Stock, all stockholders who do not elect to retain Common
Stock will be assured that they will receive $20.00 per share in cash for each
of their shares of Common Stock. If, however, for any reason the number of
Electing Shares is less than the Non-Cash Election Number, then (i) all
Electing Shares will be converted into the right to retain Non-Cash Election
Shares in accordance with the Merger Agreement, (ii) additional shares of
Common Stock, other than Electing Shares, Excluded Shares and Dissenting
Shares, will be converted into the right to retain Non-Cash Election Shares,
which number of additional shares shall be determined by multiplying the total
number of shares, other than Electing Shares, Excluded Shares and Dissenting
Shares, by a proration factor determined by dividing (x) the difference between
the Non-Cash Election Number and the number of Electing Shares by (y) the total
number of shares of Common Stock, other than Electing Shares, Excluded Shares
and Dissenting Shares, and (iii) such additional shares of Common Stock shall
be converted into the right to retain Non-Cash Election Shares in accordance
with the Merger Agreement (on a consistent basis among stockholders who held
shares of Common Stock as to which they did not make a Non-Cash Election, pro
rata to the number of shares as to which they did not make such election). See
"The Merger--Non-Cash Election."

In addition, the Merger Agreement requires that each Retaining
Stockholder enter into a Stockholders Agreement with Zilog and TPG, a copy of
the form of which is attached as Annex C to this Proxy Statement/Prospectus and
is incorporated herein by reference. Upon entering into the Stockholders
Agreement, each Retaining Stockholder will become entitled to all of the rights
and subject to all of the obligations and otherwise bound by all of the
provisions thereof, in each case applicable to each such holder. See "Certain
Provisions of the Stockholders Agreement."

Upon consummation of the Merger, the Non-Cash Election Shares will
have those rights, powers, privileges and restrictions as described in this
Proxy Statement/Prospectus. See "Description of Capital Stock--Capital Stock
Following the Merger."

NON-CASH ELECTION PROCEDURE. Stockholders of Zilog electing to retain
Non-Cash Election Shares must properly complete and sign the Non-Cash Election
Form, which is being sent to you under separate cover. The Non-Cash Election
Form, together with all certificates representing shares of Common Stock duly
endorsed in blank or otherwise in form acceptable for transfer on the books of
Zilog (or by appropriate guarantee of delivery, as set forth in such Non-Cash
Election Form), must be received by BankBoston, N.A. (the "Exchange Agent") at
one of the addresses listed on the Non-Cash Election Form by 5:00 p.m., Eastern
time, on the second trading day next preceding the date of the Special Meeting,
January 23, 1998 (the "Election Date"), and must not be withdrawn. See "The
Merger--Non-Cash Election Procedure."

FRACTIONAL SHARES. Fractional shares of Common Stock will not be
issued in the Merger. Stockholders otherwise entitled to retain a fractional
share of Common Stock following the Merger will be paid cash in lieu of such
fractional share determined and paid as described in "The Merger--Fractional
Shares."

CONDITIONS TO THE MERGER. The obligations of the parties to the
Merger Agreement to consummate the Merger are subject to various conditions,
including, without limitation, obtaining requisite Zilog stockholder approval,
the termination or expiration of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the absence of any injunction or other legal restraint or
prohibition

-11-

<PAGE> 17
preventing the consummation of the Merger. The obligations of TPG and Merger
Sub to consummate the Merger are subject to various conditions, including,
without limitation, their obtaining the Merger Financings (as defined herein)
for the Merger on the terms set forth in the Commitment Letters (as defined
herein) or on other terms reasonably satisfactory to TPG. See "Certain
Provisions of the Merger Agreement--Conditions to the Consummation of the
Merger" and "Regulatory Approvals."

REGULATORY APPROVALS. Under the HSR Act and the rules promulgated
thereunder by the Federal Trade Commission (the "FTC"), the Merger may not be
consummated until notifications have been given and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the applicable waiting period has
expired or been terminated. On August 15, 1997, Zilog, TPG and Merger Sub
filed Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division. On September 2, 1997, the FTC and the Antitrust Division
granted early termination of the waiting period under the HSR Act with respect
to the Merger effective immediately. See "Regulatory Approvals."

FEDERAL INCOME TAX CONSEQUENCES. For a summary of the material U.S.
federal income tax consequences of the Merger, see "The Merger--Federal Income
Tax Consequences."

BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON
THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT
HOLDERS OF COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND
ANY STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR
PARTICULAR CIRCUMSTANCES.

TREATMENT OF OPTIONS. At the Effective Time, each Option, whether or
not otherwise exercisable, shall become fully vested and exercisable. At the
Effective Time, each Option shall be canceled by Zilog and each holder of any
such canceled Option having an exercise or purchase price of less than the Cash
Election Price will receive, in consideration of such cancellation, a payment
from Zilog after the Merger (less applicable withholding taxes) equal to the
product of (i) the total number of shares of Common Stock subject or related to
such Option and (ii) the excess of the Cash Election Price over the exercise or
purchase price per share of Common Stock subject or related to such Option,
payable in cash within five days of the Effective Time. Each Option having an
exercise or purchase price equal to or greater than the Cash Election Price
will be canceled by Zilog at the Effective Time without the payment of any
consideration. Following the Effective Time, no current holder of an Option
granted under any of Zilog's stock plans nor any participant under other plans,
programs or arrangements shall have any right thereunder to acquire equity
securities of Zilog or the Surviving Corporation. See "The Merger--Effect on
Options and Employee Benefit Matters."

INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain directors and
officers of Zilog have interests, described below, that may present them with
potential conflicts of interest in connection with the Merger. The Board is
aware of the conflicts and considered them in addition to the other matters
described under "The Merger--Background of the Merger" and "--Recommendation of
the Board of Directors; Reasons for the Merger" when it approved the Merger
Agreement and recommended that stockholders vote in favor of the Merger.

Pursuant to employment agreements with Zilog, upon consummation of the
Merger, the terms of employment of certain executive officers of Zilog will be
automatically extended for 24 months from the earlier of the Effective Time or
the expiration date of each respective employment agreement. Such executive
officers will also be entitled to certain payments upon termination of their
employment after the Effective Time under specified conditions. See "The
Merger--Interests of Certain Persons in the Merger."

The Merger Agreement provides that Zilog's bonus plans (as in effect
on or before March 1, 1997) will be maintained after the Merger through the end
of the 1997 fiscal year. The maximum amount that may be payable under the
Employee Performance Incentive Plan is $4,000,000, with the payouts to occur in
the first quarter of 1998. The maximum amount that may be payable under the
Executive Bonus Plan is $1,900,000 for the 1997 plan year, with the payouts to
occur in the first quarters of 1999 and 2000. Residual payments for the 1996
and 1995 plan

-12-
<PAGE> 18
years will not exceed $1,081,000 payable in the first quarter of 1998 and
$589,400 payable in the first quarter of 1999.

Shares of Common Stock held by officers and directors of Zilog will be
converted into the right to receive the same consideration as shares of Common
Stock held by other stockholders. Options held by officers and directors of
Zilog will be treated in the same manner as any stock options held by other
Option holders. See "The Merger--Effect on Options and Employee Benefit
Matters."

Pursuant to the Merger Agreement, the Surviving Corporation will
indemnify all present directors and officers of Zilog and its subsidiaries and
will, subject to certain limitations, maintain for six years directors' and
officers' insurance and an indemnification policy containing terms and
conditions which are not less advantageous than any such policy which may be in
effect prior to the Effective Time. See "Certain Provisions of the Merger
Agreement--Indemnification and Insurance."

TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be
terminated by mutual written consent or by either TPG or Zilog if: (i) the
Merger is not consummated by February 28, 1998; (ii) the Merger is prohibited
or permanently enjoined by a governmental entity; or (iii) the requisite
approval of Zilog's stockholders is not obtained at a meeting of stockholders
of Zilog which is duly convened or any adjournment thereof. Subject to certain
conditions, TPG or Merger Sub may terminate the Merger Agreement if: (i) any
of Zilog's representations and warranties are not true and correct and cannot
be cured within a specified period; (ii) Zilog fails to perform a material
obligation under the Merger Agreement and such failure cannot be cured within a
specified period; or (iii) the Board (A) withdraws or modifies in a manner
adverse to TPG or Merger Sub its approval or recommendation of the Merger or
Merger Agreement or (B) approves or recommends any Takeover Proposal (as
defined herein) or acquisition agreement other than the Merger, or resolves to
take any of the actions set forth in clauses (A) or (B) above. Subject to
certain conditions, Zilog may terminate the Merger Agreement if: (i) the Board
concludes in good faith, based on advice from outside counsel, that terminating
the Merger Agreement would be consistent with its fiduciary responsibilities to
Zilog's stockholders under applicable law, provided that TPG shall have
received written notice that the Board received a Takeover Proposal which may
constitute a Superior Proposal and Zilog pays the termination fee described
below; (ii) any of TPG's or Merger Sub's representations and warranties is not
true and correct and cannot be cured within a specified period; or (iii) TPG or
Merger Sub fails to perform a material obligation under the Merger Agreement,
and such failure cannot be cured within a specified period. See "Certain
Provisions of the Merger Agreement--Termination."

In the event of termination of the Merger Agreement under certain
circumstances generally involving the existence of a competing third party
offer, Zilog would be required to pay TPG $15 million. TPG would similarly be
required to pay Zilog $5 million if the Merger Agreement were terminated under
other specified circumstances involving the failure of TPG to obtain the Merger
Financings. See "Certain Provisions of the Merger Agreement--Expenses and
Certain Required Payments."

STOCKHOLDERS VOTING AGREEMENT. Under the Stockholders Voting
Agreement between TPG, on the one hand, and Warburg Pincus and WP
(collectively, the "Warburg Stockholders"), on the other hand, (i) the Warburg
Stockholders have severally agreed to the following: (A) to vote their shares
of Common Stock in favor of the Merger and the Merger Agreement, (B) if
requested by TPG, to irrevocably grant to TPG their proxies and
attorneys-in-fact (with full power of substitution) to vote their shares of
Common Stock, (C) to refrain from transferring their shares of Common Stock,
and (D) to refrain from directly or indirectly soliciting, initiating or
encouraging third party proposals to acquire Zilog; and (ii) that Warburg
Pincus will make a Non-Cash Election with respect to 375,000 shares of Common
Stock less the aggregate number of Electing Shares, if any, held by
stockholders of Zilog other than Warburg Pincus in connection with the Merger
and will enter into the Stockholders Agreement with each other Retaining
Stockholder, Zilog, TPG and affiliates of TPG. See "Certain Provisions of the
Stockholders Voting Agreement."

-13-
<PAGE> 19
Proxy Statement/Prospectus and is incorporated herein by reference. TO THE
EXTENT THAT A STOCKHOLDER RETAINS NON-CASH ELECTION SHARES FOLLOWING
CONSUMMATION OF THE MERGER, BY COMPLETING THE NON-CASH ELECTION FORM AND
RETURNING SUCH NON-CASH ELECTION FORM TO THE EXCHANGE AGENT TOGETHER WITH STOCK
CERTIFICATES REPRESENTING SHARES OF COMMON STOCK, THE STOCKHOLDER WILL BE
DEEMED TO HAVE SIGNED AND BECOME A PARTY TO THE STOCKHOLDERS AGREEMENT AS OF
THE EFFECTIVE TIME. Accordingly, holders of Non-Cash Election Shares after the
Merger will receive the benefits and be subject to the obligations set forth in
the Stockholders Agreement. See "Certain Provisions of the Stockholders
Agreement."

CONVERSION OF COMMON STOCK. In the Merger, all of the outstanding
capital stock of Merger Sub, which will be held by TPG and certain of its
affiliates, will be converted into 3,375,000 shares of Common Stock, 1,250,000
shares of class A non-voting common stock, par value $0.01 per share ("Class A
Non-Voting Common Stock"), and 250,000 shares of a new series of non-voting
13.5% pay-in-kind preferred stock, stated value $100.00 per share ("New
Preferred Stock"), of the Surviving Corporation, which will constitute
approximately 94.0% of the total equity capital and 90.0% of the voting power
of Zilog following the Merger. See "Description of Capital Stock--Capital
Stock Following the Merger."

STOCKHOLDERS' APPRAISAL RIGHTS. Each stockholder of Common Stock has
a right to dissent from the Merger, and, if the Merger is consummated, to
receive "fair value" for his or her shares in cash by complying with the
provisions of Delaware law, including Section 262. A stockholder who wishes to
exercise such rights must deliver to Zilog, prior to the vote being taken on
the Merger at the Special Meeting, written notice of his or her intent to
demand payment for his or her shares if the Merger is effected and must not
vote in favor of the Merger. The full text of Section 262 is attached as Annex
E to this Proxy Statement/Prospectus. See "Stockholders' Appraisal Rights" for
a further discussion of such rights and the legal consequences of voting shares
of Common Stock in favor of the Merger.

-14-
<PAGE> 20

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996 have
been derived from, and should be read in conjunction with, the audited
consolidated financial statements of Zilog and related notes thereto
incorporated herein by reference. These consolidated financial statements have
been audited by Ernst & Young LLP, independent auditors, whose report thereon
is also incorporated herein by reference. The selected consolidated financial
data as of December 31, 1992, 1993 and 1994 and for each of the two years in
the period ended December 31, 1993 are derived from audited consolidated
financial statements of Zilog not incorporated herein by reference. The
selected consolidated financial data for the nine months ended September 29,
1996 and September 28, 1997, and as of September 28, 1997, have been derived
from, and should be read in conjunction with, the unaudited consolidated
financial statements of Zilog and related notes thereto incorporated herein by
reference. The results for the nine months ended September 28, 1997 are not
necessarily indicative of results to be expected for a full fiscal year. See
"Available Information," "Incorporation of Certain Documents by Reference," and
"Forward-Looking Statements."

<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
----------------------------------------------------------- ----------------------
Sept 29, Sept 28,
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(in thousands, except per share data) (unaudited)
Consolidated Statements of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ........................... 145,666 202,727 223,316 265,122 298,425 230,261 202,218
Costs and expenses:
Cost of sales ..................... 76,492 105,727 111,288 135,066 175,319 131,653 130,061
Research and development .......... 16,257 20,833 23,048 24,546 30,548 22,359 22,305
Selling, general and administrative 29,798 37,619 37,790 41,943 47,934 36,352 35,754
--------- --------- --------- --------- --------- --------- ---------
122,547 164,179 172,126 201,555 253,801 190,364 188,120
--------- --------- --------- --------- --------- --------- ---------
Operating income .................... 23,119 38,548 51,190 63,567 44,624 39,897 14,098
Other income (expense):
Interest income, net .............. 2,123 2,463 2,496 2,676 2,443 1,830 1,757
Other, net, including license and
royalty income and expense ...... (107) 813 860 (360) (911) (1,251) (93)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes .......... 25,135 41,824 54,546 65,883 46,156 40,476 15,762
Provision for income taxes .......... 9,340 15,057 19,637 23,418 16,155 14,167 4,260
--------- --------- --------- --------- --------- --------- ---------
Net income .......................... $ 15,795 $ 26,767 $ 34,909 $ 42,465 $ 30,001 $ 26,309 $ 11,502
========= ========= ========= ========= ========= ========= =========
Net income per share ................ $ 0.94 $ 1.43 $ 1.80 $ 2.09 $ 1.47 $ 1.29 $ 0.55
========= ========= ========= ========= ========= ========= =========
Number of shares used in computing
per share amounts ................. 16,893 18,779 19,380 20,285 20,454 20,434 20,739
========= ========= ========= ========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
As of December 31, As of
--------------------------------------------------------- Sept 28,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital ..................... 52,869 88,131 85,173 102,761 88,567 122,341
Total assets ........................ 148,404 212,470 286,691 353,430 401,066 410,717
Stockholders' equity ................ 108,136 165,580 212,595 278,864 325,280 338,656
</TABLE>

-15-
<PAGE> 21

SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)

The selected unaudited pro forma consolidated financial information of
Zilog, as adjusted to give effect to the Merger, have been derived from, and
should be read in conjunction with, the unaudited pro forma consolidated
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement/Prospectus. The selected unaudited pro forma consolidated
financial information is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
on the dates indicated, nor is such financial information necessarily
indicative of Zilog's future operating results or financial position. The
unaudited pro forma consolidated balance sheet data reflects the Merger as if
it had occurred on September 28, 1997. The unaudited pro forma consolidated
statements of operations data for the year ended December 31, 1996 and the
nine-month period ended September 28, 1997 reflects the Merger as if it had
occurred on January 1, 1996 and January 1, 1997, respectively. The pro forma
adjustments were applied to the historical financial statements to reflect and
account for the Merger as a recapitalization. Accordingly, the historical
basis of Zilog's assets and liabilities have not been affected by the Merger.
See "Available Information," "Incorporation of Certain Documents by Reference"
and "Selected Historical Consolidated Financial Data."

<TABLE>
<CAPTION>
Year Ended December 31, 1996 Nine Months Ended September 28, 1997
---------------------------------------------- ------------------------------------------
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
------------- -------------- -------------- ------------ -------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales.............................. $ 298,425 $ 298,425 $ 202,218 $ 202,218

Costs and expenses:
Cost of sales ...................... 175,319 175,319 130,061 130,061
Research and development ............ 30,548 30,548 22,305 22,305
Selling, general and administrative 47,934 47,934 35,754 35,754
------------ ------------- ----------- ------------
253,801 253,801 188,120 188,120
------------ ------------- ----------- ------------

Operating income ...................... 44,624 44,624 14,098 14,098

Other income (expense):
Interest income .................... 2,733 $ (2,168) 565 1,963 $ (1,443) 520
Interest expense .................... (290) (25,333) (25,623) (206) (19,000) (19,206)
Other, net .......................... (911) (911) (93) (93)
------------ ------------- ------------- ----------- ------------- ------------
Income (loss) before income taxes...... 46,156 (27,501) 18,655 15,762 (20,443) (4,681)

Provision (benefit) for income taxes... 16,155 (8,693) 7,462 4,260 (6,132) (1,872)
------------ ------------- ------------- ----------- ------------- ------------
Net income (loss)...................... $ 30,001 $ (18,808) $ 11,193 $ 11,502 $ (14,311) $ (2,809)
============ ============= ============= =========== ============= ============

Preferred dividend requirement ........ (3,375) (2,531)
------------- ------------
Income (loss) applicable to common
stockholders ........................ $ 7,818 $ (5,340)
============= ============

Net income (loss) per share............ $ 1.47 $ 1.56 $ 0.55 $ (1.07)
============ ============= =========== ============

Number of shares used in computing
share amounts ...................... 20,454 5,000 20,739 5,000
============ ============= =========== ============
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1996 As of September 28, 1997
------------------------------------------ --------------------------------------------
Historical Pro Forma Historical Adjustments Pro Forma
-------------- -------------- ------------ -------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET
DATA:
Working capital . . . . . . . . . . . . $ 122,341 $ (57,844) $ 64,497
Total assets . . . . . . . . . . . . . 410,717 (50,791) 359,926
Total stockholders' equity . . . . . . 338,656 (303,938) 34,718
Book value per share (1) . . . . . . . $ 16.16 $ (0.78) 16.72 1.94
</TABLE>

___________

(1) Computed by dividing common stockholders' equity by the number of
outstanding shares of Common Stock at the end of the period on a
historical or pro forma basis.

-16-
<PAGE> 22
RISK FACTORS

Holders of Common Stock should carefully consider the following
factors in connection with their consideration of an election to retain Common
Stock in the Merger.

This Proxy Statement/Prospectus contains forward-looking statements
that involve risks and uncertainties. Zilog's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Proxy Statement/Prospectus. See "Forward-Looking
Statements."

SECURITIES-RELATED RISK FACTORS

SUBSTANTIAL LEVERAGE; STOCKHOLDERS' EQUITY; LIQUIDITY. In connection
with consummating the transactions contemplated by the Merger Agreement, Zilog
will become the borrower under the Merger Financings arranged by TPG to (i)
fund payment of the cash consideration in the Merger, (ii) pay the fees and
expenses incurred in connection with the Merger and the Merger Financings and
(iii) provide for anticipated working capital requirements. Although the
definitive terms of the Merger Financings have not been finalized as of the
date of this Proxy Statement/Prospectus, Zilog expects that such terms will
include significant operating and financial restrictions, such as limits on
Zilog's ability to incur indebtedness, create liens, sell assets, engage in
mergers or consolidations, make investments and pay dividends.

As of September 28, 1997, after giving pro forma effect to the Merger
and the Merger Financings and the application of the net proceeds therefrom,
Zilog would have had (i) $255.0 million of consolidated long-term indebtedness
and (ii) because the distribution to stockholders and all Merger-related
expenses will be charged to stockholders' equity, consolidated stockholders'
equity of $34.7 million. Such level of consolidated indebtedness is
substantially greater than Zilog's pre-Merger indebtedness. The high degree to
which Zilog is leveraged may have important consequences for Zilog, including
the following: (i) Zilog's ability to obtain additional financing for future
acquisitions (if any), working capital, capital expenditures or other purposes
may be impaired or any such financing may not be on terms favorable to Zilog;
(ii) a substantial portion of Zilog's cash flow available from operations after
satisfying certain liabilities arising in the ordinary course of business will
be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds that would otherwise be available to Zilog; (iii) a
decrease in net operating cash flows or an increase in expenses of Zilog could
make it difficult for Zilog to meet its debt service requirements or force it
to modify its operations; and (iv) high leverage may place Zilog at a
competitive disadvantage, limit its flexibility in reacting to changes in its
operating environment and may make it vulnerable to a downturn in its business
or the economy generally. See "The Merger--Merger Financings."

In addition, the substantial leverage will have a negative effect on
Zilog's net income. Pro forma net income for the fiscal year ended December
31, 1996 would have been approximately $11.2 million, as compared to
approximately $30.0 million for the same period on a historical basis, and pro
forma interest expense for the same fiscal year would have been approximately
$25.6 million, as compared to approximately $0.3 million for the same period on
a historical basis.

After the Merger is consummated, Zilog's principal sources of
liquidity are expected to be cash flow from operations and borrowings under a
revolving credit facility. It is anticipated that Zilog's principal uses of
liquidity will be to provide working capital, to meet debt service requirements
and other liabilities arising in the ordinary course and to finance Zilog's
strategic plans. A revolving credit facility will be available for Zilog's
working capital needs and a portion thereof will be available for the issuance
of letters of credit. A term loan facility will be drawn in full upon
consummation of the Merger. See "The Merger--Merger Financings."

DELISTING OF COMMON STOCK FROM THE NYSE. As a result of the Merger,
it is expected that the Common Stock no longer will meet the listing
requirements of the NYSE, and the NYSE may unilaterally act to delist the
Common Stock from the NYSE. Even if the NYSE does not act unilaterally to
delist the Common Stock, it is not intended that, after the Effective Time, the
Common Stock will be listed on the NYSE or any other national securities
exchange. Zilog and TPG have agreed, pursuant to the Merger Agreement, to
cooperate in taking, or causing to be taken, all actions necessary to delist
the Common Stock from the NYSE. The delisting of the Common

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Stock is likely to have a material adverse effect on the trading market for,
and the value of, the Common Stock and there can be no assurance that any
trading market will exist for the Common Stock after the Merger. See "The
Merger--Delisting of Common Stock from the NYSE."

TERMINATION OF SEC REPORTING. As a result of the Merger, it is
expected that the shares of Common Stock will be held by fewer than 300
stockholders of record. In such a case, Zilog will deregister the Common Stock
under the Exchange Act. If the Common Stock is so deregistered, Zilog will not
be required to comply with the proxy or periodic reporting requirements of the
Exchange Act and does not plan to provide any reports or information to its
public stockholders other than pursuant to the right to inspect the books and
records of Zilog as required by Delaware law. As a result, the information
available to stockholders about the business and financial condition of Zilog
would be reduced, which could have a material adverse effect on the value of
the Common Stock.

CONTROL BY TPG. Upon completion of the Merger, approximately 90% of
the outstanding shares of voting capital stock (and approximately 94.0% of the
total equity capital) of Zilog will be held by TPG and certain of its
affiliates. Accordingly, TPG and its affiliates will control Zilog and have
the power to elect all of its directors, to appoint new management and to
approve any action requiring the approval of the holders of its capital stock,
including adopting certain amendments to Zilog's certificate of incorporation
and approving mergers or sales of all or substantially all of Zilog's assets.
The directors so elected will have the authority to effect decisions affecting
the capital structure of Zilog, including the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the business strategies and policies
of Zilog in effect prior to the Merger will continue after the Merger.

In addition, the existence of a controlling stockholder of Zilog may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from seeking to acquire, a majority of the
outstanding equity securities of Zilog. A third party would be required to
negotiate any such transaction with TPG and the interests of TPG may be
different from the interests of other stockholders of Zilog.

Although TPG and its affiliates will own approximately 90% of the
outstanding voting capital stock of Zilog at the Effective Time, there is no
current intention to engage in any post-Merger transaction which would
eliminate the approximately 10% of the outstanding voting capital stock of
Zilog that will be held by existing stockholders of Zilog. While it is,
therefore, highly unlikely that such a transaction would occur in the
foreseeable future, no assurance can be given that such a transaction will not
occur.

NO DIVIDENDS. No dividends on shares of Common Stock following the
Merger are presently contemplated. In addition, it is anticipated that the
terms of the debt instruments to be entered into in connection with the Merger
Financings will prohibit or otherwise restrict any future payment of dividends.

POTENTIAL DILUTION OF STOCKHOLDERS OF ZILOG. Following the Merger,
Zilog intends to grant options to purchase (and could grant or sell) additional
shares of Common Stock to members of Zilog's management and Zilog employees.
Any such grant or sale, or exercise of any stock option, will dilute the
holdings of stockholders of Zilog and also dilute the holdings of TPG and its
affiliates. See "The Merger--Effect on Options and Employee Benefit Matters."

CERTAIN PRORATION RISKS. As described herein (subject to the Non-Cash
Election Number), a stockholder may make a Non-Cash Election and thereby elect
to retain shares of Common Stock in the Merger subject to the proration
procedures described herein under "The Merger--Non-Cash Election." If
Retaining Stockholders elect to retain in the aggregate more than 375,000
Non-Cash Election Shares, such Retaining Stockholders will experience proration
of such shares, resulting in their retaining only a portion of the shares of
Common Stock they elect to retain and receiving $20.00 per share in cash for
each of their other shares of Common Stock.

FEDERAL INCOME TAX CONSEQUENCES. A stockholder of Zilog who elects to
retain all or a portion of such stockholder's Common Stock may, under certain
circumstances, be required to treat the receipt of a portion of any cash
received in the Merger as the receipt of a dividend (rather than as the receipt
of proceeds from the sale of the Common Stock, which would generally receive
capital gain treatment). No such dividend treatment should be applicable to
stockholders who do not elect to retain shares but instead receive cash for all
of their shares in the

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Merger. See "The Merger--Federal Income Tax Consequences" for a more detailed
discussion of the tax consequences of the Merger.

COMPANY-RELATED RISK FACTORS

FACTORS AFFECTING OPERATING RESULTS. Zilog's operating results are
affected by a wide variety of factors which could adversely affect
profitability. Historically, selling prices of Zilog's products have decreased
over their respective product lives and selling prices may decline in the
future which could adversely affect Zilog's operating results. In addition,
Zilog's operating results are subject to a number of variables which could have
a material adverse effect on Zilog, including but not limited to, Zilog's
ability to introduce new products and technologies on a timely basis, changes
in product mix or fluctuations in manufacturing yields which affect Zilog's
gross margins, market acceptance of Zilog's and customers' products, the level
of orders which are received and can be shipped in a quarter, customer order
patterns and seasonality, increases in freight costs and whether Zilog's
customers buy from a distributor or directly from Zilog. Zilog's future
operating results will depend in part on economic conditions in the United
States and the worldwide markets that it serves. Zilog's delivery times
lengthened throughout 1995. In 1996, delivery times returned to more normal
levels. Zilog believes that an important competitive factor will be its
ability to continue to successfully increase production capacity to meet
customer demand and shorten delivery times. A prolonged failure of Zilog to
increase production capacity or obtain wafers from outside suppliers as needed
could adversely affect Zilog's operating results. During the fourth quarter of
1994 and throughout 1995, Zilog experienced difficulty in obtaining the
capacity of wafers it requested from its outside foundry suppliers. Should
Zilog be unable to obtain additional foundry capacity, Zilog's ability to
achieve continued revenue growth may be restricted. Shortage of product could
also result in the loss of customers. During September 1996, Zilog began
commercial production from its new facility in Nampa, Idaho. Production from
this facility increased in accordance with plan in 1997. Presently Zilog has
excess capacity. Certain of Zilog's products are incorporated into disk
drives, printers, keyboards and modems. As a result, a slowdown in the demand
for personal computers and related peripherals could adversely affect Zilog's
operating results. A significant portion of Zilog sales are to the consumer
electronics markets for use in products such as television sets, infrared
remote controls and telephone answering machines. The consumer electronics
markets are volatile and rapid changes in customer preferences for electronics
products could adversely impact Zilog's results.

DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES. Zilog's operating
results will depend to a significant extent on its ability to continue to
introduce new products. The success of new product introductions is dependent
on several factors, including proper new product selection, timely completion
and introduction of new product designs, development of support tools and
collateral literature that make complex new products easy for engineers to
understand and use, and market acceptance of customers' end products. There
can be no assurance that any new products will receive or maintain substantial
market acceptance. Zilog's future success is also dependent upon its ability
to develop and implement new design and process technologies. Semiconductor
design and process methodologies are subject to rapid technological change,
requiring large expenditures for research and development. Most new products
are extremely complex in design and many use Zilog's new 0.65 micron CMOS
process. Zilog is now developing a 0.35 micron CMOS process. The first test
wafers in Zilog's 0.35 micron process are currently scheduled to be produced in
late 1997 or early 1998. A failure to make a successful transition to the 0.35
micron CMOS process could adversely affect future operating results.
Manufacture of large complex die involves a significant technological risk.
The failure to complete new product designs in time to meet market requirements
and achieve volume production of new products at acceptable yields using the
new manufacturing processes would likely have an adverse effect on Zilog's
operating results.

PRODUCTION YIELDS AND MANUFACTURING RISKS. The manufacture of
semiconductor products is highly complex and production yields are sensitive to
a wide variety of factors, including the level of contaminants in the
manufacturing environment, impurities in the materials used and the performance
of personnel and equipment. As is typical in the semiconductor industry, Zilog
has from time to time experienced lower than anticipated production yields.
Zilog increased its production capacity in 1996 and 1997, and may need to
further increase capacity to support anticipated sales volumes and maintain
delivery times. Zilog has used and expects to continue to rely on one or more
outside wafer foundries to supply a portion of its manufacturing needs. In the
fourth quarter of 1994 and throughout 1995, Zilog experienced difficulty in
obtaining the capacity of wafers it requested from its outside foundry
suppliers. No assurance can be given that Zilog or its outside wafer foundries
will not experience production

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yield problems in the future which could have an adverse effect on Zilog's
results of operations. Zilog began commercial production at a new wafer
fabrication facility in September 1996. Production at this facility increased
in accordance with its production plan in 1997. The failure of Zilog to
further increase production capacity, including through the successful and
efficient expansion of production at its new facility or to obtain wafers from
outside suppliers as needed, could adversely affect Zilog's operating results.
Zilog also uses outside contract assemblers for packaging a portion of its
production. Shortages in contract assembly capacity could adversely impact
Zilog's financial results.

NEW WAFER FABRICATION FACILITY--ADDITIONAL FIXED COSTS. Zilog
completed the construction of a new wafer fabrication facility adjacent to its
existing wafer production facilities in Nampa, Idaho in June 1996, and
commercial production began in September 1996. The facility doubled Zilog's
wafer production capacity and significantly increased Zilog's annual
depreciation expense. Further capacity expansion is available in the new wafer
fabrication facility. If Zilog's sales do not increase commensurate with the
increase in capacity, Zilog's costs of sales as a percentage of sales would
increase and Zilog's results of operations would be adversely affected. In
addition, the failure of Zilog to achieve sufficient production yields in the
new facility could adversely affect its results of operations.

COMPETITION. The semiconductor industry is intensely competitive and
is characterized by price erosion and rapid technological change. The industry
consists of major domestic and international semiconductor companies, many of
which have substantially greater financial and other resources than Zilog with
which to pursue engineering, manufacturing, marketing and distribution of their
products. Emerging companies are also increasing their participation in the
semiconductor market. The ability of Zilog to compete successfully in the
rapidly evolving area of high performance integrated circuit technology depends
on factors both within and outside of its control, including but not limited
to, success in designing and manufacturing new products that implement new
technologies, protection of Company products by effective utilization of
intellectual property laws, product quality, reliability, ease of use, price,
diversity of product line, efficiency of production, the pace at which
customers incorporate Zilog's integrated circuits into their products, success
of competitor's products and general economic conditions.

INTERNATIONAL OPERATIONS. Approximately 56% of Zilog's net sales in
1996 were to foreign customers and Zilog expects that export sales will
continue to represent a significant portion of net sales, although there can be
no assurance that export sales, as a percentage of net sales, will remain at
current levels. In addition, Zilog purchases a substantial portion of its raw
materials and equipment from foreign suppliers. While Zilog's export sales are
primarily United States dollar denominated transactions, Zilog is subject to
the risks of conducting business internationally, including unexpected changes
in, or impositions of, legislative or regulatory requirements, fluctuations in
the United States dollar against foreign currencies, which could increase the
sales price in local currencies of Zilog's products in foreign markets or
increase the cost of wafers purchased by Zilog, delays resulting from
difficulty in obtaining export licenses for certain technology, tariffs and
other barriers and restrictions, potentially longer payment cycles, greater
difficulty in accounts receivable collection, potentially adverse taxes, and
the burdens of complying with a variety of foreign laws. In addition, Zilog is
subject to general geopolitical risks, such as political and economic
instability and changes in diplomatic and trade relationships, which could
affect, among other things, customers' ordering patterns and inventory levels.
Although Zilog has not to date experienced any material adverse effect on its
operations as a result of such regulatory, geopolitical, economic and other
factors, there can be no assurance that such factors will not adversely impact
Zilog in the future or require Zilog to modify its current business practices.
In addition, the laws of certain foreign countries may not protect Zilog's
intellectual property rights to the same extent as do the laws of the United
States.

Zilog operates its two primary assembly and test facilities in Manila
and Carmona, Republic of the Philippines, through its wholly owned subsidiaries
Zilog Philippines Inc. and Zilog Electronics Philippines, Inc. Zilog has a
significant capital investment at these facilities. Zilog's reliance on
personnel and assets and its maintenance of inventories at these facilities
entails certain political and economic risks, including political instability
and expropriation, currency controls and exchange fluctuations, as well as
changes in tax laws and tariff and freight rates. Political stability in the
Philippines appears to have increased markedly during the past three years, but
no assurances of continued stability can be given. Zilog has not experienced
any significant interruptions in its business operations in the Philippines to
date. Should a significant interruption in business occur, Zilog has inventory
in the United States to enable Zilog to ship most products during a temporary
interruption of service. If Zilog experiences

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more lengthy losses of production or an inability to export product from the
Philippines, management believes that Zilog could shift some production to
qualified contract assemblers in other locations in the Far East.
Additionally, Zilog currently has excess test capacity at its Nampa, Idaho
manufacturing facility and its Campbell, California engineering facility which
could be used in the event of a loss of production in the Philippines. Zilog
believes that these contingency plans would allow continued supply of product
for short term disruptions. Nonetheless, any such loss or disruption of
production in the Philippines could adversely affect Zilog, particularly if
operations or air transportation from the Philippines were disrupted for a
substantial period of time.

INTELLECTUAL PROPERTY CLAIMS. Zilog's ability to compete will be
affected by its ability to protect its proprietary information. Zilog relies
primarily on its trade secrets and technological know-how in the conduct of its
business. There can be no assurance that the steps taken by Zilog to protect
its intellectual property will be adequate to prevent misappropriation of its
technology or that Zilog's competitors will not independently develop
technologies that are substantially equivalent or superior to Zilog's
technology. The semiconductor industry is characterized by frequent claims and
related litigation regarding patent and other intellectual property rights.
There can be no assurance that third parties will not assert additional claims
or initiate litigation against Zilog, its foundries or its customers with
respect to existing or future products. In addition, Zilog may initiate claims
or litigation against third parties for infringement of Zilog's proprietary
rights or to determine the scope and validity of the proprietary rights of
Zilog or others. Litigation by or against Zilog could result in significant
expense to Zilog and divert the efforts of Zilog's technical and management
personnel, whether or not litigation is determined in favor of Zilog. In the
event of an adverse result in any such litigation, Zilog could be required to
pay substantial damages, cease the manufacture, use, sale, offer for sale and
importation of infringing products, expend significant resources to develop or
obtain non- infringing technology, discontinue the use of certain processes, or
obtain licenses to the technology which is the subject of the litigation.
There can be no assurance that Zilog would be successful in such development or
acquisition or that any such licenses, if available, would be available on
commercially reasonable terms, and any such development or acquisition could
require expenditures by Zilog of substantial time and other resources. Any
such litigation or adverse result therefrom could have an adverse effect on
Zilog.

Zilog has been notified that it may be infringing certain patents and
other intellectual property rights of others. Zilog is currently engaged in
discussions with two parties regarding such alleged infringement and has been
placed on notice of claims of infringement of intellectual property rights of
two additional parties. In the event Zilog determines that such discussions or
notices may lead to meritorious claims, Zilog may seek a license. Based on
industry practice, Zilog believes that in most cases any necessary licenses or
other rights could be obtained on commercially reasonable terms. However, no
assurance can be given that licenses could be obtained on acceptable terms or
that litigation will not occur. The failure to obtain necessary licenses or
other rights or the advent of litigation arising out of such claims could have
an adverse effect on Zilog.

THE SEMICONDUCTOR INDUSTRY. The semiconductor industry has been
characterized by cyclicality. The industry has experienced significant
economic downturns at various times in the last three decades, characterized by
diminished product demand, accelerated erosion of average selling prices and
production over-capacity. During 1995, the semiconductor industry in general,
including Zilog, experienced a period of increased demand. During 1996, the
industry experienced a slowdown from the growth levels of 1995. Zilog
experienced this slowdown during the last two quarters of 1996. Additionally
during the first three quarters of 1997, Zilog's revenue and profit have been
lower than their respective levels for the same periods in 1996 and there is no
assurance that revenue and profit will return to historic levels. Zilog will
likely experience substantial period-to-period fluctuations in future operating
results due to general industry conditions or events occurring in the general
economy.

ENVIRONMENTAL REGULATION. Zilog is subject to a variety of government
regulations related to the discharge or disposal of hazardous materials used in
its manufacturing process. Although Zilog believes that it is in compliance
with all relevant regulations and has all permits necessary to conduct its
business, the failure to comply with present or future regulations or the loss
of any permit could result in fines being imposed on Zilog, limitation or
suspension of production or cessation of operations. Compliance with any such
future regulations could require Zilog to acquire additional equipment or to
incur substantial other expenses. Any failure by Zilog to control the use of,
or adequately restrict the discharge of, hazardous materials could subject it
to future liabilities.

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DEPENDENCE ON KEY EMPLOYEES. Zilog depends upon its ability to hire
and retain qualified technical, sales and management personnel. The
competition for such personnel is intense, and there can be no assurance that
Zilog will be successful in attracting and retaining such personnel.

Prior to the announcement of the Merger, Zilog's current Chief
Executive Officer ("CEO"), Dr. Edgar A. Sack, advised Zilog's Board of
Directors of his intention to step down as CEO after the Effective Time, at a
mutually acceptable time. At that time, Dr. Sack and the Board of Directors
retained an executive search firm to conduct a search for a new CEO for Zilog.
Dr. Sack, who is 67 and has been with Zilog since November 1984, is a 40-year
veteran of the semiconductor industry. It is currently expected that a new CEO
will be hired by the closing of the Merger and that the current senior
management team will remain with Zilog going forward. However, there can be no
assurance that Zilog will be successful in attracting and retaining a new CEO.

THE COMPANY

GENERAL. Zilog designs, develops, manufactures and markets ASSPs for
the datacommunications, consumer product controller and intelligent peripheral
controller markets. ASSPs are very large scale integrated circuits which are
designed for a particular market application rather than a single customer.
Zilog utilizes its proprietary Superintegration(TM) design technology to
combine cores and cells from Zilog's extensive library of proprietary, customer
familiar microprocessor, microcontroller, digital signal processor, memory and
logic circuits to meet the design, cost and time to market requirements of its
customers.

Zilog has selected the datacommunications, consumer product controller
and intelligent peripheral controller markets because of its knowledge,
experience, customer relationships and proprietary core and cell designs in
these areas. Zilog's ASSPs address large markets. Zilog works closely with
industry leaders in its selected markets to design innovative products.
Through its customer relationships, Zilog is better able to establish and
maintain technological leadership, attract additional customers in the same
market and create industry standards. Zilog believes that it is
well-positioned to take advantage of the trends in its target market areas,
which include the networking of computers and peripherals, the increase in the
complexity and sophistication of consumer electronic products and the migration
of intelligence from the computer to its peripherals. Zilog currently offers
over more than 700 product line items (independent of ROM codes), sold in a
wide selection of package, speed grade and other options. Zilog's customers
include Black & Decker Corp., DSC Communication Corp., General Instrument
Corp., Hewlett-Packard Co., Hitachi Ltd., International Business Machines
Corp., Lucent Technologies Inc. ("Lucent"), Microsoft Corp., Motorola Inc.,
Northern Telecom Ltd., NMB Technologies Inc., Samsung Asia PTE, Ltd., Seagate
Technology Inc., Sony Corp., Texas Instruments Inc., VeriFone Inc. and Zenith
Electronics Corp. In two of the past three years, no single customer
represented more than 8.5% of Zilog's net sales. During the period ending
December 31, 1996, Lucent represented 12.8% of sales or approximately $38
million.

Zilog's strategy is to use its Superintegration(TM) library of
proprietary core and cell designs, which are optimized for particular
applications in Zilog's target markets, to introduce new products on a timely
basis. These cores and cells are compatible with one another in Zilog's
standard manufacturing process. Zilog is therefore able to efficiently combine
proven cores and cells to rapidly deliver new products to its customers.
Because Zilog's core and cell library includes industry standard products,
original equipment manufacturers ("OEMs") who have designed their systems using
one or more of Zilog's products can be migrated to Superintegration(TM)
solutions without loss of software compatibility. If an end-use application
requirement is not satisfied by an existing Zilog product, the
Superintegration(TM) design system permits Zilog to compose new integrated
circuits by interconnecting fully characterized high transistor count cores and
cells or by creating new cells, thereby increasing performance and improving
reliability over prior solutions. Zilog believes that the efficiency of its
Superintegration(TM) design process, coupled with Zilog's strategy of learning
the requirements of an application to create an industry standard product, will
enable it to continue to develop significant new products. By establishing
partnerships with technology leaders and important customers in the market,
Zilog can often learn the technology of the application and differentiate its
products from those of its competitors.

Consistent with its strategy in its three target markets, Zilog
introduced 40, 40 and 48 major new products in 1994, 1995 and 1996,
respectively. In the first nine months of 1997, Zilog introduced 29 new
products. In 1996,

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Zilog introduced 3 products for the datacommunications market, 37 products for
the consumer product controller market and 8 products for the intelligent
peripheral controller market. In the first nine months of 1997, Zilog
introduced 4 products for the datacommunications market, 18 products for the
consumer product controller market and 7 products for the intelligent
peripheral controller market.

THE SPECIAL MEETING

MATTERS TO BE CONSIDERED. At the Special Meeting, the stockholders of
Zilog will be asked to consider and vote upon a proposal to approve and adopt
the Merger Agreement and the transactions contemplated thereby, including the
Merger. If the Merger is approved by the stockholders of Zilog, Merger Sub will
merge with and into Zilog, which will continue as the Surviving Corporation, and
19,958,792 shares of Common Stock, as of the Record Date, currently held by the
stockholders of Zilog (representing approximately 98.2% of the presently issued
and outstanding shares of Common Stock) will be converted into the right to
receive the Cash Election Price in cash. The remaining 375,000 presently issued
and outstanding shares of Common Stock will be retained by existing stockholders
of Zilog and, upon consummation of the Merger, will have those rights, powers,
privileges and restrictions described in this Proxy Statement/Prospectus.
Shares which are to be retained represent approximately 1.9% of shares of Common
Stock issued and outstanding prior to the Merger and will represent
approximately 6.0% of the total equity and 10% of the voting capital stock of
Zilog to be issued and outstanding immediately after the Merger. If the Merger
is approved, the capital stock of Merger Sub, all of which is owned by TPG and
certain of its affiliates, will be converted into 3,375,000 shares of Common
Stock, 1,250,000 shares of Class A Non-Voting Common Stock and 250,000 shares of
New Preferred Stock, which will represent approximately 94.0% of the total
equity capital and 90% of the voting capital stock of Zilog to be issued and
outstanding immediately after the Merger. See "The Merger--Conversion of Merger
Sub Stock."

Immediately after the Merger, there will be approximately 3,750,000
shares of Common Stock, 1,250,000 shares of Class A Non-Voting Common Stock and
250,000 shares of New Preferred Stock issued and outstanding. The Merger
Agreement is attached as Annex A to this Proxy Statement/Prospectus. See "The
Merger" and "Certain Provisions of the Merger Agreement." THE BOARD HAS
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.

REQUIRED VOTE. The affirmative vote of the holders of at least a
majority of the shares of Common Stock entitled to vote thereon is required to
adopt and approve the Merger Agreement and the actions contemplated thereby,
including the Merger. Pursuant to the Stockholders Voting Agreement, Warburg
Pincus and its affiliates, which beneficially owned, as of the Record Date, an
aggregate of approximately 26.9% of the outstanding Common Stock, have agreed,
to vote all shares of Common Stock held by them in favor of the Merger
Agreement and the Merger. A copy of the Stockholders Voting Agreement is
attached as Annex B to this Proxy Statement/Prospectus. See "Certain
Provisions of the Stockholders Voting Agreement."

VOTING AND REVOCATION OF PROXIES. Shares of Common Stock that are
entitled to vote and are represented by a proxy properly signed and received at
or prior to the Special Meeting, unless subsequently properly revoked, will be
voted in accordance with the instructions indicated thereon. If a proxy is
signed and returned without indicating any voting instructions, shares of
Common Stock represented by such proxy will be voted FOR the proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the shares represented by such proxy are
voted at the Special Meeting by (i) attending and voting in person at the
Special Meeting, (ii) giving notice of revocation of the proxy at the Special
Meeting, or (iii) delivering to the Secretary of Zilog (A) a written notice of
revocation or (B) a duly executed proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the proxy
previously executed. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy. All written notices of revocation
and other communications with respect to revocation of proxies should be
addressed as follows: Zilog, Inc., 210 East Hacienda Avenue, Campbell,
California 95008-6600, Attention: Secretary, and must be received before the
taking of the votes at the Special Meeting.

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RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM. Only holders of Common
Stock at the close of business on December 10, 1997 will be entitled to receive
notice of and to vote at the Special Meeting. At the close of business on the
Record Date, Zilog had outstanding and entitled to vote 20,333,792 shares of
Common Stock. The presence, in person or by proxy, at the Special Meeting of
the holders of at least a majority of the votes entitled to be cast at the
Special Meeting is necessary to constitute a quorum for the transaction of
business. Abstentions will be counted as present for the purposes of
determining whether a quorum is present but will not be counted as votes cast
in favor of the Merger. Because the vote on the Merger requires the approval
of a majority of the votes entitled to be cast by the holders of the
outstanding shares of Common Stock, abstentions will have the same effect as a
negative vote on the Merger. Proxies relating to "street name" shares that are
voted by brokers will be counted as shares present for purposes of determining
the presence of a quorum on all matters, but will not be treated as shares
having voted at the Special Meeting as to any proposal as to which authority to
vote is withheld by the broker.

SOLICITATION OF PROXIES. Zilog will bear the cost of the solicitation
of proxies and the cost of printing and mailing this Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of Zilog may solicit proxies from stockholders of Zilog
by telephone, telegram or by personal interview. Such directors, officers and
employees will not be additionally compensated for any such solicitation but
may be reimbursed for reasonable out-of-pocket expenses in connection
therewith. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of shares held of record by such persons, and
Zilog will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith. CIC will assist in
the solicitation of proxies by Zilog for an estimated fee of $5,000 plus
reasonable out-of-pocket expenses.

If you have any questions or require additional material, please call
Richard R. Pickard, Zilog's Vice President, General Counsel and Secretary, at
(408) 370-8000 or CIC, Zilog's proxy solicitor, at (888) 881-0529.

