ZILOG INC, 10-K405, 1999-03-31

ZILOG INC
10-K405, 1999-03-31
SEMICONDUCTORS & RELATED DEVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K

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

For the Year Ended December 31, 1998, or

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

COMMISSION FILE NUMBER: 001-13748

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

Delaware 13-3092996
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

910 East Hamilton Avenue, Campbell, California 95008
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (408) 558-8500
------------------------

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]

The aggregate value of voting Common Stock and Class A Non-Voting Common
Stock held by nonaffiliates of the Registrant was approximately $8,694,330
and $553,185, respectively as of March 1, 1999 based upon the value of the
shares established by the Registrant for this purpose. Shares of Common
Stock held by each officer and director and by each person who owns 5% or
more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

At March 1, 1999, 30,098,736 shares of the Registrant's voting Common Stock
and 10,000,000 shares of the Registrant's Class A Non-Voting Common Stock
were issued and outstanding.

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<PAGE>

TABLE OF CONTENTS

PART I

Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), regarding future events and the Company's plans and
expectations that involve risks and uncertainties. When used in this
Report, the words "estimate," "project," "intend," "expect," "anticipate"
and similar expressions are intended to identify such forward-looking
statements. Such statements are subject to certain risks and
uncertainties, including those discussed below, which could cause actual
results to differ materially from those projected. Factors that may cause
or contribute to such differences include, but are not limited to, those
discussed below under "Business-Factors That May Affect Future Results,"
as well as those discussed elsewhere in this Report and in the documents
incorporated herein by reference. In light of the important factors that
can materially affect results, including those set forth in this paragraph
and below, the inclusion of forward-looking information herein should not
be regarded as a representation by the Company or any other person that
the objectives or plans for the Company will be achieved. The reader is
therefore cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof.
ZiLOG, Inc. undertakes no obligation to publicly release updates or
revisions to these statements.

ZiLOG, Z-80 and Superintegration are registered trademarks of ZiLOG, Inc.
Pentium is a registered trademark of Intel Corporation

<PAGE>

PART I

ITEM 1. BUSINESS

Executive Summary

ZiLOG (the "Company") is a worldwide designer, manufacturer and marketer
of integrated circuits ("ICs") for use in communications, integrated
controls and home entertainment end markets. Through proprietary design
technology, the Company works with its customers to develop application
specific standard products ("ASSPs") to control the basic functions and
performance of electronic devices. ASSPs typically comprise some
combination of a microprocessor, digital signal processor, memory, and
input/output functions on a single semiconductor. Examples of the
Company's product applications include ICs in televisions that provide
digital tuning control features (on-screen display, channel, volume and
color brightness), ASSPs in remote control units that send instructions to
televisions and VCRs, and ICs that operate keyboards and mouse-type
pointing devices. Through its direct sales force and its worldwide
distribution network of more than 120 representatives and distributors, the
Company supplies over 4,900 customers with more than 650 products.

The Company places significant emphasis on anticipating and meeting its
customers' needs as new electronic devices are designed. As customers
"design in" ZiLOG's products, the Company is able to gain a greater share
of its customers' purchases while maintaining its embedded position within
its customers' existing products. The Company believes that this design
strategy is at the core of its ability to achieve a high degree of customer
acceptance within specific applications. In addition, ZiLOG's customer
base includes many leaders in their respective industries, including Acer,
Arrow, Black and Decker, Chamberlain, Digital Security Controls, Future
Electronics, Kimball Electronics, Logitech, Microsoft, NMB, Motorola,
Northern Telecom, Samsung, SGS-Thomson, TLG Electronics, the Veba Group and
Zenith.

Founded in 1974, ZiLOG is a pioneer in the semiconductor market. The
Company's Z-80r product, introduced in 1975, is the largest selling 8-bit
microprocessor in history. In 1998, ZiLOG products based on the Z-80
architecture accounted for approximately $38 million in revenue,
representing approximately 19% of the Company's total revenue. Until
February 27, 1998, the common stock was listed on the New York Stock
Exchange and traded under the symbol "ZLG." Pursuant to an Agreement and
Plan of Merger by and among TPG Partners II, L.P. ("TPG II"), TPG Zeus
Acquisition Corporation ("Merger Sub") and ZiLOG dated as of July 20, 1997,
as amended (the "Merger Agreement"), Merger Sub merged with and into ZiLOG
on February 27, 1998, and ZiLOG continues as the surviving corporation (the
"Merger").

Headquartered in Campbell, California, the Company has its wafer
fabrication facilities located in Nampa, Idaho and its final test facility
center located in the Philippines. In January 1999, the Company completed
its outsourcing of assembly operations to subcontractors in Indonesia and
the Philippines. For the fiscal year ended December 31, 1998, the Company
had revenue of $204.7 million, a net loss of $87.5 million and EBITDA of
$19.3 million. EBITDA is defined as earnings from operations before
interest income and expense (including amortization of deferred financing
costs), income taxes, depreciation, amortization of goodwill, non-cash
stock option compensation and special charges.

Unless the context otherwise requires, the terms "ZiLOG" and the "Company"
are used throughout this Form 10-K to refer to both the Company and its
subsidiaries. The Company's principal executive offices are located at 910
East Hamilton Avenue, Campbell, California 95008, and the Company's
telephone number is (408) 558-8500.

The Industry

According to trade statistics published by the SIA, the semiconductor
industry is currently comprised of three broad product segments: logic
devices, including microprocessors, microcontrollers and digital signal
processors, which process data (approximately 57% of total industry sales);
memory devices, which store data (approximately 14% of total industry
sales); and analog and discrete devices, which process electronic signals
(approximately 29% of total industry sales). ZiLOG develops, manufactures
and markets products in the logic device segment. The logic device segment
further consists of three distinct categories: (i) general purpose logic
products, such as the Intel Pentiumr microprocessor, which are neither
application nor customer specific, are used for a wide array of logic-
related functions and are typically capable of more functions than are
actually required for any given application; (ii) Application Specific
Integrated Circuits ("ASICs"), which are designed to meet particular
application requirements, are usually proprietary to one customer and are
generally produced in relatively small volumes; and (iii) ASSPs, which are
designed for a particular application, but are not proprietary to a single
customer.

The Company believes that the market for ASSPs is distinct from other logic
and memory markets in that it is less cyclical and that ASSPs typically
have longer product life cycles. ZiLOG's ASSP products are primarily based
upon 8-bit and 16-bit microprocessors, microcontrollers or digital signal
processors. Applications in the ASSP market generally do not demand the
processing power of general purpose microprocessors such as the Intel
Pentium microprocessor, which operates personal computers; rather, ZiLOG's
products operate or perform specialized functions in products such as
telephones, garage door openers and televisions, all of which exhibit
growing degrees of IC content.

Markets

ZiLOG relies upon its knowledge, experience, customer relationships and
proprietary core and cell designs to target products in the rapidly growing
communications, integrated controls and home entertainment markets.
Because ZiLOG creates ASSPs which have a high degree of integration and
which are designed for a particular application, but which are not
proprietary to a single customer, ZiLOG's ASSPs typically address larger
aggregate markets and generally have higher production volumes than ASICs.
ZiLOG works closely with industry leaders in its selected markets to
design innovative products. Through its customer relationships, ZiLOG has
been able to establish and maintain technological leadership, attract
multiple customers in the same market and create industry standards. The
Company believes that it is well positioned with respect to the trends in
its target market areas, which include the increase in the complexity and
sophistication of home entertainment electronics products and the increased
importance of networking in the age of the Internet.

ZiLOG currently offers over 650 products (independent of ROM codes), sold
in a wide selection of package, speed grade and other configurations to
more than 4,900 customers worldwide. ZiLOG's customers include Acer,
Alcatel, Arrow, Black and Decker, Chamberlain, Digital Security Controls,
Future Electronics, Kimball Electronics, Logitech, Microsoft, NMB,
Motorola, Northern Telecom, Samsung, SGS-Thomson, TLG Electronics, the Veba
Group and Zenith.

ZiLOG's three target markets are communications, integrated controls and
home entertainment. Each of these target markets are described as follows:

Communications: The Company believes that its communications products are
well positioned to address the connectivity requirements of the Internet.
Accordingly, the communications market is growing in response to the need
to connect computer systems at remote locations and the need for multiple
users to share peripherals such as printers and facsimile machines. By
networking computers and peripherals, it is possible to communicate on the
Internet, share information files, distribute computer loads more
efficiently and facilitate communications between terminals, computers and
peripherals, thereby maximizing the benefit from an investment in computer
equipment. ZiLOG sells microprocessors optimized for use in the following
communications applications: Ethernet routers, bridges, data switches,
modems, terminals, printers, workstations, local area networks and wide
area networks.

Integrated controls: The Company's integrated controls products address a
need for embedded intelligence and control functions. Covering a wide
variety of applications, the markets that are addressed include: personal
computer peripheral products such as keyboards and pointing devices;
security systems including garage door openers, smoke alarms and security
control panels; appliances such as battery chargers for cordless tools and
cellular phones; wireless voice such as cordless phones; and wireless data
which includes automated meter readers. In addition, ZiLOG's integrated
controls business unit provides field programmable general purpose
microcontrollers that are used by a diverse customer base in many other
applications.

Home entertainment: The increase in the use of ASSPs in home entertainment
has created significant worldwide market opportunities for ZiLOG.
Sophisticated ASSPs are increasingly found in home entertainment products
including television controllers, infrared remote controls and VCRs.
ZiLOG's ASSPs in this market typically control the digital functions of the
unit, on-screen displays and interaction with remote control units.

The following table summarizes selected applications of the Company's
products in the communications, integrated controls and home entertainment
markets:

<TABLE>
<CAPTION>
Integrated Home
End Market: Communications Controls Entertainment
- ------------------ ------------- ------------------- -----------------
Percentage of net
sales for 1998 33.7% 41.9% 24.4%
- ------------------ ------------- ------------------- -----------------
<S> <C> <C> <C>
Applications: ISDN Cordless phones Television
WAN Mouse-type pointing controllers
XDSL device Infrared remote
Modems Keyboard controls
ATM/frame Battery chargers
relay Household
appliances
Meter reader
Card reader
Security systems

Customers: Cisco Acer Samsung
Lucent Black & Decker SGS-Thomson
Motorola Hewlett-Packard Sharp
Logitech Sony
Microsoft Zenith
NMB

Example of Product
Application: Modem Mouse Television

Example of Zilog
ASSP Function: Transmits and Causes cursor Digital Tuning
receives data to move Control Features
On-Screen Display
Closed Captioning
Vertical Blanking
</TABLE>

Business Strategy

Curtis J. Crawford, formerly Group President of the Microelectronics Group
and President of the Intellectual Property Division of Lucent Technologies,
joined ZiLOG as President and Chief Executive Officer in February 1998.
Since that time, the Company replaced the majority of its senior management
team with executives who were attracted to ZiLOG from large multinational
companies in a variety of industry sectors. The new management team is
focused on leveraging the Company's core strengths using the following
business strategies:

Increase customer focus: In 1998, the Company adopted an operating
philosophy that customer relations were extremely important. Many of the
Company's regular management meetings now begin with a discussion about
customers. By improving customer contact at many levels, the Company
expects to increase design wins and sales with both existing and new
customers. This effort includes the establishment in 1999, of a customer
support center in Austin, Texas, to enhance ZiLOG's relations with its
distributors and develop complete solutions that fulfill the customers'
anticipated needs. Since competition for customers occurs initially at the
design stage, ZiLOG believes that once a customer commits to a design, it
typically results in a proprietary supplier relationship. ZiLOG believes a
strong focus on design wins through an increase in customer support at all
levels within the Company should lead to an increased base of recurring
revenues from its customers.

Complete solutions: The Company believes strongly in providing "complete
solutions" to its customers. Complete solutions include the
contemporaneous development and release of the hardware, software,
firmware, robust support tools, reference design, collateral information,
certification of products and having available knowledgeable systems
support personnel to assist customers to effectively use ZiLOG's complete
solutions. The Company believes that time to market will improve for
customers who use complete solutions. In many cases, the Company believes
that a customer's total system cost will be reduced by integrating more
functions into the complete solution package and permitting the Company to
add more value to the customer's end product application.

Expand product capabilities: The Company's position within its markets
depends in part upon the strength and capabilities of its library of
proprietary designs. ZiLOG is expanding its existing library by developing
ideas for new products, continued investment in computer-aided development
tools to assist the Company's design engineers, and acquiring additional
design technology from third parties. The Company is also creating more
robust customer support tools to enable customers to more easily use
ZiLOG's products. By investing in its design library, alternative
technology from third parties and complete solutions, ZiLOG believes it
will be able to offer more products with broader functionalities and
enhance its competitive position with new and existing customers. The
Company's strategy is to increase the functionality of designs in its
existing product lines to meet the changing requirements of evolving
applications and to enable the Company to design new products in new
markets.

Internet site: In a recent survey, 71% of design engineers stated that
Internet access was a critical or important factor in choosing a
semiconductor supplier. In 1998, ZiLOG undertook many initiatives to help
turn its Internet site into a major marketing and sales tool. These
include:
o Redesigning the entire site with the design engineer in mind
o Highlighting new products and services on the home page
o Creating content that drives repeat visitation
o Linking with the Company's partners' websites
o Centralizing technical support information
o Preparing the site for e-commerce
o Posting the Company's most-requested documentation

ZiLOG's efforts to improve the website will continue in 1999. The Company
will post a new version of the website that will be even more user-
friendly.

Efficiency of operations: The Company has made significant capital
expenditures of approximately $256 million over the last four years
primarily to increase capacity and improve efficiency at its facilities.
ZiLOG recently completed the transition of its assembly operations to
subcontractors. The benefits that assembly subcontractors offer include
providing ZiLOG with access to advanced packaging technology, as well as
competitive pricing, cycle times and quality. In addition, outsourcing
assembly operations permits the Company to mitigate future capital
expenditures in this area. See "Management's Discussion and Analysis of
Financial Condition."

Return to revenue growth and gross margin improvement: The Company
instituted programs in 1998 to position ZiLOG for a return to revenue
growth and gross margin improvement. These efforts, commencing in the
second half of 1998 and continuing today, were targeted to reverse adverse
financial trends experienced by the Company since the third quarter of
1996. To increase revenue, the Company focused on improving relations with
its distributors; improving sales mix, developing comprehensive product
roadmaps and enhancing its advertising and promotional campaigns. The
Company adopted a new system of operating and financial metrics to permit
management to more effectively monitor its performance. Gross margins
were improved in the second half of 1998 when compared to the first half of
1998, by reducing manufacturing costs through reductions in force, shift
structure changes and negotiating lower costs with suppliers.

Research and Development

ZiLOG believes that the continued introduction of complete new ASSPs in its
target markets are essential to its growth. As of December 31, 1998, ZiLOG
employed 139 people in research and development. Expenditures for research
and development in 1998, 1997 and 1996 were approximately $28.8 million,
$30.5 million, and $30.5 million respectively, representing approximately
14%, 12%, and 10% respectively, of net sales.

Most of ZiLOG's new products are created by design engineers through the
use of the Company's proprietary design library. All of the designs in
ZiLOG's library are produced by a subset of ZiLOG's standard manufacturing
process. The design rules employed ensure that the need to adjust the
library is minimal as manufacturing technology advances to smaller
dimensions.

Manufacturing

ZiLOG operates two semiconductor fabrication facilities in Nampa, Idaho,
which contain fabrication modules equipped to produce products with
submicron dimensions. The Company can manufacture certain ASSPs using low
volume, low cost production runs from its MOD II facility built in 1984, as
well as more tightly integrated, newly developed ASSPs from its MOD III
facility built in 1996. The Company's facilities enable ZiLOG to produce
mixed-signal (analog-digital conversion) ASSPs. ZiLOG's MOD III facility
is currently producing ASSPs at 0.35, 0.65 and 0.8 micron geometries.
Overall, the Company estimates its facilities are operating at
approximately 75% of capacity which should enable the Company to capitalize
on future upswings in industry demand. The Company further believes that
its manufacturing facilities provide cost and quality competitive
advantages. In addition, the Company conducts most of its final test
operations at its facility in the Philippines. ZiLOG uses outside contract
assemblers for packaging of its products. The Company believes that its
manufacturing facilities will remain competitive in the current market
environment without additional significant capital expenditures.

A skilled workforce is very important to high productivity in semiconductor
manufacturing. ZiLOG maintains extensive personnel training and
certification programs in its plants and believes that this leads to lower
turnover and higher worker involvement. All of ZiLOG's operations are
managed through the use of statistical process control techniques.

International Standards Organization ISO 9001 and 9002 certifications were
granted to the Company's facilities in Nampa, Idaho and ISO 9002
certification was granted to the Company's Philippines test facility. ISO
certifications reflect the stringent quality standards to which all ZiLOG
products are manufactured. These certifications enhance the reputation and
quality of the Company's products.

ZiLOG's facilities in Nampa, Idaho recently received ISO 14001
certification by the National Standards Authority of Ireland, an
independent auditor of environmental management systems (EMS). The Company
believes that ISO 14001 certification is widely recognized as the global
standard for measuring the effectiveness of a company's environmental
safeguards. To qualify, companies must implement an EMS program, comply
with all relevant regulations, commit to prevent pollution, adopt a program
of continual improvement, and submit to periodic outside audits. ZiLOG's
environmental management program controls and monitors air quality, water
use and conservation, waste disposal and chemical handling, among other
issues.

Sales and Marketing

In 1998, ZiLOG shipped its products to over 4,900 customers through its
direct sales force and through manufacturers' sales representatives and
distributors. The Company's products are sold to manufacturers in
communications, integrated controls and home entertainment markets as well
as the military and aerospace industries.

The Company has sales offices located in the metropolitan areas of Atlanta,
Austin, Boston, Campbell, Chicago, Cleveland, Dallas, El Paso, Minneapolis,
Orange County, Philadelphia, Portland, San Diego, Beijing, Erfurt, Hong
Kong, Kuala Lumpur, London, Munich, Seoul, Shanghai, Shenzhen, Singapore,
Taipei, Tokyo, Toronto and Vancouver. Each of these offices has a direct
sales force that calls on large accounts and manages the activities of
ZiLOG's 120 sales representative organizations. The Company frequently
holds technical sales conferences and training sessions for its direct
sales and sales representative personnel.

ZiLOG's direct marketing force consists of technical specialists and field
application engineers. ZiLOG's technical specialists are based at
corporate headquarters and focus exclusively on one of communications,
integrated controls or home entertainment applications. Field application
engineers are located in ZiLOG's sales offices around the world and work
directly with local customers in close consultation with the Company's
technical specialists. Field application engineers typically develop
technology expertise in the market segment, which is most prominent in
their geographic area.

ZiLOG also markets and sells its products through five North American
distributors and 38 international distributors. As is common in the
semiconductor industry, ZiLOG grants price protection and limited rights of
return to distributors. In certain circumstances, distributors are granted
a credit for the difference between the price they were originally charged
for products in inventory at the time of a price reduction, and the reduced
price which ZiLOG subsequently charges.

For the years ended December 31, 1998, 1997 and 1996, sales to customers
located outside of the United States ("U.S.") aggregated approximately
61%, 59% and 56%, respectively, of net sales for these periods. Total net
sales to these international customers in each of such periods were
approximately $125.5 million, $154.2 million and $166.9 million,
respectively. See "Factors that May Affect Future Results-International
Operations."

For the year ended December 31, 1998, one distributor accounted for 10.5%
of ZiLOG's net sales. No other customer accounted for more than 10% of
ZiLOG's net sales during 1998.

Competition

The principal competitive factors in ZiLOG's markets include design and
end-market applications expertise, product features and performance,
including the ability to preserve the customers' software, price, time to
market and manufacturing. ZiLOG believes its competitive strengths include
its expertise in the technology of a broad range of applications in the
communications, integrated controls and home entertainment markets, its
design methodology which includes its design system with its extensive
library of customer familiar cores and cells and its manufacturing
facilities and capabilities.

The semiconductor industry is intensely competitive and is characterized by
price erosion, rapid technological change and heightened foreign
competition in many markets. 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 expected to increase their participation in the
semiconductor market. The ability of ZiLOG to compete successfully in its
markets 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 ASSPs into
their products, success of competitors' products and general economic
conditions.

ZiLOG competes with its licensees on certain products. With respect to
certain products, ZiLOG competes with other ASSP manufacturers, which
target the same specific market segment. However, the Company believes no
single competitor addresses exactly the same set of products or markets as
ZiLOG.

The Company's sales are generally made pursuant to short-term purchase
orders rather than long-term contracts. In addition, the Company believes
it is common practice for its customers to place orders in excess of
requirements and to change or cancel outstanding purchase orders in
response to rapidly shifting business conditions. Accordingly, the Company
does not believe its backlog is an accurate measure of net sales or
operating results for any period. See "Factors That May Affect Future
Results-Customer Concentration."

Patents and Licenses

ZiLOG holds 98 U.S. patents and has 23 U.S. patent applications pending, as
well as 21 pending foreign patent applications. ZiLOG has also filed and
received one patent outside of the U.S. ZiLOG has more than 175 U.S. mask
work registrations on its products. Copyright registrations are held by
ZiLOG to protect proprietary software employed in over 100 of its products.
The Company has claimed more than 40 trademarks or servicemarks.

ZiLOG's ability to compete may be enhanced by its ability to protect its
proprietary information, including the issuance of patents, copyrights,
mask work registrations and trademarks. Only a few of these intellectual
property rights have been litigated. While no intellectual property right
of ZiLOG has been invalidated or declared unenforceable, there can be no
assurance that such rights will be upheld in the future. Accordingly,
management believes that, in view of the rapid pace of technological change
in the semiconductor industry, the technical experience and creative skills
of the Company's engineers and other personnel will be extremely important
in determining ZiLOG's future technological success.

ZiLOG has more than 100 active licenses for product or technology exchange.
The purpose of these licenses has, in general, been to provide second
sources for standard products or to convey or receive rights to certain
proprietary or patented cores, cells or other technology.

As is typical in the semiconductor industry, ZiLOG has from time to time
received, and may in the future receive, communications from third parties
asserting patent rights, mask work rights, copyrights or trademark rights
covering certain of ZiLOG's products, technologies or information. Two
parties have notified ZiLOG that it may be infringing certain patents and
other intellectual property rights. In the event ZiLOG determines that
such notices may involve 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 a material adverse effect
on ZiLOG. See "Factors That May Affect Future Results-Intellectual
Property Rights."

Employees

As of December 31, 1998, ZiLOG employed 1,611 full-time persons, including
1,207 in manufacturing, 139 in research and development, 192 in sales and
marketing and 73 in finance and administration. In January 1999, the
Company terminated 384 employees in connection with the outsourcing of its
Philippines assembly operations. ZiLOG considers its relations with its
employees to be good, and believes its future success will depend, in large
part, upon its ability to attract, retain, train, and motivate its
employees. None of the Company's employees are represented by labor
unions.

Environmental

ZiLOG is subject to a variety of government regulations related to the
discharge or disposal of toxic, volatile or otherwise hazardous chemicals
used in its manufacturing process, including the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Superfund Amendment and Reauthorization Act, the Clean
Air Act and the Water Pollution Control Act. ZiLOG believes it has also
obtained all necessary environmental permits to conduct its business, which
generally relate to the discharge of hazardous wastes. Nevertheless, the
failure to comply with present or future regulations could result in fines
being imposed on ZiLOG, suspension of production or cessation of
operations. Such regulations could require the Company to acquire
significant equipment or to incur substantial other expenses to comply with
environmental regulations. Any failure by ZiLOG to control the use of, or
adequately restrict the discharge of, hazardous substances could subject it
to future liabilities.

In January 1998, the newspaper USA Today published a series of articles
about environmental and employee health and safety conditions at
semiconductor manufacturing facilities. The Company's operations during
1993 and 1994 and the previously settled lawsuit were the primary subjects
of one article and were mentioned in several other articles. Since 1993,
the Company has constructed its MOD III facility, expanded MOD II, closed
MOD I and has upgraded the environmental monitoring and control equipment
at its MOD II facility. The Company believes it is in substantial
compliance with all applicable environmental and employee health and safety
regulations. However, this public attention focused on the environmental
and employee health and safety conditions at the Company's facilities could
increase the incidence of environmental or employee health and safety
complaints or governmental investigations into the Company's operations and
there can be no assurance that the Company will not incur significant
expense in connection therewith.

In February 1999, ZiLOG's facilities in Nampa, Idaho received ISO 14001
certification by the National Standards Authority of Ireland, an
independent auditor of environmental management systems (EMS). The Company
believes that ISO 14001 certification is widely recognized as the global
standard for measuring the effectiveness of a Company's environmental
safeguards. To qualify, companies must implement an EMS program, comply
with all relevant regulations, commit to prevent pollution, adopt a program
of continual improvement, and submit to periodic outside audits. ZiLOG's
environmental management program controls and monitors air quality, water
use and conservation waste disposal and chemical handling among other
issues.

The Merger

Pursuant to the Merger Agreement, dated as of July 20, 1997, as amended,
Merger Sub merged with and into ZiLOG on February 27, 1998, and ZiLOG
continues as the surviving corporation. The Merger was approved by ZiLOG's
stockholders on January 27, 1998. On February 27, 1998, as a result of the
Merger, ZiLOG ceased being a publicly traded company. By virtue of the
Merger, certain shares of ZiLOG Common Stock having an implied value of
approximately $7.5 million held by certain of ZiLOG's stockholders prior to
the Merger were converted into Common Stock of ZiLOG, the surviving
corporation. All other shares of outstanding Common Stock were canceled
and, except for shares of Common Stock held in ZiLOG's treasury, owned by
ZiLOG or any subsidiary of ZiLOG, or held by a stockholder of ZiLOG who has
properly exercised appraisal rights under Delaware law, were converted into
the right to receive cash consideration, all as set forth in the Merger
Agreement. By virtue of the Merger, the Common Stock of Merger Sub was
converted into new shares of Common Stock, Class A Non-Voting Common Stock
and Preferred Stock of ZiLOG.

ITEM 2. PROPERTIES

ZiLOG's headquarters are located at 910 East Hamilton Avenue, Campbell,
California, in a 108,000 square foot facility leased through February
2004. ZiLOG performs wafer fabrication at its 77,000 square foot and
128,000 square foot buildings located on a 65-acre site in Nampa, Idaho.
ZiLOG owns these Idaho facilities.

A majority of the Company's final test operations are performed at ZiLOG's
54,000 square foot facility in the Philippines, which is leased through
2004. ZiLOG has leased a 17,249 square foot customer support and
engineering design center in Austin, Texas, which expires February 14,
2003. In addition, ZiLOG has short-term leases for its sales offices
located in the U.S., Canada, England, Germany, Japan, Korea, Malaysia, the
People's Republic of China (including Hong Kong), Singapore and Taiwan.

ITEM 3. LEGAL PROCEEDINGS

The Company has been named as a defendant in a purported class action
lawsuit which was filed on January 23, 1998 in the U.S. District Court for
the Northern District of California. Certain executive officers of the
Company are also named as defendants. The plaintiff purports to represent
a class of all persons who purchased the Company's Common Stock between
June 30, 1997 and November 20, 1997 (the "Class Period"). The complaint
alleges that the Company and certain of its executive officers made false
and misleading statements regarding the Company that caused the market
price of its Common Stock to be "artificially inflated" during the Class
Period. The complaint does not specify the amount of damages sought. On
March 24, 1999, the court granted ZiLOG's motion to dismiss and entered
judgment in favor of all defendants.

Two parties have notified ZiLOG that it may be infringing certain patents
and other intellectual property rights. In the event ZiLOG determines
that such notices may involve 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 a material adverse effect
on ZiLOG. See "Business-Patents and Licenses."

ZiLOG is participating in other litigation and responding to claims
arising in the ordinary course of business. ZiLOG intends to defend
itself vigorously in these matters. ZiLOG's management believes that it
is unlikely that the outcome of these matters will have a material adverse
effect on the Company, although there can be no assurance in this regard.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

As a result of the Merger, which was consummated on February 27, 1998,
ZiLOG's Common Stock is no longer traded. From May 17, 1995 through
February 27, 1998, the Company's Common Stock traded on the New York Stock
Exchange under the symbol "ZLG." Previously, the Company's Common Stock
traded on the Nasdaq National Market under the symbol "ZLOG." The
following table shows the high and low closing prices for the Common Stock
of the Company for the periods indicated, as reported by the New York
Stock Exchange:

High Low
---------- ---------
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................................... 24 5/8 18 1/16

Year Ended December 31, 1998:
First Quarter (through February 27, 1998)....... $ 19 15/16 $ 18 5/16

As of December 31, 1998, there were approximately 229 stockholders of
record of the Company's Common Stock, eight holders of the Company's
Class A Non-Voting Common Stock and eight holders of the Company's
Series A Cumulative Preferred Stock. Immediately after consummation of
the Merger, ZiLOG's Board of Directors (the "Board"), declared a 4-for-1
stock split in the form of a dividend for each share of Common Stock and
Class A Non-Voting Common Stock and designated 1,500,000 shares of
Preferred Stock as Series A Cumulative Preferred Stock. In August 1998,
the Board approved a 2-for-1 stock split on each share of Common Stock and
Class A Non-Voting Common Stock.

The Company has not paid cash dividends on its Common Stock, Class A Non-
Voting Common Stock or Series A Cumulative Preferred Stock and does not
anticipate paying any dividends on its Common Stock in the foreseeable
future. In addition, the agreement dated as of February 27, 1998, by and
between the Company, certain of its subsidiaries and State Street Bank and
Trust Company, as trustee (the "Indenture"), governing the Senior Secured
Notes (the "Notes") and the Secured Revolving Credit Facility (the
"Credit Facility") limit the Company's ability to pay dividends on its
capital stock. The Company intends to retain its earnings for the
development of its business.

The Company's Series A Cumulative Preferred Stock accumulates dividends at
the rate of 13.5% per annum (payable quarterly) for periods ending on or
prior to February 26, 2008, and 15.5% per annum thereafter. Dividends
will be payable, at the election of the Board but subject to availability
of funds and the terms of the Indenture (the "Indenture"), and the Credit
Facility, in cash or in kind through a corresponding increase in the
liquidation preference of the Series A Cumulative Preferred Stock. The
Series A Cumulative Preferred Stock will have an initial liquidation
preference of $100.00 per share.

To the extent that a quarterly dividend payment in respect of a share of
Series A Cumulative Preferred Stock is not made in cash when due, the
amount of such unpaid dividend will accumulate (whether or not declared by
the Board) through an increase in the liquidation preference of such share
of Series A Cumulative 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 Company is required on February 27, 2008 to pay in cash
all accumulated dividends that have been applied to increase the
liquidation preference, but only to the extent that such dividends have
not been paid in cash.

Shares of Series A Cumulative Preferred Stock may be redeemed at the
option of the Company, in whole or in part, at 100%, if redeemed on or
after February 27, 2003, in each case of the sum of (a) the liquidation
preference thereof, increased to the extent that accumulated dividends
thereon shall not have been paid in cash, plus (b) accrued and unpaid
dividends thereon to the date of redemption. Optional redemption of the
Series A Cumulative Preferred Stock will be subject to, and expressly
conditioned upon, certain limitations under the Indenture and the New
Credit Facility.

In certain circumstances, including the occurrence of a change of control
of the Company, but again subject to certain limitations under the
Indenture, the Company may be required to repurchase shares of Series A
Cumulative Preferred Stock at 101% of (a) the sum of the liquidation
preference thereof, increased to the extent that accumulated dividends
thereon shall not have been paid in cash, plus (b) accrued and unpaid
dividends thereon to the repurchase date

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected consolidated financial
data of the Company and its subsidiaries.

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net sales................. $204,738 $261,097 $298,425 $265,122 $223,316

Costs and expenses:
Cost of sales............ 163,315 171,722 175,319 135,066 111,288
Research and
development............ 28,846 30,467 30,548 24,546 23,048
Selling, general and
administrative......... 54,317 47,806 47,934 41,943 37,790
Special charges (1)...... 5,286 -- -- -- --
--------- --------- --------- --------- ---------
Total costs and
expenses................ 251,764 249,995 253,801 201,555 172,126
--------- --------- --------- --------- ---------
Operating income (loss)... (47,026) 11,102 44,624 63,567 51,190
Other income (expense):
Interest income
(expense), net.......... (20,620) 2,892 2,443 2,676 2,496
Other, net................ (796) 832 (911) (360) 860
--------- --------- --------- --------- ---------
Income (loss) before
income taxes............ (68,442) 14,826 46,156 65,883 54,546
Provision (benefit) for
income taxes............ (14,248) 2,965 16,155 23,418 19,637
--------- --------- --------- --------- ---------
Net income (loss)......... ($54,194) $11,861 $30,001 $42,465 $34,909
========= ========= ========= ========= =========

EBITDA(2)................. $19,259 $75,456 $91,307 $89,478 $72,383

Consolidated Balance Sheet
Data (at end of period):
Working capital........... $46,807 $131,594 $88,567 $102,761 $85,173
Total assets.............. $297,071 $415,639 $401,066 $353,430 $286,691
Notes payable............. $280,000 $ -- $ -- $ -- $ --
Other non-current
liabilities............. $6,349 $16,070 $16,050 $8,435 $4,210
Shareholders' equity
(deficiency)............ ($48,231) $340,482 $325,280 $278,864 $212,595

</TABLE>

(1) Special charges consist of recapitalization charges and
restructuring charges. See Note 4 to the Consolidated Financial
Statements.

(2) EBITDA represents earnings (losses) before interest, income
taxes, depreciation, amortization of goodwill, non-cash stock
compensation expenses and special charges.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of the financial
condition and results of operations of the Company and its subsidiaries
for the fiscal years ended December 31, 1998, 1997 and 1996. This
discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, the section entitled "Selected Consolidated
Financial Data" and the consolidated financial statements and notes
thereto included elsewhere herein. Management's discussion and analysis
provides information concerning the Company's business environment,
consolidated results of operations and liquidity and capital resources.
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements regarding events and
trends that may affect the Company's future operating results and
financial position. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof.

These forward-looking statements involve a number of risks and
uncertainties which are described throughout this Form 10-K, including the
significant considerations and risks discussed in this Form 10-K; the
results of the Company's recapitalization; execution of the Company's new
business strategy and cost reduction programs; general economic, market or
business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by the Company and its subsidiaries; competitive
actions by other companies; changes in the mix of products or customers or
in the level of operating expenses; the ability of the Company to
generate cash and service debt; and other factors, many of which are
beyond the control of ZiLOG and its subsidiaries. The actual results that
the Company achieves may differ materially from any forward-looking
statements due to such risks and uncertainties. Consequently, all of the
forward-looking statements made in this Form 10-K are qualified by these
cautionary statements and there can be no assurance that the results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences or
effects on the Company and its subsidiaries or their business or
operations. The Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to these forward-looking
statements to reflect events or circumstances that occur or are
anticipated to occur or arise after the date hereof, except as required by
law.

General

ZiLOG is a worldwide designer, manufacturer and marketer of semiconductor
products for use in communications, integrated controls, and home
entertainment end markets. ZiLOG's products, many of which are "designed
in" to customers' end products, generally have longer life cycles than
general-purpose microprocessors.

ZiLOG, a pioneer in the semiconductor market, which is headquartered in
Campbell, California, operates two fabrication facilities in Nampa, Idaho,
and one test facility in the Philippines. For the fiscal year ended
December 31, 1998, the Company generated net sales of $204.7 million, a
net loss of $87.5 million and EBITDA of $19.3 million.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

During 1998, ZiLOG, like other companies in the semiconductor industry,
experienced a general decline in net sales and average selling prices.
Net sales for 1998 were $204.7 million, compared to $261.1 million in
1997, a decrease of 21.6 %. The decline in 1998 net sales from 1997 was
primarily attributable to a decrease in sales of the Company's
communications products and weaker distribution sales as distributors
reduced inventory levels during the first nine months of 1998. These
decreases resulted in lower volumes and lower average selling prices
("ASPs"). Since communications products are typically those with the
highest ASPs, the volume reduction in this business unit also resulted in
an overall ASP decline.

In 1998, the Company generated approximately $79.5 million, or 38.8%,
compared to $98.5 million, or 37.7% in 1997, of its net sales, from sales
to customers located in China (including Hong Kong), Korea, Thailand,
Taiwan and Singapore. While economic activity in some of these countries,
most notably Korea, has been adversely affected by recent developments in
local currency and banking markets, the Company believes that the effect
of these developments on its business is somewhat mitigated by the
financial condition of many of ZiLOG's customers in these markets, many of
which are leaders in their respective industries and conduct their
business on a multinational basis. In addition, a substantial portion of
the Company's total revenue generated from the Asian region in 1998, was
related to end-products subsequently exported to non-Asian markets such as
the U.S. and Europe and therefore represents an important source of
foreign currency for these customers. The Company believes that it will
continue to benefit from the geographic diversity of its customers and the
diverse end-markets for its customers' products. No assurance can be
given that continued negative developments in the Asian region will not
have an adverse effect on ZiLOG's future operating performance. See
Business-Factors That May Affect Future Results-International
Operations."

Cost of sales in 1998 was $163.3 million or 79.8% of net sales as compared
to $171.7 million or 65.8% of net sales in 1997. The Company's cost of
sales represents the cost of its wafer fabrication, assembly and test
operations. Costs of sales fluctuate, depending on manufacturing
productivity, product mix, equipment utilization and depreciation. The
increase in percentage of cost of sales to net sales for 1998 was
primarily attributable to lower net sales, a change in product mix (due to
lower communications products sales) and the underutilization of wafer
fabrication manufacturing capacity, including depreciation charges of
$54.7 MILLION IN 1998.

Research and development expenses for 1998 were $28.8 million or 14.1% of
net sales compared to $30.5 million or 11.7% of net sales in 1997 which,
when compared on a dollar-to-dollar basis represents a decrease of 5.6%.
During 1998, the Company's research and development expenditures were
focused on technology for its new 0.35 micron CMOS wafer fabrication
process, new and enhanced product development, and new customer
development tools. Product development in 1998 was primarily in the areas
of modem and modem modules, home entertainment, and Z8+ microprocessor
core products. The 1998 decrease in research and development expenses as
compared to 1997, was primarily due to a decrease of $2.8 million related
to a reduction in tooling and wafer mask expenses which were partially
offset by an increase in depreciation expense for the Company's tool
development lab.

Selling, general and administrative expenses for 1998 were $54.3 million
compared to $47.8 million for 1997, an increase of 13.6%. The increase
over 1997 levels was primarily related to increased rent and operating
costs associated with the Company's new headquarters facility, increased
information systems costs, and higher payroll and travel expenses
including $1.5 million for a sales conference.

During 1998, the Company recorded special charges of $38.6 million, which
included recapitalization expenses of $33.3 million in connection with the
Merger and expenses of $5.3 million related to the restructuring of
operations. The recapitalization charges consisted primarily of executive
severance costs, employee stock option buy-outs, retention bonuses for
existing employees, new executive bonuses, bridge loan fees and consulting
fees and expenses. The Company incurred restructuring charges totaling
approximately $5.3 million. Of this amount, approximately $4.6 million was
related to manufacturing operations and approximately $0.7 million was
related to sales and headquarters operations. The restructuring costs
reflect the Company's strategy to align worldwide operations with market
conditions, improve the productivity of its manufacturing facilities by
leveraging its technology investments and renew its focus on the
distribution channel. Restructuring actions related to manufacturing
operations took place in the third and fourth quarters of 1998. The third
quarter restructuring costs consisted of approximately $1.0 million for
severance pay and benefits for terminated employees. This action reduced
the Company's workforce in its Nampa, Idaho wafer fabrication facility by
20%, or approximately 120 positions. Also in the third quarter, the
Company recorded a restructuring charge in the amount of $0.7 million. The
third quarter restructuring costs consisted of severance pay and benefits
for terminated employees in conjunction with the elimination of 33
positions in sales and headquarters operations in order to streamline the
Company's worldwide sales organizations and renew its focus on the
distribution channel. The restructuring costs for the fourth quarter
consisted of approximately $2.4 million for severance pay and benefits for
terminated employees and $1.2 million for fixed asset write-offs related to
the closure of its assembly operations in the Philippines. The payment of
severance benefits for this action occurred in January 1999. In connection
with the fourth quarter action, ZiLOG completed the transition of its
assembly operations to subcontractors. The benefits that subcontractors
provide include advanced packaging technology, as well as competitive
pricing, cycle times and quality. In addition, outsourcing assembly
operations permits the Company to mitigate future capital expenditures in
this area.

Other income (expense), net, decreased to $21.4 million in expense in 1998
from $3.7 million of income for 1997. The primary reason for the decrease
was for interest expense on the Company's Senior Notes issued in
conjunction with the Merger on February 27, 1998, and deferred financing
costs, which exceeded royalty and interest income. The Company will incur
approximately $28.1 million in interest expense annually on the Notes,
including $1.5 million in amortization of debt issuance costs, until their
maturity, which occurs on February 27, 2005.

The Company's benefit for income taxes was 14.0% for 1998 compared to
provisions for income taxes of 20% and 35% for 1997 and 1996,
respectively. The 1998 rate reflects the benefit of refundable taxes
related to the Company's overall loss position and realization of deferred
tax assets based on the reversal of taxable temporary differences, offset
by foreign taxes. Based on the weight of available evidence including
management's assessment of future taxable income over the next two to
three years, the Company has provided a valuation allowance of $17.4
million against deferred tax assets for 1998. The Company will continue
to evaluate the realizability of the deferred tax assets on a quarterly
basis. The lower provision for income tax for 1997, as compared to 1996,
is primarily attributable to a larger impact of tax exempt interest
income, foreign earnings taxed at a lower than the U.S. tax rate and the
reinstatement of the research and development tax credit on reduced pre-
tax earnings. The Philippines tax holiday expired in 1997.

Net sales for 1998 by business segment were $68.9 million, $85.9 million
and $49.9 million for the communications, integrated controls and home
entertainment business segments, respectively. These amounts represent
decreases of 38.7%, 11.1% and 4.1% for the communications, integrated
controls and home entertainment business segments, respectively, when
compared to 1997 net sales. The decrease in communications net sales,
which are sold mostly through distribution, was primarily due to
distributors reducing inventory levels from approximately 12 weeks to
eight. This reduction, which significantly improved the Company's
relationships with its distributors, took place over the first nine months
of 1998. Since the Company's communications products are typically those
with the highest ASP, this also resulted in an overall ASP decline of
approximately 25% when compared to 1997. When compared to net sales for
1997, the integrated controls business segment declined in 1998 primarily
as a result of product mix. The Company sold more devices in the
appliance and keyboard/pointing devices product lines and fewer devices in
its security and wireless product lines. The year-to-year decrease in the
home entertainment business segment was primarily the result of a 27%
decrease in ASPs in 1998 compared to 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Sales for 1997 were $261.1 million, compared to $298.4 million in 1996, a
decrease of $37.3 million, or 12.5%. The sales decline was primarily
attributable to (i) an ongoing shift at a data communications customer
that was moving toward modems that do not require a controller and (ii)
the decrease of microprocessor sales to hard disk manufacturers. The data
communications customer, which generated approximately 12.8% of 1996
revenues, was in the process, during 1997, of changing the newest model(s)
of its modem product, which resulted in a decrease to ZiLOG of
approximately $23 million in revenues versus the year-earlier period,
although this particular customer continued to purchase ZiLOG's products
for other applications. Sales in 1997 to this customer totaled $4.7
million in the first quarter, $3.4 million in the second quarter, $4.8
million in the third quarter and $2.6 million in the fourth quarter. No
single customer accounted for more than 8% of revenues in 1997. The
discontinuation of the development and marketing of the hard disk
products, which resulted in a decrease to ZiLOG of approximately $8.5
million in revenue versus the year-earlier period, reflected the Company's
strategic decision to refocus its development efforts on other market
opportunities.

Overall unit volume increased by 15.4% in 1997, largely driven by
increased demand for the Company's keyboard and pointing device ASSPs.
Revenue growth, however, was adversely affected by generally declining
average selling prices as a result of changes in sales mix described above
and continuing over-capacity in the industry.

Cost of sales in 1997 was $171.7 million or 65.8% of sales, compared to
$175.3 million or 58.7% of sales in 1996, a decrease of $3.6 million or
2.1%. The decrease in cost of sales was primarily attributable to the
elimination in 1997 of outside wafer foundry cost offset by increased
depreciation of $15.8 million and overhead associated with the new MOD III
manufacturing facility in Nampa, Idaho, which was completed in 1996.
Excluding this increase in depreciation expense associated with the new
facility, 1997 cost of sales as a percent of revenues was relatively
unchanged at 59.7% compared to 58.7% in 1996.

Research and development expenses for 1997 and 1996 were both $30.5
million.

Selling, general and administrative expenses for 1997 were $47.8 million,
which was relatively unchanged from the $47.9 million recorded in 1996.
Administrative expenses were $1.5 million less in 1997 than in 1996 due to
a litigation settlement in 1996, partially offset by higher recruiting and
personnel costs in 1997 associated with increasing the sales force.

Operating income for 1997 was $11.1 million, or 4.3% of sales, compared to
$44.6 million, or 15.0% of sales, for 1996. The reduction in operating
income for 1997 was primarily due to a higher percentage of cost of goods
sold as a result of lower revenues and increased depreciation charges
associated with the Company's new MOD III manufacturing facility.

The Company's effective tax rate was 20% for 1997 compared with 35% for
1996. The reduced provision for income taxes for 1997 was primarily
attributable to a larger impact of tax exempt percentage including foreign
earnings taxed at a lower rate than the U.S. rate and reinstatement of the
research and development tax credit on reduced pre-tax earnings.

Liquidity and Capital Resources

The Company's primary cash needs are debt service, working capital and
capital expenditures. The Company has historically financed these cash
requirements primarily through internally generated cash flows and cash
received upon the exercise of stock options. As of December 31, 1998, the
Company had cash and cash equivalents of approximately $50.9 million.

Cash used by operating activities was $5.1 million for fiscal 1998, while
cash provided by operations was $72.6 million for fiscal 1997. The use of
cash by operating activities in 1998 was primarily due to the Company's
net loss, which was the result of reduced sales when compared to 1997,
$38.6 million in special charges, as a result of the Merger and
restructuring of the Company, and approximately $24.4 million of interest
expense, primarily associated with the Notes, none of which were present
in 1997. These amounts were partially offset by depreciation and
amortization of $62.9 million, and a $10.7 million reduction of inventory
levels and cash provided by an improvement in accounts receivable
collections. The Company does not anticipate further material reductions
of its inventory levels.

Cash used for investing activities was $7.2 million during 1998. The
Company invested $21.3 million in new capital expenditures primarily for
new capital equipment for its manufacturing operations, product
development tools and computer office upgrades. This use was partially
offset by $14.1 million in proceeds received from the sale of short-term
investments. Cash provided by investing activities of $1.1 million 1997
was primarily due to the sale of short-term investments, which were almost
entirely offset by capital expenditures in the amount of $38.4 million.

Cash used by financing activities for 1998 was $29.1 million, while cash
provided by financing activities in 1997 was $3.0 million. The use of
cash by financing activities in 1998 was primarily for cash transactions
related to the Merger including cash used to retire Common Stock and costs
and fees associated with the Merger. Cash provided by financing
activities in 1998 was $280 million of gross proceeds from the sale of the
Notes and an equity investment by TPG II and certain other investors of
$117.5 million, both of which were used for the purchase of pre-Merger
outstanding Common Stock. Cash provided by financing activities in 1997
was primarily from exercises of stock options and purchases under ZiLOG's
Stock Purchase Plan.

On December 30, 1998, ZiLOG obtained a new senior secured credit facility
(the "New Facility") from a lender (the "Lender"). The commitment,
which is up to $40 million, provides for a three-year revolving credit
facility of up to $25 million and a five-year capital expenditure line of
up to $15 million. The New Facility is secured by a perfected interest in
all of the accounts receivable and inventory and proceeds thereof, and all
eligible equipment. Borrowings under the New Facility are available at
any time during its three-year term subject to a borrowing base of 80% of
eligible accounts receivable and 40% of eligible inventory and the
fulfillment of customary conditions precedent. The capital equipment line
provides for loans of up to 70% of invoiced value for new equipment and
80% of appraised value for used equipment. The New Facility is subject to
certain restrictive financial covenants and other restrictions customary
for its type. ZiLOG will not be subject to any financial covenants as
long as the Company has more than either $7.5 million in availability on
the revolving line or $15.0 million of availability on both the revolving
and capital equipment lines, combined, whichever event occurs first.
Borrowings under the New Facility bear interest at a rate per annum equal
(at ZiLOG's option) to the Lender's stated prime rate or the London
Interbank Overnight Rate ("LIBOR") plus 2% for the revolving credit
facility and the Lender's prime rate plus 1% or LIBOR plus 3% for the
capital expenditure line. ZiLOG is required to pay the Lender, on a
quarterly basis, a commitment fee on the undrawn portion of the facility
equal to 1/4 of 1% per annum. ZiLOG is also obligated to pay a per annum
letter of credit fee on the aggregate amount of outstanding letters of
credit and customary arrangement and similar fees. The Company was in
compliance with its obligations under the New Facility and there were no
borrowings or letters of credit outstanding on the New Facility at
December 31, 1998. At December 31, 1998, the Company's total calculated
availability under the New Facility was $36.5 million.