ONLY HOLDERS OF COMMON STOCK WHO WISH TO MAKE A NON-CASH ELECTION ARE
REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR NON-CASH ELECTION FORM. HOLDERS
OF COMMON STOCK WHO DO NOT MAKE A NON-CASH ELECTION WILL RECEIVE, BY MAIL,
LETTERS OF TRANSMITTAL WITH WHICH SUCH STOCK CERTIFICATES SHOULD BE RETURNED
AFTER THE EFFECTIVE TIME. HOLDERS WHO DO NOT MAKE A NON-CASH ELECTION SHOULD
THEREFORE NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. SEE "THE
MERGER--NON-CASH ELECTION," "--NON-CASH ELECTION PROCEDURE" AND "--PROCEDURES
FOR EXCHANGE OF CERTIFICATE."

THE MERGER

BACKGROUND OF THE MERGER. In the beginning of 1997, management of
Zilog and members of the Board of Directors focused on the challenges facing
Zilog in the next several years. Among these challenges were Zilog's need both
to renew growth in its business and to keep its new fabrication facility in
Nampa, Idaho at or near full capacity in the face of a changing and
consolidating industry and customer base.

Zilog's management, in regular consultation with the Board of
Directors, explored possible responses to these challenges throughout February
1997. In March 1997, Zilog retained Lehman Brothers to investigate various
strategic alternatives including, among other possibilities, technology
transfers, mergers, alliances and acquisitions.

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In early April 1997, Lehman Brothers and management identified a list
of leading candidates, both foreign and domestic, that might be expected to
have an interest in engaging in one or more of the above strategic alternatives
with Zilog. In addition, Zilog's management compiled a confidential
descriptive memorandum regarding Zilog, its current business and prospects.
Thereafter, Lehman Brothers' representatives had a number of informal
discussions and meetings with the identified parties to assess the feasibility
of effecting the various strategic alternatives under consideration and the
potential level of interest of such parties in pursuing one or more of these
alternatives.

On April 7, 1997, as a result of prior business discussions between
the two companies over the course of the preceding year, but not in response to
the process which Zilog had just begun with Lehman Brothers, Zilog received a
written, nonbinding indication of interest from another company ("First
Bidder") regarding a business combination between it and Zilog. The indication
of interest proposed an acquisition of Zilog in a stock-for-stock transaction,
which would be accounted for as a pooling of interests. First Bidder proposed
to exchange shares of its common stock for shares of Common Stock at an
exchange ratio determined by dividing Zilog's average closing price for the ten
trading days ending two trading days prior to execution of a definitive
agreement by First Bidder's average closing price during that same period and
then multiplying the amount by 1.30, subject to a maximum number of shares
equal to one-third of the combined company on a fully diluted basis. At the
time, Zilog's Common Stock was trading at approximately $21.00 per share, and
the exchange ratio implied a cash equivalent value of $27.30 per share. In
light of the process which Zilog had just started with Lehman Brothers, Zilog
advised First Bidder that it intended to continue with the process it had
recently started and that First Bidder was welcome to execute a confidentiality
agreement, obtain the same materials as the other potential strategic partners
and participate in the process.

As a result of the inquiries made by Lehman Brothers, a number of
parties indicated an interest in exploring business combinations with Zilog.
These parties, as well as First Bidder, entered into confidentiality agreements
with Zilog and were given the opportunity to examine certain nonpublic
information regarding Zilog, including financial projections through fiscal
1998 which were within the publicly available revenues and earnings estimates
of the analysts that covered Zilog. Members of Zilog's management and
representatives of Lehman Brothers held a number of informal discussions and
meetings with a number of these parties. Zilog's Board of Directors met on
several occasions in May to discuss the levels of interest expressed by these
parties and to evaluate the different alternatives. By the end of May 1997, a
number of companies had expressed interest in conducting further due diligence
of Zilog. The Board of Directors authorized Lehman Brothers to send out a
letter requesting initial proposals by the end of May. These letters were
distributed on May 19, 1997.

On June 5, 1997, a second interested party ("Second Bidder") submitted
a written preliminary proposal to pursue a pooling of interests transaction
with Zilog. Second Bidder indicated it would consider a valuation premium to
Zilog's trading price in the range of 30% to 50%, implying a cash equivalent
value of $28.44 per share to $32.81 per share based on Zilog's then Common
Stock price of $21.88 per share. Also on June 5, 1997, TPG submitted a
written, non-binding indication of interest to acquire all of the outstanding
Common Stock of Zilog for cash at an anticipated price between $26.00 and
$28.00 per share. First Bidder also reiterated its interest in Zilog by orally
reaffirming its earlier indication of interest of April 7, 1997 with no
modification of the terms.

The Board of Directors was briefed on the terms of each initial
proposal as well as the level of interest expressed by the other parties who
had signed confidentiality agreements. On June 6, 1997, the Board of Directors
authorized Zilog's management to permit interested parties to conduct further
due diligence. Zilog assembled due diligence materials for review by the
interested parties and scheduled management presentations with First Bidder,
Second Bidder and TPG. Following these meetings Zilog also responded to a
number of follow-up questions and additional requests for information from
these parties. During this period, the Board was advised by management that,
although it was too early to be certain, Zilog's order input as it entered the
third quarter appeared to be softening to a greater degree than had previously
been anticipated and that, if true, Zilog's financial performance for the third
quarter and possibly for the year would be below Zilog's original expectations.
The Board was further advised that the officers and employees of Zilog were
taking several actions in an effort to bolster third quarter and year end
results.

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During the last two weeks of June, discussions continued between
Zilog's management and the management of First Bidder, Second Bidder and TPG
(collectively, the "Bidders") and their respective financial advisors,
covering, among other things, their respective operations, Zilog's financial
projections, including the possibility of revised forecasts for the third
quarter and year-end results, action plans to improve results and potential
operating synergies. Representatives of the Bidders also visited Zilog's
facilities in Nampa, Idaho and the Philippines as part of their due diligence.
On June 18, 1997, the Board of Directors approved forms of merger agreements
and directed Lehman Brothers to furnish the forms to the Bidders with the
request that definitive offers, including proposed merger agreements, be
submitted by July 7, 1997.

On July 7, 1997, TPG formally submitted a written proposal to acquire
all the outstanding shares of Common Stock for $24.00 per share in cash. The
Board and Zilog's management analyzed this proposal with Lehman Brothers and
Zilog's outside counsel. The proposal indicated that TPG wished to discuss the
possibility of structuring the acquisition in a manner to permit it to be
treated as a recapitalization for accounting purposes. On July 7, 1997, First
Bidder also submitted a revised term sheet, which outlined two alternative
proposals. The first was a stock-for-stock merger in a pooling of interests
transaction with a modest increase in the exchange ratio, implying a cash
equivalent value of $23.74 per share based on First Bidder's then current
trading price, and the other was an all cash transaction at $22.82 per share of
Common Stock. Second Bidder elected not to submit a proposal.

At a telephonic meeting held on July 13, 1997, the Board of Directors
reviewed at length with Lehman Brothers and Zilog's outside counsel the terms
of the two proposals as well as historical and projected financial information
of First Bidder. The Board was also advised about Zilog's financial
performance for the year to date and the continued concern about order input
falling short in the first two weeks of the third quarter. At the conclusion
of the meeting, the Board of Directors authorized Zilog's management to attempt
to resolve all open issues and negotiate definitive agreements with both First
Bidder and TPG. First Bidder and TPG were instructed by Lehman Brothers to
submit final offers prior to July 18, 1997.

At a regularly scheduled Board meeting on July 16, 1997, the Board was
briefed by Lehman Brothers and Zilog's outside counsel regarding the status of
the negotiations. Further negotiations with TPG, which included Warburg
Pincus, resulted in TPG's submission to Zilog of a revised proposal on July 17,
1997 (the "Offer"). The Offer allowed for stockholders of Zilog the ability to
elect to receive $25.00 per share of Common Stock in cash or to retain a
limited number of shares of Common Stock. One of the conditions to the Offer
was that Warburg Pincus agree to elect to retain up to 400,000 shares of Common
Stock. TPG furnished Zilog with copies of commitment letters from its lenders.

Although Zilog and First Bidder continued to negotiate on July 17,
1997, prior to Zilog's Board meeting on July 18, 1997, First Bidder indicated
to Lehman Brothers that it had decided not to make a final proposal.

The Board then held a telephonic meeting on July 18, 1997, at which
time it reviewed at length with Lehman Brothers and Zilog's outside counsel the
terms and conditions of TPG's offer. The Board also received a presentation
concerning Zilog's current operations and future prospects on a stand alone
basis, i.e., on a basis assuming it did not enter into any of the proposed
transactions. At the conclusion of the meeting, the Board authorized
management to enter into an exclusivity agreement with TPG to finalize the
Agreement and Plan of Merger, dated as of July 20, 1997, by and between TPG and
Zilog (the "Original Merger Agreement") and related agreements. Under such
agreement, Zilog would have been required to pay $5 million to TPG if it were
to have negotiated a takeover proposal with any other party on or before July
23, 1997. Negotiations with TPG continued regarding the specific terms of the
Original Merger Agreement and related agreements.

Following execution of the exclusivity agreement with TPG, on July 19,
1997, First Bidder submitted a revised stock-for-stock proposal with an
additional modest increase in the exchange ratio which implied a cash
equivalent value of $24.41 per share based on First Bidder's then current
trading price. First Bidder's proposal, which continued to include certain
provisions which First Bidder had been informed were unacceptable, was subject
to completion by Zilog of due diligence on First Bidder, satisfactory review of
each other's disclosure schedules and final negotiation.

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<PAGE> 32
On July 20, 1997, the Board of Directors held a special telephonic
meeting at which it considered, with the advice and assistance of Lehman
Brothers and outside legal counsel, the revised proposal of First Bidder as
well as the final terms and conditions of the proposed Original Merger
Agreement with TPG. At such meeting, Lehman Brothers provided an oral opinion
(which was subsequently confirmed in writing) that, as of the date of the
Original Merger Agreement, the $25.00 cash per share payable in the Merger was
fair, from a financial point of view, to the stockholders of Zilog. In light
of the inferior cash equivalent value of First Bidder's revised proposal,
uncertainty surrounding the effect on First Bidder's common stock price of an
announcement of such a transaction, uncertainty concerning the long term
integration of the two companies' operations, and concern, based on
negotiations to date and the contingent nature of the proposal, about the
ability to successfully consummate a transaction with First Bidder, the Board
of Directors concluded the TPG Offer was more attractive and chose not to
pursue First Bidder's revised proposal. The Board then determined that the
Original Merger Agreement and the transactions contemplated thereby, including
the Merger, were fair to and in the best interests of Zilog's stockholders,
approved the Original Merger Agreement and the transactions contemplated
thereby, including the Merger, and authorized the execution and delivery of the
Original Merger Agreement.

On July 20, 1997, the Original Merger Agreement was executed.

On August 21, 1997, the chief executive officer of First Bidder
telephoned Zilog's chairman to note the recent improvement in the trading price
of First Bidder's common stock and to indicate that Zilog should still consider
"open" First Bidder's proposal of July 19, 1997. Pursuant to the terms of the
Original Merger Agreement, Zilog generally was permitted to participate in
discussions or negotiations regarding a third party business combination
proposal only if, among other things, the Board of Directors determined it to
be both bona fide and on terms more favorable to Zilog's stockholders than the
Merger. Based on First Bidder's closing price on August 21, 1997, the exchange
ratio set forth in such proposal would have implied a cash equivalent value of
$25.44. The following day, First Bidder's closing price improved
significantly, resulting in an implied cash equivalent value of $27.08. At a
special telephone meeting on August 25, 1997, the Board of Directors was
briefed about this development and again considered, with the advice and
assistance of Lehman Brothers and outside legal counsel, First Bidder's
proposal. After reviewing the then implied cash equivalent value of such a
proposal, the significant volatility of First Bidder's stock price and other
concerns and uncertainties including those considered by the Board at its July
20, 1997 meeting, the Board determined not to pursue First Bidder's oral
expression of continued interest. On several further occasions in October
1997, representatives of First Bidder telephoned representatives of Zilog to
express First Bidder's continued interest in pursuing a transaction with Zilog,
although no new proposal was made.

During the third quarter, Zilog's operating performance continued to
weaken. On September 29, 1997, Zilog announced that its revenues for such
quarter were expected to be $61 million and its earnings per share for such
quarter were expected to be between $0.06 and $0.08 per share, significantly
less than the results which Zilog had anticipated at the time the Original
Merger Agreement was executed. By November 18, 1997, the date Zilog entered
into the amendment to the Original Merger Agreement, it was projected that
fourth quarter results were likely to fall short of those realized in the third
quarter.

On the evening of November 11, 1997, TPG informed Zilog
representatives that, as a result of Zilog's recent and current financial
results, it was not prepared to proceed with the proposed transaction at the
price of $25.00 per share provided for in the Original Merger Agreement, but
would consider proceeding at a price per share of $21.00. At a special
telephonic meeting on November 14, 1997, Zilog's Board reviewed at length with
Lehman Brothers and Zilog's outside counsel the nature of Zilog's decline in
operating results, the relative rights and obligations of both TPG and Zilog
under the Original Merger Agreement, and the various alternatives (and
potential consequences) available to Zilog with respect to TPG's position. At
the conclusion of the meeting, the Board, although deferring any decision with
respect to TPG's position, authorized Zilog's advisors and management to
explore with TPG certain other modifications to the Original Merger Agreement
which the Board believed would be appropriate if it ultimately were to agree to
a reduction in price. During the course of these discussions, Zilog informed
TPG of the possibility that fourth quarter operating results in fact might be
even less favorable to those for the third quarter. As a consequence of this
development, TPG notified Zilog on November 17, 1997 that it was only willing
to proceed at a price per share of $20.00, and that in return it would agree to
amend the Original Merger Agreement to eliminate certain provisions which gave
TPG the ability to terminate the Merger Agreement based on a material adverse
change in Zilog's business. TPG also indicated that it was willing to expand
Zilog's ability to negotiate with unsolicited

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third parties regarding competing takeover proposals and to extend the date by
which the Merger must be consummated to February 28, 1998.

The Board held a telephonic meeting on November 16, 1997, at which
time it reviewed at length with Lehman Brothers and outside counsel Zilog's
current operations and future prospects on a stand alone basis, the results of
discussions with TPG regarding other modifications to the terms of the Original
Merger Agreement, and the possibility that TPG might further revise the basis
on which it would be prepared to proceed. Subsequent to TPG's $20.00 per share
proposal, Zilog's Board on November 18, 1997 held a special telephonic meeting
at which it considered, with the advice and assistance of Lehman Brothers and
outside counsel, the final terms and conditions of the proposed amendments to
the Original Merger Agreement with TPG. At such meeting, Lehman Brothers
provided an oral opinion (which was subsequently confirmed in writing) that, as
of the date of the Merger Agreement, the $20.00 cash per share payable in the
Merger is fair, from a financial point of view, to the stockholders of Zilog.
The Board then unanimously determined that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair to and in the
best interests of Zilog's stockholders, approved the Merger Agreement and the
transactions contemplated thereby, including the Merger, and authorized the
execution and delivery of the Merger Agreement.

On November 19, 1997, Zilog received a letter from First Bidder which
reiterated First Bidder's bona fide interest in acquiring Zilog and its
willingness to resume negotiations regarding a merger proposal. In response to
such letter, representatives of Zilog contacted First Bidder by telephone on
November 20, 1997 and advised First Bidder that upon submission of a detailed
proposal, Zilog's Board would determine whether to enter into negotiations with
First Bidder. On December 5, 1997, representatives of First Bidder advised
representatives of Zilog that First Bidder had determined not to submit a
proposal.

RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER. The
Board of Directors of Zilog, after careful consideration, has approved the
Merger Agreement and determined that the Merger is fair to and in the best
interests of Zilog and its stockholders and unanimously recommends that the
holders of Common Stock vote FOR approval and adoption of the Merger Agreement
and the transactions contemplated thereby, including the Merger. The decision
of the Board of Directors to enter into the Merger Agreement was based upon
balancing the risks and benefits of the Merger against the risks and benefits
of the alternatives, strategic and otherwise, available to Zilog. See
"--Background of the Merger."

In reaching its determination, the Board of Directors consulted with
Zilog's legal and financial advisors and considered a number of factors,
including, among others things, the following principal factors which were
material to the decision of the Board of Directors:

1. The knowledge of the Board of Directors of the business,
operations, properties, assets, financial condition, operating results and
prospects of Zilog, including Zilog's recent and current financial performance
and the implications thereof under the Original Merger Agreement and with
respect to the potential market performance of the Common Stock on a stand
alone basis. See "--Background of the Merger."

2. The opinion of Lehman Brothers delivered at the Board of Directors
meeting on November 18, 1997 to the effect that, as of such date, and based
upon the assumptions made, matters considered and limits of review set forth in
such opinion, the $20.00 cash per share to be received by the holders of Common
Stock in the Merger was fair to such stockholders from a financial point of
view, and the presentation of Lehman Brothers at the Board of Directors
meetings on November 14, 1997, November 16, 1997 and November 18, 1997 in
connection with its opinion. See "--Opinion of Zilog's Financial Advisor."

3. The fact that the Board of Directors approved the transactions
contemplated by the Original Merger Agreement, including the Merger, only after
Zilog and Lehman Brothers had contacted a large number of potential bidders
over a period of time in a lengthy "auction" process designed to elicit third
party proposals to acquire Zilog and enhance stockholder value. See
"--Background of the Merger."

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<PAGE> 34
4. The fact that the "auction" process had been conducted in an
evenhanded manner and that third parties interested in Zilog had been afforded
sufficient time and information to submit an appropriate proposal. See
"--Background of the Merger."

5. The belief of the Board of Directors that, based upon the advice
of the management of Zilog and Lehman Brothers and other factors, the Merger
constituted the best transaction reasonably available to maximize stockholder
value.

6. The amendments to the Original Merger Agreement, including the
fact that the Merger Agreement eliminated certain provisions of the Original
Merger Agreement giving TPG the ability to terminate the Merger Agreement based
on a material adverse change in Zilog's business. See "--Background of the
Merger."

7. The fact that First Bidder on a number of occasions subsequent to
execution of the Original Merger Agreement had contacted Zilog about a possible
business combination, and that the Merger Agreement expanded Zilog's ability to
negotiate with unsolicited third parties regarding competing takeover
proposals. See "--Background of the Merger" and "Certain Provisions of the
Merger Agreement--No Solicitation of Transactions."

8. The fact that the largest stockholder of Zilog, Warburg Pincus,
was willing to agree to vote its shares in favor of the Merger and to enter
into an amended stockholders voting agreement, which ensured that all other
stockholders would be eligible to receive $20.00 each per share.

9. The fact that the interests of Warburg Pincus are aligned with
those of the other stockholders of Zilog in the event unsolicited offers from
third parties are received, and particularly the provisions of the Stockholders
Voting Agreement which specifically recognize the rights and obligations of the
directors of Zilog who are representatives of Warburg Pincus to continue to
fulfill their fiduciary duties to stockholders of Zilog and which do not deter
such directors from recommending any such unsolicited offers.

10. The fact that the Merger Agreement requires that the Merger be
submitted to the stockholders of Zilog for approval, which allows for an
informed vote of stockholders on the merits of the transaction and that the
Merger Agreement provides that it may be terminated by Zilog if such approval
is not received.

11. The other terms and conditions of the Merger Agreement, including
those relating to the termination fee of $15 million payable by Zilog to TPG
upon the termination of the Merger Agreement as a result of, among other
things, competing offers, the aggregate amount of which would not, in the
judgment of the Board of Directors, preclude a third party from making an offer
that was materially more favorable to stockholders of Zilog. See "Certain
Provisions of the Merger Agreement--Expenses and Certain Required Payments."

The Board of Directors recognized that while certain analyses in
Lehman Brothers' presentation suggested that the value of the Merger
Consideration compared favorably on a statistical basis with certain technology
sector financial benchmarks, other analyses in Lehman Brothers' presentation
suggested unfavorable comparisons in that regard. For instance, Lehman
Brothers noted in connection with its Comparable Transaction Analysis that the
forward earnings per share multiple and the latest twelve months revenue
multiple which it had calculated for the Merger were lower than the median for
thirteen other transactions in the semiconductor industry, although the reverse
was true where the multiples being compared were based on the latest twelve
months earnings per share. In addition, Lehman Brothers' Comparable Company
Analysis indicated that when being compared to a selected group of companies
engaged in businesses considered by Lehman Brothers to be comparable to that of
Zilog, the various multiples calculated for Zilog based on a price of $20.00
were either below or above the relevant median depending on whether the
multiple was based on market value and latest twelve month revenues, on the one
hand, or price and earnings, on the other. Because the reasons for and
circumstances surrounding the foregoing comparable transactions were specific
to those transactions, and because of the inherent differences among the
businesses, operations and prospects of Zilog and the comparable companies
analyzed, Lehman Brothers did not attribute any particular weight to any
analysis or factor considered by it but rather made qualitative judgments as to
the significance and relevance thereof, and further believed that they should
only be considered as a whole. In reaching its determination with respect to
the Merger, the Board was aware of Lehman Brothers' views in this regard, and
the Board, when

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<PAGE> 35
considering the opinion and presentation of Lehman Brothers, including the
various analyses and factors contained therein, did so in their entirety.

The foregoing discussion of the information and factors considered by
the Board of Directors is not intended to be exhaustive but is believed to
include all material factors considered by the Board of Directors. In view of
the variety of factors considered in connection with its evaluation of the
Merger, the Board of Directors did not find it practical to, and did not,
quantify or otherwise attempt to assign relative weight to the specific factors
considered in reaching its determination. In addition, individual members of
the Board of Directors may have given different weights to different factors.
In the course of its deliberations, the Board of Directors did not establish a
range of values for Zilog; however, based on the factors outlined above and on
the presentation and opinion of Lehman Brothers, the Board of Directors
determined that the Merger Agreement and the Merger are fair to, and in the
best interests of, Zilog and its stockholders.

OPINION OF ZILOG'S FINANCIAL ADVISOR. Lehman Brothers has acted as
financial advisor to Zilog in connection with the Merger. As part of its role
as financial advisor to Zilog, Lehman Brothers was engaged to render its
opinion as to the fairness, from a financial point of view, to Zilog's
stockholders of the cash consideration to be offered to such stockholders in
the Merger.

On July 20, 1997, in connection with the evaluation of the Original
Merger Agreement by Zilog's Board of Directors, Lehman Brothers rendered a
written opinion that, as of the date of such opinion, and subject to certain
assumptions, factors and limitations set forth in such written opinion, the
cash consideration of $25.00 per share to be offered to Zilog's stockholders in
the transactions contemplated by the Original Merger Agreement was fair, from a
financial point of view, to such stockholders. On November 18, 1997, in
connection with the evaluation of the Merger Agreement by Zilog's Board of
Directors and based on the financial performance and results of operations of
Zilog since July 20, 1997 and the then-projected financial performance and
results of operations, Lehman Brothers rendered a written opinion that, as of
the date of such opinion, and subject to certain assumptions, factors and
limitations set forth in such written opinion as described below, the cash
consideration of $20.00 per share to be offered to Zilog's stockholders in the
Merger is fair, from a financial point of view, to such stockholders.

The full text of the written opinion of Lehman Brothers dated November
18, 1997 is attached as Annex D to this Proxy Statement/Prospectus and is
incorporated herein by reference. Stockholders may read such opinion for a
discussion of assumptions made, factors considered and limitations on the
review undertaken by Lehman Brothers in rendering its opinion. The summary of
Lehman Brothers' opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.

No limitations were imposed by Zilog on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to Zilog's Board of Directors as to the form or amount of
consideration to be received by Zilog's stockholders in the Merger, which was
determined through arm's-length negotiations between Zilog and TPG. In
arriving at its opinion, Lehman Brothers did not ascribe a specific range of
value to Zilog, but made its determination as to fairness, from a financial
point of view, to Zilog's stockholders of the cash consideration to be offered,
on the basis of the financial and comparative analyses described below. Lehman
Brothers' opinion was for the use and benefit of Zilog's Board of Directors and
was rendered to the Board of Directors in connection with its consideration of
the Merger. Lehman Brothers' opinion is not intended to be and does not
constitute a recommendation to any stockholder of Zilog as to how such
stockholder should vote with respect to the Merger. Lehman Brothers was not
requested to opine as to, and its opinion does not in any manner address (i)
Zilog's underlying business decision to proceed with or effect the Merger or
(ii) the fairness to Zilog's stockholders who elect to retain shares of Common
Stock in the Merger or the value thereof following consummation of the Merger.

In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i)
the Merger Agreement and the specific terms of the transactions contemplated by
the Merger Agreement, including the Merger, (ii) publicly available information
concerning Zilog that Lehman Brothers believed to be relevant to its analysis,
(iii) financial and operating information with respect to the business,
operations and prospects of Zilog furnished by Zilog to Lehman Brothers, (iv) a
trading history of the Common Stock from Zilog's initial public offering to
November 14, 1997 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant,

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(v) a comparison of the historical financial results and present financial
condition of Zilog with those of other companies that Lehman Brothers deemed
relevant, (vi) a comparison of the financial terms of the transactions
contemplated by the Merger Agreement, including the Merger, with the financial
terms of certain other recent transactions that Lehman Brothers deemed
relevant, (vii) the results of Lehman Brothers' efforts to solicit indications
of interest and proposals from third parties with respect to a purchase of or
investment in Zilog, (viii) the financial performance and results of operations
of Zilog since the date of the Original Merger Agreement and the then-projected
financial performance and results of operations of Zilog for the fourth quarter
of 1997 and a comparison of third party research analysts' estimates of the
revenues and earnings of Zilog with projections of management of Zilog as to
the future financial performance of Zilog for the fourth quarter of 1997 and
beyond, and (ix) the potential market performance of the Common Stock in the
absence of a proposed acquisition of Zilog. In addition, Lehman Brothers had
discussions with the management of Zilog concerning its business, operations,
assets, financial condition and prospects and undertook such other studies,
analyses and investigations as Lehman Brothers deemed appropriate.

In arriving at its opinion, Lehman Brothers assumed and relied upon
the accuracy and completeness of the financial and other information used by
Lehman Brothers without assuming any responsibility for independent
verification of such information and have further relied upon the assurances of
management of Zilog that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
revised financial projections of Zilog, upon advice of Zilog, Lehman Brothers
assumed that such projections were reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of Zilog
as to the future financial performance of Zilog, and Lehman Brothers relied on
such projections in arriving at its opinion. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of Zilog and did not make or obtain any evaluations or appraisals of
the assets or liabilities of Zilog. Lehman Brothers' opinion necessarily was
based upon market, economic and other conditions as they existed on, and could
be evaluated as of the date of its opinion.

The following is a summary of certain financial and comparative
analyses performed by Lehman Brothers in connection with the rendering of its
opinion to Zilog's Board of Directors on November 18, 1997. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant method of financial and comparative analysis and the application
of those methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its opinion, Lehman Brothers did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portions of such analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, Lehman Brothers
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Zilog. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than as set forth therein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.

Comparable Transaction Analysis. Using publicly available
information, Lehman Brothers compared selected financial data for the Merger to
similar data for selected transactions in the semiconductor industry (the
"Comparable Transactions"). These transactions included Intel Corporation's
acquisition of Chips & Technologies Inc., National Semiconductor Corporation's
acquisition of Cyrix Corporation, Vishay Intertechnology Inc.'s acquisition of
Lite-On Power Semiconductor, Rockwell Semiconductor's acquisition of ComStream
Corporation Hi-Media Division, National Semiconductor's acquisition of
Mediamatics Inc., Sterling LLC's acquisition of Fairchild Semiconductor,
Rockwell International's acquisition of Brooktree Corporation, DII Group Inc.'s
acquisition of Orbit Semiconductor Inc., Texas Instrument's acquisition of
Silicon Systems Inc., Advanced Micro Devices Inc.'s acquisition of NexGen Inc.,
AMP Inc.'s acquisition of M/A-COM, Inc., Hyundai Electronics America's
acquisition of NCR Microelectronics, and Silicon Graphics, Inc.'s acquisition
of MIPS Computer Systems, Inc. Lehman Brothers reviewed the prices paid in the
Comparable Transactions in terms of the Transaction Value Per Share (defined as
the total consideration paid to the target per share) to earnings per share for
the latest twelve-month period based on public data for the acquired entity
(the "LTM EPS Multiple"). Lehman Brothers noted that the LTM EPS Multiple
associated with the Merger was 28.6x versus 21.9x for the median of the
Comparable Transactions. Lehman Brothers also reviewed the prices paid in the
Comparable Transactions in terms of the multiple of the

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Transaction Value Per Share to estimated earnings per share for the calendar
year based on currently available Wall Street research analysts' reports for
the acquired entity (the "Forward EPS Multiple"). Lehman Brothers noted that
the Forward EPS Multiple associated with the Merger was 20.0x versus 23.1x for
the median of the Comparable Transactions. Lehman Brothers also reviewed the
prices paid in the Comparable Transactions in terms of the multiple of the
Enterprise Value (defined as the total consideration paid including total debt
less cash and cash equivalents transferred to the acquiror) to revenue for
latest twelve-month period based on public data for the acquired entity (the
"LTM Revenue Multiple"). Lehman Brothers noted that the LTM Revenue Multiple
associated with the Merger was 1.16x versus 1.66x for the median of the
Comparable Transactions.

However, because the reasons for and the circumstances surrounding
each of the Comparable Transactions were specific to such transactions, and
because of the inherent differences among the businesses, operations and
prospects of Zilog and the selected acquired companies analyzed, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the comparable transactions analysis and,
accordingly, also made qualitative judgments concerning differences between the
terms and characteristics of these transactions and the Merger that would
affect the transaction values of Zilog and such acquired companies.

Stock Trading History. Lehman Brothers considered various historical
data concerning the history of the trading prices and volumes for the Common
Stock for the period from Zilog's initial public offering on February 27, 1991
to November 14, 1997 (the next to last trading date prior to the delivery of
the opinion) and the relative stock price performances during this same period
of Zilog and of selected companies engaged in businesses considered by Lehman
Brothers to be comparable to that of Zilog. Specifically, Lehman Brothers
included in its review certain semiconductor companies, including Dallas
Semiconductor Corporation, LSI Logic Corporation, Microchip Technology
Incorporated, VLSI Technology, Inc. and Texas Instruments Incorporated (the
"Functional Comparable Semiconductor Companies") and C-Cube Microsystems, Inc.,
Cypress Semiconductor Corporation, Cirrus Logic, Inc., ESS Technology, Inc.,
Integrated Devices Technology, Inc., International Rectifier Corporation,
Microsemi Corporation, Oak Technology, Inc., S3 Incorporated, Siliconix
Incorporated, Standard Microsystems Corporation, Trident Microsystems, Inc. and
VLSI Technology, Inc. (the "Financial Comparable Semiconductor Companies", and,
together with the Functional Comparable Semiconductor Companies, the
"Comparable Semiconductor Companies"). During this period, the closing stock
price of Zilog ranged from $6.92 to $53.25 per share. During the one-year
period prior to the announcement of the Merger, the closing stock price of
Zilog ranged from $17.25 to $29.25 per share. During the three-year period
prior to the announcement of the Merger, the closing stock price of Zilog
ranged from $15.38 to $53.25 per share. This analysis showed that, during
these time periods, the Common Stock generally underperformed the Comparable
Semiconductor Companies.

Comparable Company Analysis. Using publicly available information,
Lehman Brothers compared selected financial data of Zilog with similar data of
the Comparable Semiconductor Companies. For each of Zilog and the Comparable
Semiconductor Companies, Lehman Brothers calculated the multiple of the current
stock price to (i) the latest twelve months earnings per share (the "LTM P/E
Multiple"); (ii) the estimated 1997 earnings per share (the "1997 P/E
Multiple"), based on currently available Wall Street research analysts'
reports; (iii) the estimated 1998 earnings per share (the "1998 P/E Multiple");
and (iv) the latest quarter earnings per share annualized (the "Latest Quarter
Annualized P/E Multiple"). Lehman Brothers noted that, as of November 14,
1997, (i) the LTM P/E Multiple associated with the Merger for Zilog (based on a
price of $20.00) was 28.6x as compared to 26.1x for the median of the
Functional Comparable Semiconductor Companies and 15.4x for the median of the
Financial Comparable Semiconductor Companies; (ii) the 1997 P/E Multiple for
Zilog (based on a price of $20.00) was 31.7x as compared to 23.0x for the
median of the Functional Comparable Semiconductor Companies and 18.7x for the
median of the Financial Comparable Semiconductor Companies; (iii) the 1998 P/E
Multiple for Zilog (based on a price of $20.00) was 20.0x as compared to 18.3x
for the median of the Functional Comparable Semiconductor Companies and 17.1x
for the median of the Financial Comparable Semiconductor Companies; and (iv)
the Latest Quarter Annualized P/E Multiple for Zilog (based on a price of
$20.00) was 71.4x as compared to 19.7x for the median of the Functional
Comparable Semiconductor Companies and 22.2x for the median of the Financial
Comparable Semiconductor Companies. In addition, Lehman Brothers calculated
the Firm Value (defined as the market value of the respective company's common
equity plus total debt and preferred stock less cash and cash equivalents) as a
multiple of the latest twelve months revenues (the "LTM Firm Value Revenue
Multiple"). Lehman Brothers noted that, as of November 14, 1997, the LTM Firm
Value Revenue Multiple for Zilog (based on a price of $20.00) was 1.16x as
compared to 2.20x for the median of the Functional Comparable Semiconductor
Companies

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and 1.52x for the median of the Financial Comparable Semiconductor Companies.
In addition, based on the Comparable Semiconductor Companies and on the recent
and currently projected financial performance and results of operations of
Zilog, Lehman Brothers noted that the likely market price of the Common Stock
in the absence of a proposed acquisition of Zilog was significantly below the
market price of $19.188 per share on November 14, 1997.

However, because of the inherent differences between the businesses,
operations and prospects of Zilog and the business, operations and prospects of
the companies included in the Comparable Semiconductor Companies, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the comparable company analysis, and
accordingly also made qualitative judgments concerning differences between the
financial and operating characteristics and prospects of the companies included
in the Comparable Semiconductor Companies and Zilog that would affect the
public trading values of each. In particular, Lehman Brothers judged the
Financial Comparable Semiconductor Companies to be the more relevant set of
comparable companies due to the more similar nature of the financial
characteristics of these companies to those of Zilog.

Engagement Of Lehman Brothers. Lehman Brothers is an internationally
recognized investment banking firm and, as part of its investment banking
activities, is regularly engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements, and valuations for corporate and other
purposes. Zilog's Board of Directors selected Lehman Brothers as its financial
advisor because of its expertise, reputation and familiarity with Zilog and the
semiconductor industry in general.

Pursuant to an engagement letter between Zilog and Lehman Brothers,
Zilog has paid Lehman Brothers (i) a retainer of $60,000; and (ii) a fee of
$500,000 in connection with its financial advisory services regarding the
Merger. In addition, the Company has agreed to pay Lehman Brothers a fee of
0.75% of the aggregate value of the consideration received by Zilog's
stockholders upon consummation of the Merger, against which both the $60,000
retainer and $500,000 fee would be credited. Zilog also has agreed to
reimburse Lehman Brothers for reasonable expenses incurred by Lehman Brothers
and to indemnify Lehman Brothers and certain related persons for certain
liabilities that may arise out of its engagement and the rendering of the
Lehman Brothers Opinion.

Lehman Brothers has performed various investment banking services for
Zilog in the past, including acting as an underwriter for common stock
offerings in 1992 and 1993 and has received customary fees for such services.
In the ordinary course of its business, Lehman Brothers actively trades in the
securities of Zilog for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.

MERGER CONSIDERATION. Subject to certain provisions as described
herein with respect to the Excluded Shares, and with respect to fractional
shares and Dissenting Shares, and subject to the effects of proration as
described herein, (i) each issued and outstanding share of Common Stock (other
than Electing Shares) will be converted into the right to receive in cash from
Zilog following the Merger an amount equal to the Cash Election Price and (ii)
each Electing Share will be converted into a Non-Cash Election Share; provided,
that the aggregate number of shares of Common Stock to be converted into the
right to retain Common Stock at the Effective Time shall be equal to the
Non-Cash Election Number. With respect to certain risks related to the
retention of Common Stock, see "Risk Factors."

Assuming the Merger were to have been consummated as of the Record
Date, 19,958,792 of the then issued and outstanding shares of Common Stock would
have been converted into cash and that the remaining 375,000 of the then issued
and outstanding shares would have been retained by existing stockholders,
subject to the elimination of fractional shares. Pursuant to the Stockholders
Voting Agreement, Warburg Pincus has agreed to elect to retain 375,000 shares of
Common Stock less the aggregate number of Electing Shares, if any, held by
stockholders of Zilog other than Warburg Pincus. Thus, all other stockholders
who do not elect to retain Common Stock will be assured that they will receive
$20.00 in cash for each share held by such stockholders, and all other
stockholders who elect to retain Common Stock may experience proration of such
shares, resulting in their retaining only a portion of the shares of Common
Stock they elect to retain and receiving $20.00 per share in cash for each of
their other shares of Common Stock. See "Risk Factors--Securities-Related Risk
Factors--Certain Proration Risks."

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Stockholders of Zilog who elect to retain shares of Common Stock or to
convert such shares into the right to receive the Cash Election Price may
experience a range of actual outcomes based upon the actions taken by other
stockholders. The following examples illustrate the potential effects of
proration:

A. Stockholder A Owns 100 Shares and Does Not Elect to Retain Any
Shares. Because Warburg Pincus has committed to elect to retain up to 375,000
shares of Common Stock, all stockholders of Zilog who do not elect to retain
shares of Common Stock will be assured that their shares will be converted into
the Cash Election Price. Therefore, stockholder A will receive $2,000.00 for
the 100 shares in the Merger.

B. Stockholder B Owns 100 Shares and Elects to Retain All Its Shares.
Pursuant to the Merger Agreement, stockholder B will be able to retain all of
its shares if the aggregate number of Electing Shares held by stockholders of
Zilog other than Warburg Pincus is less than or equal to 375,000 shares of
Common Stock. If the aggregate number of Electing Shares held by stockholders
of Zilog other than Warburg Pincus is greater than 375,000 shares of Common
Stock, all stockholders, including stockholder B, who elect to retain Common
Stock will experience proration of such shares, resulting in their retaining
only a portion of the shares of Common Stock they elect to retain and receiving
$20.00 per share in cash for each of their other shares of Common Stock. In
this case, stockholder B will not be able to retain 100 shares, as elected.
This is because the Non-Cash Election Number will have been exceeded, and the
number of shares which have been elected to be retained must be reduced in
order to meet the Non-Cash Election Number. For example, if stockholders of
Zilog other than Warburg Pincus elect to retain 750,000 shares in the
aggregate, then each such holder, including stockholder B, would be able to
retain only 50% of its shares in order to reduce the number of retained shares
to 375,000 (subject to the elimination of fractional shares) to meet the
Non-Cash Election Number. In this case, stockholder B would be able to retain
only 50 shares (or 50% of the 100 shares it elected to retain) and would
receive $1,000.00 in cash (50 shares at $20.00 per share) for the remaining
shares stockholder B elected to retain. In the case of maximum proration
(i.e., all stockholders other than Warburg Pincus elect to retain all their
shares), stockholder B would be able to retain only two shares (or 2% of its
100 shares) and would receive $1,960.00 in cash (98 shares at $20.00 per
share).

C. Stockholder C Owns 100 Shares and Elects to Retain 50 Shares and
Convert 50 Shares to Cash. Pursuant to the Merger Agreement, stockholder C
will be able to retain all 50 of the shares it is electing to retain if the
aggregate number of Electing Shares held by stockholders of Zilog other than
Warburg Pincus is less than or equal to 375,000 shares of Common Stock. If the
aggregate number of Electing Shares held by stockholders of Zilog other than
Warburg Pincus is greater than 375,000 shares of Common Stock, all
stockholders, including stockholder C, who elect to retain Common Stock will
experience proration of such shares, resulting in their retaining only a
portion of the shares of Common Stock they elect to retain and receiving $20.00
per share in cash for each of their other shares of Common Stock. In this
case, stockholder C will not be able to retain 50 shares, as elected. This is
because the Non-Cash Election Number will have been exceeded, and the number of
shares elected to be retained must be reduced in order to meet the Non-Cash
Election Number. For example, if stockholders of Zilog other than Warburg
Pincus were to elect to retain 750,000 shares in the aggregate, then each such
stockholder, including stockholder C, would be able to retain only 50% of the
shares it elected to retain in order to reduce the number of retained shares to
375,000 (subject to the elimination of fractional shares) to meet the Non-Cash
Election Number. In this case, stockholder C would be able to retain only 25
shares (or 50% of the 50 shares it elected to retain) and would receive $500.00
in cash (25 shares at $20.00 per share) for the remaining shares stockholder C
elected to retain, plus $1,000.00 in cash for the shares stockholder C elected
to convert to cash. If the stockholders of Zilog elected to retain more than
750,000 shares in the aggregate, stockholder C would receive fewer shares than
in the example above, but would receive a commensurately greater amount of
cash.

Fractional shares of Common Stock will not be issued in the Merger.
Stockholders of Common Stock otherwise entitled to a fractional share of Common
Stock following the Merger will be paid cash in lieu of such fractional share
determined and paid as described under "--Fractional Shares."

Any shares of Common Stock owned by Zilog, its subsidiaries, or by
TPG, Merger Sub or any of TPG's other subsidiaries, will automatically be
canceled at the Effective Time and will cease to exist.

NON-CASH ELECTION. Record holders of shares of Common Stock as of the
Record Date will be entitled to make an unconditional election (a "Non-Cash
Election") on or prior to the Election Date to retain Non-Cash Election

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Shares. If the number of Electing Shares exceeds the Non-Cash Election Number,
then (i) the number of Electing Shares covered by a holder's Non-Cash Election
to be converted into the right to retain Non-Cash Election Shares will be
determined by multiplying the total number of Electing Shares covered by such
Non-Cash Election by a proration factor (the "Non-Cash Proration Factor")
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares and (ii) such number of Electing Shares will be converted into
the right to retain Non- Cash Election Shares. All Electing Shares other than
those shares converted into the right to retain Non-Cash Election Shares as
described in the immediately preceding sentence will be converted into cash (on
a consistent basis among stockholders who made the election to retain Non- Cash
Election Shares, pro rata to the number of shares as to which they made such
election) as if such shares were not Electing Shares.

If a stockholder of Zilog makes a Non-Cash Election and receives cash
as a result of the proration procedures described above, such stockholder of
Zilog may receive dividend treatment (rather than capital gain treatment) for
any cash received in the Merger as a result of such proration procedures. See
"Risk Factors--Securities-Related Risk Factors--Certain Proration Risks" and
"The Merger--Federal Income Tax Consequences."

Because Warburg Pincus has committed to elect to retain 375,000 shares
of Common Stock less the aggregate number of Electing Shares, if any, held by
stockholders of Zilog other than Warburg Pincus, all stockholders who do not
elect to retain Common Stock will be assured that they will receive $20.00 per
share in cash for each of their shares of Common Stock. If, however, for any
reason the number of Electing Shares is less than the Non-Cash Election Number,
then (i) all Electing Shares will be converted into the right to retain
Non-Cash Election Shares; (ii) additional shares of Common Stock, other than
Electing Shares, Excluded Shares and Dissenting Shares, will be converted into
the right to retain Non-Cash Election Shares, which number of additional shares
shall be determined by multiplying the total number of shares, other than
Electing Shares, Excluded Shares and Dissenting Shares, by a proration factor
(the "Cash Proration Factor") determined by dividing (x) the difference between
the Non-Cash Election Number and the number of Electing Shares by (y) the total
number of shares of Common Stock, other than Electing Shares, Excluded Shares
and Dissenting Shares; and (iii) such additional shares of Common Stock shall
be converted into the right to retain Non-Cash Election Shares (on a consistent
basis among stockholders who held shares of Common Stock as to which they did
not make the Non-Cash Election, pro rata to the number of shares as to which
they did not make such election).

With respect to certain risks related to the retention of Common Stock,
see "Risk Factors."

NON-CASH ELECTION PROCEDURE. The Non-Cash Election Form is being
mailed under separate cover to holders of record of Common Stock as of the
Record Date. FOR A NON-CASH ELECTION FORM TO BE EFFECTIVE, HOLDERS OF COMMON
STOCK MUST PROPERLY COMPLETE SUCH NON-CASH ELECTION FORM AND RETURN IT TOGETHER
WITH ALL CERTIFICATES FOR SHARES OF COMMON STOCK HELD BY SUCH HOLDER, DULY
ENDORSED IN BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER ON THE BOOKS OF
ZILOG (OR BY APPROPRIATE GUARANTEE OF DELIVERY AS SET FORTH IN SUCH NON-CASH
ELECTION FORM), TO THE EXCHANGE AGENT AT ONE OF THE ADDRESSES LISTED ON THE
NON-CASH ELECTION FORM AND NOT REVOKE THEIR NON-CASH ELECTIONS, BY 5:00 P.M.,
EASTERN TIME, ON THE ELECTION DATE. The determinations of the Exchange Agent
as to whether or not Non-Cash Elections have been properly made or revoked, and
when such election or revocations were received, will be binding.

TO THE EXTENT THAT A HOLDER RETAINS NON-CASH ELECTION SHARES FOLLOWING
CONSUMMATION OF THE MERGER, BY COMPLETING THE NON-CASH ELECTION FORM AND
RETURNING SUCH NON-CASH ELECTION FORM TOGETHER WITH STOCK CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK, SUCH HOLDER WILL BE DEEMED TO HAVE SIGNED
AND BECOME A PARTY TO THE STOCKHOLDERS AGREEMENT AS OF THE EFFECTIVE TIME AND
SHALL BE ENTITLED TO ALL OF THE RIGHTS AND SUBJECT TO ALL OF THE OBLIGATIONS
AND OTHERWISE SHALL BE BOUND BY ALL OF THE PROVISIONS THEREOF, IN EACH CASE
APPLICABLE TO SUCH HOLDER.

CONVERSION OF MERGER SUB STOCK. As a result of the Merger, all of the
capital stock of Merger Sub issued and outstanding immediately prior to the
Effective Time will be converted into 3,375,000 shares of Common Stock,

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1,250,000 shares of Class A Non-Voting Common Stock and 250,000 shares of New
Preferred Stock in the aggregate, which together will represent approximately
94.0% of the total equity capital and 90% of the voting equity capital of Zilog
to be outstanding immediately after the Effective Time.

STOCKHOLDERS AGREEMENT. The Merger Agreement requires that each
Retaining Stockholder enter into the Stockholders Agreement with Zilog, TPG and
affiliates of TPG, a copy of the form which is attached as Annex C to this
Proxy Statement/Prospectus and is incorporated herein by reference. TO THE
EXTENT THAT A STOCKHOLDER RETAINS NON-CASH ELECTION SHARES FOLLOWING
CONSUMMATION OF THE MERGER, BY COMPLETING THE NON-CASH ELECTION FORM AND
RETURNING SUCH NON-CASH ELECTION FORM TOGETHER WITH STOCK CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK, THE STOCKHOLDER WILL BE DEEMED TO HAVE
SIGNED AND BECOME A PARTY TO THE STOCKHOLDERS AGREEMENT AS OF THE EFFECTIVE
TIME. Accordingly, holders of Non-Cash Election Shares after the Merger will
receive the benefits and be subject to the obligations set forth in the
Stockholders Agreement. See "Certain Provisions of the Stockholders
Agreement."

EFFECTIVE TIME OF THE MERGER. The Merger will become effective upon
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware or such later date as is specified in such Certificate of
Merger (the "Effective Time"). The filing of the Certificate of Merger will
occur as soon as practicable on or after the satisfaction or waiver of the
conditions to the Merger specified in the Merger Agreement unless another date
is agreed to in writing by Zilog and TPG. Subject to certain limitations, the
Merger Agreement may be terminated by either Zilog or TPG if, among other
reasons, the Merger has not been consummated on or before February 28, 1998.
See "Certain Provisions of the Merger Agreement--Conditions to the Consummation
of the Merger" and "--Termination."

PROCEDURES FOR EXCHANGE OF CERTIFICATES. As soon as practicable after
the Effective Time, the Exchange Agent will send a letter of transmittal to
each holder of Common Stock (other than holders of Common Stock making a
Non-Cash Election who have properly submitted Non-Cash Election Forms and share
certificates to the Exchange Agent). The letter of transmittal will contain
instructions with respect to the surrender of certificates representing shares
of Common Stock in exchange for cash and, under certain circumstances,
certificates representing shares of Common Stock to be retained in the Merger
or the amount of cash in lieu of any fractional interest in a share of Common
Stock for which the shares represented by the certificates so surrendered are
exchangeable pursuant to the Merger Agreement.

EXCEPT FOR COMMON STOCK CERTIFICATES SURRENDERED WITH A NON-CASH
ELECTION FORM AS DESCRIBED ABOVE UNDER "--NON-CASH ELECTION PROCEDURE,"
STOCKHOLDERS OF ZILOG SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL.

As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Common Stock shall, upon surrender to the Exchange Agent
of such certificate or certificates and acceptance thereof by the Exchange
Agent, be entitled to the amount of cash, if any, into which the number of
shares of Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to the Merger
Agreement and a certificate or certificates representing the number of full
shares of Common Stock, if any, to be retained by the holder thereof pursuant
to the Merger Agreement. The Exchange Agent will accept such certificates when
duly executed and completed in accordance with the instructions thereto,
together with such other documents as may reasonably be required by the
Exchange Agent. After the Effective Time, there will be no further transfer on
the records of Zilog or its transfer agent of certificates representing shares
of Common Stock which have been converted, in whole or in part, pursuant to the
Merger Agreement into the right to receive cash, and if such certificates are
presented to Zilog for transfer, they will be canceled against delivery of cash
and, if appropriate, certificates for retained Common Stock. Until surrendered
as contemplated by the Merger Agreement, each certificate for shares of Common
Stock will be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the consideration contemplated by the
Merger Agreement. No interest will be paid or will accrue on any cash payable
as consideration in the Merger or in lieu of any fractional shares of retained
Common Stock.

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No dividends or other distributions with respect to retained Common
Stock with a record date after the Effective Time will be paid to the holder of
any unsurrendered certificate for shares of Common Stock with respect to the
shares of retained Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to the Merger
Agreement until the surrender of such certificate in accordance with the Merger
Agreement. Subject to the effect of applicable laws, following surrender of
any such certificate, there shall be paid to the holder of the certificate
representing whole shares of retained Common Stock issued in connection
therewith, without interest, (i) at the time of such surrender or as promptly
thereafter as practicable, the amount of any cash payable in lieu of a
fractional share of retained Common Stock to which such holder is entitled
pursuant to the Merger Agreement and the proportionate amount of dividends or
other distributions, if any, with a record date after the Effective Time
theretofore paid with respect to such whole shares of retained Common Stock,
and (ii) at the appropriate payment date, the proportionate amount of dividends
or other distributions, if any, with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of retained Common Stock.

FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of retained Common Stock will be issued in connection with the Merger,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of Zilog after the Merger. Each holder of
shares of Common Stock who would otherwise have been entitled to receive a
fraction of a share of retained Common Stock (after taking into account all
shares of Common Stock delivered by such holder) will receive, in lieu thereof,
a cash payment (without interest) equal to such fraction multiplied by the Cash
Election Price.

FEDERAL INCOME TAX CONSEQUENCES. In the opinion of Pillsbury Madison
& Sutro LLP, under currently applicable law, the following are the material
United States federal income tax considerations generally applicable to the
Merger. The tax treatment described herein may vary depending upon each
stockholder's particular circumstances and tax position. Certain stockholders
(including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations, persons who are not
citizens or residents of the United States, stockholders who do not hold their
shares as capital assets and stockholders who have acquired their existing
stock upon the exercise of options or otherwise as compensation) may be subject
to special rules not discussed below. No ruling from the Internal Revenue
Service ("IRS") will be sought with respect to the federal income tax
consequences discussed herein and, accordingly, there can be no assurance that
the IRS will agree with the conclusions stated herein. The discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in U.S. federal income tax consequences different from those discussed
below. In addition, this discussion does not consider the effect of any
applicable foreign, state, local or other tax laws. EACH STOCKHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM
OR HER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FOREIGN,
STATE, LOCAL OR OTHER TAX LAWS. See "Risk Factors--Securities-Related Risk
Factors--Federal Income Tax Consequences."

Characterization of the Merger for U.S. Federal Income Tax Purposes.
For U.S. federal income tax purposes, Merger Sub will be disregarded as a
transitory entity, and the Merger of Merger Sub with and into Zilog will be
treated as a sale of a portion of a tendering stockholder's Common Stock to TPG
and as a redemption of a portion of such stockholder's Common Stock by Zilog.
It is unclear how the allocation of proceeds between the sale and redemption
should be determined. Zilog intends to take the position that the percentage
of a stockholder's Common Stock disposed of by the stockholder pursuant to the
Merger which will be treated as sold to TPG will be equal to (i) the amount
contributed to Merger Sub by TPG in exchange for Merger Sub stock divided by
(ii) the aggregate amount of cash paid to stockholders pursuant to the Merger.
The remainder of such stockholder's Common Stock disposed of in the Merger will
be treated as redeemed by Zilog. The IRS could, however, adopt a different
approach in determining the portion, if any, of a stockholder's Common Stock
which is treated as redeemed by Zilog. See "--Federal Income Tax
Consequences--Stockholders Receiving Cash" below for a discussion of the
consequences of cash being deemed paid in redemption of Common Stock.

Stockholders Receiving Cash. As described more fully below, the U.S.
federal income tax consequences of the Merger with respect to a particular
stockholder will depend upon, among other things, (i) the extent to which a
stockholder is deemed to have sold his or her Common Stock to TPG or is deemed
to have had his or her Common Stock redeemed by Zilog and (ii) whether the
redemption of a holder's Common Stock by Zilog will qualify as a

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<PAGE> 43
sale or exchange under section 302 of the Code. First, to the extent that a
stockholder is considered to have sold Common Stock to TPG such stockholder
will recognize either capital gain or loss (assuming the Common Stock is held
by such stockholder as a capital asset) equal to the difference between the
amount realized on his or her deemed sale of Common Stock to TPG (i.e., the
cash proceeds properly allocated to such sale) and the stockholder's adjusted
tax basis in such Common Stock. Such gain or loss generally will be long-term
capital gain or loss if the Common Stock is held as a capital asset by the
stockholder for more than one year. Second, a stockholder also will recognize
either capital gain or loss equal to the difference between the cash proceeds
allocable to the redemption of such stockholder's Common Stock by Zilog and the
stockholder's adjusted tax basis in such Common Stock, to the extent such
redemption is treated as a sale or exchange under section 302 of the Code with
respect to such stockholder. Such gain or loss generally will be long-term
capital gain or loss if the Common Stock is held as a capital asset by the
stockholder for more than one year. Under the Taxpayer Relief Act of 1997,
long-term capital gain recognized by an individual from disposition of his or
her Common Stock will be subject to a maximum U.S. federal income tax rate of
20% if the Common Stock is held for more than 18 months; such gain will be
subject to a maximum U.S. federal income tax rate of 28% if the Common Stock is
held for more than one year but less than 18 months. Capital gain recognized
by a corporate taxpayer remains subject to U.S. federal income tax at the
ordinary income rates applicable to corporations.

Under section 302 of the Code, a redemption of Common Stock pursuant
to the Merger will, as a general rule, be treated as a sale or exchange if such
redemption (a) is "substantially disproportionate" with respect to the
stockholder, (b) results in a "complete redemption" of the stockholder's
interest in Zilog or (c) is "not essentially equivalent to a dividend" with
respect to the stockholder. In determining whether any of these section 302
tests is satisfied, stockholders must take into account not only the Common
Stock that they actually own, but also any Common Stock they are deemed to own
under the constructive ownership rules set forth in section 318 of the Code.
Pursuant to these constructive ownership rules, a stockholder is deemed to own
constructively any Common Stock that is owned by certain related individuals or
entities and any Common Stock that the stockholder has the right to acquire by
exercise of an option or by conversion or exchange of a security.

The redemption of a stockholder's Common Stock will be "substantially
disproportionate" with respect to such stockholder if, among other things, the
percentage of Common Stock actually and constructively owned by such
stockholder immediately following the Merger is less than 80% of the percentage
of Common Stock actually and constructively owned by such stockholder
immediately prior to the Merger. Stockholders should consult their own tax
advisors with respect to the application of the "substantially
disproportionate" test to their particular facts and circumstances.

The redemption of a stockholder's Common Stock will result in a
"complete redemption" of a stockholder's interest in Zilog if either (i) all
the Common Stock actually and constructively owned by the stockholder is
redeemed or sold pursuant to the Merger or (ii) all the Common Stock actually
owned by the stockholder is redeemed or sold pursuant to the Merger and the
stockholder is eligible to waive, and does effectively waive in accordance with
section 302(c) of the Code, attribution of all Common Stock which otherwise
would be considered to be constructively owned by such stockholder.

Even if the redemption of a stockholder's Common Stock fails to
satisfy the "substantially disproportionate" test or the "complete redemption"
test described above, the redemption of a stockholder's Common Stock may
nevertheless satisfy the "not essentially equivalent to a dividend" test if the
stockholder's redemption of Common Stock pursuant to the Merger results in a
"meaningful reduction" in such stockholder's proportionate Common Stock
interest in Zilog. Whether the receipt of cash by a stockholder will be
considered "not essentially equivalent to a dividend" will depend upon such
stockholder's facts and circumstances. In certain circumstances, even a small
reduction in a stockholder's proportionate equity interest may satisfy this
test. For example, the IRS has indicated in a published ruling that a 3.3%
reduction in the proportionate equity interest of a small (substantially less
than 1%) stockholder in a publicly held corporation who exercises no control
over corporate affairs constitutes such a "meaningful reduction." Stockholders
should consult with their own tax advisors as to the application of this test
in their particular situations.

A stockholder may not be able to satisfy one of the above three tests
because of contemporaneous acquisitions of Common Stock by such stockholder or
a related party whose Common Stock would be attributed to

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such stockholder under section 318 of the Code. Stockholders should consult
their own tax advisors regarding the tax consequences of such acquisitions in
their particular circumstances.

If a stockholder cannot satisfy any of the three tests described above
and to the extent Zilog has sufficient current or accumulated earnings and
profits, such stockholder will be treated as having received a dividend which
will be includable in gross income (and treated as ordinary income) in an
amount equal to the cash received (without regard to gain or loss, if any).

In the case of a corporate stockholder, if the cash paid is treated as
a dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Common Stock or if the Common
Stock is treated as "debt financed portfolio stock" within the meaning of
section 246A(c) of the Code. Additionally, if a dividends-received deduction
is available, the dividend may be treated as an "extraordinary dividend" under
section 1059(a) of the Code, in which case a corporate stockholder's adjusted
tax basis in the Common Stock retained by such stockholder would be reduced,
but not below zero, by the amount of the nontaxed portion of such dividend. By
virtue of section 1011 of the Taxpayer Relief Act of 1997, any amount of the
nontaxed portion of the dividend in excess of the corporate stockholder's
adjusted tax basis in the Common Stock retained by such stockholder is
immediately subject to tax in the taxable year of the ex dividend date for the
dividend. Corporate stockholders are urged to consult their own tax advisors
as to the effect of section 1059 of the Code on the adjusted tax basis of their
Common Stock.

Stockholders Retaining a Portion of Their Common Stock and Receiving
Cash. To the extent that a stockholder elects to retain a portion of his or
her Common Stock and exchange a portion of his or her Common Stock for cash,
the tax treatment of the stockholder's receipt of such cash will be the same as
set forth above under "--Federal Income Consequences--Stockholders Receiving
Cash."

The Merger will have no tax consequences to a stockholder (and, thus,
a stockholder will not recognize any gain or loss as a result of the Merger),
to the extent such stockholder retains Common Stock. However, as described
more fully above under "--Stockholders Receiving Cash," a stockholder's
retention of Common Stock may, under certain circumstances, cause the cash
received by such stockholder pursuant to the Merger to be treated as a dividend
for U.S. federal income tax purposes.

Foreign Stockholders. The following is a general discussion of
certain U.S. federal income tax consequences of the Merger to foreign
stockholders. For this purpose, a foreign stockholder is any person who is,
for U.S. federal income tax purposes, a foreign corporation, a nonresident
alien individual, a foreign partnership or a foreign estate or trust.

Withholding. In the case of any foreign stockholder, the
Exchange Agent will withhold 30% of the amount paid to redeem the
Common Stock of such stockholder in order to satisfy certain U.S.
withholding requirements, unless such foreign stockholder proves in a
manner satisfactory to Zilog and the Exchange Agent that either (i)
the redemption of his or her Common Stock pursuant to the Merger will
qualify as a sale or exchange under section 302 of the Code, rather
than as a dividend for U.S. federal income tax purposes, in which case
no withholding will be required, (ii) the foreign stockholder is
eligible for a reduced tax treaty rate with respect to dividend
income, in which case the Exchange Agent will withhold at the reduced
treaty rate, or (iii) no U.S. withholding is otherwise required.
Foreign stockholders should consult their own tax advisors regarding
the application of these withholding rules.

Information Reporting and Backup Withholding. Zilog must
report annually to the IRS and to each stockholder the amount of
dividends paid to such stockholder and the backup withholding tax, if
any, withheld with respect to such dividends. Copies of these
information returns also may be made available to the tax authorities
in the country in which a foreign stockholder resides under the
provisions of an applicable income tax treaty. Backup withholding
(which generally is a withholding tax imposed at the rate of 31% on
certain payments to persons that fail to furnish certain information
under the United States information reporting requirements) generally
will not apply to dividends paid to a foreign stockholder at an
address outside the United States (unless the payor has knowledge that
the payee is a U.S. person).

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<PAGE> 45
Payment of the proceeds of a sale of Common Stock by or
through a United States office of a broker is subject to both backup
withholding and information reporting unless the beneficial owner
certifies under penalties of perjury that it is a foreign stockholder
and the payor does not have actual knowledge that such owner is a U.S.
person, or otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to a payment of
the proceeds of a sale of Common Stock by or through a foreign office
of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation,
or a foreign person that derives 50% or more of his or her gross
income for certain periods from the conduct of a trade or business in
the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (i)
such broker has documentary evidence in its records that the
beneficial owner is a foreign holder and certain other conditions are
met or (ii) the beneficial owner otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against the holder's U.S. federal
income tax liability provided the required information is furnished to
the IRS. The backup withholding and information reporting rules are
currently under review by the Treasury Department and their
application to the Common Stock could be changed by future
regulations.

ALTHOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A
PARTICULAR STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH
STOCKHOLDER, IN THE LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES, OF THE
DISPOSITION OR RETENTION OF COMMON STOCK PURSUANT TO THE MERGER.

ACCOUNTING TREATMENT. The Merger is intended to be accounted for as a
recapitalization for financial reporting purposes. Pursuant to the Merger
Agreement, each share of Common Stock issued and outstanding immediately prior
to the Effective Time will be converted, at the election of the holder thereof
into either the right to receive $20.00 in cash or the right to retain one
share of Common Stock provided that exactly 375,000 shares of Common Stock
shall be retained by existing stockholders of Zilog. As a result, 10% of the
voting shares of Common Stock of the Surviving Corporation will be owned by
existing stockholders. Because TPG and its affiliates will acquire less than
substantially all of the Common Stock, "push-down" accounting is not required.
Accordingly, the Merger will be accounted for as a recapitalization for
financial reporting purposes. The historical basis of Zilog's assets and
liabilities should not be impacted by the transaction.

EFFECT ON OPTIONS AND EMPLOYEE BENEFIT MATTERS. At the Effective
Time, each Option, whether or not otherwise exercisable, shall become fully
vested and exercisable. At the Effective Time, each Option shall be canceled
by Zilog and each holder of any such canceled Option having an exercise or
purchase price of less than the Cash Election Price will receive, in
consideration of such cancellation, a payment from Zilog after the Merger (less
any applicable withholding taxes) equal to the product of (x) the total number
of shares of Common Stock subject or related to such Option and (y) the excess
of the Cash Election Price over the exercise or purchase price per share of
Common Stock subject or related to such Option, payable in cash within five
days of the Effective Time. Each Option having an exercise or purchase price
equal to or greater than the Cash Election Price will be canceled by Zilog at
the Effective Time without the payment of any consideration.

Following the Effective Time, no current holder of an Option granted
under any of Zilog's stock plans nor any participant under other plans,
programs or arrangements of Zilog shall have any right thereunder to acquire
equity securities of Zilog or the Surviving Corporation. It is anticipated
that Zilog will adopt a stock option plan following the Merger that will permit
the grant of stock options covering approximately 20% of the Surviving
Corporation's equity on a fully diluted basis over an approximately four-year
period. Under the proposed stock option plan, the Surviving Corporation
shortly after the closing of the Merger would grant stock options covering
approximately one-third of the underlying plan shares, representing
approximately 6.7% of the equity of the Surviving Corporation on a fully
diluted basis. These initial stock options would be granted primarily to the
group of approximately 500 non-executive employees of the Surviving
Corporation. However, only one-quarter of these stock options, covering
approximately 1.7% of the Surviving Corporation's equity on a fully diluted
basis, would be

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awarded to the nine current members of senior management. There can be no
assurances that the proposed stock option plan will be successfully implemented
by the Surviving Corporation or that such plan will not be materially different
from that described herein. See "--Interests of Certain Persons in the
Merger."

The Merger Agreement provides that, subject to certain exceptions,
until December 31, 1997, Zilog shall maintain or cause to be maintained wages,
compensation levels, employee pension and welfare plans for the benefit of
employees and former employees of Zilog which, in the aggregate, are not less
favorable than those wages, compensation levels and other benefits currently
provided under the benefit plans of Zilog.

INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain directors and
officers of Zilog have interests, described below, that may present them with
potential conflicts of interest in connection with the Merger. The Board of
Directors is aware of the conflicts and considered them in addition to the
other matters described under "--Background of the Merger" and
"--Recommendation of the Board of Directors; Reasons for the Merger" when it
approved the Merger Agreement and recommended that stockholders vote in favor
of the Merger.

Pursuant to the employment agreement between Zilog and Edgar A. Sack,
upon consummation of the Merger, the term of Dr. Sack's employment will be
automatically extended for 24 months from the earlier of the Effective Time or
the expiration date of his employment agreement. If Dr. Sack terminates
employment with Zilog after the Effective Time, either voluntarily or
involuntarily: (i) Dr. Sack will be entitled to receive the following payments
in a cash lump sum: (A) the then current base salary for the period remaining
under his employment agreement, (B) payouts under Zilog's Employee Performance
Incentive Plan for awards granted prior to the effective date of termination of
employment, and (C) payouts under Zilog's Executive Bonus Plan for awards
granted prior to the effective date of termination of employment; (ii) all of
Dr. Sack's outstanding unvested stock options will fully vest effective with
the last date of his active employment; and (iii) Dr. Sack will be entitled to
continue his participation in group insurance plans maintained by Zilog. Prior
to the announcement of the Merger, Dr. Sack advised Zilog's Board of Directors
of his intention to step down as CEO after the Effective Time, at a mutually
acceptable time.

Pursuant to the employment agreements between Zilog and each of
Michael J. Bradshaw, Richard L. Moore, Robert E. Collins, Richard R. Pickard,
Sally M. Baumwell, J. James Magill, Alan Secor and Thomas C. Carson, upon
consummation of the Merger, the term of each such executive officer's
employment will be automatically extended for 24 months from the earlier of the
Effective Time or the expiration date of each respective employment agreement.
If any of such executive officers terminates employment with Zilog after the
Effective Time, either voluntarily for Good Reason (as defined in each
respective employment agreement) or involuntarily for reasons other than for
Cause or Detrimental Activity (as defined in each respective employment
agreement): (i) the executive officer will be entitled to receive the
following payments in a cash lump sum: (A) the then current base salary for
the period remaining under the employment agreement, (B) payouts under Zilog's
Employee Performance Incentive Plan for awards granted prior to the effective
date of termination of employment, and (C) payouts under Zilog's Executive
Bonus Plan for awards granted prior to the effective date of termination of
employment; (ii) the executive officer's outstanding unvested stock options
will continue to vest for the period of time remaining under the employment
agreement; and (iii) the executive officer will be entitled to continue
participation in group insurance plans maintained by Zilog.

The Merger Agreement provides that Zilog's bonus plans (as in effect
on or before March 1, 1997) will be maintained after the Merger through the end
of the 1997 fiscal year. The maximum aggregate amount that may be payable
under Zilog's Employee Performance Incentive Plan is $4 million, with payments
to occur in the first quarter of 1998. The maximum aggregate amount that may
be payable under Zilog's Executive Bonus Plan is $1,900,000, for the 1997 plan
year, with the payouts to occur in the first quarters of 1999 and 2000.
Residual payments for the 1996 and 1995 plan years will not exceed $1,081,000
payable in the first quarter of 1998 and $549,400 payable in the first quarter
of 1999.

Shares of Common Stock held by officers and directors of Zilog will be
converted into the right to receive the same consideration as shares of Common
Stock held by other stockholders and may be subject to proration. See
"--Merger Consideration." Options held by officers and directors of Zilog will
be treated in the same manner as any Options held by other Option holders. See
"--Effect on Options and Employee Benefit Matters."

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<PAGE> 47
The following table reflects the estimated value of the payments to
which each executive officer and certain other employees of Zilog will be
entitled, upon consummation of the Merger, pursuant to Option arrangements:

<TABLE>
<CAPTION>
Officer/Employee Name Net Option Payments
--------------------------------- -------------------
<S> <C>
Edgar A. Sack . . . . . . . . . . $ 2,183,701
Michael J. Bradshaw . . . . . . . 51,800
Richard L. Moore . . . . . . . . 0
Robert E. Collins . . . . . . . . 0
Richard R. Pickard . . . . . . . 17,500
Sally M. Baumwell . . . . . . . . 116,674
J. James Magill . . . . . . . . . 89,300
Alan Secor . . . . . . . . . . . 149,519
Thomas C. Carson . . . . . . . . 175,000
</TABLE>

Pursuant to the Merger Agreement, Zilog has agreed to indemnify each
present and former director and officer of Zilog to the fullest extent Zilog
would have been permitted by law on the date the Merger Agreement was executed
and will, subject to certain limitations, maintain for a period of six years
after the Effective Time directors' and officers' liability insurance with
coverage in amount and scope at least as favorable as Zilog's liability
insurance in effect on the date the Merger Agreement was executed. See
"Certain Provisions of the Merger Agreement -- Indemnification and Insurance."

EXECUTIVE OFFICERS AND DIRECTORS OF MERGER SUB. As Merger Sub is an
acquisition vehicle established solely to consummate the Merger, it does not
have any executive officers other than those individuals who have been
appointed officers in order to effect the consummation of the Merger. These
individuals will not be officers of Zilog after the Merger and have no
interests in the Merger other than as executives or employees of TPG and its
affiliates. Similarly, the directors of Merger Sub, who will continue as
directors of Zilog after the Merger, will not receive any compensation for
serving as such and will have no interests in the Merger other than as
executives or employees of TPG.

DELISTING OF COMMON STOCK FROM THE NYSE. As a result of the Merger,
it is likely that the Common Stock will no longer meet the listing requirements
of the NYSE, and the NYSE may unilaterally act to delist the Common Stock from
the NYSE. Even if the NYSE does not act unilaterally to delist the Common
Stock, it is not intended that, after the Effective Time, the Common Stock will
be listed on the NYSE or any other national securities exchange. Zilog and TPG
have each agreed, pursuant to the Merger Agreement, to cooperate in taking, or
causing to be taken, all actions necessary to delist the Common Stock from the
NYSE. The delisting of the Common Stock is likely to have a material adverse
effect on the trading market for, and the value of, the Common Stock and there
can be no assurance that any trading market will exist for the Common Stock
after the Merger. See "Risk Factors--Securities-Related Risk
Factors--Delisting of Common Stock from the NYSE."

TERMINATION OF SEC REPORTING. As a result of the Merger, it is
expected that the shares of Common Stock will be held by fewer than 300
stockholders of record. In such a case, Zilog will deregister the Common Stock
under the Exchange Act. If the Common Stock is so deregistered, Zilog will not
be required to comply with the proxy or the periodic reporting requirements of
the Exchange Act and does not plan to provide any reports or information to its
public stockholders other than pursuant to the right to inspect the books and
records of Zilog as required by Delaware law. As a result, the information
available to stockholders on the business and financial condition of Zilog
would be reduced, which could have a material adverse effect on the value of
the Common Stock. See "Risk Factors--Securities-Related Risk
Factors--Termination of SEC Reporting."

RESALE OF RETAINED COMMON STOCK FOLLOWING THE MERGER. Subject to the
terms and conditions of the Stockholders Agreement, the Common Stock to be
retained in connection with the Merger will be freely transferable, except that
shares retained by any stockholder who immediately prior to the Merger may be
deemed to be an "affiliate" (as defined under the Securities Act and generally
including, without limitation, directors, certain executive officers and
beneficial owners of 10% or more of a class of capital stock) of Zilog for
purposes of Rule 145 under the Securities Act will not be transferable except
in compliance with the Securities Act. This Proxy Statement/

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Prospectus does not cover sales of Common Stock retained by any person who may
be deemed to be an affiliate of Zilog.

MERGER FINANCINGS. Zilog expects to incur approximately $255 million
of funded long-term debt and TPG expects to make an equity contribution to
Merger Sub of approximately $117.5 million, which amounts will be used to (i)
fund payment of the cash consideration in the Merger; (ii) repay certain
indebtedness of Zilog; and (iii) pay the fees and expenses incurred in
connection with the Merger. It is currently anticipated that the transactions
contemplated by the Merger Agreement will be funded by approximately $105
million of bank borrowings by Zilog (the "Term Loan Facility") pursuant to
senior secured credit facilities with a group of financial institutions led by
affiliates of Goldman, Sachs Credit Partners L.P. and BankBoston, N.A. and
approximately $150 million either (A) in senior subordinated notes (the "Debt
Securities") which are anticipated to be sold in an underwritten offering or
private placement or (B) in the event the Debt Securities have not been sold at
or prior to the Effective Time, through subordinated debt financing provided by
affiliates of Goldman, Sachs & Co. and BancBoston Securities, Inc.
(collectively, the "Merger Financings"). Zilog also expects to enter into a
$50 million senior secured revolving credit facility with a group of financial
institutions led by Goldman, Sachs Credit Partners L.P. and BankBoston, N.A. to
provide for Zilog's working capital requirements following the Merger. On
November 18, 1997, TPG and Merger Sub received commitments from Goldman, Sachs
& Co. and Goldman, Sachs Credit Partners L.P. with respect to the Merger
Financings (the "Commitment Letters"). The commitments are subject to
customary conditions, including the negotiation, execution and delivery of
definitive documentation with respect to the commitment. See "Risk
Factors--Securities- Related Risk Factors--Substantial Leverage; Stockholders'
Deficit; Liquidity."

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION. The following
unaudited pro forma consolidated financial information of Zilog (the "Pro Forma
Financial Information") has been prepared to give effect to the Merger. The
pro forma adjustments presented are based upon available information and
certain assumptions that Zilog's management believes are reasonable under the
circumstances.

The unaudited pro forma consolidated balance sheet of Zilog as of
September 28, 1997 (the "Pro Forma Balance Sheet") gives effect to the Merger
assuming the realization and application of net proceeds, as described in the
"Notes to Unaudited Pro Forma Consolidated Balance Sheet," had occurred on
September 28, 1997. The unaudited pro forma consolidated statements of
operations of Zilog for the year ended December 31, 1996 and the nine-month
period ended September 28, 1997 (the "Pro Forma Statements of Operations") give
effect to the recapitalization as if it had occurred on January 1, 1996 and
January 1, 1997, respectively.

The Pro Forma Financial Information should be read in conjunction with
Zilog's annual consolidated financial statements and notes thereto contained in
Zilog's Annual Report to Shareholders and Zilog's Annual Report on Form 10-K
for the year ended December 31, 1996. The Pro Forma Financial Information and
related notes are provided for informational purposes only and do not purport
to be indicative of the results that would have actually been obtained had the
Merger been completed on the dates indicated or that may be expected to occur
in the future. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Forward-Looking Statements."

The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a
recapitalization. Because TPG will acquire less than substantially all of the
Common Stock, "push down" accounting is not required. Accordingly, the Merger
will be accounted for as a recapitalization for financial reporting purposes
and the historical basis of Zilog's assets and liabilities should not be
impacted by the transaction.

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<PAGE> 49
ZILOG, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 22,507 $ 22,507
Short-term investments . . . . . . . . . . . . . . . . . 70,948 $ (59,697)(1) 11,251
Accounts receivable . . . . . . . . . . . . . . . . . . 35,476 35,476
Inventories . . . . . . . . . . . . . . . . . . . . . . 32,115 32,115

Prepaid expenses, deferred income taxes
and other current assets . . . . . . . . . . . . . . . 17,306 17,306
------------ ----------- -----------
Total current assets . . . . . . . . . . . . . . . . 178,352 (59,697) 118,655

Property, plant and equipment, at cost . . . . . . . . . . 405,764 405,764
Less: accumulated depreciation and amortization . . . . . (175,499) (175,499)
----------- ----------- -----------
Net property, plant and equipment . . . . . . . . . . . 230,265 230,265

Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,100 8,906 (2) 11,006
----------- ----------- -----------

$ 410,717 $ (50,791) $ 359,926
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 22,625 $ 22,625
Accrued compensation and employee benefits . . . . . . . 17,946 17,946
Other accrued liabilities . . . . . . . . . . . . . . . 4,745 4,745
Income taxes payable . . . . . . . . . . . . . . . . . . 10,695 $ (1,853)(3) 8,842
----------- ----------- -----------
Total current liabilities . . . . . . . . . . . . . . 56,011 (1,853) 54,158

Deferred income taxes . . . . . . . . . . . . . . . . . . . 16,050 16,050
Long-term debt . . . . . . . . . . . . . . . . . . . . . . -- 255,000 (4) 255,000
----------- ----------- -----------
16,050 255,000 271,050
Stockholders' equity:
Common Stock and paid in capital; Historical: Preferred
Stock, $0.01 par value; 190,000 shares authorized;
no shares issued and outstanding at September 28,
1997; Common Stock, $0.01 par value; 75,000,000 shares
authorized; 20,253,189 shares issued and outstanding
at September 28, 1997. Pro forma: Preferred Stock,
$100 stated value; 5,000,000 shares authorized;
250,000 issued and outstanding at September 28, 1997;
Common Stock, $0.01 par value; 35,000,000 shares
authorized; 3,750,000 issued and outstanding at
September 28, 1997; and Class A Non-Voting Common
Stock, $0.01 par value; 15,000,000 shares authorized;
1,250,000 shares issued and outstanding at
September 28, 1997 . . . . . . . . . . . . . . . . . . 163,694 117,500 (5) 25,050
(256,144)(6)
Retained earnings . . . . . . . . . . . . . . . . . . . 174,877 (141,420)(6)
(21,094)(2)
(2,780)(3)
72 (7) 9,655
Net unrealized gain on securities . . . . . . . . . . . 85 (72)(7) 13
----------- ----------- -----------
Total stockholders' equity . . . . . . . . . . . . . 338,656 (303,938) 34,718
----------- ----------- -----------
$ 410,717 $ (50,791) $ 359,926
=========== =========== ===========
</TABLE>

(See accompanying notes to the unaudited pro forma consolidated balance sheet)

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<PAGE> 50
ZILOG, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 28, 1997
(IN THOUSANDS)

Based upon the consolidated balance sheet of Zilog as of September 28,
1997, approximate sources and uses of funds for the Merger are as follows:

<TABLE>
<S> <C>
Source of Funds:
TPG investment . . . . . . . . . . . . . . $117,500
New indebtedness . . . . . . . . . . . . . 255,000
Cash of Zilog . . . . . . . . . . . . . . . 59,697
--------
Total . . . . . . . . . . . . . . . . $432,197
========
Use of Funds:
Purchase outstanding shares . . . . . . . . $397,564
Payment for outstanding stock options . . . 4,633
Estimated fees and expenses . . . . . . . . 30,000(a)
--------
Total . . . . . . . . . . . . . . . . $432,197
========
</TABLE>
- ----------
(a) The estimated fees and expenses include $8,906 of debt issuance costs which
will be capitalized and amortized over the terms of the related debt, and
$21,094 of nonfinancing related transaction expenses which will be netted
against stockholders' equity.

After the Merger, 55,000,000 shares of all classes of stock will be
authorized. There shall be 5,000,000 shares of authorized preferred stock,
$100 stated value, 250,000 shares issued and outstanding as shares of New
Preferred Stock. There shall be two classes of authorized Common Stock with a
par value of $0.01. Common Stock shall have 35,000,000 authorized, 3,750,000
issued and outstanding shares. Class A Non-Voting Common Stock shall have
15,000,000 authorized shares and 1,250,000 issued and outstanding shares.

The unaudited pro forma consolidated balance sheet on the previous
page gives effect to the following pro forma adjustments:

(1) Zilog will utilize approximately $432.2 million of cash to complete the
Merger. The source of those funds consists of the following: $117.5 million
from the TPG investment, $255 million from the issuance of debt and $59.7
million of Zilog's existing short-term investments.

(2) Zilog estimates that it will incur approximately $30 million of expenses to
complete the Merger. Approximately $8.9 million of the $30 million will
relate to debt issuance costs and will be capitalized as other assets.
Approximately $21.1 million of the $30 million will charged to retained
earnings.

(3) Represents the payment to cancel outstanding stock options. At September
28, 1997, options for 2,834,253 shares were outstanding with exercise
prices less than $20 per share. This one time charge of approximately $4.6
million is reflected in the Pro Forma Balance Sheet, net of taxes of
approximately $1.9 million, but not in the Pro Forma Statement of
Operations due to its unusual nonrecurring nature.

(4) Represents the debt used to finance the Merger.

(5) TPG will invest approximately $117.5 million in Zilog and will receive
250,000 shares of New Preferred Stock, 3,375,000 shares of Common Stock
and 1,250,000 shares of Class A Non-Voting Common Stock.

(6) Zilog will repurchase and retire its pre-Merger outstanding Common Stock,
less 375,000 shares, for $20.00 per share. This transaction will utilize
approximately $397.6 million of cash. As the carrying value of the Common
Stock to be retired (after the $117.5 million TPG investment) is
approximately $281.2 million, after considering the par value of
post-Merger New Preferred and Common Stock of approximately $25 million,
approximately $141.4 million will be charged to retained earnings upon
retirement.

(7) To record the realized gain of $72,000 with respect to the short-term
investments to be utilized in the Merger.

-45-
<PAGE> 51
ZILOG, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Year Ended December 31, 1996 Nine Months Ended September 28, 1997
------------------------------------------- ------------------------------------------
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
----------- ------------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................ $ 298,425 $ 298,425 $ 202,218 $ 202,218

Costs and expenses:
Cost of sales.......................... 175,319 175,319 130,061 130,061
Research and development .............. 30,548 30,548 22,305 22,305
Selling, general and administrative ... 47,934 47,934 35,754 35,754
---------- ---------- ---------- ---------
253,801 253,801 188,120 188,120
---------- ---------- ---------- ---------

Operating income ........................ 44,624 44,624 14,098 14,098

Other income (expense):
Interest income........................ 2,733 $ (2,168)(1) 565 1,963 $ (1,443)(1) 520
Interest expense ...................... (290) (25,333)(2) (25,623) (206) (19,000)(2) (19,206)
Other, net ............................ (911) (911) (93) (93)
---------- ------------ ---------- ---------- -------------- ---------
Income (loss) before income taxes........ 46,156 (27,501) 18,655 15,762 (20,443) (4,681)

Provision (benefit) for income taxes .... 16,155 (8,693) 7,462 4,260 (6,132) (1,872)
---------- ------------ ---------- ---------- ------------- ---------
Net income (loss)........................ $ 30,001 $ (18,808) 11,193 $ 11,502 $ (14,311) (2,809)
========== ============ ---------- ========== ============= ---------

Preferred dividend requirement .......... (3,375) (2,531)
---------- ---------
Income (loss) applicable to common
stockholders .......................... $ 7,818 $ (5,340)
========== =========

Net income (loss) per share.............. $ 1.47 $ 1.56 $ 0.55 $ (1.07)
========== ========== ========== =========

Number of shares used in computing share
amounts................................ 20,454 5,000 20,739 5,000
- ---------- ========== ========== ========== =========
</TABLE>

(1) Represents reduction of interest income due to the reduction of short-term
investments as a result of the Merger.

(2) Represents interest expense and amortization of debt issuance costs as a
result of the Merger, using an assumed average interest rate of 9.5%.

-46-
<PAGE> 52

PRICE OF COMMON STOCK

Since May 17, 1995, the Common Stock has been listed and traded on the
NYSE under the symbol "ZLG." Previously, the Common Stock was listed and traded
on the Nasdaq National Market ("Nasdaq") under the symbol "ZLOG." The following
table shows the high and low closing prices for the Common Stock for the fiscal
periods indicated, as reported by the Nasdaq and the NYSE Composite Transactions
Tape, as applicable:

<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter ............................ $ 37-3/4 $ 28-1/4
Second Quarter ........................... 49-5/8 34-5/8
Third Quarter ............................ 53-1/4 38-7/8
Fourth Quarter ........................... 41-1/2 29-3/4
Year Ended December 31, 1996:
First Quarter ............................ 38-7/8 30-1/8
Second Quarter ........................... 39-3/4 24
Third Quarter ............................ 26-3/4 15-1/2
Fourth Quarter ........................... 29-1/4 18-1/4
Year Ended December 31, 1997:
First Quarter ............................ 27-5/8 21-1/2
Second Quarter ........................... 23-1/2 17-1/4
Third Quarter ............................ 24-13/16 18-3/4
Fourth Quarter (through December 11, 1997) 24-9/16 18-1/16
</TABLE>

As of December 10, 1997, there were approximately 1,193 stockholders of
record of Common Stock.

On July 18, 1997 the last trading day before public announcement of the
execution of the Original Merger Agreement, the last sale price of Common Stock
as reported on the NYSE Composite Transactions Tape was $22-3/8 per share. On
November 18, 1997, the last trading day before public announcement of the
execution of the amend-ment to the Original Merger Agreement, the closing price
of the Common Stock was $19-3/16 per share. For infor-ma-tion regarding the
events leading up to and the reasons for the execution of the amendment to the
Merger Agree-ment, see "The Merger--Background of the Merger" and
"--Recommendation of the Board of Directors; Reasons for the Merger."

On December 11, 1997, the most recent practicable date prior to the
printing of this Proxy Statement/Prospectus, the last sale price of Common Stock
as reported on the NYSE Composite Transactions Tape was $18-1/16 per share.

Stockholders of Zilog should obtain current market prices of the Common
Stock.

Since its initial public offering in 1991, Zilog has not paid any cash
dividends on Common Stock and it does not have any present intention to commence
payment of any cash dividends. Zilog intends to retain earnings, if any, to
provide funds for the operation of and expansion of its business and to repay
indebtedness arising from the Merger. Zilog's debt agreements related to the
Merger are expected to contain certain covenants restricting the payment of
dividends on, or repurchases of, Common Stock.

-47-
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK

EXISTING CAPITAL STOCK

Zilog is authorized by its existing Certificate of Incorporation to
issue an aggregate of 75,000,000 shares of Common Stock and 190,000 shares of
preferred stock, par value $0.01 per share (the "Existing Preferred Stock"). As
of the Record Date, there were 20,333,792 shares of Common Stock outstanding
that were held of record by approximately 1,193 stockholders. There are no
shares of Existing Preferred Stock issued or outstanding. The following is a
summary of certain of the rights, powers, preferences and limitations pertaining
to Zilog's capital stock. For a full description of Common Stock, reference is
made to the Certificate of Incorporation and the Bylaws of Zilog as currently in
effect, copies of which are on file with the Commission.

COMMON STOCK. Holders of Common Stock are entitled to one vote per share
on all matters submitted to a vote of stockholders. Approval of matters brought
before the stockholders requires the affirmative vote of a majority of
outstanding shares, except as otherwise required by law. Subject to the rights
of holders of Preferred Stock, if any, all shares of Common Stock are entitled
to share in such dividends as the Board of Directors may from time to time
declare from sources legally available therefor. Subject to the rights of
creditors and holders of Preferred Stock, if any, holders of Common Stock are
entitled to share ratably in a distribution of assets of Zilog upon any
liquidation, dissolution or winding-up of Zilog.

EXISTING PREFERRED STOCK. The Board of Directors of Zilog is authorized to
issue, by resolution and without any action by stockholders, up to 190,000
shares of Existing Preferred Stock and may establish the voting rights,
designations, preferences and relative, participating, optional or other special
rights of such series of Preferred Stock. No shares of Existing Preferred Stock
are currently outstanding.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE EXISTING CERTIFICATE OF INCORPORATION
AND DELAWARE LAW

CERTIFICATE OF INCORPORATION. Under Zilog's existing Certificate of
Incorporation, the Board of Directors has the power to authorize the issuance of
up to 190,000 shares of Existing Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders. The issuance of
Existing Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, may have the effect of
delaying, deferring or preventing a change in control of Zilog, may discourage
bids for the Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price of and the voting and other rights of
the holders of the Common Stock.

DELAWARE TAKEOVER STATUTE. Zilog is subject to section 203 of the DGCL
("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
law will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66-2/3% of the outstanding voting
stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of (in
one transaction or a series of transactions) 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation, or by any direct or indirect majority-owned subsidiary thereof, of
any stock of the corporation

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<PAGE> 54
or such subsidiary to the interested stockholder; (iv) any transaction involving
the corporation, or any direct or indirect majority-owned subsidiary thereof,
that has the effect of increasing the proportionate share of the stock of any
class or series of the corporation or any such subsidiary which is owned by the
interested stockholder; or (v) the receipt by the interested stockholder of the
benefit, directly or indirectly, of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation or any direct or
indirect majority-owned subsidiary thereof. In general, Section 203 defines an
interested stockholder as any entity or person beneficially owning 15% or more
of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.

CAPITAL STOCK FOLLOWING THE MERGER

If the Merger is approved by the requisite vote of the stockholders of
Zilog at the Special Meeting, the Certificate of Incorporation of Zilog will be
amended and restated at the Effective Time. The amended and restated Certificate
of Incorporation, in the form attached as Annex F to this Proxy
Statement/Prospectus and incorporated herein by reference, will be that of the
Surviving Corporation. The following is a summary of certain of the rights,
powers, preferences and limitations pertaining to the capital stock of Zilog
after giving effect to the Merger. For a full description of such capital stock,
see Annex F hereof.

Pursuant to the proposed amendment and restatement to the Certificate of
Incorporation, the Surviving Corporation will be authorized to issue 50,000,000
shares of common stock and 5,000,000 shares of preferred stock.

The common stock will consist of two classes, 35,000,000 shares of which
will be designated Common Stock, par value $0.01 per share, and 15,000,000
shares of which will be designated Class A Non-Voting Common Stock, par value
$0.01 per share. Holders of Common Stock will be entitled to one vote per share
on all matters submitted to a vote of stockholders. Approval of matters brought
before the stockholders will require the affirmative vote of a majority of the
holders of the outstanding shares of Common Stock, except as otherwise required
by the DGCL. Holders of Class A Non-Voting Common Stock will not have any voting
rights, except the right to vote as a class to the extent required by DGCL.

Except for differences in voting rights described above, the rights,
powers, preferences and limitations of the Common Stock and Class A Non-Voting
Common Stock will be identical. Subject to the rights of holders of New
Preferred Stock and other classes and/or series of preferred stock, if any, all
shares of Common Stock and Class A Non-Voting Common Stock are entitled to share
in such dividends as the Board of Directors may from time to time declare from
sources legally available therefor. Subject to the rights of creditors and
holders of New Preferred Stock and other classes and/or series of preferred
stock, if any, holders of Common Stock and Class A Non-Voting Common Stock are
entitled to share ratably in a distribution of assets of the Surviving
Corporation upon any liquidation, dissolution or winding up of the Surviving
Corporation.

Following the Merger, the Board of Directors of the Surviving Corporation
will be authorized to issue, from time to time, by resolution and without any
action by stockholders, up to 5,000,000 shares of preferred stock, par value
$100.00 per share, in one or more classes and/or series and may establish the
powers, designations, preferences, rights and qualifications, limitations or
restrictions (which may differ with respect to each such class and/or series) of
such class and/or series. The Merger Agreement requires that, immediately after
the Effective Time, the Board of Directors of the Surviving Corporation adopt a
resolution providing for the creation of the series of New Preferred Stock into
which the shares of capital stock of Merger Sub are to be converted in the
Merger. The New Preferred Stock will be a non-voting 13.5% pay-in-kind preferred
stock with a stated value of $100.00 per share.

The New Preferred Stock will accumulate dividends at the rate of 13.5% per
annum (payable quarterly) for periods ending on or prior to the anniversary of
the Effective Time in 2008, and 15.5% per annum thereafter. Dividends will be
payable, at the election of the Board of Directors of the Surviving Corporation
but subject to availability of funds and the terms of the Merger Financings, in
cash or in kind through a corresponding increase in the liquidation preference
(as described below) of the New Preferred Stock. The New Preferred Stock will
have an initial liquidation preference of $100.00 per share.

-49-
<PAGE> 55
To the extent that a quarterly dividend payment in respect of a share of
New Preferred Stock is not made in cash when due, the amount of such unpaid
dividend will accumulate (whether or not declared by the Board of Directors of
the Surviving Corporation) through an increase in the liquidation preference of
such share of New Preferred Stock equal to the amount of such unpaid dividend,
and compounding dividends will accumulate on all such accumulated and unpaid
dividends. The liquidation preference will be reduced to the extent that
previously accumulated dividends are thereafter paid in cash. The Surviving
Corporation will be required on the anniversary of the Effective Time in 2008 to
pay in cash all accumulated dividends that have been applied to increase the
liquidation preference (the "Clean-Down").

Shares of New Preferred Stock may be redeemed at the option of the
Surviving Corporation, in whole or in part, at the redemption prices ranging
from 105%, if redeemed prior to the six-month anniversary of the Effective Time
in 1998, to 100%, if redeemed after the six-month anniversary of the Effective
Time in 2003, in each case of the sum of (i) the liquidation preference thereof,
increased to the extent that accumulated dividends thereon shall not have been
paid in cash, plus (ii) accrued and unpaid dividends thereon to the date of
redemption. Optional redemption of the New Preferred Stock will be subject to,
and expressly conditioned upon, certain limitations under the Merger Financings.

In certain circumstances, including the occurrence of a change of control
of the Surviving Corporation, but again subject to certain limitations under the
Merger Financings, the Surviving Corporation may be required to repurchase
shares of New Preferred Stock at 101% of the sum of the liquidation preference
thereof, increased to the extent that accumulated dividends thereon shall not
have been paid in cash, plus accumulated and unpaid dividends to the repurchase
date.

Holders of New Preferred Stock will not have any voting rights with
respect thereto, except for (i) such rights as are provided under the DGCL, (ii)
the right to elect, as a class, one director of the Surviving Corporation in the
event that the Surviving Corporation fails to comply with its Clean-Down or
repurchase obligations and (iii) class voting rights with respect to
transactions adversely affecting the rights, preferences or powers of the New
Preferred Stock and certain transactions involving stock that ranks junior in
payment of dividends, or upon liquidation, to the New Preferred Stock.

STOCKHOLDERS AGREEMENT

The Merger Agreement requires that each Retaining Stockholder enter into a
Stockholders Agreement with Zilog and TPG, a copy of the form of which is
attached as Annex C to this Proxy Statement/Prospectus and is incorporated
herein by reference. TO THE EXTENT THAT A STOCKHOLDER RETAINS NON-CASH ELECTION
SHARES FOLLOWING CONSUMMATION OF THE MERGER, BY COMPLETING THE NON-CASH ELECTION
FORM AND RETURNING SUCH NON-CASH ELECTION FORM TOGETHER WITH STOCK CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK, THE STOCKHOLDER WILL BE DEEMED TO HAVE
SIGNED AND BECOME A PARTY TO THE STOCKHOLDERS AGREEMENT AS OF THE EFFECTIVE
TIME. Accordingly, holders of Non-Cash Election Shares after the Merger will
receive the benefits and be subject to the obligations set forth in the
Stockholders Agreement. See "Certain Provisions of the Stockholders Agreement."

-50-
<PAGE> 56
CERTAIN PROVISIONS OF THE MERGER AGREEMENT

The following summary describes the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the Merger Agreement.

Pursuant to Amendment Number One to the Agreement and Plan of Merger,
dated as of November 18, 1997, by and among TPG, Merger Sub and Zilog, Merger
Sub was deemed to have signed and become a party to the Merger Agreement as of
November 18, 1997 and is entitled to all of the rights and subject to all of the
obligations and is otherwise bound by all the provisions thereof, in each case
applicable to Merger Sub.