The Company incurred substantial indebtedness in connection with the
Merger. ZiLOG's ability to make scheduled principal payments, or to pay
the interest, premium if any, or to refinance its indebtedness (including
the Notes), or to fund capital and other expenditures will depend on its
future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory, and other
factors that are beyond its control. ZiLOG's primary cash needs are debt
service, working capital and capital expenditures. ZiLOG made its first
semi-annual interest payment on the Notes of approximately $13.6 million
on September 1, 1998. The Company has financed its cash requirements for
working capital and capital expenditures primarily through internally
generated cash flows and existing cash reserves. Based upon the current
level of operations, management believes that cash flow from operations,
available cash and available borrowings under the New Facility will be
adequate to meet ZiLOG's future requirements for working capital, budgeted
capital, and other expenditures and scheduled payments of principal and
interest on its indebtedness, including the Notes, for at least the next
12 months. However, there can be no assurances that ZiLOG's business will
generate sufficient cash to enable the Company to service its
indebtedness, including the Notes, or make anticipated capital and other
expenditures.

The agreement dated as of February 27, 1998, by and between the Company,
certain of its subsidiaries and State Street Bank and Trust Company, as
trustee governing the Notes issued in connection with the Merger contains
certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to incur certain additional indebtedness,
issue certain types of capital stock, pay dividends or distributions, make
investments or certain other payments, enter into certain transactions
with affiliates, dispose of certain assets, incur liens and engage in
mergers and consolidations. The Notes will mature on March 1, 2005.
Interest on the Notes accrues at the rate of 9 1/2% per annum and is payable
semi-annually in arrears on March 1 and September 1, to holders of record
on the immediately preceding February 15 and August 15, respectively.

New Accounting Pronouncements

On January 1, 1998, the Company adopted the Financial Accounting Standard
Board's ("FASB") Financial Accounting Standard ("FAS") No. 130,
Reporting Comprehensive Income and restated prior year's financial
statements to conform to the reporting standard. FAS No. 130 established
standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements.
Comprehensive income includes all changes in stockholders' equity during a
period except those resulting from investments by owners and distributions
to owners. The adoption of FAS No. 130 resulted in revised and additional
disclosures but had no effect on the financial position, results of
operations or liquidity of the Company.

In June 1998, the FASB issued FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. FAS No. 133 requires all derivatives
to be recorded on the balance sheet at fair value and establishes special
accounting rules for different types of hedges. Adoption of this
statement is required in the year ending December 31, 2000, and is not
expected to have any impact on the Company's results of operations or
financial condition.

Year 2000 Compliance

ZiLOG has an active year 2000 ("Y2K") readiness program and has, as of
December 31, 1998, made a substantial effort to reasonably evaluate its
operations to prevent any material adverse Y2K-related impact. This
program began with a survey of potential sources of Y2K exposures in both
information technology ("IT") Company resources and non-IT resources,
which could potentially affect the Company's business. As of December 31,
1998, the majority of this initial source identification phase had been
completed. For potential sources of Y2K risk which are external to the
Company, such as with the Company's external vendors and suppliers, the
Company typically relies upon written assurances of Y2K compliance from
those various parties in lieu of physical testing by the Company's
employees. To date, the Company has not identified any Y2K issues
inherent in its products.

The next step in the Company's Y2K remediation program is to
systematically analyze each identified potential internal IT and non-IT
Y2K exposures to determine its likelihood of material effect on the
Company's operation and the range of available remediation actions by
performing physical tests which simulated performances of the systems with
post-year 2000 dates. The Company's products, for the most part, involve
hardware ICs, which, at the time of sale to customers, have no inherent
date sensitive features. As of December 31, 1998, the analysis phase of
the Y2K readiness program was substantially completed and the Company
expects to complete its internal and external Y2K readiness programs by
July 1, 1999.

The total cost associated with required modifications to become Y2K
compliant is not expected to be material to the Company's financial
position. The amount expended through December 31, 1998 was approximately
$2.8 million, primarily associated with the total replacement of the
information systems related to the Company's sales order process,
planning, physical distribution and finance functions which are expected
to be completed by April 30, 1999. The Company had intended to replace
such systems in the ordinary course of its business and the implementation
was not substantially accelerated due to Y2K. The Company believes that
the cost of its Y2K readiness program, as well as currently anticipated
costs to be incurred with respect to Y2K issues of third parties, will not
exceed $5 million, inclusive of the cost described above. It is
anticipated that all such expenditures will be funded from operating cash
flows and absorbed as part of the Company's ongoing operations.

Having reasonably determined that the Company's own hardware and software
systems will be substantially Y2K compliant and that its products
inherently have no date-related issues, management believes that the worst
case scenarios would most likely involve massive, simultaneous Y2K-related
disruptions from the Company's key external raw material suppliers and/or
service providers. For these worst case scenarios to have maximum adverse
impact on the Company, the vendors in question would either need to be
sole-source providers, or their peer companies, who would otherwise be
potential second-source suppliers, would also need to undergo similar Y2K-
related disruption. Examples on the material supplier side include
extended and substantial disruptions of the Company's key raw material
suppliers of silicon wafers, piece parts, specialty chemicals and gasses.
Examples on the service provider side would include, extended substantial
disruptions of the Company's third party semiconductor assembly firms,
telecommunications and data communications services, airfreight and
delivery services, or the worldwide banking system. The Company believes
that such massive and simultaneous disruptions of the supply of basic
goods and services as a result of Y2K-related issues are unlikely to
occur. However, no assurance can be given that unforeseen disruptions in
the supply of basic goods or services will not have a material adverse
effect on the Company.

The Company has made no contingency plans for handling Y2K issues because
it believes that the steps it has taken to assess its own hardware and
software systems and those of its key vendors and suppliers are adequate
to prevent all but minimal disruptions to its business processes. In the
third quarter of 1999, the Company plans to conduct a review of then
current advice from government agencies, transportation suppliers and
major customers to determine what actions, if any, should be taken to
mitigate loss of supply to customers through failures in customs
clearances or transportation services. In the event of random, unforeseen
Y2K problems (such as failures of specific pieces of process equipment or
the temporary inability of certain vendors to provide materials or
services), the Company believes that these types of issues will be
resolved in the normal course of business, including the potential use of
alternate suppliers.

Factors That May Affect Future Results

Substantial leverage and ability to service indebtedness: The Company has
substantial amounts of outstanding indebtedness. As of December 31, 1998,
the Company had outstanding $280 million of principal on its Notes. On
December 30, 1998, the Company entered into a New Facility of up to $40
million consisting of a three year revolving credit facility of up to $25
million and a five year capital expenditure line of up to $15 million. The
Company and its subsidiaries also may incur additional indebtedness in the
future, subject to the limitations imposed by the Indenture governing the
Notes and the restrictions imposed by the New Facility. The high degree to
which the Company is leveraged may have important consequences to ZiLOG,
including the following: (i) ZiLOG's ability to obtain additional financing
for future acquisitions (if any), working capital, capital expenditures,
product development or other purposes may be impaired or any such financing
may not be available 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 debt service, 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
make it vulnerable to a downturn in its business or the economy generally.
In addition, because the Notes are secured by substantially all the
Company's real and personal property and the New Facility is secured by
accounts receivable, inventories and equipment, the Company may have
difficulty raising additional secured financing. Also there can be no
assurance that the proceeds of any sale of collateral of any debt,
including the Notes, would be sufficient to satisfy the aggregate amounts
due on such debt. The value of such collateral and the amount for which it
could be sold in the event of a foreclosure would depend on various factors
at the time of the sales.

To satisfy the Company's obligations under the Notes and any future
obligations under the New Facility, the Company will be required to
generate substantial operating cash flow. The ability of the Company to
meet debt service and other obligations or to refinance any such obligation
will depend on the future performance of the Company, which will be subject
to prevailing economic conditions and to financial, business and other
factors, certain of which may be beyond the control of the Company. While
the Company believes that, based on current levels of operations and its
business plan, it will be able to meet its debt service and other
obligations or to refinance its indebtedness, there can be no assurances
with respect thereto. Moody's current rating of the Company's corporate
credit and the Notes is a single (B). Standard and Poors current rating of
the Company's corporate credit and the Notes is a single (B) minus, and the
bank loan rating is a single (B). These ratings agencies can raise or
lower their ratings of the Company at any time based on their analysis of
the Company's financial condition and operating results. These ratings,
particularly if they decline, could adversely affect the Company's ability
to raise additional financing on acceptable terms or at all. See
Management's Discussion and Analysis of Financial Condition and Results of
Operation-Liquidity and Capital Resources" for information regarding the
operating cash flow and debt service obligations of the Company.

Recent and anticipated operating results: ZiLOG's operating results are
affected by a wide variety of factors which could have a material adverse
effect on it 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 its customers' products, the level of
orders that are received and can be shipped in a quarter, customer order
patterns and seasonality, cyclicality in the semiconductor industry,
increases in freight costs, gain or loss of a significant customer and
whether ZiLOG's customers buy from a distributor or directly from ZiLOG.
In addition, the Company incurred a net loss of $87.5 million in 1998.
Certain of the Company's products have sustained decreases in average
selling prices and the Company has sustained product mix shifts that have
caused average selling prices of ZiLOG's products in the aggregate to
decrease by 25% in 1998 and this trend may continue. Significant
reductions in selling prices may have a material adverse effect on the
Company. ZiLOG will likely experience substantial period-to-period
fluctuations in future operating results due to general industry
conditions including cyclical periods of diminished product demand,
accelerated erosion of average selling prices and production over-capacity
or events occurring in the U.S. economy or the economies of the worldwide
markets ZiLOG serves. A significant decline in demand for ZiLOG's
products could have a material adverse effect on the Company, and there
can be no assurance that any new products will receive or maintain
substantial market acceptance.

ZiLOG's revenue and EBITDA have declined from $261.1 million and $75.5
million, respectively, for 1997 to $204.7 million and $19.3 million,
respectively, for 1998. Although the Company believes that it has
developed a business strategy that will improve its operating performance,
many of the factors which affect the Company's operating performance are
outside the Company's control and there can be no assurance that the
Company's business strategy will be successful or that results of
operations will not continue to decline. Implementation of the Company's
business plan requires significant expenditures and there can be no
assurance that the Company will be in a position to implement it fully or
that such expenditures will be offset by any increase in revenue. See
Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources." Continued significant
declines in operating performance could have a material adverse effect on
the Company and its ability to meet its debt service and other
obligations.

During the second half of 1997 and all of 1998, ZiLOG experienced a
general decline in revenue and profit as the semiconductor industry also
incurred an overall decline. Similar to other semiconductor companies,
the Company has implemented and is considering implementing additional
cost-cutting measures which may include, but are not limited to, the
following: refocusing business priorities; renegotiations with vendors and
service providers to lower the costs of materials and services;
reallocation of personnel and responsibilities to better utilize human
resources; partnering to better utilize assets; reductions in workforce;
changes of manufacturing mix; increased use of subcontractors or foundry
for greater efficiency and lower short-term costs; changes in shift
structures; and temporary and permanent plant shutdowns. In addition, the
Company is considering realignment of capital expenditures consistent with
its current level of business. There can be no assurance that such cost-
cutting measures will be successful in repositioning the Company or result
in increased efficiency or profitability.

From time to time, the Company has experienced a shortage of certain
products which caused delays in shipment to its customers. Failure to
deliver product to customers in a timely manner could have a material
adverse effect on the Company.

Risks of acquisitions: The Company intends to consider acquisitions from
time to time of other companies and businesses, and to pursue attractive
acquisition opportunities. However, no assurance can be given that ZiLOG
will consummate any acquisitions. Acquisitions involve a number of risks
that could adversely affect ZiLOG. ZiLOG may not have had any experience
with technologies and markets involved with the acquired business and
accordingly may not have the experience necessary to successfully operate
and integrate the business. The successful operation of an acquired
business will require communication and cooperation in product development
and marketing among senior executives and key technical personnel. This
cooperation may not occur. In addition, ZiLOG may not be able to
successfully integrate its operations with those of the acquired
businesses and acquisitions may disrupt the acquired business and ZiLOG's
existing business. In addition, there can be no assurance that ZiLOG will
retain key technical, management, sales and other personnel, or that the
Company will realize any of the other anticipated benefits of the
acquisition. Furthermore, acquisitions would require investment of
financial resources, and may require debt or equity financing.

The semiconductor industry: The semiconductor industry has been
characterized as cyclical. 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 1997 and 1998,
ZiLOG's revenue and profit have been lower than their respective levels in
1996 and there can be 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. The fluctuations
are difficult to foresee and there can be no assurance that future
fluctuations will not be more severe or prolonged or otherwise would not
have a material adverse effect on the Company.

Certain of ZiLOG's products are incorporated into printers, mouse-type
pointing devices, 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's 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 have a material
adverse effect on ZiLOG.

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, complexity of
the new products to be designed and manufactured, 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. The Company's business strategy
includes increased focus on design wins. However, there is a substantial
delay between a design win and sales of new products. Any such sales are
subject to the success or failure of the customer's product. There can be
no assurance that the Company will successfully identify new product
opportunities and develop and bring new products to market in a timely and
cost-effective manner, or that products or technologies developed by
others will not render the Company's products or technologies obsolete or
noncompetitive. A fundamental shift in technology in the Company's
product markets could have a material adverse effect on the Company.

New management and key personnel: In February of 1998, Curtis J. Crawford
became President and CEO of ZiLOG, replacing Dr. Edgar Sack. After
careful review, Mr. Crawford commenced plans to construct a new management
team and implement a new operating strategy for the Company. By the end
of 1998, Mr. Crawford had replaced approximately three-quarters of the
senior management team. There can be no assurance that this management
transition and the implementation of the new management strategy will not
adversely affect operating results. In addition, the Company 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 the Company will be successful in attracting and
retaining such personnel.

Customer concentration: In 1998, the Company's 10 largest customers
accounted for approximately 45% of the Company's net sales, although no
customer accounted for more than 10.5% of the Company's net sales.
Particular customers may change from period to period but the Company
expects that sales to a limited number of customers will continue to
account for a significant percentage of its revenue in any particular
period for the foreseeable future. The Company has no long-term contracts
with its customers and there can be no assurance that its current
customers will place additional orders, or that the Company will obtain
orders of similar magnitude from other customers. The loss of one or more
major customers or any reduction, delay or cancellation of orders by any
such customer or the failure of the Company to market successfully to new
customers, could have a material adverse effect on the Company. There can
be no assurance that sales to one or more significant customers will not
decline in the future or that any such decline will not have a material
adverse effect on the Company.

Production yields and manufacturing risk: new wafer fabrication facility:
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. In
addition, as is common in the semiconductor industry, ZiLOG has from time
to time experienced difficulty in beginning production at new facilities
or in effecting transitions to new manufacturing processes and,
consequently, has suffered delays in product deliveries or reduced yields.
As an example, operating results could be adversely affected if any
problems occur that make it difficult to produce quantities of commercial
product at its facilities in Nampa, Idaho. Such difficulties can include,
but are not limited to (i) equipment being delivered later than or not
performing as expected; (ii) process technology changes not operating as
expected; and (iii) engineers not operating equipment as expected. 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 time. No assurance can be given that ZiLOG
will not experience production yield problems in the future which could
have a material adverse effect on the Company. While the Company believes
its manufacturing capacity to be sufficient, the failure to increase
production capacity through the successful and efficient expansion of
production at its new facility in Nampa, Idaho or to obtain wafers from
outside suppliers as needed during periods of increased demand could have
a material adverse effect on the Company. A consequence of the Company's
restructuring is that lead times for certain of the Company's products may
be extended.

ZiLOG's future success is 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 0.65-micron CMOS process.
ZiLOG has developed a 0.35 micron CMOS process, and the first test wafers
in this process were produced in January 1998. A failure to make a
complete transition to the 0.35 micron CMOS process could have a material
adverse effect on the Company. 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 have a material adverse effect on the Company. See "Business-
Research and Development."

ZiLOG entered into long-term assembly contracts with its subcontract
assemblers. Shortages in contract assembly capacity or failure of
subcontractors to properly perform could adversely impact ZiLOG's
financial results. Should ZiLOG be unable to obtain sufficient assembly
capacity, ZiLOG's financial results might be adversely effected. Shortage
of product could also result in the loss of customers. See "Business-
Manufacturing."

Competition: The semiconductor industry is intensely competitive and is
characterized by price erosion, rapid technological changes and heightened
foreign competition in many markets. 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
its markets 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, ability to avoid
significant changes in technology rendering the Company's products
obsolete or non-competitive, product quality, reliability, ease of use,
price, diversity of product line, efficiency of production, the pace at
which customers incorporate ASSPs into their products, success of
competitors' products and general economic conditions. See "Business-
Competition."

International operations: Approximately 61% of ZiLOG's net sales in 1998
were to foreign customers and ZiLOG expects that international sales will
continue to represent a significant portion of sales, although there can
be no assurance that international sales, as a percentage of net sales,
will remain at current levels. Beginning in the fourth quarter of 1997,
certain countries in Asia, which accounted for approximately 39% of
ZiLOG's 1998 revenue, experienced general market instability characterized
by a substantial decrease in demand that resulted in significant capital
constraints throughout the region. In many cases, these constraints were
exacerbated by the continuing need of businesses in the region to service
indebtedness denominated in dollars or other foreign currencies. As a
result, many businesses in the region have explored ways to preserve
capital, including reducing capital investment, reducing working capital,
outsourcing manufacturing functions, selling assets and discontinuing
lines of business. In addition, substantial devaluation of local
currencies has significantly improved the competitive position of certain
competitors of the Company that operates in the affected regions.
Although the Company believes that this instability did not have a
material effect on the Company's revenue in 1998, there can be no
assurance that, as the instability continues, the Company's customers in
these regions will not significantly delay purchases of the Company's
products, significantly reduce the production of products which utilize
the Company's ASSPs or purchase ASSPs from the Company's competitors that
operate in the affected regions. Consequently, there can be no assurance
that this instability will not have a material adverse effect on the
Company.

ZiLOG purchases a substantial portion of its raw materials and equipment
from foreign suppliers. While ZiLOG's international sales are primarily
U.S. 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 U.S. 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 the Company 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 U.S.

ZiLOG operates its final test facility in the Philippines through a wholly
owned subsidiary. ZiLOG has a significant capital investment at this
facility. ZiLOG's reliance on personnel and assets and its maintenance of
inventory at this facility entails certain political and economic risks,
including political instability and expropriation, currency controls and
exchange fluctuations, as well as changes in tax laws, tariff and freight
rates. The Philippines currently appears to be politically stable, 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. Nonetheless, any loss or disruption of production in
the Philippines could have a material adverse effect on the Company,
particularly if operations or air transportation from the Philippines were
disrupted for a substantial period of time.

The Company relies on assembly subcontractors in Indonesia and the
Philippines. ZiLOG's reliance on these subcontractors and its maintenance
of inventories or work in process at these subcontractors entails certain
political and economic risks including political instability and
expropriation, currency controls and exchange fluctuations as well as
changes in tax laws, tariff and freight rates. Any loss or disruption of
production at these subcontractors in Indonesia or the Philippines could
have a material adverse effect on the Company particularly if operations or
transportation from Indonesia or the Philippines were disrupted for a
substantial period of time.

Intellectual property rights: 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 unfavorable result therefrom could have
an adverse effect on ZiLOG.

Two parties have notified ZiLOG that it may be infringing certain patents
and other intellectual property rights. In the event ZiLOG determines that
such notices may involve 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 a material adverse effect
on ZiLOG. See "Business-Patents and Licenses."

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
substantial 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.

In 1996, the U.S. District Court for the District of Idaho entered orders
approving a settlement in the lawsuit entitled Tsotung Ko, et al. v.
ZiLOG, Inc. In the suit, 31 plaintiffs alleged that the Company
endangered their health and safety by chemical exposures at one of the
Company's Nampa, Idaho facilities. In addition, the plaintiffs alleged
that the Company discriminated against them after they were injured by
chemical exposures. Although the Company made payments in connection with
the settlement, the Company strongly denied these allegations.
In January 1998, the newspaper USA Today published a series of articles
about environmental and employee health and safety conditions at
semiconductor manufacturing facilities. The Company's operations during
1993 and 1994 and the Tsotung Ko lawsuit were the primary subjects of one
article and were mentioned in other articles. Since 1993, the Company has
constructed its MOD III facility, expanded MOD II, closed MOD I and has
upgraded the environmental monitoring and control equipment at its MOD II
facility. The Company believes it is in substantial compliance with all
applicable environmental and employee health and safety regulations.
However, this recent public attention focused on the environmental and
employee health and safety conditions at the Company's facilities could
increase the incidence of environmental or employee health and safety
complaints or governmental investigations into the Company's operations
and there can be no assurance that the Company will not incur significant
expense in connection therewith.

Operating subsidiaries; structural subordination: Certain operations of
the Company are conducted through its foreign subsidiaries. Except to the
extent the Company may itself be a creditor with recognized claims against
its foreign subsidiaries, the claims of creditors of the foreign
subsidiaries will have priority with respect to the assets and earnings of
the foreign subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even though subsidiary obligations do not
constitute senior indebtedness of the Company.

Securities class action and other legal matters: The Company has been
named as a defendant in a purported class action lawsuit which was filed
on January 23, 1998 in the U.S. District Court for the Northern District
of California. Certain executive officers of the Company are also named as
defendants. The plaintiff purports to represent a class of all persons
who purchased the Company's Common Stock during the Class Period. The
complaint alleges that the Company and certain of its executive officers
made false and misleading statements regarding the Company that caused the
market price of its Common Stock to be "artificially inflated" during the
Class Period. The complaint does not specify the amount of damages
sought. On March 24, 1999, the court granted ZiLOG's motion to dismiss
and entered judgment in favor of all defendants.

Lack of public market for the Notes and Capital Stock; restrictions on
resale: There is currently no established market for the Notes or the
Company's capital stock. There can be no assurance as to the development
or liquidity of any market for the Notes or capital stock. The Company
does not intend to apply for listing of the Notes or its capital stock on
any securities exchange or for quotation through an automated quotation
system.

The liquidity of, and trading market for, the Notes and capital stock also
may be adversely affected by general declines in the market for similar
securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects
for, the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio and long-term debt
obligations. The Company does not use derivative financial investments
in its investment portfolio. The Company's primary investment objectives
are to preserve capital and maintain liquidity. These objectives are met
by investing in high quality credit issuances and limiting the amount of
credit exposure to any one company. The Company mitigates default risk by
investing in only the highest quality securities and monitoring the credit
ratings of such investments. The Company has no cash flow exposure due to
rate changes for its cash equivalents or the Notes as these instruments
have fixed interest rates. The Notes were issued to finance the Merger.

The table below presents principle amounts and related average interest
rates by year of maturity for the Company's cash equivalents and debt
obligation (in thousands):

<TABLE>
<CAPTION>
Fair
1999 2005 Total Value
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Equivalents:
Fixed rate.......... $48,927 $ -- $48,927 $48,927
Average rate........ 4.50% -- 4.50% --

Long-Term Debt:
Fixed rate.......... -- $280,000 $280,000 $224,000
Average rate........ -- 9.50% 9.50% --

</TABLE>

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and supplementary data are provided herein:

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheets as of December 31, 1998 and 1997

Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Stockholders' Equity for the Years
December 31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements

<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
ZiLOG, Inc.

We have audited the accompanying consolidated balance sheets of ZiLOG,
Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows
for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the index
at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of ZiLOG, Inc. at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Ernst & Young LLP

San Jose, California
January 18, 1999

<PAGE>

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $50,856 $92,184
Short-term investments................................ -- 14,127
Accounts receivable, less allowance for doubtful
accounts of $366 in 1998 and $250 in 1997.......... 25,151 31,633
Inventories........................................... 22,232 32,968
Prepaid expenses and other current assets............. 7,521 19,769
---------- ----------
Total current assets.......................... 105,760 190,681
Property, plant and equipment, at cost:
Land, buildings and leasehold improvements............ 37,026 34,314
Machinery and equipment............................... 387,375 381,144
---------- ----------
424,401 415,458
Less: accumulated depreciation and amortization....... (242,653) (191,881)
---------- ----------
Net property, plant and equipment..................... 181,748 223,577
Other assets............................................ 9,563 1,381
---------- ----------
$297,071 $415,639
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable...................................... $16,381 $24,733
Accrued compensation and employee benefits............ 24,595 18,284
Other accrued liabilities............................. 17,977 5,287
Income taxes payable.................................. -- 10,783
---------- ----------
Total current liabilities..................... 58,953 59,087
Notes payable........................................... 280,000 --
Other noncurrent liabilities............................ 6,349 16,070

Commitments and contingencies

Shareholders' equity (deficiency):
Preferred Stock, $100.00 par value; 5,000,000
shares authorized; 1,500,000 shares designated as
Series A Cumulative Preferred Stock; 250,000
shares of Series A Cumulative Preferred Stock
issued and outstanding at December 31, 1998;
aggregate liquidation preference $27,085 ($.01
par value; 190,000 shares authorized; no shares
issued and outstanding at December 31, 1997)........ 25,000 --
Common Stock, $0.01 par value; 70,000,000 shares
authorized; 30,098,736 shares issued and
outstanding at December 31, 1998. Class A
Non-Voting Common Stock, $0.01 par value;
30,000,000 shares authorized; 10,000,000 shares
issued and outstanding at December 31, 1998
(Common Stock, $.01 par value; 75,000,000 shares
authorized; 20,333,741 shares issued and
outstanding at December 31, 1997; retired in
February 1998)..................................... 401 203
Additional paid-in capital............................ 799 164,950
Retained earnings (accumulated deficit)............... (74,431) 175,236
Accumulated other comprehensive income................ -- 93
---------- ----------
Total shareholders' equity (deficiency)....... (48,231) 340,482
---------- ----------
$297,071 $415,639
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................ $204,738 $261,097 298,425

Costs and expenses:
Cost of sales.......................... 163,315 171,722 175,319
Research and development............... 28,846 30,467 30,548
Selling, general and administrative.... 54,317 47,806 47,934
Special charges:
Recapitalization..................... 33,334 -- --
Restructuring of operations.......... 5,286 -- --
---------- ---------- ----------
285,098 249,995 253,801
---------- ---------- ----------
Operating income (loss).................. (80,360) 11,102 44,624

Other income (expense):
Interest income........................ 3,755 3,167 2,443
Interest expense....................... (24,375) (275) --
Other, net, including license and
royalty income and expense........... (796) 832 (911)
---------- ---------- ----------
Income (loss) before income taxes........ (101,776) 14,826 46,156
Provision (benefit) for income taxes..... (14,248) 2,965 16,155
---------- ---------- ----------
Net income (loss)........................ ($87,528) $11,861 $30,001
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(increase (decrease) in cash and cash equivalents)
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. ($87,528) $11,861 $30,001
Adjustments to reconcile net income (loss)
to net cash (used) provided by
operating activities:
Depreciation................................. 61,795 63,750 48,315
Loss from disposition of equipment........... 1,351 50 100
Deferred income taxes........................ (7,150) (2,229) 3,811
Changes in assets and liabilities:
Accounts receivable....................... 6,482 (2,238) 13,666
Inventories............................... 10,736 1,501 (6,317)
Prepaid expenses and other assets......... 13,875 201 5,000
Accounts payable.......................... (8,352) (4,053) (7,421)
Accrued compensation and
employee benefits....................... 7,311 739 2,798
Other accrued liabilities and
income taxes payable.................... (3,592) 3,062 1,683
--------- --------- ---------
Cash (used) provided by
operating activities............... (5,072) 72,644 91,636
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures.......................... (21,317) (38,437) (117,065)
Short-term investments:
Purchases................................... -- (229,730) (55,006)
Proceeds from sales......................... 14,127 141,936 45,035
Proceeds from maturities.................... -- 127,304 30,095
--------- --------- ---------
Cash (used) provided by
investing activities............... (7,190) 1,073 (96,941)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock........ 212 2,956 13,032
Purchase of outstanding shares................ (399,475) -- --
Merger costs charged to retained earnings..... (17,401) -- --
Net proceeds from issuance of notes........... 270,098 -- --
Investment by Texas Pacific Group
Partners II, L.P............................ 117,500 -- --
--------- --------- ---------
Cash (used) provided by
financing activities............... (29,066) 2,956 13,032
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents.................................. (41,328) 76,673 7,727
Cash and cash equivalents at beginning
of period.................................... 92,184 15,511 7,784
--------- --------- ---------
Cash and cash equivalents at end of
period....................................... $50,856 $92,184 $15,511
========= ========= =========
Supplemental disclosures of cash
flow information:
Interest paid during the year................. $13,596 $ -- $ --
Income taxes paid (net refund) during the year ($1,955) $1,905 $9,249

</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Accumu-
lated Total
Retained Other Stock-
Common Stock Earnings Compre- holders'
Preferred Stock Common Stock Class A Additional (Accumu- hensive Equity
------------------ ------------------- ------------------- Paid-in lated Income (Defici-
Shares Amount Shares Amount Shares Amount Capital Deficit) (Loss) ency)
--------- -------- ----------- ------- ----------- ------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Balance at January 1, 1996... -- -- 19,455,627 $195 -- $-- $145,118 $133,374 $177 $278,864
Issuance of Common Stock
under stock option and
stock purchase plans,
including tax benefit of
$3,455..................... -- -- 672,349 6 -- -- 16,481 -- -- 16,487
Comprehensive income:
Net income.................. -- -- -- -- -- -- -- 30,001 -- 30,001
Other comprehensive loss:
Adjustments to unrealized
gains (losses) on
available-for-sale
securities, net of tax
of $39..................... -- -- -- -- -- -- -- -- (72) (72)
----------
Total comprehensive income.. 29,929
--------- -------- ----------- ------- ----------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1996. -- -- 20,127,976 201 -- -- 161,599 163,375 105 325,280
Issuance of Common Stock
under stock option and
stock purchase plans,
including tax benefit of
$397....................... -- -- 205,766 2 -- -- 3,351 -- -- 3,353
Comprehensive income:
Net income.................. -- -- -- -- -- -- -- 11,861 -- 11,861
Other comprehensive loss:
Adjustments to unrealized
gains (losses) on
available-for-sale
securities, net of tax
of $3...................... -- -- -- -- -- -- -- -- (12) (12)
----------
Total comprehensive income.. 11,849
--------- -------- ----------- ------- ----------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1997. -- -- 20,333,742 203 -- -- 164,950 175,236 93 340,482
Issuance of Common Stock
under stock option plans... -- -- 14,852 -- -- -- 212 -- -- 212
Recapitalization of company.. 250,000 25,000 (5,299,226) (52) 5,000,000 50 (164,163) (159,211) -- (298,376)
Common stock split (2:1)..... -- -- 15,049,368 150 5,000,000 50 (200) -- -- --
Preferred dividends accrued.. -- -- -- -- -- -- -- (2,928) -- (2,928)
Comprehensive loss:
Net loss ................... -- -- -- -- -- -- -- (87,528) -- (87,528)
Other comprehensive loss:
Adjustments to unrealized
gains (losses) on
available-for-sale
securities, net of tax
of $15..................... -- -- -- -- -- -- -- -- (93) (93)
----------
Total comprehensive loss.... (87,621)
--------- -------- ----------- ------- ----------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1998. 250,000 $25,000 30,098,736 $301 10,000,000 $100 $799 ($74,431) $ -- ($48,231)
========= ======== =========== ======= =========== ======= ========== ========= ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Nature of business: ZiLOG designs, develops, manufactures and markets
integrated circuits for application specific standard products (ASSPs) for
the communications, integrated controls, and home entertainment markets.

Principles of consolidation: The consolidated financial statements include
the accounts of ZiLOG, Inc. and its subsidiaries. All significant
transactions and accounts between the Company and these subsidiaries have
been eliminated in consolidation.

Revenue recognition: Certain of the Company's sales are made through
distributors under agreements allowing limited right of return and price
protection on merchandise unsold by the distributors. Revenue is
recognized at the time of shipment with appropriate reserves provided for
returns and price allowances. Royalty income is recognized when the
income is earned from the licensees.

Foreign currency translation: All of the Company's subsidiaries use the
U.S. dollar as the functional currency. Accordingly, monetary accounts
and transactions are remeasured at current exchange rates, and non-
monetary accounts are remeasured at historical rates. Revenues and
expenses are remeasured at the average exchange rates for each period,
except for depreciation expense which is remeasured at historical rates.
Foreign currency exchange gains and (losses) were included in determining
results of operations and aggregated ($215,000), $940,000, and ($540,000)
for the years ended December 31, 1998, 1997 and 1996, respectively.

Cash equivalents: Cash equivalents consist of financial instruments which
are readily convertible to cash and have original maturities of three
months or less at the time of acquisition.

Inventories: Inventories are stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market and
consist of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw materials.................... $2,439 $4,171
Work-in-process.................. 17,844 23,543
Finished goods................... 1,949 5,254
---------- ----------
$22,232 $32,968
========== ==========
</TABLE>

Property, plant and equipment: Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated economic lives of the assets which are generally five years for
machinery and equipment and 30 years for buildings. Amortization of
leasehold improvements is computed using the shorter of the remaining
terms of the leases or the estimated economic lives of the improvements.

Advertising expenses: The Company accounts for advertising costs as
expense for the period in which they are incurred. Advertising expenses
for 1998, 1997 and 1996 were approximately $473,000, $922,000 and
$692,000, respectively.

Use of estimates: The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Stock awards: The Company accounts for employee stock awards in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. As stock option grants are issued with an exercise
price equal to the fair value of the stock, the Company recognizes no
compensation expense for stock option grants. Additionally, as the Stock
Purchase Plan qualified as an "Employee Stock Purchase Plan" under Section
423 of the Code, no compensation expense was recorded. Pro forma
information required by FASB Statement No. 123, Accounting for Stock Based
Compensation is presented in Note 9, below.

Financial presentation: Certain prior year amounts in the consolidated
financial statements have been reclassified to conform to the 1998
presentation.

NOTE 2. THE MERGER

Pursuant to the Agreement and Plan of Merger by and among TPG Partners II,
L.P. (TPG II), TPG Zeus Acquisition Corporation ("Merger Sub") and ZiLOG
dated as of July 20, 1997, as amended (the "Merger Agreement"), Merger Sub
merged with and into ZiLOG on February 27, 1998, and ZiLOG continues as
the surviving corporation (the "Merger"). By virtue of the Merger,
374,842 shares (pre-split) of ZiLOG Common Stock held by certain of
ZiLOG's stockholders prior to the Merger were exchanged for new common
shares of the Company. All other shares of outstanding Common Stock were
canceled and converted into the right to receive cash consideration. By
virtue of the Merger, the Common Stock of Merger Sub was converted into
new shares of Common Stock, Non-Voting Common Stock and Preferred Stock of
ZiLOG. Also in connection with the Merger, stock options to purchase
shares of Common Stock issued under ZiLOG's stock plans outstanding
immediately prior to the consummation of the Merger were canceled and, in
certain instances, were converted into the right to receive an amount in
cash, as set forth in the Merger Agreement. The transaction was accounted
for as a recapitalization which resulted in TPG II owning approximately
89% of the voting shares and pre-Merger stockholders owning approximately
10% of the voting shares. Because TPG II acquired less than substantially
all of the Common Stock, the basis of the Company's assets and liabilities
were not impacted by the transaction.

In connection with the Merger, ZiLOG amended its articles of incorporation
with respect to the Company's authorized share capital. Authorized shares
are as follows: (i) 5,000,000 shares of $100 par value preferred stock,
(ii) 15,000,000 of $0.01 par value Class A Non-Voting Common Stock and
(iii) 35,000,000 shares of $0.01 par value Common Stock. Immediately
after the consummation of the Merger, the Board of Directors (the
"Board") declared a 4-for-1 stock split in the form of a dividend for
each share of Common Stock and Class A Non-Voting Common Stock and
designated 1,500,000 shares of Preferred Stock as Series A Cumulative
Preferred Stock ("Series A Stock").

Approximately $434.4 million was used to complete the Merger and consisted
of the following: (i) $399.5 million for the purchase of the pre-Merger
outstanding Common Stock; (ii) $4.2 million for the cancellation of
existing stock options; and (iii) approximately $30.7 million in fees and
expenses.

The cash funding requirements for the Merger were satisfied through the
following: (i) an equity investment by TPG II and certain other investors
of $117.5 million; (ii) use of approximately $36.1 million of ZiLOG's cash
and cash equivalents; and (iii) $280 million of gross proceeds from the
sale of the Notes through private placement. As a result of the Merger
(on a post-split basis; see Note 5 below), the Company, as of December 31,
1998, had 250,000 shares of Series A Stock, 30,098,736 shares of Common
Stock and 10,000,000 shares of Class A Non-Voting Common Stock issued and
outstanding.

NOTE 3. FAIR VALUES OF FINANCIAL INSTRUMENTS

At December 31, 1997, the Company's short-term investments consisted
primarily of various State and Municipal bonds. The Company had no short-
term investments at December 31,1998. Cash and cash equivalents consist
primarily of cash in bank accounts, overnight investments in commercial
paper, money market accounts and short-term time deposits. The Notes
Payable are 9 1/2 % Senior Secured Notes which mature on February 27, 2005.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amount in the balance sheet
for cash and cash equivalents at December 31, 1998 and 1997 were
$50,856,000 and $92,184,000, respectively, which approximates fair
value, due to their short maturities.

Short-term investments: The fair values for marketable debt
securities are based on quoted market prices. Investments consist
primarily of marketable debt securities which are classified as
available-for-sale and are carried at fair value. Unrealized gains
and losses, net of tax, are reported in stockholders' equity. The
cost basis of investments is adjusted for amortization of premiums
and accretion of discounts to maturity, which is included in interest
income. Realized gains and losses are included in other income. The
cost of securities sold is based on the specific identification
method.

At December 31,1997, the Company held available-for-sale municipal
bonds at the historical cost of $14,011,000 with gross unrealized
gains of $116,000 and an estimated fair value of $14,127,000. These
securities had maturities of less than one year and they were sold in
January 1998. Realized gains and losses on sales of available-for-
sale securities were not significant in any of the years in the three
year period ended December 31, 1998.

NOTE 4. SPECIAL CHARGES

Recapitalization expenses consisted of charges directly related to the
change in control and repositioning of the Company as a result of the
Merger (as discussed in Note 2 above). Retention bonuses in the amount of
$104,000 remained unpaid as of December 31, 1998. During 1998, the
Company incurred restructuring charges totaling approximately $5.3 million.
Of this amount, approximately $4.6 million was related to manufacturing
operations and approximately $0.7 million was related to sales and
headquarters operations. The restructuring costs reflect the Company's
strategy to align worldwide operations with market conditions and improve
the productivity of its manufacturing facilities. Restructuring actions
related to manufacturing operations took place in the third and fourth
quarters of 1998. The third quarter restructuring costs consisted of
approximately $1.0 million for severance pay and benefits for terminated
employees. This action reduced the Company's workforce in its Nampa, Idaho
wafer fabrication facility by 20%, or approximately 120 positions. The
restructuring costs for the fourth quarter consisted of approximately $2.4
million for severance pay and benefits for approximately 384 terminated
employees and $1.2 million for fixed asset write-offs related to the
closure of its assembly operations in the Philippines. In connection with
the fourth quarter action, ZiLOG recently completed the transition of its
assembly operations to subcontractors.

Special charges for the year ended December 31, 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
<S> <C>
Recapitalization:
Executive severance pay and new
executive bonuses......................... $13,195
Stock option buyout......................... 4,195
Bridge loan fees............................ 3,360
Employee retention bonus.................... 9,511
Consultants, other.......................... 3,073
----------
Recapitalization expenses........... $33,334
==========
Restructuring of operations:
Employee severance pay and termination
benefits.................................. $4,060
Abandonment of equipment
and leasehold improvements............... 1,226
----------
$5,286
==========
</TABLE>

NOTE 5. STOCK SPLITS

As discussed in Note 2, the Board declared a 4-for-1 stock split
immediately after the consummation of the Merger. The Board also
approved a 2-for-1 stock split which became effective in August 1998.
Common Stock authorized shares increased from 35,000,000 shares to
70,000,000 shares and issued and outstanding (on a post split basis)
increased from 15,049,368 to 30,098,736 shares. Class A Non-Voting Common
Stock authorized shares increased from 15,000,000 shares to 30,000,000
shares and issued and outstanding shares (on a post split basis) increased
from 5,000,000 shares to 10,000,000 shares. Shares outstanding prior to
the Merger have not been restated to reflect these stock splits.

NOTE 6. CREDIT FACILITY

On December 30, 1998, ZiLOG executed an agreement with a financial
institution (the "Lender") for up to $40 million in the form of a senior
secured revolving and capital equipment credit facility (the "New
Facility"). The revolving line of credit for the New Facility provides
for borrowings of up to $25 million, subject to a borrowing base
consisting of 80% of eligible accounts receivable and 40% of eligible
inventories. The $15 million capital expenditure line is secured by
eligible equipment financed. Borrowings, on the revolving line of credit
under the New Facility will bear interest at a rate per annum (at ZiLOG's
option) equal to the London Inter-Bank Overnight Rate (LIBOR) plus 2%, or
the Lender's published prime rate. Borrowings for the capital expenditure
line under the New Facility will bear interest at a rate per annum (at
ZiLOG's option) equal to LIBOR plus 3% or the Lender's prime rate plus 1%.
The term of the revolving credit facility is three years and the capital
expenditure line is five years. There have been no borrowings under
either credit facility. At December 31, 1998, the Company's total
calculated availability under the New Facility was $36.5 million.

NOTE 7. NOTES PAYABLE

The Company has issued $280 million 9 1/2% Senior Secured Notes (the
"Notes"), which mature on February 27, 2005. Interest is payable semi-
annually on the first of March and September. Expenses associated with
the offering of approximately $9.9 million were deferred and are being
amortized to interest over the term of the Notes. The Notes contain a
number of significant covenants that, among other things, restrict the
ability of the Company to dispose of assets, incur additional indebtedness
or amend certain debt instruments, pay dividends, create liens on assets,
enter into sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, change
the business conducted by the Company or its subsidiaries, make capital
expenditures or engage in certain transactions with affiliates and
otherwise restrict certain corporate activities. Based on market quoted
values, the Notes had an estimated fair value of $224 million at December
31,1998. There are no cross covenants between the Notes and the New
Facility.

NOTE 8. RETIREMENT AND PENSION PLANS

The Company has an employee savings plan that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the plan, participating U.S. employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution
limit ($10,000 for calendar year 1998). The Company may make matching
contributions on behalf of each participating employee in an amount equal
to 100% of the participant's deferral contribution, up to 1.5% of the
participant's compensation on a quarterly basis. The Company may also
make additional discretionary contributions to the 401(k) Plan. Matching
contributions to the savings plan were approximately $721,000, $583,000,
and $589,000 in 1998, 1997 and 1996, respectively. The discretionary
contributions for 1997 and 1996 were approximately $1,820,000 and
$2,354,000, respectively. No discretionary contributions were made for
1998

The Company's Philippines subsidiaries have a defined benefit pension plan
that is consistent with local statutes and practices. These benefit plans
had no material impact on the Company's financial statements for the
periods presented.

NOTE 9. STOCKHOLDERS' EQUITY

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 the holders of the outstanding shares of Common Stock, except
as otherwise required by the General Corporation Law of the State of
Delaware (the "DGCL"). Holders of Class A Non-Voting Common Stock do
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 are identical. Subject to the rights of holders of
Series A 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 may from time to time
declare from sources legally available therefore. Subject to the rights
of creditors and holders of Series A 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 a surviving corporation.

Preferred stock: The Board has the authority 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. Upon consummation of the recapitalization, the Board
adopted a resolution providing for the creation of Series A Cumulative
Preferred Stock ("Series A Stock") into which the shares of capital
stock of Merger Sub were converted in the Merger. The Series A Stock is a
non-voting 13.5% preferred stock with a par value of $100.00 per share.

The Series A Stock will accumulate dividends at the rate of 13.5% per
annum (payable quarterly) for periods ending on or prior to February 27,
2008, and 15.5% per annum thereafter. Dividends will be payable, at the
election of the Board but subject to availability of funds and the terms
of the Notes in cash or in kind through corresponding increase in the
liquidation preference (as described below) of the Series A Stock. The
Series A Stock had an initial liquidation preference of $100.00 per share.

To the extent that a quarterly dividend payment in respect to a share of
Series A Stock is not made in cash when due, the amount of such unpaid
dividend will accumulate (whether or not declared by the Board) through an
increase in the liquidation preference of such share of Series A Stock
equal to the amount of such unpaid dividend, and compounded 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 Company is required to pay in
cash all accumulated dividends that have been applied to increase the
liquidation preference on February 27, 2008 (the "Clean-Down").

Shares of Series A Stock may be redeemed at the option of the Company, in
whole or in part, at 100%, if redeemed after August 27, 2003, in each case
of the sum of (i), the liquidation preference thereof, increases 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 Series A Stock will be subject to,
and expressly conditioned upon, certain limitations under the Notes.

In certain circumstances, including the occurrence of a change of control
at the Company, but again subject to certain limitations under the Notes,
the Company may be required to repurchase shares of Series A 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 Series A 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 Company in the event
that the Company 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 Series A
Stock and certain transactions involving stock that ranks junior in
payment of dividends, or upon liquidation, to the Series A Stock.

Pre-Merger stock plans: Prior to the Merger, the Company had a stock
purchase plan (the "Purchase Plan") and a stock option plan (the "Old
Option Plan") both of which were terminated upon completion of the
Merger. The Purchase Plan had 600,000 shares authorized for eligible
employees to purchase the Company's common stock through payroll
deductions at a purchase price equal to 85% of the lower of the closing
price of the Company's common stock on the first or last day of each six-
month offer period. Shares issued under the Purchase Plan were 92,898 and
65,087 in 1997 and 1996, respectively. The Company had reserved 3.5
million shares for granting restricted shares, stock units, stock options
or stock appreciation rights under the Old Option Plan. In November 1996,
the Company canceled and re-granted approximately 2.5 million stock
options at a new exercise price equal to the share price of the Company's
common stock on the re-grant date. Re-granted stock options continued to
vest under the original vesting schedule, but were not exercisable for a
period of one year from the re-grant. As a result of the Merger (Note 2)
approximately 434,000 stock options were repurchased from optionees and
all remaining options under the Old Option Plan were canceled.

New stock plans: In August 1998, the ZiLOG , Inc. Long-Term Stock
Incentive Plan (the "Plan") and the ZiLOG, Inc. 1998 Executive Officer
Stock Incentive Plan (the "Executive Plan"), jointly referred to as the
"1998 Plans," were adopted by the Board. Under the 1998 Plans, the
Company may grant eligible employees restricted shares, stock units and
nonstatuatory and incentive stock options. Options under the 1998 Plans
generally have a life of 10 years and vest at a rate of 25% on each of the
first four anniversaries following the option grant date. The terms and
conditions of each option or stock award under the 1998 Plans are
determined by a committee of the Board and are set forth in agreements
between the recipient employee and the Company. As of December 31, 1998,
2.5 million and 5.5 million shares have been reserved for issuance and
2,319,530 and 4,149,500 options have been granted under the Plan and the
Executive Plan, respectively. In addition, 100,000 shares were granted
under the executive plan. The Company recorded $1.0 million of
compensation expense in connection with stock grants in 1998.

A summary of the Company's stock option activity for the years ended
December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Shares Weighted-
Available Average
for Option Exercise
Grant Outstanding Price
- ------------------------------------ ----------- ----------- ---------
<S> <C> <C> <C>
1994 Option Plan
- --------------------------
Balance at January 1, 1996......... 37,495 4,850,524 $27.12
Shares reserved.................... 1,000,000 -- --
Options granted.................... (3,598,502) 3,598,502 $25.56
Options exercised.................. -- (607,262) $19.12
Options canceled................... 2,561,007 (3,171,491) $33.16
----------- -----------
Balance at December 31, 1996....... -- 4,670,273 $20.67
Shares reserved.................... 1,000,000 -- --
Options granted.................... (916,800) 916,800 $22.84
Options exercised.................. -- (112,868) $12.89
Options canceled................... (83,200) (330,872) $21.79
----------- -----------
Balance at December 31, 1997....... -- 5,143,333 $21.11
Shares reserved.................... 1,000,000 -- --
Options exercised.................. --
Options canceled or repurchased (14,852) $14.05
upon Merger....................... (1,000,000) (5,128,481) $21.13
----------- -----------
Balance at February 27, 1998....... -- -- --
=========== ===========

The 1998 Plans
- --------------------------
Shares reserved 8,000,000 -- --
Options granted (6,469,030) 6,469,030 $2.89
Shares granted (100,000) -- $0.00
Options cancelled 270,580 (270,580) $2.50
----------- -----------
Balance as of December 31, 1998.... 1,701,550 6,198,450 $2.90
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Out- Contractual Exercise Exer- Exercise
Exercise Prices standing Life Price cisable Price
- -------------------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
At December 31, 1998:
$2.50 - $5.00 6,198,450 9.68 years $2.90 -- $0.00
</TABLE>

The weighted average fair value of options granted in 1998, 1997 and 1996
were $0.38, $8.52, and $9.23 per share, respectively. Options that were
exercisable as of December 31, 1998, 1997 and 1996, were 500,000,
2,800,621 and 2,191,837, respectively.