THE MERGER. The Merger Agreement provides that, following the approval of
the Merger and the adoption of the Merger Agreement by the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon and the satisfaction or waiver of the other conditions to the
Merger, Merger Sub will be merged with and into Zilog, the separate corporate
existence of Merger Sub will cease, and Zilog will continue as the surviving
corporation succeeding to and assuming all rights and obligations of Merger Sub
and Zilog in accordance with the DGCL.

If the conditions to the Merger are satisfied or waived, Zilog and Merger
Sub shall cause to be filed with the Secretary of State of the State of Delaware
a duly executed certificate of merger (the "Certificate of Merger"). The Merger
will become effective upon the filing and acceptance thereof or at such date
thereafter as Merger Sub and Zilog have agreed and have specified in the
Certificate of Merger.

The effect of the Merger shall be that each share of Common Stock
outstanding at the Effective Time (other than Excluded Shares, which will be
canceled and retired and shall cease to exist, and any fractional shares and
Dissenting Shares) will be converted into either the right to receive (i) the
Cash Election Price, or (ii) a Non-Cash Election Share, as more fully described
under "The Merger--Merger Consideration" and "--Non-Cash Election." With regard
to the treatment of fractional shares, see "The Merger--Fractional Shares," and
of Dissenting Shares, see "Stockholders' Appraisal Rights."

REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains customary
representations and warranties of Zilog and its subsidiaries relating to, among
other things: (i) organization, standing and similar corporate matters; (ii)
Zilog's capital stock structure; (iii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (iv)
the absence of conflict between (A) the execution and delivery of the Merger
Agreement and the transactions contemplated thereby and (B) Zilog's charter or a
material contract of Zilog; (v) all government and other consents; (vi) the
accuracy of information contained in public documents filed by Zilog with the
Commission; (vii) the absence of certain events with respect to Zilog; (viii)
the accuracy of information supplied by Zilog in connection with this Proxy
Statement/Prospectus; (ix) the compliance as to form of this Proxy
Statement/Prospectus in all material respects with the requirements of the
Securities Act and the Exchange Act; (x) compliance with applicable laws; (xi)
filing of complete and correct tax returns and payment of all applicable taxes;
(xii) the absence of undisclosed liabilities; (xiii) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended, employment matters and certain labor matters; (xiv) pending or
threatened material litigation or investigations; (xv) environmental matters;
(xvi) Zilog's ownership of or right to use its intellectual property and the
lack of any material unauthorized use, infringement or misappropriation of
Zilog's intellectual property; (xvii) the inapplicability of certain state laws
governing business combinations; (xviii) brokers' and financial advisors' fees
and expenses; (xix) the required vote of holders of outstanding shares of Common
Stock to approve the Merger and adopt the Merger Agreement; (xx) title to
property and assets; (xxi) title to owned real property, valid leasehold and
subleasehold interests in leased real property and other real estate related
matters; (xxii) the absence of defaults under material contracts; (xxiii)
insurance; (xxiv) the absence of transactions between Zilog or its subsidiaries
with affiliates of Zilog; (xxv) the absence of additional obligations to pay any
employees as a result of the Merger; and (xxvi) the accuracy of financial
forecasts prepared by Zilog and of the information furnished to TPG or Merger
Sub.

The Merger Agreement also contains customary representations and
warranties of TPG and Merger Sub relating to, among other things: (i)
organization, standing and similar corporate matters; (ii) the authorization,

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<PAGE> 57
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (iii) the absence of conflict between (A) the execution and
delivery of the Merger Agreement and the transaction contemplated thereby and
(B) TPG's or Merger Sub's charter or a material contract of TPG or Merger Sub;
(iv) all government and other consents; (v) the accuracy of information supplied
by TPG and Merger Sub in connection with this Proxy Statement/Prospectus; (vi)
the purpose and operations of Merger Sub; (vii) brokers' or financial advisors'
fees and expenses; (viii) binding written commitments from financial
institutions for financing necessary to consummate the Merger and (ix) the
financial capitalization of Merger Sub by TPG upon completion of the Merger.

CERTAIN PRE-CLOSING COVENANTS. Pursuant to the Merger Agreement and until
the Effective Time, Zilog has agreed to only conduct the businesses of Zilog and
its subsidiaries in the ordinary course of its business as currently conducted
and to maintain its assets. Zilog shall use its reasonable best efforts to
preserve intact the business organization of Zilog and its subsidiaries, to keep
available the services of its present officers and employees and to preserve the
present relationships of Zilog and its subsidiaries with customers, suppliers
and other persons with which Zilog or any of its subsidiaries has significant
business dealings. Zilog agreed that it will not, and will not permit any of its
subsidiaries to: (i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock or make payments to
stockholders, (B) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (C) purchase, redeem or
otherwise acquire any shares of capital stock of Zilog or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (ii) issue, deliver, sell,
pledge or otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
equity equivalent or convertible securities, or modify or alter the terms of any
of the foregoing; (iii) amend its Certificate of Incorporation or Bylaws; (iv)
acquire or agree to acquire any business or any corporation, partnership,
limited liability company, association or other business organization or
division thereof involving assets having a purchase price greater than a
specified amount; (v) subject to certain exceptions, sell, lease, license,
encumber or otherwise dispose of any of its assets other than in the ordinary
course of business consistent with past practice; (vi) (A) incur any
indebtedness for borrowed money or guarantee any such indebtedness, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of Zilog or any of its subsidiaries, guarantee any debt securities of
others, enter into any "keep well" or other agreement to maintain any financial
statement condition of others or enter into any arrangement having the economic
effect of any of the foregoing, except for borrowings incurred in the ordinary
course of business consistent with past practice below certain specified limits,
or (B) make any loans, advances or capital contributions to, or investments in,
any other person, other than to Zilog or any subsidiary of Zilog; (vii) alter
the corporate structure or ownership of Zilog or its subsidiaries; (viii)
increase or enhance the compensation or benefits of directors, officers or
employees, except under certain circumstances; (ix) knowingly violate or fail to
perform any material obligation or duty imposed by any material federal, state
or local law, rule, regulation, guideline or ordinance; (x) settle or compromise
any suit, proceeding, investigation or claim or threatened suit, proceeding,
investigation or claim outside of specified limits; (xi) except to the extent
required by law or agreed to by TPG, (A) compromise any material tax liability
or (B) prepare or file any material tax return inconsistent with past practice;
(xii) make any material change in its method of accounting; (xiii) make or agree
to make any new capital expenditure above certain specified limits; (xiv)
subject to certain exceptions, pay, discharge, settle or satisfy any claims,
liabilities or obligations; (xv) enter into, modify, amend or terminate any
material agreement and, subject to certain exceptions, release or assign any
material rights or claims; (xvi) commence any voluntary petition, proceeding or
action under any bankruptcy, insolvency or other similar laws; (xvii) except
under certain circumstances, sell, assign, transfer, license or permit to lapse
any material right with respect to Zilog's intellectual property rights; or
(xviii) authorize, recommend, propose or announce an intention to do any of the
foregoing.

NO SOLICITATION OF TRANSACTIONS. Pursuant to the Merger Agreement, Zilog
has agreed that neither Zilog nor any of its subsidiaries, will, directly or
indirectly, through any of its officers, directors, employees, representatives
or agents: (i) solicit, initiate, or knowingly encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, an
inquiry, proposal or offer for (A) any direct or indirect acquisition or
purchase of 25% or more of the aggregate assets of Zilog and its subsidiaries,
taken as a whole, or 25% or more of the voting power of the shares of Common
Stock then outstanding, (B) any tender offer or exchange offer that if
consummated would result in any person beneficially owning 25% or more of the
voting power of the outstanding shares of Common Stock or (C) any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar

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transaction involving Zilog, other than the transactions contemplated by the
Merger Agreement (each, a "Takeover Proposal"); (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; (iii) withdraw or
modify, or propose publicly to withdraw or modify, the approval or
recommendation by Zilog's Board of Directors of the Merger or the Merger
Agreement; (iv) approve or recommend, or propose publicly to approve or
recommend, any Takeover Proposal; or (v) enter into any agreement related to any
Takeover Proposal. The Merger Agreement does not prevent Zilog, at any time
prior to the receipt of stockholder approval of the Merger, from: (i) furnishing
information with respect to Zilog to any person pursuant to a confidentiality
agreement in connection with any unsolicited Takeover Proposal, provided, that
the Board of Directors of Zilog determines in good faith, after consultation
with outside counsel, that furnishing such information would be consistent with
its fiduciary responsibilities to Zilog's stockholders under applicable law;
(ii) participating in discussions, investigations and/or negotiations regarding
such Takeover Proposal, provided, that the Board of Directors of Zilog
determines in good faith, after consultation with outside counsel, that so
participating would be consistent with its fiduciary responsibilities to Zilog's
stockholders under applicable law; (iii) suspending the Board of Directors'
recommendation to approve the Merger pending the Board of Directors' analysis of
a Takeover Proposal; (iv) modifying or withdrawing the recommendation of the
Board of Directors to approve the Merger if the Board of Directors determines in
good faith that a Takeover Proposal is a Superior Proposal (as defined below)
and, after consultation with outside counsel, that it would be consistent with
its fiduciary responsibilities to so modify or withdraw such recommendation; or
(v) taking and disclosing to its stockholders a position contemplated by Rules
14d-9 and 14e-2 promulgated under the Exchange Act or making any disclosure to
Zilog's stockholders if, in the good faith judgment of the Board of Directors,
after consultation with outside counsel, such disclosure is necessary in order
to comply with its fiduciary duties to Zilog's stockholders under applicable law
or is otherwise required under applicable law. A "Superior Proposal" means any
proposal determined by the Board of Directors in good faith, after consultation
with outside counsel, to be a bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash, property
and/or securities, more than 50% of the combined voting power of the outstanding
shares of Common Stock or all or substantially all the assets of Zilog on terms
which the Board determines in good faith, after consultation with outside
counsel and with a financial advisor of nationally recognized reputation, to be
more favorable to Zilog's stockholders than the Merger.

Zilog must promptly notify TPG in the event that Zilog furnishes
information with respect to Zilog to any person pursuant to a confidentiality
agreement in connection with an unsolicited Takeover Proposal or participates in
discussions, investigations and/or negotiations regarding such Takeover
Proposal. Zilog may approve or recommend a Superior Proposal or terminate the
Merger Agreement, subject to the payment of specified termination fees (see
"--Expenses and Certain Required Payments"), if the Board of Directors
determines in good faith, after consultation with outside counsel, that it would
be consistent with its fiduciary responsibilities to Zilog's stockholders under
applicable law to do so only after the second business day following TPG's
receipt of written notice advising TPG that Zilog's Board of Directors has
received a Takeover Proposal that may constitute a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal.

The Merger Agreement provides that, except in connection with the making
of a Takeover Proposal, neither Zilog nor any of its subsidiaries will
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party unless the Board of Directors has
determined in good faith after consultation with outside counsel that to do so
is necessary to comply with its fiduciary duties to Zilog's stockholders.

DELISTING OF COMMON STOCK FROM THE NYSE. The Merger Agreement provides
that TPG and Zilog will cooperate with each other in taking all actions
necessary to delist the Common Stock from the NYSE, which delisting will not
become effective until after the Effective Time. It is intended that the Common
Stock following the Merger will not be quoted on the Nasdaq National Market or
listed on any national securities exchange. See "Risk
Factors--Securities-Related Risk Factors--Delisting of Common Stock from the
NYSE" and "The Merger--Delisting of Common Stock from the NYSE."

BOARD OF DIRECTORS AND OFFICERS OF ZILOG FOLLOWING THE MERGER. The Merger
Agreement provides that the directors of Merger Sub immediately prior to the
Effective Time will be the directors of Zilog until the next annual

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meeting of stockholders (or the earlier of their resignation or removal) and
until their respective successors are duly elected and qualified, as the case
may be.

The Merger Agreement also provides that the officers of Zilog immediately
prior to the Effective Time will be officers of Zilog following the Merger until
the earlier of their resignation or removal and until their respective
successors are duly elected and qualified, as the case may be. Information about
such persons is contained in Zilog's Annual Report on Form 10-K for the year
ended December 31, 1996 which is incorporated by reference in this Proxy
Statement/Prospectus. See "Available Information" and "Incorporation of Certain
Information by Reference."

The following table sets forth the name, age and position with Zilog of
each person who is expected to serve as a director of Zilog after the Effective
Time. After the Effective Time, the Board of Directors will be subject to change
from time to time.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>

David Bonderman 54 Director

David M. Stanton 34 Director

Edgar A. Sack 67 Director
</TABLE>

David Bonderman, age 54, is a principal and founding member of TPG. Prior
to forming TPG, Mr. Bonderman was Chief Operating Officer and Chief Investment
Officer of Keystone Inc., a private investment firm, from 1983 to August 1992.
Mr. Bonderman serves on the Boards of Directors of Continental Airlines, Inc.,
Bell & Howell Company, Virgin Entertainment, Beringer Wine Estates, Inc.,
Denbury Resources, Inc., Ducati Motor Holdings, S.p.A., Washington Mutual, Inc.,
Ryanair, Ltd. and Credicom Asia, N.V. Mr. Bonderman also serves in general
partner advisory board roles for Acadia Partners, L.P., Newbridge Investment
Partners, L.P., Newbridge Latin America, L.P. and Aqua International, L.P.

David M. Stanton, age 34, is a partner of TPG. From 1991 until he joined
TPG in 1994, Mr. Stanton was a venture capitalist with Trinity Ventures, where
he specialized in information technology, software and telecommunications
investing. Mr. Stanton earned a BS degree in Chemical Engineering from Stanford
University and received an MBA from the Stanford Graduate School of Business.
Mr. Stanton serves on the Boards of Directors of Belden & Blake Corporation,
Denbury Resources, Inc., TPG Communications, Inc. and Paradyne Partners, L.P.

Edgar A. Sack, age 67, has served as President, Chief Executive Officer
and a director since June 1989. Dr. Sack was elected Chairman of the Board of
Zilog in November 1990. Previously, Dr. Sack was employed for over 15 years by
General Instrument Corporation, where he held the positions of Vice President of
the Integrated Circuits Division, Vice President and General Manager of the
Microelectronics Group and Senior Vice President. Dr. Sack was among the first
to identify the potential for large scale integrated circuits in electronic
systems and contributed to the early technology on non-volatile memory devices.
He is the originator of the Forward Controllership(R) business management
concept and is the author of a private text on the subject. Dr. Sack holds B.S.,
M.S. and Ph.D. degrees in electrical engineering from Carnegie Mellon
University.

Dr. Sack advised Zilog's Board of Directors of his intention to step down
as CEO after the Effective Time, at a mutually acceptable time. See "Risk
Factors--Company-Related Risk Factors--Dependence on Key Employees." Additional
information about Dr. Sack is contained in Zilog's Annual Report on Form 10-K
for the year ended December 31, 1996 which is incorporated by reference in this
Proxy Statement/Prospectus. See "Available Information" and "Incorporation of
Certain Information by Reference."

STOCK AND EMPLOYEE BENEFIT PLANS. The treatment in the Merger of
outstanding Company stock options and of Zilog's employee benefit plans is
described in "The Merger--Effect on Options and Employee Benefit Matters."

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<PAGE> 60
ACCESS TO INFORMATION. Subject to the confidentiality agreement between
Lehman Brothers, on behalf of Zilog, and TPG, Zilog has agreed in the Merger
Agreement to, and cause its subsidiaries to, afford to TPG and to the officers,
employees, accountants, counsel, financial advisors and other representatives
and agents of TPG reasonable access to all of the key employees, properties,
books, contracts, commitments, documents and record of Zilog and its
subsidiaries during the period from the date of the Merger Agreement through the
Effective Time.

PUBLIC ANNOUNCEMENTS. Zilog and TPG have agreed not to make any public
announcements with respect to the Merger without consulting with each other,
except as required by law, fiduciary duty or by obligations pursuant to any
listing agreement with any national securities exchange.

REAL ESTATE TRANSFER TAX. The Merger Agreement requires that either TPG or
the Surviving Corporation will pay any state or local tax attributable to the
transfer of the beneficial ownership of the real property of Zilog or any of its
subsidiaries, if any, and any penalties or interest with respect to such taxes,
payable in connection with the consummation of the Merger.

INDEMNIFICATION AND INSURANCE. Pursuant to the Merger Agreement, the
Surviving Corporation will indemnify and hold harmless each present and former
director and officer of Zilog determined as of the Effective Time (the
"Indemnified Parties") against any costs or expenses, including reasonable
attorneys' fees, judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to matters existing or occurring at or prior to the
Effective Time to the fullest extent that Zilog would have been permitted under
the DGCL and its Certificate of Incorporation or Bylaws. The Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law.

The Merger Agreement provides that the Surviving Corporation will have the
right to assume the defense of any claim, action, suit, proceeding or
investigation described in the above paragraph. If the Surviving Corporation
does not elect to assume such defense or counsel for the Indemnified Parties
advises that there are issues which raise conflicts of interest between the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and the Surviving Corporation will pay all
reasonable fees and expenses of one firm of counsel in any jurisdiction for the
Indemnified Parties, provided that the Indemnified Parties will cooperate in the
defense of any such matter and the Surviving Corporation will not be liable for
any settlement effected without its prior written consent.

For a period of six years after the Effective Time, the Surviving
Corporation will maintain a policy of officers' and directors' liability
insurance for acts and omissions occurring prior to the Effective Time. The
coverage under such insurance must be at least as favorable as Zilog's existing
directors' and officers' liability insurance coverage; however, the Surviving
Corporation will not be obligated to pay annual premiums in excess of
approximately $540,000.

SURVIVING CORPORATION PREFERRED STOCK. The Merger Agreement requires that,
immediately after the Effective Time, the Board of Directors of the Surviving
Corporation adopt a resolution providing for the creation of the series of New
Preferred Stock into which the shares of capital stock of Merger Sub are to be
converted in the Merger. See "Description of Capital Stock--Capital Stock
Following the Merger."

REASONABLE BEST EFFORTS. Pursuant to the Merger Agreement and subject to
certain conditions and limitations described therein and the fiduciary
responsibilities of the Board of Directors, Zilog, TPG and Merger Sub have
agreed to use their reasonable best efforts to take certain specified and other
actions, including arranging and completing the financing, so that the
consummation of the Merger shall occur as soon as practicable.

CONDITIONS TO THE CONSUMMATION OF THE MERGER. The respective obligations
of Zilog and TPG to effect the Merger are subject to the following closing
conditions: (i) the Merger Agreement and the transactions contemplated thereby
shall have been approved in the manner required by applicable law or the
applicable regulation of any stock exchange or regulatory body, or by the vote
of the holders of outstanding shares of Common Stock; (ii) the waiting period
(and any extension thereof) applicable to the Merger under the HSR Act shall
have expired or been terminated and all requisite governmental consents,
registrations, approvals, permits or authorizations shall have been obtained;
(iii) no court or government entity shall have enacted, issued, promulgated,
enforced or entered any law,

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order, decree or ruling that is in effect and would (A) restrain, enjoin or
otherwise prohibit the consummation of the Merger or make the acquisition or
holding by TPG of the common stock of the Surviving Corporation illegal, (B)
compel TPG or any of its subsidiaries or Zilog or any of its subsidiaries to
dispose of or hold separate all or a material portion of the business or assets
of TPG and its subsidiaries or Zilog or its subsidiaries, respectively, or (C)
impose any financial burden on TPG or the Surviving Corporation or any
limitation on the ability of TPG to hold or operate the business of Zilog or any
of its subsidiaries which would materially reduce the economic or business
benefits TPG expects to realize from the Merger; (iv) the Registration Statement
of which this Proxy Statement/Prospectus is a part shall have become effective
under the Securities Act and shall not be the subject of any stop order or
proceeding (initiated or threatened) seeking a stop order; and (v) Zilog shall
have received all state securities and "blue sky" permits and approvals
necessary to consummate the Merger.

TPG's and Merger Sub's obligations to effect the Merger are further
subject to the following additional conditions: (i) Zilog shall have performed
in all material respects all obligations of the Merger Agreement, and the
representations and warranties of Zilog contained in the Merger Agreement shall
be true and correct as of the Closing Date; (ii) Zilog shall have obtained the
consent or approval of third parties whose consents or approvals are required in
order to consummate the Merger; (iii) TPG shall have received the proceeds of
financing on the terms contemplated by the Commitment Letters, see "The
Merger--Merger Financings," or on other terms reasonably satisfactory to TPG;
and (iv) Warburg Pincus shall have made and not revoked a valid Non-Cash
Election with respect to 375,000 shares of Common Stock less the aggregate
number of Electing Shares, if any, held by stockholders of Zilog other than
Warburg Pincus in accordance with the terms of the Stockholders Voting
Agreement.

The obligations of Zilog to effect the Merger are further subject to the
following additional conditions: (i) TPG and Merger Sub shall have performed in
all material respects all obligations of the Merger Agreement, and the
representations and warranties of TPG and Merger Sub contained in the Merger
Agreement shall be true and correct as of the closing date of the Merger; and
(ii) TPG and Merger Sub shall have obtained the consent or approval of third
parties whose consents or approvals are required in order to consummate the
Merger.

TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of the Merger
by the stockholders of Zilog:

(a) by mutual written consent of TPG, Merger Sub and Zilog;

(b) by either TPG or Zilog: (i) if the Merger shall not have been
consummated on or before February 28, 1998 (provided that the terminating party
has not breached in any material respect its obligations under the Merger
Agreement in any manner that has proximately contributed to the failure to
consummate the Merger by February 28, 1998); (ii) if any court or governmental
entity of competent jurisdiction shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable (provided that the right to terminate the Merger
Agreement pursuant to this section will not be available to any party who has
not used its reasonable best efforts to cause such order to be lifted); or (iii)
if the approval of Zilog's stockholders of the Merger and the Merger Agreement
shall not have been obtained at the Special Meeting or any adjournment thereof;

(c) by TPG or Merger Sub if: (i) any of Zilog's representations and
warranties in the Merger Agreement that are qualified as to materiality shall
not be true and correct in any respect or any such representations or warranties
that are not so qualified shall not be true and correct in any material respect,
and such untruth or incorrectness cannot be cured or has not been cured within
60 days after the giving of written notice to Zilog; (ii) Zilog shall have
failed to perform in any material respect any material agreement or covenant of
Zilog to be performed or complied with under the Merger Agreement and such
failure cannot be or has not been cured within 20 days after the giving of
written notice to Zilog; or (iii) the Board of Directors or any committee
thereof shall have withdrawn, or modified in a manner adverse to TPG or Merger
Sub, its approval or recommendation of the Merger or Merger Agreement or
approved or recommended any Takeover Proposal or other acquisition agreement or
resolved to take any of the foregoing actions; provided that the suspension of
the recommendation of the Board of Directors for consideration of a Takeover
Proposal shall not give rise to termination pursuant to this section; or

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(d) by Zilog, if: (i) pursuant to and in compliance with the Merger
Agreement, the Board of Directors of Zilog concludes in good faith, based on
advice from outside counsel, that terminating the Merger Agreement would be
consistent with its fiduciary responsibilities to Zilog's stockholders under
applicable law, provided that TPG shall have received written notice that the
Board of Directors has received a Takeover Proposal which may constitute a
Superior Proposal and Zilog has paid the termination fee required by the Merger
Agreement (see "--Expenses and Certain Required Payments"); (ii) any of TPG's or
Merger Sub's representations and warranties in the Merger Agreement that are
qualified as to materiality shall not be true and correct in any respect or any
such representations or warranties that are not so qualified shall not be true
and correct in any material respect and such untruth or incorrectness cannot be
or has not been cured within 60 days after giving of written notice to TPG or
Merger Sub; or (iii) TPG or Merger Sub shall have failed to perform in any
material respect any material obligation or to comply in any material respect
with any material agreement or covenant of TPG or Merger Sub to be performed or
complied with under the Merger Agreement and such failure cannot be or has not
been cured within 20 days after the giving of written notice to TPG or Merger
Sub.

AMENDMENT; EXTENSION; WAIVER. The Merger Agreement may be amended by the
parties at any time before or after obtaining approval of the Merger Agreement
and the Merger by the stockholders of Zilog; provided, however, that, after
approval of the stockholders of Zilog, no amendment may be made which would
require further stockholder approval. At any time prior to the Effective Time
any party may (i) extend the time for the performance of any of the obligations
or other acts of the other parties of the Merger Agreement, (ii) waive any
inaccuracies in the representations and warranties made by the other party
contained in the Merger Agreement or in any document delivered pursuant thereto
and (iii) waive compliance with any of the agreements or conditions contained in
the Merger Agreement.

EXPENSES AND CERTAIN REQUIRED PAYMENTS. Zilog has agreed to pay TPG $15
million (i) if Zilog terminates the Merger Agreement on the grounds that Zilog's
Board of Directors concludes in good faith, based on advice from outside
counsel, that terminating the Merger Agreement would be consistent with its
fiduciary responsibilities to Zilog's stockholders under applicable law, in
which case such payment must be made simultaneously with termination; (ii) if
TPG terminates the Merger Agreement on the grounds that Zilog's Board of
Directors shall have withdrawn or modified in a manner adverse to TPG or Merger
Sub its approval or recommendation of the Merger or the Merger Agreement, or
approved or recommended any Takeover Proposal or other acquisition agreement or
shall have resolved to take any of the foregoing actions, in which case such
payment must be made within one business day after termination; (iii) if either
TPG or Zilog terminates the Merger Agreement on the grounds that (A) the
requisite approval of Zilog's stockholders of the Merger and the Merger
Agreement has not been obtained at a meeting of stockholders duly convened (a
"Company Negative Vote"), (B) at the time of such Company Negative Vote a
Takeover Proposal is pending and (C) within one year after such termination,
Zilog consummates either (1) a merger, consolidation or other business
combination between Zilog and any other person (other than TPG, Merger Sub or an
affiliate of TPG) or (2) the sale of 30% or more of the voting securities of
Zilog or of 30% or more of the assets of Zilog and its subsidiaries, in which
case such payment must be made simultaneously with the closing of the event
described in clause (1) or (2) above.

TPG has agreed to pay Zilog $5 million if the Merger Agreement is
terminated by either TPG or Zilog on the grounds that the Merger has not been
consummated by February 28, 1998 (provided that the terminating party has not
breached in any material respect its obligations under the Merger Agreement in
any manner that has proximately contributed to the failure to consummate the
Merger by February 28, 1998) and at the time of such termination, (i) TPG has
not obtained the proceeds of financing on the terms set forth in the Commitment
Letters or on other terms reasonably satisfactory to TPG; (ii) each of the other
conditions set forth in the Merger Agreement to the obligations of Zilog, TPG
and Merger Sub has been satisfied or waived; and (iii) TPG and Merger Sub are
not then entitled to terminate the Merger Agreement for any other reason (other
than the Merger not being consummated by February 28, 1998), in which case such
payment must be made no later than one business day after the termination of the
Merger Agreement.

Except as otherwise provided above, all fees and expenses incurred in
connection with the Merger Agreement and the Merger shall be paid by the party
incurring such expenses, whether or not the Merger is consummated, except that
filing fees related to compliance with the HSR Act will be borne equally by
Zilog and TPG.

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CERTAIN PROVISIONS OF THE STOCKHOLDERS VOTING AGREEMENT

The following summary describes the material provisions of the
Stockholders Voting Agreement by and among TPG, on the one hand, and the Warburg
Stockholders, on the other hand, a copy of which is attached as Annex B to this
Proxy Statement/Prospectus and is incorporated herein by reference. This summary
is qualified in its entirety by reference to the Stockholders Voting Agreement.

VOTING ARRANGEMENTS. Pursuant to the Stockholders Voting Agreement, each
of the Warburg Stockholders has severally agreed to vote the shares of Common
Stock held by such Warburg Stockholder, including all shares of Common Stock
acquired by the Warburg Stockholders during the term of the Stockholders Voting
Agreement (the "Subject Shares") at any meeting of stockholders of Zilog called
to vote upon the Merger and the Merger Agreement (or in any other circumstances
upon which a vote, consent or other approval, including a written consent, with
respect to the Merger and the Merger Agreement is sought) (i) in favor of the
Merger, the adoption by Zilog of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the Merger
Agreement and (ii) against (A) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation
or winding up of or by Zilog or any other Takeover Proposal or (B) any amendment
of the Certificate of Incorporation or Bylaws or other proposal or transaction
involving Zilog or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, delay, prevent or nullify the
Merger, the Merger Agreement or any of the other transactions contemplated by
the Merger Agreement. Each Warburg Stockholder has agreed to waive any appraisal
rights granted pursuant to Section 262 to which it may otherwise be entitled as
a result of the Merger or the other transactions contemplated by the Merger
Agreement.

GRANT OF IRREVOCABLE PROXY. Upon TPG's request, each Warburg Stockholder
has agreed to irrevocably grant to and appoint TPG its proxy and
attorney-in-fact (with full power of substitution) to vote the Subject Shares of
such Stockholder, or grant a consent or approval, in favor of or against the
matters described above in "--Voting Arrangements" and to execute and deliver an
appropriate instrument irrevocably granting such proxy. The proxy so granted
will terminate upon any termination of the Stockholders Voting Agreement which
shall occur upon the earlier of the termination of the Merger Agreement or the
Effective Time.

TRANSFER RESTRICTIONS. Under the Stockholders Voting Agreement, each of
the Warburg Stockholders has agreed not to (i) transfer, sell, pledge, assign or
otherwise dispose of, including by gift (collectively, "Transfer"), or enter
into any contract, option or other arrangement, including any profit sharing
arrangement, with respect to the Transfer of, any of the Subject Shares to any
person other than pursuant to the terms of the Merger or (ii) enter into any
voting arrangement, whether by proxy, power-of-attorney, voting agreement,
voting trust or otherwise, in connection with, directly or indirectly, any
Takeover Proposal.

NO SOLICITATION. During the term of the Stockholders Voting Agreement,
each of the Warburg Stockholders has agreed not to (i) directly or indirectly
solicit, initiate or encourage the submission of, any Takeover Proposal or (ii)
directly or indirectly participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal.

NON-CASH ELECTION UNDER MERGER AGREEMENT. Warburg Pincus has agreed that
it will make and will not revoke an effective Non-Cash Election with respect to
375,000 shares of Common Stock less the aggregate number of Electing Shares, if
any, held by stockholders of Zilog other than Warburg Pincus.

STOCKHOLDERS AGREEMENT. Warburg Pincus has agreed that it will enter into
the Stockholders Agreement with each other Retaining Stockholder, Zilog, TPG and
affiliates of TPG. See "Certain Provisions of the Stockholders Agreement."

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CERTAIN PROVISIONS OF THE STOCKHOLDERS AGREEMENT

The following summary describes material provisions of the Stockholders
Agreement, a copy of the form of which is attached as Annex C to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the Stockholders Agreement.

TO THE EXTENT THAT A HOLDER RETAINS NON-CASH ELECTION SHARES FOLLOWING
CONSUMMATION OF THE MERGER, BY COMPLETING THE NON-CASH ELECTION FORM AND
RETURNING SUCH NON-CASH ELECTION FORM TOGETHER WITH STOCK CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK, SUCH HOLDER WILL BE DEEMED TO HAVE SIGNED
AND BECOME A PARTY TO THE STOCKHOLDERS AGREEMENT AS OF THE EFFECTIVE TIME AND
SHALL BE ENTITLED TO ALL OF THE RIGHTS AND SUBJECT TO ALL OF THE OBLIGATIONS AND
OTHERWISE SHALL BE BOUND BY ALL OF THE PROVISIONS THEREOF, IN EACH CASE
APPLICABLE TO SUCH HOLDER.

TRANSFER RESTRICTIONS. No Retaining Stockholder may, directly or
indirectly, sell, assign, pledge, hypothecate, encumber or otherwise dispose of
(voluntarily or involuntarily) any of its shares of Common Stock or any interest
in such shares (all of which acts will be deemed to be included in the term
"transfer") unless (i) the transfer is expressly permitted by, and made in
compliance with, certain provisions of the Stockholders Agreement, or (ii) the
transfer is made to TPG or any of its affiliates.

Each certificate representing shares of Common Stock will contain a
restrictive legend indicating that the securities represented by such
certificate are subject to the terms of the Stockholders Agreement and that such
shares may be voted, sold, transferred or otherwise disposed of only in
accordance with such agreement.

PERMITTED TRANSFERS BY TPG. TPG or any of its affiliates may transfer
(voluntarily or involuntarily) any of its shares of Common Stock, or any
interest in such shares beneficially owned by it, to any individual,
partnership, joint venture, firm, corporation, limited liability company,
association, trust or any other entity or any government or political
subdivision or an agency, department or instrumentality thereof (a "Person")
free and clear of any restrictions set forth in the Stockholders Agreement,
subject to the obligations of TPG relating to Tag-Along Rights. See "--Tag-Along
Rights." Any affiliate of TPG receiving shares of Common Stock from TPG will be
required to execute and deliver a written agreement assuming all of the
obligations of TPG with respect to the transferred shares of Common Stock, and
TPG will remain liable for such transferee's failure to perform its obligations
under the Stockholders Agreement.

PERMITTED TRANSFERS BY RETAINING STOCKHOLDERS. Notwithstanding the
transfer restrictions described above and the right of first offer described
below, each Retaining Stockholder may transfer its shares of Common Stock (i) if
it is an entity, (A) to any partnership in which it directly or indirectly owns
or controls 100% of either the capital or profit interests or (B) to any
corporation or limited liability company in which it directly or indirectly owns
or controls 100% of the outstanding voting securities or member interests; and
(ii) if it is a natural person, to any trust created for the benefit of such
person and/or member of such person's family (each of (i) and (ii), a "100%
Affiliate"). Any 100% Affiliate receiving shares of Common Stock from a
Retaining Stockholder will be required to execute and deliver a written
agreement assuming all of the obligations of such Retaining Stockholder with
respect to the transferred shares of the Company and agreeing to transfer such
shares back to such Retaining Stockholder prior to it ceasing to be a 100%
Affiliate of such Retaining Stockholder. Such a Retaining Stockholder will
remain liable for any such 100% Affiliate's failure to perform its obligations
under the Stockholders Agreement with respect to the transferred shares of
Common Stock.

Subject to certain conditions, a Retaining Stockholder may also pledge its
shares of Common Stock to a financial institution.

RIGHT OF FIRST OFFER. Notwithstanding the transfer restrictions described
above, if a Retaining Stockholder desires to sell its shares of Common Stock to
a third party, such Retaining Stockholder must give prompt written notice (a
"Notice of Offer") to TPG and Zilog of the proposed purchase price for the
shares of Common Stock being offered, the proposed closing date for the
transfer, the number of shares proposed to be transferred and any other material
term or condition to the proposed transfer. TPG will then have 20 days following
the receipt of the Notice

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of Offer to elect to purchase the shares of Common Stock on the terms and
conditions set forth therein. If TPG does not elect to purchase such shares of
Common Stock, the Retaining Stockholder may sell, within 90 days of the date on
which the Notice of Offer was delivered to TPG and Zilog, all, but not less than
all, of such shares on the terms and conditions set forth in the Notice of
Offer. The transferee receiving such shares must execute and deliver a written
agreement assuming all of the obligations of such Retaining Stockholder with
respect to the transferred shares of Common Stock.

TAG-ALONG RIGHTS. Notwithstanding the transfer restrictions and right of
first offer described above, in the event that TPG reaches a binding agreement
with a Person to sell all or a portion of its shares of Common Stock such that,
as a result of such transfer, 40% or more of the voting power of Zilog would be
held by a Person not affiliated with TPG, subject to certain conditions, each
Retaining Stockholder may elect to participate in such sale (each Retaining
Stockholder making such an election hereinafter referenced as an "Electing
Stockholder"). TPG will cause the prospective purchaser (the "Prospective
Purchaser"), subject to certain terms and conditions, to purchase from each
Electing Stockholder (in lieu of purchasing from TPG) that number of shares of
Common Stock then owned by such Electing Stockholder which will equal the
product of (i) the number of shares of Common Stock then owned by the Electing
Stockholder multiplied by (ii) a fraction, the numerator of which will equal the
number of shares of Common Stock to be purchased by the Prospective Purchaser
from TPG and the denominator of which will equal the total number of shares of
Common Stock then owned by TPG (such product, the "Applicable Amount"). Any
purchase by the Prospective Purchaser of the Applicable Amount of shares of
Common Stock of any Electing Stockholder will be at the same price per share and
on the same terms and conditions as would be applicable to TPG in such
transaction.

DRAG-ALONG RIGHTS. Notwithstanding the transfer restrictions and right of
first offer described above, subject to certain terms and conditions, if TPG
executes a binding agreement to transfer all of its shares of Common Stock to a
Person making an offer in good faith which is not an affiliate of TPG (the
"Offeror), then each Retaining Stockholder must, at the sole election of TPG,
transfer all of its shares of Common Stock to the Offeror (a "Drag- Along
Transaction"). In a Drag-Along Transaction, each Retaining Stockholder will
receive from the Offeror the same per share consideration to be paid to TPG in
such transaction, and the sale of shares by each Retaining Stockholder in such a
transaction will be conditioned on the simultaneous purchase of TPG's shares of
Common Stock. Notwithstanding the foregoing, the Retaining Stockholder will not
be obligated to transfer its shares of Common Stock in a Drag-Along Transaction
if, at the time of TPG's transfer, TPG beneficially owns less than 40% of the
voting power of Zilog.

PIGGY BACK REGISTRATION. If Zilog at any time proposes to register any of
its equity securities under the Securities Act (other than by registration on a
Form S-4 or Form S-8 or any successor or similar form then in effect), whether
or not for sale for its own account, on a form and in a manner which would
permit registration of (i) shares of Common Stock or Class A Non-Voting Common
Stock and (ii) any shares of Common Stock of the Company issued or issuable by
way of stock dividend or other distribution or stock split or in connection with
a combination, exchange or replacement of shares of Common Stock or Class A
Non-Voting Common Stock, recapitalization, merger, consolidation or other
reorganization (collectively, "Registrable Securities") or otherwise with
respect to Registrable Securities for sale, each such time Zilog will be
required to give prompt written notice to all stockholders owning Registrable
Securities of its intention to do so. Subject to certain conditions and
limitations, upon the written request of any stockholder, Zilog will be required
to use its reasonable best efforts to effect the registration under the
Securities Act of all Registrable Securities which Zilog has been so requested
to register. In the event of any registration of Registrable Securities under
the Securities Act, Zilog will provide customary indemnification to each seller
of Registrable Securities, its officers and directors and to certain other
Persons.

AFFILIATE TRANSACTIONS. All transactions between Zilog and TPG or any of
its affiliates will require the prior approval of the holders of a majority of
the Common Stock (excluding shares held by TPG and its affiliates) other than
agreements or transactions which are on arm's-length terms or consulting fees
with terms which are customary between TPG and its portfolio companies. TPG does
not currently charge its portfolio companies consulting fees and accordingly,
expects that any such consulting fees that might be charged to the Company would
be on arm's- length terms. In connection with the Merger, at the Effective Time,
the Surviving Corporation will pay TPG a financial advisory fee in the amount of
$6 million.

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DISPOSITION OF WARBURG PINCUS SHARES. Under certain circumstances, Zilog
will be required to reimburse Warburg Pincus for the cost of investment banking
fees, in an amount not to exceed $50,000, in connection with an analysis of the
ownership position and disposition strategies of Warburg Pincus.

TERM. Subject to certain exceptions, the Stockholders Agreement will
expire on the eighth anniversary of the closing date of the Merger.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 1, 1997, the number of
shares of Common Stock beneficially owned by the directors of Zilog and all
directors and executive officers of Zilog as a group, and each person known to
Zilog to own beneficially more than 5% of the Common Stock. Except as otherwise
indicated and subject to community property laws where applicable, each person
has sole investment and voting power with respect to the shares shown. Ownership
information is based upon information furnished by the respective individuals
and entities.

<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock
----------------------
Number Percent
Name of Beneficial Owner of Shares of Class
------------------------ --------- --------
<S> <C> <C>
Warburg Pincus, and related affiliates(1)(2)........................... 5,477,504 27.0
466 Lexington Avenue
New York, New York 10017
Trimark Financial Corporation(3)....................................... 2,312,000 11.4
One First Canadian Place, Suite 5600
P.O. Box 487, Toronto, ON, M5X 1E5
FMR Corporation........................................................ 1,984,900 9.8
82 Devonshire Street
Boston, MA 02109-3614
Robert Fleming Inc..................................................... 1,251,050 6.2
320 Park Avenue, 11th Floor
New York, New York 10022
Wilke/Thompson Capital Management, Inc................................. 1,028,170 5.1
3800 Norwest Center, 90 S. 7th Street
Minneapolis, MN 55402
Edgar A. Sack(4)....................................................... 841,436 4.1
Thomas J. Connors(5)................................................... 58,000 *
William H. Janeway(6).................................................. 5,487,704 27.0
Henry Kressel(6)....................................................... 5,480,504 27.0
Michael J. Bradshaw(7)................................................. 247,096 1.2
J. James Magill(8)..................................................... 91,575 *
Alan Secor(9).......................................................... 101,350 *
Richard L. Moore....................................................... 31,689 *
Larry W. Wangberg...................................................... 10,000 *
Robert M. White........................................................ 15,000 *
All executive officers and directors as a group (15 persons)(2)(10).... 1,750,254 8.6
</TABLE>

- ----------
* Less than 1%.

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(1) Warburg Pincus 5,378,004
WP 99,500
---------
5,477,504
=========

(2) The sole general partner of Warburg Pincus is WP. E.M. Warburg, Pincus &
Co., LLC, a New York limited liability company ("EMW LLC"), manages
Warburg Pincus. The members of EMW LLC are substantially the same as the
partners of WP. Lionel I. Pincus is the managing partner of WP and the
managing member of EMW LLC and may be deemed to control both WP and EMW
LLC. WP, as the sole general partner of Warburg Pincus, has a 20% interest
in the profits of Warburg Pincus. William H. Janeway and Henry Kressel,
directors of Zilog, are Managing Directors and members of EMW LLC and
general partners of WP. As such, Mr. Janeway and Dr. Kressel may be deemed
to have indirect pecuniary interests (within the meaning of Rule 16a-1
under the Securities Exchange Act of 1934) in an indeterminate portion of
the shares beneficially owned by Warburg Pincus and WP.

Pursuant to the terms of the Stockholders Voting Agreement, the Warburg
Stockholders have agreed to, among other things, vote their shares of
Common Stock in favor of the Merger and Warburg Pincus has agreed to make
a Non-Cash Election with respect to 375,000 shares of Common Stock less
the aggregate number of Electing Shares, if any, held by stockholders of
Zilog other than Warburg Pincus. See "Certain Provisions of the
Stockholders Voting Agreement." The Merger Agreement and the Stockholders
Voting Agreement provide that Warburg Pincus, WP and Retaining
Stockholders will enter into the Stockholders Agreement, pursuant to which
such parties will receive the benefits and be subject to the obligations
thereunder. See "Certain Provisions of the Stockholders Agreement."
(3) Based on Amendment No. 1 to Schedule 13G dated May 7, 1997, filed by
Trimark Financial Corp.
(4) Includes 127,513 shares subject to options exercisable within 60 days of
December 1, 1997.
(5) Includes 58,000 shares subject to options exercisable within 60 days of
December 1, 1997.
(6) Of the 5,487,704 shares indicated above, 10,200 are owned directly by Mr.
Janeway. Of the 5,480,504 shares indicated above, 3,000 are owned directly
by Kressel. The remaining 5,477,504 shares are owned directly by Warburg
Pincus and WP and are included because of Mr. Janeway and Dr. Kressel's
affiliation with Warburg Pincus. Mr. Janeway and Dr. Kressel disclaim
"beneficial ownership" of these shares within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934.
(7) Includes 48,751 shares subject to options exercisable within 60 days of
December 1, 1997.
(8) Includes 89,388 shares subject to options exercisable within 60 days of
December 1, 1997.
(9) Includes 96,976 shares subject to options exercisable within 60 days of
December 1, 1997.
(10) Includes 137,627 shares subject to options exercisable within 60 days of
December 1, 1997, excludes 5,477,504 shares owned by Warburg Pincus as to
which Mr. Janeway and Dr. Kressel disclaim beneficial ownership.

REGULATORY APPROVALS

The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act (which condition has been satisfied). Certain
aspects of the Merger will require notification to, and filings with, certain
securities and other authorities in certain states, including jurisdictions
where Zilog currently operates.

ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
FTC, the Merger may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division and
the applicable waiting period has expired or been terminated. On September 2,
1997, the FTC and the Antitrust Division granted early termination of the
waiting period under the HSR Act with respect to the Merger effective
immediately. At any time before or after consummation of the Merger,
notwithstanding that early termination of the waiting period under the HSR Act
has been granted, the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Zilog. At any time before or after the
Effective Time, and notwithstanding that early termination of the waiting period
under the HSR Act has been granted, any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of

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substantial assets of Zilog. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.

Based on information available to them, Zilog and Merger Sub believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Zilog and Merger Sub would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.

OTHER. The obligations of TPG, Merger Sub and Zilog under the Merger
Agreement are also subject to the filing of all notices, reports and other
requisite filings and the receipt of all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Effective Time
by Zilog or TPG, or any of their respective subsidiaries, from any governmental
entity in connection with the execution and delivery of the Merger Agreement and
the consummation of the Merger and the other transactions contemplated thereby
upon terms and conditions that are not reasonably likely to have a material
adverse effect on Zilog.

TPG

TPG is a Delaware limited partnership formed in March 1997 to pursue
public and private investment opportunities through a variety of methods,
including leveraged buyouts, joint ventures, restructurings, bankruptcies and
strategic public securities investments. TPG together with two affiliated
partnerships currently have aggregate committed equity capital of over $3.2
billion. The acquisition of Zilog will be TPG's third major investment in the
technology industry in the last two years.

The principals of TPG, David Bonderman, James G. Coulter and William S.
Price, also serve as the principals of TPG Partners, L.P., an investment
partnership formed in 1993, with over $700 million of invested equity capital.
Principal investments made by TPG Partners, L.P. include America West Airlines,
Inc., Beringer Wine Estates, Del Monte Foods Company, Denbury Resources, Inc.,
Ducati Motor, Favorite Brands International, J. Crew Group, Inc., Paradyne
Corp., and Virgin Cinemas. In addition, the principals of TPG and TPG Partners,
L.P. led the $9 billion reorganization of Continental Airlines, Inc. in 1993.

TPG maintains its principal offices at 201 Main Street, Suite 2420, Forth
Worth, Texas 76102. Its telephone number at that location is (817) 871-4000.

STOCKHOLDERS' APPRAISAL RIGHTS

HOLDERS OF SHARES OF COMMON STOCK WHO DO NOT VOTE IN FAVOR OF OR CONSENT
TO THE MERGER AND WHO HAVE PROPERLY COMPLIED WITH THE REQUIREMENTS OF SECTION
262 WILL BE ENTITLED TO APPRAISAL RIGHTS UNDER SECTION 262. SECTION 262 IS
REPRINTED IN ITS ENTIRETY AS ANNEX E TO THIS PROXY STATEMENT/PROSPECTUS. THE
FOLLOWING DISCUSSION IS A SUMMARY OF THE LAW RELATING TO APPRAISAL RIGHTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX E. THIS DISCUSSION AND ANNEX E
SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY
APPRAISAL RIGHTS, IF AVAILABLE, OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS
FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN
THE LOSS OF APPRAISAL RIGHTS, IF AVAILABLE.

Pursuant to the terms of the Stockholders Voting Agreement, the Warburg
Stockholders have waived any appraisal rights granted pursuant to Section 262 to
which they may otherwise be entitled as a result of the Merger or the other
transactions contemplated by the Merger Agreement.

A stockholder of Zilog who makes the demand described below with respect
to its shares, who continuously is the record holder of such shares through the
Effective Time, who otherwise complies with the statutory

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requirements of Section 262 and who neither votes in favor of the Merger
Agreement nor consents thereto in writing may be entitled to an appraisal by the
Delaware Court of Chancery (the "Delaware Court") of the fair value of its
shares of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Except as set forth herein, stockholders of Zilog will not be entitled to
appraisal rights in connection with the Merger.

Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Special Meeting, not less than 20 days prior
to the meeting, each constituent corporation must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 262. This Proxy
Statement/Prospectus will constitute such notice to the stockholders of Zilog.