Pro forma stock based compensation: Pro forma information regarding net
income is required by FAS No. 123, which also requires that the
information be determined as if the Company has accounted for its
employee options granted subsequent to December31,1994 under the fair
value method of that statement. The fair value of the options granted
under the 1998 Plans was estimated at the date of grant using the
Minimum Value Method option pricing model using the following weighted
average assumptions for 1998: risk free interest rate annual average of
5%, dividend yield of zero, and the weighted average of expected life of
five years. The fair value for the options granted under the 1994
Option Plans prior to the 1998 Option Plans, was estimated at the date
of grant utilizing the Black Scholes option-pricing model with a
multiple option approach. The following weighted-average assumptions
for 1997 and 1996, respectively, were used: risk-free interest rates
(annual average) of 6.1% and 5.5%; dividend yields of zero; volatility
factors of the expected market price of the Company's Common Stock of
0.47 and 0.67; and a weighted-average expected option life of 4.5 years.

To comply with the pro forma reporting requirements of FAS No.123 for
stock awards granted under the Purchase Plan, compensation cost is
estimated for the fair value of the employees' purchase rights using the
Black Scholes method with the following assumptions for those rights
granted in 1996, and 1997; dividend yield of 0.0%; an expected life
ranging up to .5 years; expected volatility factor of 61%, and 48%; and
a risk free interest rate of 5.4%, and 6.0%. The weighted average fair
value of those purchase rights granted in March 1996, September 1996 and
March 1997 were $3.54, $5.62 and $5.93, respectively. The Purchase Plan
was terminated upon completion of the Merger.

For purposes of pro forma disclosure, the expense amortization of the
options' fair value is allocated over the options' four-year vesting
period. The effect of applying FAS 123 to the Company's stock options
awarded in 1998 did not result in pro forma net loss amounts that were
materially different from historical amounts reported. Therefore, such
pro forma information is not separately presented herein. Future pro
forma net income (loss) results may be materially different from actual
amounts reported. The pro forma net income amounts for the years ended
December 31, 1997 and 1996 were $2,012,000 and $10,413,000,
respectively.

NOTE 10. INCOME TAXES

Provision (benefit)for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current.................................... ($8,252) $3,036 $10,076
Deferred................................... (6,364) (1,949) 3,360
--------- --------- ---------
(14,616) 1,087 13,436
State:
Current.................................... 293 565 966
Deferred................................... (1,499) 55 636
--------- --------- ---------
(1,206) 620 1,602
Foreign:
Current.................................... 861 1,593 1,302
Deferred................................... 713 (335) (185)
--------- --------- ---------
1,574 1,258 1,117
--------- --------- ---------
Provision (benefit) for income taxes....... ($14,248) $2,965 $16,155
========= ========= =========
</TABLE>

The tax benefit associated with the exercise of stock options reduced
taxes currently payable as shown above by $0, $397,000 and $3,455,000 in
1998, 1997, and 1996, respectively. Such benefits were credited to
additional paid-in- capital when realized.

Pretax income from foreign operations was $658,000, $5,309,000 and
$4,678,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Unremited foreign earnings that are considered to be
permanently invested outside the U.S. and on which no deferred income
taxes have been provided amounted to approximately $17,700,000 at December
31, 1998. If such amounts were remitted, the residual U.S. tax liability
(net of foreign tax credits), would be approximately $2,400,000.

The provision (benefit) for income taxes differs from the amount computed
by applying the statutory income tax rate to income before taxes. The
source and tax effects of the differences are as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed expected provision (benefit)....... ($35,622) $5,189 $16,155
State tax, net of federal benefit............ (784) 403 1,042
Tax exempt interest income................... (13) (721) (745)
Foreign rates greater than (less than)
the federal rate........................... 1,327 (838) (791)
Research and development credits............. -- (921) (572)
Losses for which no current year benefit..... 17,451 -- --
Other........................................ 3,393 (147) 1,066
--------- --------- ---------
(14,248) 2,965 16,155
========= ========= =========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):

<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.......................... ($17,606) ($18,599)
Valuation of investment portfolio................... -- (59)
--------- ---------
(17,606) (18,658)
--------- ---------
Deferred tax assets:
Net operating losses................................ 24,274 --
Accruals not currently deductible................... 5,845 1,975
Inventory valuation adjustments and reserves........ 3,398 4,105
Tax credits......................................... 1,065 3,186
Prepaid expenses and other.......................... 475 2,183
--------- ---------
35,057 11,449

Deferred tax asset valuation allowance.............. (17,451) --

--------- ---------
Net deferred tax liabilities........................ $ -- ($7,209)
========= =========
</TABLE>

Realization of deferred tax assets is dependent on future earnings, the
timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax assets as of
December 31, 1998 has been established to reflect these uncertainties.
The valuation allowance increased by approximately $17,451,000 during the
fiscal year ended December 31, 1998.

As of December 31, 1998, the Company had federal and California net
operating loss carryforwards of approximately $67,000,000 and $9,700,000,
respectively, which will expire beginning in years 2003 through 2018, if
not utilized. As of December 31, 1998, the Company also had federal tax
credit carryforwards of approximately $1,065,000, which will expire at
various dates beginning in 2003 through 2013, if not utilized.

Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in expiration
of net operating loss and tax credit carryforwards before full
utilization.

NOTE 11. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its facilities under noncancelable operating
leases, which expire in 1999 through 2004. The facilities lease agreement
generally provide for base rental rates which increase at various times
during the terms of the leases and also provide for renewal options at
fair market rental value.

Minimum future payments under these noncancelable operating leases at
December 31, 1998 are as follows (in thousands):

<TABLE>
<S> <C>
1999..................................... $6,063
2000..................................... 5,514
2001..................................... 5,228
2002..................................... 5,089
2003..................................... 4,672
Thereafter............................... 727
---------
$27,293
=========
</TABLE>

Total rental expense, including month-to-month rentals, was $5,442,000,
$2,875,000 and $2,778,000 for the years ended December 31, 1998, 1997 and
1996, respectively.

Two parties have notified ZiLOG that it may be infringing certain patents
and other intellectual property rights. In the event ZiLOG determines that
such notices may involve 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 a material adverse effect
on ZiLOG.

The Company is participating in other litigation and responding to claims
arising in the ordinary course of business. The Company intends to defend
itself vigorously. The Company believes that it is unlikely that the
outcome of these matters will have a material adverse effect on the
Company, although there can be no assurance in this regard.

NOTE 12. RELATED PARTY TRANSACTIONS

On September 10, 1998, Newbridge Asia signed an agreement to acquire 100
percent of P.T. Astra Microtronics Technology ("AMT"). Texas Pacific
Group ("TPG") and Richard C. Blum & Associates jointly established
Newbridge Asia in 1994. Affiliates of TPG owned approximately 89% of
ZiLOG's outstanding common stock at December 31, 1998. ZiLOG purchased
semiconductor assembly and test services from AMT totaling approximately
$7.1 million, $8.1 million, and $7.4 million for the years ended December
31 1998, 1997 and 1996, respectively. ZiLOG had payables to AMT of
approximately $469,000 and $748,000 at December 31, 1998 and 1997,
respectively. Payment terms between ZiLOG and AMT are net 30 days.

NOTE 13. SEGMENT REPORTING

Effective January 1, 1998, the Company adopted FAS No. 131, Disclosures
about Segment of an Enterprise and Related Information. FAS No. 131
superseded FAS No. 14, Financial Reporting for Segments of a Business
Enterprise and established standards for the way that public business
enterprises report information about operating segments in annual
financial statements and also requires that those enterprises report
selected information about operating segments in interim financial
reports. FAS No. 131 also established standards for related disclosures
about products and services, geographic areas and major customers. The
adoption of FAS No. 131 did not affect results of operations or financial
position of the Company but did affect the disclosure of segment
information. The Company's business units sell application specific standard
products to original equipment manufacturers and distributors.

The Company manages its business based upon revenues derived by each of
its three business units (Communications, Integrated Controls and Home
Entertainment). The Company's business units sell application specific
standard products to original equipment manufacturers and distributors.
The Communications business unit markets semiconductor components
primarily in the communications end markets. The Integrated Controls
business unit markets semiconductor components primarily in the consumer
and computer peripherals end market. The Home Entertainment business unit
markets semiconductor components primarily in the television and TV remote
controller end markets. For the years ended December 31, 1998, the
Company did not budget or report the profits or losses generated at the
business unit level, and accordingly, profits are managed at the
enterprise level.

Segment accounting: There are no sales or transfers between the business
units. The Company does not assign specific assets to each business unit
because all business units use the same fabrication, assembly, and test
equipment as well as the same building facilities.

Segment financial data: There are no reconciling items between total
segment and consolidatednet sales. Net sales for the years ended
December 31, for each of the Company's business units are as follows (in
thousands):

Net sales to external customers
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Communications........................... $68,913 $112,412 $141,556
Integrated controls...................... 85,916 96,632 101,380
Home entertainment....................... 49,909 52,053 55,489
--------- --------- ---------
Total................................. $204,738 $261,097 $298,425
========= ========= =========
</TABLE>

Net sales are attributed to the ship-to location of ZiLOG's customers as
presented in the following table (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
United States............................ $79,190 $106,858 $131,479
China (including Hong Kong).............. 35,569 34,235 25,284
Korea.................................... 16,433 20,697 26,129
Thailand................................. 11,064 14,128 12,119
Taiwain R.O.C............................ 10,453 15,399 15,888
Singapore................................ 5,981 14,026 23,935
Other Foreign Countries.................. 46,048 55,754 63,591
--------- --------- ---------
$204,738 $261,097 $298,425
========= ========= =========
</TABLE>

The following table shows the location of long-lived assets (in
thousands):

<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
United States (including corporate assets)............. $169,140 $192,310
Philippines............................................ 21,766 33,425
Other.................................................. 405 224
--------- ---------
Total assets................................. $191,311 $225,959
========= =========
</TABLE>

Major customers: During the year ended December 31, 1998, one distributor
accounted for approximately 10.5% of net sales. In 1997, no single
customer accounted for more than 10% of net sales. For the year ended
December 31 1996, one customer represented 12.8% of net sales.

NOTE 14. CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
short-term investments and trade accounts receivable. By policy, the
Company places its investments only with high credit quality financial
institutions. Almost all of the Company's trade accounts receivable are
derived from sales to electronics distributors and to manufacturers of
products which network computers on the Internet and their peripherals,
integrated control products and home entertainment products. The Company
performs ongoing credit evaluations of its customers' financial condition
and limits its exposure to accounting losses by limiting the amount of
credit extended whenever deemed necessary and generally does not require
collateral.

<PAGE>

NOTE 15. QUARTERLY RESULTS (UNAUDITED)

The following table presents unaudited quarterly results (in thousands)
for the eight quarters of 1998 and 1997. The Company believes that all
necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to state fairly the
selected quarterly information when read in conjunction with the
Consolidated Financial Statements. The Company's year-end is December 31
with interim results based on fiscal quarters of thirteen weeks of
duration ending on the last Sunday of each quarter. The operating results
for any quarter are not necessarily indicative of results for any
subsequent period.

Quarterly Information (Unaudited)
<TABLE>
<CAPTION>
Dec. 31, Oct. 4, July 5, April 5, Dec. 31, Sept. 28, June 29, March 30,
1998 1998 1998 1998 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................. $54,101 $52,530 $48,568 $49,539 $58,879 $60,824 $71,258 $70,136
Cost of sales......................... 39,604 42,070 40,874 40,767 41,661 40,486 45,547 44,028
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin........................ 14,497 10,460 7,694 8,772 17,218 20,338 25,711 26,108
--------- --------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Research and development............ 6,691 7,135 6,916 8,104 8,162 7,554 8,119 6,632
Selling, general and administrative. 13,809 13,656 12,911 13,941 12,052 11,372 12,330 12,052
Special charges..................... 5,805 7,128 12,383 13,304 -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
26,305 27,919 32,210 35,349 20,214 18,926 20,449 18,684
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............... (11,808) (17,459) (24,516) (26,577) (2,996) 1,412 5,262 7,424

Other income (expense):
Interest, net....................... (5,950) (6,560) (6,291) (1,819) 1,135 447 715 595
Other, net, including license and
royalty income and expense........ (596) 51 (163) (88) 925 158 629 (880)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..... (18,354) (23,968) (30,970) (28,484) (936) 2,017 6,606 7,139
Provision (benefit) for income taxes.. (1,232) (2,314) (2,157) (8,545) (1,295) -- 1,904 2,356
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... ($17,122) ($21,654) ($28,813) ($19,939) $359 $2,017 $4,702 $4,783
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

The following table sets forth certain information regarding individuals
who currently serve as directors, executive officers or other key
employees of ZiLOG. Each director will hold office until the next annual
meeting of stockholders or until his or her successor is elected and
qualified. Officers are appointed by the Board of Directors and serve at
the Board's discretion. The officers and other key employees listed below
serve on the Company's Executive Council, which meets periodically to
advise the CEO concerning certain matters.

Name Age Position
- ----------------------- ----- -------------------------------------------------
<S> <C> <C>
Curtis J. Crawford .... 51 President and Chief Executive Officer; Director

William S. Price III .. 42 Director

David M. Stanton ...... 36 Director

Murray A. Goldman ..... 61 Director

Richard S. Friedland .. 48 Director

Alice Baluni .......... 53 Senior Vice President, Reliability and Quality
Assurance

Michael J. Bradshaw ... 49 Senior Vice President, Worldwide Operations

Michael D. Burger ..... 40 Senior Vice President, Worldwide Sales

Gerald J. Corvino ...... 51 Senior Vice President and Chief Information
Officer

Robert G. Couch ....... 47 Senior Vice President and Corporate Communications
Officer

Didier J. LeLanic ..... 40 Senior Vice President and General Manager,
Communications Business Unit

Aydin Koc ............. 47 Senior Vice President and General Manager,
Home Entertainment

Steven C. Mizell ...... 39 Senior Vice President, Human Resources

Richard L. Moore ...... 64 Senior Vice President and Chief Technology Officer

Richard R. Pickard ... 45 Senior Vice President, General Counsel and
Secretary

Edward P. Ponganis .... 48 Vice President and Assistant to the President

James M. Thorburn ..... 43 Senior Vice President and Chief Financial Officer

Shlomo Waser .......... 54 Senior Vice President and General Manager,
Integrated Controls Business Unit

W. Norman Wu .......... 46 Senior Vice President and Chief Strategy Officer
</TABLE>

Curtis J. Crawford became President, Chief Executive Officer and a
director of the Company upon consummation of the Merger. From 1997 to
1998, Mr. Crawford was Group President of the Microelectronics Group and
President of the Intellectual Property division of Lucent Technologies (a
successor to certain AT&T businesses). From 1995 to 1997, he was the
President of the Microelectronics Group. From 1993 to 1995, Mr. Crawford
was President of AT&T Microelectronics, a business unit of AT&T
Corporation. From 1991 to 1993, he held the position of Vice President
and Co-Chief Executive Officer of AT&T Microelectronics. From 1988 to
1991, he held the position of Vice President, Sales, Service and Support
for AT&T Computer Systems. Prior thereto, he served in various sales,
marketing and executive management positions at various divisions of IBM.
Mr. Crawford holds a Bachelor of Arts degree in Business Administration
and Computer Sciences and a Master of Arts degree in Marketing from
Governors State University. In addition, he received a Master of Business
Administration from the Charles H. Kellstadt Graduate School of Business
at DePaul University. He currently serves as a member of the Board of
Directors of E.I. DuPont and ITT Industries, Inc. Mr. Crawford previously
served as Chairman of the Board of Directors of the i-STAT Corporation and as
a member of the Board of Directors of Lyondell Petrochemical Company, The
Sisters of Mercy Hospital Corporation and the Semiconductor Industry
Association.

William S. Price III became a director of the Company upon consummation of
the Merger. Mr. Price was a founding partner of Texas Pacific Group in
1993. Prior to forming Texas Pacific Group, Mr. Price was Vice President
of Strategic Planning and Business Development for GE Capital, and from
1985 to 1991 he was employed by the management consulting firm of Bain &
Company, attaining partnership status and acting as co-head of the
Financial Services Practice. Mr. Price is a graduate of Stanford
University and received a Juris Doctorate degree from the Boalt Hall
School of Law at the University of California, Berkeley. Mr. Price is
Chairman of the Board of Favorite Brands International, Inc. and Co-
Chairman of the Board of Beringer Wine Estates. He also serves on the
Boards of Directors of Belden & Blake Corporation, Continental Airlines,
Inc., Continental Micronesia, Inc., Denbury Resources, Inc. and Vivra
Specialty Partners, Inc.

David M. Stanton became a director of the Company upon consummation of the
Merger. Mr. Stanton is a partner of Texas Pacific Group. From 1991 until
he joined Texas Pacific Group in 1994, Mr. Stanton was a venture
capitalist with Trinity Ventures, where he specialized in information
technology, software and telecommunications investing. Mr. Stanton holds a
Bachelor of Science degree in Chemical Engineering from Stanford
University and a Master of Business Administration from the Stanford
Graduate School of Business. Mr. Stanton serves on the Boards of
Directors of Belden & Blake Corporation, Denbury Resources, Inc.,
GlobeSpan Semiconductor, Inc., Paradyne Corporation and TPG
Communications, Inc.

Murray A. Goldman was elected to the Board of Directors in August 1998.
He joined Motorola in 1969 after six years at Bell Telephone Laboratories.
Dr. Goldman assumed operational responsibility for the Motorola
microprocessor business in 1976. He retired from Motorola in 1997 as
Executive Vice President and Assistant General Manager of the
semiconductor products sector. Dr. Goldman serves on the boards of
Transmeta, Wafer Scale Integration and Construct. He was awarded a Ph.D.
from New York University.

Richard S. Friedland was elected to the Board of Directors in August 1998.
He was previously associated with General Instrument Corporation.
During his 19-year tenure, he held various executive positions, including
Chief Financial Officer, President and Chief Operating Officer. In 1995,
he was appointed Chairman of the Board and Chief Executive Officer. Mr.
Friedland currently serves on the boards of Premark International and
Tech-Sym Corporation, as well as several development stage companies. He
holds a Bachelor of Science degree in Accounting from Ohio State
University and a Master of Business Administration degree from Seton Hall
University.

Alice Baluni joined ZiLOG in 1985 as the Director of Test Engineering.
She became Director of Reliability and Quality Assurance ("R/QA") in
1986, Vice President of R/QA in 1992, and was promoted to Senior Vice
President of R/QA in 1998. Before her appointment at ZiLOG, Ms. Baluni
was the Product Engineering Manager at Signetics, a Senior Design Engineer
at Synertek, and an Engineering Supervisor for Intel. Ms. Baluni holds a
Masters Degree in Physics of Semiconductors from Moscow State University
and a Masters Degree in Engineering Management from Santa Clara
University.

Michael J. Bradshaw has served as Senior Vice President, Operations since
March 1992. Previously he served as Vice President, Operations since
March 1985. Earlier in his career, Mr. Bradshaw was employed by Texas
Instruments and Mostek Corporation, both semiconductor manufacturers,
where he served as Director of Worldwide Planning. Immediately prior to
his employment by the Company, he was the Vice President, Operations
Planning and Control of General Instrument Microelectronics. He holds a
Bachelor of Science degree in Engineering Mathematics, with concentration
in electrical engineering, from the Missouri School of Mines, and Masters
degrees in Business Administration and Science Administration from the
University of Houston.

Michael D. Burger joined the Company in December 1998 as Senior Vice
President of Worldwide Sales. Prior to his position at ZiLOG from 1998,
Mr. Burger was Vice President of Worldwide Marketing and Sales at
QuickLogic Corporation. Prior to QuickLogic beginning in 1985, Mr. Burger
was the Vice President and Managing Director for National Semiconductors
ASICs Division based in Hong Kong. Mr. Burger holds a Bachelor of Science
degree in Electrical Engineering from New Mexico State University and is a
graduate of Stanford's Executive Management Program.

Gerald J. Corvino was appointed Senior Vice President and Chief
Information Officer for ZiLOG in June 1998. Beginning in 1996, 1994
and 1979 respectively, Mr. Corvino held the position of CIO for Oracle
Corporation, CIO for AT&T Microelectronics, and Vice President Corporate
Information Services at Amdahl. Mr. Corvino completed three years toward a
Bachelor of Science in Mathematics at Boston College; he also is certified
for Managing Information Systems Resources from Harvard Business School.

Robert G. Couch was appointed the Senior Vice President and Corporate
Communications Officer for ZiLOG in August 1998. Commencing in 1997, Mr.
Couch worked at Visa USA where he held the position of Senior Vice
President, Corporate Relations. Prior to his time at Visa, Mr. Couch
beginning in 1981, held several positions at Anheuser-Busch including
Director of International Communications, Director of Corporate Marketing
and Communications, and Senior Manager of Corporate Media. Mr. Couch has
a Bachelor of Arts from Christian Brothers University and a Master of Arts
in Communications from the University of Memphis.

Didier J. LeLannic joined ZiLOG in November 1998 as Senior Vice President
and General Manager of the Communications Business Unit. Mr. LeLannic was
the General Manager of the PCI RAID division of Adaptec from 1997 to 1998.
Mr. LeLannic was a co-founder of Pertec Memories, Inc. in October 1994
and served as Executive Vice-President. He holds an AA/ AS Electronics
degree from Monates, France, a degree in Electrical Engineering from St.
Etienne and also an MS/ MBA in Electronics Technologies from St. Etienne,
and a Masters in Electrical Engineering from Montpellier, France.

Aydin Koc joined ZiLOG in August 1998. Prior to his appointment as Senior
Vice-President and General Manager of the Home Entertainment Business Unit
at ZiLOG, Mr. Koc was the President of the Optical Storage Group at Oak
Technology, Inc. for two years. Earlier, Mr. Koc was with LSI Logic
Corporation for nine years in various business development and marketing
roles, culminating with the position of Director of Worldwide ASIC and
Strategic Marketing. For seven years, Mr. Koc also held senior management
consulting positions at Boston Consulting Group and Booz, Allen &
Hamilton, two of the world's largest international management consulting
firms. He holds Bachelor of Science and Master of Science degrees in
Electrical Engineering from Middle East Technical University, and a Master
of Business Administration degree from Stanford University.

Steven C. Mizell joined ZiLOG in October 1998. Prior to his appointment
as Senior Vice-President of Human Resources and commencing in 1984, Mr.
Mizell held several positions at CBS Corporation (formerly Westinghouse
Electric Corporation) culminating with the position of Vice President of
Human Resources and Operations. Mr. Mizell holds a Master of Science in
Management and Policy Analysis from Carnegie Mellon University, a Bachelor
of Science degree in Industrial Management from Georgia Institute of
Technology, and is a Certified Compensation Professional.

Richard L. Moore joined ZiLOG in 1995 as Vice President of Technology. In
June 1996, he was appointed Senior Vice President of Technology. Before
re-joining ZiLOG, Mr. Moore served seven years as President and CEO of
Cromemco, Inc. From 1981 through 1988, Mr. Moore was the Vice President
of Engineering at ZiLOG. He holds a Bachelor of Science degree in
Electrical Engineering from the University of Texas and a Master of
Business Administration degree from Saint Mary's College.

Richard R. Pickard became Senior Vice President, General Counsel and
Secretary in 1998 and served as Vice President, General Counsel and
Secretary from 1992. From 1987 to March 1992, Mr. Pickard was General
Counsel and Secretary. Before coming to ZiLOG, he was Corporate Counsel
at NEC Electronics, Inc., and in private practice. Mr. Pickard holds a
Bachelor of Arts degree in American Civilization from Williams College and
a Juris Doctorate degree from the College of William and Mary.

Edward P. Ponganis joined ZiLOG in 1993 as the Director of IC Design
before becoming Vice President of Design Engineering. Prior to his
joining ZiLOG, Mr. Ponganis served as Director of Advanced Products Design
at Chips and Technologies. Earlier, Mr. Ponganis was Director of
Microprocessor Design Engineering at National Semiconductor. He holds a
Bachelor of Science degree in Electrical Engineering from Santa Clara
University.

James M. Thorburn was appointed Senior Vice President and Chief Financial
Officer in May 1998. Prior to his joining ZiLOG, Mr. Thorburn was the
Vice President of Operations Finance at National Semiconductor. During
his 17 year career, Mr. Thorburn also managed the financial needs for
National Semiconductor's Communications and Computing Group, Analog
Division, and European Operations. Mr. Thorburn holds a Bachelor of
Science degree in Economics from the University of Glasgow and is a
qualified chartered management accountant.

Shlomo Waser joined ZiLOG on February 1, 1999 as Senior Vice President and
General Manager of the Integrated Controls Business Unit from Phillips
Semiconductors where, beginning seven years ago, he was Vice President and
General Manager of the Microcontrollers business line. Prior to working
at Phillips, Mr. Waser held positions at Advanced Micro Devices and
Monolithic Memories. He holds a graduate degree in Computer Engineering
from Stanford University, and Bachelor and Master of Science degrees in
Electrical Engineering from San Jose State University.

W. Norman Wu was appointed Senior Vice President and Chief Strategy
Officer for ZiLOG in June 1998. Prior to joining ZiLOG, Mr. Wu was
President and CEO of Avantos Performance Systems, Inc., a management
software company he co-founded in 1991. Before that, Mr. Wu spent ten
years with the high technology management consulting practice of Bain &
Company where he held the position of Vice President. Mr. Wu has both
Bachelor and Masters of Science in Electrical Engineering degrees from
Stanford University, and a Master of Business Administration degree from
Harvard University.

Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires directors and executive
officers of ZiLOG and greater than 10% owners of ZiLOG Common Stock,
registered under Section 12 of the Exchange Act, to file with the SEC
reports of beneficial ownership of ZiLOG Common Stock, registered under
Section 12 of the Exchange Act. Such executive officers, directors and
10% stockholders are required to furnish ZiLOG copies of all Section 16(a)
reports they file. From January 1, 1998 to February 27, 1998, the
Company's Common Stock was registered under Section 12 of the Exchange
Act.

In connection with the merger, the Company ceased being a public company
and terminated the registration of its Common Stock under Section 12,
after which, its executive officers, directors and 10% stockholders were
no longer subject to Section 16.

Based solely on the Company's review of the copies of forms furnished to
it and written representations from the executive officers, directors and
10% stockholders, the Company believes all necessary filings were made
under Section 16(a) during 1998.

ITEM 11. EXECUTIVE COMPENSATION

Retention of New Chief Executive Officer

The Company has entered into an employment agreement with Mr. Crawford,
which provides that, for a period of five years commencing on the date the
Merger is consummated; Mr. Crawford will serve as President and CEO of the
Company and as a member of its Board of Directors. The employment
agreement provides for an annual base salary of $800,000, and provides an
annual target bonus of at least $600,000 provided the Company achieves
certain performance objectives to be determined each year. With respect
to calendar year 1998, a bonus of $700,000 was paid in the first quarter
of 1999.

Upon commencement of employment with the Company, Mr. Crawford received a
$1.0 million bonus and the Company established a deferred compensation
account of $8.0 million, which will earn interest of 8% per annum,
compounded annually. The $8.0 million plus earnings will be paid to
Mr. Crawford on January 2, 2002 or earlier, if Mr. Crawford elects, upon
the occurrence of (i) a change in control of the Company (as defined in
the employment agreement), (ii) a public offering (as defined in the
employment agreement) of any class of stock of the Company or (iii) the
termination of Mr. Crawford's employment with the Company, provided that,
if Mr. Crawford voluntarily resigned his employment with the Company prior
to January 1, 1999, he would have forfeited all rights to the $8.0 million
payment.

The Company granted Mr. Crawford 100,000 shares of Common Stock effective
on of May 1, 1998, and will grant Mr. Crawford 100,000 shares of Common
Stock on each of May 1, 1999, 2000 and 2001 (all share and share price
information in this paragraph give effect to a 4-for-1 stock split
declared after consummation of the Merger and a 2-for-1 stock split
declared in August 1998). Such shares shall become fully deliverable
prior to such dates on the earlier to occur of a change in control, a
public offering or if Mr. Crawford ceases to be employed with the Company
for any reason, provided that, if Mr. Crawford voluntarily resigned his
employment prior to January 1, 1999, he would have to return any shares
granted and shall forfeit any shares that have not yet been granted. In
addition, the employment agreement provides that the Company will grant
Mr. Crawford the option to purchase 1,000,000 shares of Common Stock at an
exercise price of $2.50 per share (the "$2.50 Option") and 1,000,000
shares of Common Stock at an exercise price of $5.00 per share (the "$5
Option"). The $2.50 Option and the $5 Option will each become exercisable
as follows: (i) 125,000 shares on the date the Merger is consummated, (ii)
125,000 shares on December 31, 1998 and (iii) 62,500 shares at the end of
each calendar quarter in each of calendar years 1999, 2000 and 2001. The
options will also become immediately exercisable in full upon the
occurrence of any of the following events: (i) change in control of the
Company, (ii) a public offering or (iii) the termination of Mr. Crawford's
employment by the Company without cause (as defined in the employment
agreement), by Mr. Crawford for good reason (as defined in the employment
agreement) or on account of Mr. Crawford's death or permanent disability.
Mr. Crawford has the right to require the Company to register his shares
of Common Stock acquired pursuant to such option on May 1, 2001, or, at
the Company's option in lieu of registering such shares, to purchase such
shares from Mr. Crawford at an appraised fair market value on such date.

Employment Contracts and Termination of Employment and Change in Control
Arrangements

Dr. Sack stepped down as CEO following consummation of the Merger.
Pursuant to Dr. Sack's employment agreement, upon such resignation,
Dr. Sack became entitled to receive the following payments in a cash lump
sum: (A) the 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. In addition, Dr. Sack is entitled to continue his
participation in group insurance plans, including basic and supplemental
life insurance and disability insurance and health insurance and the
flexible spending plan for the health insurance and dependent care
coverage, maintained by ZiLOG for an additional 24 months. Upon
consummation of the Merger, all of Dr. Sack's outstanding stock options
became fully vested, were canceled and Dr. Sack received cash for the
difference, if any, between the exercise price and $20.00. See
Business-The Merger.

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 was automatically extended for 24 months from the earlier of
the Anniversary date of the Merger or the expiration date of each
respective employment agreement. If any of such executive officers
terminates employment with ZiLOG after the Anniversary date of the Merger,
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 unvested stock
options granted after the Anniversary date of the Merger and outstanding
as of the date of such termination 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, including basic and supplemental life insurance and disability
insurance and health insurance and the flexible spending plan for the
health insurance and dependent care coverage, maintained by ZiLOG through
the expiration of the term of the employment agreement. In addition, upon
consummation of the Merger, all of the above executives' outstanding stock
options became fully vested, were canceled and they received cash for the
difference, if any, between the exercise price and $20.00. See
Business-The Merger.

The employment agreements for each of Dr. Sack, Messrs. Bradshaw, Moore,
Collins, Pickard, Magill, Secor and Carson and Ms. Baumwell provide for:
(i) awards and payouts under ZiLOG's Employee Performance Incentive Plan
and Executive Bonus Plan for the year in which the termination of
employment occurs and (ii) excise tax restoration bonuses to the extent
any of such individuals are subject to any excise tax imposed by Section
4999 of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
The amount of payouts will be calculated in accordance with the respective
terms of the Employee Performance Incentive Plan and Executive Bonus Plan
as if such individual's termination date was the last day of ZiLOG's
fiscal year and based on ZiLOG's financial performance for the portion of
the fiscal year that ends on the last day of the month prior to the
termination date.

After the Merger and during 1998, Robert E. Collins, Sally M. Baumwell, J.
James Magill, Alan Secor, and Thomas C. Carson terminated their employment
with the Company either voluntarily for good reason (as defined in each
respective employment agreement) or involuntarily for reason other than
for Cause or Detrimental Activity (as defined in each respective
employment agreement). Accordingly, each such former employee received
the benefits they were entitled to as set forth above.

Compensation of Directors

During 1997 and 1998 prior to the consummation of the Merger, the then
current outside members of the Board of Directors, Mr. Connors,
Mr. Wangberg and Dr. White were each compensated at the rate of $2,000.00
for each full day spent performing business for the Board of Directors or
for any committee of the Board of Directors and were reimbursed for travel
expenses. Such compensation was not paid pursuant to consulting
contracts. Prior to the Merger, the Company's other directors did not
receive any compensation for service on the Board of Directors. Prior to
the Merger, there were no family relationships between any directors or
executive officers of the Company.

During 1998, after the Merger, each outside director received an option
grant of 15,000 shares (after giving effect to the 4-for-1 and 2-for-1
stock splits ("the 1998 Stock Splits") effective as of the date of their
commencement as a member of the Board of Directors. On each outside
director's anniversary date of the commencement of their term as a member
of the Board, they shall receive an annual stock option grant of 2,000
shares (after giving effect to the 1998 Stock Splits). Each outside
director also receives $1,000 per meeting of the Board or any committee of
the Board whether the outside director appears in person or by telephone
and reimbursement of expenses incurred to attend such meeting of the Board
or committee meeting. This compensation is not paid pursuant to
consulting contracts. The Company's other directors currently do not
receive any compensation for service on the Board of Directors. There are
no family relationships between any directors or executive officers of the
Company.

Compensation Committee Interlocks and Insider Participation in
Compensation Decisions

During 1997 and 1998 prior to the consummation of the Merger, the Board of
Directors' Executive Compensation Committee consisted of Drs. Kressel and
Sack, Mr. Connors and Mr. Wangberg. There were no Compensation Committee
Interlocks as that term is defined under Item 402(j) of Regulation S-K as
promulgated under the Securities Exchange Act of 1934, as amended, among
the committee members. Dr. Sack was an executive officer of the Company
serving as President and Chief Executive Officer until the consummation of
the Merger on February 27, 1998 when he resigned. Dr. Sack did not
participate in the deliberations concerning his own compensation.

After the Merger, initially, Mr. Stanton served as Chairman and Mr. Goldman
and Mr. Friedland served as members of the Compensation Committee. At the
November 6, 1998 meeting of the Board of Directors, Mr. Stanton resigned
form this committee to assume a position on another committee and Mr.
William S. Price, III became Chairman of the Compensation Committee.
There were no Compensation Committee Interlocks as that term is defined
under Item 402 (j) of Regulation S-K as promulgated under the Securities
Exchange Act of 1934, as amended, among the committee members. Mr.
Crawford as the Chief Executive Officer and Mr. Mizell as the Senior
Vice President of Human Resources provide staff to support this
committee. Neither Mr. Crawford nor Mr. Mizell participate in the
deliberations concerning their own respective compensation.

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid for services rendered
to the Company in all capacities during the years ended December 31, 1998,
1997 and 1996 by (i) each person who served as the Company's chief
executive officer in 1998, (ii) the four other most highly compensated
executive officers other than the chief executive officer who were serving
as executive officers as of December 31, 1998, and (iii) one other
individual who was an executive officer during 1998 (collectively, the
"Named Executive Officers").

Long-Term
Annual Compensation Compensation Awards
--------------------------------- -----------------------
Other Securities All
Annual Restricted Underlying Other
Name and Compensa- Stock Options/ Compensa-
Principal Position Year Salary($) Bonus($) tion($) Awards SAR(#)(1) tion($)(2)
- -------------------------- -------- ---------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
C.J. Crawford (3) 1998 $794,871 $1,000,000 $422,093 (4) 250,000 (5) 2,000,000 $2,400
President and CEO 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --

E.A. Sack (6) 1998 138,177 375,736 -- -- -- 1,244,380
President and CEO 1997 526,435 306,276 -- -- 115,350 17,538
1996 511,750 491,376 -- -- 60,700 16,869

M.J. Bradshaw 1998 244,331 73,631 -- -- 120,000 2,400
Senior Vice President, 1997 220,823 62,331 -- -- 20,350 17,538
Worldwide Operations 1996 212,116 87,588 -- -- 83,275 (7) 16,869

R.L. Moore 1998 231,137 68,994 -- -- 120,000 2,400
Senior Vice President, 1997 215,004 69,834 -- -- 20,350 17,538
Chief Technology Officer 1996 195,185 75,120 -- -- 116,400 (8) 15,008

T.C. Carson(9) 1998 207,677 60,388 -- -- 120,000 488,446
Senior Vice President Sales 1997 217,390 42,468 -- -- 35,100 17,538
and Strategic Marketing 1996 169,995 45,948 -- -- 82,100 (10) 16,869

R.R. Pickard 1998 201,116 66,372 -- -- 120,000 2,400
Senior Vice President, 1997 173,271 72,380 -- -- 20,450 2,400
General Counsel, Secretary 1996 166,180 80,946 -- -- 42,100 (11) 2,250

J.M. Thorburn(12) 1998 134,135 100,000 -- -- 180,000 --
Senior Vice President, CFO 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --
</TABLE>

(1) Grants in fiscal years 1997 and 1996 relate to options issued under
ZiLOG's stock plans outstanding prior to the Merger. In conjunction
with the Merger, these options were cancelled and, in certain
instances, were converted into the right to receive an amount in cash,
as set forth in the Merger agreement. Share amounts prior to the
Merger have not been restated to reflect stock splits.
(2) Amounts represent the Company's matching and discretionary
contributions to the ZiLOG, Inc. Tax-Deferred 401(k) Investment Plan
and the Company's contribution to the Non-Qualified Deferred
Compensation Plan with the exception of Dr. Sack and Mr. Carson who
also received severance payments in 1998 of $1,244,380 and $486,046,
respectively.
(3) Mr. Crawford became President, Chief Executive Officer effective upon
the consummation of the Merger on February 27, 1998.
(4) Represents $391,394 paid for relocation expenses and $30,699 for other
payroll gross-ups for Mr. Crawford.
(5) Reflects 100,000 shares of ZiLOG, Inc. Common Stock granted to Mr.
Crawford on May 1, 1998.
(6) Dr. Sack resigned from the Company effective upon the consummation of
the Merger on February 27, 1998.
(7) Includes options granted on November 6, 1996 for 11,250 shares upon
cancellation of a previous option granted on June 1, 1994, 525 shares
upon cancellation of a previous option granted on December 15, 1994,
100 shares upon cancellation of a previous option granted on March 23,
1995, 25,000 shares upon cancellation of a previous option granted on
April 6, 1995, 700 shares upon cancellation of a previous option
granted on January 17, 1996, and 20,000 shares upon cancellation of a
previous option granted on February 21, 1996.
(8) Includes options granted on November 6, 1996 for 40,000 shares upon
cancellation of a previous option granted on June 14, 1995, 5,000
shares upon cancellation of a previous option granted on November 16,
1995, 700 shares upon cancellation of a previous option granted on
January 17, 1996, 20,000 shares upon cancellation of a previous option
granted on February 21, 1996, 10,000 shares upon cancellation of a
previous option granted on May 16, 1996, and 5,000 shares upon
cancellation of a previous option granted on July 16, 1996.
(9) Mr. Carson resigned from the Company in October 1998 and the 120,000
options granted to him in 1998 were subsequently cancelled.
(10) Includes options granted on November 6, 1996 for 15,000 shares upon
cancellation of a previous option granted on June 1, 1994, 700 shares
upon cancellation of a previous option granted on December 15, 1994,
25,000 shares upon cancellation of a previous option granted on April
6, 1995, 700 shares upon cancellation of a previous option granted on
January 17, 1996 and 20,000 shares upon cancellation of a previous
option granted on February 21, 1996.
(11) Includes options granted on November 6, 1996 for 10,000 shares upon
cancellation of a previous option granted on June 1, 1994, 700 shares
upon cancellation of a previous option granted on December 15, 1994,
20,000 shares upon cancellation of a previous option granted on April
6, 1995, 700 shares upon cancellation of a previous option granted on
January 17, 1996, and 10,000 shares upon cancellation of a previous
option granted on July 16, 1996.
(12) Mr. Thorburn joined the Company in May 1998.

<PAGE>

The following table sets forth further information regarding option grants
to each of the Named Executive Officers during 1998. In accordance with
the rules of the Securities and Exchange Commission, the table sets forth
the hypothetical gains or "option spreads" that would exist for the
options at the end of their respective ten-year terms. These gains are
based on assumed rates of annual compound stock price appreciation of 5%
and 10% from the date the option was granted to the end of the option
terms.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------- Potential Realized
Number % of Total Value at Assumed
of Options/ Annual Rates of
Securities SARs Stock Price
Underlying Granted to Exercise Appreciation for
Options/ Employees or Base Option Term
SARs in Fiscal Price Expiration -----------------------
Name Granted(1) Year ($/SH)(2) Date 5% 10%
- ----------------- ----------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
C.J. Crawford(3) 1,000,000 15.5% $2.50 02/27/08 $1,572,237 $3,984,356
1,000,000 15.5% 5.00 02/27/08 3,144,473 7,968,712

E.A. Sack(4) -- -- -- --

M.J. Bradshaw 120,000 1.9% 2.50 08/14/08 188,668 478,123

R. L. Moore 120,000 1.9% 2.50 08/14/08 188,668 478,123

T. C. Carson(5) 120,000 1.9% 2.50 08/14/08 188,668 478,123

R. R. Pickard 120,000 1.9% 2.50 08/14/08 188,668 478,123

J. M. Thorburn(6) 180,000 2.8% 2.50 08/14/08 283,003 717,184

</TABLE>

(1) Options generally vest and become exercisable at a rate of 25% on
each of the first four anniversaries following the option grant date.
(2) These options were granted at fair value, except for the option granted
to Mr. Crawford with an exercise price per share of $5.00, which was
above fair value.
(3) Mr. Crawford became President and Chief Executive Officer effective
upon the consummation of the Merger on February 27, 1998.
(4) Dr. Sack resigned from the Company effective upon the consummation of
the Merger on February 27, 1998.
(5) Mr. Carson resigned from the Company in October 1998. The options
granted for 120,000 shares were subsequently cancelled.
(6) Mr. Thorburn joined the Company in May 1998.

The following table provides information with respect to the aggregate
option exercises and fiscal year-end option values for each of the
Company's Named Executive Officers for the year ended December 31, 1998.
Also reported are values of unexercised "in-the-money" options, which
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair value of the Common Stock on
December 31, 1998, as determined by the Board of Directors ($2.50 per
share).

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1998

<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options/SARs Options/SARs
At Fiscal at Fiscal
Year-End (#) Year-End($)
Shares Value -------------------- --------------
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ----------------- ------------ ---------- -------------------- --------------
<S> <C> <C> <C> <C>
C. J. Crawford(1) -- $ -- 625,000 / 1,375,000 - / -
E.A. Sack(2) 180,975 (3) 2,183,701 - / - - / -
M. J. Bradshaw 8,550 (3) 51,800 - / 120,000 - / -
R. L. Moore -- -- - / 120,000 - / -
T.C. Carson(4) 30,000 (5) 161,875 - / - - / -
R. R. Pickard 3,000 (3) 17,500 - / 120,000 - / -
J. M. Thorburn -- -- - / 180,000 - / -
</TABLE>

(1) Mr. Crawford became President, Chief Executive Officer effective upon
the consummation of the Merger on February 27, 1998.
(2) Dr. Sack resigned from the Company effective upon the consummation of
the Merger on February 27, 1998.
(3) Relates to the redemption of options issued under ZiLOG's stock plans
outstanding immediately prior to the consummation of the Merger.
(4) Mr. Carson resigned from the Company in October 1998.
(5) Amount includes both the redemption of outstanding options in
conjunction with the Merger and the exercise of 14,000 options prior to
the Merger.
(6) Mr. Thorburn joined the Company in May 1998.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the
beneficial ownership of ZiLOG, Inc. common and preferred stock as of March
1, 1999, by (i) each stockholder known by the Company to be the
beneficial owner of more than five percent of ZiLOG, Inc. common or
preferred stock, (ii) each of the directors of ZiLOG, Inc., (iii) each of
the Named Executive Officers, and (iv) all current executive officers and
directors of ZiLOG, Inc. as a group.

<TABLE>
<CAPTION>
Series A Class A Non-voting
Preferred Stock Common Stock Common Stock
----------------- ------------------- -------------------
Amount Amount Amount
and and and
Nature of Nature of Nature of
Benefi- Benefi- Benefi-
cial Percent cial Percent cial Percent
Name and Address Owner- of Owner- of Owner- of
of Beneficial Owner ship(1) Class ship(1) Class ship(1) Class
- ---------------------- --------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
TPG Partners II, L.P. 242,343 96.9% 26,172,770 87.0% 9,693,620 96.9%
201 Main Street
Suite 2420
Fort Worth, TX 76102(2)

C. J. Crawford 2,127 * 954,786 3.2 85,106 *

E. A. Sack -- -- 147,288 * -- --

M. J. Bradshaw -- -- 108,160 * -- --

R. R. Pickard -- -- 10,288 * -- --

R. L. Moore -- -- -- -- -- --

J. M. Thorburn -- -- -- -- -- --

T. C. Carson -- -- -- -- -- --

W. S. Price, III -- -- -- -- -- --

D. M. Stanton -- -- -- -- -- --

M. A. Goldman -- -- -- -- -- --

R. S. Friedland -- -- -- -- -- --

All current executive 2,127 * 1,073,234 3.6 85,106 *
officers and
directors, as a group
(14 persons)

</TABLE>

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

* Less than one percent.

(1) Unless otherwise indicated, the persons and entity named in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where
applicable.
(2) Mssrs. Price and Stanton, who serve as directors for the Company, are
also partners of TPG Partners II, L.P., and disclaim beneficial
ownership of such securities except to the extent of their respective
pecuniary interests therein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the Merger, the Company paid TPG Partners II, L.P.
("TPG II") and certain affiliates financial advisory and other
fees and reimbursed certain expenses, in an aggregate amount of
approximately $8 million.

In connection with the Merger, TPG II and certain other investors received
27,000,000 new shares of Common Stock, 10,000,000 shares of Non-Voting
Common Stock and 250,000 shares of Series A Cumulative Preferred Stock of
ZiLOG, the surviving corporation, after taking effect of the 4-for-1 stock
split declared by the Board upon consummation of the Merger and the 2-for-
1 stock spit approved by the Board in August 1998. The preferred stock
has initial liquidation value of $100 per share. The Preferred Stock will
accumulate dividends at the rate of 13.5% per annum payable quarterly for
periods ending on or prior to February 26, 2008. Dividends will compound
to the extent not paid in cash. On February 27, 2008, ZiLOG will be
required to pay in cash all accumulated but unpaid dividends on the
preferred stock. Thereafter, the preferred stock will accumulate
dividends at the rate of 15.5% per annum. Subject to restrictions imposed
by certain indebtedness of ZiLOG, ZiLOG will be able (but not required) to
redeem shares of the preferred stock at any time at redemption prices
ranging from 105% of liquidation value plus accumulated and unpaid
dividends at February 27, 1998 to 100% of liquidation value plus
accumulated and unpaid dividends at February 27, 2003 and thereafter. In
certain circumstances involving a change of control of ZiLOG, subject to
restrictions imposed by certain indebtedness of ZiLOG, holders of
preferred stock will be able (but not required) to require ZiLOG to
repurchase shares of preferred stock at liquidation value plus accumulated
and unpaid dividends.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

1. Consolidated Financial Statements and Supplementary Data:

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheets as of December 31, 1998 and 1997

Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

The Financial Statement Schedule listed below is filed as part of
this Report:

Schedule II Valuation and Qualifying

All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the Notes thereto.

(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the
fiscal quarter ended December 31, 1998.

(c) Exhibits
The exhibits listed in the accompanying index to exhibits are filed
or incorporated by reference (as stated therein) as part of this
annual report.

(d) Financial Statements Schedules
See Item 14 (a)(2) above.

<PAGE>

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

ZiLOG, INC.

By: /s/ CURTIS J. CRAWFORD March 30, 1999
------------------------------------
Curtis J. Crawford
President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date
- -------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ CURTIS J. CRAWFORD President and Chief Executive March 30, 1999
- -------------------------- Officer and Director
Curtis J. Crawford

/s/ JAMES M. THORBURN Senior Vice President, Chief March 30, 1999
- -------------------------- Financial Officer
James M. Thorburn

/s/ RICHARD S. FRIEDLAND Director March 30, 1999
- --------------------------
Richard S. Friedland

/s/ MURRAY A GOLDMAN Director March 30, 1999
- --------------------------
Murray A. Goldman

/s/ WILLIAM S. PRICE III Director March 30, 1999
- --------------------------
William S. Price

/s/ DAVID M. STANTON Director March 30, 1999
- --------------------------
David M. Stanton

</TABLE>

<PAGE>

SCHEDULE II
ZiLOG, INC.
VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 1998, 1997, and 1996
(In thousands)

<TABLE>
<CAPTION>
Additions
Charged
Balance at to Costs Balance at
Beginning and Deductions Ending
of Period Expenses (1) of Period
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
Allowance for doubtful accounts.. $250 $153 ($37) $366

December 31, 1997
Allowance for doubtful accounts.. $250 $189 ($189) $250

December 31, 1996
Allowance for doubtful accounts.. $250 $107 ($107) $250
</TABLE>
- ------------------------

(1) Uncollectible accounts written off, net of recoveries.

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------------------------------------------------
<C> <S>
2.1* Agreement and Plan of Merger, dated as of July 20, 1997, between
TPG Partners II, L.P. and ZiLOG Inc. (the Recapitalization
Agreement).
NOTE: Pursuant to the provisions of paragraph (b) (2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any Schedule to the
Recapitalization Agreement.

2.2* Amendment Number One to the Recapitalization Agreement, dated as
of November 18, 1997, by and between TPG Partners II, L.P., TPG
Zeus Acquisition Corporation and ZiLOG, Inc.

2.3* Amendment Number Two to the Recapitalization Agreement, dated as
of December 10, 1997, by and between TPG Partners II, L.P., TPG
Zeus Acquisition Corporation and ZiLOG, Inc.

2.4* Amendment Number Three to the Recapitalization Agreement, dated as
of January 26, 1997, by and between TPG Partners II, L.P., TPG
Zeus Acquisition Corporation and ZiLOG, Inc.

3.1* Certificate of Incorporation of ZiLOG, Inc.
3.2* Certificate of Merger of TPG Zeus Acquisition Corporation into
ZiLOG, Inc filed with the Delaware Secretary of State on February
27, 1998.

3.3* Bylaws of ZiLOG, Inc.

3.4* Certificate of Designation of Series A Cumulative Preferred Stock
of ZiLOG, Inc.

3.5** Certificate of Amendment of Certificate of Incorporation of ZiLOG,
Inc.

4.1* Stockholders Voting Agreement, dated as of July 20 1997, by and
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.

4.2* Stockholders' Agreement dated as of February 27, 1998, by and
among ZiLOG, Inc., TPG Partners II, L.P., TPG Investors II, L.P.,
TPG Parallel II, L.P. and certain other stockholders of ZiLOG, Inc.

4.3* Letter Agreement, dated as of November 18, 1997, by and among TPG
Partners II, L.P., Warburg, Pincus Capital Company, L.P. and
Warburg, Pincus & Co., and ZiLOG, Inc.

4.4* Form of 9 1/2% Senior Secured Notes due 2005 of ZiLOG, Inc.

4.5* Indenture, dated as of February 27, 1998, by and among ZiLOG,
Inc., ZiLOG Europe, ZiLOG TOA Company and State Street Bank and
Trust Company.
NOTE: Pursuant to the provisions of paragraph (b) (2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the
Indenture.

4.6* Purchase Agreement dated as of February 23, 1998, by and among
ZiLOG, Inc., ZiLOG Europe, ZiLOG TOA Company, Goldman, Sachs &
Co., BancBoston Securities Inc. and Citicorp Securities, Inc.

4.7* Registration Rights Agreement, dated as of February 27, 1998, by
and among ZiLOG, Inc., ZilOG Europe, ZiLOG TOA Company, Goldman,
Sachs, & Co., BancBoston Securities Inc. and Citicorp Securities,
Inc.

4.8* Company Security Agreement dated as of February 27, 1998 by and
between ZiLOG, Inc. and State Street Bank and Trust Company.
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the Company
Security Agreement.

4.9* Subsidiary Security Agreement, dated as of February 27, 1998 by
and among each of the direct and indirect ZiLOG, Inc. Subsidiary
signatories thereto and State Street Bank and Trust Company.
NOTE: Pursuant to the provisions of paragraph (b) (2) of item
601 of Regulation S-K, the Registrant hereby undertakes to furnish
to the Commission upon request copies of any schedule to the
Subsidiary Security Agreement.

4.10* Company Pledge Agreement, dated as of February 27, 1998 by and
between ZiLOG, Inc. and State Street Bank and Trust Company.
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the Company
Pledge Agreement.

4.11* Subsidiary Pledge Agreement, dated as of February 27, 1998 by each
of the direct and indirect ZiLOG, Inc. Subsidiary signatories
thereto and State Street Bank and Trust Company.
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the
Subsidiary Pledge Agreement.

4.12* Company and Subsidiary Patent and Trademark Security Agreement,
dated as of February 27, 1998 by and among ZiLOG, Inc., each of
the direct and indirect domestic ZiLOG, Inc. Subsidiary
signatories thereto and State Street Bank and Trust Company.
NOTE: Pursuant to the provisions of paragraph (b) (2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the Company
and Subsidiary Patent and Trademark Security Agreement.

4.13* Copyright Security Agreement, dated as of February 27, 1998 by
ZiLOG, Inc., each of the direct and indirect ZiLOG, Inc.
Subsidiary signatories thereto and State Street Bank and Trust
Company.
NOTE: Pursuant to the provisions of paragraph (b) (2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the
Copyright Security Agreement.

4.14* Stockholders' Agreement, dated as of March 26, 1998, by and among
ZiLOG, Inc., TPG Partners II, L.P., TPG Investors II, L.P. TPG
Parallel II, L.P. and certain other stockholders of ZiLOG.

10.1* Contract of Lease, dated March 22, 1979, by and between ZiLOG
Philippines, Inc. and Fruehauf Electronics Phils. Corporation
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item 601
of Regulation S-K, the Registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the Contract
of Lease.

10.2 Credit Agreement, dated December 30, 1998, by and between ZiLOG,
Inc. and The CIT Group/ Business Credit, Inc.

10.3* Form of 1997 Employee Performance Incentive Plan (1).

10.4* 1997 ZiLOG Employee Performance Incentive Plan Administrative
Guide (1).

10.5* 1997 ZiLOG Employee Performance Incentive Plan Executive Bonus
Administrative Guide (1).

10.6* Employment Agreement, dated May 22, 1997, by and between Michael
J. Bradshaw and ZiLOG, Inc (1).

10.7 Employment Agreement, dated as of May 22, 1997, by and between
Richard R. Pickard and ZiLOG, Inc (1).

10.8* Employment Agreement, dated as of May 22, 1997, by and between
Richard L. Moore and ZiLOG, Inc. (1)

10.9 Employment Agreement, dated as of November 20, 1998 by and between
Michael Burger and ZiLOG, Inc. (1)

10.10 Employment Agreement, dated February 1, 1999, by and between
Shlomo Waser and ZiLOG, Inc. (1).

10.11 Employment Agreement, dated June, 15, 1998, by and between W.
Norman Wu and ZiLOG, Inc. (1).

10.12 Employment Agreement, dated June 1, 1998, by and between Gerald J.
Corvino and ZiLOG, Inc. (1).

10.13 Employment Agreement, dated August 3, 1998, by and between Robert
G. Couch and ZiLOG, Inc. (1).

10.14 Employment Agreement, dated October 16, 1998, by and between
Steven C. Mizell and ZiLOG, Inc. (1).

10.15 Employment Agreement, dated as of March 1, 1998 by and between
Curtis J. Crawford and TPG Partners II, L.P. (1).

10.16* Lease, dated as of February 18, 1998, between ZiLOG, Inc. and
CarrAmerica Realty Corporation.
NOTE: Pursuant to the provisions of paragraph (b)(2) of item 601
of Regulation S-K, the registrant hereby undertakes to furnish to
the Commission upon request copies of any schedule to the Lease.

10.17** ZiLOG, Inc. 1998 Long-Term Stock Incentive Plan.

10.18** ZiLOG, Inc. 1998 Executive Officer Stock Incentive Plan.

10.19 Employment Agreement, dated May 22, 1998, by and between James M.
Thorburn and ZiLOG, Inc. (1).

10.20 Employment Agreement, dated November 11, 1998, by and between
Didier J. LeLannic and ZiLOG, Inc. (1).

10.21 Employment Agreement, dated August 3, 1998, by and between Aydin
Koc and ZiLOG, Inc. (1).

21.1* Subsidiaries of ZiLOG, Inc.

25.1* Form T-1 with respect to the eligibility of State Street Bank and
Trust Company with respect to the Indenture.

27.1 Financial Data Schedule.
__________________

* Incorporation herein by reference to the Exhibit of the same
number in the Company's Registration Statement on Form S-4 (File
No. 333-51203) declared effective by the Securities and Exchange
Commission on July 9, 1998.

** Incorporated herein by reference to the Exhibit of the same number
in the Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1998.

(1)Represents a management contract or compensatory plan or agreement.

</TABLE>

Exhibit 10.2

FINANCING AGREEMENT

The CIT Group/Business Credit, Inc.

(as Lender)

And

Zilog, Inc.

(as Borrower)

Dated: December 30, 1998

<PAGE>

TABLE OF CONTENTS
Page

SECTION 1. Definitions 3
SECTION 2. Conditions Precedent 15
SECTION 3. Revolving Loans 19
SECTION 4. CAPEX Term Loans 22
SECTION 5. Letters of Credit 24
SECTION 6. Collateral 26
SECTION 7. Representations, Warranties and Covenants 35
SECTION 8. Interest, Fees and Expenses 39
SECTION 9. Powers 45
SECTION 10. Events of Default and Remedies 46
SECTION 11. Termination 50
SECTION 12. Miscellaneous 50

EXHIBIT

Exhibit A - Form of Revolving Loan Promissory Note A
Exhibit B - Form of CAPEX Term Loan Promissory Note B

SCHEDULES

Schedule 1 - Existing Liens
Schedule 2 - Collateral Information

THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation,
(hereinafter "CITBC") with offices located at 300 South Grand Avenue, Los
Angeles, CA 90071, is pleased to confirm the terms and conditions under
which CITBC shall make revolving loans, CAPEX Term Loans and other financial
accommodations to ZILOG, INC. (herein the "Company"), a Delaware
corporation with a principal place of business at 910 East Hamilton Avenue,
Campbell, CA 95008.

SECTION 1. Definitions

Accounts shall mean all of the Company's now existing and future: (a)
accounts (as defined in the UCC), and any and all other receivables (whether
or not specifically listed on schedules furnished to CITBC), including,
without limitation, all accounts created by or arising from all of the
Company's sales, leases, rentals of goods or renditions of services to its
customers, and all accounts arising from sales, leases, rentals or
renditions of services made under any of the Company's trade names or
styles, or through any of the Company's divisions; (b) any and all
instruments, documents, contract rights and chattel paper, all as defined
in the UCC; (c) unpaid seller's or lessor's rights (including rescission,
replevin, reclamation, repossession and stoppage in transit) relating to the
foregoing or arising therefrom; (d) rights to any goods represented by any
of the foregoing, including rights to returned, reclaimed or repossessed
goods; (e) deposit accounts, reserves and credit balances arising pursuant
hereto; (f) guarantees or collateral for any of the foregoing; (g) insurance
policies or rights relating to any of the foregoing (h) General Intangibles
(including all rights to payment, including those arising in connection with
bank and non-bank credit cards) pertaining to any and all of the foregoing;
(i) notes, deposits or property of account debtors securing the obligations
of any such account debtors to the Company, and (j) cash and non-cash
proceeds of any and all the foregoing.

Anniversary Date shall mean the date occurring three (3) years from the
Closing Date and the same date in every year thereafter.

Availability shall mean at any time the positive difference between: (a) the
Borrowing Base, and (b) the sum of (i) the outstanding aggregate amount of
all Obligations, including without limitation, all Obligations with respect
to Revolving Loans but excluding the Letters of Credit and CAPEX Term
Loans, plus (ii) the Availability Reserve.

Availability Reserve shall mean the sum of: (a) three (3) months rental
payments or similar charges for any of the Company's leased premises for
which the Company has not delivered to CITBC a landlord's waiver (as
provided by CITBC from time to time, or otherwise in form and substance
satisfactory to CITBC in the exercise of its reasonable business judgment),
provided that any such amounts shall be adjusted from time to time hereafter
upon (i) delivery to CITBC of any such acceptable waiver, (ii) the opening
or closing of a Collateral location and/or (iii) any change in the amount
of rental payments or similar charges; and (b) any reserve which CITBC may
reasonably require from time to time pursuant to the explicit terms of this
Financing Agreement, including without limitation, for Letters of Credit
pursuant to Paragraph 5.1 of Section 5 hereof.

Borrowing Base shall mean the sum of (a) eighty percent (80%) of the
Company's aggregate outstanding Eligible Accounts Receivable, plus (b) the
lesser of (i) forty percent (40%) of the aggregate value of the Company's
Eligible Inventory, valued at the lower of cost or market, on a first in,
first out basis or (ii) 80% of the appraised net orderly liquidation
percentage value of Eligible Inventory. Inventory advances will be subject
to receipt of an Inventory Appraisal performed by an appraiser mutually
agreed upon but paid for by the Company. Absent the occurrence of an Event
of Default, appraisals shall not be required more than twice in any fiscal
year.

Business Day shall mean any day that on which CITBC is open for business in
Los Angeles, California and New York, New York, which is not (i) a Saturday,
Sunday or legal holiday in the state of New York or (ii) a day on which
banking institutions chartered by the state of New York or the United States
are legally required to close.

CAPEX Fee shall mean the processing fee due CITBC on funding of any CAPEX
Term Loan equal to the product of (x) the amount of such CAPEX Term Loan
multiplied by (y) 0.25%.

CAPEX Term Loan Promissory Note shall mean a promissory note in the form of
Exhibit B hereto executed by the Company from time to time to evidence a
CAPEX Term Loan made by CITBC under Section 4 hereof.

CAPEX Term Loans shall mean the term loans made and to be made to the
Company by CITBC within the CAPEX Term Loan Line of Credit in accordance
with and as more fully described in Section 4 of this Financing Agreement.

CAPEX Term Loan Line of Credit shall mean the commitment of CITBC to make
CAPEX Term Loans to the Company pursuant to Section 4 of this Financing
Agreement in the aggregate amount of up to $15,000,000.

Capital Expenditures for any period shall mean the aggregate of all
expenditures of the Company during such period that in conformity with GAAP
are required to be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in the balance sheet of
the Company.

Capital Improvements shall mean operating Equipment and facilities (other
than land) acquired or installed for use in the Company's business
operations.

Capital Lease shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease
or a Capital Expenditure on the balance sheet of the Company.

Chase Bank Rate Loans shall mean any loans or advances pursuant to this
Financing Agreement made or maintained at a rate of interest based upon the
Chase Bank Rate.

Chase Bank Rate shall mean the rate of interest per annum announced by The
Chase Manhattan Bank from time to time as its prime rate in effect at its
principal office in New York City. (The prime rate is not intended to be
the lowest rate of interest charged by The Chase Manhattan Bank to its
borrowers).

CITBC Commitment Letter shall mean the Commitment Letter dated October 2,
1998 issued by CITBC to, and accepted by, the Company.

Closing Date shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to CITBC.

Collateral shall mean all present and future Accounts, Equipment (acquired
after February 27, 1998), Inventory, Documents of Title, General Intangibles
License and Other Collateral of the Company.

Collateral Management Fee shall mean the sum paid to CITBC in accordance
with Paragraph 8.8 of Section 8 of this Financing Agreement to offset the
reasonable costs (excluding Out-of-Pocket expenses) of CITBC's personnel in
connection with record keeping, periodic examinations, analyzing and
evaluating the Collateral.

Consolidated Balance Sheet shall mean a consolidated or compiled, as
applicable, balance sheet for the Company and its consolidated subsidiaries,
eliminating all inter-company transactions and prepared in accordance with
GAAP.

Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Company and its consolidated subsidiaries,
showing all eliminations of inter-company transactions and prepared in
accordance with GAAP, and including a balance sheet for the Company
exclusively.

Copyrights shall mean all present and hereafter acquired copyrights
registrations, recording, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, deed any and all
general intangible, intellectual property and copyright rights and all cash
and non-cash proceeds thereof.

Default shall mean any event specified in Section 10 hereof, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, event or act, has been satisfied.

Default Rate of Interest shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the
applicable contract rate of interest based upon any applicable increment
over the Chase Bank Rate plus the Chase Bank Rate, as determined under
Section 8 hereof, which CITBC shall be entitled to charge the Company on all
Obligations due CITBC by the Company, as further set forth in Paragraph 10.2
of Section 10 of this Financing Agreement.

Depository Accounts shall have the meaning specified in Paragraph 3.4 of
Section 3 of this Financing Agreement.

Documentation Fee shall mean (a) the sum of $15,000.00 which amount is
included in the Loan Facility Fee and intended to compensate CITBC for the
use of CITBC's in-house Legal Department and facilities in documenting, in
whole or in part, the initial transaction solely on behalf of CITBC,
exclusive of Out-of-Pocket Expenses, and (b) subsequent to the Closing Date
CITBC's standard fees relating to any and all modifications, waivers,
releases, amendments or additional collateral with respect to this Financing
Agreement, the Collateral and/or the Obligations.

Documents of Title shall mean all present and future documents (as defined
in the UCC) evidencing or arising from any and all Accounts, Inventory or
Equipment including, warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash
and non-cash proceeds of the foregoing.

Early Termination Date shall mean the date on which this Financing Agreement
or the Revolving Line of Credit is terminated and which date is prior to an
Anniversary Date.

Early Termination Fee shall: (a) mean the fee CITBC is entitled to charge
the Company in the event the Line of Credit or this Financing Agreement is
terminated on a date prior to an Anniversary Date, except as CITBC may waive
in writing; and (b) be determined by multiplying the Line of Credit by one
half of one percent (0.5%) per annum for the number of days from the Early
Termination Date to the next succeeding Anniversary Date.

EBITDA shall mean, in any period, all earnings of the Company before all (i)
interest and tax obligations, (ii) depreciation, (iii) amortization for said
period, and (iv) merger related restructuring and special charges consistent
with the provisions of the Senior Secured Notes, solely with respect to the
nine months ending October 4, 1998, all determined in accordance with GAAP
on a consistent basis with the latest audited financial statements of the
Company, but excluding the effect of extraordinary and/or non-reoccurring
gains or losses for such period.

Eligible Accounts Receivable shall mean the gross amount of the Company's
Trade Accounts Receivable that are subject to a valid, exclusive, first
priority and fully perfected security interest in favor of CITBC, which
conform to the warranties contained herein and at all times continue to be
acceptable to CITBC in the exercise of its reasonable business judgment,
less, without duplication, the sum of: (a) any returns, discounts,
chargebacks, claims, credits and allowances of any nature (whether issued,
owing, granted, claimed or outstanding), and (b) reserves for: (i) sales to
the United States of America, any state or other governmental entity or to
any agency, department or division thereof, except for any such accounts as
to which the Company has complied with the Assignment of Claims Act of 1940
or any other applicable statute, rules or regulation, to CITBC's
satisfaction in the exercise of its reasonable business judgment; (ii)
foreign accounts other than accounts (x) secured by letters of credit (in
form and substance satisfactory to CITBC) issued or confirmed by, and
payable at, banks having a place of business in the United States of America
and payable in United States currency or credit insurance from domestic
carriers acceptable to CITBC, or (y) to customers residing in Canada
provided such accounts otherwise comply with all of the other criteria for
eligibility hereunder, are payable in United States currency and such
accounts do not exceed $500,000 .00 in the aggregate at any one time; (iii)
accounts that remain unpaid more than ninety (90) days from invoice date;
(iv) contra accounts; (v) sales to any subsidiary or to any company
affiliated with the Company in any way; (vi) bill and hold (deferred
shipment) or consignment sales; (vii) sales to any customer which is (A)
insolvent, (B) the debtor in any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or
state law, (C) negotiating, or has called a meeting of its creditors for
purposes of negotiating, a compromise of its debts or (D) financially
unacceptable to CITBC or has a credit rating unacceptable to CITBC; (viii)
all sales to any customer if fifty percent (50%) or more of the aggregate
dollar amount of all outstanding invoices to such customer, are unpaid more
than ninety (90) days from invoice date; (ix) pre-billed receivables and
receivables arising from progress billing; (x) an amount representing,
historically, returns, discounts, claims, RMA/stock rotation reserve, direct
debit agreement reserve, price protection reserve, G/L allowances, COD
sales, non-product Accounts, credits and allowances; and (xi) any other
reasons deemed necessary by CITBC in its reasonable business judgment,
including those which are customary either in the commercial finance
industry or in the lending practices of CITBC.

Eligible Inventory shall mean the gross amount of the Company's domestic
Inventory that is subject to a valid, exclusive first priority and fully
perfected security interest in favor of CITBC and which conforms to the
warranties contained herein, which is subject to the most recent appraisal
indicating an acceptable orderly liquidation value of the Inventory and
which is in all respects in form and substance satisfactory to CITBC, and
which at all times continue to be acceptable to CITBC in the exercise of its
reasonable business judgment, less any (a) work-in-process at outside
processors, (b) supplies, including chemicals and gases (other than raw
materials), (c) goods not present in the United States of America, (d) goods
returned or rejected by the Company's customers other than goods that are
undamaged and resalable in the normal course of business, goods to be
returned to the Company's suppliers, (e) goods in transit to third parties
(other than the Company's agents or warehouses), or Inventory in possession
of a warehouseman, bailee or other third party, unless such warehouseman,
bailee or third party has executed a notice of security interest agreement
and waived any and all lien rights (in form and substance satisfactory to
CITBC) and CITBC has taken all other action required to perfect its security
interest in such Inventory, (f) goods at third party locations for which
CITBC has not received a waiver in form and substance satisfactory to CITBC,
and provided that CITBC may and in addition thereto require an Availability
Reserve for warehousing third party processor charges or other applicable
fees and charges, and (g) less any reserves required by CITBC in its
reasonable discretion, including for unsorted Inventory, special order
goods, discontinued, slow-moving and obsolete Inventory, market value
declines, bill and hold (deferred shipment), consignment sales, and
shrinkage.

Equipment shall mean all present and hereafter acquired equipment (as
defined in the UCC) including, without limitation, all machinery, equipment,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all
proceeds of whatever sort.

ERISA shall mean the Employee Retirement Income Security Act or 1974, as
amended from time to time and the rules and regulations promulgated
thereunder from time to time.

Eurocurrency Reserve Requirements for any day, as applied to a LIBOR Loan,
shall mean the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect with respect to CITBC
and/or any present or future participant on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and
from time to time in effect), dealing with reserve requirements prescribed
for Eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by CITBC and/or any
such participants (such rate to be adjusted to the nearest one sixteenth of
one percent (1/16 of 1%) or, if there is not a nearest one sixteenth of one
percent (1/16 of 1%), to the next higher one sixteenth of one percent (1/16
of 1%)).

Event(s) of Default shall have the meaning provided for in Section 10 of
this Financing Agreement.

Executive Officers shall mean the Chairman, President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, Executive Vice
President(s), Senior Vice President(s), Treasurer, Controller and Secretary
of the Company.

Fiscal Quarter shall mean, with respect to the Company, each fiscal quarter
of the Company (each with an approximate 13 week duration) ending on or
about March 31, June 30, September 30, and December 31 of each Fiscal Year.

Fiscal Year shall mean each twelve (12) month period commencing on January
1 of each year and ending on the following December 31.

Fixed Charge Coverage Ratio shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (a) Interest Expense, (b) the
amount of principal repaid or scheduled to be repaid on the CAPEX Term
Loans, Senior Secured Notes and Indebtedness (other than Revolving Loans),
(c) Capital Expenditures paid in cash and (d) all federal, state and local
income tax expenses due and payable.

GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to
which such accounting principles are to apply, provided that in the event
the Company modifies its accounting procedures as applied as of the Closing
Date, the Company shall provide such statements of reconciliation which
shall be in form and substance acceptable to CITBC.

General Intangibles shall have the meaning set forth in the UCC, and shall
include, without limitation, all present and future right, title and
interest in and to: (a) all Trademarks, corporate names, business names,
fictitious business names, logos and any other designs or sources of
business identities, indicative of origin, (b) Patents, together with any
improvements on said Patents, utility models, industrial models, designs
and, (c) Copyrights, (d) trade secrets, (e) licenses, (f) all applications
with respect to the foregoing, (g) all right, title and interest in and to
any and all extensions and renewals and (h) goodwill with respect to any of
the foregoing, (i) any other forms of similar intellectual property, (j) all
customer lists, distribution agreements, supply agreements, indemnification
rights and tax refunds, and (k) intellectual property, software,
applications, proprietary property and rights, programs, technical know how
and similar property, together with all monies and claims for monies now or
hereafter due and payable in connection with any of the foregoing or
otherwise, and all cash and non-cash proceeds thereof.

Indebtedness shall mean, without duplication, all liabilities, contingent
or otherwise, which are any of the following: (a) obligations in respect of
money (borrowed or otherwise) or for the deferred purchase price of
property, services or assets, other than Inventory, or (b) lease obligations
which, in accordance with GAAP, have been, or which should be capitalized.

Interest Expense shall mean total interest obligations (paid or accrued) of
the Company, determined in accordance with GAAP, on a consistent basis with
the latest audited statements of the Company.

Interest Period shall mean:

(a) initially (but subsequent to thirty (30) days from the Closing
Date), as the case may be a one month, two month, three month, six month or
twelve month period commencing on the borrowing or conversion date with
respect to a LIBOR Loan and ending one, two, three, six or twelve months
thereafter, as applicable; and

(b) thereafter, at the option of the Company, any one month, two
month, three month, six month or twelve month period commencing on the last
day of the immediately preceding Interest Period applicable to such LIBOR
Loan and ending one, two, three, six months or twelve month thereafter, as
applicable;

Provided that, the foregoing provisions relating to Interest Periods are
subject to the following:

(i) if any Interest Period would otherwise end on a day which is not
a Business Day or a Working Day, that Interest Period shall be
extended to the next succeeding Business Day, unless the result of
such extension would extend such payment into another calendar month
in which event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month, at the end of such Interest
Period) shall end on the last Business Day of a calendar month;

(iii) for purposes of determining the availability of Interest
Periods, such Interest Periods shall be deemed available if (x) Chase
Manhattan Bank quotes an applicable rate to CITBC or CITBC
determines the LIBOR Rate, as provided in the definition of LIBOR,
(y) the LIBOR Rate determined by Chase Manhattan Bank or CITBC on
the basis of such quote will adequately and fairly reflect the cost
of maintaining or funding its loans bearing interest at LIBOR, for
such Interest Period, and (z) such Interest Period will end on or
before the Anniversary Date or the last day of the then current term
of this Financing Agreement. If a requested Interest Period shall
be unavailable in accordance with the foregoing sentence, the Company
shall continue to pay interest on the Obligations at the applicable
per annum rate based upon the Chase Bank Rate.

Inventory shall mean all of the Company's present and hereafter acquired
inventory (as defined in the UCC), including, without limitation,
application-specific standard products ("ASSPs"), microprocessors,
microcontrollers, digital signal processors, semiconductors, chips,
converters, memory drivers, analog and discrete devices, wafers, quartz, and
all merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and
materials used or usable in manufacturing, processing, packaging or shipping
same; in all stages of production - from raw materials through
work-in-process to finished goods - and all proceeds thereof of whatever
sort.

Issuing Bank shall mean the bank issuing Letters of Credit for the Company.

Letters of Credit shall mean all letters of credit issued with the
assistance of CITBC in accordance with Section 5 hereof by the Issuing Bank
for or on behalf of the Company.

Letter of Credit Guaranty shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Company's reimbursement obligations under the Issuing
Bank's reimbursement agreement, application for Letter of Credit or other
like document.

Letter of Credit Guaranty Fee shall mean the fee CITBC may charge the
Company under Paragraph 8.3 of Section 8, of this Financing Agreement for:
a) issuing a Letter of Credit Guaranty and/or b) otherwise aiding the
Company in obtaining Letters of Credit, all pursuant to Section 5 hereof.

Letter of Credit Sub-Line shall mean the aggregate amount of $5,000,000.

LIBOR shall mean at any time of determination, and subject to availability,
for each applicable Interest Period, a variable rate of interest equal to:
(a) at CITBC's election (i) the applicable LIBOR quoted to CITBC by The
Chase Manhattan Bank (or any successor thereof), or (ii) the rate of
interest determined by CITBC at which deposits in U.S. Dollars are offered
for the relevant Interest Period based on information presented on Telerate
Systems at Page 3750 as of 11:00 A.M. (London time) on the day which is
two (2) Business Days prior to the first day of such interest period;
provided that if at least two such offered rates appear on the Telerate
System at Page 3750 in respect of such interest period, the arithmetic mean
of all such rates (as determined by CITBC) will be the rate used; divided
by (b) a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as decimal fraction) of Eurocurrency Reserve
Requirements in effect on the day which is two (2) Business Days prior to
the beginning of such Interest Period.

LIBOR Lending Office with respect to CITBC, shall mean the applicable office
of Chase Manhattan Bank or any successor thereof.

LIBOR Loan shall mean any loans made pursuant to this Financing Agreement
at such time as they are made and/or are being maintained at a rate of
interest based upon LIBOR, provided that (i) no Default or Event of Default
has occurred hereunder, which has not been waived in writing by CITBC, and
(ii) no LIBOR Loan shall be made after the date that is three months prior
to the Anniversary Date or any other applicable Early Termination Date.

Line of Credit shall mean the commitment of CITBC to (a) make Revolving
Loans pursuant to Section 3 of this Financing Agreement (b) assist the
Company in opening Letters of Credit pursuant to Section 5 of this Financing
Agreement and (c) make and CAPEX Term Loans pursuant to Section 4 of this
Financing Agreement, in the aggregate amount equal to $40,000,000.

Line of Credit Fee shall: (a) mean the fee due CITBC at the end of each
month for the Line of Credit, and (b) be determined by multiplying the
difference between (i) the Line of Credit, and (ii) the sum of (x) the
average daily balance of Revolving Loans of the Company plus (y) the average
daily balance of Letters of Credit outstanding plus (z) the average daily
balance of CAPEX Term Loans for said month, by one quarter of one percent
(0.25%) per annum for the number of days in said month.

Loan Documents shall mean this Financing Agreement, the Promissory Notes,
the mortgages and/or deeds of trust, the other closing documents and any
other ancillary loan and security agreements executed from time to time in
connection with this Financing Agreement, all as may be renewed, amended,
extended, increased or supplemented from time to time.

Loan Facility Fee shall mean the fee payable to CITBC in accordance with,
and pursuant to, the provisions of Paragraph 8.7 of Section 8 of this
Financing Agreement.

Obligations shall mean all loans, advances and extensions of credit made or
to be made by CITBC to the Company or to others for the Company's account
(including, without limitation, all Revolving Loans, Letter of Credit
Guaranties and CAPEX Term Loans); any and all indebtedness and obligations
which may at any time be owing by the Company to CITBC howsoever arising,
whether now in existence or incurred by the Company from time to time
hereafter; whether secured by pledge, lien upon or security interest in any
of the Company's Collateral, assets or property or the assets or property
of any other person, firm, entity or corporation; whether such indebtedness
is absolute or contingent, joint or several, matured or unmatured, direct
or indirect and whether the Company is liable to CITBC for such indebtedness
as principal, surety, endorser, guarantor or otherwise. Obligations shall
also include indebtedness owing to CITBC by the Company under this Financing
Agreement, any other Loan Document or under any other agreement or
arrangement now or hereafter entered into between the Company and CITBC;
indebtedness or obligations incurred by, or imposed on, CITBC as a result
of environmental claims arising out of the Company's operation, premises or
waste disposal practices or sites; the Company's liability to CITBC as maker
or endorser of any promissory note or other instrument for the payment of
money; the Company's liability to CITBC under any instrument of guaranty or
indemnity, or arising under any guaranty, endorsement or undertaking which
CITBC may make or issue to others for the Company's account, including any
accommodation extended with respect to applications for Letters of Credit,
CITBC's acceptance of drafts or CITBC's endorsement of notes or other
instruments for the Company's account and benefit.

Other Collateral shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts maintained with any bank or
financial institutions into which the proceeds of Collateral are or may be
deposited; all cash and other monies and property in the possession or
control of CITBC; all books, records, ledger cards, disks and related data
processing software at any time evidencing or containing information
relating to any of the Collateral described herein or otherwise necessary
or helpful in the collection thereof or realization thereon; all investment
property, and all cash and non-cash proceeds of the foregoing.

Out-of-Pocket Expenses shall mean all of CITBC's present and future
reasonable expenses incurred relative to this Financing Agreement or any
other Loan Documents, whether incurred heretofore or hereafter, which
expenses shall include, without being limited to: the cost of record
searches, all costs and expenses incurred by CITBC in opening bank accounts,
depositing checks, receiving and transferring funds, and wire transfer
changes, any charges imposed on CITBC due to returned items and
"insufficient funds" of deposited checks and CITBC's standard fee relating
thereto, any amounts paid by CITBC, incurred by or charged to CITBC by the
Issuing Bank under the Letter of Credit Guaranty or the Company's
reimbursement agreement, application for Letter of Credit or other like
document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, reasonable travel, lodging and similar expenses of
CITBC's personnel in inspecting and monitoring the Collateral from time to
time hereunder, any applicable reasonable counsel fees and disbursements,
fees and taxes relative to the filing of financing statements, all expenses,
costs and fees set forth in Paragraph 10.3 of Section 10 of this Financing
Agreement.

Patents shall mean all of the Company's present and hereafter acquired
patents, patent applications, registrations, any reissues or renewals
thereof, licenses, any inventions and improvements claimed thereunder, and
all general intangible, intellectual property and patent rights with respect
thereto of the Company and all income, royalties, cash and non-cash proceeds
thereof.

Permitted Encumbrances shall mean: (a) liens existing on the date hereof
which are listed on Schedule 1 hereto; (b) other liens expressly permitted,
or consented to in writing by CITBC; (c) Purchase Money Liens; (d) liens of
local or state authorities for franchise or other like taxes, provided that
the aggregate amounts of such liens shall not exceed $100,000.00 in the
aggregate at any one time; (e) statutory liens of landlords and liens of
carriers, warehousemen, mechanics, materialmen and other like liens imposed
by law, created in the ordinary course of business and for amounts not yet
due (or which are being contested in good faith, by appropriate proceedings
or other appropriate actions which are sufficient to prevent imminent
foreclosure of such liens) and with respect to which adequate reserves or
other appropriate provisions are being maintained by the Company in
accordance with GAAP; (f) deposits made (and the liens thereon) in the
ordinary course of business of the Company (including, without limitation,
security deposits for leases, indemnity bonds, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment insurance and
other types of social security benefits or to secure the performance of
tenders, bids, contracts (other than for the repayment or guarantee of
borrowed money or purchase money obligations), statutory obligations and
other similar obligations arising as a result of progress payments under
government contracts; (g) easements (including, without limitation,
reciprocal easement agreements and utility agreements), encroachments, minor
defects or irregularities in title, variation and other restrictions,
charges or encumbrances (whether or not recorded) affecting the Real Estate,
if applicable, and which in the aggregate do not materially interfere with
the occupation, use or enjoyment by the Company in its business of the
property so encumbered; and (h) liens granted CITBC by the Company; (i)
liens of judgment creditors provided such liens do not exceed, in the
aggregate, at any time, $100,000.00 (other than liens bonded or insured to
the reasonable satisfaction of CITBC); (j) liens on the assets of the
Company (excluding Collateral) granted pursuant to the Collateral Documents,
as set forth and in effect as of the Closing Date, pursuant to the Senior
Secured Notes; and (ii) liens for taxes not yet due and payable or which are
being diligently contested in good faith by the Company by appropriate
proceedings and which liens are not (y) other than with respect to Real
Estate, senior to the liens of CITBC or (z) for taxes due the United States
of America or any state thereof having similar priority statutes, as further
set forth in paragraph 7.6 hereof.

Permitted Indebtedness shall mean: (a) current Indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor; (b) the
Indebtedness secured by Purchase Money Liens; (c) Subordinated Debt; (d)
Indebtedness arising under the Letters of Credit and this Financing
Agreement; (e) deferred taxes and other expenses incurred in the ordinary
course of business; (f) Indebtedness pursuant to the Senior Secured Notes,
as in effect; and (g) other Indebtedness existing on the date of execution
of this Financing Agreement and listed in the most recent financial
statement delivered to CITBC or otherwise disclosed to CITBC in writing
prior to the Closing Date.

Promissory Notes shall mean the notes, in the form of Exhibits A and B
attached hereto, delivered by the Company to CITBC to evidence the CAPEX
Term Loans pursuant to, and repayable in accordance with, the provisions of
Section 4 of this Financing Agreement.

Purchase Money Liens shall mean liens on any item of equipment acquired
after the date of this Financing Agreement provided that (a) each such lien
shall attach only to the property to be acquired and the cash proceeds
thereof and the improvements thereon, (b) a description of the property so
acquired is furnished to CITBC, and (c) the debt incurred in connection with
such acquisitions shall not exceed in the aggregate $5,000,000.00 in any
Fiscal Year.

Real Estate shall mean the Company's fee and/or leasehold interests in the
real property.

Revolving Line of Credit shall mean the aggregate commitment of CITBC to
make loans and advances pursuant to Section 3 of this Financing Agreement
and issue Letters of Credit Guaranties pursuant to Section 5 hereof to the
Company, in the aggregate amount of $25,000,000.

Revolving Loans shall mean the loans and advances made, from time to time,
to or for the account of the Company by CITBC pursuant to Section 3 of this
Financing Agreement.

Revolving Loan Account shall have the meaning specified in Paragraph 3.6 of
Section 3, of this Financing Agreement.

Senior Secured Notes shall mean the 9 1/2% Senior Secured Notes due 2005, in
the original principal amount of $280,000,000, as set forth in the Indenture
dated as of February 27, 1998, between the Company and State Street Bank and
Trust Company, as trustee, as in effect as of the Closing Date, and absent
any amendment or modification thereof.

Subordinated Debt shall mean, if applicable, any debt due a subordinating
creditor (and the note evidencing such) which shall be subordinated, by a
subordination agreement, to the prior payment and satisfaction of the
Obligations of the Company to CITBC (in form and substance satisfactory to
CITBC).

Subsidiaries shall mean each of the Company's subsidiaries, including Zilog
Philippines, Inc., Zilog Electronics Philippines, Inc., Zilog U.K., Zilog
Japan, Zilog Asia, Ltd., and Zilog International.

Tangible Net Worth shall mean, at any date of determination, an amount equal
to (a) Total Assets plus the outstanding principal amount of the Senior
Secured Notes minus (b) the sum of (x) Total Liabilities and (y) General
Intangibles, and shall be determined in accordance with GAAP, on a
consistent basis with the latest audited statements of the Company.

TPG shall mean TPG Partners II, L.P., or any affiliate thereof, as majority
shareholder of the Company.

Total Assets shall mean total assets determined in accordance with GAAP,
on a basis consistent with the latest audited statements of the Company.

Total Liabilities shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited statements of the
Company.

Trade Accounts Receivable shall mean that portion of the Company's Accounts
which arises from the sale of Inventory or the rendition of services in the
ordinary course of the Company's business.

Trademarks shall mean all present and hereafter acquired trademarks,
trademark registrations, recordings, applications, tradenames, trade styles,
service marks, prints and labels (on which any of the foregoing may appear),
licenses, reissues, renewals, general intangibles, and intellectual property
and trademark rights pertaining to any of the foregoing, together with the
goodwill associated therewith, and all cash, income, royalties, and non-cash
proceeds thereof.

UCC shall mean the Uniform Commercial Code as in effect from time to time
in the state of California.

Working Day shall mean any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in the place where
CITBC's Eurodollar Lending Office is located.

SECTION 2. Conditions Precedent

2. Conditions Precedent
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
initial extension of credit hereunder by CITBC, the following conditions
precedent:

(a) Lien Searches - CITBC shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to CITBC for all locations
presently occupied or used by the Company.

(b) Casualty Insurance - The Company shall have delivered to CITBC
evidence satisfactory to CITBC that casualty insurance policies listing
CITBC as loss payee or mortgagee, as the case may be, are in full force and
effect, all as set forth in Paragraph 7.5 of Section 7 of this Financing
Agreement.

(c) UCC Filings - Any documents (including without limitation,
financing statements) required to be filed in order to create, in favor of
CITBC, a first and exclusive perfected security interest in the Collateral
with respect to which a security interest may be perfected by a filing under
the UCC shall have been properly filed in each office in each jurisdiction
required in order to create in favor of CITBC a perfected lien on the
Collateral. CITBC shall have received acknowledgment copies of all such
filings (or, in lieu thereof, CITBC shall have received other evidence
satisfactory to CITBC that all such filings have been made); and CITBC shall
have received evidence that all necessary filing fees and all taxes or other
expenses related to such filings have been paid in full.

(d) Board Resolution - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of (i) this Financing Agreement, , and
(ii) any related agreements, in each case certified by the Secretary or
Assistant Secretary of the Company as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of the Company as to the
incumbency and signature of the officers of the Company executing such Loan
Documents and any certificate or other documents to be delivered by them
pursuant hereto, together with evidence of the incumbency of such Secretary
or Assistant Secretary.

(e) Corporate Organization - CITBC shall have received (i) a copy
of the Certificate of Incorporation of the Company certified by the
Secretary of State of its incorporation, and (ii) a copy of the By-Laws of
the Company certified by the Secretary or Assistant Secretary thereof, all
as amended through the date hereof.

(f) Officer's Certificate - CITBC shall have received an executed
Officer's Certificate of the Company, satisfactory in form and substance to
CITBC, certifying that (i) the representations and warranties contained
herein are true and correct in all material respects on and as of the date
hereof; (ii) the Company is in compliance with all of the terms and
provisions set forth herein; and (iii) no Default or Event of Default has
occurred

(g) Opinions - Counsel for the Company shall have delivered to
CITBC opinions satisfactory to CITBC opining, inter alia, that, subject to
the (i) filing, priority and remedies provisions of the Uniform Commercial
Code, (ii) the provisions of the Bankruptcy Code, insolvency statutes or
other like laws, (iii) the equity powers of a court of law and (iv) such
other matters as may be agreed upon with CITBC: this Financing Agreement and
all other Loan Documents of the Company and the Guarantors are (A) valid,
binding and enforceable according to their terms, (B) are duly authorized,
executed and delivered, and (C) do not violate any terms, provisions,
representations or covenants in the charter or by-laws of the Company or,
to the best knowledge of such counsel, of any loan agreement, mortgage, deed
of trust, note, security or pledge agreement or indenture to which the
Company or the Guarantors are a signatory or by which the Company or its
assets are bound, including inter alia that the financing under this
Financing Agreement (including Revolving Loans, Letters of Credit and CAPEX
Term Loans) constitutes permitted indebtedness under the Senior Secured
Notes, the grant of the security interest hereunder in the Collateral does
not contravene any terms of the Senior Secured Notes and that the Trustee
for the Senior Secured Note holders does not have a lien on the Collateral.
In addition, counsel to such Trustee and the Senior Secured Note holders
shall have delivered an opinion satisfactory to CITBC that the Intercreditor
Agreement(s) have been duly authorized, executed and delivered and
constitute valid and binding agreements enforceable against such Senior
Secured Note holders in accordance with the terms thereof.

(h) Absence of Default - No Default, Event of Default or material
adverse change shall have occurred in the financial condition, business,
prospects, profits, operations or assets of the Company or the Company's
subsidiaries shall have occurred.

(i) Legal Restraints/Litigation - As of the Closing Date, there
shall be no x) litigation, investigation or proceeding (judicial or
administrative) pending or threatened against the Company or its
subsidiaries or their assets, by any agency, division or department of any
county, city, state or federal government arising out of this Financing
Agreement, y) injunction, writ or restraining order restraining or
prohibiting the financing arrangements contemplated under this Financing
Agreement or z) to the best knowledge of the Company, suit, action,
investigation or proceeding (judicial or administrative) pending or
threatened against the Company or its Subsidiaries or their assets, which,
in the opinion of CITBC, if adversely determined could have a material
adverse effect on the business, operation, assets, financial condition or
Collateral of the Company.

(j) Intercreditor Agreement - The Trustee for the Senior Secured
Note holders shall have executed and delivered to CITBC an Intercreditor
Agreement, in form and substance satisfactory to CITBC.

(k) Additional Documents - The Company shall have executed and
delivered to CITBC all Loan Documents necessary to consummate the lending
arrangement contemplated between the Company and CITBC.

(l) Disbursement Authorization - The Company shall have delivered
to CITBC all information necessary for CITBC to issue wire transfer
instructions on behalf of the Company for the initial and subsequent loans
and/or advances to be made under this Financing Agreement including, but not
limited to, disbursement authorizations in form acceptable to CITBC.

(m) Examination & Verification - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, books and records of the Company and the Guarantors which
examination shall indicate that, after giving effect to all Revolving Loans
advances and extensions of credit to be made at closing, the Company shall
have an opening additional Availability of at least $10,000,000, as
evidenced by a borrowing base certificate delivered by the Company to CITBC
as of the Closing Date, all as more fully required by the CITBC Commitment
Letter. It is understood that such requirement contemplates that all debts
and obligations are current, and that all payables are being handled in the
normal course of the Company's business and consistent with its past
practice.

(n) Depository Accounts - The Company shall have established a
system of lockbox and bank accounts with respect to the collection of
Accounts and the deposit of proceeds of Inventory as shall be acceptable to
CITBC in all respects. Such accounts shall be subject to three party
agreements (between the Company, CITBC and the depository bank), which shall
be in form and substance satisfactory to CITBC.

(o) Existing Revolving Credit Agreement - The Company's
existing credit agreement with Goldman Sachs Credit Partners (as Syndication
Agent) and BankBoston N.A. (as Administrative Agent) (the "Existing
Lenders") shall be (x) terminated, (y) all loans and obligations of the
Company and/or the Guarantors thereunder shall be paid or satisfied in full,
including thorough utilization of the proceeds of the initial Revolving
Loans and CAPEX Term Loans to be made under this Financing Agreement and (z)
all liens upon or security interest in favor of the Existing Lenders on the
Collateral and otherwise in connection therewith shall be terminated and/or
released upon such payment.

(p) CITBC Commitment Letter - The Company shall have fully
complied, to the satisfaction of CITBC, with all of the terms and conditions
of the CITBC Commitment Letter.

Upon the execution of this Financing Agreement, certain of the above
Conditions Precedent shall not have been deemed satisfied, including
conditions (a), (c), (h), (j), (m), and (n), provided that, notwithstanding
the foregoing, except as CITBC and the Company may otherwise agree win
writing, prior to the disbursements of any loans hereunder and prior to any
public statement or filing by the Company that a closing has occurred
hereunder, on or before 90 days from the Closing Date, the Company must
fulfill and comply with all of the Conditions Precedent, all to CITBC's
satisfaction. All applicable fees hereunder shall be due and payable upon
execution and delivery of this Financing Agreement and shall be deemed fully
earned upon Closing whether or not all Conditions Precedent are satisfied.

2.2 Conditions to Each Extension of Credit

Except to the extent expressly set forth in this Financing Agreement,
the agreement of CITBC to make any extension of credit requested to be made
by it to the Company on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following
conditions precedent:

a) Representations and Warranties - Each of the representations
and warranties made by the Company in or pursuant to this Financing
Agreement shall be true and correct in all material respects on and as of
such date as if made on and as of such date.

b) No Default - No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extension of credit requested to be made on such date.

c) Borrowing Base - Except as may be otherwise agreed to from
time to time by CITBC and the Company in writing, after giving effect to the
extension of credit requested to be made by the Company on such date, the
aggregate outstanding balance of the Revolving Loans owing by the Company
plus the Availability Reserve will not exceed the lesser of (i) the
Revolving Line of Credit or (ii) Borrowing Base of the Company.

Each borrowing by the Company hereunder shall constitute a representation
and warranty by the Company as of the date of such loan or advance that each
of the representations, warranties and covenants contained in the Financing
Agreement have been satisfied and are true and correct, except as the
Company and CITBC shall otherwise agree herein or in a separate writing.

SECTION 3. Revolving Loans

3. Revolving Loans

3.1 CITBC agrees, subject to the terms and conditions of this
Financing Agreement from time to time, and within the Availability but
subject to CITBC's right to make "Overadvances", to make loans and advances
to the Company on a revolving basis (i.e. subject to the limitations set
forth herein, the Company may borrow, repay and re-borrow Revolving Loans).

Such loans and advances shall be in amounts not to exceed the lesser of
(a) the Borrowing Base or (b) the Revolving Line of Credit. All requests
for loans and advances must be received by an officer of CITBC no later than
1:00 p.m., New York time, of the day on which such loans and advances are
required. Should CITBC for any reason honor requests for advances in
excess of the limitations set forth herein, such advances shall be
considered "Overadvances" and shall be made in CITBC's sole discretion,
subject to any additional terms CITBC deems necessary.

3.2 In furtherance of the continuing assignment and security
interest in the Company's Accounts and Inventory, the Company will, upon the
creation of Accounts and purchase or acquisition of Inventory, execute and
deliver to CITBC in such form and manner as CITBC may reasonably require,
solely for CITBC's convenience in maintaining records of Collateral, such
confirmatory schedules of Accounts and Inventory as CITBC may reasonably
request, and such other appropriate reports designating, identifying and
describing the Accounts and Inventory as CITBC may reasonably require. In
addition, upon CITBC's request, the Company shall provide CITBC with copies
of agreements with, or purchase orders from, the Company's customers, and
copies of invoices to customers, proof of shipment or delivery and such
other documentation and information relating to said Accounts and other
collateral as CITBC may reasonably require. Failure to provide CITBC with
any of the foregoing shall in no way affect, diminish, modify or otherwise
limit the security interests granted herein. The Company hereby authorizes
CITBC to regard the Company's printed name or rubber stamp signature on
assignment schedules or invoices as the equivalent of a manual signature by
one of the Company's authorized officers or agents.

3.3 The Company hereby represents and warrants that: each Trade
Account Receivable is based on an actual and bona fide sale and delivery of
goods or rendition of services to customers, made by the Company in the
ordinary course of its business; the goods and Inventory being sold and the
Trade Accounts Receivable created are the exclusive property of the Company
and are not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, other than
the Permitted Encumbrances; the invoices evidencing such Trade Accounts
Receivable are in the name of the Company; and the customers of the Company
have accepted the goods or services, owe and are obligated to pay the full
amounts stated in the invoices according to their terms, without dispute,
offset, defense, counterclaim or contra, except for disputes and other
matters arising in the ordinary course of business with respect to which the
Company has complied with the notification requirements of Paragraph 3.5 of
Section 3 of this Financing Agreement. The Company confirms to CITBC that
any and all taxes or fees relating to its business, its sales, the Accounts
or goods relating thereto, are its sole responsibility and that same will
be paid by the Company when due and that none of said taxes or fees
represent a lien on or claim against the Accounts. The Company hereby
further represents and warrants that it owns its Inventory free and clear
of any security interest, encumbrances, liens or financing statements
whatsoever other than Permitted Encumbrances, and that it shall not acquire
any Inventory on a consignment basis, nor co-mingle its Inventory with any
of its customers or any other person, including pursuant to any bill and
hold sale or otherwise, and that its Inventory is marketable to its
customers in the ordinary course of business of the Company, except as it
may otherwise report in writing to CITBC pursuant to paragraph 3.5 hereof
from time to time. The Company also warrants and represents that it is a
duly and validly existing corporation and is qualified in all states where
the failure to so qualify would have an adverse effect on the business of
the Company or the ability of the Company to enforce collection of Accounts
due from customers residing in that state. The Company agrees to maintain
such books and records regarding Accounts and Inventory as CITBC may
reasonably require and agrees that the books and records of the Company will
reflect CITBC's interest in the Accounts and Inventory. All of the books
and records of the Company will be available to CITBC on reasonable prior
notice at normal business hours, including any records handled or maintained
for the Company by any other company or entity.