Stockholders of Zilog who desire to exercise their appraisal rights MUST
NOT VOTE IN FAVOR OF THE MERGER AGREEMENT OR THE MERGER AND MUST DELIVER A
SEPARATE WRITTEN DEMAND FOR APPRAISAL TO ZILOG PRIOR TO THE VOTE BY THE
STOCKHOLDERS OF ZILOG ON THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER. A stockholder of Zilog who signs and returns a
proxy without expressly directing by checking the applicable boxes on the
reverse side of the proxy enclosed herewith that its shares of Common Stock be
voted against the proposal or that an abstention be registered with respect to
its shares of Common Stock in connection with the proposal will effectively have
thereby waived its appraisal rights as to those shares of Common Stock because,
in the absence of express contrary instructions, such shares of Common Stock
will be voted in favor of the proposal. See "The Special Meeting--Voting and
Revocation of Proxies." Accordingly, a stockholder of Zilog who desires to
perfect appraisal rights with respect to any of its shares of Common Stock must,
as one of the procedural steps involved in such perfection, either (i) refrain
from executing and returning the enclosed proxy and from voting in person in
favor of the proposal to approve the Merger Agreement, or (ii) check either the
"Against" or the "Abstain" box next to the proposal on such card or
affirmatively vote in person against the proposal or register in person an
abstention with respect thereto. A demand for appraisal must be executed by or
on behalf of the stockholder of Zilog of record and must reasonably inform Zilog
of the identity of the stockholder of Zilog of record and that such record
stockholder of Zilog intends thereby to demand appraisal of the Common Stock. A
person having a beneficial interest in shares of Common Stock that are held of
record in the name of another person, such as a broker, fiduciary or other
nominee, must act promptly to cause the record holder to follow the steps
summarized herein properly and in a timely manner to perfect whatever appraisal
rights are available. If the shares of Common Stock are owned of record by a
person other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by or for all joint owners. An authorized agent, including an
agent for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner. If a stockholder holds shares through a
broker who in turn holds the shares through a central securities depository
nominee such as Cede & Co., a demand for appraisal of such shares must be made
by or on behalf of the depository nominee and must identify the depository
nominee as record holder.

A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Common Stock as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of Common Stock outstanding in the name of such record owner.

A stockholder of Zilog who elects to exercise appraisal rights, if
available, should mail or deliver his or her written demand to: Zilog, Inc., 210
East Hacienda Avenue, Campbell, California 95008-6600, Attention: Richard R.
Pickard, Secretary.

The written demand for appraisal should specify the name and mailing
address of the stockholder of Zilog, the number of shares of Common Stock owned,
and that the stockholder of Zilog is thereby demanding appraisal of its shares.
A PROXY OR VOTE AGAINST THE MERGER AGREEMENT WILL NOT BY ITSELF CONSTITUTE SUCH
A DEMAND.

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Within ten days after the Effective Time, the Surviving Corporation must provide
notice of the Effective Time to all stockholders of Zilog who have complied with
Section 262.

Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder of Zilog who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court, with a copy served on the
Surviving Corporation in the case of a petition filed by a stockholder of Zilog,
demanding a determination of the fair value of the shares of all stockholders of
Zilog entitled to appraisal rights. There is no present intent on the part of
Zilog to file an appraisal petition and stockholders of Zilog seeking to
exercise appraisal rights should not assume that the Surviving Corporation will
file such a petition or that the Surviving Corporation will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
stockholders of Zilog who desire to have their shares appraised should initiate
any petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. If appraisal rights
are available, within 120 days after the Effective Time, any stockholder of
Zilog who has theretofore complied with the applicable provisions of Section 262
will be entitled, upon written request, to receive from the Surviving
Corporation a statement setting forth the aggregate number of shares of Common
Stock not voting in favor of the Merger Agreement and with respect to which
demands for appraisal were received by Zilog and the number of holders of such
shares. Such statement must be mailed within 10 days after the written request
therefor has been received by the Surviving Corporation.

If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders of Zilog, if any, are entitled to appraisal rights.
The Delaware Court may require the stockholders of Zilog who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder of
Zilog fails to comply with such direction, the Delaware Court may dismiss the
proceedings as to such stockholder of Zilog. Where proceedings are not
dismissed, the Delaware Court will appraise the shares of Common Stock owned by
such stockholders of Zilog, determining the fair value of such shares exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value, the Delaware
Court is to take into account all relevant factors. In Weinberger v. UOP Inc.,
the Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered, and
that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger which throw
light on future prospects of the merged corporation. In Weinberger, the Delaware
Supreme Court stated that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and not the product of speculation, may be considered." Section 262, however,
provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger."

Stockholders of Zilog considering seeking appraisal should recognize that
the fair value of their shares determined under Section 262 could be more than,
the same as or less than the consideration they are entitled to receive pursuant
to the Merger Agreement if they do not seek appraisal of their shares. The cost
of the appraisal proceeding may be determined by the Delaware Court and taxed
against the parties as the Delaware Court deems equitable in the circumstances.
Upon application of a stockholder of Zilog entitled to appraisal rights, the
Delaware Court may order that all or a portion of the expenses incurred by any
stockholder of Zilog entitled to appraisal rights in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of Common Stock entitled to appraisal.

Any stockholder of Zilog who has duly demanded appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to vote for any
purpose any shares subject to such demand or to receive payment of dividends or
other distributions on such shares, except for dividends or distributions
payable to stockholders of Zilog of record at a date prior to the Effective
Time.

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<PAGE> 72
At any time within 60 days after the Effective Time, any stockholder of
Zilog will have the right to withdraw such demand for appraisal and to accept
the terms offered in the Merger; after this period, the stockholder of Zilog may
withdraw such demand for appraisal only with the consent of the Surviving
Corporation. If no petition for appraisal is filed with the Delaware Court
within 120 days after the Effective Time, stockholders' rights to appraisal will
cease, and stockholders of Zilog will be entitled to receive the merger
consideration. Inasmuch as the Surviving Corporation has no obligation to file
such a petition, and Zilog has no present intention to do so, any stockholder of
Zilog who desires such a petition to be filed is advised to file it on a timely
basis. Any stockholder of Zilog may withdraw such demand for appraisal by
delivering to the Surviving Corporation a written withdrawal of its demand for
appraisal and acceptance of the merger consideration, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the Surviving Corporation and (ii) that no appraisal
proceeding in the Delaware Court will be dismissed as to any stockholder of
Zilog without the approval of the Delaware Court, and such approval may be
conditioned upon such terms as the Delaware Court deems just. Any stockholder of
Zilog who withdraws such demand for appraisal or who fails to perfect such
demand after the Effective Time will be entitled to the merger consideration in
accordance with the Merger Agreement for each share of Common Stock owned by
such stockholder.

EXPERTS

The consolidated financial statements and schedule of Zilog, Inc. and
subsidiaries included in or incorporated by reference in Zilog's Annual Report
(on Form 10-K) for the year ended December 31, 1996 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
in or incorporated by reference therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

LEGAL MATTERS

The legality of the shares of Common Stock being retained in the Merger is
being passed on by Pillsbury Madison & Sutro LLP, Palo Alto, California.
Pillsbury Madison & Sutro LLP has also rendered an opinion, filed as an exhibit
to the Registration Statement of which this Proxy Statement/Prospectus is a
part, to the effect that the discussion under the caption "The Merger--Federal
Income Tax Consequences" describes the material United States federal income tax
considerations generally applicable to the Merger. See "The Merger--Federal
Income Tax Consequences."

OTHER INFORMATION AND STOCKHOLDER PROPOSALS

As specified in Zilog's Proxy Statement dated April 4, 1997 for its 1997
Annual Meeting of Stockholders, any stockholder proposals to be considered for
presentation at the 1998 Annual Meeting of Stockholders must have been received
by Zilog not later than December 4, 1997.

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ANNEX A

AGREEMENT AND PLAN OF MERGER

DATED AS OF JULY 20, 1997

AS AMENDED BY

AMENDMENT NUMBER ONE

DATED AS OF NOVEMBER 18, 1997

AND

AMENDMENT NUMBER TWO

DATED AS OF DECEMBER 10, 1997

BY AND AMONG

TPG PARTNERS II, L.P.,
TPG ZEUS ACQUISITION CORPORATION
AND ZILOG, INC.

<PAGE> 74
TABLE OF CONTENTS

ARTICLE I THE MERGER..........................................................................A-1
SECTION 1.1 The Merger.......................................................................A-1
SECTION 1.2 Closing..........................................................................A-1
SECTION 1.3 Effective Time...................................................................A-2
SECTION 1.4 Effects of the Merger............................................................A-2
SECTION 1.5 Certificate of Incorporation and By-laws; Officers and Directors.................A-2

ARTICLE II EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT
CORPORATIONS; SURRENDER OF CERTIFICATES..........................................A-3
SECTION 2.1 Effect on Stock..................................................................A-3
SECTION 2.2 Options..........................................................................A-5
SECTION 2.3 Surrender of Certificates........................................................A-6
SECTION 2.4 Adjustments to Prevent Dilution..................................................A-8

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................A-8
SECTION 3.1 Organization.....................................................................A-8
SECTION 3.2 Subsidiaries.....................................................................A-8
SECTION 3.3 Capital Structure................................................................A-8
SECTION 3.4 Authority........................................................................A-9
SECTION 3.5 Consent and Approvals; No Violations.............................................A-9
SECTION 3.6 SEC Documents and Other Reports.................................................A-10
SECTION 3.7 Absence of Material Adverse Change..............................................A-10
SECTION 3.8 Information Supplied............................................................A-10
SECTION 3.9 Compliance with Laws............................................................A-11
SECTION 3.10 Tax Matters.....................................................................A-11
SECTION 3.11 Liabilities.....................................................................A-13
SECTION 3.12 Benefit Plans; Employees and Employment Practices...............................A-13
SECTION 3.13 Litigation......................................................................A-15
SECTION 3.14 Environmental Matters...........................................................A-15
SECTION 3.15 Intellectual Property...........................................................A-15
SECTION 3.16 State Takeover Statutes; Charter Provisions.....................................A-17
SECTION 3.17 Brokers.........................................................................A-17
SECTION 3.18 Required Vote of Stockholders...................................................A-17
SECTION 3.19 Title to Property...............................................................A-17
SECTION 3.20 Real Property...................................................................A-17
SECTION 3.21 Outstanding Commitments.........................................................A-18
SECTION 3.22 Insurance.......................................................................A-19
SECTION 3.23 Affiliate Transactions..........................................................A-19
SECTION 3.24 Management Payments.............................................................A-19
SECTION 3.25 Accuracy of Information.........................................................A-19

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB...................................A-19
SECTION 4.1 Organization....................................................................A-19
SECTION 4.2 Authority.......................................................................A-20
SECTION 4.3 Consents and Approvals; No Violations...........................................A-20
SECTION 4.4 Information Supplied............................................................A-20
SECTION 4.5 Interim Operations of Sub.......................................................A-21
SECTION 4.6 Brokers.........................................................................A-21
SECTION 4.7 Financing.......................................................................A-21

ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS..........................................A-21
SECTION 5.1 Conduct of Business by the Company Pending the Merger...........................A-21
</TABLE>

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<TABLE>
<S> <C>
SECTION 5.2 No Solicitation.................................................................A-23
SECTION 5.3 Third Party Standstill Agreements...............................................A-24

ARTICLE VI ADDITIONAL AGREEMENTS..............................................................A-24
SECTION 6.1 Stockholder Meeting.............................................................A-24
SECTION 6.2 Filings; Other Actions; Notification; Access to Information.....................A-25
SECTION 6.3 Fees and Expenses...............................................................A-26
SECTION 6.4 Awards..........................................................................A-26
SECTION 6.5 Public Announcements............................................................A-26
SECTION 6.6 Real Estate Transfer Tax........................................................A-26
SECTION 6.7 State Takeover Laws.............................................................A-27
SECTION 6.8 Indemnification; Directors and Officers Insurance...............................A-27
SECTION 6.9 Notification of Certain Matters.................................................A-27
SECTION 6.10 Reasonable Best Efforts.........................................................A-28
SECTION 6.11 Employee Benefits...............................................................A-28
SECTION 6.12 Severance Policy and Other Agreements...........................................A-29
SECTION 6.13 1997 Bonus......................................................................A-29
SECTION 6.14 401(k)/Profit Sharing Contributions for 1997....................................A-29
SECTION 6.15 Certification...................................................................A-30
SECTION 6.16 Recapitalization Accounting.....................................................A-30
SECTION 6.17 NYSE Delisting..................................................................A-30
SECTION 6.18 Formation of Sub................................................................A-30
SECTION 6.19 Stockholders Agreement..........................................................A-30
SECTION 6.20 Surviving Corporation Preferred Stock...........................................A-30

ARTICLE VII CONDITIONS PRECEDENT...............................................................A-30
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger......................A-30
SECTION 7.2 Conditions to Obligations of Parent and Sub.....................................A-32
SECTION 7.3 Conditions to Obligations of the Company........................................A-31

ARTICLE VIII TERMINATION AND AMENDMENT..........................................................A-32
SECTION 8.1 Termination.....................................................................A-32
SECTION 8.2 Effect of Termination...........................................................A-33
SECTION 8.3 Amendment.......................................................................A-33
SECTION 8.4 Extension; Waiver...............................................................A-33

ARTICLE IX GENERAL PROVISIONS.................................................................A-33
SECTION 9.1 Non-Survival of Representations and Warranties and Agreements...................A-33
SECTION 9.2 Notices.........................................................................A-33
SECTION 9.3 Interpretation..................................................................A-35
SECTION 9.4 Counterparts....................................................................A-35
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries..................................A-35
SECTION 9.6 Governing Law...................................................................A-35
SECTION 9.7 Assignment......................................................................A-35
SECTION 9.8 Severability....................................................................A-35
SECTION 9.9 Enforcement of This Agreement...................................................A-35
SECTION 9.10 Obligations of Subsidiaries.....................................................A-35
</TABLE>

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of July 20, 1997 (as amended by
Amendment Number One, dated November 18, 1997, this "Agreement"), between TPG
PARTNERS II, L.P., a Delaware limited partnership ("Parent"), and ZILOG, INC., a
Delaware corporation (the "Company"),

W I T N E S S E T H:

WHEREAS, Parent will cause a wholly owned Delaware corporation to be
formed as soon as practicable following the date hereof ("Sub") (Sub and the
Company being hereinafter collectively referred to as the "Constituent
Corporations"); and

WHEREAS, the Board of Directors of the Company has determined that the
merger of Sub with and into the Company, upon the terms and subject to the
conditions set forth in this Agreement, would be fair to and in the best
interests of the stockholders of the Company, and such Board of Directors and
the general partner of Parent have approved such merger (the "Merger"), pursuant
to which each share of Common Stock, par value $.01 per share, of the Company
(individually a "Share" and collectively the "Shares"), issued and outstanding
immediately prior to the Effective Time (as defined in Section 1.3) will be
converted into either (A) the right to retain, at the election of the holder
thereof and subject to the terms hereof, a Share or (B) the right to receive
cash, other than for (i) Shares owned, directly or indirectly, by the Company or
any Subsidiary (as defined in Section 9.3) of the Company or by Parent, Sub or
any subsidiary of Parent and (ii) Dissenting Shares (as defined in Section
2.1(g)); and

WHEREAS, the Merger and this Agreement require the vote of a majority of
the Shares for the approval thereof (the "Company Stockholder Approval"); and

WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Parent's and Sub's willingness to enter
into this Agreement, each of Warburg, Pincus Capital Company, L.P. and Warburg,
Pincus & Co. (collectively, "Warburg Pincus") are entering into a Stockholders
Voting Agreement with Parent in substantially the form attached hereto as
Exhibit A (the "Stockholders Voting Agreement") which, among other things, (i)
requires them to vote all Shares owned by them in accordance with the
Stockholders Voting Agreement and (ii) requires them to make a Non-Cash Election
(as defined in Section 2.1(c)) with respect to a number (subject to adjustment
as provided in Section 2.4) of their Shares equal to the Non-Cash Election
Number (as defined in Section 2.1(d)) on the terms and subject to the conditions
specified therein; and

WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes:

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereto hereby
agree as follows:

ARTICLE I

THE MERGER

SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time (as defined in Section 1.3). Following the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub and the Company in accordance with
the DGCL. At the election of Parent, any direct or indirect wholly owned
Subsidiary of Parent may be substituted for Sub as a constituent corporation in
the Merger. In such event, the parties agree to execute an appropriate amendment
to this Agreement in order to reflect the foregoing.

SECTION 1.2 Closing. Upon the terms and subject to the conditions of this
Agreement, the closing (the "Closing") of the Merger will take place at 10:00
a.m. on a date to be specified by Parent or Sub, which shall be

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<PAGE> 77
no later than the third business day after satisfaction or waiver of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions at Closing), at the offices of Pillsbury Madison &
Sutro LLP, unless another date, time or place is agreed to in writing by the
parties hereto (the "Closing Date").

SECTION 1.3 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is duly filed with the Secretary of State
of the State of Delaware, or at such other time as Sub and the Company shall
have agreed upon and specified in the Certificate of Merger. When used in this
Agreement, the term "Effective Time" shall mean the later of the date and time
at which the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware or such later time established by the Certificate of
Merger. The filing of the Certificate of Merger shall be made as soon as
practicable after the satisfaction or waiver in accordance herewith of the
conditions to the Merger set forth in Article VII, provided that this Agreement
shall not have been terminated as provided in Section 8.1.

SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL.

SECTION 1.5 Certificate of Incorporation and By-laws; Officers and
Directors.

(a) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended as of the Effective
Time so that Article IV of such Certificate of Incorporation is amended to read
in its entirety as follows:

FOURTH: The Corporation shall be authorized to issue 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock. There shall be two
classes of common stock of the Corporation. The first class of common
stock of the Corporation shall have a par value of $0.01 and shall be
designated "Common Stock" and the number of shares constituting such class
shall be 35,000,000. The second class of stock of the Corporation shall
have a par value of $0.01 and shall be designated "Class A Non-Voting
Common Stock" and the number of shares constituting such class shall be
15,000,000. Holders of shares of Common Stock shall be entitled to one
vote for each share of such stock held on all matters as to which
stockholders may be entitled to vote pursuant to the Delaware General
Corporation Law. Holders of shares of Class A Non-Voting Common Stock
shall not have any voting rights, except that the holders of shares of
Class A NonVoting Common Stock shall have the right to vote as a class to
the extent required by the Delaware General Corporation Law. In all other
respects the rights, powers, preferences and limitations of the Common
Stock and Class A Non-Voting Common Stock shall be identical. The
preferred stock shall have a par value of $100.00 and the board of
directors may authorize the issuance from time to time of the preferred
stock in one or more classes and/or series and with such powers,
designations, preferences, rights and qualifications, limitations or
restrictions (which may differ with respect to each such class and/or
series) as the board may fix by resolution.

As so amended, such Certificate of Incorporation shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.

(b) The By-Laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter changed or amended as provided therein, by the Certificate of
Incorporation of the Surviving Corporation or by applicable law.

(c) The directors of Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation, until the next annual meeting of
stockholders (or the earlier of their resignation or removal) and until their
respective successors are duly elected and qualified, as the case may be.

(d) The officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation until the earlier of their
resignation or removal and until their respective successors are duly elected
and qualified, as the case may be.

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ARTICLE II

EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES

SECTION 2.1 Effect on Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any securities of
the Constituent Corporations:

(a) Conversion (or Retention) of Shares. Except as otherwise provided
herein and subject to Section 2.1(d), each Share issued and outstanding
immediately prior to the Effective Time, other than Shares to be canceled
pursuant to Section 2.1(b) ("Excluded Shares") and any Dissenting Shares, shall
be converted into the following (the "Merger Consideration"):

(i) for each Share with respect to which an election to retain
pursuant to Section 2.1(c) has been effectively made, and not revoked or
lost ("Electing Shares"), the right to retain one fully paid and
nonassessable Share (a "Non-Cash Election Share"); and

(ii) for each Share (other than Electing Shares), the right to
receive in cash from the Company following the Merger an amount equal to
$20.00 (the "Cash Election Price").

(b) Treasury Stock and Parent Owned Stock. Each Share issued and held in
the Company's treasury or owned by the Company, any Subsidiary of the Company,
Parent, Sub or any other Subsidiary of Parent shall automatically be canceled
and retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.

(c) Share Elections. (i) Each person who, on or prior to the Election
Date referred to in (iii) below, is a record holder of Shares will be entitled,
with respect to all or any portion of such holder's Shares, to make an
unconditional election (a "Non-Cash Election") on or prior to such Election Date
to retain Non-Cash Election Shares, on the basis hereinafter set forth.

(ii) Sub shall prepare and mail a form of election, which form shall be
subject to the reasonable approval of the Company (the "Form of Election"), with
the Prospectus/Proxy Statement (as defined in Section 3.8) to the record holders
of Shares as of the record date for the Stockholder Meeting (as defined in
Section 6.1), which Form of Election shall be used by each record holder of
Shares that wishes to elect to retain Non-Cash Election Shares for any or all
Shares held by such holder. The Company will use its reasonable efforts to make
the Form of Election and the Prospectus/Proxy Statement available to all persons
who become holders of Shares during the period between such record date and the
Election Date referred to below. Any such holder's election to retain Non-Cash
Election Shares shall have been properly made only if the Exchange Agent (as
defined in Section 2.3(a)) shall have received at its designated office by 5:00
p.m., New York City time on the second trading day (the "Election Date") next
preceding the date of the Stockholder Meeting, a Form of Election properly
completed and signed and accompanied by certificates for the Shares to which
such Form of Election relates, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of the Company (or by an appropriate
guarantee of delivery of such certificates as set forth in such Form of Election
from a firm which is a member of a registered national securities exchange or of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States, provided
such certificates are in fact delivered to the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of such guarantee
of delivery).

(iii) Any Form of Election may be revoked by the holder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent prior
to 5:00 p.m., New York City time, on the Election Date (unless Sub and the
Company determine not less than two business days prior to the Election Date
that the Effective Time is not likely to occur within five business days
following the date of the Stockholder Meeting, in which case the Form of
Election will remain revocable until a subsequent date which shall be a date
prior to the Effective Time determined by Sub and the Company). In addition, all
Forms of Election shall automatically be revoked if the Exchange Agent is
notified in writing by Sub and the Company that the Merger has been abandoned.
If a Form of

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<PAGE> 79
Election is revoked, the certificate or certificates (or guarantees of delivery,
as appropriate) for the Shares to which such Form of Election relates shall be
promptly returned to the holder submitting the same to the Exchange Agent.

(iv) The determination of the Exchange Agent shall be binding as to
whether or not elections to retain Non- Cash Election Shares have been properly
made or revoked pursuant to this Section 2.1 with respect to Shares and when
elections and revocations were received by it. If the Exchange Agent determines
that any election to retain Non-Cash Election Shares was not properly made with
respect to Shares, such Shares shall be treated by the Exchange Agent as Shares
which were not Electing Shares at the Effective Time. The Exchange Agent shall
also make all computations as to the allocation and the proration contemplated
by Section 2.1(d), and any such computation shall be conclusive and binding on
the holders of Shares. The Exchange Agent may, with the mutual agreement of Sub
and the Company, make such rules as are consistent with this Section 2.1 for the
implementation of the elections provided for herein as shall be necessary or
desirable fully to effect such elections.

(d) Proration.

(i) Notwithstanding anything in this Agreement to the contrary (but
subject to the provisions of Section 2.4), the aggregate number of Shares to be
converted into the right to retain Shares at the Effective Time (the "Non-Cash
Election Number") shall equal 375,000 Shares.

(ii) If the number of Electing Shares exceeds the Non-Cash Election
Number, then the Electing Shares covered by each Non-Cash Election shall be
converted into the right to retain Non-Cash Election Shares or receive cash in
accordance with the terms of Section 2.1(a) in the following manner:

(A) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares.

(B) The number of Electing Shares covered by each Non-Cash
Election to be converted into the right to retain Non-Cash Election Shares
shall be determined by multiplying the Non-Cash Proration Factor by the
total number of Electing Shares covered by such Non-Cash Election.

(C) All Electing Shares, other than that number of shares
converted into the right to receive Non-Cash Election Shares in accordance
with Section 2.1(d)(ii)(B), shall be converted into cash (on a consistent
basis among holders who made the election referred to in Section
2.1(a)(i), pro rata to the number of Shares as to which they made such
election) as if such Shares were not Electing Shares in accordance with
the terms of Section 2.1(a)(ii).

(iii) If the number of Electing Shares is less than the Non-Cash Election
Number, then:

(A) all Electing Shares shall be converted into the right to
retain Shares in accordance with the terms of Section 2.1(a)(i);

(B) additional Shares other than Electing Shares, Excluded Shares
and Dissenting Shares shall be converted into the right to retain Non-Cash
Election Shares in accordance with the terms of 2.1(a)(i) in the following
manner:

(1) a proration factor (the "Cash Proration Factor") shall
be determined by dividing (x) the difference between the Non-Cash
Election Number and the number of Electing Shares, by (y) the total
number of Shares other than Electing Shares, Excluded Shares and
Dissenting Shares; and

(2) the number of Shares in addition to Electing Shares to
be converted into the right to retain Non-Cash Election Shares shall
be determined by multiplying the Cash Proration Factor by the total
number of Shares other than Electing Shares, Excluded Shares and
Dissenting Shares; and

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<PAGE> 80
(C) subject to Sections 2.1(e) and (g), Shares subject to clause
(B) of this paragraph 2.1(d)(iii) shall be converted into the right to
retain Non-Cash Election Shares in accordance with Section 2.1(a)(i) (on a
consistent basis among holders who held Shares as to which they did not
make the election referred to in Section 2.1(a)(i), pro rata to the number
of Shares as to which they did not make such election).

(e) As of the Effective Time, all Shares (other than Shares referred to
in Sections 2.1(a)(i), Excluded Shares and Dissenting Shares) issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall, to
the extent such certificate represents such Shares, cease to have any rights
with respect thereto, except the right to receive cash upon surrender of such
certificate in accordance with Section 2.3.

(f) Capital Stock of Sub. The shares of capital stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
become in the aggregate 3,375,000 shares of Common Stock of the Surviving
Corporation, 1,250,000 shares of Class A Non-Voting Common Stock of the
Surviving Corporation and 250,000 shares of a new series of Non-Voting 13.5%
Pay-in-Kind Preferred Stock, stated value $100.00 per share, of the Surviving
Corporation.

(g) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding Shares held by a person (a
"Dissenting Stockholder") who has not voted in favor of or consented to the
Merger and complies with all the provisions of Delaware law concerning the right
of holders of Shares to require appraisal of their Shares pursuant to Section
262 of the DGCL ("Dissenting Shares") shall not be converted as described in
Section 2.1(a), but shall become the right to receive such consideration as may
be determined to be due to such Dissenting Stockholder pursuant to Delaware law.
If, after the Effective Time, such Dissenting Stockholder withdraws his demand
for appraisal or fails to perfect or otherwise loses his right of appraisal, in
any case pursuant to the DGCL, his Shares shall be deemed to be canceled as of
the Effective Time and to have become the right to receive the Merger
Consideration as provided in Section 2.1(a). The Company shall give Parent (i)
prompt notice of any demands for appraisal of Shares received by the Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.

(h) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional retained Share will be issued and any holder entitled
to receive a fractional retained Share but for this Section 2.1(h) shall be
entitled to receive a cash payment in lieu thereof, which payment shall
represent such holder's proportionate interest in the Cash Election Price for
such Share.

SECTION 2.2 Options.

(a) Each Company Stock Option (as defined in Section 3.3) which is
outstanding immediately prior to the Effective Time (an "Option"), whether or
not otherwise exercisable, shall become fully vested and exercisable. At the
Effective Time each Option shall be canceled by the Company in return for the
payment hereinafter provided, which the holder thereof shall thereupon be
entitled to receive. Each such holder shall receive promptly (but in no event
later than five days) after the Effective Time, a cash payment in respect of
such cancellation from the Company in an amount (if any) equal to (i) the
product of (x) the number of Shares subject or related to such Option and (y)
the excess, if any, of the Cash Election Price over the exercise or purchase
price per Share subject or related to such Option, minus (ii) all applicable
federal, state and local taxes required to be withheld by the Company as a
result of the cancellation and cash payment (the "Option Consideration"). No
interest shall accrue or be paid on the Option Consideration payable upon the
surrender of an Option to the Company. In the event that the Option
Consideration determined pursuant to this paragraph is equal to or less than
zero with respect to an Option, such Option shall be canceled by the Company at
the Effective Time without the payment of any consideration. The Company shall
use its reasonable best efforts to ensure that, after giving effect to the
foregoing, no Option shall be exercisable for Common Stock of the Surviving
Corporation following the Effective Time. With respect to employee contributions
pursuant to the Company's Employee Stock Purchase Plan, amounts held by the
Company at the Effective Time shall be disposed of in accordance with the terms
of such Plan.

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(b) The cancellation of an Option by the Company in accordance with
Section 2.2(a) shall be a release of any and all rights the holder had or may
have had in respect of such Option. The provisions in any plan, program or
arrangement providing for the issuance or grant of any interest in respect of
the capital stock of the Company or any Subsidiary thereof (the "Company Stock
Plans") shall be canceled as of the Effective Time. Prior to the Effective Time,
the Company shall use its best efforts to take all action necessary including
causing the Board of Directors (or any committee thereof) to take such actions
as are allowed by the Company Stock Plans to (i) ensure that, following the
Effective Time, no participant in the Company Stock Plans or any other plans,
programs or arrangements shall have any right thereunder to acquire equity
securities of the Company, the Surviving Corporation or any Subsidiary thereof
and (ii) terminate all such plans, programs and arrangements as of the Effective
Time.

(c) The Company shall use its best efforts to obtain, within 30 days
from the date of this Agreement, from each beneficial and record holder of
Company Stock Options, a release as contemplated by Section 2.2(b), duly
executed and delivered by each such holder.

SECTION 2.3 Surrender of Certificates.

(a) Exchange Agent. Prior to the Effective Time, Parent shall designate
a bank or trust company who shall be reasonably satisfactory to the Company to
act as paying agent in the Merger (the "Exchange Agent"), and as soon as
reasonably practicable as of or after the Effective Time, the Surviving
Corporation shall make available to the Exchange Agent cash in an amount
necessary for the payment of the cash portion of the Merger Consideration as
provided in Section 2.1 upon surrender of Certificates representing Shares as
part of the Merger. Funds made available to the Exchange Agent shall be invested
by the Exchange Agent as directed by the Surviving Corporation, provided that
such investments shall only be in obligations of or guaranteed by the United
States of America, in commercial paper obligations rated A-1 or P-1 or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or in certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks whose commercial paper is rated A-1 or P-1 (it
being understood that any and all interest or income earned on funds made
available to the Exchange Agent pursuant to this Agreement shall be turned over
to the Surviving Corporation).

(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record, as of the Effective Time, of a certificate or
certificates that immediately prior to the Effective Time represented Shares
(the "Certificates") (other than to holders of Excluded Shares), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in a form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for a certificate or
certificates representing the number of whole retained Shares, if any, to be
retained by the holder of such Certificates (and cash in lieu of any fractional
retained Shares) pursuant to this Agreement and the amount of cash, if any, into
which the number of Shares previously represented by such Certificates shall
have been converted pursuant to this Agreement. Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration into which the Shares theretofore represented by such Certificate
shall have been canceled and become the right to receive pursuant to Section
2.1, less any required withholding tax described below, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Shares that is not registered in the transfer records of the Company, payment
may be made to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of such Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.3, each
Certificate (other than Certificates representing Dissenting Shares or Excluded
Shares) shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the Merger Consideration, without
interest, into which the Shares theretofore represented by such Certificate
shall have been converted pursuant to Section 2.1. No interest will be paid or
will accrue on the Merger Consideration payable upon the surrender of any
Certificate. The

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Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of a Certificate such
amounts as the Exchange Agent is required to deduct and withhold with respect to
the making of such payment under the Code (as hereinafter defined) or under any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by the Exchange Agent.

(c) No Further Ownership Rights in Shares Exchanged for Cash. All cash
paid upon the surrender of Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Shares theretofore represented by such Certificates.

(d) Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
Shares that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.

(e) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to retained Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
representing the right to retained Shares (and no cash payment in lieu of
fractional retained Shares shall be paid to any such holder pursuant to Section
2.1(h)) until the surrender of such Certificate in accordance with this Article
II. Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the Certificate representing
whole retained Shares issued in connection therewith, without interest, at the
time of such surrender or as promptly thereafter as practicable, the amount of
any cash payable in lieu of a fractional retained Share to which such holder is
entitled pursuant to Section 2.1(h) and the proportionate amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole retained Shares, and at the appropriate payment date,
the proportionate amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole retained Shares.

(f) Termination of Payment Fund. Any portion of the funds made available
to Exchange Agent which remains undistributed to the holders of Shares for six
months after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of Shares who have not theretofore complied with
this Article II and the instructions set forth in the letter of transmittal
mailed to such holders after the Effective Time shall thereafter look only to
the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) and only as general creditors thereof for payment of their claim
for cash (without interest), if any, retained Shares, if any, any cash in lieu
of fractional retained Shares or any dividends or distributions with respect to
retained Shares, as applicable, to which such holders may be entitled.

(g) No Liability. None of Parent, Sub, the Company, the Exchange Agent
or any other person shall be liable to any person in respect of any retained
shares (or dividends or distribution with respect thereto) or cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.

(h) Lost Certificates. In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Company, the posting by such person of a bond in such reasonable
amount as the Company may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificate the amount to which such
person is entitled pursuant to this Agreement.

(i) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined pursuant
to Section 6.2(e)) of the Company shall not be exchanged until the Company has
received a written agreement from such person as provided in Section 6.2(e)
hereof.

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SECTION 2.4 Adjustments to Prevent Dilution. In the event that prior to
the Effective Time there is a change in the number of Shares issued and
outstanding as a result of a reclassification, stock split (including a reverse
split), stock dividend or distribution, or other similar transaction, the Cash
Election Price and Non-Cash Election Number shall be equitably adjusted to
eliminate the effects of such event.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Sub as of the date
hereof as follows:

SECTION 3.1 Organization. The Company and each of its Subsidiaries (as
defined in Section 9.3) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. The Company and
each of its Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not
reasonably be expected to have a Material Adverse Effect (as defined in Section
9.3) on the Company or prevent or result in a third party materially delaying
the consummation of the Merger and except as set forth in item 3.1 of the letter
from the Company to Parent dated the date hereof, which letter relates to this
Agreement and is designated therein as the Company Letter (the "Company
Letter"). The Company has delivered to Parent complete and correct copies of its
Certificate of Incorporation and By-laws and has made available to Parent
complete and correct copies of the Certificate of Incorporation and By-laws (or
similar organizational documents) of each of its Subsidiaries.

SECTION 3.2 Subsidiaries. Item 3.2 of the Company Letter lists each
Subsidiary of the Company as of the date hereof. Except as set forth in item 3.2
of the Company Letter, all of the outstanding shares of capital stock of each
such Subsidiary are owned by the Company, by another wholly owned subsidiary of
the Company or by the Company and another wholly owned subsidiary of the
Company, free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens"), and
are duly authorized, validly issued, fully paid and nonassessable. Except as set
forth in item 3.2 of the Company Letter and except for the capital stock of its
Subsidiaries, neither the Company nor any of its Subsidiaries owns, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture, limited liability company or other entity.

SECTION 3.3 Capital Structure. The authorized capital stock of the Company
consists of 75,000,000 shares of Common Stock and 190,000 shares of Preferred
Stock, par value $.01 per share (the "Company Preferred Stock"). As of the close
of business on July 18, 1997, (i) 20,229,412 shares of Common Stock were issued
and outstanding, all of which were validly issued, fully paid and nonassessable
and free of preemptive rights, (ii) no shares of Common Stock were held by the
Company in its treasury and (iii) no shares of Company Preferred Stock were
issued and outstanding. As of the date of this Agreement, except for (i)
outstanding stock options covering not in excess of 5,366,341 shares of Common
Stock under the Company's 1990 Employee Stock Option Plan, 1994 Long Term
Incentive Plan and 1989 Stock Option Plan (collectively, the "Company Stock
Options") with an average exercise price of $21.0365, and up to 149,373 shares
of Common Stock subject to subscription or reserved for issuance under the
Company's Employee Stock Purchase Plan, there are no options, warrants, calls,
subscriptions, convertible securities or other rights or agreements to which the
Company or any of its Subsidiaries is a party or by which any of them is bound
obligating the Company or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, any shares of capital stock, or any
securities convertible into or exchangeable for shares of capital stock, of the
Company or any Subsidiary or obligating the Company or any of its Subsidiaries
to grant, extend or enter into any such option, warrant, call, subscription or
other right or agreement, and there are no other obligations of any kind which
would require any person to sell, pledge, transfer or register any shares of
capital stock of the Company. Item 3.3 of the Company Letter sets forth a true
and complete list of the holders of the Company Stock Options as of July 14,
1997.

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Except as set forth in the Company Filed SEC Documents (as defined
in Section 3.7) or the preceding paragraph, as of the date of this Agreement,
there are no outstanding contractual obligations of the Company or any of its
Subsidiaries (i) to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any Subsidiary or (ii) to vote or to dispose of
any shares of the capital stock of any of the Company's Subsidiaries.

SECTION 3.4 Authority. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, and, subject to approval by the
stockholders of the Company of the Merger, to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, and no other corporate action on the part of the
Company is necessary to authorize or execute this Agreement or to consummate the
transactions so contemplated, subject to approval by the stockholders of the
Company of this Agreement and the Merger (if required). This Agreement has been
duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of this Agreement by Parent and Sub)
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to general principles of equity.

SECTION 3.5 Consent and Approvals; No Violations. Except as set forth in
item 3.5 and in item 3.15 of the Company Letter and subject to Section 3.16, the
execution and delivery by the Company of this Agreement do not, and the
consummation by the Company of the transactions contemplated hereby and
compliance by the Company with the provisions hereof will not, conflict with,
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries under, (i) any provision of the Certificate of
Incorporation, By-laws or comparable organization documents of the Company or
any of the Subsidiaries of the Company, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement (other than, with respect to
termination, agreements terminable at will or upon 90 days' or less notice by
the terminating party), instrument, permit, concession, franchise or license
applicable to the Company or any of its Subsidiaries or (iii) assuming all the
consents, filings and registrations referred to in the next sentence are made
and obtained, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such violations, defaults, rights, losses or Liens, that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect (without giving effect to clause (iii) of the proviso to
the definition thereof in Section 9.3) on the Company or prevent or result in a
third party materially delaying the consummation of the Merger. No filing or
registration with, or authorization, consent or approval of, any domestic
(federal and state) or foreign court, commission, governmental body, regulatory
agency, authority or tribunal (a "Governmental Entity") is required by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by the Company or is necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement, except (i) in connection, or in compliance, with the provisions of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the Securities Exchange Act of 1934, as amended (together with the
rules and regulations promulgated thereunder, the "Exchange Act"), (ii) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company or any of its Subsidiaries is qualified to do business,
(iii) such filings, authorizations, orders and approvals as may be required by
state takeover laws (the "State Takeover Approvals") or state securities or
"blue sky" laws, (iv) such filings as may be required in connection with the
taxes described in Section 6.6, and (v) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect (without giving effect to clause
(iii) of the proviso to the definition thereof in Section 9.3) on the Company or
prevent or result in a third party materially delaying the consummation of the
Merger.

SECTION 3.6 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1995 (the "Company SEC
Documents"). As of their respective filing dates, the Company SEC Documents
complied in all material respects with the requirements of the Securities Act of
1933, as amended

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(together with the rules and regulations promulgated thereunder, the "Securities
Act"), or the Exchange Act, as the case may be, each as in effect on the date so
filed, and at the time filed with SEC none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements (including the related notes and schedules) of the Company
included in or incorporated by reference into the Company SEC Documents comply
as of their respective dates as to form in all material respects with the then
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with United
States generally accepted accounting principles (except, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly present the consolidated financial position
of the Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).

SECTION 3.7 Absence of Material Adverse Change. Except as disclosed in
items 3.7 or 3.12(a) of the Company Letter or in the Company SEC Documents filed
and publicly available prior to the date of this Agreement (the "Company Filed
SEC Documents"), since December 31, 1996, the Company and its Subsidiaries have
conducted their respective businesses in all material respects only in the
ordinary course consistent with past practice, and there has not been (i) any
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock or any redemption, purchase or other acquisition of
any of its capital stock, (ii) any split, combination or reclassification of any
of its capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iii) (x) any granting by the Company or any of its Subsidiaries
to any officer of the Company or any of its Subsidiaries of any increase in
compensation, except in the ordinary course of business (including in connection
with promotions) consistent with past practice or as was required under
employment agreements in effect as of December 31, 1996, (y) any material change
to the Company's or any of its Subsidiaries' severance or termination plans,
agreements or arrangements with any of their employees, except as part of a
standard employment package to any person promoted or hired (but not including
the five most senior officers), or as was required under employment, severance
or termination agreements in effect as of December 31, 1996, or (z) except for
employment agreements in the ordinary course of business consistent with past
practice with employees other than any executive officer of the Company, any
entry by the Company or any of its Subsidiaries into any employment, consulting,
severance, termination or indemnification agreement with any such employee or
executive officer, (iv) any damage, destruction or loss, whether or not covered
by insurance, that would reasonably be expected to have a Material Adverse
Effect on the Company, (v) any revaluation by the Company of any of its material
assets, (vi) any material change in accounting methods, principles or practices
by the Company or (vii) any other action that occurred prior to the date hereof
that, if it occurred after the date of this Agreement and prior to the Closing
Date, would be prohibited by paragraphs (a), (b) (only with respect to the
Company's Subsidiaries), (c), (f), (g) or (p) of Section 5.1 of this Agreement.

SECTION 3.8 Information Supplied. None of the information supplied or to
be supplied by the Company specifically for inclusion therein or incorporation
by reference in (i) the Registration Statement on Form S-4 to be filed with the
SEC by the Company in connection with the Merger (including the proxy statement
and prospectus (the "Prospectus/Proxy Statement") constituting a part thereof)
(the "S-4 Registration Statement") will, at the time the S-4 Registration
Statement becomes effective under the Securities Act, and (ii) the
Prospectus/Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to stockholders and at the time of the Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation or warranty is made by the Company in
connection with any of the foregoing with respect to statements made based on
information supplied in writing by Parent or Sub or any of their respective
representatives specifically for inclusion therein. The S-4 Registration
Statement and the Proxy Statement will comply as to form in all material
respects with the requirements of the Securities Act and the Exchange Act, as
appropriate, except that no representation or warranty is made by the Company in
connection with any of the foregoing with respect to statements made based on
information supplied in writing by Parent or Sub or any of their respective
representatives specifically for inclusion therein.

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SECTION 3.9 Compliance with Laws. Except as disclosed in the Company Filed
SEC Documents, the businesses of the Company and its Subsidiaries are not being
conducted in violation of any law, ordinance, rule or regulation (collectively,
"Laws") or order of any Governmental Entity, except for possible violations that
would not reasonably be expected to have a Material Adverse Effect on the
Company or prevent or result in a third party materially delaying the Merger.

SECTION 3.10 Tax Matters. Except as set forth in item 3.10 of the Company
Letter:

(a) The Company and each of its Subsidiaries has filed all federal and
state income tax returns and all other material tax returns and reports required
to be filed by it. All such returns are complete and correct in all material
respects. The Company and each of its Subsidiaries has paid (or the Company has
paid on its Subsidiaries' behalf) all taxes shown as due on such returns and all
material taxes (as defined below) for which no return was required to be filed,
and the most recent financial statements contained in the Company Filed SEC
Documents reflect an adequate reserve for all material amounts of taxes payable
by the Company and its Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements.

(b) The Company shall be responsible for the timely filing (taking into
account any extensions received from the relevant tax authorities) of all tax
returns required by law to be filed by the Company or any of its Subsidiaries on
or prior to the Closing Date, (ii) such tax returns shall be true, correct and
complete in all material respects and accurately set forth in all material
respects all items to the extent required to be reflected or included in such
tax returns by applicable Federal, state, local or foreign tax laws, regulations
or rules and (iii) all taxes indicated as due and payable on such tax returns
shall be paid by the Company as and when required by law.

(c) The Company and each of the Subsidiaries have, or by the Closing
Date shall have, paid in full or set up reserves in accordance with United
States generally accepted accounting principles, (i) any and all material taxes
in respect of the income, business, property or operations of the Company and
all of its Subsidiaries (including, without limitation, all material taxes that
the Company and the Subsidiaries are obligated to withhold from amounts paid or
payable to or benefits conferred upon employees, creditors and third parties) or
for which the Company or any of its Subsidiaries may otherwise be liable for any
period ending prior to or on the Closing Date.

(d) Set forth in item 3.10 of the Company Letter is a complete list of
income and other tax returns filed by the Company or any of the Subsidiaries
pursuant to the laws or regulations of any Federal, state, local or foreign tax
authority that have been examined or audited by the IRS or other appropriate
authority during the preceding three years, and a list of all adjustments
resulting from each such examination or audit. Except as set forth in item 3.10,
all deficiencies proposed as a result of such examinations or audits have been
paid or finally settled and no issue has been raised in any such examination or
audit that, by application of similar principles, reasonably can be expected to
result in the assertion of a material deficiency for any other year not so
examined or audited. No action, suit, investigation, audit, claim or assessment
is pending or proposed or threatened in writing with respect to a material
amount of taxes of the Company or any of its Subsidiaries. There are no grounds
for any tax liability beyond amounts accrued with respect to years that have not
been examined or audited, except to the extent that such tax liability would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.

(e) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any material
amount of taxes.

(f) No material liens for taxes exist with respect to any assets or
properties of the Company or any of its Subsidiaries, except for statutory liens
for taxes not yet due.

(g) None of the Company or any of its Subsidiaries is a party to or is
bound by any income tax allocation or sharing agreement with respect to a
material amount of taxes, and none of the Company or any Subsidiary has been a
member of any group of corporations filing federal tax returns on a consolidated
basis other than each such group of which it is currently a member.

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(h) All material amounts of taxes which the Company or any Subsidiary is
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid or accrued.

(i) No claim has ever been made by an authority in a jurisdiction where
any of the Company or its Subsidiaries does not file tax returns that it is or
may be subject to taxation by that jurisdiction, except to the extent that being
so subject would not reasonably be expected to have a Material Adverse Effect on
the Company.

(j) Neither the Company nor any of its Subsidiaries are United States
Real Property Holding Corporations (a "USRPHC") within the meaning of Section
897 of the Code and were not USRPHC on any "determination date' (as defined in
Section 1.897-2(c) of the United States Treasury Regulations promulgated under
the Code (the "Treasury Regulations")) that occurred in the five-year period
preceding the Closing Date.

(k) Except as set forth in item 3.10 of the Company Letter, neither the
Company nor any of its Subsidiaries have executed any closing agreements
pursuant to Section 7121 of the Code or any predecessor provision thereof, or
any similar provision of state or local law.

(l) Neither the Company nor any of its Subsidiaries have filed consents
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or such
Subsidiary.

(m) None of the assets owned by the Company or any of the Subsidiaries
is property that is required to be treated as owned by any other person pursuant
to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in
effect immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt use property" within the meaning of Section 168(h) of the Code,
except to the extent that such treatment would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.

(n) Each of the Company and its Subsidiaries has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Code
section 6662, except to the extent that such treatment would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.

(o) Neither the Company nor any of the Subsidiaries has agreed to make
any adjustments pursuant to Section 481(a) of the Code or any similar provision
of state or local law by reason of a change in accounting method initiated by it
or any other relevant party and neither the Company nor any of the Subsidiaries
has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, nor has any application pending with any governmental or
regulatory authority requesting permission for any changes in accounting methods
that relate to the business or assets of the Company or any of the Subsidiaries.
Neither the Company nor any of the Subsidiaries is required to make any
adjustments pursuant to the Section 481(a) of the Code or any similar provision
of state or local law by reason of a change in accounting method initiated by it
or any other relevant party, except to the extent that any such adjustment would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.

(p) Neither the Company nor any of the Subsidiaries have filed an
election under Rev. Proc. 91-11, 1991-1 C.B. 470, as modified by Rev. Proc.
91-39, 1991-2 C.B. 694, Treas. Reg. Section 1.1502-20(g) or Rev. Proc. 95-39,
1995-2 C.B. 399.

(q) As used in this Agreement, (i) "tax" and "taxes" shall include any
federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, real and personal property, production, sales, use,
transfer, stamp, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum or any other tax, custom, duty, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, or addition to tax imposed by any governmental entity and
(ii) "tax return" shall include any return, report or similar statement required
to be filed with respect to any tax including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
tax.

(r) "IRS" means the U.S. Internal Revenue Service.