3.4 Until CITBC has advised the Company to the contrary after the
occurrence of an Event of Default, the Company may and will enforce, collect
and receive all amounts owing on the Accounts for CITBC's benefit and on
CITBC's behalf, but at the Company's expense; such privilege shall terminate
automatically upon the institution by or against the Company of any
proceeding under any bankruptcy or insolvency law or, at the election of
CITBC, upon the occurrence of any other Event of Default and until such
Event of Default is waived in writing by CITBC or cured to CITBC's
satisfaction. Any checks, cash, credit card sales and receipts, notes or
other instruments or property received by the Company with respect to any
Accounts shall be held by the Company in trust for CITBC, separate from the
Company's own property and funds, and promptly turned over to CITBC with
proper assignments or endorsements by deposit to the special depository
accounts in CITBC's name (whether lockbox accounts or otherwise) designated
by CITBC for such purposes (the "Depository Accounts"). The Company shall:
(i) direct all of its account debtors to deposit any and all proceeds of
Collateral into the Depository Accounts; (ii) irrevocably authorize and
direct any banks which maintain the Company's initial receipt of cash,
checks and other items to promptly wire transfer all available funds to a
Depository Account; (iii) advise all such banks of CITBC's security interest
in such funds; and (iv) indicate on all of its invoices that funds should
be delivered to and deposited in a Depository Account. The Company shall
provide CITBC with prior written notice of any and all deposit accounts
opened or to be opened subsequent to the Closing Date. All amounts received
by CITBC in payment of Accounts or proceeds of any other Collateral
(excluding Equipment) will be credited to the Company's Revolving Loan
Account upon CITBC's receipt of "collected funds" at CITBC's bank account
in New York, New York one (1) Business Day after its receipt, if received
no later than 1:00 p.m. EST or on the next succeeding Business Day if
received after 1:00 PM EST. No checks, drafts or other instrument received
by CITBC shall constitute final payment to CITBC unless and until such
instruments have actually been collected.

3.5 The Company agrees to notify CITBC promptly of any matters
materially affecting the value, enforceability or collectibility of any
Account in the amount of $25,000 or more and of all material customer
disputes, offsets, defenses, counterclaims, returns, rejections and all
reclaimed or repossessed merchandise or goods, and of any material adverse
effect in the value of its Inventory. In addition, any and all such matters
shall be reported in the weekly and monthly collateral reports (as
applicable) provided to CITBC hereunder, in such detail and format as CITBC
may reasonably require from time to time. The Company agrees to issue
credit memoranda promptly (with duplicates to CITBC upon request after the
occurrence of an Event of Default) upon accepting returns or granting
allowances, and may continue to do so until CITBC has notified the Company
, subsequent to the occurrence of an Event of Default which has not been
waived in writing by CITBC, that all future credits or allowances are to be
made only after CITBC's prior written approval. Upon the occurrence of an
Event of Default and until such time as such Event of Default is waived in
writing by CITBC or cured to CITBC's reasonable satisfaction, and on notice
from CITBC, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with CITBC's
name (as secured party) and held by the Company for CITBC's account.

3.6 CITBC shall maintain a separate account on its books in the
Company's name (the "Revolving Loan Account") in which the Company will be
charged with loans and advances made by CITBC to it or for its account, and
with any other Obligations, including any and all costs, expenses and
reasonable attorney's fees which CITBC may incur in connection with the
exercise by or for CITBC of any of the rights or powers herein conferred
upon CITBC, or in the prosecution or defense of any action or proceeding to
enforce or protect any rights of CITBC in connection with this Financing
Agreement, the other Loan Documents or the Collateral assigned hereunder,
or any Obligations owing to CITBC by the Company. The Company will be
credited with all amounts received by CITBC from the Company or from others
for the Company's account, including, as above set forth, all amounts
received by CITBC in payment of Accounts, and such amounts will be applied
to payment of the Obligations as set forth herein. In no event shall prior
recourse to any Accounts or other security granted to or by the Company be
a prerequisite to CITBC's right to demand payment of any Obligation.
Further, it is understood that CITBC shall have no obligation whatsoever to
perform in any respect any of the Company's contracts or obligations
relating to the Accounts.

3.7 After the end of each month, CITBC shall promptly send the
Company a statement showing the accounting for the charges, loans, advances
and other transactions occurring between CITBC and the Company during that
month. The monthly statements shall be deemed correct and binding upon the
Company and shall constitute an account stated between the Company and CITBC
unless CITBC receives a written statement of the exceptions within forty
five (45) days of the date of the monthly statement.

3.8 In the event that any requested advance exceeds Availability or
that (a) the sum of (i) Revolving Loans and (ii) the Availability Reserve
exceeds (b)(x) the Borrowing Base or (y) the Revolving Line of Credit
(herein the amount of any such excess shall be referred to as the "Excess")
such Excess shall be due and payable to CITBC immediately upon CITBC's
demand therefor.

4. CAPEX Term Loans

4.1 Within the available and unused CAPEX Term Loan Line of Credit
and upon receipt from the Company of a CAPEX Term Loan Promissory Note in
the form of Exhibit B attached hereto, in the amount of the CAPEX Term Loan
(as calculated pursuant to paragraph 4.5 herein below), in accordance with
the terms hereof, CITBC will extend to the Company a CAPEX Term Loan,
provided: a) no Default or Event of Default, which has not been waived in
writing by CITBC or cured to its reasonable satisfaction, has occurred or
would occur after giving effect to such CAPEX Term Loan and b) all of the
conditions listed below are fulfilled to the sole but reasonable
satisfaction of CITBC.

4.2 CAPEX Term Loan proceeds: (a) are to be used exclusively to pay
for, or reimburse the Company for, the acquisition by the Company of Capital
Improvements (other than Real Estate), provided that (i) CITBC has a first
and exclusive lien on such Capital Improvement, and (ii) any such Capital
Improvement is not subject to Purchase Money Liens, and (b) will be
disbursed upon completion of the delivery, assembly and installation of the
Capital Improvement. Upon funding of any CAPEX Term Loan the Company shall
pay the CAPEX Fee to CITBC.

4.3 The Company must give CITBC thirty (30) days prior written
notice of its intention to enter into a CAPEX Term Loan and may not draw
down any CAPEX Term Loans after the close of business on the date occurring
two (2) years from the date hereof.

4.4 The Company shall be entitled to a total of ten (10) CAPEX Term
Loans, consisting of up to four (4) CAPEX Term Loans per calendar year but
no more than one (1) CAPEX Term Loan in any Fiscal Quarter.

4.5 No CAPEX Term Loan may exceed (x) eighty percent (80%) of the
appraised orderly liquidation value of currently existing Equipment acquired
subsequent to February 27, 1998 ("Appraised Equipment"), or (y) seventy
percent (70%) of the total acquisition cost of new manufacturing Equipment
("Acquired Equipment"), exclusive of assembly costs, installation expenses,
maintenance, shipping costs, software, taxes and import or custom charges
(as reflected on invoices and other contracts of purchase delivered to
CITBC) for which the CAPEX Term Loan is sought. A reserve may be included
in the foregoing calculations for the cost of disassembly and removal of
fixtures and clean up of hazardous materials. In addition, each CAPEX Term
Loan shall be subject to the fulfillment of each of the following
conditions: (a) Appraised Equipment and Acquired Equipment is subject to
CITBC's first and exclusive lien; (b) all Acquired Equipment and Appraised
Equipment must be stand alone identifiable equipment; (c) the Company shall
timely provide UCC fixture filings, landlord waiver agreements, and such
other documents as CITBC may reasonably require for all Acquired Equipment
and Appraised Equipment which may constitute fixtures; (d) the Company shall
comply with all applicable environmental laws, including use and disposal
of any hazardous materials, and any Equipment containing hazardous materials
or otherwise requiring clean-up in accordance with any applicable government
environmental regulations or upon any exercise by CITBC of its rights
hereunder shall be cleaned up at the Company's cost and expense upon CITBC's
reasonable request; and (e) Equipment appraisals must be performed by
appraisers mutually agreed upon who will be retained by CITBC but paid for
by the Company. Notwithstanding the foregoing, CAPEX Term Loans supported
by Appraised Equipment will not exceed $10,000,000 in the aggregate and
CAPEX Term Loans supported by Acquired Equipment will not exceed the
$5,000,000 in the aggregate.

4.6 The CAPEX Term Loans must be in increments of $500,000.00 or
whole multiples thereof and must be disbursed either concurrently with or
within three months of delivery, assembly, installation and acceptance of
such Capital Improvement.

4.7 Each CAPEX Term Loan will be repaid to CITBC by the Company as
follows: (a) CAPEX Term Loans based on Appraised Equipment will amortize by
sixty (60) equal monthly payments commencing on the first business day of
the month following funding thereof; and (b) CAPEX Term Loans based on
Acquired Equipment will amortize by thirty six (36) equal monthly payments
commencing on the first business day of the month following funding thereof.
To the extent repaid, CAPEX Term Loans may not be reborrowed under this
Section 4 of this Financing Agreement and the CAPEX Term Loan Line of Credit
shall be permanently reduced by the amount of any such repayment(s). Upon
the sale of any Equipment securing any CAPEX Term Loan, the net proceeds
thereof shall be applied to the applicable CAPEX Term Loan tranche. In the
event all of the Equipment securing such loan is sold and the proceeds
thereof do not equal or exceed the outstanding balance of such loan, the
Company hereby agrees and confirms that CITBC may charge its Revolving Loan
Account with the amount of any such shortfall.

4.8 In the event this Financing Agreement or the Line of Credit is
terminated by either CITBC or the Company for any reason whatsoever, all
CAPEX Term Loans shall become due and payable on the effective date of such
termination notwithstanding any provision to the contrary in the Promissory
Notes or this Financing Agreement.

4.9 The Company may prepay at any time, at its option, in whole or
in part the CAPEX Term Loans, provided that on each such prepayment, the
Company shall pay accrued interest on the principal so prepaid to the date
of such prepayment.

4.10 The Company hereby authorizes CITBC to charge its Revolving
Loan Account with all amounts due under this Section 4 as such amounts
become due. The Company confirms that any charges which CITBC may so make
to its Revolving Loan Account as herein provided will be made as an
accommodation to the Company and solely at CITBC's discretion.

SECTION 5. Letters of Credit

To assist the Company in establishing or opening documentary and
standby Letters of Credit with an Issuing Bank to cover the purchase of
inventory, equipment or otherwise, the Company has requested CITBC to join
in the applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances
thereunder through the issuance of the Letters of Credit Guaranty, thereby
lending CITBC's credit to the Company and CITBC has agreed to do so. These
arrangements shall be handled by CITBC subject to the terms and conditions
set forth below.

5.1 Within the Revolving Line of Credit and Availability, CITBC
shall assist the Company in obtaining Letter(s) of Credit in an aggregate
amount outstanding at any time not to exceed the Letter of Credit Sub-Line.
CITBC's assistance for amounts in excess of the limitation set forth herein
shall at all times and in all respects be in CITBC's sole discretion. It
is understood that the form and purpose of each Letter of Credit and all
documentation in connection therewith, and any amendments, modifications or
extensions thereof, must be mutually acceptable to CITBC, the Issuing Bank
and the Company. Any and all outstanding Letters of Credit shall be
reserved dollar for dollar from Availability as an Availability Reserve.
Any Letter of Credit issued hereunder shall not have an expiry date
subsequent to the Anniversary Date, unless otherwise agreed to by CITBC, and
upon any termination of the Line of Credit or this Financing Agreement in
accordance with Section 11 hereof, CITBC may establish a reserve equal to
110% of the face amount of any such outstanding Letters of Credit.
Notwithstanding anything herein to the contrary, upon the occurrence of a
Default and/or Event of Default, CITBC's assistance in connection with any
Letter of Credit Guaranty hereunder shall be in CITBC's sole discretion and
CITBC may reserve 110% of the face amount of outstanding Letters of Credit,
unless such Default and/or Event of Default is cured to CITBC's satisfaction
or waived by CITBC in writing.

5.2 CITBC shall have the right, without prior notice to the Company,
to charge the Company's Revolving Loan Account on CITBC's books with the
amount of any and all indebtedness, liability or obligation of any kind
incurred by CITBC under the Letters of Credit Guaranty at the earlier of a)
payment by CITBC under the Letters of Credit Guaranty, or b) the occurrence
of an Event of Default. Any amount charged to Company's Revolving Loan
Account shall be deemed a Revolving Loan hereunder and shall incur interest
at the rate provided in Paragraph 8.1 of Section 8 of this Financing
Agreement. Any such charges shall be set forth in CITBC's monthly accounts
to the Company.

5.3 The Company unconditionally indemnifies CITBC and holds CITBC
harmless from any and all loss, claim or liability incurred by CITBC arising
from any transactions or occurrences relating to Letters of Credit
established or opened for the Company's account, the collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any action taken by any
Issuing Bank, other than for any such loss, claim or liability arising out
of the gross negligence or willful misconduct by CITBC under the Letters of
Credit Guaranty. The Company further agrees to hold CITBC harmless from
any errors or omission, negligence or misconduct by the Issuing Bank. The
Company's unconditional obligation to CITBC hereunder shall not be modified
or diminished for any reason or in any manner whatsoever, other than as a
result of CITBC's gross negligence or willful misconduct. The Company
agrees that any charges incurred by CITBC for the Company's account by the
Issuing Bank shall be conclusive on CITBC and may be charged to the
Company's Revolving Loan Account.

5.4 CITBC shall not be responsible for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; any difference or variation
in the character, quality, quantity, condition, packing, value or delivery
of the goods from that expressed in the documents; the validity, sufficiency
or genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in
which shipment is made; partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of
Credit or documents; any deviation from instructions; delay, default, or
fraud by the shipper and/or anyone else in connection with the Collateral
or the shipping thereof; or any breach of contract between the shipper or
vendors and the Company. Furthermore, without being limited by the
foregoing, CITBC shall not be responsible for any act or omission with
respect to or in connection with any Collateral, absent its gross negligence
or willful misconduct.

5.5 The Company agrees that any action taken by CITBC, if taken in
good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the guarantees, the drafts or acceptances, or
the Collateral, shall be binding on the Company and shall not put CITBC in
any resulting liability to the Company. In furtherance thereof, CITBC
shall have the full right and authority to clear and resolve any questions
of non-compliance of documents; to give any instructions as to acceptance
or rejection of any documents or goods; to execute any and all steamship or
airways guaranties (and applications therefore), indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents; and to agree
to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the
Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from CITBC, all
without any notice to or any consent from the Company. Notwithstanding any
prior course of conduct or dealing with respect to the foregoing including
amendments and non-compliance with documents and/or the Company's
instructions with respect thereto, CITBC may exercise its rights hereunder
in its sole and reasonable business judgement.

5.6 Without CITBC's express consent and endorsement in writing, the
Company agrees: (a) not to execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances or documents; or to agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; and (b) after the occurrence of an Event of Default which
is not cured within any applicable grace period, if any, or waived by CITBC,
not to (i) clear and resolve any questions of non-compliance of documents,
or (ii) give any instructions as to acceptances or rejection of any
documents or goods.

5.7 The Company agrees that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and fully complied with; and
any certificates in that regard that CITBC may at any time request will be
promptly furnished. In this connection, the Company warrants and
represents that all shipments made under any such Letters of Credit are in
accordance with the laws and regulations of the countries in which the
shipments originate and terminate, and are not prohibited by any such laws
and regulations. The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign taxes, duties, or levies. Any embargo,
restriction, laws, customs or regulations of any country, state, city, or
other political subdivision, where the Collateral is or may be located, or
wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Company's risk, liability and
responsibility.

5.8 Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Company to the Issuing
Bank in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to
have been granted to CITBC and apply in all respects to CITBC and shall be
in addition to any rights, remedies, duties or obligations contained herein.

SECTION 6. Collateral

6.1 As security for the prompt payment in full of all loans and
advances made and to be made to the Company from time to time by CITBC
pursuant hereto, as well as to secure the payment in full of the other
Obligations, the Company hereby, and pursuant to the Loan Documents, pledges
and grants to CITBC a continuing general lien upon and security interest in
all of its:

(a) Accounts;

(b) Inventory;

(d) Documents of Title;

(e) Other Collateral; and

(f) Equipment (acquired subsequent to February 27, 1998);

6.2 The security interests granted hereunder shall extend and attach
to:

(a) All Collateral which is presently in existence and which is
owned by the Company or in which the Company has any interest, whether held
by the Company or others for its account, and, if any Collateral is
Equipment, whether the Company's interest in such Equipment is as owner or
lessee or conditional vendee;

(b) All Equipment (acquired subsequent to February 27, 1998) whether
the same constitutes personal property or fixtures, including, but without
limiting the generality of the foregoing, all dies, jigs, tools, benches,
molds, tables, accretions, component parts thereof and additions thereto,
as well as all accessories, motors, engines and auxiliary parts used in
connection with or attached to such Equipment; and

(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Company from the
Company's customers, as well as to all supplies, goods, incidentals,
packaging materials, labels and any other items which contribute to the
finished goods or products manufactured or processed by the Company, or to
the sale, promotion or shipment thereof.

6.3 The Company agrees to safeguard, protect and hold all Inventory
for CITBC's account and make no disposition thereof except in the regular
course of the business of the Company as herein provided. Until CITBC has
given the Company notice to the contrary after the occurrence of an Event
of Default, any Inventory may be sold and shipped by the Company to its
customers in the ordinary course of the Company's business, on open account
and on terms currently being extended by the Company to its customers,
provided that all proceeds of all sales (including cash, accounts
receivable, checks, notes, instruments for the payment of money and similar
proceeds) are forthwith transferred, endorsed, and turned over and delivered
to CITBC in accordance with Paragraph 3.4 of Section 3 of this Financing
Agreement. CITBC shall have the right to withdraw this permission at any
time upon the occurrence of an Event of Default and until such time as such
Default and/or Event of Default is waived in writing by CITBC or cured to
CITBC's satisfaction, in which event no further disposition shall be made
of the Inventory by the Company without CITBC's prior written approval.
Cash sales or sales of inventory in which a lien upon, or security interest
in, Inventory is retained by the Company shall be made by the Company only
with the approval of CITBC, and the proceeds of such sales or sales of
inventory for cash shall not be commingled with the Company's other
property, but shall be segregated, held by the Company in trust for CITBC
as CITBC's exclusive property, and shall be delivered immediately by the
Company to CITBC in the identical form received by the Company by deposit
to the Depository Accounts. Upon the sale, exchange, or other disposition
of Inventory, as herein provided, the security interest in the Company's
Inventory provided for herein shall, without break in continuity and without
further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and
all other cash and non-cash proceeds of such sale, exchange or disposition.
As to any such sale, exchange or other disposition, CITBC shall have all
of the rights of an unpaid seller, including stoppage in transit, replevin,
rescission and reclamation. Irrespective of CITBC's perfection status in any
and all of the Company's General Intangibles, including without limitations
any Trademarks, Copyrights or licenses with respect thereto, the Company
hereby irrevocably grants CITBC a royalty free license to sell or otherwise
dispose or transfer, in accordance with paragraphs 6.8 and 10.3 and the
applicable terms hereof, any of the Company's Inventory upon the occurrence
of an Event of Default which has not been waived in writing by CITBC.

6.4 The Company agrees at its own cost and expense to keep the
Equipment in as good and substantial repair and condition as the same is now
or at the time the lien and security interest granted herein shall attach
thereto, reasonable wear and tear excepted, making any and all repairs and
replacements when and where necessary. The Company also agrees to
safeguard, protect and hold Equipment (which is subject to CITBC's lien
hereunder) for CITBC's account and make no disposition thereof unless the
Company first obtains the prior written approval of CITBC. Any sale,
exchange or other disposition of any Equipment (which is subject to CITBC's
lien hereunder) shall only be made by the Company with the prior written
approval of CITBC, and the proceeds of any such sales shall not be
commingled with the Company's other property, but shall be segregated, held
by the Company in trust for CITBC as CITBC's exclusive property, and shall
be delivered immediately by the Company to CITBC in the identical form
received by the Company by deposit to the Depository Accounts. Such
proceeds shall be applied to the Obligations in such order as CITBC may
reasonably deem necessary. Upon the sale, exchange, or other disposition of
the Equipment (which is subject to CITBC's lien hereunder), as herein
provided, the security interest provided for herein shall, without break in
continuity and without further formality or act, continue in, and attach to,
all proceeds, including any instruments for the payment of money, accounts
receivable, contract rights, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sales, exchange or
disposition. As to any such sale, exchange or other disposition, CITBC
shall have all of the rights of an unpaid seller, including stoppage in
transit, replevin, rescission and reclamation. Notwithstanding anything
herein above contained to the contrary, the Company may sell, exchange or
otherwise dispose of obsolete Equipment or Equipment no longer needed in the
Company's operations, provided, however, that (a) the then book value or
market value of the Equipment so disposed of does not exceed [5,000,000] in
the aggregate in any Fiscal Year and (b) the proceeds of such sales or
dispositions of Equipment (which is subject to CITBC's lien hereunder) are
delivered to CITBC in accordance with the foregoing provisions of this
paragraph and shall be applied to any applicable CAPEX Term Loans, or to the
Obligations in CITBC's discretion.

6.5 The rights and security interests granted to CITBC hereunder are
to continue in full force and effect, notwithstanding the termination of
this Financing Agreement or the fact that the Revolving Loan Account
maintained in the Company's name on the books of CITBC may from time to time
be temporarily in a credit position, until the final payment in full to
CITBC of all Obligations and the termination of this Financing Agreement.
Any delay, or omission by CITBC to exercise any right hereunder, shall not
be deemed a waiver thereof, or be deemed a waiver of any other right, unless
such waiver shall be in writing and signed by CITBC. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion.

6.6 Notwithstanding CITBC's security interest in the various assets
constituting Collateral and to the extent that the Obligations are now or
hereafter secured by any assets or property other than the Collateral or by
the guarantee, endorsement, assets or property of any other person, CITBC
shall have the right in its sole discretion to determine which rights,
security, liens, security interests or remedies CITBC shall at any time
pursue, foreclose upon, relinquish, subordinate, modify or take any other
action with respect to, without in any way modifying or affecting any of
them, or any of CITBC's rights hereunder.

6.7 Any reserves or balances to the credit of the Company and any
other property or assets of the Company in the possession or control of
CITBC (in each case which are part of the Collateral) may be held by CITBC
as security for any Obligations and applied in whole or partial satisfaction
of such Obligations when due. The liens and security interests granted
herein and any other lien or security interest CITBC may have in any other
assets of the Company, shall secure payment and performance of all now
existing and future Obligations. CITBC may in its discretion charge any
or all of the Obligations to the Revolving Loan Account of the Company when
due.

6.8 (a) The Company shall deliver to CITBC, and/or shall cause the
appropriate party to deliver to CITBC, from time to time such pledge or
security agreements with respect to General Intangibles (now or hereafter
acquired) of the Company and all of its subsidiaries as CITBC shall require
to obtain valid royalty free license to sell or transfer Collateral (upon
the occurrence of an Event of Default which has not been waived in writing
by CITBC), including goods and products developed or manufactured by the
Company with respect thereto. It is the intent of the parties hereto to
grant to CITBC a non-exclusive license in the Company's General Intangibles
such that CITBC can exercise its rights and remedies to obtain the proceeds,
consideration, or distributions from any Collateral, including any sale or
transfer of Accounts and Inventory, as set forth in the Financing Agreement.
In furtherance of the foregoing, the Company shall provide timely notice to
CITBC of any additional Patents, Trademarks, tradenames, service marks,
Copyrights, brand names, trade names, logos and other trade designations
acquired or applied for subsequent to the Closing Date and the Company shall
execute such documentation as CITBC may reasonably require to obtain and
perfect its lien thereon.

(b) The Company hereby represents and warrants that it owns, possesses
or has the exclusive right (subject to any licensing or similar agreements
which may be in effect from time to time, in accordance with the terms
hereof) to the General Intangibles used in connection with its business,
sales and operations, subject to (x) the Permitted Encumbrances and Senior
Secured Note holders' security interest in the Senior Secured Note holders'
Collateral (as defined in the Senior Secured Notes and as in effect as of
the Closing Date), and (y) CITBC's rights and interests therein as set forth
in this Financing Agreement and the Loan Documents. The Company and CITBC
hereby agree as follows:

(A) The Company hereby irrevocably grants and shall cause its
Subsidiaries, if applicable, to grant to CITBC a royalty-free,
non-exclusive license to the Company's and, if applicable, its
Subsidiaries' General Intangibles, including its Trademarks,
Copyrights, Patents, licenses and any and all right, title and
interest in any of the foregoing for the sole purpose, upon the
occurrence of an Event of Default, of the right to: (i) collect
and retain any Accounts, and sell, transfer and distribute
Inventory bearing any General Intangibles; (ii) advertise for
sale Inventory bearing any General Intangibles; (iii) hold,
acquire, deliver or distribute Inventory bearing any General
Intangibles, including Trademarks; and (iv) make, assemble,
prepare for sale or complete, or cause others to do so, any
applicable raw materials or Inventory bearing any General
Intangibles, including Trademarks, and to sell or transfer any
such Inventory, all as further set forth in this Financing
Agreement. The foregoing rights and license are for the
purposes enumerated herein and not for the sale of General
Intangibles by CITBC to any third party. Any agent or
transferee of CITBC shall be solely entitled to the rights
enumerated herein.

(B) In connection with the exercise of the foregoing remedies and
subject to Permitted Encumbrances and rights of applicable
third parties pursuant to law, CITBC is hereby granted
permission to use all of the Company's and, if applicable, its
Subsidiaries': (i) General Intangibles, including Trademarks,
licenses, Copyrights, Patents, franchises and other proprietary
and intellectual property rights which are used in connection
with Inventory, for the purposes of completing, selling or
disposing of Inventory, (ii) Equipment for the purpose of
completing the manufacture of unfinished goods, raw materials
or work-in-process comprising Inventory, and (iii) the
Company's and its Subsidiaries' Real Estate for purposes of
such completion and sale. The foregoing rights may be
exercised by CITBC, without cost to CITBC and the Company
hereby indemnifies CITBC and holds CITBC harmless from any and
all costs, fees, expenses and any and all liabilities incurred
in connection with the exercises of the foregoing rights and
remedies, and confirms that any such amounts shall be deemed
Obligations hereunder.

(C) The Company hereby further agrees that it shall not encumber,
sell or transfer any of its General Intangibles, including the
Trademarks, provided that the Company may sell certain rights
to its General Intangibles for use in foreign territories and
with respect to goods which do not compete with the business or
sales of the Company or sublicense its General Intangibles, all
in the ordinary course of its business, provided further that
any such sale or sublicense shall not impair the rights of
CITBC to collect and retain the proceeds of Accounts and sell,
transfer or dispose of Inventory in accordance with the terms
of or its rights under this limited license this Financing
Agreement.

(D) The provisions of this paragraph shall inure and be binding
upon the respective parties to this Financing Agreement and
their respective successors and assigns and upon any sale,
transfer or divestiture by the Company and/or its Subsidiaries,
of their respective interests in General Intangibles, any such
purchaser, transferee or successor or assign shall take subject
to the provision hereof.

SECTION 7. Representations, Warranties and Covenants

7.1 The Company hereby warrants, represents and covenants that: (a)
the fair value of the Company's assets exceeds the book value of the
Company's liabilities; (b) the Company is generally able to pay its debts
as they become due and payable; and (c) the Company does not have
unreasonably small capital to carry on its business as it is currently
conducted absent extraordinary and unforeseen circumstances. The Company
further warrants and represents that Schedule 2 hereto correctly and
completely sets forth (i) the Company's chief executive office, (ii) all of
the Company's Collateral locations, (iii) all tradenames used by the
Company, (iv) all Patents, Trademarks and Copyrights owned and/or used by
the Company and (v) the applicable monthly rent or other charges with
respect to each Collateral location; and, except for the Permitted
Encumbrances, after filing of financing statements in the applicable filing
clerks office at the locations set forth in Schedule 2, this Financing
Agreement creates a valid, perfected and first priority security interest
upon and security interests in the Collateral and the security interests
granted herein constitute and shall at all times constitute the first and
only liens on the Collateral; that, except for the Permitted Encumbrances,
the Company is or will be at the time additional Collateral is acquired by
it, the absolute owner of the Collateral with full right to pledge, sell,
consign, transfer and create a security interest therein, free and clear of
any and all claims or liens in favor of others; that the Company will at its
expense forever warrant and, at CITBC's request, defend the same from any
and all claims and demands of any other person other than the Permitted
Encumbrances; that the Company will not grant, create or permit to exist,
any lien upon or security interest in the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the
Permitted Encumbrances; and that the Equipment does not comprise a part of
the Inventory of the Company and that the Equipment is and will only be used
by the Company in its business and will not be held for sale or lease, or
removed from its premises, or otherwise disposed of by the Company without
the prior written approval of CITBC except as otherwise permitted in
Paragraph 6.4 of Section 6 of this Financing Agreement.

7.2 The Company agrees to maintain books and records pertaining to
the Collateral in such detail, form and scope as CITBC shall reasonably
require, consistent with its standard practices and in accordance with GAAP.
The Company agrees that upon reasonable prior notice CITBC or its agents
may enter upon the Company's premises at any time during normal business
hours, and from time to time in its reasonable business judgement, for the
purpose of inspecting the Collateral, and any and all records pertaining
thereto. The Company agrees to afford CITBC thirty (30) days prior written
notice of any change in the location of any Collateral, other than to
locations, that as of the Closing Date, are known to CITBC and at which
CITBC has filed financing statements and otherwise fully perfected its liens
thereon. The Company is also to advise CITBC promptly, in sufficient
detail, of any material adverse change relating to the type, quantity or
quality of the Collateral or on the security interests granted to CITBC
therein.

7.3 The Company agrees to: execute and deliver to CITBC, from time
to time, solely for CITBC's convenience in maintaining a record of the
Collateral, such written statements, and schedules as CITBC may reasonably
require, designating, identifying or describing the Collateral pledged to
CITBC hereunder. The Company's failure, however, to promptly give CITBC
such statements, or schedules shall not affect, diminish, modify or
otherwise limit CITBC's security interests in the Collateral.

7.4 The Company agrees to comply with the requirements of all state
and federal laws in order to grant to CITBC valid and perfected first
security interests in the Collateral, subject only to the Permitted
Encumbrances. CITBC is hereby authorized by the Company to file from time
to time any financing statements covering the Collateral whether or not the
Company's signature appears thereon. The Company agrees to do whatever
CITBC may reasonably request, from time to time, by way of: filing notices
of liens, financing statements, amendments, renewals and continuations
thereof; cooperating with CITBC's custodians; keeping stock records;
transferring proceeds of Collateral to CITBC's possession; and performing
such further acts as CITBC may reasonably require in order to effect the
purposes of this Financing Agreement.

7.5 (a) The Company agrees to maintain insurance on the Equipment and
Inventory under such policies of insurance, with such insurance companies,
in such reasonable amounts and covering such insurable risks as are at all
times reasonably satisfactory to CITBC. All policies covering the,
Equipment (which is subject to CITBC's lien hereunder) and Inventory are,
subject to any applicable rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, to be made payable to CITBC, in case of
loss, under a standard non-contributory "mortgagee", "lender" or "secured
party" clause and are to contain such other provisions as CITBC may require
to fully protect CITBC's interest in the, Inventory and Equipment and to any
payments to be made under such policies. All original policies or true
copies thereof are to be delivered to CITBC, premium prepaid, with the loss
payable endorsement in CITBC's favor, and shall provide for not less than
thirty (30) days prior written notice to CITBC of the exercise of any right
of cancellation. At the Company's request, or if the Company fails to
maintain such insurance, CITBC may arrange for such insurance, but at the
Company's expense and without any responsibility on CITBC's part for:
obtaining the insurance, the solvency of the insurance companies, the
adequacy of the coverage, or the collection of claims. Upon the occurrence
of an Event of Default which is not waived or cured to CITBC's satisfaction,
CITBC shall, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, have the sole right, in the name of CITBC
or the Company, to file claims under any insurance policies, to receive,
receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to
effect the collection, compromise or settlement of any claims under any such
insurance policies.

(b) In the event the Company fails to provide CITBC with timely
evidence, acceptable to CITBC, of its maintenance of insurance coverage
required pursuant to paragraph 7.5(a) above, CITBC may purchase insurance
to protect CITBC's interests in the Collateral, at the Company's expense.
The insurance acquired by CITBC may, but need not, protect the Company's
interest in the Collateral, and therefore such insurance may not pay claims
which the Company may have with respect to the Collateral or pay any claim
which may be made against the Company in connection with the Collateral. The
Company may request cancellation of any such insurance obtained by CITBC, and
CITBC shall promptly cancel such insurance, but only after providing CITBC
with satisfactory evidence that the Company has applicable insurance. In
the event CITBC purchases, obtains or acquires insurance covering all or any
portion of the Collateral, the Company shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the
applicable Chase Bank Rate for Revolving Loans set forth in paragraph 8.1
of Section 8 hereof), fees and any other charges with respect thereto, until
the effective date of the cancellation or the expiration of such insurance.
CITBC may charge all of such premiums, fees, costs, interest and other
charges to the Company's Revolving Loan Account. The Company hereby
acknowledges that the costs of the premiums of any insurance acquired by
CITBC may exceed the costs of insurance which the Company may be able to
purchase on its own. In the event that CITBC purchases such insurance, CITBC
will notify the Company of said purchase within thirty (30) days after the
date of such purchase. If, within thirty (30) days of the date of such
notice, the Company provides CITBC with proof that the Company had the
insurance coverage required pursuant to 7.5(a) above (in form and substance
satisfactory to CITBC) as of the date on which CITBC purchased insurance and
the Company continued at all times to have such insurance, then CITBC agrees
to cancel the insurance purchased by CITBC and credit the Company's Revolving
Loan Account with the amount of all costs, interest and other charges
associated with such insurance, including with any amounts previously charged
by CITBC to the Revolving Loan Account.

7.6 The Company agrees to pay, when due, all taxes, sales taxes,
assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon the Company or the Collateral unless such taxes are being
diligently contested in good faith by the Company by appropriate proceedings
and adequate reserves are established in accordance with GAAP.
Notwithstanding the foregoing, if any lien shall be filed or claimed
thereunder x) for taxes due the United States of America or y) which in
CITBC's opinion might create a valid obligation having priority over the
rights granted to CITBC herein, such lien shall not be deemed to be a
Permitted Encumbrance hereunder and the Company shall immediately pay such
tax and remove the lien of record. If the Company fails to do so promptly,
then at CITBC's election, CITBC may (i) create an Availability Reserve in
such amount as it may deem appropriate in its business judgement, in an
approximate amount equal to such taxes and penalties (due or anticipated),
or (ii) on the Company's behalf, pay such taxes, and the amount thereof shall
be an Obligation secured hereby and due to CITBC on demand. CITBC shall
notify the Company of any such actions.

7.7 The Company: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body
or official, which the failure to comply with would have a material and
adverse impact on the Collateral, or any material part thereof, or on the
business or operations of the Company; provided that the Company may contest
any acts, rules, regulations, orders and directions of such bodies or
officials in any reasonable manner which will not, in CITBC's reasonable
opinion, materially and adversely effect CITBC's rights or priority in the
Collateral; (b) agrees to comply with all environmental statutes, acts,
rules, regulations or orders as presently existing or as adopted or amended
in the future, applicable to the Collateral, the ownership and/or use of its
real property and operation of its business, which the failure to comply
with would have a material and adverse impact on the Collateral, or any
material part thereof, or on the operation of the business of the Company;
and (c) shall not be deemed to have breached any provision of this Paragraph
7.7 if (i) the failure to comply with the requirements of this Paragraph 7.7
resulted from good faith error or innocent omission, (ii) the Company
promptly commences and diligently pursues a cure of such breach, and (iii)
such failure is cured or good progress toward cure is demonstrated, within
(30) days following the Company's receipt of notice of such failure and the
Company continues in good faith to move promptly toward cure, in conformity
with applicable law and any governmental entity order or agreement with
respect thereto, and to the reasonable satisfaction of CITBC. The Company
hereby indemnifies CITBC and agrees to defend and hold CITBC harmless from
and against any and all loss, damage, claim, liability, injury or expense
which CITBC may sustain or incur (other than solely as a result of the
physical actions of CITBC on the Company's premises which are determined to
constitute gross negligence or willful misconduct by a court of competent
jurisdiction) in connection with: any and all claims or expenses asserted
against CITBC as a result of any environmental pollution, hazardous material
or environmental clean-up of the Company's Real Property; or any claim or
expense which results from the Company's operations (including, but not
limited to, the Company's off-site disposal practices), and the Company
further agrees that this indemnification shall survive termination of this
Financing Agreement as well as the payment of all Obligations or amounts
payable hereunder.

7.8 Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that,
unless CITBC shall have otherwise consented in writing, the Company will
furnish to CITBC: (a) within ninety (90) days after the end of each Fiscal
Year of the Company, an audited Consolidated Balance Sheet, with a
Consolidating Balance Sheet attached thereto, as at the close of such year,
and statements of profit and loss, cash flow and reconciliation of surplus
of the Company and its consolidated subsidiaries for such year, audited by
independent public accountants selected by the Company and satisfactory to
CITBC; (b) within forty five (45) days after the end of each Fiscal Quarter
a Consolidated Balance Sheet and Consolidating Balance Sheet as at the end
of such period and statements of profit and loss, cash flow and surplus of
the Company and its consolidated subsidiaries, certified by an authorized
financial or accounting officer of the Company; (c) within thirty (30) days
after the end of each month a Consolidated Balance Sheet as at the end of
such period and statements of profit and loss, cash flow and surplus of the
Company and all subsidiaries for such period, certified by an authorized
financial or accounting officer of the Company; and (d) from time to time,
such further information regarding the business affairs and financial
condition of the Company and its consolidated subsidiaries as CITBC may
reasonably request, including without limitation (i) the accountant's
management practice letter and (ii) annual cash flow projections (to be
provided within 30 days as of the end of any fiscal year) in form
satisfactory to CITBC. Each financial statement which the Company is
required to submit hereunder must be accompanied by an officer's
certificate, signed by the President, Vice President, Controller, or
Treasurer, pursuant to which any one such officer must certify that: (x) the
financial statement(s) fairly and accurately represent(s) the Company's
financial condition at the end of the particular accounting period, as well
as the Company's operating results during such accounting period, subject
to year-end audit adjustments; and (y) during the particular accounting
period: (A) there has been no Default or Event of Default under this
Financing Agreement, provided, however, that if any such officer has
knowledge that any such Default or Event of Default, has occurred during
such period, the existence of and a detailed description of same shall be
set forth in such officer's certificate; (B) the Company has not received
any notice of cancellation with respect to its property insurance policies;
(C) the Company has not received any notice that could result in a material
adverse effect on the value of the Collateral taken as a whole; and (D) the
exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in
this Financing Agreement.

7.9 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that,
without the prior written consent of CITBC, except as otherwise herein
provided, the Company will not:

(a) Mortgage, assign, pledge, transfer or otherwise permit any
lien, charge, security interest, encumbrance or judgment
(whether as a result of a purchase money or title retention
transaction, or other security interest, or otherwise) to
exist on any of its assets or goods, whether real, personal or
mixed, whether now owned or hereafter acquired, except for the
Permitted Encumbrances;
(b) Incur or create any Indebtedness other than the Permitted
Indebtedness;
(c) Borrow any money on the security of the Company's Collateral
or any other assets or stock of the Company from sources other
than CITBC;
(d) Sell, lease, assign, transfer or otherwise dispose of (i)
Collateral, except as otherwise specifically permitted by this
Financing Agreement, or (ii) either all or substantially all
of the Company's assets, which do not constitute Collateral;
(e) Merge, consolidate or otherwise alter or modify its corporate
name, principal place of business, structure, status or
existence, or enter into or engage in any operation or
activity materially different from that presently being
conducted by the Company, or purchase or acquire all or
substantially all of the capital stock or assets of any
corporation or entity, except that the Company may change its
corporate name or address; provided that (i) the Company shall
give CITBC thirty (30) days prior written notice thereof and
(ii) the Company shall execute and deliver prior to or
simultaneously with any such action any and all documents and
agreements requested by CITBC (including, without limitation,
any and all U.C.C. financing statements) to confirm the
continuation and preservation of all security interests and
liens granted to CITBC hereunder;
(f) Assume, guarantee, endorse, or otherwise become liable upon
the obligations of any person, firm, entity or corporation,
except by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business;
(g) Declare or pay any dividend or distributions of any kind on,
or purchase, acquire, redeem or retire, any of the capital
stock or equity interest, of any class whatsoever, whether now
or hereafter outstanding, excluding non-cash dividends on
preferred stock, or cash dividends from the proceeds of any
initial public offering consistent with the terms and
provisions of the Senior Secured Notes relating thereto; or
(h) Make any advance or loan to, or any investment in, any firm,
entity, person or corporation or purchase or acquire all or
substantially all of the stock or assets of any entity, person
or corporation, except that the Company may make loans to its
employees in an amount not to exceed $50,000 in any fiscal
year.

7.10 Until termination of the Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Company shall:

(a) maintain at all times during each fiscal quarter ending
below a Tangible Net Worth of not less than the amount set
forth below for the applicable period:

Fiscal Period Tangible Net Worth

(i) For the Fiscal Quarter ending
on or about December 31, 1998 $220,000,000
(ii) For the Fiscal Quarter ending
on or about March 31, 1999 $205,000,000
(iii) For the Fiscal Quarter ending
on or about June 30, 1999 $195,000,000
(iv) For the Fiscal Quarter ending
on or about September 30, 1999 $185,000,000
(v) For the Fiscal Quarter ending
on or about December 31, 1999 $175,000,000
(vi) For the Fiscal Quarter ending
on or about March 31, 2000 and each
Fiscal Quarter thereafter $180,000,000

(b) maintain at the end of each Fiscal Quarter during the
periods set forth below a Fixed Charge Coverage Ratio of not
less than the ratio set forth below for the applicable period:

Period Ratio

(i) For the Fiscal Quarter ending
on or about June, 1999 0.55
(ii) For the Fiscal Quarter ending
on or about September, 1999 0.60
(iii) For the Fiscal Quarter ending
on or about December, 1999 0.65
(iv) For the Fiscal Quarter ending
on or about March, 2000 0.70
(v) For the Fiscal Quarter ending
on or about June, 2000 0.75
(vi) For the Fiscal Quarter ending
on or about September, 2000 0.80
(vii) For the Fiscal Quarter ending
on or about December, 2000 0.85
(viii) For the Fiscal Quarter ending
on or about March, 2001 0.90
(ix) For the Fiscal Quarter ending
on or about June, 2001 0.95
(x) For the Fiscal Quarter ending
on or about September, 2001 and each
Quarter ending thereafter 1.00

The foregoing ratio shall be calculated on a cumulative quarterly
basis on a rolling four quarter basis thereafter.

(c) Notwithstanding anything in this paragraph 7.10 to the contrary,
the foregoing covenants shall not be tested unless (i) the Company's
Availability is less than $7,500,000 at any time during the sixty
(60) day period prior to any applicable date of calculation if no
CAPEX Term Loans are outstanding, or (ii) the Company's Availability
is less than $15,000,000 at any time during the sixty (60) day period
prior to any applicable date of calculation if any CAPEX Term Loans
are outstanding, or (iii) a Default or Event of Default has occurred
hereunder.

7.11 The Company agrees to advise CITBC in writing of: a) all
expenditures (actual or anticipated) in excess of $150,000.00 from the
budgeted amount therefor in any Fiscal Year for x) environmental clean-up,
y) environmental compliance or z) environmental testing and the impact of
said expenses on the Company's Working Capital; and b) any notices the
Company receives from any local, state or federal authority advising the
Company of any environmental liability (real or potential) stemming from the
Company's operations, its premises, its waste disposal practices, or waste
disposal sites used by the Company and to provide CITBC with copies of all
such notices if so required.

7.12 The Company hereby agrees to pay any and all fees, costs,
expenses, charges, liabilities, obligations and other amounts relating to,
or contemplated by, any Lockbox Agreement and any ancillary agreements
entered in connection therewith from time to time, including for the
establishment and maintenance of post office boxes and depository and
collection accounts. In furtherance thereof, the Company hereby agrees
that any and all such payments shall be deemed Obligations and, absent prior
payment thereof by the Company and notice of payment to CITBC, irrevocably
instructs CITBC, to charge its Revolving Loan Account under this Financing
Agreement with any and all payments which CITBC may, in its sole discretion,
make from time to time with respect to any such Lockbox Agreement. CITBC
shall provide written notice thereof, whether in the form of monthly
statements or otherwise. The Company hereby agrees to indemnify and hold
harmless CITBC and its officers, directors, employees, attorneys and agents
(each an "Indemnified Party") from, and holds each of them harmless
against, any and all losses (including, without limitation, losses resulting
from items deposited and returned unpaid or returned under a claim that a
presentment of warranty has been breached), liabilities, obligations,
claims, actions, damages, costs and expenses (including attorney's fees) and
any payments made by CITBC pursuant to any indemnity provided by CITBC with
respect to or to which any Indemnified Party could be subject insofar as
such losses, liabilities, obligations, claims, actions, damages, costs, fees
or expenses arise from or relate to the lockbox and/or the depository
account and/or the agreements executed in connection therewith, whether
through the alleged or actual negligence of such person or otherwise, except
and to the extent that the same results solely and directly from the gross
negligence or willful misconduct of such Indemnified Party as finally
determined by a court of competent jurisdiction. This indemnity shall
survive termination of this Financing Agreement. CITBC may, in its
reasonable business judgement, establish such Availability Reserves with
respect thereto as it may deem advisable under the circumstances and, upon
any termination hereof, hold such reserves as cash reserves for any such
contingent liabilities for the applicable duration of CITBC's indemnity
under any such Lockbox or Depository Account Agreements. CITBC shall
provide written notice to the Company of the foregoing as set forth herein.

7.13 The Company shall take all action reasonably necessary to
assure that its computer-based systems are able to effectively process date-
sensitive data functions. The Company represents and warrants that the
"Year 2000" problem (that is, the inability of certain computer
applications to recognize and properly perform date-sensitive functions
involving certain dates on or about or subsequent to December 31, 1999) will
not result in a material adverse effect on the Company's business, assets
or operations. The Company reasonably anticipates that all computer
applications which are material to its business will, on a timely basis, be
able to properly perform date-sensitive functions for all dates on and after
January 1, 2000. Upon CITBC's request from time to time, the
Company shall provide to CITBC assurances that the Company's computer
systems and software are or will be Year 2000 compliant on a timely basis,
all in form and substance reasonably satisfactory to CITBC.

SECTION 8. Interest, Fees and Expenses

8.1 Interest on the Revolving Loans which are Chase Bank Rate
Loans shall be payable monthly as of the end of each month and shall be in
an amount equal to the Chase Bank Rate per annum on the average of the net
balances owing by the Company to CITBC in the Company's Revolving Loan
Account at the close of each day during such month. In the event of any
change in said Chase Bank Rate, the rate hereunder for Chase Bank Rate
Loans shall change, as of the first of the month following any such change,
so as to remain at the Chase Bank Rate. The rate hereunder for Chase
Bank Rate Loans shall be calculated based on a 360-day year. CITBC shall
be entitled to charge the Company's Revolving Loan Account at the rate
provided for herein when due until all Obligations have been paid in full.

8.2 Interest on the CAPEX Term Loans shall be payable monthly as of
the end of each month on the unpaid balance or on payment in full prior to
maturity, and with respect to Chase Rate Loans shall be in an amount equal
to the Chase Bank Rate plus one percent (1%) per annum. In the event of
any change in said Chase Bank Rate the rate hereunder for Chase Bank Rate
Loans shall change, as of the first of the month following any change, so
as to remain one percent (1%) above the Chase Bank Rate. The rate
hereunder shall be calculated based on a 360 day year. CITBC shall be
entitled to charge such interest to the Company's Revolving Loan Account at
the rate provided for herein when due until all Obligations have been paid
in full.

8.3 In consideration of the Letter of Credit Guaranty of CITBC, the
Company shall pay CITBC the Letter of Credit Guaranty Fee which shall be an
amount equal to one and one half percent (1.5%) per annum on the face amount
of each Letter of Credit issued pursuant to Section 5 hereof, and shall be
payable upon issuance thereof.

8.4 Any and all charges, fees, commissions, costs and expenses
charged to CITBC for the Company's account by any Issuing Bank in connection
with or arising out of Letters of Credit issued pursuant to this Financing
Agreement or out of transactions relating thereto will be charged to the
Company's Revolving Loan Account in full when charged to or paid by CITBC,
or as may be due upon any early termination hereof, and when made by any
such Issuing Bank shall be conclusive on CITBC.