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(s) "Code" means the U.S. Internal Revenue Code of 1986, as amended.

SECTION 3.11 Liabilities. Except (a) for liabilities incurred in the
ordinary course of business consistent with past practice, (b) for transaction
expenses payable to its accountants, legal and financial advisors incurred in
connection with this Agreement not in excess of $6,000,000, (c) for liabilities
which individually or in the aggregate would not reasonably be expected to
exceed $500,000, (d) for liabilities set forth on any balance sheet (including
the notes thereto) included in the Company's financial statements included in
the Company Filed SEC Documents filed with the SEC since December 31, 1996, or
(e) as set forth in item 3.11 of the Company Letter, during the period from
December 31, 1996 until the date hereof neither the Company nor any of its
Subsidiaries has incurred any liabilities that would be required to be reflected
or reserved against in a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with United States generally accepted
accounting principles as applied in preparing the consolidated balance sheet of
the Company and its Subsidiaries as of December 31, 1996 contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.

SECTION 3.12 Benefit Plans; Employees and Employment Practices.

(a) Except as disclosed in the Company Filed SEC Documents filed with
the SEC since December 31, 1996, and item 3.12(a) of the Company Letter, since
the date of the most recent audited financial statements included in the Company
Filed SEC Documents there has not been any adoption or amendment in any material
respect (including any increase or improvements in benefits or coverage) by the
Company or any of its Subsidiaries of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical, fringe
benefit, excess, supplemental executive compensation, employee stock purchase,
stock appreciation, restricted stock or other material employee benefit plan,
policy, arrangement or understanding (whether or not in writing) providing
benefits relating to the employment of any current or former employee, officer
or director of the Company or any of its Subsidiaries (collectively, the
"Benefit Plans") or any Employee Agreement (as hereinafter defined). Except as
disclosed in item 3.12(a) of the Company Letter or in the Company Filed SEC
Documents, neither the Company nor any of its Subsidiaries has any material
obligations under any employment, consulting, severance, termination or
indemnification agreements between the Company or any of its Subsidiaries and
any current or former employee, officer, director or consultant of the Company
or any of its Subsidiaries ("Employee Agreements") or any Benefit Plans.

(b) Item 3.12(a) of the Company Letter identifies all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (sometimes referred to herein as
"Pension Plans") and "employee welfare benefit plans" (as defined in Section
3(1) of ERISA) maintained, sponsored or contributed to, by the Company or any of
its U.S. or foreign Subsidiaries for the benefit of any current or former
employees, officers or directors of the Company or any of such Subsidiaries
(collectively, the "ERISA Benefit Plans"). The Company has made available to
Parent true, complete and correct copies of (i) each ERISA Benefit Plan (or, in
the case of any unwritten ERISA Benefit Plans, descriptions thereof), (ii) the
most recent annual report on Form 5500 (and related schedules and financial
statements or opinions required in connection therewith) filed with the Internal
Revenue Service with respect to each ERISA Benefit Plan (if any such report was
required), (iii) the most recent actuarial report with respect to each ERISA
Benefit Plan, as applicable, (iv) the most recent summary plan description (and
a summary of material modifications, if applicable) for each ERISA Benefit Plan,
(v) each trust agreement and group annuity contract relating to any ERISA
Benefit Plan and (vi) each other Benefit Plan or Employee Agreement.

(c) Except as disclosed in item 3.12(c) of the Company Letter, all
Pension Plans which are intended to be tax-qualified have received determination
letters in respect of such Pension Plans from the Internal Revenue Service to
the effect that such Pension Plans are qualified and exempt from Federal income
taxes under Section 401(a) and 501(a), respectively, of the Code, and, to
knowledge of the Company, there is no basis for any such Pension Plan not
currently being so qualified.

(d) Except as disclosed in item 3.12(d) of the Company Letter, each
Benefit Plan has been administered in all material respects in conformity with
its terms and the applicable requirements of ERISA and the Code and other
applicable laws and all contributions required to be made have been made in
accordance with the provisions

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of each such Benefit Plan and with ERISA and the Code and other applicable laws,
except where the failure to comply or to make the required contributions would
not be reasonably expected to have a Material Adverse Effect on the Company.

(e) None of the Company or any of its Subsidiaries, or any other person
or entity that, together with the Company, is treated as a single employer under
Section 414 of the Code (an "ERISA Affiliate"), currently maintains or
contributes to, or has maintained or contributed to during the six-year period
preceding the date hereof, or has had during such period the obligation to
maintain or contribute to, or may have any liability with respect to, any
"multiemployer plan" (within the meaning of Section 3(37) of ERISA), or any plan
subject to Title IV of ERISA or Section 412 of the Code. To the Company's
knowledge, none of the Company, any of its Subsidiaries, any officer of the
Company or any of its Subsidiaries or any of the Benefit Plans which are subject
to ERISA, including the Pension Plans, any trusts created thereunder or, to the
knowledge of the Company, any trustee or administrator thereof, has engaged in a
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary responsibility that
could reasonably be expected to subject the Company, any of its Subsidiaries or
any officer of the Company or any of its Subsidiaries, directly or indirectly,
to any material tax or penalty on prohibited transactions imposed by such
Section 4975 or to any material liability under Section 502(i) or (l) of ERISA,
except where the liability that would be reasonably expected to occur would have
a Material Adverse Effect on the Company. With respect to each Pension Plan
subject to Title IV of ERISA (other than a multiemployer plan within the meaning
of Section 3(37) of ERISA) (i) no proceeding has been initiated to terminate
such plan, (ii) there has been no "reportable event" (as such term is defined in
Section 4043(b) of ERISA), (iii) no "accumulated funding deficiency" (within the
meaning of Section 412 of the Code), whether or not waived, has occurred, (iv)
no person has failed to make a required installment or any other payment
required under Section 412 of the Code before the applicable due date and (v)
neither the Company nor any ERISA Affiliate has provided or is required to
provide security to such plan under Section 401(a)(29) of the Code due to a plan
amendment that results in an increase in current liability, where the liability,
individually or in the aggregate, that would be reasonably expected to result
would have a Material Adverse Effect on the Company.

(f) There is no dispute, arbitration, claim, suit or grievance, pending
or to its knowledge threatened, involving a Benefit Plan (other than routine
claims for benefits payable under any such plan), and to the knowledge of the
Company, there is no basis for any such claim, which would reasonably be
expected to have a Material Adverse Effect on the Company.

(g) Except as disclosed in item 3.12(g) of the Company Letter, there are
no controversies, strikes, work stoppages or disputes pending or to its
knowledge threatened between the Company or any of its Subsidiaries and any
current or former employees, and, to the Company's knowledge, no organizational
effort by any labor union or other collective bargaining unit currently is under
way or threatened with respect to any employee, which would reasonably be
expected to have a Material Adverse Effect on the Company. No employee of the
Company or its Subsidiaries is a member of a collective bargaining unit.

(h) Except as set forth in item 3.12(h) of the Company Letter, there is
no controversy pending between the Company or any Subsidiary and any of their
respective employees, or former employees or applicants for employment, that,
individually or in the aggregate with other such controversies, could reasonably
be expected to have a Material Adverse Effect on the Company. To the knowledge
of this Company, there is no basis for any claim, grievance, arbitration,
negotiation, suit, action or change of or by any employee of the Company or any
Subsidiary, and no complaint is pending against the Company or any Subsidiary
before the National Labor Relations Board or any state or local agency that
would reasonably be expected to have a Material Adverse Effect on the Company.
The Company and its Subsidiaries have complied, in respect of their employees,
in all materials respects with all applicable statutes, regulations, orders and
restrictions of the United States of America, all states and other subdivisions
thereof, all foreign jurisdictions and all agencies and instrumentalities of the
foregoing, including without limitation workers' compensation laws, the Fair
Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Equal Pay Act of 1963, the
National Labor Relations Act of 1935 ("NLRA"), the Occupational Safety and
Health Act of 1970, the Vocational Rehabilitation Act of 1973 and Immigration
Act of 1986, as amended, except where noncompliance would not reasonably be
expected to have a Material Adverse Effect on the Company.

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SECTION 3.13 Litigation. Except as disclosed in item 3.13 of the Company
Letter or in the Company Filed SEC Documents, there is no suit, claim (including
product warranty claims), action, proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries (i) as of the date hereof, that would reasonably be expected to be
successful and, if adversely determined, would result in a liability for the
Company or any of its Subsidiaries in excess of $300,000 or (ii) that otherwise,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company or prevent or result in a third party
materially delaying the consummation of the Merger. Except as disclosed in item
3.13 of the Company Letter or in the Company Filed SEC Documents, neither the
Company nor any of its Subsidiaries is subject to any outstanding judgment,
order, writ, injunction or decree that would reasonably be expected to have a
Material Adverse Effect on the Company or prevent or result in a third party
materially delaying the consummation of the Merger.

SECTION 3.14 Environmental Matters. Except as set forth in the Company
Filed SEC Documents or in item 3.14 of the Company Letter, neither the Company
nor any of its Subsidiaries has (i) placed, held, located, released, transported
or disposed of any Hazardous Substances (as defined below) on, under, from or at
any of the Company's or any of its Subsidiaries' properties or any other
properties, other than in a manner that would not, in all such cases taken
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect on the Company, (ii) any knowledge of the release or threatened
release of any Hazardous Substances into the environment on, under or at any of
the Company's or any of its Subsidiaries' properties other than that which would
not reasonably be expected to result in a Material Adverse Effect on the
Company, or (iii) received any written notice (A) of any violation of any
applicable statute, law, ordinance, regulation, rule, judgment, decree or order
of any Governmental Entity relating to any matter of pollution, protection of
the environment or natural resources or environmental regulation or control,
including worker health or safety or regarding Hazardous Substances
(collectively, "Environmental Laws") that has not been resolved or settled with
the relevant Governmental Entity, (B) of the institution or pendency of any
suit, action, claim, proceeding or investigation by any Governmental Entity or
any third party in connection with any such violation, (C) requiring the
response to or remediation of Hazardous Substances at or arising from any of the
Company's or any of its Subsidiaries' properties or any other properties, (D)
alleging noncompliance by the Company or any of its Subsidiaries with the terms
of any permit required under any Environmental Law or (E) demanding payment for
response to or remediation of Hazardous Substances at or arising from any of the
Company's or any of its Subsidiaries' properties or any other properties, except
in each case for the notices set forth in item 3.14 of the Company Letter and
except in each case for notices that would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on the
Company. For purposes of this Agreement, the term "Hazardous Substance" shall
mean any material or substance defined or classified as waste or toxic or
hazardous materials or substances or otherwise regulated as pollutants or
contaminants, including any petroleum and petroleum products, under any
applicable Environmental Law.

SECTION 3.15 Intellectual Property.

(a) For purposes of this Agreement and the representations and
warranties contained in this section: (1) the term "Intellectual Property" shall
mean: all patents, trademarks, trade names, service marks, registered and
unregistered copyrights, maskworks and any applications therefor, technology,
know-how, computer software programs or applications (in both source code and
object code form), customer lists, trade secrets and tangible or intangible
proprietary information or material; and the term "Company's knowledge" shall
mean the knowledge of an officer or director of Company. Except as set forth in
item 3.15(a) of the Company Letter:

(i) To the Company's knowledge, the Company owns, is licensed or
otherwise possesses legally sufficient rights to use all Intellectual
Property that Company uses in any material respect in the business of the
Company.

(ii) Item 3.15(a) of the Company Letter lists and identifies the
nature and status of all current patents, registered copyrights,
registered trademarks and maskwork registrations (including any
application(s) therefor) owned by the Company (the "Company IP
Registrations"), and specifies the jurisdictions in which each such
Company IP Registration has been issued or registered or in which an
application for such issuance and registration has been filed, including
the respective registration or application numbers and the names of all
registered owners.

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(iii) Item 3.15(a) of the Company Letter lists:

(A) all material licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to which any person
is authorized to use any Company Intellectual Property Rights (as
hereinafter defined); and

(B) all material licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to which the Company
is authorized to use any Intellectual Property of any third party
("Third Party Intellectual Property Rights") in or as part of any
product and includes the identity of all parties to such material
licenses, sublicenses and/or agreements.

(iv) To the Company's knowledge, no claims as described below are
currently pending or, to the knowledge of the Company, threatened by any
person, nor does the Company know of any grounds for any bona fide claims:

(A) to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed by the Company
infringes on any Intellectual Property right;

(B) against the use by the Company of any Intellectual
Property used in the Company's business as currently conducted by
the Company;

(C) challenging the ownership, validity or effectiveness of
any of the Intellectual Property owned by Company ("Company
Intellectual Property Rights"); or

(D) challenging the Company's license or legally enforceable
right to use of the Third Party Intellectual Property Rights.

(v) To the Company's knowledge, there is no material unauthorized
use, infringement or misappropriation of any of the Company Intellectual
Property by any third party, including any employee or former employee of
the Company or any of its Subsidiaries.

(vi) To the Company's knowledge, neither the Company nor any of its
Subsidiaries (A) has been sued or charged in writing as a defendant or
party in any claim, suit, action or proceeding which involves a claim or
infringement of any Intellectual Property right and which has not been
finally terminated prior to the date hereof, (B) has been informed or
notified by any third party that the Company may be engaged in such
infringement or that any such action described in (A) above may be
instituted or (C) is or has any alleged or actual infringement liability
with respect to any alleged or actual infringement by the Company or any
of its Subsidiaries or any Intellectual Property right of another.

(vii) To the Company's knowledge, neither the Company nor any of its
Subsidiaries are using or in any way making use of any confidential
information or Intellectual Property of any third party, including without
limitation a former employer of any present or past employee of the
Company or any Subsidiary, without a written license or other agreement.

(viii) To the Company's knowledge, no director, officer or employee
of the Company or any of its Subsidiaries owns, directly or indirectly, in
whole or in part, any material Intellectual Property right which the
Company or any of its Subsidiaries has used or is presently using which is
reasonably necessary to Company or its Subsidiaries' respective businesses
as now conducted.

(b) Except as explicitly set forth in Section 3.15(a) above and in item
3.15(a) of the Company Letter, to the Company's knowledge, all rights to the
Company Intellectual Property are: (i) owned exclusively by the Company or a
Subsidiary, free and clear of any attachments, liens, or encumbrances, and no
other person has any right or interest in or license to use or right to license
others to use any of them, except as reasonable in the course of Company's
business; (ii) freely transferable (except as otherwise required by law) and
(iii) are not subject to any outstanding order, decree, judgment or stipulation.

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(c) Each current and former employee (with date of hire after June 1,
1987) of the Company has executed a confidentiality, invention and assignment
agreement with the Company in substantially the form(s) previously delivered to
Parent.

SECTION 3.16 State Takeover Statutes; Charter Provisions. The action of
the Board of Directors of the Company in approving the Merger, this Agreement
and the transactions contemplated by this Agreement (including the execution of
the Stockholder Voting Agreement) is sufficient to render inapplicable to the
Merger, this Agreement and the Stockholders Voting Agreement the provisions of
Section 203 of the DGCL and the provisions of any California takeover laws.

SECTION 3.17 Brokers. No broker, investment banker, financial advisor or
other person, other than Lehman Brothers the fees and expenses of which will be
paid by the Company (and are reflected in an agreement between Lehman Brothers
and the Company, a complete copy of which has been furnished to Parent), is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. Other than the
foregoing agreement, the Company is not aware of any claim for payment by the
Company of any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.

SECTION 3.18 Required Vote of Stockholders. The affirmative vote of not
less than a majority of the outstanding Shares is required to adopt the plan of
merger contained in this Agreement and approve the Merger. No other vote of the
stockholders of the Company is required by law, the Certificate of Incorporation
or By-Laws of the Company as currently in effect or otherwise to adopt the plan
of merger contained in this Agreement and approve the Merger.

SECTION 3.19 Title to Property. The Company and each of its Subsidiaries
has good and marketable title to all of its properties and assets, free and
clear of all Liens, except for liens for taxes not yet due and payable and such
liens or other imperfections of title, if any, as do not materially detract from
the value of or interfere with the present use of the property affected thereby
or which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company.

SECTION 3.20 Real Property.

(a) Item 3.20 of the Company Letter sets forth a list of all fee and
leasehold interests in real property of the Company and the Subsidiaries of the
Company, which collectively constitute the "Specified Real Estate."

(b) Neither the Company nor any of its Subsidiaries has given or
received notice of any material default under any material lease under which the
Company or any of its Subsidiaries is the lessee of real property (each a
"Lease" and collectively the "Leases") and, to the knowledge of the Company,
neither the Company nor any of its Subsidiaries nor any other party thereto is
in default in any material respect under any of the Leases. Item 3.20 of the
Company Letter contains a complete list of all leases (including all amendments,
modifications, waivers, supplements and other agreements relating thereto) under
which the Company or any of its Subsidiaries is the lessee of the real property.
Except as set forth in item 3.20, none of the Leases has been modified in any
material respect and such Leases are in full force and effect. Except as set
forth in item 3.20, neither the Company nor any of its Subsidiaries has leased,
subleased, licensed or assigned, as the case may be, all or any portion of its
fee or leasehold interest in any Specified Real Estate to any person and the
Company or one or more of its Subsidiaries is in sole and exclusive possession
of and has the right to use all of the Specified Real Estate. Except as set
forth in item 3.20, no person other than the Company or one or more of its
Subsidiaries has any option or right to purchase, lease or use any portion of
the Specified Real Estate. Item 3.20 sets forth all rights of the Company and
its Subsidiaries to purchase the Specified Real Estate leased by the Company or
its Subsidiaries under any Lease.

(c) Except as disclosed in item 3.20 of the Company Letter, the
buildings and improvements on the Specified Real Estate (including all fixtures,
roofs, plumbing systems, fire protection systems, electrical systems, equipment,
elevators and all structural components) in all material respects are in good
operating condition and in a state of good and working maintenance and repair,
ordinary wear and tear excepted, are adequate and suitable for

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the purposes for which they are presently being used, and to the knowledge of
the Company, there are no condemnation or appropriation proceedings pending or
threatened against any of such Specified Real Estate or the improvements
thereon, and, to the knowledge of the Company, no buildings or improvements on
such Specified Real Estate encroach on real property not leased to or owned by
the Company or any of its Subsidiaries, to the extent that removal of such
encroachment would have a material adverse effect on the current use, value,
occupancy or operation of such improvements. To the knowledge of the Company, no
improvements or buildings not located on Specified Real Estate encroach upon any
of the Specified Real Estate to the extent that the same would have a material
adverse effect on the current use, value, occupancy or operation of such
Specified Real Estate.

(d) To the knowledge of the Company, no part of any Specified Real
Estate is subject to any building or use restriction that materially restricts
or prevents the present use and operation of such property. To the knowledge of
the Company, none of the Specified Real Estate nor the use thereof by the
Company or any of its Subsidiaries constitutes a nonconforming use or legal
non-conforming use.

(e) The Company or one or more of its Subsidiaries is in possession of
and has good title to, or has valid leasehold interests in or valid rights under
contract to use, all tangible personal property used in the business of the
Company and its Subsidiaries or reflected in the audited financial statements of
the Company and its consolidated subsidiaries dated as of December 31, 1996,
except for personal property disposed of in the ordinary course since the date
thereof.

(f) No labor has been performed or material furnished for any portion of
any property owned by the Company or any of its Subsidiaries for which a Lien in
excess of $500,000 in value can be claimed against any such property. All of the
Specified Real Estate has rights of access to dedicated public ways (and makes
no material use of any means of access or egress that is not pursuant to such
dedicated public ways or recorded, irrevocable rights-of-way) and is served by
water, sewer, sanitary sewer, telephone, electric, gas and other public
utilities necessary or desirable for the current use thereof which utilities are
available to such Specified Real Estate through a public right-of-way. There are
no pending or proposed special or other assessments for public improvements on
the Specified Real Estate.

(g) To the knowledge of the Company, there is no pending or threatened
proceeding or governmental action to modify the zoning classification of, or to
condemn or take by power or eminent domain (or any purchase in lieu thereof), or
to classify as a landmark, all or any material part of the Specified Real Estate
except, in each case, for any proceeding or action that would not have a
Material Adverse Effect on the Company.

SECTION 3.21 Outstanding Commitments.

(a) Item 3.21 of the Company Letter contains a list, accurate and
complete in all material respects, as of the date hereof of all material
contracts, true and complete copies of which have been furnished (or made
available) to Parent and Sub (excluding purchase orders), to which the Company
or any of its Subsidiaries is a party or by which any of the assets or
operations of the Company or any of its Subsidiaries are bound. Each material
contract is a valid and binding obligation of at least the Company or one of its
Subsidiaries and, to the knowledge of the Company, each other party thereto, and
is enforceable against the Company or one or more of its Subsidiaries and, to
the knowledge of the Company, each other party thereto, in accordance with its
terms, except to the extent that such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and is subject to general principles of
equity, and neither the Company nor any of its Subsidiaries, nor to the
knowledge of the Company, any other party, is in default under any material
contract, except in each case for such failures to be valid, binding and
enforceable and for such defaults which, individually or in the aggregate, would
not have a Material Adverse Effect on the Company.

(b) Except as would not have a Material Adverse Effect on the Company,
neither the Company nor any of its Subsidiaries is in default under any of the
material contracts. No proceeding (to the knowledge of the Company in the case
of any investigation) or event or condition has occurred or exists, or to the
knowledge of the Company, is alleged by any party to have occurred or exist
which, with notice or lapse of time or both, would constitute a default by any
of the parties thereto of their respective obligations under a material contract
(or would

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give rise to any right of termination or cancellation), except as would not have
a Material Adverse Effect on the Company.

SECTION 3.22 Insurance. The insurance carried by the Company and its
Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Company and its Subsidiaries.
Except as would not have a Material Adverse Effect on the Company, all such
insurance is in full force and effect and none of the Company nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on the Company, all claims thereunder have been filed in a due
and timely fashion. Except as would not have a Material Adverse Effect on the
Company, neither the Company nor any of its Subsidiaries has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including renewals of any such products liability coverage) by any
insurance carrier to which it has applied for insurance during the past three
years.

SECTION 3.23 Affiliate Transactions. Except as set forth in item 3.23 of
the Company Letter, (a) there is no indebtedness (other than indebtedness
between the Company and its Subsidiaries) between the Company or any of its
Subsidiaries, on the one hand, and any holder of record of 5% or more of the
Shares outstanding on the date hereof or officer, director or affiliate of the
Company or any of its Subsidiaries, on the other hand, (b) no such officer,
director, stockholder or affiliate provides or causes to be provided any assets,
services (other than in such capacity as officer or director) or facilities to
the Company or any of its Subsidiaries which are individually or in the
aggregate material to the business or condition of the Company and its
Subsidiaries, taken as a whole, (c) neither the Company nor any of its
Subsidiaries provides or causes to be provided any assets, services or
facilities to any such officer, director, stockholder or affiliate other than in
the ordinary course of the Company's business, affiliate which are individually
or in the aggregate material to the business or condition of the Company and its
Subsidiaries, taken as a whole, and (d) neither the Company nor any of its
Subsidiaries owns any capital stock, indebtedness or other securities issued by
any such officer, director, stockholder or affiliate.

SECTION 3.24 Management Payments. Other than payments under Benefit Plans
and Employee Agreements, payments properly accrued in the Company's budget for
the 1997 fiscal year, or as provided in this Agreement, no employee or former
employee will be entitled to additional compensation or to the early vesting or
acceleration of payment of any compensation that arises out of or are related to
the consummation of the Merger and the transactions contemplated thereby.

SECTION 3.25 Accuracy of Information. The financial forecasts for fiscal
1997 and 1998 previously furnished to the Parent, as updated through the date
hereof, have been prepared in good faith, represent the reasonable judgment of
the Company's management and are based on assumptions which the Company believes
as of the date hereof are reasonable. No representation is made, however, as to
whether the assumptions on which the projections are based are true and correct
or that events will not occur which would make such assumptions incorrect. All
of the information furnished to Parent or Sub by the Company (including the
information set forth in the Company Letter) was furnished in the good faith
belief that, as of the date furnished, such information taken as a whole was
accurate and complete in all material respects.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB

Parent and (at such time as Sub becomes a party to this Agreement) Sub
represent and warrant to the Company as of the date hereof (provided, that the
following representations and warranties relating to Sub shall instead be made
as of such time as Sub becomes a party hereto) as follows:

SECTION 4.1 Organization. Parent is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now being conducted.

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SECTION 4.2 Authority. Parent and Sub have all requisite partnership or
corporate power and authority to execute and deliver this Agreement and all
documents and agreements contemplated hereby and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly authorized by all necessary partnership or
corporate action on the part of Parent and Sub and no other partnership or
corporate action on the part of Parent or Sub is necessary to authorize or
execute this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly executed and delivered by Parent and Sub and (assuming
the valid authorization, execution and delivery of this Agreement by the
Company) constitutes a valid and binding obligation of each of Parent and Sub
enforceable against them in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity.

SECTION 4.3 Consents and Approvals; No Violations. The execution and
delivery by Parent and Sub of this Agreement do not, and the consummation by
Parent and Sub of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or the
loss of a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Parent or any of its Subsidiaries under, (i) any
provision of the partnership agreement, Certificate of Incorporation, By-laws or
comparable organization documents of Parent, Sub or any Significant Subsidiaries
of Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement (other than, with respect to termination, agreements
terminable at will or upon 90 days' or less notice by the terminating party),
instrument, permit, concession, franchise or license applicable to Parent or any
of its Significant Subsidiaries or (iii) assuming all the consents, filings and
registrations referred to in the next sentence are made and obtained, any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or any of its Significant Subsidiaries or any of their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
violations, defaults, rights, losses or Liens, that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Parent or Sub or prevent or result in a third party materially delaying the
consummation of the Merger. No filing or registration with, or authorization,
consent or approval of, any Governmental Entity is required by or with respect
to Parent or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by Parent or Sub or is necessary for the consummation
of the Merger and the other transactions contemplated by this Agreement, except
(i) in connection, or in compliance, with the provisions of the HSR Act and the
Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which Parent or any of its Subsidiaries is
qualified to do business, (iii) such filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
other transactions contemplated by this Agreement, (iv) such filings,
authorizations, orders and approvals as may be required to obtain the State
Takeover Approvals or state securities or "blue sky" laws, (v) such filings as
may be required in connection with the taxes described in Section 6.6, (vi) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the laws of any foreign country in which
Parent or any of its Subsidiaries conducts any business or owns any property or
assets and (vii) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent or prevent or result in a third party materially
delaying the consummation of the Merger.

SECTION 4.4 Information Supplied. None of the information supplied or to
be supplied by Parent or Sub specifically for inclusion in (i) the S-4
Registration Statement will, at the time the S-4 Registration Statement becomes
effective under the Securities Act, and (ii) the Prospectus/Proxy Statement and
any amendment or supplement thereto will, at the date of mailing to stockholders
and at the time of the Stockholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty is made by Parent or Sub in connection with any of
the foregoing with respect to statements made or incorporated by reference
therein based on information supplied by the Company or any of its
representatives specifically for inclusion or incorporation by reference
therein.

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SECTION 4.5 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.

SECTION 4.6 Brokers. No broker, investment banker, financial advisor or
other person, other than any person the fees and expenses of which will be paid
by Parent or Sub, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the negotiations leading to
this Agreement or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub. Other than as aforesaid,
Parent is not aware of any claim for payment by Parent of any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.

SECTION 4.7 Financing. Parent has binding written commitments, addressed
to Parent or Sub, from one or more financially responsible financial
institutions, dated as of November 18, 1997, true and complete copies of which
have been furnished to the Company (collectively, the "Commitments") to obtain,
together with the other funds to be provided by Parent, the financing necessary
to pay the Cash Election Price with respect to each Share outstanding at the
Effective Time (other than Electing Shares), to pay (or provide the funds for
the Company to pay) all amounts contemplated by Section 2.2 when due, to
refinance any indebtedness or other obligation of the Company and its
Subsidiaries which may become due as a result of this Agreement or any of the
transactions contemplated hereby, to pay all related fees and expenses and to
provide for the anticipated working capital needs of the Surviving Corporation
following the Merger (the financing necessary to provide such funds being
hereinafter referred to as the "Financing"), which Commitments are in full force
and effect as of November 18, 1997. There are no conditions precedent or other
contingencies related to the funding of the full amount of the Financing other
than as set forth in the Commitments. Subject to the terms and conditions of
this Agreement and receipt of the proceeds of the Financing as set forth in the
Commitments (or on other terms reasonably satisfactory to Parent), at the
closing of the Merger, Parent will capitalize Sub with an aggregate equity
contribution of at least $117.5 million. Parent will be under no obligation
pursuant to the preceding sentence unless and until the proceeds of the
Financing are received as set forth in the Commitments. In addition, Parent will
be under no obligation under any circumstances to capitalize Sub with equity of
more than $117.5 million.

ARTICLE V

COVENANTS RELATING TO CONDUCT OF BUSINESS

SECTION 5.1 Conduct of Business by the Company Pending the Merger. During
the period from the date of this Agreement until the Effective Time, the Company
shall, and shall cause each of its Subsidiaries to, except as contemplated by
this Agreement, carry on its business in the ordinary course of its business as
currently conducted, maintain all assets other than those disposed of in the
ordinary course of business in good repair and condition, confer on a regular
basis with Parent to report material operational matters and any proposals to
engage in material transactions and, to the extent consistent therewith, use
reasonable efforts to preserve intact its current business organizations, keep
available the services of its current officers and employees and preserve its
present relationships with customers, suppliers and others having significant
business dealings with it. Without limiting the generality of the foregoing,
during such period, except as contemplated by this Agreement, the Company shall
not, and shall not permit any of its Subsidiaries to, without the prior written
consent of Parent (which consent shall not be unreasonably withheld or delayed):

(a) (x) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such (other than the payment by a Subsidiary of a dividend or distribution to
the Company or another wholly owned Subsidiary), (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (z) purchase (other than issuances by a wholly owned
Subsidiary), redeem or otherwise acquire any shares of its capital stock or
those of any Subsidiary or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities;

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(b) except as set forth in item 3.12(a) of the Company Letter, issue,
deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire any
such shares, voting securities, equity equivalent or convertible securities
(other than issuances by a wholly owned Subsidiary of the Company of its capital
stock to the Company), or modify or alter the terms of any of the foregoing;

(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any other
manner, any business or any corporation, partnership, limited liability company,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, other than (i) transactions which
involve assets having a purchase price not in excess of $100,000 individually or
$500,000 in the aggregate or (ii) acquisitions or purchases of assets to the
extent permitted by Section 6.1(m);

(e) sell, lease, license, encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets, other than
transactions that are in the ordinary course of business consistent with past
practice or which involve assets which in the aggregate are not in excess of
$500,000;

(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell, or vary the terms of, any debt securities or
warrants or rights to acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for borrowings incurred in the ordinary course of
business consistent with past practice not to exceed $100,000 in the aggregate
or non-acquisition-related borrowings under existing credit facilities not to
exceed $100,000 in the aggregate, or make any loans, advances or capital
contributions to, or other investments in, any other person, other than to or in
the Company or any wholly owned Subsidiary of the Company;

(g) alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of the Company or any
Subsidiary;

(h) except as disclosed in item 3.12(a) of the Company Letter, increase
the compensation payable or to become payable to its directors, officers or
employees, except for increases required under employment agreements existing on
the date hereof, and increases for employees other than officers in the ordinary
course of business consistent with past practice, or grant any severance or
termination pay, or make any loan, to, or enter into any employment or severance
agreement, or establish, adopt, enter into, or amend or take action to enhance
or accelerate any rights or benefits under, any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee, except, in each case, for changes which are less
favorable to participants in plans, agreements, trusts, funds, policies or
arrangements, or as may be required by the terms of any such plan, agreement,
trust, fund, policy or arrangement existing on the date hereof or to comply with
applicable law or regulation;

(i) knowingly violate or fail to perform any material obligation or duty
imposed upon it by any applicable material federal, state or local law, rule,
regulation, guideline or ordinance;

(j) settle or compromise any suit, proceeding, investigation or claim or
threatened suit, proceeding, investigation or claim for an amount that is more
than $100,000 in the case of any individual suit, proceeding or claim or
$500,000 for all suits, proceedings or claims;

(k) except to the extent required by law or agreed to by Parent, (i)
compromise any material tax liability or (ii) prepare or file any material tax
return inconsistent with past practice or, on any such tax return or otherwise,
take any position, make any material election, or adopt any material accounting
method that is inconsistent with positions taken, elections made or methods used
in the past in preparing or filing similar tax returns;

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(l) except as may be required as a result of a change in law or in
United States generally accepted accounting principles, make any material change
in its method of accounting;

(m) make or agree to make any new capital expenditure not previously
finally committed to that, individually, exceeds $2,000,000; provided, however,
that as to any individual capital expenditure in an amount equal to or greater
than $500,000 but less than or equal to $2,000,000, the Company will consult
with Parent (it being understood that no consent is required hereunder);

(n) except to the extent permitted by Section 5.1(j), pay, discharge,
settle or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, (1) in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
recognized or disclosed in the most recent consolidated financial statements (or
the notes thereto) of the Company included in the Company Filed SEC Documents or
incurred since the date of such financial statements in the ordinary course of
business consistent with past practice or (2) of liabilities required to be
paid, discharged or satisfied pursuant to the terms of any contract in existence
on the date hereof;

(o) enter into, modify in any material respect, amend in any material
respect or terminate any material contract or agreement to which the Company or
any of its Subsidiaries is a party or waive (except to the extent permitted by
Section 5.3), release or assign any material rights or claims;

(p) commence any voluntary petition, proceeding or action under any
bankruptcy, insolvency or other similar laws;

(q) except in the ordinary course of business consistent with past
practice, sell, assign, transfer, license or permit to lapse any material right
with respect to the Company Intellectual Property Rights; or

(r) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.

SECTION 5.2 No Solicitation.

(a) The Company shall, and shall direct and cause its officers,
directors, employees, representatives and agents to, immediately cease any
discussions or negotiations with any parties that may be ongoing with respect to
a Takeover Proposal (as hereinafter defined). The Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize or permit any of
its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative or agent retained by it or
any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate or
knowingly encourage (including by way of furnishing information) any inquiries
or the making of any proposal which constitutes, or may reasonably be expected
to lead to, any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if, at any
time prior to the receipt of the Company Stockholder Approval, the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it would be consistent with its fiduciary responsibilities
to the Company's stockholders under applicable law, the Company may, in response
to a Takeover Proposal which was not solicited subsequent to the date hereof,
(x) furnish information with respect to the Company to any person pursuant to a
confidentiality agreement substantially identical to the Confidentiality
Agreement (as defined in Section 6.2 hereof) and (y) participate in discussions,
investigations and/or negotiations regarding such Takeover Proposal. The Company
will promptly notify Parent in the event of the occurrence of any matter
referred to in the foregoing proviso. For purposes of this Agreement, "Takeover
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of 25% or more of the aggregate
assets of the Company and its Subsidiaries, taken as a whole, or 25% or more of
the voting power of the shares of Common Stock then outstanding or any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 25% or more of the voting power of the shares of Common
Stock then outstanding or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, other than the transactions contemplated by this Agreement.

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(b) Except as set forth in this Section 5.2, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement; provided that, the Board of Directors may, (A) in
response to any Takeover Proposal, suspend such recommendation pending its
analysis of such Takeover Proposal or (B) at any time prior to the receipt of
the Company Stockholder Approval, modify or withdraw such recommendation if the
Board of Directors of the Company determines in good faith that a Takeover
Proposal is a Superior Proposal (as hereinafter defined) and, after consultation
with outside counsel, that it would be consistent with its fiduciary
responsibilities to so modify or withdraw such recommendation, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal or
(iii) cause the Company to enter into any acquisition agreement or other similar
agreement (an "Acquisition Agreement") related to any Takeover Proposal.
Notwithstanding the foregoing, in the event that prior to the receipt of the
Company Stockholder Approval, the Board of Directors of the Company determines
in good faith, after consultation with outside counsel, that it would be
consistent with its fiduciary responsibilities to the Company's stockholders
under applicable law, the Board of Directors of the Company may approve or
recommend a Superior Proposal or terminate this Agreement, but in each case,
subject to the provisions of Section 6.3 hereof and only at a time that is after
the second business day following Parent's receipt of written notice (a "Notice
of Superior Proposal") advising Parent that the Board of Directors of the
Company has received a Takeover Proposal that may constitute a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal. For purposes of this
Agreement, a "Superior Proposal" means any proposal determined by the Board of
Directors of the Company in good faith, after consultation with outside legal
counsel, to be a bona fide proposal and made by a third party to acquire,
directly or indirectly, for consideration consisting of cash, property and/or
securities, more than 50% of the combined voting power of the shares of Common
Stock then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Board of Directors of the Company determines in its
good faith judgment, after consultation with outside counsel and with a
financial advisor of nationally recognized reputation, to be more favorable to
the Company's stockholders than the Merger.

(c) Nothing contained in this Section 5.2 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rules
14d-9 and 14e-2 promulgated under the Exchange Act or making any disclosure to
the Company's stockholders if, in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, such
disclosure is necessary in order to comply with its fiduciary duties to the
Company's stockholders under applicable law or is otherwise required under
applicable law.

SECTION 5.3 Third Party Standstill Agreements. During the period from the
date of this Agreement through the Effective Time, the Company shall not, except
in connection with the making of a Takeover Proposal, terminate, amend, modify
or waive any provision of any confidentiality or standstill agreement to which
the Company or any of its Subsidiaries is a party (other than any involving
Parent) unless the Company's Board of Directors shall have determined in good
faith, after consultation with outside counsel, that such release of any third
party or amendment, modification or waiver of such provisions is necessary in
order to comply with its fiduciary duties to the Company's stockholders under
applicable law.

ARTICLE VI

ADDITIONAL AGREEMENTS

SECTION 6.1 Stockholder Meeting. The Company will take, in accordance with
applicable law and its certificate of incorporation and by-laws, all action
necessary to convene a meeting of holders of Shares (the "Stockholder Meeting")
as promptly as practicable after the S-4 Registration Statement is declared
effective to consider and vote upon the approval of this Agreement and the
Merger. Except as otherwise expressly provided herein, the Company's Board of
Directors shall recommend approval of the transactions contemplated hereby and
shall take all lawful action to solicit such approval.

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SECTION 6.2 Filings; Other Actions; Notification; Access to Information.

(a) Parent and the Company shall promptly prepare and file with the SEC
the Prospectus/Proxy Statement and the S-4 Registration Statement as promptly as
practicable. Parent and the Company each shall use all reasonable efforts to
have the S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing, and promptly thereafter mail the
Prospectus/Proxy Statement to the stockholders of the Company. Parent and the
Company shall also use all reasonable efforts to obtain prior to the effective
date of the S-4 Registration Statement all necessary state securities law or
"blue sky" permits and approvals required in connection with the Merger and to
consummate the other transactions contemplated by this Agreement and will pay
all expenses incident thereto.

(b) The Company shall notify Parent promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger. If
at any time prior to the Stockholder Meeting there shall occur any event that
should be set forth in an amendment or supplement to the Proxy Statement, the
Company shall promptly prepare and mail to its stockholders such an amendment or
supplement. Parent shall cooperate with the Company in the preparation of the
Proxy Statement or any amendment or supplement thereto.

(c) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus/Proxy Statement, the
S-4 Registration Statement or any other statement, filing, notice or application
made by or on behalf of Parent, the Company or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the Merger and the transactions contemplated by this Agreement.

(d) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement.
Each of the Company and Parent shall give prompt notice to the other of any
change that is reasonably likely to result in a Material Adverse Effect on it.

(e) The Company shall deliver to Parent a letter identifying all persons
whom the Company believes to be, at the date of the Stockholder Meeting,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
Each of the Company and Parent shall use all reasonable efforts to cause each
Person who is identified as an "affiliate" in the letter referred to above to
deliver to Parent at least thirty-five days prior to the date of the Stockholder
Meeting a written agreement substantially in the form of Exhibit B. Prior to the
Effective Time, the Company shall amend and supplement such letter and use all
reasonable efforts to cause each additional person who is identified as an
"affiliate" to execute a written agreement as set forth in this Section 6.2(e).

(f) The Company shall, and shall cause each of its Subsidiaries to, upon
reasonable notice, afford to Parent and to the officers, employees, accountants,
counsel, financial advisors and other representatives and agents of Parent
reasonable access to all their respective key employees, properties, books,
contracts, commitments, documents and records of the Company or its Subsidiaries
during normal business hours during the period from the date of this Agreement
through the Effective Time and, during such period, the Company shall, and shall
cause each of its Subsidiaries to, furnish promptly to Parent (i) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of federal or state securities laws and
(ii) all other information concerning its business, properties and personnel as
Parent may reasonably request; provided that the Company shall not be required
to furnish to Parent any information which is subject to an attorney-client
privilege or which constitutes attorney work product. All information obtained
by or on behalf of Parent pursuant to this Section 6.2 shall be kept
confidential in accordance with the letter agreement dated May 27, 1997 between
Parent and Lehman Brothers, on behalf of the Company (the "Confidentiality
Agreement").

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SECTION 6.3 Fees and Expenses.

(a) The Company shall pay to Parent by wire transfer $15,000,000 (the
"Company Termination Fee") if:

(i) the Company terminates this Agreement pursuant to Section
8.1(e), in which case, the Company Termination Fee must be paid
simultaneously with such termination;

(ii) Parent terminates this Agreement pursuant to Section 8.1(d),
in which case, the Company Termination Fee must be paid no later than one
business day after the termination of this Agreement; or

(iii) (A) Parent or the Company terminates this Agreement pursuant
to Section 8.1(b)(iii), (B) the approval of this Agreement by the
stockholders of the Company shall not have been obtained by reason of the
failure to obtain the required vote at a meeting of stockholders duly
convened thereon as contemplated by this Agreement (a "Company Negative
Vote"), (C) at the time of such Company Negative Vote there shall be
pending a Takeover Proposal, and (D) within one year after such
termination, the Company consummates either (1) a merger, consolidation or
other business combination between the Company and any other person (other
than Parent, Sub or an affiliate of Parent) or (2) the sale of 30% or more
(in voting power) of the voting securities of the Company or of 30% or
more (in fair market value) of the assets of the Company and its
Subsidiaries, on a consolidated basis, in which case, the Company
Termination Fee must be paid simultaneously with the closing of the event
described in clause (1) or (2) of this subparagraph.

(b) Parent shall pay to the Company by wire transfer $5,000,000 (the
"Parent Termination Fee") if this Agreement is terminated by either Parent or
the Company pursuant to Section 8.1(b)(i) and at the time of such termination
(A) the condition set forth in Section 7.2(c) to the obligations of Parent and
Sub shall not have been satisfied or waived and (B) each of the other conditions
set forth in Article VII to the obligations of the Company, Parent and Sub shall
have been satisfied or waived and Parent and Sub shall not have then been
entitled to terminate this Agreement pursuant to any of the provisions of
Section 8.1 (other than Section 8.1(b)(i)). If payable, the Parent Termination
Fee shall be paid no later than one business day after the termination of this
Agreement.

(c) Except as set forth above, all fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees or expenses, whether or
not the Merger is consummated; provided, however, that all filing fees related
to compliance with the HSR Act in connection with the transactions contemplated
hereby shall be borne equally by Parent and the Company.

SECTION 6.4 Awards. No further awards of any type shall be made under any
Company Stock Plan after the date of this Agreement.

SECTION 6.5 Public Announcements. Parent and the Company will consult with
each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law, fiduciary
duties or by obligations pursuant to any listing agreement with any national
securities exchange.

SECTION 6.6 Real Estate Transfer Tax. Parent and the Company agree that
either the Surviving Corporation or Parent (without any liability to any of the
Company's stockholders) will pay any state or local tax which is attributable to
the transfer of the beneficial ownership of the Company's or its Subsidiaries'
real property, if any (collectively, the "Transfer Taxes"), and any penalties or
interest with respect to the Transfer Taxes, payable in connection with the
consummation of the Merger. The Company agrees to cooperate with Parent in the
filing of any returns with respect to the Transfer Taxes, including supplying in
a timely manner a complete list of all real property interests held by the
Company and its Subsidiaries and any information with respect to such property
that is reasonably necessary to complete such returns. The portion of the
consideration allocable to the real property of the Company and its Subsidiaries
shall be determined by Parent in its reasonable discretion. To the extent
permitted

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by law, the stockholders of the Company shall be deemed to have agreed to be
bound by the allocation established pursuant to this Section 6.6 in the
preparation of any return with respect to the Transfer Taxes.

SECTION 6.7 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and its Board of
Directors shall use reasonable best efforts to grant such approvals and take
such actions as are necessary so that the transactions contemplated hereby may
be consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to minimize the effects of any such statute or regulation on the
transactions contemplated hereby.

SECTION 6.8 Indemnification; Directors and Officers Insurance.

(a) From and after the Effective Time, the Surviving Corporation agrees
that it will indemnify and hold harmless each present and former director and
officer of the Company (when acting in such capacity) determined as of the
Effective Time (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that the
Company would have been permitted under the DGCL and its articles of
incorporation or by-laws in effect on the date hereof to indemnify such Person
(and the Surviving Corporation shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Person is not entitled to indemnification).

(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify the Surviving
Corporation thereof, but the failure to so notify shall not relieve the
Surviving Corporation of any liability it may have to such Indemnified Party if
such failure does not materially prejudice the indemnifying party. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Surviving Corporation shall have
the right to assume the defense thereof and the Surviving Corporation shall not
be liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if the Surviving Corporation
does not elect to assume such defense or counsel for the Indemnified Parties
advises that there are issues which raise conflicts of interest between the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that the
Surviving Corporation shall be obligated pursuant to this paragraph (b) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
(unless there is a conflict of interest as provided above), (ii) the Indemnified
Parties will cooperate in the defense of any such matter and (iii) the Surviving
Corporation shall not be liable for any settlement effected without the prior
written consent of the Surviving Corporation.

(c) The Surviving Corporation shall maintain a policy of officers' and
directors' liability insurance for acts and omissions occurring prior to the
Effective Time with coverage in amount and scope at least as favorable as the
Company's existing directors' and officers' liability insurance coverage for a
period of six years after the Effective Time; provided, however, that in
satisfying the obligations under this provision, the Surviving Corporation shall
not be obligated to pay annual premiums in excess of 200% of the amount per
annum paid by the Company in its last full fiscal year. The amount per annum of
premiums paid by the Company in its last full fiscal year equaled $270,000.

(d) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives and shall be binding on all successors and assigns of
the Surviving Corporation.

SECTION 6.9 Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of:
(i) the occurrence, or non-occurrence of any event the occurrence,

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or non-occurrence, of which would be reasonably likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect, and (ii) the failure of the Company or
Parent to comply with in any material respect or satisfy in any material respect
any covenant, condition or agreement of such entity to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.9 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.

SECTION 6.10 Reasonable Best Efforts.

(a) Subject to the terms and conditions of this Agreement and the
fiduciary responsibilities of the Board of Directors of the Company, each of the
Company, Parent and Sub agrees to use its reasonable best efforts to cause the
consummation of the Merger to occur as soon as practicable. Without limiting the
foregoing, (i) each of the Company, Parent and Sub agree to use its reasonable
best efforts to take, or cause to be taken, all actions necessary to comply
promptly with all legal requirements that may be imposed on itself with respect
to the Merger (which actions shall include furnishing all information required
under the HSR Act and in connection with approvals of or filings with any other
Governmental Entity) and shall promptly cooperate with and furnish information
to each other in connection with any such requirements imposed upon any of them
or any of their Subsidiaries in connection with the Merger and (ii) each of the
Company, Parent and Sub shall, and shall cause its Subsidiaries to, use its
reasonable best efforts to obtain (and shall cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private third party required to
be obtained or made by Parent, Sub, the Company or any of their Subsidiaries in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement. In connection with any action to be taken by Parent, the
Company or any of its respective Subsidiaries to consummate the Merger or the
other transactions contemplated in this Agreement, the Company shall not,
without Parent's prior written consent, commit to any divestiture of assets or
businesses of the Company and its Subsidiaries if such divested assets and/or
businesses are material to the assets or profitability of the Company and its
Subsidiaries taken as a whole; and neither Parent nor any of its Subsidiaries
shall be required to divest or hold separate or otherwise take or commit to take
any action that materially limits its freedom of action with respect to, or its
ability to retain, the Company or any of the businesses or assets of Parent or
that would have a Material Adverse Effect on Parent or the Company.