8.5 The Company shall reimburse or pay CITBC, as the case may be,
for: (a) all Out-of-Pocket Expenses of CITBC, (b) any applicable
Documentation Fee, and (c) the CAPEX Fee, if applicable.

8.6 Upon the last Business Day of each month, commencing on November
30, 1998, the Company shall pay CITBC the Line of Credit Fee.

8.7 To induce CITBC to enter into this Financing Agreement and to
extend to the Company the Revolving Loans, Letters of Credit Guaranties, and
the CAPEX Term Loans, the Company shall pay to CITBC a Loan Facility Fee in
the amount of $150,000.00 (which shall be fully earned on the Closing Date,
and which amount includes the Documentation Fee in subparagraph (a) of the
definition thereof) with $100,000 payable upon execution of this Financing
Agreement and the remaining $50,000 payable upon the earlier of one year
from the Closing Date or any prior Early Termination Date. The Commitment
Fee, as outlined in the CITBC Commitment Letter (less any Out-of-Pocket
Expenses), shall be credited toward the Loan Facility Fee upon consummation
of this financing transaction on the Closing Date.

8.8 On the Closing Date and each anniversary of the Closing Date
thereafter, the Company shall pay to CITBC the Collateral Management Fee in
the amount of $25,000, which shall be deemed fully earned when paid (and due
payable and on the first business day of each year from the Closing Date.)
The foregoing Collateral Management Fee shall automatically increase to
$50,000 per year upon any request for a Revolving Loan hereunder (including
the year of any such request).

8.9 Upon the occurrence of a Default or an Event of Default, which
is not waived in writing by CITBC, the Company shall pay CITBC's standard
charges and the reasonable fees for CITBC's personnel used by CITBC for
reviewing the books and records of the Company and for verifying, testing,
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral (which fees shall be in addition to the Collateral Management Fee
and any Out-of-Pocket Expenses).

8.10 The Company hereby authorizes CITBC to charge the Company's
Revolving Loan Account with CITBC with the amount of all payments due
hereunder as such payments become due. The Company confirms that any charges
which CITBC may so make to the Company's Revolving Loan Account as herein
provided will be made as an accommodation to the Company and solely at
CITBC's discretion.

8.11 In the event that CITBC shall have determined in the exercise
of its reasonable business judgement that subsequent to the Closing Date any
change in applicable law, rule, regulation or guideline regarding capital
adequacy, or any change in the interpretation or administration thereof, or
compliance by CITBC (or any financial institution which may become a
participant or Lender hereunder) with any new request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect
of reducing the rate of return on CITBC's capital as a consequence of its
obligations hereunder to a level below that which CITBC could have achieved
but for such adoption, change or compliance (taking into consideration
CITBC's policies with respect to capital adequacy) by an amount reasonably
deemed by CITBC to be material, then, from time to time, the Company shall
pay no later than five (5) days following demand to CITBC such additional
amount or amounts as will compensate CITBC's for such reduction. In
determining such amount or amounts, CITBC may use any reasonable averaging
or attribution methods. The protection of this Paragraph 8.11 shall be
available to CITBC regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition.
A certificate of CITBC setting forth such amount or amounts as shall be
necessary to compensate CITBC with respect to this Section 8 and the
calculation thereof when delivered to the Company shall be conclusive on the
Company absent manifest error. Notwithstanding anything in this paragraph
to the contrary, in the event CITBC has exercised its rights pursuant to
this paragraph, and subsequent thereto determines that the additional
amounts paid by the Company in whole or in part exceed the amount which
CITBC actually required pursuant hereto, the excess, if any, shall be
returned to the Company by CITBC.

8.12. In the event that any change in applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by CITBC with any request or directive
(whether or not having the force of law) from any central bank or other
financial, monetary or other authority, shall:

(a) subject CITBC to any tax of any kind whatsoever with respect to
this Financing Agreement or change the basis of taxation of payments to
CITBC of principal, fees, interest or any other amount payable hereunder or
under any other documents (except for changes in the rate of tax on the
overall net income of CITBC by the federal government or the jurisdiction
in which it maintains its principal office);

(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or
for the account of, advances or loans by, or other credit extended by, any
office CITBC by reason of or in respect to this Financing Agreement and the
Loan Documents, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or

(c) impose on CITBC any other condition with respect to this
Financing Agreement or any other document, and the result of any of the
foregoing is to increase the cost to CITBC of making, renewing or
maintaining its loans hereunder by an amount that CITBC deems to be material
in the exercise of its reasonable business judgement or to reduce the amount
of any payment (whether of principal, interest or otherwise) in respect of
any of the loans by an amount that CITBC deems to be material in the
exercise of its reasonable business judgement, then, in any case the Company
shall pay CITBC, within five (5) days following its demand, such additional
cost or such reduction, as the case may be. CITBC shall certify the amount
of such additional cost or reduced amount to the Company and the calculation
thereof and such certification shall be conclusive upon the Company absent
manifest error. Notwithstanding anything in this paragraph to the contrary,
in the event CITBC has exercised its rights pursuant to this paragraph, and
subsequent thereto determine that the additional amounts paid by the Company
in whole or in part exceed the amount which CITBC actually required pursuant
hereto, the excess, if any, shall be returned to the Company by CITBC.

8.13 LIBOR Conversion Options

(a) The Company may elect, subsequent to ten (10) business
days from the Closing Date and from time to time thereafter, (i) to request
any loan made hereunder to be a LIBOR Loan as of the date of such loan or
(ii) to convert Chase Bank Rate Loans to LIBOR Loans, and may elect from
time to time to convert LIBOR Loans to Chase Bank Rate Loans by giving CITBC
at least three (3) Business Days' prior irrevocable notice of such election,
provided that any such conversion of LIBOR Loans to Chase Bank Rate Loans
shall only be made, subject to the second following sentence, on the last
day of an Interest Period with respect thereto. Should the Company elect
to convert Chase Bank Rate Loans to LIBOR Loans, it shall give CITBC at
least four Business Days' prior irrevocable notice of such election. If
the last day of an Interest Period with respect to a loan that is to be
converted to a LIBOR Loan is not a Business Day, then such conversion shall
be made on the next succeeding Business Day or Business Day, as the case may
be, and during the period from such last day of an Interest Period to such
succeeding Business Day or Business Day, as the case may be, such loan shall
bear interest as if it were an Chase Bank Rate Loan. All or any part of
outstanding Chase Bank Rate Loans then outstanding with respect to Revolving
Loans and CAPEX Term Loans may be converted to LIBOR Loans as provided
herein, provided that partial conversions shall be in multiples in an ag-
gregate principal amount of $1,000,000 or more. CITBC shall be entitled to
charge the Company a $500 fee upon the first effective day of any such
election for a LIBOR Loan.

(b) Any LIBOR Loans may be continued as such upon the expira-
tion of an Interest Period, provided the Company so notifies CITBC, at
least three (3) Business Days' prior to the expiration of said Interest
Period, and provided further that no LIBOR Loan may be continued as such
upon the occurrence of any Default or Event of Default which has not been
waived in writing by CITBC or cured to its reasonable satisfaction under
this Financing Agreement, but shall be automatically converted to an Chase
Bank Rate Loan on the last day of the Interest Period during which occurred
such Default or Event of Default. Absent such notification, LIBOR Rate
Loans shall convert to Chase Bank Rate Loans on the last day of the
applicable Interest Period. Each notice of election, conversion or
continuation furnished by the Company pursuant hereto shall specify whether
such election, conversion or continuation is for a [one, two, three or six]
month period. Notwithstanding anything to the contrary contained herein,
CITBC (or any participant or co-lender, if applicable) shall not be required
to purchase United States Dollar deposits in the London interbank market or
from any other applicable LIBOR Rate market or source or otherwise "match
fund" to fund LIBOR Rate Loans, but any and all provisions hereof relating
to LIBOR Rate Loans shall be deemed to apply as if CITBC (and any other
Lender or participant, if applicable) had purchased such deposits to fund
any LIBOR Rate Loans.

(c) The Company may request a LIBOR Loan, convert any Chase
Rate Loan or continue any LIBOR Loan provided that no Default or Event of
Default which has not been waived in writing by CITBC or cured to its
reasonable satisfaction has occurred hereunder, which has not been waived
in writing by CITBC.

8.14 Interest Rate.

(a) The LIBOR Loans shall bear interest for each Interest Period
with respect thereto on the unpaid principal amount thereof at a rate per
annum equal to the LIBOR determined for each Interest Period in accordance
with the terms hereof plus:

(i) 2% with respect to Revolving Loans; and
(ii) 3% with respect to CAPEX Term Loans

(b) If all or a portion of the outstanding principal amount of the
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a
LIBOR Loan, shall be converted to a Chase Bank Rate Loan at the end of the
last Interest Period therefor for which CITBC on or prior to the date such
unpaid principal amount became due, shall have determined a LIBOR.

8.15 Computation and Payment of Interest.

(a) Interest in respect of the LIBOR Loans shall be calculated on
the basis of a 360 day year and shall be payable on the last day of each
month.

(b) CITBC shall, at the request of the Company, deliver to the
Company a statement showing the quotations given by Chase Manhattan Bank and
the computations used by CITBC in determining any interest rate pursuant to
Paragraph 8.14 of Section 8 hereof.

8.16 Inability to Determine Interest Rate.

As further set forth in paragraph 8.10 above, in the event that
CITBC(or any financial institution which may become a participant or Lender
hereunder) shall have determined in the exercise of its reasonable business
judgement (which determination shall be conclusive and binding upon the
Company) that by reason of circumstances affecting the interbank LIBOR
market, adequate and reasonable means do not exist for ascertaining LIBOR
applicable for any Interest Period with respect to (a) a proposed loan that
the Company has requested be made as a LIBOR Loan, (b) a LIBOR Loan that
will result from the requested conversion of a Chase Bank Rate Loan into a
LIBOR Loan or (c) the continuation of LIBOR Loans beyond the expiration of
the then current Interest Period with respect thereto, CITBC shall forthwith
give written notice of such determination to the Company at least one day
prior to, as the case may be, the requested borrowing date for such LIBOR
Loan, the conversion date of such Chase Bank Rate Loan or the last day of
such Interest Period. If such notice is given (i) any requested LIBOR Loan
shall be made as a Chase Bank Rate Loan, (ii) any Chase Bank Rate Loan that
was to have been converted to a LIBOR Loan shall be continued as a Chase
Bank Rate Loan, and (iii) any outstanding LIBOR Loan shall be converted, on
the last day of then current Interest Period with respect thereto, to a
Chase Bank Rate Loan. Until such notice has been withdrawn by CITBC, no
further LIBOR Loan shall be made nor shall the Company have the right to
convert a Chase Bank Rate Loan to a LIBOR Loan.

8.17 Payments.

If any payment on a LIBOR Loan becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day unless the result of such extension would be to
extend such payment into another calendar month in which event such payment
shall be made on the immediately preceding Business Day.

8.18 Illegality.

Notwithstanding any other provisions herein, if any law, regulation,
treaty or directive or any change therein or in the interpretation or
application thereof, shall make it unlawful for CITBC to make or maintain
LIBOR Loans as contemplated herein, the then outstanding LIBOR Loans, if
any, shall be converted automatically to Chase Bank Rate Loans on the next
succeeding Interest Payment Date or within such earlier period as required
by law. The Company hereby agrees promptly to pay CITBC, upon its demand,
any additional amounts necessary to compensate CITBC for any costs incurred
by CITBC in making any conversion in accordance with this Section 8
including, but not limited to, any interest or fees payable by CITBC or The
Chase Manhattan Bank to lenders of funds obtained by either of them in order
to make or maintain LIBOR Loans hereunder.

8.19 Indemnity

The Company agrees to indemnify and to hold CITBC (including any
participant or co-lender, if applicable) harmless from any loss or expense
which CITBC may sustain or incur as a consequence of (a) default by the
Company in payment of the principal amount of or interest on any LIBOR
Loans, as and when the same shall be due and payable in accordance with the
terms of this Financing Agreement, including, but not limited to, any such
loss or expense arising from interest or fees payable by CITBC to lenders
of funds obtained by either of them in order to maintain CITBC's LIBOR Loans
hereunder, (b) default by the Company in making a borrowing or conversion
after the Company has given a notice in accordance with Paragraph 8.13 of
Section 8 hereof, (c) any prepayment of LIBOR Loans on a day which is not
the last day of the Interest Period applicable thereto, including without
limitation prepayments arising as a result of the application of the
collection of Accounts to the Revolving Loans and (d) default by the Company
in making any prepayment after the Company had given notice to CITBC
thereof. This covenant shall survive termination of this Financing
Agreement and payment of the outstanding Obligations.

8.20 LIBOR Provisions

Notwithstanding anything to the contrary in this Agreement, in the
event that, by reason of any Regulatory Change (for purposes hereof
"Regulatory Change" shall mean, with respect to CITBC, any change after the
date of this Agreement in United States Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption
or making after such date of any interpretation, directive or request apply-
ing to a class of banks including CITBC of or under any United States
Federal, state or foreign law or regulations (whether or not having the
force of law and whether or not failure to comply therewith would be
unlawful), CITBC either (a) incurs any material additional costs based on
or measured by the excess above a specified level of the amount of a
category of deposits or other liabilities of such bank which includes
deposits by reference to which the interest rate on LIBOR Loans is
determined as provided in this Financing Agreement or a category of
extensions of credit or other assets of CITBC which includes LIBOR Loans or
(b) becomes subject to any material restrictions on the amount of such a
category of liabilities or assets which it may hold, then, if CITBC so
elects by notice to the Company the obligation of CITBC to make or continue,
or to convert Chase Bank Rate Loans into LIBOR Loans hereunder shall be
suspended until such Regulatory Change ceases to be in effect.

8.21 Application

For purposes of this Financing Agreement and Section 8 thereof, any
reference to CITBC shall include any financial institution which may become
a participant or co-lender subsequent to the Closing Date.

SECTION 9. Powers

The Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Company's Obligations to CITBC have
been paid in full:

(a) To receive, take, endorse, sign, assign and deliver, all in the
name of CITBC or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;

(b) To receive, open and dispose of all mail addressed to the
Company and to notify postal authorities to change the address for delivery
thereof to such address as CITBC may designate;

(c) To request from customers indebted on Accounts at any time, in
the name of CITBC or the Company or that of CITBC's designee, information
concerning the amounts owing on the Accounts;

(d) To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make
payment directly to CITBC for the Company's account; and

(e) To take or bring, in the name of CITBC or the Company, all
steps, actions, suits or proceedings deemed by CITBC necessary or desirable
to enforce or effect collection of the Accounts.

Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of
Default is waived in writing by CITBC or cured to CITBC's satisfaction.
In addition, absent the occurrence of a Default or Event of Default which
has not been waived in writing by CITBC or cured to its reasonable
satisfaction or the consent of the Company, the powers set forth in (c)
above will be exercised in the name of the Company or in the name of a
certified public accountant designated by CITBC.

SECTION 10. Events of Default and Remedies

10.1 Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any
of the following (herein "Events of Default"):

(a) cessation of the business of the Company or its Subsidiaries
or the calling of a meeting of the creditors of the Company
for purposes of compromising the debts and obligations of the
Company;
(b) the failure of the Company to generally meet debts as they
mature;
(c) (i) the commencement by the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law; (ii) the
commencement against the Company or its Subsidiaries, of any
bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any federal or state
law by creditors of the Company, which proceeding shall not
have been controverted within ten (10) days or shall not have
been dismissed and vacated within thirty (30) days of
commencement, or any of the actions sought in any such
proceeding shall occur or the Company shall take action to
authorize or effect any of the actions in any such proceeding,
or (iii) the commencement by the Company's Subsidiaries, or
any one of them, of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any
applicable state law, or the commencement against the
Company's Subsidiaries, or any one of them, of any involuntary
bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under applicable law, which
proceeding shall not have been controverted within ten (10)
days and shall not have been dismissed or vacated within
thirty (30) days of commencement, or any of the actions sought
in any such proceeding shall occur or the Company's
Subsidiaries, or any one of them, shall take action to
authorize or effect any of the actions in any such proceeding;
(d) breach by the Company of any warranty, representation or
covenant contained herein (other than those referred to in
sub-paragraph [e] below) or in any other written agreement
between the Company or CITBC, provided that such breach by the
Company of any of the warranties, representations or covenants
referred in this clause (d) shall not be deemed to be an Event
of Default unless and until such breach shall remain
unremedied to CITBC's satisfaction for a period of ten (10)
days from the date of such breach;
(e) breach by the Company of any warranty, representation or
covenant of Paragraphs 3.3 (other than the third sentence of
Paragraph 3) and 3.4 of Section 3 hereof; Paragraphs 6.3 and
6.4 (other than the first sentence of Paragraph 6.4) of
Section 6 hereof; Paragraphs 7.1, 7.5, 7.6, 7.8 through 7.12
hereof;
(f) failure of the Company to pay any of the Obligations within
five (5) Business Days of the due date thereof, provided that
nothing contained herein shall prohibit CITBC from charging
such amounts to the Company's Revolving Loan Account on the
due date thereof;
(g) the Company shall (i) engage in any "prohibited transaction"
as defined in ERISA, (ii) have any "accumulated funding
deficiency" as defined in ERISA, (iii) have any "reportable
event" as defined in ERISA, (iv) terminate any "plan", as
defined in ERISA or (v) be engaged in any proceeding in which
the Pension Benefit Guaranty Corporation shall seek
appointment, or is appointed, as trustee or administrator of
any "plan", as defined in ERISA, and with respect to this
sub-paragraph (h) such event or condition (x) remains uncured
for a period of thirty (30) days from date of occurrence and
(y) could, in the reasonable opinion of CITBC, subject the
Company to any tax, penalty or other liability material to the
business, operations or financial condition of the Company;
(h) without the prior written consent of CITBC, the Company shall
(x) amend or modify the Senior Secured Notes, provided that
the Company may amend the Senior Secured Notes to decrease
interest rates, extend the due date of any payment date, or
release any security interest of the Trustee thereunder, or
(y) make any payment on account of the Senior Secured Notes
except in the ordinary course of business of the Company and
the Senior Secured Notes as required in the Senior Secured
Notes (i.e. semiannual payments of interest at 9.5% and
principal commencing in 2005 [provided that the Company may
prepay principal from the net proceeds of any initial public
offering of its common stock] and absent acceleration or
prepayment of any kind);
(j) the occurrence of any default or event of default (after
giving effect to any applicable grace or cure periods) under
any instrument or agreement evidencing (x) or (y) any other
Indebtedness of the Company having a principal amount in
excess of $250,000; or
(k) the stock of the Company presently held (directly or
indirectly) by TPG is sold or transferred so that TPG does not
own and control 51% or more of the voting stock of the
Company.

10.2 Upon the occurrence of a Default and/or an Event of Default
which has not been waived in writing by CITBC, at the option of CITBC, all
loans, advances and extensions of credit provided for in Sections 3, 4 and
5 of this Financing Agreement shall be thereafter in CITBC's sole discretion
and the obligation of CITBC to make Revolving Loans, open Letters of Credit
and/or make CAPEX Term Loans shall cease unless such Default or Event of
Default is waived in writing by CITBC or cured to CITBC's satisfaction, and
at the option of CITBC upon the occurrence of an Event of Default: (a) all
Obligations shall become immediately due and payable; (b) CITBC may charge
the Company the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in
Section 8 of this Financing Agreement, provided that, with respect to this
clause "(b)" (i) CITBC has given the Company written notice of the Event of
Default, provided, however, that no notice is required if the Event of
Default is the Event listed in Paragraph 10.1(c) of this Section 10, and
(ii) the Company has failed to cure the Event of Default within ten (10)
days after (x) CITBC deposited such notice in the United States mail or (y)
the occurrence of the Event of Default listed in paragraph 10.1 (c) of this
Section 10; and (c) CITBC may immediately terminate this Financing Agreement
upon notice to the Company, provided, however, that no notice of termination
is required if the Event of Default is the Event listed in Paragraph
10.1(c) of this Section 10. The exercise of any option is not exclusive
of any other option which may be exercised at any time by CITBC.

10.3 Immediately upon the occurrence of any Event of Default which
is not waived in writing by CITBC, CITBC may to the extent permitted by law:
(a) remove from any premises where same may be located any and all books
and records, software, documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or CITBC
may use, at the Company's expense, such of the Company's personnel, supplies
or space at the Company's places of business or otherwise, as may be
necessary to properly administer and control the Accounts or the handling
of collections and realizations thereon; (b) bring suit, in the name of the
Company or CITBC, and generally shall have all other rights respecting said
Accounts, including without limitation the right to: accelerate or extend
the time of payment, settle, compromise, release in whole or in part any
amounts owing on any Accounts and issue credits in the name of the Company
or CITBC; (c) sell, assign and deliver the Collateral and any returned,
reclaimed or repossessed merchandise, with or without advertisement, at
public or private sale, for cash, on credit or otherwise, at CITBC's sole
option and discretion, and CITBC may bid or become a purchaser at any such
sale, free from any right of redemption, which right is hereby expressly
waived by the Company; (d) foreclose the security interests in the
Collateral created herein or by the Loan Documents by any available judicial
procedure, or to take possession of any or all of the Collateral, including
any Inventory, Equipment and/or Other Collateral without judicial process,
and to enter any premises where any Inventory and Equipment and/or Other
Collateral may be located for the purpose of taking possession of or
removing the same and (e) exercise any other rights and remedies provided
in law, in equity, by contract or otherwise. CITBC shall have the right,
without notice or advertisement, to sell, lease, or otherwise dispose of all
or any part of the Collateral whether in its then condition or after further
preparation or processing, in the name of the Company or CITBC, or in the
name of such other party as CITBC may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit,
with or without warranties or representations, and upon such other terms and
conditions as CITBC in its sole discretion may deem advisable, and CITBC
shall have the right to purchase at any such sale. If any Inventory and
Equipment shall require rebuilding, repairing, maintenance or preparation,
CITBC shall have the right, at its option, to do such of the aforesaid as
is necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as CITBC shall deem appropriate. The Company agrees, at the
request of CITBC, to assemble the Inventory and Equipment and to make it
available to CITBC at premises of the Company or elsewhere and to make
available to CITBC the premises and facilities of the Company for the
purpose of CITBC's taking possession of, removing or putting the Inventory
and Equipment in saleable form. However, if notice of intended disposition
of any Collateral is required by law, it is agreed that ten (10) days notice
shall constitute reasonable notification and full compliance with the law.
The net cash proceeds resulting from CITBC's exercise of any of the
foregoing rights, (after deducting all charges, costs and expenses,
including reasonable attorneys' fees) shall be applied by CITBC to the
payment of the Company's Obligations, whether due or to become due, in such
order as CITBC may elect, and the Company shall remain liable to CITBC for
any deficiencies, and CITBC in turn agrees to remit to the Company or its
successors or assigns, any surplus resulting therefrom. The enumeration
of the foregoing rights is not intended to be exhaustive and the exercise
of any right shall not preclude the exercise of any other rights, all of
which shall be cumulative. The Company hereby indemnifies CITBC and holds
CITBC harmless from any and all costs, expenses, claims, liabilities, Out-
of-Pocket Expenses or otherwise, incurred or imposed on CITBC by reason of
exercise of any of its rights, remedies and interests hereunder, including
without limitation from any sale or transfer of Collateral, preserving,
maintaining or securing the Collateral, defending its interests in
Collateral (including pursuant to any claims brought by the Company, the
Company as debtor-in-possession, any secured or unsecured creditors of the
Company, any trustee or receiver in bankruptcy, or otherwise), and the
Company hereby agrees to so indemnify and hold CITBC harmless, absent
CITBC's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction. The foregoing indemnification shall
survive termination of this Financing Agreement until such time as all
Obligations (including the foregoing) have been finally and indefeasible
paid in full. In furtherance thereof CITBC may establish such reserves for
Obligations hereunder (including any contingent Obligations) as it may deem
advisable in its reasonable business judgement. Any applicable mortgage(s),
deed(s) of trust or assignment(s) issued to CITBC on the Real Estate shall
govern the rights and remedies of CITBC thereto.

SECTION 11. Termination

Except as otherwise permitted herein, CITBC may terminate this
Financing Agreement and the Line of Credit only as of the initial or any
subsequent Anniversary Date and then only by giving the other at least
ninety (90) days prior written notice of termination. Notwithstanding the
foregoing CITBC may terminate the Financing Agreement immediately upon the
occurrence of an Event of Default, provided, however, that if the Event of
Default is an event listed in Paragraph 10.1(c) of Section 10 of this
Financing Agreement, CITBC may regard the Financing Agreement as terminated
and notice to that effect is not required. This Financing Agreement,
unless terminated as herein provided, shall automatically continue from
Anniversary Date to Anniversary Date. Notwithstanding the foregoing, the
Company may terminate this Financing Agreement, the Line of Credit,
Revolving Line of Credit and the CAPEX Term Loan Line of Credit prior to any
applicable Anniversary Date upon sixty (60) days' prior written notice to
CITBC. The Company shall pay to CITBC immediately, the Early Termination
Fee on any Early Termination Date. All Obligations shall become due and
payable as of any termination hereunder or under Section 10 hereof and,
pending a final accounting, CITBC may withhold any balances in the Company's
account (unless supplied with an indemnity satisfactory to CITBC) to cover
all of the Company's Obligations, whether absolute or contingent. All of
CITBC's rights, liens and security interests shall continue after any
termination until all Obligations have been paid and satisfied in full.

SECTION 12. Miscellaneous

12.1 Except as otherwise specifically set forth herein, the Company
hereby waives diligence, notice of intent to accelerate, notice of
acceleration, demand, presentment and protest and any notices thereof as
well as notice of nonpayment. No delay or omission of CITBC or the Company
to exercise any right or remedy hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall
operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by CITBC of any right or remedy precludes
any other or further exercise thereof, or precludes any other right or
remedy.

12.2 This Financing Agreement and the documents executed and
delivered in connection therewith constitute the entire agreement between
the Company and CITBC; supersede any prior agreements; can be changed only
by a writing signed by both the Company and CITBC; and shall bind and
benefit the Company and CITBC and their respective successors and assigns.

12.3 In no event shall the Company, upon demand by CITBC for payment
of any indebtedness relating hereto, by acceleration of the maturity
thereof, or otherwise, be obligated to pay interest and fees in excess of
the amount permitted by law. Regardless of any provision herein or in any
agreement made in connection herewith, CITBC shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto,
any amount in excess of the maximum amount of interest permissible under
applicable law. If CITBC ever receives, collects or applies any such
excess, it shall be deemed a partial repayment of principal and treated as
such; and if principal is paid in full, any remaining excess shall be
refunded to the Company. This paragraph shall control every other
provision hereof, the Loan Documents and of any other agreement made in
connection herewith.

12.4 If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected
by such provision's severance. Furthermore, in lieu of any such provision,
there shall be added automatically as a part of the applicable agreement a
legal and enforceable provision as similar in terms to the severed provision
as may be possible.

12.5 THE COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING
AGREEMENT. THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED.

12.6 Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed
to have been validly served, given or delivered when hand delivered or sent
by telegram or telex, or three days after deposit in the United State mails,
with proper first class postage prepaid and addressed to the party to be
notified as follows:

(A) if to CITBC, at:

The CIT Group/Business Credit, Inc.
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Regional Manager
Fax No.: 213-613-2588

(B) if to the Company at:

Zilog, Inc.
910 East Hamilton Avenue
Campbell, CA 95008
Attn: David Krolik
Fax No.: (408) 558-8590

Zilog, Inc.
910 East Hamilton Avenue
Campbell, CA 95008
Attn: Richard R. Pickard,
Senior Vice President and General Counsel
Fax No.: 408-558-8432

or to such other address as any party may designate for itself by like
notice. Failure to provide the foregoing courtesy copy shall not be deemed
to be a breach of the terms hereof nor give rise to any liability therefor.

12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN
DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER
JURISDICTION.

IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above. This Financing Agreement shall take
effect as of the date set forth above after being accepted below by an
officer of CITBC after which, CITBC shall forward to the Company a fully
executed original for its files.

Very truly yours,

THE CIT GROUP/BUSINESS
CREDIT, INC.

By /s/ Frank Brown

Vice President

Read and Agreed to:

ZILOG, INC.

By /s/ James M. Thorburn By: /s/ Curtis J. Crawford
---------------------- ---------------------------
Title: Senior Vice President Title: President and Chief Executive
Chief Financial Officer Officer

Executed and Accepted at
Los Angeles, California

THE CIT GROUP/BUSINESS
CREDIT, INC.

By /s/ Frank Brown

Vice President

<PAGE>

EXHIBIT A

REVOLVING CREDIT NOTE

December __, 1998

$25,000,000

FOR VALUE RECEIVED, the undersigned, ZILOG, INC., a Delaware corporation
(the "Company"), hereby absolutely and unconditionally promises to pay to
the order of THE CIT GROUP/BUSINESS CREDIT, INC., (herein "CITBC"), with
offices located at 300 South Grand Avenue, Los Angeles, CA 90071, in lawful
money of the United States of America and in immediately available funds,
the principal amount of Twenty Five Million Dollars ($25,000,000), or such
other principal amount advanced pursuant to Section 3, paragraph 3.1 and
Section 5, paragraph 5.1 of the Financing Agreement (as herein defined),
such Revolving Loan advances shall be repaid on a daily basis as a result
of the application of the proceeds of collections of the Accounts and the
making of additional Revolving Loans as described in Section 3. The
Revolving Loans may be borrowed, repaid and reborrowed by the Company. A
final balloon payment in an amount equal to the outstanding aggregate
balance of principal and interest remaining unpaid, if any, under this Note
as shown on the books and records of CITBC shall be due and payable on the
termination of the Financing Agreement, as set forth in Section 11 thereof.

The Company further absolutely and unconditionally promises to pay to the
order of CITBC at said office, interest, in like money, on the unpaid
principal amount owing hereunder from time to time from the date hereof on
the dates and at the rates specified in Section 8, of the Financing
Agreement.

If any payment on this Note becomes due and payable on a day other than a
business day, the maturity thereof shall be extended to the next succeeding
business day, and with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.

This Note is one of the Promissory Notes referred to in the Financing
Agreement, dated as of the date hereof, as the same may be amended and
restated and in effect from time to time, among the Company and CITBC, the
parties thereto (the "Financing Agreement"), and is subject to, and entitled
to, all of the terms, provisions and benefits thereof and is subject to
optional and mandatory prepayment, in whole or in part, as provided therein.
All capitalized terms used herein shall have the meaning provided therefor
in the Financing Agreement, unless otherwise defined herein.

The date and amount of the advance(s) made hereunder may be recorded on the
grid page or pages which are attached hereto and hereby made part of this
Note or the separate ledgers maintained by CITBC. The aggregate unpaid
principal amount of all advances made pursuant hereto may be set forth in
the balance column on said grid page or such ledgers maintained by CITBC.
All such advances, whether or not so recorded, shall be due as part of
this Note.

The Company confirms that any amount received by or paid to CITBC in
connection with the Financing Agreement and/or any balances standing to its
credit on any of its accounts on CITBC's books under the Financing Agreement
may in accordance with the terms of the Financing Agreement be applied in
reduction of this Note, but no balance or amounts shall be deemed to effect
payment in whole or in part of this Note unless CITBC shall have actually
charged such account or accounts for the purposes of such reduction or
payment of this Note.

Upon the occurrence of any one or more of the Events of Default specified
in the Financing Agreement or upon termination of the Financing Agreement,
all amounts then remaining unpaid on this Note may become, or be declared
to be, immediately due and payable as provided in the Financing Agreement.

Attest: ZILOG, INC.

/s/ James M. Thorburn By: /s/ Curtis J. Crawford
Title: President

<PAGE>

SCHEDULE TO GRID

Date Loan Payment Balance

<PAGE>

EXHIBIT B

FORM OF

CAPEX TERM LOAN PROMISSORY NOTE

______________________, 199___

FOR VALUE RECEIVED, the undersigned, ZILOG, INC., a Delaware corporation
(the "Company"), promises to pay to the order of THE CIT GROUP/BUSINESS
CREDIT, INC. (herein "CITBC") at its office located at 300 South Grand
Avenue, Los Angeles, CA 90071, in lawful money of the United States of
America and in immediately available funds, the principal amount of
($ .00) as follows: _________ ( ) equal
monthly principal installments of $ .00 each, whereof the first
such installment shall be due and payable on , 199 and
subsequent installments shall be due and payable on the first Business Day
of each month thereafter until this Note is paid in full. Notwithstanding
the foregoing, this Note shall be payable in full upon any termination of
the Financing Agreement.

The Company further agrees to pay interest at said office, in like money,
on the unpaid principal amount owing hereunder from time to time from the
date hereof on the date and at the rate specified in Paragraph 8.2 of
Section 8 of the Financing Agreement dated November ___, 1998 between the
Company and CITBC (the "Financing Agreement"). Capitalized terms used
herein and defined in the Financing Agreement shall have the same meanings
as set forth therein unless otherwise specifically defined herein.

If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.

This Note is a CAPEX Term Loan Promissory Note referred to in the Financing
Agreement, evidences a CAPEX Term Loan thereunder, and is subject to, and
entitled to, all provisions and benefits thereof and is subject to optional
and mandatory prepayment, in whole or in part, as provided therein.

Upon the occurrence of any one or more of the Events of Default specified
in the Financing Agreement or upon termination of the Financing Agreement,
all amounts then remaining unpaid on this Note may become, or be declared
to be, at the sole election of CITBC, immediately due and payable as
provided in the Financing Agreement.

ZILOG, INC.

______________________ By:
Secretary Title:

<PAGE>

Schedule 1 - Existing Liens as of the Closing Date
[to be provided by the Company and Company's counsel]

Secured Filing Filing
Location Debtor Party Number Date Collateral

<PAGE>

Schedule 2 - Collateral Information
[to be provided by the Company and Company's counsel]

Chief Executive Office

Collateral Locations

Tradenames

Patents

Trademarks

Copyrights

Monthly Rent and Other Charges

Exhibit No. 10.7

EMPLOYMENT AGREEMENT

(This Agreement is made by and between ZiLOG, Inc., a Delaware
corporation (hereinafter "ZiLOG') and Richard R. Pickard (hereinafter
"Pickard"), whereby ZiLOG and Pickard agree that Pickard accepts
employment as Vice President, General Counsel and Secretary of ZiLOG,
under the following terms and conditions:

1. Term. ZiLOG and Pickard agree that Pickard will be Vice President,
General Counsel and Secretary of ZiLOG for a period of twenty-four
(24) months, commencing on November 6, 1998 and ending November 5,
1998. This Agreement may be extended upon written agreement of
ZiLOG and Pickard. If during the term of this Agreement a "Change
of Control" of ZiLOG occurs, the term of this Agreement will be
extended for a period of twenty four (24) months commencing on the
earlier of the effective date of the Change of Control or the date
this Agreement would otherwise expire; provided, however, in the
case of a Change in Control that is subject to an agreement that is
executed before the date this Agreement would otherwise expire but
becomes effective on a closing date that will occur after the date
this Agreement would otherwise expire, there will be no such
automatic twenty four month extension if the closing date does not
occur within six (6) months after the date this Agreement would
otherwise expire. Under these circumstances the term of this
Agreement shall be extended six (6) months from the date it would
otherwise expire. For purposes of this Agreement, "Change in
Control" shall mean the occurrence of any of the following events:

(i) A change in the composition of the board of directors of
ZiLOG, Inc., as a result of which fewer than two-thirds of the
incumbent directors are directors who either:

(A) Had been directors of ZiLOG, Inc. twenty-four (24) months
prior to such change; or

(B) Were elected, or nominated for election, to the board of
directors of ZiLOG, Inc. with the affirmative votes of at
least a majority of the directors who had been directors
of ZiLOG, Inc. twenty-four (24) months prior to such
change and who were still in office at the time of the
election or nomination:

(ii) Any "person" (as such term is used in sections 13 (d) and
14 (d) of the Exchange Act) other than ZiLOG, Inc. (or its
designee), by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly, of
securities of ZiLOG, Inc. representing twenty percent (20%) or
more of the combined voting power of ZiLOG, Inc.'s then
outstanding securities ordinarily (and apart from the rights
accruing under special circumstances) having the right to vote
at elections of directors;

(iii) The sale of all or substantially all of the assets of
ZiLOG, Inc. to a third party who is not an affiliate
(including a parent or subsidiary) of ZiLOG, Inc.; or

(iv) Any acquisition of stock, tender offer, merger,
consolidation, sale, reorganization, dissolution or other such
event or series of events, which in the opinion of a majority
of the members of the board of ZiLOG, Inc. (as reflected in a
written resolution of the board of ZiLOG, Inc.) has resulted
in a change of control of ZiLOG, Inc.

2. Extent of Services. Pickard shall devote his entire time, attention
and energies to his position as Vice President, General Counsel and
Secretary of ZiLOG and shall not, during the term of this Employment
Agreement be engaged in any other business activity whether or not
such business activity is pursued for gain, profit or other
pecuniary advantage; provided, that Pickard may engage in personal
investment activities consistent with ZiLOG's Conflict of Interest
Policy.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or cause
to be paid, to Pickard the sum of at least $14,167.00 as base
salary. Such sum will be paid in monthly installments or such
other normal periodic payment schedule as ZiLOG may establish for
its executives. Pickard's salary will be reviewed periodically
in accordance with established salary review procedures and
adjustments to his salary, if any, will be based upon such
reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan.
Pickard will be eligible to receive Awards and Payouts in
accordance with the terms of the ZiLOG Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may be
modified from time to time and as modified by this Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to Pickard
stock options under the 1990 ZiLOG Employee Stock Option Plan
(hereinafter "ZSOP") and the 1994 Long Term Incentive Plan
(hereinafter "LTIP"), copies of such plans being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement.

4. Benefits. As an employee of ZiLOG, Pickard will be entitled to such
benefits as ZiLOG normally provides its employees. In addition,
ZiLOG will provide Pickard with Directors and Officers (D & O)
insurance in an amount deemed appropriate by the Company.

5. Company Policies. Pickard agrees to be bound by all ZiLOG Company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of Interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as
ZiLOG requests evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate
the employment of Pickard at any time during the term of this
Agreement, for any reason or for no reason, with or without cause,
by giving Pickard at least thirty (30) days written notice of such
termination or compensation in lieu of notice; and Pickard may
terminate his employment by giving at least thirty (30) days written
notice to ZiLOG. ZiLOG reserves the right to accelerate any
deferred resignation date given it by Pickard, and any such
acceleration of such date will not alter the character of such
termination from voluntary to involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of
this Agreement to the contrary, ZiLOG's obligations to Pickard, if
his employment with ZiLOG is terminated prior to the end of this
Agreement, shall be as follows:

A. If Pickard voluntarily resigns his employment for 1) other than
Good Reason ( as defined in Paragraph 7.B. below) or 2) other
than Retirement (as defined in Paragraph 7.C. below) or 3) other
than the sale, merger or change in ownership of ZiLOG (as defined
in Paragraph 7.G. below) prior to the termination date of this
Agreement, he will be entitled to: (1) base salary then due and
owing for services previously performed, (2) Payouts under EPIP
which become payable to Pickard pursuant to the terms of EPIP
prior to the effective date of resignation, and (3) Payouts under
the Executive Bonus which become payable to Pickard pursuant to
the terms of the Executive Bonus prior to the effective of
resignation. Upon payment of the foregoing items, ZiLOG will
have no further obligation to Pickard.

B. If Pickard voluntarily resigns his employment for Good Reason, as
defined herein, prior to the termination date of this Agreement,
he will be entitled to the benefits provided in Paragraph 7.D.
below. Good Reason, as used herein, shall mean:

(i) a reduction in Pickard's authority,
responsibility or status as Vice President, General
Counsel and Secretary of ZiLOG, Inc. such that
Pickard ceased to be an "officer" as that term is
defined in the regulations under Section 16 of the
Securities Exchange Act of 1934;

(ii) a reduction in Pickard's base salary other than
in connection with a general reduction applicable to
the Vice Presidents of ZiLOG who are members of the
Management Committee;

(iii) a reduction in form and effect or cessation of
any benefit or compensation plan, except EPIP, the
Executive Bonus, the Deferred Compensation Plan, or
those that may occur for the ZiLOG employee group in
general in accord with a general policy change;

(iv) a requirement to relocate, except for office
relocations that would not increase Pickard's one -
way commute distance by more than 20 miles;

(v) any material breach of this Agreement on the
part of ZiLOG not fully remedied by ZiLOG within
sixty (60) days after written notice by Pickard of
such breach.

C. If Pickard retires as defined in PM60-05 prior to the termination
date of this Agreement, he will be entitled to the following at
the effective date of retirement: (1) base salary then due and
owing for services previously performed, (2) Payouts under EPIP
for Awards made prior to the effective date of the retirement,
and (3) Payouts under the Executive Bonus for Awards made prior
to the effective date of the retirement. EPIP and Executive
Bonus Awards may also be granted at ZiLOG's sole discretion for
the year in which the retirement occurs, prorated to the date of
the retirement. Payouts for all Awards will be made at the same
time and on the same schedule as those for active employees.
Upon the payment of the foregoing items, ZiLOG will have no
further obligation to Pickard.

D. If ZiLOG terminates Pickard's employment during the terms of this
Agreement other than for Cause of Detrimental Activity as defined
in 7.E. below, he will be entitled to receive the following: (1)
the then current base salary for the period remaining in this
Agreement, (2) Payouts under EPIP for Awards made prior to the
effective date of termination of employment which Payouts are
payable to Pickard pursuant to the terms of EPIP prior to
expiration of the term of this Agreement, and (3) Payouts under
the Executive Bonus for Awards made prior to the effective date
of termination of employment which Payouts are payable to Pickard
pursuant to the term of this Agreement. Pickard will not be
eligible for Awards under EPIP or the Executive Bonus made after
the date on which his employment at ZiLOG ceased or for Payouts
made on any Awards after the expiration date of this Agreement.
Vesting of common stock and stock options granted under ZSOP and
LTIP will continue for the period remaining in this Agreement.
Upon payment of the foregoing items, ZiLOG will have no further
obligation to Pickard.

E. If ZiLOG terminates Pickard during the term of this Agreement for
Cause, or for Detrimental Activity as defined herein, ZiLOG will
have no further monetary obligation to Pickard other than: (1)
any base salary then due and owing for services previously
performed, (2) Payouts under EPIP which become payable to Pickard
pursuant to the terms of EPIP prior to the effective date of
termination, and (3) Payouts under the Executive Bonus which
become payable to Pickard pursuant to the terms of Executive
bonus prior to the effective date of termination. Cause or
Detrimental Activity shall be a willful violation of a major
company policy, conviction of any criminal or civil law involving
moral turpitude, willful misconduct which results in a material
reduction in Pickard's effectiveness in the performance of his
duties, or willful and reckless disregard for the best interests
of the Company.

F. If Pickard ceases to be an employee of ZiLOG during the term of
this Agreement because of total and permanent disability or
death, ZiLOG's obligations to Pickard or his beneficiaries will
be limited solely to: (1) any base salary then due and owing for
services previously performed, (2) Payouts in accordance with the
terms of the Executive Bonus, and (4) any benefits including
ZSOP and LTIP benefits normally provided by ZiLOG to its
employees due to or on account of total and permanent disability
or death.

G. If Pickard leaves his employment, either voluntarily for Good
Reason or involuntarily for reasons other than for Cause or
Detrimental Activity, following the effective date of a Change in
Control prior to the termination date of this Agreement, he will
be entitled to receive the following: (1) the then current base
salary for the period remaining in this Agreement, payable in a
cash lump sum not more than five (5) business days following the
date of leaving employment, (2) Payouts under EPIP for Awards
made prior to the effective date of termination of employment,
and (3) Payouts under the Executive Bonus for Awards made prior
to the effective date of termination of employment. EPIP and
Executive Bonuses shall also be awarded for the year in which the
termination of employment occurs and shall be calculated in
accordance with the terms of such arrangements assuming the date
of Pickard's termination is the last day of ZiLOG's fiscal year
and based on ZiLOG's financial performance for the portion of
such fiscal year that includes calculated financials for ZiLOG as
a separate entity. All of the above EPIP and Executive Bonus
Awards shall be paid in a cash lump sum within five (5) business
days of the date of Pickard's termination of employment. All
outstanding unvested stock options whether granted under ZSOP and
LTIP or otherwise will continue to vest for the period of time
remaining in the Agreement (the "Continuation Period").
Regardless of the provisions of the ZSOP, LTIP or any other plans
or agreements, the Continuation Period shall be counted as
employment with ZiLOG for purposes of vesting under all options
and for purposes of determining the expiration date of any stock
options held by Pickard when his employment terminates. During
the remaining tern of this Agreement Pickard (and, where
applicable, his dependents) shall be entitled to continue
participation in the group insurance plans maintained by ZiLOG,
including life, disability, and health insurance programs, as if
he were still an employee of ZiLOG. To the extent that ZiLOG
finds it impossible to cover Pickard under its group insurance
policies during such period, ZiLOG shall provide Pickard with
individual policies which offer at least the same level of
coverage and which impose not more than the same costs on him as
if he were still an employee of ZiLOG. The foregoing
notwithstanding, in the event that Pickard becomes eligible for
comparable group insurance coverage in connection with the new
employment, the coverage provided by ZiLOG under this paragraph
shall terminate immediately. Any group health continuation
coverage that ZiLOG is otherwise required to offer under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA")
shall be offered when coverage under this paragraph terminates.

Except as provided in the paragraph immediately following, upon
payment of the foregoing items, ZiLOG will have no further
obligation to Pickard.

In the event that it is determined that any payment or
distribution of any type to or for the benefit of Pickard made by
ZiLOG, by any of its affiliates, by any person who acquires
ownership of a substantial portion of ZiLOG's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the "Code")) or by any
affiliate of such person, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or
otherwise ( the "Total Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax,
together with any such interest or penalties, are collectively
referred to as the "Excise Tax"), then Pickard shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an
amount that shall fund the payment by Pickard of any Excise Tax
on the Total Payments as well as all income taxes imposed on the
Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to taxes on
the Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of whether
any of the Total Payments are "Parachute Payments" (within
meaning of Section 280G of the code) that are required to be made
hereunder, including all determinations of whether a Gross-Up
Payment is required and of the amount of such Gross-Up Payment,
shall be made by the independent auditors retained by ZiLOG most
recently prior to the Change in Control (the "Auditors"), who
shall provide their determination (the "Determination"),
together with detailed supporting calculations regarding the
amount of any Gross-Up Payment and any other relevant matters,
both to ZiLOG and to Pickard within seven (7) business days of
Pickard's termination date, if applicable, or such earlier time
as is requested by ZiLOG or by Pickard (if Pickard reasonably
believes that any of the Total Payments may be subject to the
Excise Tax). If the Auditors determine that no Excise Tax is
payable by Pickard, it shall furnish Pickard with a written
statement that such Auditors have concluded that no Excise Tax is
payable (including the reasons therefor) and that Pickard has
substantial authority not to report any Excise Tax on his federal
income tax return. If a Gross-Up Payment is determined to be
payable, it shall be paid to Pickard within five (5) business
days after the Determination is delivered to ZiLOG or Pickard.
Any determination by the Auditors shall be binding upon ZiLOG and
Pickard, absent manifest error.

As a result of uncertainty in the application of section 4999 of
the Code at the time of the initial determination by the Auditors
hereunder, it is possible that Gross-Up Payments not made by
ZiLOG should have been made ("Underpayments") or that Gross-Up
will have been made by ZiLOG which should have been made
("Overpayments"). In either event, the Auditors shall determine
the amount of the Underpayment, the amount of such Underpayment
shall promptly be paid by ZiLOG to or for the benefit of Pickard.
In the case of an Overpayment, the Employee shall, at the
direction and expense of ZiLOG, take such steps as are reasonably
necessary (including the filing of returns and claims for
refund), follow reasonable instructions from, and procedures
established by, ZiLOG and otherwise reasonably cooperate with
ZiLOG to correct such Overpayment; provided, however, that (a.)
Pickard shall in no event be obligated to return to ZiLOG an
amount greater than the net after-tax portion of the Overpayment
that Pickard has retained or has recovered as a refund from the
applicable taxing authorities and (b.) this provision shall be
interpreted in a manner consistent with the intent of this excise
tax restoration provision which is to make Pickard whole, on an
after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in
Pickard's repaying to ZiLOG an amount which is less than the
Overpayment.

8. Pickard Representations. Pickard represents to ZiLOG that to the
best of his knowledge he is under no obligation to any employer or
third party which would preclude his full, complete and unfettered
discharge of his duties under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in
writing, and if by ZiLOG shall be addressed to Pickard as indicated
in ZiLOG's personnel records or such other address s Pickard shall
specify in writing and if by Pickard to ZiLOG at:

ZiLOG, Inc.
910 E Hamilton Ave
Campbell, California 95008-6600
Attn: Vice President, Human Resources and Administration

Such addresses may be changed by written notice from either ZiLOG
or Pickard , to the other.

10. Amendment. This Agreement may be amended only in writing, signed
by both partied hereto.

11. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon ZiLOG, its successors and assigns.
Pickard may not assign, transfer, pledge or hypothecate any of his
rights or obligations hereunder, Awards or Payouts under EPIP or the
Executive Bonus or other compensation to which he may be entitled
hereunder. ZiLOG will require any successor (whether direct or
indirect, by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the business and/ or
assets of ZiLOG to assume expressly and agree, in substance and form
satisfactory to Pickard, to perform this Agreement in the same
manner and to the same extent ZiLOG would be required to perform it
if no succession had taken place.

12. Waiver or Breach. The waiver by ZiLOG of a breach of any
provision of this Agreement by Pickard shall not operate or be
construed as a waiver of any subsequent breach by Pickard.

13. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or
enforceability of any other provision hereof.

14. Entire Agreement. This entire Agreement consists of this
document, together with the following documents:

A. EPIP, attached as Exhibit I;

B. Executive Bonus, attached as Exhibit II;

C. ZiLOG Employee Stock Option Plan, attached as Exhibit III;

D. ZiLOG 1994 Long Term Incentive Plan, attached as Exhibit IV;

E. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit V

F. Conflict of Interest Statement, attached as Exhibit VI

G. Statement addressed to "Human Resources," attached as Exhibit VII

H. Policy on Business Ethics, attached as Exhibit VIII; and

I. PM-05, attached as Exhibit IX.

15. Governing Law. This Employment Agreement shall be governed by
the laws of the State of California, without regard to conflict of
laws principles.

Executed effective: May 22, 1997

By: /s/ Richard R. Prickard By: /s/ E.A. Sack
-------------------------- -------------------------------
Richard R, Pickard E. A. Sack, President and CEO

Dated: May 22, 1997 Dated: May 22, 1997

Exhibit 10.9

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between ZiLOG, Inc., a Delaware
corporation (hereinafter "ZiLOG") and Michael Burger (hereinafter
"Burger"), whereby ZiLOG and Burger agree that Burger accepts
employment as Senior Vice President of Sales of ZiLOG, under the
following terms and conditions:

1. Term. ZiLOG and Burger agree that Burger will be Senior Vice
President of Sales of ZiLOG for a period of twenty-four (24)
months, commencing on your date of hire. This Agreement may be
extended upon written agreement of ZiLOG and Burger. If during
the term of this Agreement a "Change in Control" of ZiLOG
occurs, the term of this Agreement will be extended for a period
of twenty four (24) months commencing on the earlier of the
effective date of the Change in Control or the date this
Agreement would otherwise expire; provided, however, in the case
of a Change in Control that is subject to an agreement that is
executed before the date this Agreement would otherwise expire
but becomes effective on a closing date that will occur after the
date this Agreement would otherwise expire, there will be no such
automatic twenty-four month extension if the closing date does
not occur within six (6) months after the date this Agreement
would otherwise expire. Under these circumstances the term of
this Agreement shall be extended six (6) months from the date it
would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall
mean the occurrence of any of the following events:

(i) A change in the composition of the board of directors of
ZiLOG, Inc., as a result of which fewer than two-thirds of
the incumbent directors are directors who either:

(a) had been directors of ZiLOG, Inc. twenty-four (24)
months prior to such change; or

(b) were elected, or nominated for election, to the board
of directors of ZiLOG, Inc. with the affirmative
votes of at least a majority of the directors who had
been directors of ZiLOG, inc. twenty-four (24) months
prior to such change and who were still in office at
the time of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and
14(d) of the Exchange Act) other than ZiLOG, Inc. (or its
designee), by the acquisition or aggregation of securities
is or becomes the beneficial owner, directly or indirectly
of securities of ZiLOG, Inc. representing twenty percent
(20%) or more of the combined voting power of ZiLOG,
Inc.'s then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having
the right to vote at elections of directors;

(iii) the sale of all or substantially all of the assets of
ZiLOG, Inc. to a third party who is not an affiliate
(including a parent or subsidiary) of ZiLOG, Inc., or;

(iv) any acquisition of stock, tender offer, merger,
consolidation, sale, reorganization, dissolution or other
such event or series of events, which in the opinion of a
majority of the members of the board of ZiLOG, Inc. (as
reflected in a written resolution of the board of ZiLOG,
inc.) has resulted in a change of control of ZiLOG, Inc.

2. Extent of Services. Burger shall devote his entire time,
attention and energies to his position as Senior Vice President
of Sales of ZiLOG and shall not, during the term of this
Employment Agreement, be engaged in any other business activity,
except as set forth below, whether or not such business activity
is pursued for gain, profit or other pecuniary advantage;
provided, that Burger may engage in: 1) personal investment
activities: or 2) service on Boards of Directors of other
companies; consistent with ZiLOG's Conflict of Interest policy;
or 3) advisory and community activities that do not affect his
time commitment to ZiLOG.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or
cause to be paid, to Burger the sum of at least $18,750.00
as base salary. Such sum will be paid in monthly
installments or such other normal periodic payment schedule
as ZiLOG may establish for its executives. Burger's salary
will be reviewed periodically in accordance with
established salary review procedures and adjustments to his
salary, if any, will be based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus
Plan. Burger will be eligible to receive Awards and
Payouts in accordance with the terms of the ZiLOG Employee
Performance Incentive Plan (hereinafter "EPIP"), and the
EPIP Executive Bonus Plan (hereinafter "Executive Bonus")
as such plans may be modified from time to time and as
modified by this Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to
Burger stock options under the 1998 Long Term Incentive
Plan (hereinafter "EOSIP"), a copy of such plan being
attached hereto. Vesting will continue in accordance with
the plan provisions during the term of this Agreement.

4. Benefits. As an employee of ZiLOG, Burger will be entitled to
such benefits as ZiLOG normally provides its executives. In
addition, ZiLOG will provide Burger with Directors and officers
(D&O) insurance in an amount deemed appropriate by the Company
for his level of responsibility.

5. Company Policies. Burger agrees to be bound by all ZiLOG
published Company Policies applicable to its employees including
but not limited to Business Ethics, Conflict of interest,
Proprietary Information and Antitrust Compliance, and he agrees
to sign any such reasonable documents as ZiLOG requests
evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate
the employment of Burger at any time during the term of this
Agreement, for any reason or for no reason, with or without
cause, by giving Burger at least thirty (30) days written notice
of such termination or compensation in lieu of notice; and Burger
may terminate his employment by giving at least thirty (30) days
written notice to ZiLOG. ZiLOG reserves the right to accelerate
any deferred resignation date given it by Burger, and any such
acceleration of such date will not alter the character of such
termination from voluntary to involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions
of this Agreement to the contrary, ZiLOG's obligations to Burger,
if his employment with ZiLOG is terminated prior to the end of
this Agreement, shall be as follows:

A. If Burger voluntarily resigns his employment for 1) other
than Good Reason (as defined in paragraph 7.B. below) or 2)
other than Retirement (as defined in Paragraph 7.C. below)
or 3) other than the sale, merger or change in ownership of
ZiLOG (as defined in paragraph 7.G. below) prior to the
termination date of this Agreement, he will be entitled to:
(1) base salary then due and owing for services previously
performed, (2) payouts under EPIP which become payable to
Burger pursuant to the terms of EPIP prior to the effective
date of resignation, and (3) payouts under the Executive
Bonus which become payable to Burger pursuant to the terms of
the Executive Bonus prior to the effective date of
resignation. Upon payment of the foregoing items, ZiLOG will
have no further obligation to Burger.

B. If Burger voluntarily resigns his employment for Good
Reason, as defined herein, prior to the termination date of
this Agreement, he will be entitled to the benefits
provided in Paragraph 7.D. below. Good Reason, as used
herein, shall mean:

(i) a reduction in Burger's authority, responsibility or
status as Senior Vice President of Sales such that
Burger ceases to be an "officer" as that term is
defined in the regulations under Section 16 of the
Securities Exchange Act of 1934;

(ii) a reduction in Burger's base salary other than in
connection with a general reduction applicable to the
Senior Vice Presidents of ZiLOG who are members of
the Executive Committee;

(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the
Executive Bonus, the Deferred Compensation Plan, or
those that may occur for the ZiLOG employee group in
general in accord with a general policy change;

(iv) a requirement to relocate, except for the office
relocations that would not increase Burger's one-way
commute distance by more than 20 miles;

(v) any material breach of this Agreement on the part of
ZiLOG not fully remedied by ZiLOG within sixty (60)
days after written notice by Burger of such breach.

C. If Burger retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to
the following at the effective date of retirement: (1)
base salary then due and owing for services previously
performed, (2) payouts under EPIP for Awards made prior to
the effective date of the retirement, and 3) payouts under
the Executive Bonus for Awards made prior to the effective
date of the retirement. EPIP and Executive Bonus Awards
may also be granted at ZiLOG's sole discretion for the year
in which the retirement occurs, prorated to the date of the
retirement. Payouts for all Awards will be made at the
same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, ZiLOG
will have no further obligation to Burger.

D. If ZiLOG terminates Burger's employment during the term of
this Agreement other than for 1) Cause or Detrimental
Activity as defined in 7.E. below, or 2) the sale, merger
or change in ownership of ZiLOG (as defined in paragraph
7.G. below) he will be entitled to receive the following:
(1) the then current base salary for the period remaining
in this Agreement, (2) payouts under EPIP for Awards made
prior to the effective date of termination of employment
which payouts are payable to Burger pursuant to the terms
of EPIP prior to expiration of the term of this Agreement,
and (3) payouts under the Executive Bonus for Awards made
prior to the effective date of termination of employment
which payouts are payable to Burger pursuant to the terms
of the Executive Bonus prior to expiration of the term of
this Agreement. Burger will not be eligible for Awards
under EPIP or the Executive Bonus made after the date on
which his employment at ZiLOG ceased or for payouts made on
any Awards after the expiration date of this Agreement.
Vesting of stock options granted under EOSIP will continue
for the period remaining in the Agreement. Upon the
payment of the foregoing items, ZiLOG will have no further
obligation to Burger.

E. If ZiLOG terminates Burger during the term of this
Agreement for Cause, or for Detrimental Activity as defined
herein, ZiLOG will have no further monetary obligation to
Burger other than: (1) any base salary then due and owing
for services previously performed, 2) payouts under EPIP
which become payable to Burger pursuant to the terms of
EPIP prior to the effective date of termination, and (3)
payouts under the Executive Bonus which become payable to
Burger pursuant to the terms of the Executive Bonus prior
to the effective date of termination. Cause or Detrimental
Activity shall be a willful violation of a major company
policy, conviction of any criminal or civil law involving
moral turpitude, willful misconduct which results in a
material reduction in Burger's effectiveness in the
performance of his duties, or willful and reckless
disregard for the best interests of the Company.

F. If Burger ceases to be an employee of ZiLOG during the term
of this Agreement because of total and permanent disability
or death, ZiLOG's obligations to Burger or his
beneficiaries will be limited solely to: (1) any base
salary then due and owing for services previously
performed, (2) payouts in accordance with the terms of
EPIP, (3) payouts in accordance with the terms of the
Executive Bonus and 4) any benefits including EOSIP
benefits normally provided by ZiLOG it its employees due to
or on account of total and permanent disability or death.

G. If Burger leaves his employment, either voluntarily for
Good Reason or involuntarily for reasons other than for
Cause or Detrimental Activity, following the effective date
of a Change in Control prior to the termination date of
this Agreement, he will be entitled to receive the
following: (1) the then current base salary for the period
remaining in this Agreement, payable in a cash lump sum not
more than five (5) business days following the date of
leaving employment, (2) payouts under EPIP for Awards made
prior to the effective date of termination of employment,
and (3) payouts under the Executive Bonus for Awards made
prior to the effective date of termination of employment.
EPIP and Executive Bonuses shall also be awarded for the
year in which the termination of employment occurs and
shall be calculated in accordance with the terms of such
arrangements assuming the date of Burger's termination is
the last day of ZiLOG's fiscal year and based on ZiLOG's
financial performance for the portion of such fiscal year
that includes calculated financials for ZiLOG as a separate
entity. All of the above EPIP and Executive Bonus Awards
shall be paid in a cash lump sum within five (5) business
days of the date of Burger's termination of employment.
All outstanding unvested stock options whether granted
under EOSIP or otherwise will continue to vest for the
period of time remaining in the Agreement (the
"Continuation Period"). Regardless of the provisions of
EOSIP or any other plans or agreements, the Continuation
Period shall be counted as employment with ZiLOG for
purposes of vesting under all options and for purposes of
determining the expiration date of any stock options held
by Burger when his employment terminates. During the
remaining term of this Agreement Burger (and, where
applicable, his dependents) shall be entitled to continue
participation in the group insurance plans maintained by
ZiLOG, including life, disability and health insurance
programs, as if he were still an employee of ZiLOG. To the
extend that ZiLOG finds it impossible to cover Burger under
its group insurance policies during such period,

H. ZiLOG shall provide Burger with individual policies which
offer at least the same level of coverage and which impose
not more than the same costs on him as if he were still an
employee of ZiLOG. The foregoing notwithstanding, in the
event that Burger becomes eligible for comparable group
insurance coverage in connection with new employment, the
coverage provided by ZiLOG under this paragraph shall
terminate immediately. Any group health continuation
coverage that ZiLOG is otherwise required to offer under
the Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") shall be offered when coverage under this
paragraph terminates.

Except as provided in the paragraph immediately following,
upon payment of the foregoing items, ZiLOG will have no
further obligation to Burger.

In the event that it is determined that any payment or
distribution of any type to or for the benefit of Burger
made by ZiLOG, any of its affiliates, by any person who
acquires ownership or effective control of ZiLOG or
ownership of a substantial portion of ZiLOG's assets
(within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder
(the "Code") or by any affiliate of such person, whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (the "Total
Payments"), would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with
any such interest or penalties, are collectively referred
to as the "Excise Tax"), then Burger shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount that shall fund the payment by Burger of any Excise
Tax on the Total Payments as well as all income taxes
imposed on the Gross-Up Payment, any Excise Tax imposed on
the Gross-Up Payment and any interest or penalties imposed
with respect to taxes on the Gross-Up Payment or any Excise
Tax.

All mathematical determinations and all determinations of
whether any of the total Payments are "parachute payments"
(within the meaning of Section 280G of the Code) that are
required to be made hereunder, including all determinations
of whether a Gross-Up Payment is required and of the amount
of such Gross-Up Payment, shall be made by the independent
auditors retained by ZiLOG most recently prior to the
Change In Control (the "Auditors"), who shall provide
their determination (the "Determination"), together with
detailed supporting calculations regarding the amount of
any Gross-Up Payment and any other relevant matters, both
to ZiLOG and to Burger within seven (7) business days of
Burger's termination date, if applicable, or such earlier
time as is requested by ZiLOG or by Burger (if Burger
reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Auditors determine that
no Excise Tax is payable by Burger, it shall furnish Burger
with a written statement that such Auditors have concluded
that no Excise Tax is payable (including the reasons
therefor) and that Burger has substantial authority not to
report any Excise Tax on his federal income tax return. If
a Gross-Up Payment is determined to be payable, it shall be
paid to Burger within five (5) business days after the
Determination is delivered to ZiLOG or Burger. Any
determination by the Auditors shall be binding upon ZiLOG
and Burger, absent manifest error.

As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination
by the Auditors hereunder, it is possible that Gross-Up
Payments not made by ZiLOG should have been made
("Underpayments") or that Gross-Up Payments will have been
made by ZiLOG which should not have been made
("Overpayments"). In either event, the Auditors shall
determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the
amount of such Underpayment shall promptly be paid by ZiLOG
to or for the benefit or Burger. In the case of an
Overpayment, the employee shall, at the direction and
expense of ZiLOG, take such steps as are reasonably
necessary (including the filing of returns and claims for
refund), follow reasonable instructions from, and
procedures established by, ZiLOG and otherwise reasonably
cooperate with ZiLOG to correct such Overpayment; provided,
however, that (a) Burger shall in no event be obligated to
return to ZiLOG an amount greater than the net after-tax
portion of the Overpayment that Burger has retained or has
recovered as a refund from the applicable taxing
authorities, and (b) this provision shall be interpreted in
a manner consistent with the intent of this excise tax
restoration provision which is to make Burger whole, on an
after-tax basis, for the application of the Excise Tax, it
being understood that the correction of an Overpayment may
result in Burger's repaying to ZiLOG an amount which is
less than the Overpayment.

8. Burger Representations. Burger represents to ZiLOG that to the
best of his knowledge he is under no obligation to any employer
or third party which would preclude his full, complete and
unfettered discharge of his duties under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in
writing, and if by ZiLOG shall be addressed to Burger as
indicated in ZiLOG's personnel records or such other address as
Burger shall specify in writing, and if by Burger to ZiLOG at:

ZiLOG, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Senior Vice President, Human Resources and Administration

Such addresses may be changed by written notice from either ZiLOG
or Burger, to the other.

10. Amendment. This Agreement may be amended only in writing, signed
by both parties hereto.

11. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon ZiLOG, its successors and assigns.
Burger may not assign, transfer, pledge or hypothecate any of his
rights or obligations hereunder, Awards or payouts under EPIP or
the Executive Bonus or other compensation to which he may be
entitled hereunder. ZiLOG will require any successor (whether
direct or indirect, by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the
business and/or assets of ZiLOG to assume expressly and agree, in
substance and form satisfactory to Burger, to perform this
Agreement in the same manner and to the same extent ZiLOG would
be required to perform it if no succession had taken place.

12. Waiver of Breach. The waiver by ZiLOG or by Burger of a breach
of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by
the other party.

13. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or
enforceability of any other provision hereof.

14. Entire Agreement. This entire Agreement consists of this
document, together with the following documents:

A. EPIP, to be attached as Exhibit I when finalized;

B. Executive Bonus, to be attached as Exhibit II when finalized;

C. ZiLOG 1998 Executive Officer Stock Incentive Plan, attached as Exhibit III

D. Employee Proprietary Rights and Non-Disclosure Agreement, attached as
Exhibit IV;

E. Conflict of Interest Statement, attached as Exhibit V;

F. Policy on Business Ethics, attached as Exhibit VI; and

G. PM60-05, attached as Exhibit VII.

15. Governing Law. This Employment Agreement shall be governed by
the laws of the State of California, without regard to conflict
of laws principles.

Executed effective November 20, 1998
---------------------
(DATE)

By: /s/ Michael Burger By: /s/ Steven C. Mizell
-------------------------- ---------------------
Michael Burger Steven C. Mizell

Dated: November 20, 1998 Dated: November 20, 1988

Exhibit 10.10

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between ZiLOG, Inc., a Delaware corporation
(hereinafter "ZiLOG") and Shlomo Waser (hereinafter "Waser"), whereby ZiLOG and
Waser agree that Waser accepts employment as Senior Vice President and General
Manager Integrated Controls of ZiLOG, under the following terms and conditions:

1. Term. ZiLOG and Waser agree that Waser will be Senior Vice President and
General Manager Integrated Controls of ZiLOG for a period of twenty-four (24)
months, commencing on your date of hire. This Agreement may be extended upon
written agreement of ZiLOG and Waser. If during the term of this Agreement a
"Change in Control" of ZiLOG occurs, the term of this Agreement will be
extended for a period of twenty four (24) months commencing on the earlier of
the effective date of the Change in Control or the date this Agreement would
otherwise expire; provided, however, in the case of a Change in Control that
is subject to an agreement that is executed before the date this Agreement
would otherwise expire but becomes effective on a closing date that will
occur after the date this Agreement would otherwise expire, there will be no
such automatic twenty-four month extension if the closing date does not occur
within six (6) months after the date this Agreement would otherwise expire.
Under these circumstances the term of this Agreement shall be extended six
(6) months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:

(i) A change in the composition of the board of directors of ZiLOG, Inc.,
as a result of which fewer than two-thirds of the incumbent directors
are directors who either:

(a) had been directors of ZiLOG, Inc. twenty-four (24) months prior
to such change; or

(b) were elected, or nominated for election, to the board of
directors of ZiLOG, Inc. with the affirmative votes of at least a
majority of the directors who had been directors of ZiLOG, inc.
twenty-four (24) months prior to such change and who were still
in office at the time of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and 14(d) of the
Exchange Act) other than ZiLOG, Inc. (or its designee), by the
acquisition or aggregation of securities is or becomes the beneficial
owner, directly or indirectly of securities of ZiLOG, Inc. representing
twenty percent (20%) or more of the combined voting power of ZiLOG,
Inc.'s then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at
elections of directors;

(iii) the sale of all or substantially all of the assets of ZiLOG, Inc. to a
third party who is not an affiliate (including a parent or subsidiary)
of ZiLOG, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation, sale,
reorganization, dissolution or other such event or series of events,
which in the opinion of a majority of the members of the board of
ZiLOG, Inc. (as reflected in a written resolution of the board of
ZiLOG, inc.) has resulted in a change of control of ZiLOG, Inc.

2. Extent of Services. Waser shall devote his entire time, attention and
energies to his position as Senior Vice President and General Manager
Integrated Controls of ZiLOG and shall not, during the term of this
Employment Agreement, be engaged in any other business activity, except as
set forth below, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage; provided, that Waser may engage in: 1)
personal investment activities: or 2) service on Boards of Directors of other
companies; consistent with ZiLOG's Conflict of Interest policy; or 3)
advisory and community activities that do not affect his time commitment to
ZiLOG.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or cause to be
paid, to Waser the sum of at least $18,750.00 as base salary. Such
sum will be paid in monthly installments or such other normal periodic
payment schedule as ZiLOG may establish for its executives. Waser's
salary will be reviewed periodically in accordance with established
salary review procedures and adjustments to his salary, if any, will be
based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan. Waser
will be eligible to receive Awards and Payouts in accordance with the
terms of the ZiLOG Employee Performance Incentive Plan (hereinafter
"EPIP"), and the EPIP Executive Bonus Plan (hereinafter "Executive
Bonus") as such plans may be modified from time to time and as
modified by this Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to Waser stock
options under the 1998 Long Term Incentive Plan (hereinafter "EOSIP"),
a copy of such plan being attached hereto. Vesting will continue in
accordance with the plan provisions during the term of this Agreement.

4. Benefits. As an employee of ZiLOG, Waser will be entitled to such benefits
as ZiLOG normally provides its executives. In addition, ZiLOG will provide
Waser with Directors and officers (D&O) insurance in an amount deemed
appropriate by the Company for his level of responsibility.

5. Company Policies. Waser agrees to be bound by all ZiLOG published Company
Policies applicable to its employees including but not limited to Business
Ethics, Conflict of interest, Proprietary Information and Antitrust
Compliance, and he agrees to sign any such reasonable documents as ZiLOG
requests evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate the
employment of Waser at any time during the term of this Agreement, for any
reason or for no reason, with or without cause, by giving Waser at least
thirty (30) days written notice of such termination or compensation in lieu
of notice; and Waser may terminate his employment by giving at least thirty
(30) days written notice to ZiLOG. ZiLOG reserves the right to accelerate
any deferred resignation date given it by Waser, and any such acceleration of
such date will not alter the character of such termination from voluntary to
involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, ZiLOG's obligations to Waser, if his employment
with ZiLOG is terminated prior to the end of this Agreement, shall be as
follows:

A. If Waser voluntarily resigns his employment for 1) other than Good
Reason (as defined in paragraph 7.B. below) or 2) other than Retirement
(as defined in Paragraph 7.C. below) or 3) other than the sale, merger
or change in ownership of ZiLOG (as defined in paragraph 7.G. below)
prior to the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) payouts under EPIP which become payable to Waser
pursuant to the terms of EPIP prior to the effective date of
resignation, and (3)
payouts under the Executive Bonus which become payable to Waser
pursuant to the terms of the Executive Bonus prior to the effective
date of resignation. Upon payment of the foregoing items, ZiLOG will
have no further obligation to Waser.

B. If Waser voluntarily resigns his employment for Good Reason, as defined
herein, prior to the termination date of this Agreement, he will be
entitled to the benefits provided in Paragraph 7.D. below. Good
Reason, as used herein, shall mean:

(i) a reduction in Waser's authority, responsibility or status as
Senior Vice President And General Manager Integrated Controls
such that Waser ceases to be an "officer" as that term is
defined in the regulations under Section 16 of the Securities
Exchange Act of 1934;

(ii) a reduction in Waser's base salary other than in connection with
a general reduction applicable to the Senior Vice Presidents of
ZiLOG who are members of the Executive Committee;

(iii) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the Deferred
Compensation Plan, or those that may occur for the ZiLOG employee
group in general in accord with a general policy change;

(iv) a requirement to relocate, except for the office relocations that
would not increase Waser's one-way commute distance by more than
20 miles;

(v) any material breach of this Agreement on the part of ZiLOG not
fully remedied by ZiLOG within sixty (60) days after written
notice by Waser of such breach.

C. If Waser retires as defined in PM60-05 prior to the termination date of
this Agreement, he will be entitled to the following at the effective
date of retirement: (1) base salary then due and owing for services
previously performed, (2) payouts under EPIP for Awards made prior to
the effective date of the retirement, and 3) payouts under the
Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
ZiLOG's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, ZiLOG will have no
further obligation to Waser.

D. If ZiLOG terminates Waser's employment during the term of this
Agreement other than for 1) Cause or Detrimental Activity as defined in
7.E. below, or 2) the sale, merger or change in ownership of ZiLOG (as
defined in paragraph 7.G. below) he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are payable
to Waser pursuant to the terms of EPIP prior to expiration of the term
of this Agreement, and (3) payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment which
payouts are payable to Waser pursuant to the terms of the Executive
Bonus prior to expiration of the term of this Agreement. Waser will
not be eligible for Awards under EPIP or the Executive Bonus made after
the date on which his employment at ZiLOG ceased or for payouts made on
any Awards after the expiration date of this Agreement. Vesting of
stock options granted under EOSIP will continue for the period
remaining in the Agreement. Upon the payment of the foregoing items,
ZiLOG will have no further obligation to Waser.

E. If ZiLOG terminates Waser during the term of this Agreement for Cause,
or for Detrimental Activity as defined herein, ZiLOG will have no
further monetary obligation to Waser other than: (1) any base salary
then due and owing for services previously performed, 2) payouts under
EPIP which become payable to Waser pursuant to the terms of EPIP prior
to the effective date of termination, and (3) payouts under the
Executive Bonus which become payable to Waser pursuant to the terms of
the Executive Bonus prior to the effective date of termination. Cause
or Detrimental Activity shall be a willful violation of a major company
policy, conviction of any criminal or civil law involving moral
turpitude, willful misconduct which results in a material reduction in
Waser's effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.

F. If Waser ceases to be an employee of ZiLOG during the term of this
Agreement because of total and permanent disability or death, ZiLOG's
obligations to Waser or his beneficiaries will be limited solely to:
(1) any base salary then due and owing for services previously
performed, (2) payouts in accordance with the terms of EPIP, (3)
payouts in accordance with the terms of the Executive Bonus and 4) any
benefits including EOSIP benefits normally provided by ZiLOG it its
employees due to or on account of total and permanent disability or
death.

G. If Waser leaves his employment, either voluntarily for Good Reason or
involuntarily for reasons other than for Cause or Detrimental Activity,
following the effective date of a Change in Control prior to the
termination date of this Agreement, he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, payable in a cash lump sum not more than five (5)
business days following the date of leaving employment, (2) payouts
under EPIP for Awards made prior to the effective date of termination
of employment, and (3) payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment. EPIP
and Executive Bonuses shall also be awarded for the year in which the
termination of employment occurs and shall be calculated in accordance
with the terms of such arrangements assuming the date of Waser's
termination is the last day of ZiLOG's fiscal year and based on ZiLOG's
financial performance for the portion of such fiscal year that includes
calculated financials for ZiLOG as a separate entity. All of the above
EPIP and Executive Bonus Awards shall be paid in a cash lump sum within
five (5) business days of the date of Waser's termination of
employment. All outstanding unvested stock options whether granted
under EOSIP or otherwise will continue to vest for the period of time
remaining in the Agreement (the "Continuation Period"). Regardless of
the provisions of EOSIP or any other plans or agreements, the
Continuation Period shall be counted as employment with ZiLOG for
purposes of vesting under all options and for purposes of determining
the expiration date of any stock options held by Waser when his
employment terminates. During the remaining term of this Agreement
Waser (and, where applicable, his dependents) shall be entitled to
continue participation in the group insurance plans maintained by
ZiLOG, including life, disability and health insurance programs, as if
he were still an employee of ZiLOG. To the extend that ZiLOG finds it
impossible to cover Waser under its group insurance policies during
such period,

H. ZiLOG shall provide Waser with individual policies which offer at least
the same level of coverage and which impose not more than the same
costs on him as if he were still an employee of ZiLOG. The foregoing
notwithstanding, in the event that Waser becomes eligible for
comparable group insurance coverage in connection with new employment,
the coverage provided by ZiLOG under this paragraph shall terminate
immediately. Any group health continuation coverage that ZiLOG is
otherwise required to offer under the Consolidated Omnibus Budget
Reconciliation Act of 1986 ("COBRA") shall be offered when coverage
under this paragraph terminates.

Except as provided in the paragraph immediately following, upon payment
of the foregoing items, ZiLOG will have no further obligation to Waser.

In the event that it is determined that any payment or distribution of
any type to or for the benefit of Waser made by ZiLOG, any of its
affiliates, by any person who acquires ownership or effective control
of ZiLOG or ownership of a substantial portion of ZiLOG's assets
(within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code") or by
any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Total Payments"), would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise Tax"), then
Waser shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount that shall fund the payment by Waser of any
Excise Tax on the Total Payments as well as all income taxes imposed on
the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to taxes on the
Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of whether any
of the total Payments are "parachute payments" (within the meaning of
Section 280G of the Code) that are required to be made hereunder,
including all determinations of whether a Gross-Up Payment is required
and of the amount of such Gross-Up Payment, shall be made by the
independent auditors retained by ZiLOG most recently prior to the
Change In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed supporting
calculations regarding the amount of any Gross-Up Payment and any other
relevant matters, both to ZiLOG and to Waser within seven (7) business
days of Waser's termination date, if applicable, or such earlier time
as is requested by ZiLOG or by Waser (if Waser reasonably believes that
any of the Total Payments may be subject to the Excise Tax). If the
Auditors determine that no Excise Tax is payable by Waser, it shall
furnish Waser with a written statement that such Auditors have
concluded that no Excise Tax is payable (including the reasons
therefor) and that Waser has substantial authority not to report any
Excise Tax on his federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Waser within five (5)
business days after the Determination is delivered to ZiLOG or Waser.
Any determination by the Auditors shall be binding upon ZiLOG and
Waser, absent manifest error.

As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Auditors
hereunder, it is possible that Gross-Up Payments not made by ZiLOG
should have been made ("Underpayments") or that Gross-Up Payments will
have been made by ZiLOG which should not have been made
("Overpayments"). In either event, the Auditors shall determine the
amount of the Underpayment or Overpayment that has occurred. In the
case of an Underpayment, the amount of such Underpayment shall promptly
be paid by ZiLOG to or for the benefit or Waser. In the case of an
Overpayment, the employee shall, at the direction and expense of ZiLOG,
take such steps as are reasonably necessary (including the filing of
returns and claims for refund), follow reasonable instructions from,
and procedures established by, ZiLOG and otherwise reasonably cooperate
with ZiLOG to correct such Overpayment; provided, however, that (a)
Waser shall in no event be obligated to return to ZiLOG an amount
greater than the net after-tax portion of the Overpayment that Waser
has retained or has recovered as a refund from the applicable taxing
authorities, and (b) this provision shall be interpreted in a manner
consistent with the intent of this excise tax restoration provision
which is to make Waser whole, on an after-tax basis, for the
application of the Excise Tax, it being understood that the correction
of an Overpayment may result in Waser's repaying to ZiLOG an amount
which is less than the Overpayment.

8. Waser Representations. Waser represents to ZiLOG that to the best of his
knowledge he is under no obligation to any employer or third party which
would preclude his full, complete and unfettered discharge of his duties
under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in writing,
and if by ZiLOG shall be addressed to Waser as indicated in ZiLOG's personnel
records or such other address as Waser shall specify in writing, and if by
Waser to ZiLOG at:

ZiLOG, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Senior Vice President, Human Resources

Such addresses may be changed by written notice from either ZiLOG or Waser,
to the other.

10. Amendment. This Agreement may be amended only in writing, signed by both
parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon ZiLOG, its successors and assigns. Waser may not assign,
transfer, pledge or hypothecate any of his rights or obligations hereunder,
Awards or payouts under EPIP or the Executive Bonus or other compensation to
which he may be entitled hereunder. ZiLOG will require any successor
(whether direct or indirect, by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the business and/or assets of
ZiLOG to assume expressly and agree, in substance and form satisfactory to
Waser, to perform this Agreement in the same manner and to the same extent
ZiLOG would be required to perform it if no succession had taken place.

12. Waiver of Breach. The waiver by ZiLOG or by Waser of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.

13. Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision
hereof.

14. Entire Agreement. This entire Agreement consists of this document, together
with the following documents:

A. EPIP, to be attached when finalized
B. Executive Bonus Plan, to be attached when finalized
C. ZiLOG 1998 Executive Officer Stock Incentive Plan
D. Employee Proprietary Rights and Non-Disclosure Agreement
E. Conflict of Interest Statement
F. Policy on Business Ethics

15. Governing Law. This Employment Agreement shall be governed by the laws of
the State of California, without regard to conflict of laws principles.

Executed effective _February 1, 1999_
(DATE)

By: /s/ Shlomo Waser By:_/s/ Steven C. Mizell_ _

Dated: _February 1, 1999 Dated: _ February 1, 1999_

Exhibit 10.11

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between Zilog, Inc., a Delaware
corporation (hereinafter "Zilog") and Norman Wu (hereinafter "Wu"),
whereby Zilog and Wu agree that Wu accepts employment as Senior Vice
President and Corporate Strategic Officer of Zilog, under the following
terms and conditions:

1. Term. Zilog and Wu agree that Wu will be Senior Vice President and
Corporate Strategic Officer of Zilog for a period of twenty-four (24) months,
commencing on your date of hire. This Agreement may be extended upon written
agreement of Zilog and Wu. If during the term of this Agreement a "Change
in Control" of Zilog occurs, the term of this Agreement will be extended for
a period of twenty four (24) months commencing on the earlier of the
effective date of the Change in Control or the date this Agreement would
otherwise expire; provided, however, in the case of a Change in Control that
is subject to an agreement that is executed before the date this Agreement
would otherwise expire but becomes effective on a closing date that will
occur after the date this Agreement would otherwise expire, there will be no
such automatic twenty-four month extension if the closing date does not occur
within six (6) months after the date this Agreement would otherwise expire.
Under these circumstances the term of this Agreement shall be extended six
(6) months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:

(i) A change in the composition of the board of directors of Zilog, Inc.,
as a result of which fewer than two-thirds of the incumbent directors
are directors who either:

(a) Had been directors of Zilog, Inc. twenty-four (24) months prior
to such change; or

(b) were elected, or nominated for election, to the board of
directors of Zilog, Inc. with the affirmative votes of at least a
majority of the directors who had been directors of Zilog, inc.
twenty-four (24) months prior to such change and who were still
in office at the time of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and 14(d) of the
Exchange Act) other than Zilog, Inc. (or its designee), by the
acquisition or aggregation of securities is or becomes the beneficial
owner, directly or indirectly of securities of Zilog, Inc. representing
twenty percent (20%) or more of the combined voting power of Zilog,
Inc.'s then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at
elections of directors;

(iii) the sale of all or substantially all of the assets of Zilog, Inc. to a
third party who is not an affiliate (including a parent or subsidiary)
of Zilog, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation, sale,
reorganization, dissolution or other such event or series of events,
which in the opinion of a majority of the members of the board of
Zilog, Inc. (as reflected in a written resolution of the board of
Zilog, inc.) has resulted in a change of control of Zilog, Inc.

2. Extent of Services. Wu shall devote his entire time, attention and energies
to his position as Senior Vice President and Corporate Strategic Officer of
Zilog and shall not, during the term of this Employment Agreement, be engaged
in any other business activity, except as set forth below, whether or not
such business activity is pursued for gain, profit or other pecuniary
advantage; provided, that Wu may engage in: 1) personal investment
activities: or 2) service on Boards of Directors of other companies;
consistent with Zilog's Conflict of Interest policy.

3. Compensation.

A. Salary. For each month of employment, Zilog will pay, or cause to be
paid, to Wu the sum of at least $18,750.00 as base salary. Such sum
will be paid in monthly installments or such other normal periodic
payment schedule as Zilog may establish for its executives. Wu's
salary will be reviewed periodically in accordance with established
salary review procedures and adjustments to his salary, if any, will be
based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan. Wu will
be eligible to receive Awards and Payouts in accordance with the terms
of the Zilog Employee Performance Incentive Plan (hereinafter
"EPIP"), and the EPIP Executive Bonus Plan (hereinafter "Executive
Bonus") as such plans may be modified from time to time and as
modified by this Agreement.

C. Zilog Employee Stock Option Plan. Zilog has provided to Wu stock
options under the 1998 Long Term Incentive Plan (hereinafter "LTIP"),
a copy of such plan being attached hereto. Vesting will continue in
accordance with the plan provisions during the term of this Agreement.

4. Benefits. As an employee of Zilog, Wu will be entitled to such benefits as
Zilog normally provides its executives. In addition, Zilog will provide Wu
with Directors and officers (D&O) insurance in an amount deemed appropriate
by the Company.

5. Company Policies. Wu agrees to be bound by all Zilog Company Policies
applicable to its employees including but not limited to Business Ethics,
Conflict of interest, Proprietary Information and Antitrust Compliance, and
he agrees to sign any such documents as Zilog requests evidencing such
agreement.

6. Termination of Employment. Zilog reserves the right to terminate the
employment of Wu at any time during the term of this Agreement, for any
reason or for no reason, with or without cause, by giving Wu at least thirty
(30) days written notice of such termination or compensation in lieu of
notice; and Wu may terminate his employment by giving at least thirty (30)
days written notice to Zilog. Zilog reserves the right to accelerate any
deferred resignation date given it by Wu, and any such acceleration of such
date will not alter the character of such termination from voluntary to
involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog'' obligations to Wu, if his employment with
Zilog is terminated prior to the end of this Agreement, shall be as follows:

A. If Wu voluntarily resigns his employment for 1) other than Good Reason
(as defined in paragraph 7.B. below) or 2) other than Retirement (as
defined in Paragraph 7.C. below) or 3) other than the sale, merger or
change in ownership of Zilog (as defined in paragraph 7.G. below) prior
to the termination date of this Agreement, he will be entitled to: (1)
base salary then due and owing for services previously performed, (2)
payouts under EPIP which become payable to Wu pursuant to the terms of
EPIP prior to the effective date of resignation, and (3)
B. payouts under the Executive Bonus which become payable to Wu pursuant
to the terms of the Executive Bonus prior to the effective date of
resignation. Upon payment of the foregoing items, Zilog will have no
further obligation to Wu.

C. If Wu voluntarily resigns his employment for Good Reason, as defined
herein, prior to the termination date of this Agreement, he will be
entitled to the benefits provided in Paragraph 7.D. below. Good
Reason, as used herein, shall mean:

(i) a reduction in Wu's authority, responsibility or status as Senior
Vice President and Corporate Strategic Officer such that Wu
ceases to be an "officer" as that term is defined in the
regulations under Section 16 of the Securities Exchange Act of
1934;

(ii) a reduction in Wu's base salary other than in connection with a
general reduction applicable to the Senior Vice Presidents of
Zilog who are members of the Executive Committee;

(iii) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the Deferred
Compensation Plan, or those that may occur for the Zilog employee
group in general in accord with a general policy change;

(iv) a requirement to relocate, except for the office relocations that
would not increase Wu's one-way commute distance by more than 20
miles;

(v) any material breach of this Agreement on the part of Zilog not
fully remedied by Zilog within sixty (to) days after written
notice by Wu of such breach.

D. If Wu retires as defined in PM60-05 prior to the termination date of
this Agreement, he will be entitled to the following at the effective
date of retirement: (1) base salary then due and owing for services
previously performed, (2) payouts under EPIP for Awards made prior to
the effective date of the retirement, and 3) payouts under the
Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
Zilog's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, Zilog will have no
further obligation to Wu.

E. If Zilog terminates Wu's employment during the term of this Agreement
other than for 1) Cause or Detrimental Activity as defined in 7.E.
below, or 2) the sale, merger or change in ownership of Zilog (as
defined in paragraph 7.G. below) he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are payable
to Wu pursuant to the terms of EPIP prior to expiration of the term of
this Agreement, and (3) payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment which
payouts are payable to Wu pursuant to the terms of the Executive Bonus
prior to expiration of the term of this Agreement. Wu will not be
eligible for Awards under EPIP or the Executive Bonus made after the
date on which his employment at Zilog ceased of for payouts made on any
Awards after the expiration date of this Agreement. Vesting of stock
options granted under LTIP will continue for the period remaining in
the Agreement. Upon the payment of the foregoing items, Zilog will
have no further obligation to Wu.

F. If Zilog terminates Wu during the term of this Agreement for Cause, or
for Detrimental Activity as defined herein, Zilog will have no further
monetary obligation to Wu other than: (1) any base salary then due and
owing for services previously performed, 2) payouts under EPIP which
become payable to Wu pursuant to the terms of EPIP prior to the
effective date of termination, and (3) payouts under the Executive
Bonus which become payable to Wu pursuant to the terms of the Executive
Bonus prior to the effective date of termination. Cause or Detrimental
Activity shall be a willful violation of a major company policy,
conviction of any criminal or civil law involving moral turpitude,
willful misconduct which results in a material reduction in Wu's
effectiveness in the performance of his duties, or willful and reckless
disregard for the best interests of the Company.

G. If Wu ceases to be an employee of Zilog during the term of this
Agreement because of total and permanent disability or death, Zilog's
obligations to Wu or his beneficiaries will be limited solely to: (1)
any base salary then due and owing for services previously performed,
(2) payouts in accordance with the terms of EPIP, (3) payouts in
accordance with the terms of the Executive Bonus and 4) any benefits
including LTIP benefits normally provided by Zilog it its employees due
to or on account of total and permanent disability or death.

H. If Wu leaves his employment, either voluntarily for Good Reason or
involuntarily for reasons other than for Cause or Detrimental Activity,
following the effective date of a Change in Control prior to the
termination date of this Agreement, he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, payable in a cash lump sum not more than five (5)
business days following the date of leaving employment, (2) payouts
under EPIP for Awards made prior to the effective date of termination
of employment, and (3) payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment. EPIP
and Executive Bonuses shall also be awarded for the year in which the
termination of employment occurs and shall be calculated in accordance
with the terms of such arrangements assuming the date of Wu's
termination is the last day of Zilog's fiscal year and based on Zilog's
financial performance for the portion of such fiscal year that includes
calculated financials for Zilog as a separate entity. All of the above
EPIP and Executive Bonus Awards shall be paid in a cash lump sum within
five (5) business days of the date of Wu's termination of employment.
All outstanding unvested stock options whether granted under LTIP or
otherwise will continue to vest for the period of time remaining in the
Agreement (the "Continuation Period"). Regardless of the provisions
of LTIP or any other plans or agreements, the Continuation Period shall
be counted as employment with Zilog for purposes of vesting under all
options and for purposes of determining the expiration date of any
stock options held by Wu when his employment terminates. During the
remaining term of this Agreement Wu (and, where applicable, his
dependents) shall be entitled to continue participation in the group
insurance plans maintained by Zilog, including life, disability and
health insurance programs, as if he were still an employee of Zilog.
To the extend that Zilog finds it impossible to cover Wu under its
group insurance policies during such period,

I. Zilog shall provide Wu with individual policies which offer at least
the same level of coverage and which impose not more than the same
costs on him as if he were still an employee of Zilog. The foregoing
notwithstanding, in the event that Wu becomes eligible for comparable
group insurance coverage in connection with new employment, the
coverage provided by Zilog under this paragraph shall terminate
immediately. Any group health continuation coverage that Zilog is
otherwise required to offer under the Consolidated Omnibus Budget
Reconciliation Act of 1986 ("COBRA") shall be offered when coverage
under this paragraph terminates.

Except as provided in the paragraph immediately following, upon payment
of the foregoing items, Zilog will have no further obligation to Wu.

In the event that it is determined that any payment or distribution of
any type to or for the benefit of Wu made by Zilog, any of its
affiliates, by any person who acquires ownership or effective control
of Zilog or ownership of a substantial portion of Zilog's assets
(within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code")) or by
any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Total Payments"), would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise Tax"), then Wu
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount that shall fund the payment by Wu of any Excise
Tax on the Total Payments as well as all income taxes imposed on the
Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment and
any interest or penalties imposed with respect to taxes on the Gross-Up
Payment or any Excise Tax.

All mathematical determinations and all determinations of whether any
of the total Payments are "parachute payments" (within the meaning of
Section 280G of the Code) that are required to be made hereunder,
including all determinations of whether a Gross-Up Payment is required
and of the amount of such Gross-Up Payment, shall be made by the
independent auditors retained by Zilog most recently prior to the
Change In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matters, both to Zilog and to Wu within seven
(7) business days of Wu's termination date, if applicable, or such
earlier time as is requested by Zilog or by Wu (if Wu reasonably
believes that any of the Total Payments may be subject to the Excise
Tax). If the Auditors determine that no Excise Tax is payable by Wu,
it shall furnish Wu with a written statement that such Auditors have
concluded that no Excise Tax is payable (including the reasons
therefor) and that Wu has substantial authority not to report any
Excise Tax on his federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Wu within five (5)
business days after the Determination is delivered to Zilog or Wu. Any
determination by the Auditors shall be binding upon Zilog and Wu,
absent manifest error.

As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Auditors
hereunder, it is possible that Gross-Up Payments not made by Zilog
should have been made ("Underpayments") or that Gross-Up Payments
will have been made by Zilog which should not have been made
("Overpayments"). In either event, the Auditors shall determine the
amount of the Underpayment or Overpayment that has occurred. In the
case of an Underpayment, the amount of such Underpayment shall promptly
be paid by Zilog to or for the benefit or Wu. In the case of an
Overpayment, the employee shall, at the direction and expense of Zilog,
take such steps as are reasonably necessary (including the filing of
returns and claims for refund), follow reasonable instructions from,
and procedures established by, Zilog and otherwise reasonably cooperate
with Zilog to correct such Overpayment; provided, however, that (a) Wu
shall in no event be obligated to return to Zilog an amount greater
than the net after-tax portion of the Overpayment that Wu has retained
or has recovered as a refund from the applicable taxing authorities,
and (b) this provision shall be interpreted in a manner consistent with
the intent of this excise tax restoration provision which is to make Wu
whole, on an after-tax basis, for the application of the Excise Tax, it
being understood that the correction of an Overpayment may result in
Wu's repaying to Zilog an amount which is less than the Overpayment.

8. Wu Representations. Wu represents to Zilog that to the best of his knowledge
he is under no obligation to any employer or third party which would preclude
his full, complete and unfettered discharge of his duties under this
Agreement.

9. Notices. Any notices required to be given hereunder shall be in writing,
and if by Zilog shall be addressed to Wu as indicated in Zilog's personnel
records or such other address as Wu shall specify in writing, and if by Wu to
Zilog at:

Zilog, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Vice President, Human Resources

Such addresses may be changed by written notice from either Zilog or Wu, to
the other.

10. Amendment. This Agreement may be amended only in writing, signed by both
parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon Zilog, its successors and assigns. Wu may not assign, transfer,
pledge or hypothecate any of his rights or obligations hereunder, Awards or
payouts under EPIP or the Executive Bonus or other compensation to which he
may be entitled hereunder. Zilog will require any successor (whether direct
or indirect, by purchase, merger, consolidation, liquidation or otherwise) to
all or substantially all of the business and/or assets of Zilog to assume
expressly and agree, in substance and form satisfactory to Wu, to perform
this Agreement in the same manner and to the same extent Zilog would be
required to perform it if no succession had taken place.

12. Waiver of Breach. The waiver by Zilog of a breach of any provision of this
Agreement by Wu shall not operate or be construed as a waiver of any
subsequent breach by Wu.

13. Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision
hereof.

14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:

A. EPIP, to be attached as Exhibit I when finalized;
B. Executive Bonus, to be attached as Exhibit II when finalized;
C. Zilog 1998 Long Term Incentive Plan, to be attached as Exhibit III when
finalized;
D. Employee Proprietary Rights and Non-Disclosure Agreement, attached as
Exhibit IV;
E. Conflict of Interest Statement, attached as Exhibit V;
F. Statement addressed to "Human Resources," attached as Exhibit VI;
G. Policy on Business Ethics, attached as Exhibit VII; and
H. PM60-05, attached as Exhibit VIII.

15. Governing Law. This Employment Agreement shall be governed by the laws of
the State of California, without regard to conflict of laws principles.