(b) Parent hereby agrees to use its reasonable best efforts to arrange
and complete the Financing including, (i) to negotiate definitive agreements
with respect thereto and (ii) to satisfy all conditions applicable to Parent and
Sub in such definitive agreements. Parent will keep the Company informed at all
times with respect to the status of its efforts to arrange and complete the
Financing, including, without limitation, with respect to the occurrence of any
event which Parent believes may have a materially adverse effect on the ability
of Parent to obtain the Financing. In the event Parent is unable to arrange or
complete any portion of the Financing in the manner or from the sources
originally contemplated, Parent will use its reasonable best efforts to arrange
any such portion from alternative sources. The Company hereby agrees to use its
reasonable best efforts to assist Parent to arrange and complete the Financing,
including to satisfy all conditions applicable to the Company in connection
therewith; provided that the Company shall not be obligated to incur any
monetary obligations or expenditures in connection with such assistance.

SECTION 6.11 Employee Benefits.

(a) During the period from the Effective Time until December 31, 1997,
the Surviving Corporation shall maintain or cause to be maintained wages,
compensation levels, employee pension and welfare plans for the benefit of
employees and former employees of the Company or its Subsidiaries which, in the
aggregate, are not less favorable than those wages, compensation levels and
other benefits under the Benefit Plans that are in effect as of the date hereof;
provided, however, that the Surviving Corporation shall not have any obligation
to provide benefits based on equity securities or any equivalent thereof. For
all purposes of eligibility to participate in and vesting in benefits provided
under employee benefits plans maintained by the Surviving Corporation (but not
for purposes of determining benefits (or accruals thereof) under such plans)
which employees and former employees of the Company become eligible to
participate in after the Effective Time, all persons previously employed by the
Company and its Subsidiaries and then employed by the Surviving Corporation
shall be credited with their years of service with the Company and its
Subsidiaries and years of service with prior employers to the extent service
with prior employers is taken into account under the Benefit Plans. With respect
to the Company's Deferred Compensation Plan and the

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trust established thereunder (collectively, the "Deferred Compensation Plan"),
the Surviving Corporation shall cause the Deferred Compensation Plan to be
amended such that all amounts payable thereunder shall become fully vested as of
the Effective Time. The Deferred Compensation Plan shall be continued (but
Company contributions to the Deferred Compensation Plan may be discontinued
after December 31, 1997) and, except as provided in the preceding sentence, may
not be amended or terminated until all benefits payable thereunder are
distributed in accordance with the Deferred Compensation Plan and any and all
elections thereunder.

(b) The foregoing shall not constitute any commitment, contract,
understanding or guarantee (express or implied) on the part of the Surviving
Corporation of a post-Effective Time employment relationship of any term of
duration or on any terms other than those that the Surviving Corporation may
establish. Employment of any of the employees by the Surviving Corporation will
be "at will" and may be terminated by the Surviving Corporation at any time for
any reason (subject to any legally binding agreement other than this Agreement,
or any applicable laws or collective bargaining agreement, or any other
arrangement or commitment). Except as otherwise provided in Sections 6.11
through 6.14, nothing in this Agreement shall be interpreted as limiting the
power of the Surviving Corporation to amend or terminate any particular Benefit
Plan or any other employee benefit plan, program, agreement or policy or as
requiring the Surviving Corporation to offer to continue (other than as required
by its terms) any written employment contract.

SECTION 6.12 Severance Policy and Other Agreements.

(a) With respect to any officer or employee who is covered by a
severance policy or plan separate from the standard severance policy for the
Company's employees (all of which separate severance policies or plans are
incorporated in the terms of the employment agreements listed in item 6.12 of
the Company Letter), the Surviving Corporation shall maintain (or shall cause to
be maintained) such separate policy or plan as in effect as of the date hereof,
and, as to all other officers and employees, the Surviving Corporation shall
maintain (or shall cause to be maintained) the Company's standard severance
policy as in effect as of the date hereof until at least June 30, 1998;
provided, however, that with respect to any severance policy maintained pursuant
to any statutory requirement, such policy shall continue to be maintained in
compliance with the applicable statute.

(b) The Surviving Corporation shall honor or cause to be honored all
severance agreements and employment agreements with the Company's directors,
officers and employees to the extent disclosed in item 6.12 of the Company
Letter (it being understood that nothing herein shall be deemed to mean that the
Company shall not be required to honor its obligations under any severance
agreement or employment agreement to which it is a party).

(c) The Company shall furnish to Parent as soon as practicable, but in
no event later than two days after the date hereof, a listing which specifies as
of July 18, 1997 the maximum number of shares of Common Stock covered by Company
Stock Options with an exercise price of less than $25.00 per share and the
average exercise price for such Company Stock Options.

SECTION 6.13 1997 Bonus. Subject to any executive employment agreements,
the Surviving Corporation will maintain the Company's bonus plans (as in effect
on or before March 1, 1997) through the end of the 1997 fiscal year, with
bonuses to be paid to the employee participating thereunder at the greater of
(i) the target level, if applicable, (ii) the prior year's bonus, or (iii) such
bonus as the employee would have earned if the transaction contemplated by this
Agreement had not occurred, in all events on a basis consistent with past
practices; provided, however, that with respect to any bonus which will be paid
in installments, the dividend amount payable with respect to the payment shall
be equal to an annual interest rate of fifteen percent (15%). The maximum
amounts that may be payable under the Company's bonus plans pursuant to this
Section 6.13 are set forth in item 6.13 of the Company Letter.

SECTION 6.14 401(k)/Profit Sharing Contributions for 1997. The Surviving
Corporation, prior to the end of the third month following the end of the
current fiscal year, will make all Company contributions to the Company's
Tax-Deferred Investment Plan on behalf of each eligible Company employee who was
employed on the last day of the current fiscal year. The Surviving Corporation
will make a Discretionary Contribution with respect to the 1997 Plan Year which
is not less than the amount of the Discretionary Contribution (on a percentage
basis) that the Company made for the 1996 Plan Year.

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SECTION 6.15 Certification. The Company and each of its Subsidiaries agree
to provide to the Sub the statement described in Treasury Regulation Section
1.1445-2(c)(3), certifying that none of the interests in the Company held by the
Company's stockholders are U.S. real property interests for purposes of Section
1445 of the Code. Such statement will be complete, accurate and valid on the
Closing Date. If such statement is not received by or on the Closing Date, the
Sub shall withhold all amounts required to be withheld by Section 1445 of the
Code.

SECTION 6.16 Recapitalization Accounting. The Company shall cooperate with
any reasonable requests of Parent or the SEC related to the recording of the
Merger as a recapitalization for financial reporting purposes, including,
without limitation, to assist Parent and Sub with any presentation to the SEC
with regard to such recording and to include appropriate disclosure with regard
to such recording in all filings with the SEC and all mailings to stockholders
made in connection with the Merger. In furtherance of the foregoing, the Company
shall provide to Parent for the prior review of Parent's advisors any
description of the transactions contemplated by this Agreement which is meant to
be disseminated.

SECTION 6.17 NYSE Delisting. Each of the parties agrees to cooperate with
each other in taking, or causing to be taken, all actions necessary to delist
the Company Common Stock from the New York Stock Exchange, Inc. ("NYSE"),
provided that such delisting shall not be effective until after the Effective
Time. The parties also acknowledge that it is Parent's intent that the Common
Stock following the Merger will not be quoted on NASDAQ or listed on any
national securities exchange.

SECTION 6.18 Formation of Sub. As soon as practicable following the
execution of this Agreement, but no later than one week following such date,
Parent shall cause Sub to be formed in the State of Delaware and to take all
corporate action necessary to approve and to become a party to this Agreement.
Each of the parties hereto agrees that upon formation of Sub it shall execute an
amendment to this Agreement and such other documents as may be necessary to
cause Sub to become a party to this Agreement.

SECTION 6.19 Stockholders Agreement. The Company and Parent agree that,
prior to the Effective Time, they, Warburg Pincus and the other stockholders
retaining shares in the Merger will enter into a Stockholders Agreement
consistent with the provisions of Schedule B to the Stockholders Voting
Agreement.

SECTION 6.20 Surviving Corporation Preferred Stock. Immediately after the
Effective Time, the Board of Directors of the Surviving Corporation shall adopt
a resolution providing for the creation of the series of NonVoting 13.5%
Pay-in-Kind Preferred Stock, stated value $100.00 per share, of the Surviving
Corporation into which the shares of capital stock of Sub are to be converted in
the Merger.

ARTICLE VII

CONDITIONS PRECEDENT

SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:

(a) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved in the manner required by
applicable law or the applicable regulations of any stock exchange or regulatory
body, as the case may be, by the holders of the issued and outstanding shares of
capital stock of the Company;

(b) Governmental Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and other than the filing provided for in Section 1.3, all notices,
reports and other filings required to be made prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time by the Company or Parent or any of their
respective Subsidiaries from, any Governmental Entity in connection with the
execution and delivery of this Agreement and the consummation of the

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Merger and the other transactions contemplated hereby shall have been made or
obtained (as the case may be) upon terms and conditions that are not reasonably
likely to have a Material Adverse Effect on the Company.

(c) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law, order, decree or ruling (whether temporary, preliminary or permanent) that
is in effect and would (i) restrain, enjoin or otherwise prohibit consummation
of the Merger or make the acquisition or holding by Parent of the common stock
of the Surviving Corporation illegal, (ii) compel Parent or any of its
Subsidiaries, on the one hand, or the Company or any of its Subsidiaries, on the
other, to dispose of or hold separate all or a material portion of the business
or assets of Parent and its Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, respectively, or (iii) impose any financial
burden on Parent or the Surviving Corporation or any limitation on the ability
of Parent to hold or operate the business of the Company or any of its
Subsidiaries, in either such case, which would materially reduce the economic or
business benefits Parent expects, as of the date hereof, to realize from the
Merger.

(d) S-4 Registration Statement. The S-4 Registration Statement shall
have become effective under the Securities Act. No stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued, and no
proceedings for that purpose shall have been initiated or be threatened by the
SEC.

(e) Blue Sky Approvals. The Company shall have received all state
securities and "blue sky" permits and approvals necessary to consummate the
transactions contemplated hereby.

SECTION 7.2 Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are also subject to the satisfaction or
waiver by Parent at or prior to the Effective Time of the following conditions:

(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects all obligations contained
in this Agreement required to be performed by it prior to the Closing Date; each
of the representations and warranties of the Company contained in this Agreement
that is qualified by materiality shall be true and correct at and as of the
Closing Date as if made at and as of the Closing Date and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of the Closing Date, provided that representations and warranties that speak
as of a specified date shall only be true and correct (to the extent required by
this sentence) as of such date; and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its Chief
Financial Officer to such effect.

(b) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be required
in order to consummate the transactions contemplated by this Agreement under any
agreement to which the Company or any of its Subsidiaries is a party, except
those for which the failure to obtain such consent or approval, individually or
in the aggregate, is not reasonably likely to have a Material Adverse Effect on
the Company or is not reasonably likely to materially adversely affect the
ability of the Company to consummate the transactions contemplated by this
Agreement.

(c) Financing. The Financing shall have been obtained on the terms set
forth in the Commitments or on other terms reasonably satisfactory to Parent.

(d) Non-Cash Election. Warburg Pincus shall have made a Non-Cash
Election with respect to a number (subject to adjustment as provided in Section
2.4 of this Agreement) of its Shares equal to the Non-Cash Election Number in
accordance with the terms of the Stockholders Voting Agreement and such election
shall be in full force and effect and shall not have been revoked.

SECTION 7.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:

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(a) Performance of Obligations; Representations and Warranties. Parent
and Sub each shall have performed in all material respects all obligations
contained in this Agreement required to be performed by it at or prior to the
Closing Date; each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified by materiality shall be true and
correct at and as of the Closing Date as if made at and as of the Closing Date
and each of such representations and warranties that is not so qualified shall
be true and correct in all material respects at and as of the Closing Date as if
made at and as of the Closing Date, provided that representations and warranties
that speak as of a specified date shall only be true and correct (to the extent
required by this sentence) as of such date; and the Company shall have received
a certificate signed on behalf of Parent by the Chief Executive Officer and the
Chief Financial Officer of the General Partner of Parent to such effect.

(b) Consents Under Agreements. Parent shall have obtained the consent or
approval of each person whose consent or approval shall be required in order to
consummate the transactions contemplated by this Agreement under any agreement
to which Parent or any of its Subsidiaries is a party, except those for which
failure to obtain such consents and approvals, individually or in the aggregate,
is not reasonably likely to have a Material Adverse Effect on the Company or is
not reasonably likely to materially adversely affect the ability of Parent to
consummate the transactions contemplated by this Agreement.

ARTICLE VIII

TERMINATION AND AMENDMENT

SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after Company Stockholder
Approval:

(a) by mutual written consent of Parent, Sub and the Company;

(b) by either Parent or the Company:

(i) if the Merger shall not have been consummated by February 28,
1998; provided that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger
by February 28, 1998;

(ii) if any court or Governmental Entity of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree or
ruling or other action shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement pursuant to
this Section 8.1(b)(ii) shall not be available to any party who has not
used its reasonable best efforts to cause such order to be lifted;

(iii) the approval of the Company's stockholders required by Section
7.1(a) shall not have been obtained at the Stockholder Meeting or any
adjournment thereof;

(c) by Parent or Sub if: (A) as of such time of determination, any of
the representations or warranties of the Company set forth in this Agreement
that are qualified as to materiality shall not be true and correct in any
respect or any such representations or warranties that are not so qualified
shall not be true and correct in any material respect, or (B) the Company shall
have failed to perform in any material respect any material obligation or to
comply in any material respect with any material agreement or covenant of the
Company to be performed or complied with by it under this Agreement and, in the
case of (A) such untruth or incorrectness cannot be or has not been cured within
60 days after the giving of written notice to the Company, and, in the case of
(B) such failure cannot be or has not been cured within 20 days after the giving
of written notice to the Company;

(d) by Parent or Sub if the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to Parent
or Sub its approval or recommendation of the Merger or this

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Agreement, or approved or recommended any Takeover Proposal or Acquisition
Agreement (other than the Merger), or shall have resolved to take any of the
foregoing actions; provided that the suspension of the recommendation of the
Company's Board of Directors referred to herein in accordance with Section
5.2(b) shall not give rise to a right of termination pursuant to this Section
8.1(d);

(e) by the Company in accordance with Section 5.2(b); provided, however,
that it has complied with all provisions thereof, including the notice
provisions therein and the requirements of Section 6.3 hereof;

(f) by the Company, if (i) as of such time of determination, any of the
representations or warranties of Parent or Sub set forth in this Agreement that
are qualified as to materiality shall not be true and correct in any respect or
any such representations or warranties that are not so qualified shall not be
true and correct in any material respect, or (ii) Parent or Sub shall have
failed to perform in any material respect any material obligation or to comply
in any material respect with any material agreement or covenant of Parent or Sub
to be performed or complied with by it under this Agreement and, in the case of
(i) such untruth or incorrectness cannot be or has not been cured within 60 days
after the giving of written notice to Parent or Sub, and, in the case of (ii)
such failure cannot be or has not been cured within 20 days after the giving of
written notice to Parent or Sub.

SECTION 8.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to Section 6.3, this Section 8.2 and
Article IX and the last sentence of Section 6.2; provided, however, that nothing
herein shall relieve any party from liability for any breach hereof.

SECTION 8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Board of Directors or
General Partner, as applicable, at any time before or after obtaining Company
Stockholder Approval, but after Company Stockholder Approval no amendment shall
be made which by law requires further approval by the stockholders of the
Company without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.

SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Board of
Directors or General Partner, as applicable, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto or
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.

ARTICLE IX

GENERAL PROVISIONS

SECTION 9.1 Non-Survival of Representations and Warranties and Agreements.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective Time
except that the agreements set forth in Article II, Sections 6.8, 6.11, 6.12,
6.13 and 6.14 and Article IX shall survive the Effective Time.

SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a confirmatory
copy sent by overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):

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(a) if to Parent or Sub, to:

TPG Partners II, L.P.
600 California Street, Suite 1850
San Francisco, CA 94108
Attn: Mr. David M. Stanton

with a copy to:

Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Attn: Daniel S. Sternberg, Esq.

(b) if to the Company, to:

Zilog, Inc.
210 E. Hacienda Avenue
Campbell, CA 95008
Attn: Richard R. Pickard, Esq.

with a copy to:

Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, CA 94025
Attn: Nathaniel M. Cartmell III, Esq.

SECTION 9.3 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." As used in this Agreement, the term
"subsidiary" or "Subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person. As used in this Agreement, "Material Adverse Change" or "Material
Adverse Effect" means, when used in connection with the Company or Parent, as
the case may be, any change or effect that is materially adverse to the
business, financial condition or results of operations of such entity and its
Subsidiaries taken as a whole; provided, however, that (i) any adverse change,
event or effect that is demonstrated to be primarily caused by conditions
affecting the United States economy generally or the economy of any nation or
region in which such entity or any of its Subsidiaries conducts business that is
material to the business of such entity and its Subsidiaries, taken as a whole,
shall not be taken into account in determining whether there as been or would be
a "Material Adverse Change" or "Material Adverse Effect" on or with respect to
such entity, (ii) any adverse change, event or effect that is demonstrated to be
primarily caused by conditions generally affecting the semiconductor industry
shall not be taken into account in determining whether there has been or would
be a "Material Adverse Change" or "Material Adverse Effect" on or with respect
to such entity and (iii) any adverse change, event or effect that is
demonstrated to be primarily caused by the announcement or pendency of the
Merger or the transactions contemplated hereby shall not be taken into account
in determining whether there has been or would be a "Material Adverse Change" or
"Material Adverse Effect" on or with respect to such entity. Whenever the word
"knowledge" is used in this Agreement, it shall mean the actual knowledge of any
officer of the Company, in the case of the Company, or any officer of TPG
Advisors II, Inc., in the case of Parent.

A-34
<PAGE> 110
SECTION 9.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.

SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. Except for the
Confidentiality Letter referred to in the last sentence of Section 6.2, the
Company Letter and the Stockholders Voting Agreement, this Agreement constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; provided, however, that it is expressly agreed that the transactions
contemplated by this Agreement do not violate any provision of the
Confidentiality Letter. This Agreement, except for the provisions of Section
6.8, is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.

SECTION 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.

SECTION 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, except that
Parent or Sub may assign, in its sole discretion, any of or all of its rights,
interests and obligations under this Agreement to Parent (in the case of Sub) or
to any direct or indirect wholly owned Subsidiary of Parent or Sub or to any
affiliate of Parent or Sub, but no such assignment shall relieve Parent or Sub
of any of its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.

SECTION 9.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.

SECTION 9.9 Enforcement of This Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to any
other remedy to which any party is entitled at law or in equity.

SECTION 9.10 Obligations of Subsidiaries. Except as specifically set forth
herein, whenever this Agreement requires any Subsidiary of Parent (including
Sub) or of the Company to take any action, such requirement

A-35
<PAGE> 111
shall be deemed to include an undertaking on the part of Parent or the Company,
as the case may be, to cause such Subsidiary to take such action.

IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement, as amended, to be signed by their respective officers thereunto duly
authorized all as of the date first written above.

TPG PARTNERS II, L.P.

By: TPG GenPar II, L.P., its General Partner,

By: TPG Advisors II, Inc., its General Partner

By: /s/ DAVID M. STANTON
-------------------------------------------
David M. Stanton
Vice-President

TPG ZEUS ACQUISITION CORPORATION

By: /s/ DAVID M. STANTON
-------------------------------------------
David M. Stanton
President

ZILOG, INC.

By: /s/ EDGAR A. SACK
-------------------------------------------
Edgar A. Sack
President and
Chief Executive Officer

A-36
<PAGE> 112
Exhibit A

Stockholders Voting Agreement

SEE ANNEX B

A-37
<PAGE> 113
Exhibit B

Form of Affiliate Letter

----------, ----

Zilog, Inc.
210 East Hacienda Avenue
Campbell, California
Attention: General Counsel

Ladies and Gentlemen:

The undersigned has been advised that as of the date of this letter the
undersigned may be deemed to be an "affiliate" of Zilog, Inc., a Delaware
corporation (the "Company"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of ------------, 1997 (the "Agreement"),
between the Company and TPG Partners II, L.P. ("Parent"), a newly-formed
Delaware corporation and wholly owned subsidiary of Parent will be merged with
and into the Company, which will be the surviving company (the "Merger").

In connection with the Merger, the undersigned may retain shares of common
stock, par value $0.01 per share, of the Company ("Company Common Stock")
currently owned by [him][her][it].

The undersigned represents, warrants and covenants to the Company that in
the event the undersigned retains any Company Common Stock as a result of the
Merger:

A. The undersigned shall not make any sale, transfer of other
disposition of the Company Common Stock in violation of the Act or the Rules and
Regulations.

B. The undersigned has carefully read this letter and the Agreement and
discussed the requirements of such documents and other applicable limitations
upon [his][her][its] ability to sell, transfer or otherwise dispose of the
Company Common Stock to the extent the undersigned felt necessary, with
[his][her][its] counsel or counsel for the Company.

C. The undersigned has been advised that the issuance of the Company
Common Stock to [him][her][it] pursuant to the Merger has been registered with
the Commission under the Act on a Registration Statement on Form S-4. However,
the undersigned has also been advised that, since at the time the Merger was
submitted for a vote of the stockholders of the Company, the undersigned may be
deemed to have been an affiliate of the Company and the distribution by
[him][her][it] of the Company Common Stock has not been registered under the
Act, the undersigned may not sell, transfer or otherwise dispose of the Company
Common Stock issued to [him][her][it] in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such sale,
transfer or other disposition is made in conformity with Rule 145 promulgated by
the Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to the Company, or pursuant to a "no action" letter obtained by the
undersigned from the staff of the Commission, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.

D. Except as may be provided in any registration rights agreement
between the Company and the undersigned, the undersigned understands that the
Company is under no obligation to register the sale, transfer or other
disposition of the Company Common Stock by [him][her][it] or on [his][her][its]
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.

E. The undersigned also understands that stop transfer instructions
will be given to the Company' transfer agents with respect to the Company Common
Stock and that there will be placed on the certificates for the Company Common
Stock issued to [him][her][it], or any substitutions therefor, a legend stating
in substance:

A-38
<PAGE> 114
' "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED --------, BETWEEN THE
REGISTERED HOLDER HEREOF AND -------------, A COPY OF WHICH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICES OF ----------------------."

F. The undersigned also understands that unless the transfer by
[him][her][it] of [his][her][its] Company Common Stock has been registered under
the Act or is a sale made in conformity with the provisions of Rule 145, the
Company reserves the right to put the following legend on the certificates
issued to [his][her][its] transferee:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED
SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."

It is understood and agreed that the legends set forth in paragraphs E and
F above will be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this letter
agreement. It is understood and agreed that such legends and the stop orders
referred to above will be removed if (i) one year shall have elapsed from the
date the undersigned acquired the Company Common Stock received in the Merger
and the provisions of Rule 145(d)(2) are then available to the undersigned, (ii)
two years shall have elapsed from the date the undersigned acquired the Company
Common Stock received in the Merger and the provisions of Rule 145(d)(3) are
then available to the undersigned, or (iii) the Company has received either an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to the Company, or a "no action" letter obtained by the undersigned from the
staff of the Commission, to the effect that the restrictions imposed by Rule 145
under the Act no longer apply to the undersigned.

Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of the Company as
described in the first paragraph of this letter or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.

Very truly yours,

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

Agreed to and Accepted this
- ----- day of ----------, ----

ZILOG, INC.

By:-------------------------------

Name:-----------------------------

A-39
<PAGE> 115
ANNEX B

STOCKHOLDERS VOTING AGREEMENT
(AS AMENDED)

STOCKHOLDERS VOTING AGREEMENT (this "AGREEMENT") dated as of July 20, 1997
(and amended as of November 18, 1997), among TPG Partners II, L.P, ("PARENT"),
on the one hand, and Warburg, Pincus Capital Company, L.P. and Warburg, Pincus &
Co. (each a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS"), on the other
hand.

WHEREAS Parent, TPG and Zilog, Inc., a Delaware corporation (the
"COMPANY"), propose to enter into an Agreement and Plan of Merger dated as of
the date hereof (as the same may be amended or supplemented, the "MERGER
AGREEMENT"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement) providing for the merger (the
"MERGER") of a to-be formed Delaware corporation and wholly owned subsidiary of
Parent ("SUB") with and into the Company with the Company being the surviving
corporation (hereinafter sometimes referred to as the "SURVIVING CORPORATION"),
upon the terms and subject to the conditions set forth in the Merger Agreement;

WHEREAS each Stockholder owns beneficially and (except as set forth on
Schedule A attached hereto) of record the number of shares of Common Stock, par
value $.01 per share, of the Company (the "COMMON STOCK") set forth opposite its
name on Schedule A attached hereto (such shares of Common Stock, together with
any other shares of capital stock of the Company acquired (including, without
limitation, through the exercise of any option or by reason of any split,
reclassification, stock dividend or other distribution with respect to the
capital stock of the Company) by such Stockholder after the date hereof and
during the term of this Agreement, being collectively referred to herein as the
"SUBJECT SHARES");

WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has required that each Stockholder enter into this Agreement.

NOW, THEREFORE, to induce Parent to enter into, and in consideration of
its entering into, the Merger Agreement, and in consideration of the premises
and the representations, warranties and agreements contained herein, the parties
agree as follows:

1. Representations and Warranties of each Stockholder. Each Stockholder
hereby, severally and not jointly, represents and warrants to Parent as of the
date hereof in respect of itself as follows:

(a) Authority. The Stockholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Stockholder (or in the case of a Stockholder which is a partnership, by a
general partner on behalf of such partnership) and constitutes a valid and
binding obligation of the Stockholder enforceable in accordance with its terms,
except that such enforceability (i) may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the terms hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under any provision of, any trust agreement,
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license, judgment, order,
notice, decree, statute, law, ordinance, rule or regulation applicable to the
Stockholder or to the Stockholder's property or assets the effect of which, in
any case, would be material and adverse to the ability of the Stockholder to
consummate the transactions contemplated hereby or to comply with the terms
hereof.

B-1
<PAGE> 116
interests whatsoever. The Stockholder does not own, of record or beneficially,
any shares of capital stock of the Company other than the Subject Shares set
forth opposite such Stockholder's name on Schedule A attached hereto. The
Stockholder has the sole right to vote such Subject Shares, and none of such
Subject Shares is subject to any voting trust or other agreement, arrangement or
restriction with respect to the voting of such Subject Shares, except as
contemplated by this Agreement.

2. Representations and Warranties of Parent. Parent hereby represents
and warrants to each Stockholder that Parent has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent, and
the consummation of the transactions contemplated hereby, have been duly
authorized by all necessary action on the part of Parent. This Agreement has
been duly executed and delivered by Parent and constitutes a valid and binding
obligation of Parent enforceable in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of, any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, notice,
decree, statute, law, ordinance, rule or regulation applicable to Parent or to
Parent's property or assets the effect of which, in any case, would be material
and adverse to the ability of Parent to consummate the transactions contemplated
hereby or to comply with the terms hereof.

3. Covenants of each Stockholder. Until the termination of this
Agreement in accordance with Section 8, each Stockholder, severally and not
jointly, agrees as follows:

(a) Vote for the Merger. At any meeting of stockholders of the Company
called to vote upon the Merger and the Merger Agreement or at any adjournment
thereof or in any other circumstances upon which a vote, consent or other
approval (including by written consent) with respect to the Merger and the
Merger Agreement is sought, the Stockholder shall vote (or cause to be voted),
or execute a written consent in respect of, the Subject Shares in favor of the
Merger, the adoption by the Company of the Merger Agreement and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement. The Stockholder hereby waives any appraisal rights granted pursuant
to Section 262 of the General Corporation Law of the State of Delaware (the
"DGCL") (or any successor provision) to which it may otherwise be entitled as a
result of the Merger or the other transactions contemplated by the Merger
Agreement.

(b) Vote Against Takeover Proposals. At any meeting of stockholders of
the Company or at any adjournment thereof or in any other circumstances upon
which the Stockholder's vote, consent or other approval is sought, the
Stockholder shall be present (in person or by proxy) and shall vote (or cause to
be voted) the Subject Shares against (and shall not execute any written consent
in favor of) (i) any merger agreement or merger (other than the Merger Agreement
and the Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by the Company or any other Takeover Proposal or (ii) any amendment of the
Company's certificate of incorporation or by-laws or other proposal or
transaction involving the Company or any of its subsidiaries, which amendment or
other proposal or transaction would in any manner impede, frustrate, delay,
prevent or nullify the Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement. The Stockholder further
agrees not to commit or agree to take any action inconsistent with the
foregoing.

(c) Transfer of Subject Shares. Except pursuant to this Agreement and
except as provided in the immediately succeeding sentence of this Section 3(c),
the Stockholder agrees not to (i) transfer, sell, pledge, assign or otherwise
dispose of (including by gift) (collectively, "TRANSFER"), or enter into any
contract, option or other arrangement (including any profit sharing arrangement)
with respect to the Transfer of, any of the Subject Shares to any person other
than pursuant to the terms of the Merger or (ii) enter into any voting
arrangement, whether by proxy, power-of-attorney, voting agreement, voting trust
or otherwise, in connection with, directly or indirectly, any Takeover Proposal,
and agrees not to commit or agree to take any of the foregoing actions.

B-2
<PAGE> 117
(d) No Solicitation. During the term of this Agreement, the Stockholder
shall not (i) directly or indirectly solicit, initiate or encourage the
submission of, any Takeover Proposal or (ii) directly or indirectly participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal.

(f) The Stockholders shall each execute and deliver an "affiliate
letter" in the form attached as an exhibit to the Merger Agreement as
contemplated by the Merger Agreement.

4. Election to Retain Company Stock and Stockholders Agreement.
Warburg, Pincus Capital Company, L.P. hereby agrees that it will make and not
revoke an effective Non-Cash Election with respect to and otherwise cause the
Requisite Number (subject to adjustment in accordance with Section 2.4 of the
Merger Agreement) of Subject Shares to be "Electing Shares" under the Merger
Agreement. For purposes of this Agreement, the "REQUISITE NUMBER" shall mean
375,000 less the aggregate number of Electing Shares, if any, held by holders of
Shares other than Warburg, Pincus Capital Company, L.P.; provided, however, that
in no event shall the Requisite Number be less than zero. Parent shall cause the
Exchange Agent to provide Warburg, Pincus Capital Company, L.P., Parent and the
Company with the information necessary as of the Election Date to determine the
Requisite Number and to permit Warburg, Pincus Capital Company, L.P. to make the
Non-Cash Election called for hereby. Each of the Stockholders hereby agrees
that, except for the election required to be made by Warburg, Pincus Capital
Company, L.P., neither Stockholder will make a Non-Cash Election with respect to
any of the Subject Shares. Prior to the Effective Time, each of Warburg, Pincus
Capital Company, L.P. and Parent agrees that it and the Company will enter into
a Stockholders Agreement consistent with the provisions of Schedule B hereto
(all of the material terms of which are summarized therein).

5. Grant of Irrevocable Proxy.

(a) Existing Proxies Revoked. The Stockholders represent that any
proxies heretofore given in respect of the Subject Shares are not irrevocable,
and that any such proxies are hereby revoked.

(b) Grant of Irrevocable Proxy to Parent. Upon Parent's request, each
Stockholder hereby agrees to irrevocably grant to, and appoint, Parent, and any
person who may hereafter be designated by Parent as permitted under applicable
law, and each of them individually, the Stockholder's proxy and attorney-in-fact
(with full power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Stockholder's Subject Shares, or grant a consent or
approval in respect of such Subject Shares, in favor of or against, as the case
may be, the matters set forth in Sections 3(a) and 3(b), and to execute and
deliver an appropriate instrument irrevocably granting such proxy. The proxy
granted herein shall terminate upon any termination of this Agreement in
accordance with its terms.

(c) Affirmations. Each Stockholder hereby affirms that any irrevocable
proxy granted pursuant to Section 5(b) will be given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy will be given
to secure the performance of the duties of the Stockholder under this Agreement.
If so granted, the Stockholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue thereof. Such
irrevocable proxy, if and when executed, is intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL.

6. Further Assurances. Each Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Parent may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.

7. Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties, except that Parent may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent or Sub or
to any affiliate of Parent or Sub. Subject to the preceding sentence, this

B-3
<PAGE> 118
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.

8. Termination. This Agreement shall terminate upon the earlier of (a)
the termination of the Merger Agreement (for any reason, including a termination
pursuant to Section 8.1(d) or Section 8.1(e) thereof) and (b) the Effective Time
of the Merger.

9. General Provisions.

(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.

(b) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to Parent
in accordance with the notification provision contained in the Merger Agreement
and to the Stockholders at their respective addresses set forth on Schedule A
attached hereto (or at such other address for a party as shall be specified by
like notice).

(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".

(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
each party need not sign the same counterpart.

(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
and other than Sub, which is an express beneficiary of this Agreement, any
rights or remedies hereunder.

(f) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.

(g) Severability. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law, and the parties hereto shall
reasonably negotiate in good faith a substitute term or provision that comes as
close as possible to the invalidated and unenforceable term or provision, and
that puts each party in a position as nearly comparable as possible to the
position each such party would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.

10. Stockholder Representatives. Each Stockholder signs solely in its
capacity as the record holder and beneficial owner of, or the general partner of
a partnership which is the beneficial owner of, such Stockholder's Subject
Shares and nothing contained herein shall limit or affect any actions taken by
any officer, director, partner, affiliate or representative of a Stockholder who
is or becomes an officer or a director of the Company in his or her capacity as
an officer or director of the Company and none of such actions in such capacity
shall be deemed to constitute a breach of this Agreement.

B-4
<PAGE> 119
11. Enforcement. The parties agree, and the beneficiaries of each trust
which is a party hereto have agreed, that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in a Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit such party to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will not
bring any action relating to this Agreement or the transactions contemplated
hereby in any court other than a Federal court sitting in the state of Delaware
or a Delaware state court, (iv) waives any right to trial by jury with respect
to any claim or proceeding related to or arising out of this Agreement or any of
the transactions contemplated hereby, and (v) appoints The Corporation Trust
Company as such party's agent for service of process in the state of Delaware.

IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.

TPG PARTNERS II, L.P.

By: TPG GenPar II, L.P., its General Partner,

By: TPG Advisors II, Inc., its General Partner

By: /s/ DAVID M. STANTON
----------------------------------------
David M. Stanton
Vice-President

STOCKHOLDERS:

WARBURG, PINCUS CAPITAL COMPANY, L.P.

By: Warburg, Pincus & Co.,
its General Partner,

By: /s/ WILLIAM H. JANEWAY
----------------------------------------
William H. Janeway
A General Partner

WARBURG, PINCUS & CO.

By: /s/ WILLIAM H. JANEWAY
----------------------------------------
William H. Janeway
A General Partner

B-5
<PAGE> 120
SCHEDULE A

<TABLE>
<CAPTION>
Shares of
Name Common Stock
- ---- ------------
<S> <C>

WARBURG, PINCUS CAPITAL COMPANY, L.P. 5,378,004
466 Lexington Avenue
New York, New York 10017

WARBURG, PINCUS & CO 99,500
466 Lexington Avenue
New York, New York 10017.
---------

Total 5,477,504
=========
</TABLE>

B-6
<PAGE> 121
SCHEDULE B

SUMMARY OF PRINCIPAL TERMS
OF
SHAREHOLDERS AGREEMENT

PARTIES The Company, TPG Partners II, L.P., together
with its affiliates ("TPG"), Warburg, Pincus
Capital Company, L.P. ("Warburg") and other
shareholders who receive Shares in the Merger
(the "Investors").

RIGHT OF FIRST OFFER Warburg and the Investors will grant to the
Company (or an affiliate thereof) a right of
first offer with respect to any proposed sales
by them of Shares. Reasonable and customary
procedures concerning this right of first offer
will be set forth in the Shareholders
Agreement.

RIGHT TO CAUSE SALE If TPG decides to sell all of its remaining
Shares received in the Merger (other than a
sale to an affiliate), and holds at that time
(prior to giving effect of the proposed sale)
more than 40% of such Shares, then TPG shall
have the right to require Warburg and the
Investors to sell their remaining Shares as
part of that sale on the same price and terms
(or to vote in favor of any merger or other
transaction which would effect such a sale).

RIGHT TO PARTICIPATE IN In the event that, during the period beginning
SALE immediately after the closing of the Merger and
ending upon a Public Offering, TPG holds 40% or
more of the voting power of the Company and
proposes to engage in a sale of equity
interests which would result in a transfer of
40% or more of the voting power of the Company
to an unaffiliated purchaser, then Warburg and
the Investors shall have the right to
participate pro rata in such sale transaction
on the same price and terms as TPG. (As used
herein, "Public Offering" shall mean a
registered offering of equity securities of the
Company or an institutional private placement
or 144A offering of such equity securities with
or without registration rights.)

REGISTRATION RIGHTS In the Shareholders Agreement (or by separate
registration rights agreement) the Company will
grant to Warburg and the Investors "piggyback"
registration rights at the Company's expense
(other than underwriting discounts and selling
commissions), with customary provisions
regarding notice of intent to file a
registration statement, cutbacks in the event
of an underwritten offering, indemnification
and other customary provisions.

Warburg and the Investors will, if requested by
the underwriters for an underwritten public
offering of equity securities of the Company,
agree not to sell or transfer any equity
securities of the Company (other than equity
securities, if any, including in such
offering), without the consent of the
underwriters, for a period of not more than 180
days following effectiveness of the
registration statement relating to a Public
Offering.

FACILITATION OF If a Public Offering shall have not occurred
DISPOSITION within five years of the Closing of the Merger,
the Company will reimburse Warburg for the cost
of investment banking fees, in an amount not to
exceed $50,000, in connection with an analysis
of Warburg's ownership position and disposition
strategies.

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AFFILIATE TRANSACTIONS The Shareholders Agreement will provide that
agreements or transactions between the Company
and TPG or any of its affiliates shall require
the prior approval of the holders of a majority
of the voting common stock of the Company
(excluding stock held by TPG and its
affiliates) other than agreements or
transactions which are on arms-length terms or
consulting fees with terms which are customary
as between TPG and its portfolio companies.

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ANNEX C

FORM OF

STOCKHOLDERS' AGREEMENT

by and among

ZILOG, INC.,

TPG PARTNERS II, L.P.,

TPG INVESTORS II, L.P.,

TPG PARALLEL II, L.P.,

WARBURG, PINCUS CAPITAL COMPANY, L.P.

and

CERTAIN OTHER STOCKHOLDERS of ZILOG, INC.

dated as of , 1998
-----------

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TABLE OF CONTENTS

ARTICLE I.................................................................................................C-1
SECTION 1.01 Definitions.......................................................................C-1
SECTION 1.02 Interpretation....................................................................C-4

ARTICLE II................................................................................................C-4
SECTION 2.01 General Prohibition on Transfers of Securities....................................C-4
SECTION 2.02 Permitted Transfers by TPG........................................................C-4
SECTION 2.03 Permitted Transfers by Retaining Stockholders.....................................C-5
SECTION 2.04 Tag-Along Rights..................................................................C-6
SECTION 2.05 Drag-Along Rights.................................................................C-7
SECTION 2.06 Transfer Costs; Closing...........................................................C-7
SECTION 2.07 Restrictive Legend................................................................C-8

ARTICLE III...............................................................................................C-8
SECTION 3.01 Piggy Back Registration...........................................................C-8
SECTION 3.02 Registration Procedures...........................................................C-9
SECTION 3.03 Indemnification; Contribution....................................................C-11

ARTICLE IV...............................................................................................C-13
SECTION 4.01 Transactions with Affiliates; Disposition of Warburg Shares......................C-13
SECTION 4.02 Conflict with Certificate and/or Bylaws..........................................C-13
SECTION 4.03 Amendment........................................................................C-13
SECTION 4.04 Specific Performance.............................................................C-13
SECTION 4.05 Successors and Assigns...........................................................C-13
SECTION 4.06 Shares Subject to this Agreement.................................................C-14
SECTION 4.07 Notices..........................................................................C-14
SECTION 4.08 Complete Agreement; Counterparts.................................................C-15
SECTION 4.09 Term of the Agreement............................................................C-15
SECTION 4.10 Headings.........................................................................C-15
SECTION 4.11 Choice of Law....................................................................C-15
SECTION 4.12 Consent by TPG and by the Retaining Stockholders.................................C-15
SECTION 4.13 Effectiveness of Agreement.......................................................C-16
</TABLE>

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STOCKHOLDERS' AGREEMENT

THIS STOCKHOLDERS' AGREEMENT (the "Agreement"), dated as of ,
-----------
1998, by and among ZILOG, INC. (the "Company"), TPG PARTNERS II, L.P. ("TPG
Partners"), TPG INVESTORS II, L.P., TPG PARALLEL II, L.P. (TPG Investors II,
L.P., TPG Parallel II, L.P. and TPG Partners, each a "member" of, and
collectively referred to as, "TPG"), WARBURG, PINCUS CAPITAL COMPANY, L.P.
("Warburg") and each of the individuals or entities that are (or are deemed to
be) or become signatories hereto (Warburg and each of such other individuals or
entities are collectively referred to herein as the "Retaining Stockholders").
TPG and the Retaining Stockholders are referred to herein collectively as the
"Stockholders" and individually as a "Stockholder".

WHEREAS, TPG Partners and the Company have entered into an Agreement and
Plan of Merger dated as of July 20, 1997 (as the same may be amended or
supplemented, the "Merger Agreement") providing for the merger (the "Merger") of
TPG Zeus Acquisition Corporation, a subsidiary of TPG Partners, with and into
the Company with the Company being the surviving corporation (hereinafter
sometimes referred to as the "Surviving Corporation"), upon the terms and
subject to the conditions set forth in the Merger Agreement;

WHEREAS, following the consummation of the Merger, the Stockholders will
own all of the issued and outstanding shares of voting common stock of the
Company; and

WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of agreeing to certain aspects of their continuing relationship as
Stockholders after the consummation of the Merger;

WHEREAS, this Agreement is not effective unless and until the Closing has
occurred;

NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
covenants and agreements of the parties hereto, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
subject to the conditions hereof, the parties hereto agree as follows:

ARTICLE I

SECTION 1.01 Definitions. In addition to the terms defined herein, for
purposes of this Agreement, the following terms shall have the meanings
specified below. Capitalized terms used but not defined herein having the
meanings set forth in the Merger Agreement.

"100% Affiliate" shall mean (i) when used with reference to any entity,
(A) any partnership of which one hundred percent (100%) of either the capital or
profit interests of such partnership is directly or indirectly owned or
controlled by such entity or (B) any corporation or limited liability company of
which one hundred percent (100%) of the outstanding voting securities or member
interests of such corporation is, directly or indirectly, owned or controlled by
such entity; and (ii) when used with respect to any natural person, any trust
created for the benefit of such person and/or members of such person's family.

"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person; "control" when used with respect to any Person means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities or by contract or otherwise; and the term "voting securities"

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means securities or interests entitling the holder thereof to vote or designate
directors or individuals performing a similar function.

"Agreement" has the meaning ascribed to it in the preamble hereto.

"Applicable Amount" has the meaning ascribed to it in Section 2.04(a)
hereof.

"Board" means the Board of Directors of the Company.

"Bona Fide Offer" means with respect to an offer from a Person pursuant to
Section 2.03(c) or 2.05, an offer (i) from a Person who (A) makes such offer in
good faith, (B) is not an Affiliate of the Person receiving the offer and (C)
has the financial capability to purchase the Shares pursuant to the offer and
(ii) whose terms do not conflict with the provisions of this Agreement.

"Certificate" shall mean the certificate of incorporation of the Company
as amended in accordance with the Merger Agreement and in effect immediately
following the Effective Time.

"Closing" means the consummation of the Merger.

"Closing Date" means the date on which the Closing occurs.

"Common Stock" shall mean the voting common stock, par value $.01 per
share, of the Company.

"Company" has the meaning ascribed to it in the preamble hereto.

"Drag-Along Notice" means a written notice delivered to the Retaining
Stockholders by TPG pursuant to Section 2.05 hereof pursuant to which each of
the Retaining Stockholders shall transfer all of its respective Shares to a
Person making a Bona Fide Offer. Such notice shall include, without limitation,
the identity of such Person, the price and other material terms and conditions
of the proposed transfer, the closing date of the proposed transfer and, if
applicable, TPG's valuation of any non-cash consideration to be received by TPG
and the Retaining Stockholders pursuant to such proposed transfer.

"Electing Stockholder" means, depending upon the context used, a Retaining
Stockholder who has delivered an Election Notice pursuant to Section 2.04(a)
hereof or a Retaining Stockholder who has sold its Shares to a Prospective
Purchaser pursuant to Section 2.04(b) hereof.

"Election Notice" has the meaning ascribed to it in Section 2.04(a)
hereof.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.

"Initial Public Offering" has the meaning ascribed to it in Section
2.04(a) hereof.

"Merger" has the meaning ascribed to it in the recitals.

"NASDAQ" has the meaning ascribed to it in Section 3.02(a)(ix) hereof.

"Notice Date" has the meaning ascribed to it in Section 2.03(c) hereof.

"Notice of Offer" has the meaning ascribed to it in Section 2.03(c)
hereof.

"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or any other entity
or any government or political subdivision or an agency, department or
instrumentality thereof.

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"Prospective Purchaser" has the meaning ascribed to it in Section 2.04(a)
hereof.

"Registrable Securities" means (i) the Shares and (ii) any shares of
common stock of the Company issued or issuable by way of stock dividend or other
distribution or stock split or in connection with a combination, exchange or
replacement of Shares, recapitalization, merger, consolidation or other
reorganization or otherwise with respect to Registrable Securities. Registrable
Securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the 1933 Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) such securities shall have
been distributed by a Person pursuant to a Rule 144 Sale or Rule 144(k) Sale or
(iii) such securities shall have been otherwise transferred and new certificates
therefor not bearing a legend restricting further transfer shall have been
delivered by the Company.

"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Article III including, without limitation, all
registration and filing fees, all fees and expenses of complying with securities
or blue sky laws, all printing expenses, the reasonable fees and disbursements
of counsel for the Company and of its independent public accountants, including
the expenses of any special audits required by or incident to such performance
and compliance, but excluding (i) any allocation of salaries of personnel of the
Stockholders on whose behalf Registrable Securities are being registered or
other general overhead expenses of such Stockholders or other expenses for the
preparation of financial statements or other data prepared by such Stockholders,
(ii) any fees or expenses of legal counsel (other than the reasonable and
documented fees and expenses of one special counsel for all of the Stockholders
requesting Registrable Securities to be included in each registration statement
pursuant to Section 3.01 hereof), financial advisors, accountants or other
consultants or advisors engaged by the Stockholders on whose behalf Registrable
Securities are being registered, and (iii) underwriting fees, discounts and
commissions and applicable transfer taxes, if any, applicable to the sale of
Registrable Securities which shall be borne in all cases by the Stockholder or
Stockholders on whose behalf Registrable Securities are being sold.

"Retaining Affiliate" has the meaning ascribed to it in Section 2.03(a)
hereof.

"Retaining Stockholders" has the meaning ascribed to it in the preamble
hereto.

"Rule 144 Sale" means a sale (other than a Rule 144(k) Sale) pursuant to,
and in compliance with, Rule 144 of the 1933 Act, as such rule may be amended
from time to time or any similar rule or regulation enacted after the date of
this Agreement.

"Rule 144(k) Sale" means a sale pursuant to, and in compliance with, Rule
144(k) of the 1933 Act, as such rule may be amended from time to time, or any
similar provision, rule or regulation enacted after the date of this Agreement
which, upon compliance with its non-affiliate and holding period requirements,
terminates the volume, manner or other restrictions set forth in Rule 144 of the
1933 Act.

"SEC" means the Securities and Exchange Commission.

"Shares" means all of the issued and outstanding shares of Common Stock
and Class A non-voting common stock, par value $.01 per share, of the Company.

"Stockholder" has the meaning ascribed to it in the preamble hereto.

"Subsidiary" means, with respect to any Person, any other Person of which
a majority of the outstanding voting securities or ownership interests is owned,
directly or indirectly, by such Person.

"Tag-Along Notice" has the meaning ascribed to it in Section 2.04(a)
hereof.

"Tag-Along Rights" means the rights of the Retaining Stockholders pursuant
to Section 2.04.

"TPG" has the meaning ascribed to it in the preamble hereto.

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"TPG Partners" has the meaning ascribed to it in the preamble hereto.

"Warburg" has the meaning ascribed to it in the preamble hereto.

SECTION 1.02 Interpretation. For all purposes of this Agreement, except as
otherwise expressly provided herein or unless the context otherwise requires:

(a) the terms defined in this Article I or elsewhere in this Agreement
have the meanings assigned to them in this Article I or elsewhere in this
Agreement and include the plural as well as the singular and vice-versa;

(b) words importing neuter or gender include all genders;

(c) any reference to an "Article", a "Section", an "Exhibit" or a
"Schedule" refers to an Article, a Section, an Exhibit or a Schedule, as the
case may be, of this Agreement;

(d) all references to this Agreement and the words "herein", "hereof",
"hereto", and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section, Exhibit,
Schedule or other subdivision;

(e) any references to agreements or contracts, including this Agreement,
shall mean such agreements or contracts together with all exhibits, schedules,
appendices and attachments thereto and as such agreements or contracts may be
amended, restated, supplemented or otherwise modified from time to time; and

(f) the determination of whether a Person is a "beneficial owner," has
"beneficial ownership" or "beneficially owns" Shares or any other securities
shall be made in accordance with Rule 13d-3 of the 1934 Act.

ARTICLE II

TRANSFER RESTRICTIONS

SECTION 2.01 General Prohibition on Transfers of Securities. No Retaining
Stockholder shall, directly or indirectly, sell, assign, pledge, hypothecate,
encumber or otherwise dispose (voluntarily or involuntarily) of any Shares or
any interest therein beneficially owned by it (all of which acts shall be deemed
included in the term "transfer" as used in this Agreement) unless (i) such
transfer is expressly permitted by, and made in compliance with, the terms of
Sections 2.03, 2.04, 2.05 or 3.01, or (ii) such transfer is made to a member of
TPG or one or more of TPG's Affiliates. Any transfer in violation of such
restrictions shall be void and ineffectual and shall not operate to transfer any
interest of title in the Shares so transferred to the proposed transferee. If,
notwithstanding the immediately preceding sentence, any such transfer is held by
a court of competent jurisdiction to be effective, then the provisions of this
Agreement shall apply to the transferee and to any subsequent transferee as
fully as if such transferee were a party hereto.

SECTION 2.02 Permitted Transfers by TPG. Each member of TPG may, at any
time and from time to time after the Closing Date, transfer (voluntarily or
involuntarily) any Shares or any interest therein beneficially owned by it to
any Person (including any of its Affiliates) free and clear of any restrictions
set forth in this Agreement, subject only to the obligations of such member of
TPG under the second sentence of this Section 2.02 and under Section 2.04 of
this Agreement. In the event any member of TPG transfers any Shares or any
interest therein beneficially owned by it to an Affiliate of TPG (a "TPG
Transferee"), then such member of TPG shall remain liable for such TPG
Transferee's failure to perform its obligations under this Agreement with
respect to such transferred Shares, such TPG Transferee shall take such Shares
subject to all the provisions of this Agreement, and prior to such transfer,
such TPG Transferee shall (a) execute and deliver to the Company (i) a written
agreement, satisfactory in substance and form to the Company, assuming all of
the obligations (including, without limitation, the obligations set forth in
Section 2.04) of such member of TPG under this Agreement with respect to such
transferred Shares and (ii) such other documents as may be reasonably necessary,
in the opinion of the Company,

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to assume such obligations, and (b) agree that it will not cease to be an
Affiliate of TPG unless prior to the time such TPG Transferee ceases to be an
Affiliate of TPG, such TPG Transferee transfers to such member of TPG all Shares
owned by such TPG Transferee.

SECTION 2.03 Permitted Transfers by Retaining Stockholders.
Notwithstanding the provisions of Section 2.01 and without first offering its
Shares to TPG as contemplated by Section 2.03(c), any Retaining Stockholder may
transfer the Shares beneficially owned by it to a 100% Affiliate of such
Retaining Stockholder (a "Retaining Affiliate"); provided, that such Retaining
Stockholder shall remain liable for such Retaining Affiliate's failure to
perform its obligations under this Agreement with respect to such transferred
Shares, such Retaining Affiliate shall take such Shares subject to all the
provisions of this Agreement, and prior to such transfer such Retaining
Affiliate shall (i) execute and deliver to the Company and TPG (x) a written
agreement, satisfactory in substance and form to TPG, assuming all of the
obligations (including, without limitation, the obligations set forth in Section
2.05) of such Retaining Stockholder under this Agreement with respect to such
transferred Shares and (y) such other documents as may be reasonably necessary,
in the opinion of TPG, to assume such obligations, and (ii) agree that it will
not cease to be a 100% Affiliate of such Retaining Stockholder unless prior to
the time such Retaining Affiliate ceases to be a 100% Affiliate of such
Retaining Stockholder, such Retaining Affiliate transfers to such Retaining
Stockholder all Shares owned by such Retaining Affiliate.

Notwithstanding the provisions of Section 2.01 and without first offering
its Shares to TPG as contemplated by Section 2.03(c), any Retaining Stockholder
may, at any time after the Closing Date, pledge, hypothecate or encumber any
Shares beneficially owned by it to a financial institution; provided that the
pledgee (and any subsequent transferee) agrees in writing to execute and deliver
to the Company and TPG (i) a written agreement, satisfactory in substance and
form to TPG, assuming all of the obligations (including, without limitation, the
obligations set forth in Section 2.05) of such Stockholder under this Agreement
with respect to such Shares and (ii) such other documents as may be reasonably
necessary, in the opinion of TPG, to assume such obligations.

Notwithstanding the provisions of Section 2.01 but on the terms and
subject to the conditions set forth below in this Section 2.03(c) (including the
last sentence of this Section 2.03(c)), each Retaining Stockholder may transfer
all or a portion of its Shares to a third party pursuant to a Bona Fide Offer.
If at any time after the Closing Date, a Retaining Stockholder desires to
transfer all or a portion of the Shares owned by it to a third party, such
Retaining Stockholder shall give prompt written notice (a "Notice of Offer") to
the Company and TPG, which notice shall contain the proposed purchase price for
the Shares being offered, the proposed closing date for such transfer, the
number of Shares which the Retaining Stockholder proposes to transfer and any
other material term or condition of the transfer. If a Retaining Stockholder has
received any written offer to purchase all or a portion of the Shares owned by
it, the Notice of Offer shall also contain a true and complete copy of such
offer. The date on which such notice is actually received by the Company and TPG
is referred to hereinafter as the "Notice Date." The Notice of Offer shall be
deemed an irrevocable offer to sell to TPG (or any Person designated by TPG)
such Shares on the terms and conditions set forth in the Notice of Offer. TPG
shall have 20 days following the Notice Date to notify in writing the Retaining
Stockholder of its election to purchase such Shares (or to have such Shares
purchased by its designee). If TPG notifies the Retaining Stockholder of its
election to purchase such Shares, the closing for such transaction shall take
place in accordance with the terms of Section 2.06 but in any event no earlier
than 45 days from the date of the Notice of Offer, provided that if the proposed
transfer by the Retaining Stockholder to the third party provides for the
payment of non-cash consideration, TPG may in its discretion, in lieu thereof,
pay the Retaining Stockholder in cash the fair market value of such non-cash
consideration (which fair market value shall be determined by TPG if such
Retaining Stockholder, in its sole discretion, agrees with such determination
or, in the absence of such agreement, by an independent investment bank selected
jointly by TPG and such Retaining Stockholder (or if there is no agreement as to
the selection of the independent investment bank, by an independent investment
bank selected by lot from among six such investment banks selected by TPG)). If
the Retaining Stockholder does not receive such written notice from TPG within
the 20 day period, TPG shall be deemed to have declined to purchase such Shares
and the Retaining Stockholder may transfer all, but not less than all, of the
Shares indicated in the Notice of Offer upon the terms and conditions set forth
therein; provided that as a condition to such transfer, the transferee shall
execute and deliver to the Company and TPG (i) a written agreement, satisfactory
in substance and form to TPG, assuming all of the obligations (including,
without limitation, the obligations set forth in Section 2.05) of such Retaining
Stockholder under this Agreement with respect to such transferred Shares and
(ii)

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such other documents as may be reasonably necessary, in the opinion of TPG, to
assume such obligations; provided further that, if the Retaining Stockholder
does not complete the contemplated sale within 90 days of the Notice Date, the
provisions of this Section 2.03(c) shall again apply, and no transfer of Shares
shall be made otherwise than in accordance with this Agreement. Notwithstanding
anything herein to the contrary, the terms and conditions of this Section
2.03(c) do not apply to transfers by any Retaining Stockholder pursuant to
Section 2.03(a), Section 2.03(b), 2.04, 2.05, Section 3.01 or in connection with
any merger or business combination of the Company approved by the Board.

SECTION 2.04 Tag-Along Rights. Notwithstanding the provisions of Section
2.01 and without first offering its Shares to TPG as contemplated by Section
2.03(c), in the event that at any time after the Closing Date and prior to the
completion of an initial public offering of any of the Shares (the "Initial
Public Offering") TPG reaches a binding agreement with a Person to sell all or a
portion of its Shares that would result in any Person (together with its
Affiliates) unaffiliated with TPG holding 40% or more of the voting power of the
Company, TPG shall cause the prospective purchaser ("Prospective Purchaser"),
subject to the terms and conditions set forth in this Section 2.04 and subject
further to the terms and conditions set forth in Section 2.05, which terms and
conditions shall control in the event that TPG is proposing to sell all of its
shares of Common Stock, to purchase from each Electing Stockholder (in lieu of
purchasing from TPG) that number of shares of Common Stock then owned by such
Electing Stockholder that equals the product of (1) the number of shares of
Common Stock then owned by such Electing Stockholder multiplied by (2) a
fraction, the numerator of which equals the number of shares of Common Stock to
be purchased by the Prospective Purchaser from TPG and the denominator of which
equals the total number of shares of Common Stock then owned by TPG (the
"Applicable Amount"). TPG shall notify promptly each of the Retaining
Stockholders in writing of any such binding agreement, indicating the price and
other material terms and conditions of the proposed sale, the identity of the
Prospective Purchaser, the intended closing date of such sale, the percentage of
issued and outstanding shares of Common Stock being sold by TPG and the
Applicable Amount of shares of Common Stock of each Retaining Stockholder that
may be sold by such Retaining Stockholder pursuant to this Section 2.04(a) (the
"Tag-Along Notice") and shall provide a copy of such binding agreement to each
of the Retaining Stockholders. Any purchase by the Prospective Purchaser of the
Applicable Amount of shares of Common Stock of any Electing Stockholder shall be
at the same consideration per share of Common Stock and on the same terms and
conditions as are applicable to TPG in such transaction. Each of the Retaining
Stockholders will have 20 days from receipt of the Tag-Along Notice (or any
amendment or supplement thereto) to notify TPG in writing of its election to
exercise its Tag-Along Rights (an "Election Notice") and to exercise its
Tag-Along Rights pursuant to this Section 2.04. In the event that a Retaining
Stockholder notifies TPG in writing of its election to exercise Tag- Along
Rights within 20 days of the receipt of a Tag-Along Notice and such Retaining
Stockholder subsequently receives an amendment or supplement to such Tag-Along
Notice from TPG, such Retaining Stockholder shall be able to withdraw its
previously given election to exercise Tag-Along Rights by giving written notice
to TPG within 20 days of the receipt of such amendment or supplement. In the
event TPG does not receive an Election Notice from any of the Retaining
Stockholders within 20 days of receipt of the Tag-Along Notice (or any amendment
or supplement thereto), such Person shall be deemed to have elected not to
exercise its Tag-Along Rights hereunder. Notwithstanding anything to the
contrary contained herein, (i) TPG shall not be obligated to cause a Prospective
Purchaser to purchase any Retaining Stockholders' shares of Common Stock
hereunder if at the time of such sale (but prior to giving effect thereto) TPG
beneficially owns less than 40% of the voting power of the Company and (ii) TPG
shall not be obligated to consummate the transfer of shares of Common Stock
contemplated by an agreement between TPG and a Prospective Purchaser if,
pursuant to the terms and conditions of such agreement, TPG is not obligated to
do so and, in the event TPG elects not to consummate a transfer which it is not
obligated to consummate as provided in this clause (ii), TPG shall have no
liability to any Retaining Stockholder (which term includes, without limitation,
any Electing Stockholder).

The closing of the sale of TPG's shares of Common Stock to the Prospective
Purchaser hereunder shall be conditioned on the simultaneous purchase by the
Prospective Purchaser of the Applicable Amount of shares of Common Stock from
each Electing Stockholder. Notwithstanding the foregoing, in the event any
Electing Stockholder breaches any obligation it may have under this Section 2.04
or, in the event that any representation and warranty of any Electing
Stockholder contained in the purchase agreement with the Prospective Purchaser
is not true and correct as of the date made or as of the proposed closing date
or the Electing Stockholder shall fail to perform any covenant or agreement
contained in such agreement or the Electing Stockholder shall otherwise breach
its

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obligations under such agreement and, in each case, such misrepresentation,
breach or failure to perform such covenant or agreement results in the
nonsatisfaction of a condition precedent to such agreement (and the Prospective
Purchaser does not waive such condition precedent), TPG shall be free to sell
its Shares to the Prospective Purchaser without liability to the Electing
Stockholder under this Agreement and such sale shall not limit or waive in any
respect any claim, right or cause of action that TPG may have against such
Electing Stockholder in respect of such breach.

SECTION 2.05 Drag-Along Rights. Notwithstanding the provisions of Section
2.01 and without first offering its shares of Common Stock to TPG as
contemplated by Section 2.03(c), if TPG executes a binding agreement to transfer
all of its shares of Common Stock to a Person making a Bona Fide Offer, then
each of the Retaining Stockholders shall transfer, subject to the terms and
conditions set forth below, at the sole election of TPG (exercisable by delivery
to each of the Retaining Stockholders of a copy of such binding agreement and a
Drag- Along Notice at least 20 days prior to the closing date specified in such
Notice), all of its shares of Common Stock to such Person; provided that (i)
each of the Retaining Stockholders shall receive from such Person the same per
share consideration to be paid to TPG in such transaction, (ii) the
consideration received in such transaction shall be the same as the
consideration to be paid to TPG in such transaction and (iii) the closing of any
transaction effected pursuant to this Section 2.05 shall be conditioned on the
simultaneous purchase of TPG's shares of Common Stock; and provided, further,
that the Retaining Stockholders shall not be obligated to transfer their shares
of Common Stock pursuant to this Section 2.05 if at the time of TPG's transfer
pursuant to such agreement (prior to giving effect thereto) TPG beneficially
owns less than 40% of the voting power of the Company. Notwithstanding the
foregoing, in the event any Retaining Stockholder breaches its obligations under
this Section 2.05 or, in the event that any representation and warranty of such
Retaining Stockholder contained in the purchase agreement with the Person making
the Bona Fide Offer is not true and correct as of the date made or as of the
proposed closing date or such Retaining Stockholder shall fail to perform any
covenant or agreement contained in such agreement or such Retaining Stockholder
shall otherwise breach its obligations under such agreement and, in each case,
such misrepresentation, breach or failure to perform such covenant or agreement
results in the nonsatisfaction of a condition precedent to such agreement (and
the Person making the Bona Fide Offer does not waive such condition precedent),
TPG shall be free to sell its shares of Common Stock to such Person without
liability to any Retaining Stockholder under this Agreement and such sale shall
not limit or waive in any respect any claim, right or cause of action that TPG
may have against such Retaining Stockholder in respect of such breach.

SECTION 2.06 Transfer Costs; Closing.

(a) In the event the Retaining Stockholders receive a Tag-Along Notice
or Drag-Along Notice pursuant to Section 2.04 or 2.05, as the case may be, each
Electing Stockholder (with respect to a Tag-Along Notice) or Retaining
Stockholder (with respect to a Drag-Along Notice), as the case may be, agrees to
use its commercially reasonable efforts, in good faith and in a timely matter,
to take, or cause to be taken, all actions and to do, or cause to be done, all
things reasonably necessary, proper or advisable, under applicable laws and
regulations (including, without limitation, to ensure that all appropriate legal
and other requirements are met and all consents of third Persons are obtained,
in each case, with respect to the transfer by such Electing Stockholder or
Retaining Stockholder, as the case may be), to consummate the proposed
transactions contemplated by Section 2.04 or 2.05, as the case may be. All
reasonable costs and expenses incurred by Electing Stockholders or Retaining
Stockholders, as the case may be, in connection with a transfer made pursuant to
Section 2.04 or 2.05 (including, without limitation, all costs and
disbursements, finders' fees or brokerage commissions but excluding the fees and
disbursements of counsel which shall be borne independently by each Electing
Stockholder or Retaining Stockholder, as the case may be), or to be paid by
Electing Stockholders or Retaining Stockholders as provided for in the relevant
purchase agreement, shall be allocated pro rata among the Electing Stockholders
or the Retaining Stockholders, as the case may be, based upon the number of
Shares sold by each Electing Stockholder or Retaining Stockholder.

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purchaser shall pay the purchase price for such Shares, in the form and in the
manner provided for in the underlying purchase agreement, against delivery by
the transferors of the Shares to be transferred, free and clear of all liens,
security interests or adverse claims of any kind and nature except as otherwise
provided for in this Agreement, duly endorsed or accompanied by duly executed
documents of transfer, in each case with signatures guaranteed by a signature
guarantor reasonably acceptable to the purchaser, and with any required stock
transfer tax stamp affixed.

SECTION 2.07 Restrictive Legend. Each certificate evidencing Shares shall
contain the following restrictive legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF A STOCKHOLDERS' AGREEMENT DATED AS OF , 1998 AND MAY BE
------------
VOTED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE WITH
SUCH AGREEMENT.

ARTICLE III

PIGGY BACK REGISTRATION

SECTION 3.01 Piggy Back Registration.

(a) If the Company, at any time, proposes to register any of its equity
securities (or securities convertible into equity securities) under the 1933 Act
(other than by registration on a Form S-4 or Form S-8 or any successor or
similar form then in effect), whether or not for sale for its own account, on a
form and in a manner which would permit registration of Registrable Securities
for sale, each such time it shall give prompt written notice to all Stockholders
owning Registrable Securities of its intention to do so, describing such
securities and specifying the form and manner and the other relevant facts
involved in such proposed registration, and upon the written request of any such
Stockholder delivered to the Company within 30 days after the giving of any such
notice (which request shall specify the Registrable Securities intended to be
disposed of by such Stockholder and the intended method of disposition thereof),
the Company shall use its reasonable best efforts to effect the registration
under the 1933 Act of all Registrable Securities which the Company has been so
requested to register by such Stockholders, to the extent required to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:

(i) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register
or delay the registration of such securities, the Company may, at its
election, give written notice of such determination to each Stockholder
owning Registrable Securities and thereupon, (A) in the case of a
determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration,
and (B) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities for the same
period as the delay in registering such other securities.

(ii) if (A) the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or
not for sale for the account of the Company, to be distributed (on a firm
commitment basis) by or through one or more underwriters under
underwriting terms appropriate for such a transaction and (B) the managing
underwriter of such underwritten offering shall advise the Company, and/or
the party on whose behalf the securities are being registered, that, in
its opinion, the distribution of all or a specified portion of such
Registrable Securities concurrently with the securities being distributed
by such underwriters will adversely affect the distribution of such
securities by such underwriters, then the Company shall promptly furnish
each such holder of Registrable Securities with a copy of such opinion and
may deny, by written notice to each such Stockholder accompanying such
opinion, the registration of

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all or a specified portion of such Registrable Securities (in case of a
denial as to a portion of such Registrable Securities, such portion to be
allocated among such Stockholders in proportion to the respective number
of Shares requested to be included therein by such Stockholder); and

(iii) each Stockholder requesting registration of Registrable
Securities pursuant to this Section 3.01 shall be permitted to withdraw
all or part of such Stockholder's Registrable Securities at any time prior
to the effective date of such registration; provided that in the event of
a withdrawal from a registration, any fees and disbursements incurred by
Stockholders requesting withdrawal in connection with such registration
shall be paid by such Stockholders.

(iv) the Company shall not be obligated to effect any registration
of Registrable Securities under this Section 3.01, (A) in connection with
any merger, acquisition, exchange offer, recapitalization, or
consolidation of the Company or any of its Subsidiaries or the adoption or
implementation of any dividend reinvestment plan, stock option or other
employee benefit plan or (B) in connection with an Initial Public Offering
unless the Company permits any Stockholder to participate in such Initial
Public Offering, in which case, then all other Stockholders shall be
allowed to participate in such offering, and the Company shall be
obligated to give prompt written notice to all Stockholders owning
Registrable Securities of their right to do so.

(v) the Retaining Stockholders will, if requested by the
underwriters for an underwritten public offering of equity securities of
the Company, agree not to sell or transfer any equity securities of the
Company (other than equity securities, if any, included in such offering),
without the consent of the underwriters, for a period of not more than 180
days following effectiveness of the registration statement relating to
such public offering

(b) In connection with the preparation and filing of each registration
statement under the 1933 Act pursuant to which Registrable Securities will be
registered, the Company will give (i) Warburg, provided that Warburg owns at
least 100,000 shares of Common Stock immediately following consummation of the
Merger and Warburg and its Affiliates own at least 1.25% of the shares of Common
Stock issued and outstanding at the time the access and opportunities to discuss
referred to below are to be given to Warburg, (ii) each holder of Registrable
Securities, who beneficially owns in excess of 5% of the shares of Common Stock
then outstanding, to be registered under such registration statement, (iii)
their underwriters, if any, and (iv) their respective counsel and accountants
such reasonable access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the 1933 Act.

(c) Subject to Section 3.01(a)(iii), the Company shall pay all
Registration Expenses in connection with each registration of Registrable
Securities requested to be registered pursuant to this Section 3.01 (including
Registration Expenses incurred in connection with registration efforts which are
terminated in accordance with Section 3.01(a)(1) hereof). All other costs and
expenses shall be borne by the party bearing such costs or expenses.

SECTION 3.02 Registration Procedures.

(a) In connection with the registration of any Registrable Securities
under the 1933 Act as provided in Section 3.01, the Company shall as soon as
practicable:

(i) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable best efforts
to cause such registration statement to become effective;

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the disposition of all Registrable Securities covered by such registration
statement until the earlier of such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods
of disposition by the seller, or sellers, thereof set forth in such
registration statement or the expiration of six (6) months after such
registration statement becomes effective;

(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the 1933 Act, such
documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably
request in order to facilitate the disposition of the Registrable
Securities being sold by such seller;

(iv) use its reasonable best efforts to register or qualify all
Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of its Registrable
Securities covered by such registration statement, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or
to consent to general service of process in any such jurisdiction;

(v) use its best efforts to furnish to (i) Warburg upon its
request, provided that Warburg owns at least 100,000 shares of Common
Stock immediately following consummation of the Merger and Warburg and its
Affiliates own at least 1.25% of the shares of Common Stock issued and
outstanding at the time of such request, and (ii) each holder of at least
twenty-five percent (25%) of the Registrable Securities covered by the
registration statement, upon such holder's request, a signed counterpart,
addressed to such holder, of an opinion of counsel for the Company, dated
the effective date of such registration statement (or, if such
registration includes an underwritten public offering, dated the date of
the closing under the underwriting agreement speaking both as of the
effective date of the registration statement and the date of the closing
under the underwriting agreement) covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel;

(vi) use its reasonable best efforts to obtain a "cold comfort"
letter from the Company's independent public accountant in customary form
and covering such matters of the type customarily covered by "cold
comfort" letters as the holders of a majority of the Registrable
Securities covered by the registration statement may request;

(vii) promptly notify each holder of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening
of any event known to the Company as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and at the
request of any such holder or holders prepare and furnish to such holder
or holders a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing;

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(viii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and generally make available
to its securities holders an earnings statement satisfying the provisions
of Section 11(a) of the 1933 Act and Rule 158 under the 1933 Act not later
than eighteen (18) months after the effective date of such registration;
and

(ix) use its reasonable best efforts to (A) list the Registrable
Securities covered by such registration statement on any securities
exchange on which any of the Shares is then listed, if any, or (B) have
authorized for quotation and/or listing, as applicable, on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or
the National Market System of NASDAQ if the Registrable Securities so
qualify; in each case subject to the applicable listing requirements of
the respective securities exchange or NASDAQ.

The Company may require, as a condition to each holder's participation in the
registration, each holder of Registrable Securities as to which any registration
is being effected (i) to furnish the Company with such information regarding
such holder and the distribution of such Registrable Securities as the Company
may from time to time reasonably request or as shall be required by law
(including, without limitation, any applicable state securities law) or by the
SEC in connection therewith and (ii) to enter into a holdback agreement on
customary terms and conditions.

(b) If the securities proposed to be registered are to be distributed by
or through one or more underwriters, the managing underwriter shall be selected
by the Company or the Person (other than the Retaining Stockholders) on whose
behalf the securities were initially requested to be registered.

SECTION 3.03 Indemnification; Contribution.

(a) In the event of any registration of any Registrable Securities under
the 1933 Act, the Company shall indemnify and hold harmless in the case of
any registration statement (including any related notification or document
incident to such registration statement) filed pursuant to Section 3.01, the
seller of any Registrable Securities covered by such registration statement, its
directors and officers, each officer and director of each underwriter, each
other Person who participates as an underwriter in the offering or sale of such
Registrable Securities and each other Person, if any, who controls such seller
or any such underwriter, within the meaning of the 1933 Act, against any losses,
claims, damages, liabilities and expenses (including reasonable fees and
expenses incurred in connection with enforcing the provisions of this Section
3.03(a)), joint or several, to which any such indemnified party may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (x) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities were registered under the 1933 Act, any
preliminary prospectus (unless any such statement is corrected in a subsequent
prospectus and the underwriters are given the opportunity to circulate the
corrected prospectus to all persons receiving the preliminary prospectus), final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such indemnified parties for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
the Company shall not be liable in any such case and shall not indemnify any
Person to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement or document incorporated
by reference based upon written information furnished by such Person to the
Company for use in the preparation thereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
indemnified parties and shall survive the transfer of such securities by such
seller. The Company shall agree to provide for contribution relating to such
indemnity pursuant to Section 3.03(b) below.

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payable by such indemnified party as a result of any loss, claim, damage or
liability (as actions or proceedings, whether commenced or threatened, in
respect thereof), including, without limitation, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding, in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and the Company on the other. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. If,
however, the allocation provided in the second preceding sentence is not
permitted by applicable law, the Company shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative fault but also the relative benefits to the
Company and the indemnified party as well as any other relevant equitable
considerations. The parties agree that it would not be just and equitable if
contributions pursuant to this Section 3.03(b) were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the preceding sentences of this
Section 3.03(b). Notwithstanding anything in this Section 3.03(b) to the
contrary, no indemnifying party (other than the Company) shall be required
pursuant to this Section 3.03(b) to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages or liabilities
of the indemnified parties relate. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.

(c) The Company may require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 3.02(a), that
the Company shall have received an undertaking satisfactory to it from each of
the prospective sellers of such securities and their underwriters, to indemnify
and hold harmless, and to provide for contribution (in the same manner and to
the same extent as set forth in subdivisions (a) and (b) of this Section 3.03),
the Company, each director of the Company, each officer of the Company who shall
sign such registration statement and each other Person, if any, who controls the
Company within the meaning of the 1933 Act, with respect to any untrue
statement, or alleged untrue statement, or omission, or alleged omission, made
in such registration statement, any preliminary prospectus, final prospectus or
summary prospectus included therein, or any amendment or supplement thereto, or
any document incorporated by reference therein, if such untrue statement, or
alleged untrue statement, or omission, or alleged omission, was based upon
written information furnished by any such prospective sellers or their
underwriters to the Company for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement or document incorporated by reference. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller.

(d) Promptly after receipt by an indemnified party of written notice of
the commencement of any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 3.03, such indemnified party shall,
if a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3.03 except to the extent that the indemnifying
party's liabilities and obligations under this Section 3.03 are prejudiced as a
result of such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof unless (i) the indemnifying party shall have
failed to retain counsel for the indemnified party as aforesaid, (ii) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (iii) representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interest between such indemnified party and any
other Person represented by such counsel in such proceeding. No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does

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not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.

ARTICLE IV

MISCELLANEOUS PROVISIONS

SECTION 4.01 Transactions with Affiliates; Disposition of Warburg Shares.
All transactions between the Company and any member of TPG or any Affiliate of
TPG shall require the prior approval of the holders of a majority of the Common
Stock (excluding stock held by TPG and its Affiliates) other than agreements or
transactions which are on arms-length terms or consulting fees with terms which
are customary as between TPG and its portfolio companies. If (a) an
institutional private placement or an offering pursuant to Rule 144A of the 1933
Act of shares of Common Stock with or without registration rights in which
Warburg is afforded an opportunity to participate with respect to all of its
then-owned shares of Common Stock or (b) the Initial Public Offering shall have
not occurred within five years of the Closing of the Merger, the Company will
reimburse Warburg for the cost of investment banking fees, in an amount not to
exceed $50,000, in connection with an analysis of Warburg's ownership position
and disposition strategies.

SECTION 4.02 Conflict with Certificate and/or Bylaws. The parties hereto
intend that in the event of any conflict or inconsistency between this Agreement
and the Certificate or Bylaws of the Company, the provisions of this Agreement
shall control, and therefore in the event that any term or provision of this
Agreement is rendered invalid, illegal or unenforceable by the Certificate or
Bylaws, the parties agree to take all action, including voting their Shares, to
amend the Certificate or Bylaws (as the case may be) so as to render such term
or provision valid, legal and enforceable, if and to the extent legally
permitted.

SECTION 4.03 Amendment. If Warburg owns at least 100,000 shares of Common
Stock immediately following consummation of the Merger and Warburg and its
Affiliates own at least 1.25% of the shares of Common Stock issued and
outstanding at the time consent to alter or amend this Agreement is to be
obtained, this Agreement may be altered or amended only with the written consent
of the Company, TPG, Warburg and the collective consent of the Retaining
Stockholders (other than Warburg). In all other circumstances, this Agreement
may be altered or amended only with the written consent of the Company, TPG and
the collective consent of the Retaining Stockholders. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without affecting the validity or
enforceability of the remaining provisions hereof.

SECTION 4.04 Specific Performance. The parties hereto agree that the
obligations imposed on them in this Agreement are special, unique and of an
extraordinary character, and that in the event of breach by any party damages
would not be an adequate remedy, and each of the other parties shall be entitled
to specific performance and injunctive and other equitable relief in addition to
any other remedy to which it may be entitled, at law or in equity; and the
parties hereto further agree to waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such injunctive or
other equitable relief.

SECTION 4.05 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assignees of the parties hereto; provided that except
as expressly permitted or required elsewhere in this Agreement, the rights and
obligations of the parties hereto may not be assigned without the prior written
consent of all of the other parties. Notwithstanding the foregoing, TPG may
assign its rights under this Agreement to any transferee of its Shares other
than a transferee pursuant to Article III or pursuant to a Rule 144 or Rule
144(k) Sale and any Retaining Stockholder may assign any of its rights
hereunder to any transferee of its Shares pursuant to Section 2.03. Any party
to, or Person who is subject to, this Agreement, upon ceasing to own Shares or
any interest therein, shall thereupon cease to be a party to, or Person who is
subject to, this Agreement and shall thereafter have no rights or obligations
hereunder except as expressly provided for elsewhere in this Agreement,
including, without limitation, Section 2.03(a) and Section 3.03.

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SECTION 4.06 Shares Subject to this Agreement. All Shares of the Company
(or any successor thereto) beneficially owned or hereafter acquired by the
Stockholders or their Affiliates shall be subject to the terms of this
Agreement. Any Shares acquired in the open market or pursuant to a public
offering or a Rule 144 or Rule 144(k) Sale shall not be subject to this
Agreement.

SECTION 4.07 Notices. All notices, statements, instructions or other
documents provided for herein shall be in writing and shall be delivered either
personally or by mailing the same in a sealed envelope, first-class mail,
postage prepaid and either certified or registered, return receipt requested or
by mailing (as set forth above) and transmitting by facsimile a copy of such
writing, addressed as follows:

(a) if to TPG, to:
TPG Partners II, L.P.
600 California Street
Suite 1850
San Francisco, California 94105
Attention: Mr. David M. Stanton
Facsimile: (415) 616-0420

with a copy to:

Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg, Esq.
Facsimile: (212) 225-3999

(b) if to the Company, to:

Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008
Attention: Richard R. Pickard, Esq.
Facsimile: (408) 374-5354

with a copy to:

Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Katharine A. Martin, Esq.
Facsimile: (650) 233-4545

(c) if to the Retaining Stockholders, to their respective addresses and
facsimile numbers set forth on Schedule I hereto.

Each party, by written notice given to the other parties in accordance with this
Section 4.07, may change the address to which notices, statements, instructions
or other documents are to be sent to such party. Except as otherwise provided
herein, all notices, statements, instructions and other documents hereunder
shall be deemed to have been given on the earlier of the date of actual delivery
and 3 days after the date of mailing, except that notice of a change of address
shall be effective only upon actual delivery.

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SECTION 4.08 Complete Agreement; Counterparts. This Agreement constitutes
the entire agreement among the parties hereto or any of them with respect to the
matters referred to herein as they relate to the parties hereto. This Agreement
may be executed by the parties hereto in any number of counterparts, each of
which shall be deemed to be an original, but all of which shall together
constitute one and the same instrument.

SECTION 4.09 Term of the Agreement. Unless this Section 4.09 is amended in
accordance with the provisions of Section 4.03 hereof, this Agreement shall
expire on the eighth anniversary of the Closing; provided that the provisions of
Article II of this Agreement shall expire upon the earlier of the eighth (8th)
anniversary of the Closing and the completion of the Initial Public Offering;
provided further that the provisions of Article III of this Agreement shall
expire on the fifteenth (15th) anniversary of the Closing.

SECTION 4.10 Headings. The section headings herein are for convenience of
reference only and in no way define, limit or extend the scope or intent of this
Agreement or any provisions hereof.

SECTION 4.11 Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware (without regard
to principles of conflicts of law). The parties agree that any service of
process to be made hereunder may be made by certified mail, return receipt
requested, addressed to the party at the address appearing in Section 4.07
together with a copy to be delivered to such party's attorneys as provided in
Section 4.07. The parties consent and agree that the state or federal courts
located in Delaware shall have jurisdiction to hear and determine any claims or
disputes pertaining to this Agreement or to any matter arising out of or related
to this Agreement and each party waives any objection that it may have based
upon lack of personal jurisdiction, improper venue or forum non conveniens and
hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court.

SECTION 4.12 Consent by TPG and by the Retaining Stockholders.

(a) Any provision of this Agreement that requires any consent,
agreement, waiver, designation or other determination or decision of TPG shall
require, and shall be deemed to have been given or made upon, the consent,
agreement, waiver, designation or other determination or decision of TPG
Partners.

(b) Any provision of this Agreement that requires any collective
consent, agreement, waiver, designation or other determination or decision of
the Retaining Stockholders, or the Retaining Stockholders other than Warburg,
shall require, and shall be deemed to have been given or made upon, the consent,
agreement, waiver, designation or other determination or decision of holders of
a majority of the Shares held by the Retaining Stockholders, or the Retaining
Stockholders other than Warburg, as the case may be, as of the date such
collective consent, agreement, waiver, designation or other determination or
decision is required.

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SECTION 4.13 Effectiveness of Agreement. This Agreement shall not be
effective unless and until the Closing has occurred.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

TPG PARTNERS II, L.P.

By TPG GenPar II, L.P., General Partner

By TPG Advisors II, Inc., General Partner

By
-----------------------------------------

Title
---------------------------------------

TPG INVESTORS II, L.P.

By TPG GenPar II, L.P., General Partner

By TPG Advisors II, Inc., General Partner

By
-----------------------------------------

Title
---------------------------------------

TPG PARALLEL II, L.P.

By TPG GenPar II, L.P., General Partner

By TPG Advisors II, Inc., General Partner

By
-----------------------------------------

Title
---------------------------------------

ZILOG, INC.

By
---------------------------------------------

Title
------------------------------------------

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RETAINING STOCKHOLDERS

WARBURG, PINCUS CAPITAL COMPANY, L.P.

By Warburg, Pincus & Co., General Partner

By
-----------------------------------------

Title
---------------------------------------

[Signature page to be completed with the names
of the additional Retaining Stockholders]

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ANNEX D

LEHMAN BROTHERS

November 18, 1997

Board of Directors
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600

Attention: Dr. Edgar A. Sack
Chairman of the Board and Chief Executive Officer

Members of the Board:

We understand that Zilog, Inc. ("Zilog" or the "Company") has previously
entered into an agreement dated July 20, 1997 (the "Original Agreement") with
TPG Partners II, L.P. ("TPG Partners"), pursuant to which (i) TPG Partners would
cause a wholly owned subsidiary (the "Acquisition Sub") to be formed as soon as
practicable following the date thereof, (ii) the Acquisition Sub would be merged
with the Company, and (iii) each outstanding share of the Company's common stock
would be converted into either $25.00 in cash (the "Original Consideration") or
the right to retain, at the election of the holder thereof, one share of the
Company (a "Non-Cash Election Share"), with a maximum number of 400,000 Non-Cash
Election Shares. We further understand that, based on the recent and currently
projected financial performance and results of operations of Zilog, the Company
and TPG Partners propose to modify the terms of the Original Agreement to
provide that each outstanding share of the Company's common stock will be
converted into either $20.00 in cash (the "Consideration") or the right to
retain, at the election of the holder thereof, one Non-Cash Election Share, with
a maximum of 375,000 Non-Cash Election Shares representing approximately 1.8% of
the common stock of the Company and approximately 7.5% of the surviving
corporation (the "Revised Transaction"). The terms and conditions of the Revised
Transaction are set forth in more detail in the Agreement and Plan of Merger
dated as of July 20, 1997, as amended on November 18, 1997 (the "Amended
Agreement") among TPG Partners, Acquisition Sub and Zilog.

We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's shareholders of the Consideration to be offered to such shareholders
in the Revised Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, (i) the Company's underlying business
decision to proceed with or effect the Revised Transaction or (ii) the fairness
to shareholders of the Company who elect to retain Non-Cash Election Shares in
the Revised Transaction or the value thereof following consummation of the
Revised Transaction.

In arriving at our opinion, we reviewed and analyzed: (1) the Amended
Agreement and the specific terms of the Revised Transaction, (2) publicly
available information concerning the Company that we believe to be relevant to
our analysis, (3) financial and operating information with respect to the
business, operations and prospects of the Company furnished to us by the
Company, (4) a trading history of the Company's common stock from its initial
public offering to the present and a comparison of that trading history with
those of other companies that we deemed relevant, (5) a comparison of the
historical financial results and present financial condition of the Company with
those of other companies that we deemed relevant, (6) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other recent transactions that we deemed relevant, (7) the results of our
efforts to solicit indications of interest and proposals from third parties with
respect to a purchase of or investment in the Company, (8) the financial
performance and results of operations of the Company since the date of the
Original Agreement and the currently projected financial performance and results
of operations of the

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Company for the fourth quarter of 1997 and a comparison of third party research
analysts' estimates of the revenues and earnings of the Company with projections
of management of the Company as to the future financial performance of the
Company for the fourth quarter of 1997 and beyond, and (9) the potential market
performance of the common stock of the Company in the absence of a proposed
acquisition of the Company. In addition, we have had discussions with the
management of the Company concerning its business, operations, assets, financial
condition and prospects and have undertaken such other studies, analyses and
investigations as we deemed appropriate.

In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the revised financial projections of
the Company, upon advice of the Company we have assumed that such projections
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and we have relied on such projections in
arriving at our opinion. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of the Company and have not
made or obtained any evaluations or appraisals of the assets or liabilities of
the Company. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.

Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Consideration to be
offered to the shareholders of the Company in the Revised Transaction is fair to
such shareholders.

We have acted as financial advisor to the Company in connection with the
Revised Transaction and will receive a fee for our services which is contingent
upon the consummation of the Revised Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary fees for such
services. In the ordinary course of our business, we actively trade in the
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.

This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Revised Transaction. This opinion is not intended to be and
does not constitute a recommendation to any shareholder of the Company as to how
such shareholder should vote with respect to the Revised Transaction.

Very truly yours,

LEHMAN BROTHERS

D-2
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ANNEX E

SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW

APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to SectionSection 251 (other than a merger effected pursuant
to subsection (g) of section 251), 252, 254, 257, 258, 263 or 264 of this title:

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:

a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts
in respect thereof;

b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will
be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or

d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b.
and c. of this paragraph.

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(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at
a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby
to demand the appraisal of his shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or within
ten days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such notice shall
be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after
the effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice
is sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant

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<PAGE> 146
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either
notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given;
provided that, if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective date.
If no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

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ANNEX F

FORM OF

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

THE SURVIVING CORPORATION

FIRST: The name of the Corporation is Zilog, Inc.

SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange St., Wilmington, Delaware, New Castle County.
The name of the registered agent of the Corporation at such address is The
Corporation Trust Company.

THIRD: The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware as the same exists or hereafter may be amended.

FOURTH: The Corporation shall be authorized to issue 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock. There shall be two classes
of common stock of the Corporation. The first class of common stock of the
Corporation shall have a par value of $0.01 and shall be designated "Common
Stock" and the number of shares constituting such class shall be 35,000,000. The
second class of stock of the Corporation shall have a par value of $0.01 and
shall be designated "Class A Non-Voting Common Stock" and the number of shares
constituting such class shall be 15,000,000. Holders of shares of Common Stock
shall be entitled to one vote for each share of such stock held on all matters
as to which stockholders may be entitled to vote pursuant to the Delaware
General Corporation Law. Holders of shares of Class A Non-Voting Common Stock
shall not have any voting rights, except that the holders of shares of Class A
Non-Voting Common Stock shall have the right to vote as a class to the extent
required by the Delaware General Corporation Law. In all other respects the
rights, powers, preferences and limitations of the Common Stock and Class A
Non-Voting Common Stock shall be identical. The preferred stock shall have a par
value of $100.00 and the board of directors may authorize the issuance from time
to time of the preferred stock in one or more classes and/or series and with
such powers, designations, preferences, rights and qualifications, limitations
or restrictions (which may differ with respect to each such class and/or series)
as the board may fix by resolution.

FIFTH: The name and mailing address of the incorporator are as follows:

Richard R. Pickard, Esq.
Zilog, Inc.
210 East Hacienda Avenue
Campbell, California 95008-6600

SIXTH: The number of Directors which constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.

SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, amend, rescind
or repeal the Bylaws of the Corporation.

EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in

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the General Corporation Law of the State of Delaware) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.

NINTH:

1. A Director's liability to the Corporation for breach of duty to the
Corporation or its stockholders shall be limited to the fullest extent permitted
by the laws of the State of Delaware as now in effect or hereafter amended. In
particular, no Director shall be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
Director derived an improper personal benefit.

2. Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director existing at the time of such repeal or modification.

3. If the General Corporation Law of the State of Delaware is amended
to authorize corporate action further eliminating or limiting the liability of
directors, then a Director, in addition to the circumstances in which he or she
is not now liable, shall be free of liability to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.

TENTH: This Corporation shall indemnify its officers, Directors, employees
and agents to the maximum extent permitted by the General Corporation Law of the
State of Delaware, which power to indemnify shall include, without limitation,
the power to enter into indemnification agreements and amendments thereto upon
such terms as the Board of Directors shall deem advisable.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the DGCL permits Zilog's board of directors to indemnify
any person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his or her being or having
been a director, officer, employee or agent of Zilog, in terms sufficiently
broad to permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933, as amended (the "Act"). The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.

Article IX of Zilog's Certificate of Incorporation provides for
indemnification of its directors, officers, employees and other agents to the
fullest extent permitted by law.

As permitted by sections 102 and 145 of the DGCL, Zilog's Certificate of
Incorporation eliminates a director's personal liability for monetary damages to
Zilog and its stockholders arising from a breach or alleged breach of a
director's fiduciary duty except for liability under section 174 of the DGCL or
liability for any breach of the director's duty of loyalty to Zilog or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction from
which the director derived an improper personal benefit.

In addition, Zilog maintains officers' and directors' insurance covering
certain labilities that may be incurred by officers and directors in the
performance of their duties.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

Exhibit
Number Description of Document
- ------ -----------------------

2.1(ii) Agreement and Plan of Reorganization dated as of May 21, 1997
between Zilog, Inc., a California corporation, and Zilog, Inc., a
Delaware corporation.

2.2(iii) Agreement and Plan of Merger between TPG Partners II, L.P. and
Zilog, Inc. dated as of July 20, 1997.

2.3(iv) Amendment Number One to the Agreement and Plan of Merger, dated as
of November 18, 1997, by and between TPG Partners II, L.P., TPG Zeus
Acquisition Corporation and Zilog, Inc.

2.4(v) Amendment Number Two to the Agreement and Plan of Merger, dated as
of December 10, 1997, by and between TPG Partners II, L.P., TPG Zeus
Acquisition Corporation and Zilog, Inc.

4.1(i) Common and Series A Preferred Stock Purchase Agreement, dated as of
June 8, 1989, among Zilog Acquisition Corporation (on behalf of
Zilog) and certain investors.

4.2(i) Investor's Rights Agreement, dated as of June 8, 1989, among Zilog
Acquisition Corporation (on behalf of Zilog) and certain
shareholders.

II-1
<PAGE> 151
Exhibit
Number Description of Document
- ------ -----------------------

4.3 Form of Stockholders' Agreement between Zilog, Inc., TPG Partners
II, L.P., TPG Investors II, L.P., TPG Parallel II, L.P., Warburg,
Pincus Capital Company, L.P. and certain other stockholders of
Zilog, Inc.

4.4 Stockholders Voting Agreement, dated as of July 20, 1997, among TPG
Partners II, L.P., on the one hand, and Warburg, Pincus Capital
Company, L.P. and Warburg, Pincus & Co., on the other hand.

4.5(iv) Letter Agreement, dated as of November 18, 1997, by and among TPG
Partners II, L.P., Warburg, Pincus Capital Company, L.P., Warburg,
Pincus & Co. and Zilog, Inc.

5.1 Opinion of Pillsbury Madison & Sutro LLP.

8.1 Opinion of Pillsbury Madison & Sutro LLP as to certain tax matters.

23.1 Consent of Ernst & Young LLP, independent auditors.

23.2 Consent of David Bonderman.

23.3 Consent of David M. Stanton.

24.1 Powers of Attorney (see Page II-5 of this Registration Statement).

99.1 Form of Proxy for Special Meeting of Stockholders.

99.2 Form of Non-Cash Election Form to be used in connection with the
Merger.

99.3 Form of Letter of Transmittal to be used in connection with the
Merger.

99.4 Form of Exchange Agent Agreement.

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

(i) Incorporated by reference from Registration Statement on Form S-1 No.
33-36080.
(ii) Incorporated by reference from Exhibit 2.1 to Zilog's Current Report on
Form 8-K dated May 22, 1997.
(iii) Incorporated by reference from Exhibit 2.1 to Zilog's Current Report on
Form 8-K dated July 22, 1997.
(iv) Incorporated by reference from Exhibits 2.1 and 4.1 to Zilog's Current
Report on Form 8-K dated November 19, 1997.
(v) Incorporated by reference from Exhibit 2.1 to Zilog's Current Report on
Form 8-K dated December 10, 1997.

(b) Financial Statement Schedules.

None

ITEM 22. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934, as
amended, that is incorporated by reference in the registration statement 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.

II-2
<PAGE> 152
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.

The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment 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.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
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 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 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 registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement/Prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.

II-3
<PAGE> 153
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Campbell, State of
California, on December 11, 1997.

ZILOG, INC.

By /s/ EDGAR A. SACK
--------------------------------------
Edgar A. Sack
President, Chief Executive Officer
and Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Edgar A. Sack and Richard R. Pickard and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>

/s/ EDGAR A. SACK President, Chief Executive December 11, 1997
- -------------------------- Officer and Director (Principal
Edgar A. Sack Executive Officer)

/s/ ROBERT E. COLLINS Vice President, Chief Financial December 11, 1997
- -------------------------- Officer and Director (Principal
Robert E. Collins Financial and Accounting
Officer)

/s/ WILLIAM H. JANEWAY Director December 11, 1997
- --------------------------
William H. Janeway

/s/ HENRY KRESSEL Director December 11, 1997
- --------------------------
Henry Kressel
</TABLE>

<PAGE> 154
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>

/s/ LARRY WANGBERG Director December 11, 1997
- --------------------------
Larry Wangberg

/s/ ROBERT M. WHITE Director December 11, 1997
- --------------------------
Robert M. White

/s/ THOMAS J. CONNORS Director December 11, 1997
- --------------------------
Thomas J. Connors
</TABLE>

<PAGE> 155
EXHIBIT INDEX

Exhibit
Number Description of Document
- ------- -----------------------