Executed effective: June 15, 1998
-------------------
(DATE)

By: /s/ W. Norman Wu By: /s/ Curtis J. Crawford

Dated: June 15, 1998 Dated: June 15, 1998

Exhibit 10.12

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between Zilog, Inc., a Delaware corporation
(hereinafter "Zilog") and Jerry Corvino (hereinafter "Corvino"),
whereby Zilog and Corvino agree that Corvino accepts employment as Senior
Vice President and Chief Information Officer of Zilog, under the following
terms and conditions:

1. Term. Zilog and Corvino agree that Corvino will be Senior Vice
President and Chief Information Officer of Zilog for a period of
twenty-four (24) months, commencing on 6-1-98 and ending 5-31-00.
This Agreement may be extended upon written agreement of Zilog and
Corvino. If during the term of this Agreement a "Change in
Control" of Zilog occurs, the term of this Agreement will be
extended for a period of twenty four (24) months commencing on the
earlier of the effective date of the Change in Control or the date
this Agreement would otherwise expire; provided, however, in the
case of a Change in Control that is subject to an agreement that is
executed before the date this Agreement would otherwise expire but
becomes effective on a closing date that will occur after the date
this Agreement would otherwise expire, there will be no such
automatic twenty-four month extension if the closing date does not
occur within six (6) months after the date this Agreement would
otherwise expire. Under these circumstances the term of this
Agreement shall be extended six (6) months from the date it would
otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean
the occurrence of any of the following events:

(i) A change in the composition of the board of directors of
Zilog, Inc., as a result of which fewer than two-thirds of the
incumbent directors are directors who either:

(a) Had been directors of Zilog, Inc. twenty-four (24)
months prior to such change; or

(b) were elected, or nominated for election, to the board of
directors of Zilog, Inc. with the affirmative votes of
at least a majority of the directors who had been
directors of Zilog, inc. twenty-four (24) months prior
to such change and who were still in office at the time
of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and
14(d) of the Exchange Act) other than Zilog, Inc. (or its
designee), by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly of
securities of Zilog, Inc. representing twenty percent (20%) or
more of the combined voting power of Zilog, Inc.'s then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors;

(iii) the sale of all or substantially all of the assets of Zilog,
Inc. to a third party who is not an affiliate (including a
parent or subsidiary) of Zilog, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation,
sale, reorganization, dissolution or other such event or
series of events, which in the opinion of a majority of the
members of the board of Zilog, Inc. (as reflected in a written
resolution of the board of Zilog, inc.) has resulted in a
change of control of Zilog, Inc.

2. Extent of Services. Corvino shall devote his entire time, attention
and energies to his position as Senior Vice President and Chief
Information Officer of Zilog and shall not, during the term of this
Employment Agreement, be engaged in any other business activity,
except as set forth below, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; provided,
that Corvino may engage in: 1) personal investment activities: or 2)
service on Boards of Directors of other companies; consistent with
Zilog's Conflict of Interest policy.

3. Compensation.

A. Salary. For each month of employment, Zilog will pay, or
cause to be paid, to Corvino the sum of at least $18,750.00
as base salary. Such sum will be paid in monthly installments
or such other normal periodic payment schedule as Zilog may
establish for its executives. Corvino's salary will be
reviewed periodically in accordance with established salary
review procedures and adjustments to his salary, if any, will
be based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan.
Corvino will be eligible to receive Awards and Payouts in
accordance with the terms of the Zilog Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.

C. Zilog Employee Stock Option Plan. Zilog has provided to
Corvino stock options under the 1998 Long Term Incentive Plan
(hereinafter "LTIP"), a copy of such plan being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement.

4. Benefits. As an employee of Zilog, Corvino will be entitled to such
benefits as Zilog normally provides its executives. In addition,
Zilog will provide Corvino with Directors and officers (D&O)
insurance in an amount deemed appropriate by the Company.

5. Company Policies. Corvino agrees to be bound by all Zilog Company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as
Zilog requests evidencing such agreement.

6. Termination of Employment. Zilog reserves the right to terminate
the employment of Corvino at any time during the term of this
Agreement, for any reason or for no reason, with or without cause,
by giving Corvino at least thirty (30) days written notice of such
termination or compensation in lieu of notice; and Corvino may
terminate his employment by giving at least thirty (30) days written
notice to Zilog. Zilog reserves the right to accelerate any
deferred resignation date given it by Corvino, and any such
acceleration of such date will not alter the character of such
termination from voluntary to involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of
this Agreement to the contrary, Zilog'' obligations to Corvino, if
his employment with Zilog is terminated prior to the end of this
Agreement, shall be as follows:

A. If Corvino voluntarily resigns his employment for 1) other
than Good Reason (as defined in paragraph 7.B. below) or 2)
other than Retirement (as defined in Paragraph 7.C. below) or
3) other than the sale, merger or change in ownership of Zilog
(as defined in paragraph 7.G. below) prior to the termination
date of this Agreement, he will be entitled to: (1) base
salary then due and owing for services previously performed,
(2) payouts under EPIP which become payable to Corvino
pursuant to the terms of EPIP prior to the effective date of
resignation, and (3)
B. payouts under the Executive Bonus which become payable to
Corvino pursuant to the terms of the Executive Bonus prior to
the effective date of resignation. Upon payment of the
foregoing items, Zilog will have no further obligation to
Corvino.

C. If Corvino voluntarily resigns his employment for Good Reason,
as defined herein, prior to the termination date of this
Agreement, he will be entitled to the benefits provided in
Paragraph 7.D. below. Good Reason, as used herein, shall
mean:

(i) a reduction in Corvino's authority, responsibility or
status as Senior Vice President and Chief Information
Officer such that Corvino ceases to be an "officer" as
that term is defined in the regulations under Section 16
of the Securities Exchange Act of 1934;

(ii) a reduction in Corvino's base salary other than in
connection with a general reduction applicable to the
Senior Vice Presidents of Zilog who are members of the
Executive Committee;

(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the Executive
Bonus, the Deferred Compensation Plan, or those that may
occur for the Zilog employee group in general in accord
with a general policy change;

(iv) a requirement to relocate, except for the office
relocations that would not increase Corvino's one-way
commute distance by more than 20 miles;

(v) any material breach of this Agreement on the part of
Zilog not fully remedied by Zilog within sixty (to) days
after written notice by Corvino of such breach.

D. If Corvino retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to the
following at the effective date of retirement: (1) base
salary then due and owing for services previously performed,
(2) payouts under EPIP for Awards made prior to the effective
date of the retirement, and 3) payouts under the Executive
Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be
granted at Zilog's sole discretion for the year in which the
retirement occurs, prorated to the date of the retirement.
Payouts for all Awards will be made at the same time and on
the same schedule as those for active employees. Upon the
payment of the foregoing items, Zilog will have no further
obligation to Corvino.

E. If Zilog terminates Corvino's employment during the term of
this Agreement other than for 1) Cause or Detrimental Activity
as defined in 7.E. below, or 2) the sale, merger or change in
ownership of Zilog (as defined in paragraph 7.G. below) he
will be entitled to receive the following: (1) the then
current base salary for the period remaining in this
Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are
payable to Corvino pursuant to the terms of EPIP prior to
expiration of the term of this Agreement, and (3) payouts
under the Executive Bonus for Awards made prior to the
effective date of termination of employment which payouts are
payable to Corvino pursuant to the terms of the Executive
Bonus prior to expiration of the term of this Agreement.
Corvino will not be eligible for Awards under EPIP or the
Executive Bonus made after the date on which his employment at
Zilog ceased of for payouts made on any Awards after the
expiration date of this Agreement. Vesting of stock options
granted under LTIP will continue for the period remaining in
the Agreement. Upon the payment of the foregoing items, Zilog
will have no further obligation to Corvino.

F. If Zilog terminates Corvino during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein,
Zilog will have no further monetary obligation to Corvino
other than: (1) any base salary then due and owing for
services previously performed, (2) payouts under EPIP which
become payable to Corvino pursuant to the terms of EPIP prior
to the effective date of termination, and (3) payouts under
the Executive Bonus which become payable to Corvino pursuant
to the terms of the Executive Bonus prior to the effective
date of termination. Cause or Detrimental Activity shall be a
willful violation of a major company policy, conviction of any
criminal or civil law involving moral turpitude, willful
misconduct which results in a material reduction in Corvino's
effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.

G. If Corvino ceases to be an employee of Zilog during the term
of this Agreement because of total and permanent disability or
death, Zilog's obligations to Corvino or his beneficiaries
will be limited solely to: (1) any base salary then due and
owing for services previously performed, (2) payouts in
accordance with the terms of EPIP, (3) payouts in accordance
with the terms of the Executive Bonus and (4) any benefits
including LTIP benefits normally provided by Zilog it its
employees due to or on account of total and permanent
disability or death.

H. If Corvino leaves his employment, either voluntarily for Good
Reason or involuntarily for reasons other than for Cause or
Detrimental Activity, following the effective date of a Change
in Control prior to the termination date of this Agreement, he
will be entitled to receive the following: (1) the then
current base salary for the period remaining in this
Agreement, payable in a cash lump sum not more than five (5)
business days following the date of leaving employment, (2)
payouts under EPIP for Awards made prior to the effective date
of termination of employment, and (3) payouts under the
Executive Bonus for Awards made prior to the effective date of
termination of employment. EPIP and Executive Bonuses shall
also be awarded for the year in which the termination of
employment occurs and shall be calculated in accordance with
the terms of such arrangements assuming the date of Corvino's
termination is the last day of Zilog's fiscal year and based
on Zilog's financial performance for the portion of such
fiscal year that includes calculated financials for Zilog as a
separate entity. All of the above EPIP and Executive Bonus
Awards shall be paid in a cash lump sum within five (5)
business days of the date of Corvino's termination of
employment. All outstanding unvested stock options whether
granted under LTIP or otherwise will continue to vest for the
period of time remaining in the Agreement (the "Continuation
Period"). Regardless of the provisions of LTIP or any other
plans or agreements, the Continuation Period shall be counted
as employment with Zilog for purposes of vesting under all
options and for purposes of determining the expiration date of
any stock options held by Corvino when his employment
terminates. During the remaining term of this Agreement
Corvino (and, where applicable, his dependents) shall be
entitled to continue participation in the group insurance
plans maintained by Zilog, including life, disability and
health insurance programs, as if he were still an employee of
Zilog. To the extend that Zilog finds it impossible to cover
Corvino under its group insurance policies during such period,

I. Zilog shall provide Corvino with individual policies which
offer at least the same level of coverage and which impose not
more than the same costs on him as if he were still an
employee of Zilog. The foregoing notwithstanding, in the
event that Corvino becomes eligible for comparable group
insurance coverage in connection with new employment, the
coverage provided by Zilog under this paragraph shall
terminate immediately. Any group health continuation coverage
that Zilog is otherwise required to offer under the
Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") shall be offered when coverage under this
paragraph terminates.

Except as provided in the paragraph immediately following,
upon payment of the foregoing items, Zilog will have no
further obligation to Corvino.

In the event that it is determined that any payment or
distribution of any type to or for the benefit of Corvino made
by Zilog, any of its affiliates, by any person who acquires
ownership or effective control of Zilog or ownership of a
substantial portion of Zilog's assets (within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the "Code")) or by any
affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments"), would be
subject to the excise tax imposed by section 4999 of the Code
or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise
Tax"), then Corvino shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount that
shall fund the payment by Corvino of any Excise Tax on the
Total Payments as well as all income taxes imposed on the
Gross-Up Payment, any Excise Tax imposed on the Gross-Up
Payment and any interest or penalties imposed with respect to
taxes on the Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of
whether any of the total Payments are "parachute payments"
(within the meaning of Section 280G of the Code) that are
required to be made hereunder, including all determinations of
whether a Gross-Up Payment is required and of the amount of
such Gross-Up Payment, shall be made by the independent
auditors retained by Zilog most recently prior to the Change
In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters, both to Zilog and to
Corvino within seven (7) business days of Corvino's
termination date, if applicable, or such earlier time as is
requested by Zilog or by Corvino (if Corvino reasonably
believes that any of the Total Payments may be subject to the
Excise Tax). If the Auditors determine that no Excise Tax is
payable by Corvino, it shall furnish Corvino with a written
statement that such Auditors have concluded that no Excise Tax
is payable (including the reasons therefor) and that Corvino
has substantial authority not to report any Excise Tax on his
federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Corvino within
five (5) business days after the Determination is delivered to
Zilog or Corvino. Any determination by the Auditors shall be
binding upon Zilog and Corvino, absent manifest error.

As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Auditors hereunder, it is possible that Gross-Up Payments not
made by Zilog should have been made ("Underpayments") or
that Gross-Up Payments will have been made by Zilog which
should not have been made ("Overpayments"). In either
event, the Auditors shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of
an Underpayment, the amount of such Underpayment shall
promptly be paid by Zilog to or for the benefit or Corvino.
In the case of an Overpayment, the employee shall, at the
direction and expense of Zilog, take such steps as are
reasonably necessary (including the filing of returns and
claims for refund), follow reasonable instructions from, and
procedures established by, Zilog and otherwise reasonably
cooperate with Zilog to correct such Overpayment; provided,
however, that (a) Corvino shall in no event be obligated to
return to Zilog an amount greater than the net after-tax
portion of the Overpayment that Corvino has retained or has
recovered as a refund from the applicable taxing authorities,
and (b) this provision shall be interpreted in a manner
consistent with the intent of this excise tax restoration
provision which is to make Corvino whole, on an after-tax
basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in
Corvino's repaying to Zilog an amount which is less than the
Overpayment.

8. Corvino Representations. Corvino represents to Zilog that to the
best of his knowledge he is under no obligation to any employer or
third party which would preclude his full, complete and unfettered
discharge of his duties under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in
writing, and if by Zilog shall be addressed to Corvino as indicated
in Zilog's personnel records or such other address as Corvino shall
specify in writing, and if by Corvino to Zilog at:

Zilog, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Vice President, Human Resources

Such addresses may be changed by written notice from either Zilog or
Corvino, to the other.

10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon Zilog, its successors and assigns. Corvino
may not assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
Zilog will require any successor (whether direct or indirect, by
purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all of the business and/or assets of Zilog to assume
expressly and agree, in substance and form satisfactory to Corvino,
to perform this Agreement in the same manner and to the same extent
Zilog would be required to perform it if no succession had taken
place.

12. Waiver of Breach. The waiver by Zilog of a breach of any provision
of this Agreement by Corvino shall not operate or be construed as a
waiver of any subsequent breach by Corvino.

13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.

14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:

A. EPIP, to be attached as Exhibit I when finalized;
B. Executive Bonus, to be attached as Exhibit II when finalized;
C. Zilog 1998 Long Term Incentive Plan, to be attached as Exhibit
III when finalized;
D. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit IV;
E. Conflict of Interest Statement, attached as Exhibit V;
F. Statement addressed to "Human Resources," attached as Exhibit
VI;
G. Policy on Business Ethics, attached as Exhibit VII; and
H. PM60-05, attached as Exhibit VIII.

15. Governing Law. This Employment Agreement shall be governed by the
laws of the State of California, without regard to conflict of laws
principles.

Executed effective: June 1, 1998
-----------------
(DATE)

By: /s/ Gerald J. Corvino By: /s/ Curtis J. Crawford

Dated: June 1, 1998 Dated: June 1, 1998

Exhibit 10.13

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between ZiLOG, Inc., a Delaware corporation
(hereinafter "ZiLOG") and Robert G. Couch (hereinafter "Couch"),
whereby ZiLOG and Couch agree that Couch accepts employment as Senior Vice
President and Corporate Communications Officer of ZiLOG, under the
following terms and conditions:

1. Term. ZiLOG and Couch agree that Couch will be Senior Vice
President and Corporate Communications Officer of ZiLOG for a period
of twenty-four (24) months, commencing on your date of hire. This
Agreement may be extended upon written agreement of ZiLOG and Couch.
If during the term of this Agreement a "Change in Control" of
ZiLOG occurs, the term of this Agreement will be extended for a
period of twenty four (24) months commencing on the earlier of the
effective date of the Change in Control or the date this Agreement
would otherwise expire; provided, however, in the case of a Change
in Control that is subject to an agreement that is executed before
the date this Agreement would otherwise expire but becomes effective
on a closing date that will occur after the date this Agreement
would otherwise expire, there will be no such automatic twenty-four
month extension if the closing date does not occur within six (6)
months after the date this Agreement would otherwise expire. Under
these circumstances the term of this Agreement shall be extended six
(6) months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean
the occurrence of any of the following events:

(i) A change in the composition of the board of directors of
ZiLOG, Inc., as a result of which fewer than two-thirds of the
incumbent directors are directors who either:

(a) Had been directors of ZiLOG, Inc. twenty-four (24)
months prior to such change; or

(b) were elected, or nominated for election, to the board of
directors of ZiLOG, Inc. with the affirmative votes of
at least a majority of the directors who had been
directors of ZiLOG, inc. twenty-four (24) months prior
to such change and who were still in office at the time
of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and
14(d) of the Exchange Act) other than ZiLOG, Inc. (or its
designee), by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly of
securities of ZiLOG, Inc. representing twenty percent (20%) or
more of the combined voting power of ZiLOG, Inc.'s then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors;

(iii) the sale of all or substantially all of the assets of ZiLOG,
Inc. to a third party who is not an affiliate (including a
parent or subsidiary) of ZiLOG, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation,
sale, reorganization, dissolution or other such event or
series of events, which in the opinion of a majority of the
members of the board of ZiLOG, Inc. (as reflected in a written
resolution of the board of ZiLOG, inc.) has resulted in a
change of control of ZiLOG, Inc.

2. Extent of Services. Couch shall devote his entire time, attention
and energies to his position as Senior Vice President and Corporate
Communications Officer of ZiLOG and shall not, during the term of
this Employment Agreement, be engaged in any other business
activity, except as set forth below, whether or not such business
activity is pursued for gain, profit or other pecuniary advantage;
provided, that Couch may engage in: 1) personal investment
activities: or 2) service on Boards of Directors of other companies;
consistent with ZiLOG's Conflict of Interest policy.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or
cause to be paid, to Couch the sum of at least $16,667.00 as
base salary. Such sum will be paid in monthly installments or
such other normal periodic payment schedule as ZiLOG may
establish for its executives. Couch's salary will be reviewed
periodically in accordance with established salary review
procedures and adjustments to his salary, if any, will be
based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan.
Couch will be eligible to receive Awards and Payouts in
accordance with the terms of the ZiLOG Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to Couch
stock options under the 1998 Long Term Incentive Plan
(hereinafter "LTIP"), a copy of such plan being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement.

4. Benefits. As an employee of ZiLOG, Couch will be entitled to such
benefits as ZiLOG normally provides its executives. In addition,
ZiLOG will provide Couch with Directors and Officers (D&O) insurance
in an amount deemed appropriate by the Company.

5. Company Policies. Couch agrees to be bound by all ZiLOG Company
Policies applicable to its employees including but not limited to
Business Ethics, Conflict of interest, Proprietary Information and
Antitrust Compliance, and he agrees to sign any such documents as
ZiLOG requests evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate
the employment of Couch at any time during the term of this
Agreement, for any reason or for no reason, with or without cause,
by giving Couch at least thirty (30) days written notice of such
termination or compensation in lieu of notice; and Couch may
terminate his employment by giving at least thirty (30) days written
notice to ZiLOG. ZiLOG reserves the right to accelerate any
deferred resignation date given it by Couch, and any such
acceleration of such date will not alter the character of such
termination from voluntary to involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of
this Agreement to the contrary, ZiLOG'' obligations to Couch, if his
employment with ZiLOG is terminated prior to the end of this
Agreement, shall be as follows:

A. If Couch voluntarily resigns his employment for 1) other than
Good Reason (as defined in paragraph 7.B. below) or 2) other
than Retirement (as defined in Paragraph 7.C. below) or 3)
other than the sale, merger or change in ownership of ZiLOG
(as defined in paragraph 7.G. below) prior to the termination
date of this Agreement, he will be entitled to: (1) base
salary then due and owing for services previously performed,
(2) payouts under EPIP which become payable to Couch pursuant
to the terms of EPIP prior to the effective date of
resignation, and (3)
payouts under the Executive Bonus which become payable to
Couch pursuant to the terms of the Executive Bonus prior to
the effective date of resignation. Upon payment of the
foregoing items, ZiLOG will have no further obligation to
Couch.

B. If Couch voluntarily resigns his employment for Good Reason,
as defined herein, prior to the termination date of this
Agreement, he will be entitled to the benefits provided in
Paragraph 7.D. below. Good Reason, as used herein, shall
mean:

(i) a reduction in Couch's authority, responsibility or
status as Senior Vice President and Corporate
Communications Officer such that Couch ceases to be an
"officer" as that term is defined in the regulations
under Section 16 of the Securities Exchange Act of 1934;

(ii) a reduction in Couch's base salary other than in
connection with a general reduction applicable to the
Senior Vice Presidents of ZiLOG who are members of the
Executive Committee;

(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the Executive
Bonus, the Deferred Compensation Plan, or those that may
occur for the ZiLOG employee group in general in accord
with a general policy change;

(iv) a requirement to relocate, except for the office
relocations that would not increase Couch's one-way
commute distance by more than 20 miles;

(v) any material breach of this Agreement on the part of
ZiLOG not fully remedied by ZiLOG within sixty (to) days
after written notice by Couch of such breach.

C. If Couch retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to the
following at the effective date of retirement: (1) base
salary then due and owing for services previously performed,
(2) payouts under EPIP for Awards made prior to the effective
date of the retirement, and 3) payouts under the Executive
Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be
granted at ZiLOG's sole discretion for the year in which the
retirement occurs, prorated to the date of the retirement.
Payouts for all Awards will be made at the same time and on
the same schedule as those for active employees. Upon the
payment of the foregoing items, ZiLOG will have no further
obligation to Couch.

D. If ZiLOG terminates Couch's employment during the term of this
Agreement other than for 1) Cause or Detrimental Activity as
defined in 7.E. below, or 2) the sale, merger or change in
ownership of ZiLOG (as defined in paragraph 7.G. below) he
will be entitled to receive the following: (1) the then
current base salary for the period remaining in this
Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are
payable to Couch pursuant to the terms of EPIP prior to
expiration of the term of this Agreement, and (3) payouts
under the Executive Bonus for Awards made prior to the
effective date of termination of employment which payouts are
payable to Couch pursuant to the terms of the Executive Bonus
prior to expiration of the term of this Agreement. Couch will
not be eligible for Awards under EPIP or the Executive Bonus
made after the date on which his employment at ZiLOG ceased of
for payouts made on any Awards after the expiration date of
this Agreement. Vesting of stock options granted under LTIP
will continue for the period remaining in the Agreement. Upon
the payment of the foregoing items, ZiLOG will have no further
obligation to Couch.

E. If ZiLOG terminates Couch during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein,
ZiLOG will have no further monetary obligation to Couch other
than: (1) any base salary then due and owing for services
previously performed, 2) payouts under EPIP which become
payable to Couch pursuant to the terms of EPIP prior to the
effective date of termination, and (3) payouts under the
Executive Bonus which become payable to Couch pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction of any
criminal or civil law involving moral turpitude, willful
misconduct which results in a material reduction in Couch's
effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.

F. If Couch ceases to be an employee of ZiLOG during the term of
this Agreement because of total and permanent disability or
death, ZiLOG's obligations to Couch or his beneficiaries will
be limited solely to: (1) any base salary then due and owing
for services previously performed, (2) payouts in accordance
with the terms of EPIP, (3) payouts in accordance with the
terms of the Executive Bonus and 4) any benefits including
LTIP benefits normally provided by ZiLOG it its employees due
to or on account of total and permanent disability or death.

G. If Couch leaves his employment, either voluntarily for Good
Reason or involuntarily for reasons other than for Cause or
Detrimental Activity, following the effective date of a Change
in Control prior to the termination date of this Agreement, he
will be entitled to receive the following: (1) the then
current base salary for the period remaining in this
Agreement, payable in a cash lump sum not more than five (5)
business days following the date of leaving employment, (2)
payouts under EPIP for Awards made prior to the effective date
of termination of employment, and (3) payouts under the
Executive Bonus for Awards made prior to the effective date of
termination of employment. EPIP and Executive Bonuses shall
also be awarded for the year in which the termination of
employment occurs and shall be calculated in accordance with
the terms of such arrangements assuming the date of Couch's
termination is the last day of ZiLOG's fiscal year and based
on ZiLOG's financial performance for the portion of such
fiscal year that includes calculated financials for ZiLOG as a
separate entity. All of the above EPIP and Executive Bonus
Awards shall be paid in a cash lump sum within five (5)
business days of the date of Couch's termination of
employment. All outstanding unvested stock options whether
granted under LTIP or otherwise will continue to vest for the
period of time remaining in the Agreement (the "Continuation
Period"). Regardless of the provisions of LTIP or any other
plans or agreements, the Continuation Period shall be counted
as employment with ZiLOG for purposes of vesting under all
options and for purposes of determining the expiration date of
any stock options held by Couch when his employment
terminates. During the remaining term of this Agreement Couch
(and, where applicable, his dependents) shall be entitled to
continue participation in the group insurance plans maintained
by ZiLOG, including life, disability and health insurance
programs, as if he were still an employee of ZiLOG. To the
extend that ZiLOG finds it impossible to cover Couch under its
group insurance policies during such period,

H. ZiLOG shall provide Couch with individual policies which offer
at least the same level of coverage and which impose not more
than the same costs on him as if he were still an employee of
ZiLOG. The foregoing notwithstanding, in the event that Couch
becomes eligible for comparable group insurance coverage in
connection with new employment, the coverage provided by ZiLOG
under this paragraph shall terminate immediately. Any group
health continuation coverage that ZiLOG is otherwise required
to offer under the Consolidated Omnibus Budget Reconciliation
Act of 1986 ("COBRA") shall be offered when coverage under
this paragraph terminates.

Except as provided in the paragraph immediately following,
upon payment of the foregoing items, ZiLOG will have no
further obligation to Couch.

In the event that it is determined that any payment or
distribution of any type to or for the benefit of Couch made
by ZiLOG, any of its affiliates, by any person who acquires
ownership or effective control of ZiLOG or ownership of a
substantial portion of ZiLOG's assets (within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the "Code")) or by any
affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments"), would be
subject to the excise tax imposed by section 4999 of the Code
or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise
Tax"), then Couch shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount that shall fund
the payment by Couch of any Excise Tax on the Total Payments
as well as all income taxes imposed on the Gross-Up Payment,
any Excise Tax imposed on the Gross-Up Payment and any
interest or penalties imposed with respect to taxes on the
Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of
whether any of the total Payments are "parachute payments"
(within the meaning of Section 280G of the Code) that are
required to be made hereunder, including all determinations of
whether a Gross-Up Payment is required and of the amount of
such Gross-Up Payment, shall be made by the independent
auditors retained by ZiLOG most recently prior to the Change
In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters, both to ZiLOG and to
Couch within seven (7) business days of Couch's termination
date, if applicable, or such earlier time as is requested by
ZiLOG or by Couch (if Couch reasonably believes that any of
the Total Payments may be subject to the Excise Tax). If the
Auditors determine that no Excise Tax is payable by Couch, it
shall furnish Couch with a written statement that such
Auditors have concluded that no Excise Tax is payable
(including the reasons therefor) and that Couch has
substantial authority not to report any Excise Tax on his
federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Couch within
five (5) business days after the Determination is delivered to
ZiLOG or Couch. Any determination by the Auditors shall be
binding upon ZiLOG and Couch, absent manifest error.

As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Auditors hereunder, it is possible that Gross-Up Payments not
made by ZiLOG should have been made ("Underpayments") or
that Gross-Up Payments will have been made by ZiLOG which
should not have been made ("Overpayments"). In either
event, the Auditors shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of
an Underpayment, the amount of such Underpayment shall
promptly be paid by ZiLOG to or for the benefit or Couch. In
the case of an Overpayment, the employee shall, at the
direction and expense of ZiLOG, take such steps as are
reasonably necessary (including the filing of returns and
claims for refund), follow reasonable instructions from, and
procedures established by, ZiLOG and otherwise reasonably
cooperate with ZiLOG to correct such Overpayment; provided,
however, that (a) Couch shall in no event be obligated to
return to ZiLOG an amount greater than the net after-tax
portion of the Overpayment that Couch has retained or has
recovered as a refund from the applicable taxing authorities,
and (b) this provision shall be interpreted in a manner
consistent with the intent of this excise tax restoration
provision which is to make Couch whole, on an after-tax basis,
for the application of the Excise Tax, it being understood
that the correction of an Overpayment may result in Couch's
repaying to ZiLOG an amount which is less than the
Overpayment.

8. Couch Representations. Couch represents to ZiLOG that to the best
of his knowledge he is under no obligation to any employer or third
party which would preclude his full, complete and unfettered
discharge of his duties under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in
writing, and if by ZiLOG shall be addressed to Couch as indicated in
ZiLOG's personnel records or such other address as Couch shall
specify in writing, and if by Couch to ZiLOG at:

ZiLOG, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Vice President, Human Resources

Such addresses may be changed by written notice from either ZiLOG or
Couch, to the other.

10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon ZiLOG, its successors and assigns. Couch may
not assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
ZiLOG will require any successor (whether direct or indirect, by
purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all of the business and/or assets of ZiLOG to assume
expressly and agree, in substance and form satisfactory to Couch, to
perform this Agreement in the same manner and to the same extent
ZiLOG would be required to perform it if no succession had taken
place.

12. Waiver of Breach. The waiver by ZiLOG of a breach of any provision
of this Agreement by Couch shall not operate or be construed as a
waiver of any subsequent breach by Couch.

13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.

14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:

A. EPIP, to be attached as Exhibit I when finalized;
B. Executive Bonus, to be attached as Exhibit II when finalized;
C. ZiLOG 1998 Long Term Incentive Plan, to be attached as Exhibit
III when finalized;
D. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit IV;
E. Conflict of Interest Statement, attached as Exhibit V;
F. Policy on Business Ethics, attached as Exhibit VII

15. Governing Law. This Employment Agreement shall be governed by the
laws of the State of California, without regard to conflict of laws
principles.

Executed effective: August 3, 1998
(DATE)

By: /s/ Robert G. Couch By: /s/ Curtis J. Crawford

Dated: August 3, 1998 Dated: August 3, 1998

Exhibit No. 10.14

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between ZiLOG, Inc., a Delaware corporation
(hereinafter "ZiLOG") and Steven Mizell (hereinafter "Mizell"), whereby
ZiLOG and Mizell agree that Mizell accepts employment as Senior Vice
President of Human Resources of ZiLOG, under the following terms and
conditions:

1. Term. ZiLOG and Mizell agree that Mizell will be Senior Vice
President of Human Resources of ZiLOG for a period of twenty-four
(24) months, commencing on your date of hire. This Agreement may be
extended upon written agreement of ZiLOG and Mizell. If during the
term of this Agreement a "Change in Control" of ZiLOG occurs, the
term of this Agreement will be extended for a period of twenty four
(24) months commencing on the earlier of the effective date of the
Change in Control or the date this Agreement would otherwise expire;
provided, however, in the case of a Change in Control that is
subject to an agreement that is executed before the date this
Agreement would otherwise expire but becomes effective on a closing
date that will occur after the date this Agreement would otherwise
expire, there will be no such automatic twenty-four month extension
if the closing date does not occur within six (6) months after the
date this Agreement would otherwise expire. Under these
circumstances the term of this Agreement shall be extended six (6)
months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean
the occurrence of any of the following events:

(i) A change in the composition of the board of directors of
ZiLOG, Inc., as a result of which fewer than two-thirds of the
incumbent directors are directors who either:

(a) had been directors of ZiLOG, Inc. twenty-four (24)
months prior to such change; or

(b) were elected, or nominated for election, to the board of
directors of ZiLOG, Inc. with the affirmative votes of
at least a majority of the directors who had been
directors of ZiLOG, inc. twenty-four (24) months prior
to such change and who were still in office at the time
of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and
14(d) of the Exchange Act) other than ZiLOG, Inc. (or its
designee), by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly of
securities of ZiLOG, Inc. representing twenty percent (20%) or
more of the combined voting power of ZiLOG, Inc.'s then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors;

(iii) the sale of all or substantially all of the assets of ZiLOG,
Inc. to a third party who is not an affiliate (including a
parent or subsidiary) of ZiLOG, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation,
sale, reorganization, dissolution or other such event or
series of events, which in the opinion of a majority of the
members of the board of ZiLOG, Inc. (as reflected in a written
resolution of the board of ZiLOG, inc.) has resulted in a
change of control of ZiLOG, Inc.

2. Extent of Services. Mizell shall devote his entire time, attention
and energies to his position as Senior Vice President Human
Resources of ZiLOG and shall not, during the term of this Employment
Agreement, be engaged in any other business activity, except as set
forth below, whether or not such business activity is pursued for
gain, profit or other pecuniary advantage; provided, that Mizell may
engage in: 1) personal investment activities: or 2) service on
Boards of Directors of other companies; consistent with ZiLOG's
Conflict of Interest policy; or 3) advisory and community activities
that do not affect his time commitment to ZiLOG.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or
cause to be paid, to Mizell the sum of at least $16,667.00 as
base salary. Such sum will be paid in monthly installments or
such other normal periodic payment schedule as ZiLOG may
establish for its executives. Mizell's salary will be
reviewed periodically in accordance with established salary
review procedures and adjustments to his salary, if any, will
be based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan.
Mizell will be eligible to receive Awards and Payouts in
accordance with the terms of the ZiLOG Employee Performance
Incentive Plan (hereinafter "EPIP"), and the EPIP Executive
Bonus Plan (hereinafter "Executive Bonus") as such plans may
be modified from time to time and as modified by this
Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to
Mizell stock options under the 1998 Long Term Incentive Plan
(hereinafter "EOSIP"), a copy of such plan being attached
hereto. Vesting will continue in accordance with the plan
provisions during the term of this Agreement.

4. Benefits. As an employee of ZiLOG, Mizell will be entitled to such
benefits as ZiLOG normally provides its executives. In addition,
ZiLOG will provide Mizell with Directors and officers (D&O)
insurance in an amount deemed appropriate by the Company for his
level of responsibility.

5. Company Policies. Mizell agrees to be bound by all ZiLOG published
Company Policies applicable to its employees including but not
limited to Business Ethics, Conflict of interest, Proprietary
Information and Antitrust Compliance, and he agrees to sign any such
reasonable documents as ZiLOG requests evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate
the employment of Mizell at any time during the term of this
Agreement, for any reason or for no reason, with or without cause,
by giving Mizell at least thirty (30) days written notice of such
termination or compensation in lieu of notice; and Mizell may
terminate his employment by giving at least thirty (30) days written
notice to ZiLOG. ZiLOG reserves the right to accelerate any
deferred resignation date given it by Mizell, and any such
acceleration of such date will not alter the character of such
termination from voluntary to involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of
this Agreement to the contrary, ZiLOG's obligations to Mizell, if
his employment with ZiLOG is terminated prior to the end of this
Agreement, shall be as follows:

A. If Mizell voluntarily resigns his employment for 1) other than
Good Reason (as defined in paragraph 7.B. below) or 2) other
than Retirement (as defined in Paragraph 7.C. below) or 3)
other than the sale, merger or change in ownership of ZiLOG
(as defined in paragraph 7.G. below) prior to the termination
date of this Agreement, he will be entitled to: (1) base
salary then due and owing for services previously performed,
(2) payouts under EPIP which become payable to Mizell pursuant
to the terms of EPIP prior to the effective date of
resignation, and (3)
payouts under the Executive Bonus which become payable to
Mizell pursuant to the terms of the Executive Bonus prior to
the effective date of resignation. Upon payment of the
foregoing items, ZiLOG will have no further obligation to
Mizell.

B. If Mizell voluntarily resigns his employment for Good Reason,
as defined herein, prior to the termination date of this
Agreement, he will be entitled to the benefits provided in
Paragraph 7.D. below. Good Reason, as used herein, shall
mean:

(i) a reduction in Mizell's authority, responsibility or
status as Senior Vice President Human Resources such
that Mizell ceases to be an "officer" as that term is
defined in the regulations under Section 16 of the
Securities Exchange Act of 1934;

(ii) a reduction in Mizell's base salary other than in
connection with a general reduction applicable to the
Senior Vice Presidents of ZiLOG who are members of the
Executive Committee;

(iii) a reduction in form and effect or cessation of any
benefit or compensation plan, except EPIP, the Executive
Bonus, the Deferred Compensation Plan, or those that may
occur for the ZiLOG employee group in general in accord
with a general policy change;

(iv) a requirement to relocate, except for the office
relocations that would not increase Mizell's one-way
commute distance by more than 20 miles;

(v) any material breach of this Agreement on the part of
ZiLOG not fully remedied by ZiLOG within sixty (60) days
after written notice by Mizell of such breach.

C. If Mizell retires as defined in PM60-05 prior to the
termination date of this Agreement, he will be entitled to the
following at the effective date of retirement: (1) base
salary then due and owing for services previously performed,
(2) payouts under EPIP for Awards made prior to the effective
date of the retirement, and 3) payouts under the Executive
Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be
granted at ZiLOG's sole discretion for the year in which the
retirement occurs, prorated to the date of the retirement.
Payouts for all Awards will be made at the same time and on
the same schedule as those for active employees. Upon the
payment of the foregoing items, ZiLOG will have no further
obligation to Mizell.

D. If ZiLOG terminates Mizell's employment during the term of
this Agreement other than for 1) Cause or Detrimental Activity
as defined in 7.E. below, or 2) the sale, merger or change in
ownership of ZiLOG (as defined in paragraph 7.G. below) he
will be entitled to receive the following: (1) the then
current base salary for the period remaining in this
Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are
payable to Mizell pursuant to the terms of EPIP prior to
expiration of the term of this Agreement, and (3) payouts
under the Executive Bonus for Awards made prior to the
effective date of termination of employment which payouts are
payable to Mizell pursuant to the terms of the Executive Bonus
prior to expiration of the term of this Agreement. Mizell
will not be eligible for Awards under EPIP or the Executive
Bonus made after the date on which his employment at ZiLOG
ceased or for payouts made on any Awards after the expiration
date of this Agreement. Vesting of stock options granted
under EOSIP will continue for the period remaining in the
Agreement. Upon the payment of the foregoing items, ZiLOG
will have no further obligation to Mizell.

E. If ZiLOG terminates Mizell during the term of this Agreement
for Cause, or for Detrimental Activity as defined herein,
ZiLOG will have no further monetary obligation to Mizell other
than: (1) any base salary then due and owing for services
previously performed, 2) payouts under EPIP which become
payable to Mizell pursuant to the terms of EPIP prior to the
effective date of termination, and (3) payouts under the
Executive Bonus which become payable to Mizell pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction of any
criminal or civil law involving moral turpitude, willful
misconduct which results in a material reduction in Mizell's
effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.

F. If Mizell ceases to be an employee of ZiLOG during the term of
this Agreement because of total and permanent disability or
death, ZiLOG's obligations to Mizell or his beneficiaries will
be limited solely to: (1) any base salary then due and owing
for services previously performed, (2) payouts in accordance
with the terms of EPIP, (3) payouts in accordance with the
terms of the Executive Bonus and 4) any benefits including
EOSIP benefits normally provided by ZiLOG it its employees due
to or on account of total and permanent disability or death.

G. If Mizell leaves his employment, either voluntarily for Good
Reason or involuntarily for reasons other than for Cause or
Detrimental Activity, following the effective date of a Change
in Control prior to the termination date of this Agreement, he
will be entitled to receive the following: (1) the then
current base salary for the period remaining in this
Agreement, payable in a cash lump sum not more than five (5)
business days following the date of leaving employment, (2)
payouts under EPIP for Awards made prior to the effective date
of termination of employment, and (3) payouts under the
Executive Bonus for Awards made prior to the effective date of
termination of employment. EPIP and Executive Bonuses shall
also be awarded for the year in which the termination of
employment occurs and shall be calculated in accordance with
the terms of such arrangements assuming the date of Mizell's
termination is the last day of ZiLOG's fiscal year and based
on ZiLOG's financial performance for the portion of such
fiscal year that includes calculated financials for ZiLOG as a
separate entity. All of the above EPIP and Executive Bonus
Awards shall be paid in a cash lump sum within five (5)
business days of the date of Mizell's termination of
employment. All outstanding unvested stock options whether
granted under EOSIP or otherwise will continue to vest for the
period of time remaining in the Agreement (the "Continuation
Period"). Regardless of the provisions of EOSIP or any other
plans or agreements, the Continuation Period shall be counted
as employment with ZiLOG for purposes of vesting under all
options and for purposes of determining the expiration date of
any stock options held by Mizell when his employment
terminates. During the remaining term of this Agreement
Mizell (and, where applicable, his dependents) shall be
entitled to continue participation in the group insurance
plans maintained by ZiLOG, including life, disability and
health insurance programs, as if he were still an employee of
ZiLOG. To the extend that ZiLOG finds it impossible to cover
Mizell under its group insurance policies during such period,

H. ZiLOG shall provide Mizell with individual policies which
offer at least the same level of coverage and which impose not
more than the same costs on him as if he were still an
employee of ZiLOG. The foregoing notwithstanding, in the
event that Mizell becomes eligible for comparable group
insurance coverage in connection with new employment, the
coverage provided by ZiLOG under this paragraph shall
terminate immediately. Any group health continuation coverage
that ZiLOG is otherwise required to offer under the
Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") shall be offered when coverage under this
paragraph terminates.

Except as provided in the paragraph immediately following,
upon payment of the foregoing items, ZiLOG will have no
further obligation to Mizell.

In the event that it is determined that any payment or
distribution of any type to or for the benefit of Mizell made
by ZiLOG, any of its affiliates, by any person who acquires
ownership or effective control of ZiLOG or ownership of a
substantial portion of ZiLOG's assets (within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the "Code") or by any
affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments"), would be
subject to the excise tax imposed by section 4999 of the Code
or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise
Tax"), then Mizell shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount that shall fund
the payment by Mizell of any Excise Tax on the Total Payments
as well as all income taxes imposed on the Gross-Up Payment,
any Excise Tax imposed on the Gross-Up Payment and any
interest or penalties imposed with respect to taxes on the
Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of
whether any of the total Payments are "parachute payments"
(within the meaning of Section 280G of the Code) that are
required to be made hereunder, including all determinations of
whether a Gross-Up Payment is required and of the amount of
such Gross-Up Payment, shall be made by the independent
auditors retained by ZiLOG most recently prior to the Change
In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters, both to ZiLOG and to
Mizell within seven (7) business days of Mizell's termination
date, if applicable, or such earlier time as is requested by
ZiLOG or by Mizell (if Mizell reasonably believes that any of
the Total Payments may be subject to the Excise Tax). If the
Auditors determine that no Excise Tax is payable by Mizell, it
shall furnish Mizell with a written statement that such
Auditors have concluded that no Excise Tax is payable
(including the reasons therefor) and that Mizell has
substantial authority not to report any Excise Tax on his
federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Mizell within
five (5) business days after the Determination is delivered to
ZiLOG or Mizell. Any determination by the Auditors shall be
binding upon ZiLOG and Mizell, absent manifest error.

As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Auditors hereunder, it is possible that Gross-Up Payments not
made by ZiLOG should have been made ("Underpayments") or
that Gross-Up Payments will have been made by ZiLOG which
should not have been made ("Overpayments"). In either
event, the Auditors shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of
an Underpayment, the amount of such Underpayment shall
promptly be paid by ZiLOG to or for the benefit or Mizell. In
the case of an Overpayment, the employee shall, at the
direction and expense of ZiLOG, take such steps as are
reasonably necessary (including the filing of returns and
claims for refund), follow reasonable instructions from, and
procedures established by, ZiLOG and otherwise reasonably
cooperate with ZiLOG to correct such Overpayment; provided,
however, that (a) Mizell shall in no event be obligated to
return to ZiLOG an amount greater than the net after-tax
portion of the Overpayment that Mizell has retained or has
recovered as a refund from the applicable taxing authorities,
and (b) this provision shall be interpreted in a manner
consistent with the intent of this excise tax restoration
provision which is to make Mizell whole, on an after-tax
basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in
Mizell's repaying to ZiLOG an amount which is less than the
Overpayment.

8. Mizell Representations. Mizell represents to ZiLOG that to the best
of his knowledge he is under no obligation to any employer or third
party which would preclude his full, complete and unfettered
discharge of his duties under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in
writing, and if by ZiLOG shall be addressed to Mizell as indicated
in ZiLOG's personnel records or such other address as Mizell shall
specify in writing, and if by Mizell to ZiLOG at:

ZiLOG, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Senior Vice President, Human Resources

Such addresses may be changed by written notice from either ZiLOG or
Mizell, to the other.

10. Amendment. This Agreement may be amended only in writing, signed by
both parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon ZiLOG, its successors and assigns. Mizell
may not assign, transfer, pledge or hypothecate any of his rights or
obligations hereunder, Awards or payouts under EPIP or the Executive
Bonus or other compensation to which he may be entitled hereunder.
ZiLOG will require any successor (whether direct or indirect, by
purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all of the business and/or assets of ZiLOG to assume
expressly and agree, in substance and form satisfactory to Mizell,
to perform this Agreement in the same manner and to the same extent
ZiLOG would be required to perform it if no succession had taken
place.

12. Waiver of Breach. The waiver by ZiLOG or by Mizell of a breach of
any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other
party.

13. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision hereof.

14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:

A. EPIP, to be attached as Exhibit I when finalized;
B. Executive Bonus, to be attached as Exhibit II when finalized;
C. ZiLOG 1998 Executive Officer Stock Incentive Plan, attached as
Exhibit III
D. Employee Proprietary Rights and Non-Disclosure Agreement,
attached as Exhibit IV;
E. Conflict of Interest Statement, attached as Exhibit V;
F. Policy on Business Ethics, attached as Exhibit VI; and
G. PM60-05, attached as Exhibit VII.

15. Governing Law. This Employment Agreement shall be governed by the
laws of the State of California, without regard to conflict of laws
principles.

Executed effective October 16, 1998
(DATE)

By: /s/ Steven C. Mizell By: /s/ Curtis J. Crawford
Dated: October 16, 1998 Dated: October 16, 1998

Exhibit No. 10.15

EMPLOYMENT AGREEMENT

AGREEMENT dated as of the First day of March 1998 (the "Agreement"), among
ZILOG, Inc., a Delaware Corporation (the "Employee), and Curtis I Crawford (the
"Employee").

1. Employment, Duties and Agreement.

(a) The Employer hereby agrees to cause the Employee to be
elected as a member of the Board of Directors of the Employer and to
employ the Employee as President and Chief Executive Officer of the
Employer and the Employee hereby accepts such positions and agrees to
serve the Employer in such capacities during the employment period fixed
by Section 5 hereof (the "Employment") Period"). The Employee shall at
all times during the Employment Period be a member of the Board of
Directors of the Employer (the "Board") and shall serve on each committee
concerned with the strategic direction of the Employer. The Employee
shall report only to the Board. The Employee's responsibilities and
authority shall be such responsibilities and authority as are customarily
held by chief executive officers of corporations comparable to the
Employer. During the Employment Period, the Employee shall be subject to,
and shall act in accordance with. all reasonable instructions and
directions of the Board and all applicable policies and rules thereof as
are consistent with the above job titles and the other provisions of this
Agreement.

(b) During the Employment Period, excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee
shall devote his full business time to the performance of his duties and
responsibilities hereunder, except as provided in Section 1(c) below.

(c) During the Employment Period. the Employee may not,
without the prior written consent of the Board, operate. participate in
the management, operations or control of. or act as an employee, officer.
consultant, agent or representative of, any type of business or service
(other than as an employee of the Employer). Notwithstanding the
foregoing. the Employee shall be entitled (without obtaining the written
consent of the Board) to (i) act or serve as a director on the boards of
directors of any other company or any type of civil. cultural,
philanthropic and professional organization and (ii) without limiting the
generality of the foregoing, the Employee shall be entitled to serve on
the boards of directors of the three companies upon whose boards he
currently serves (ie., Lyondell Petrochemical Company, I-Stat Corporation
and ITT Industries, Inc.), so long as such service (described in clauses
(i) and (ii) above) does not detract from the Employee's performance of
his duties and responsibilities to the Employer as provided hereunder.
The Employee may also decide to resign from one of the boards described
in clause (ii) above and serve on the Dupont Board of Directors. Except
as described in this Section 1(c),

The Employee shall not provide any services to any other entity during
the Employment Period without the consent of the Board.

2. Compensation.

(a) As compensation for the agreements made by the Employee
herein and the performance by the Employee of his obligations hereunder
during the Employment Period, the Employer shall pay the Employee,
pursuant to the Employer's normal and customary payroll procedures (but
not less than monthly). a base salary at the rate of $800,000 per annum
(the "'Base Salary). Each year during the Employment Period, the Employee
shall be considered for an increase in his salary based on the Employee's
performance.

(b) In addition to the Base Salary, the Employee shall receive
a bonus of at least $600,000 for 1998, which shall be deemed earned and
paid in January, 1999. The Board of Directors may elect to award a larger
bonus for 1998 in its discretion, based on the Employee's performance.
For each year during the Employment Period after 1998, (i) the Board of
Directors will establish target bonuses for the Employee, each of which
shall be a minimum of $600,000 if certain performance objectives are
achieved and (ii) each year the Board will consider increasing the
Employee's minimum target bonus based on his performance.

(c) The Employer shall pay Eight Million Dollars
($8,000,000.00) to the Employee, together with interest from January 6,
1998 until paid at the rate of eight percent (8%) per annum, compounded
annually (the "$8 Million Bonus"). The $8 Million Bonus shall be paid on
January 2, 2002 or, at the Employee's election, on the later of January
1, 1999 or the first to occur of the following events: (i) Change in
Control of the Employer (as defined in Section 5(d)(ii) herein); (ii) the
sale of any class of stock of the Employer to the public wherein the
Employer receives gross proceeds of at least $20 million (other than a
sale exclusively to then existing shareholders of the Employer)
(HEREINAFTER REFERRED TO AS A "PUBLIC OFFERING"); or (iii) as provided in
Section 7(g) below. On or prior to December 1, 1998, the Employer and the
Employee shall enter into a separate deferred compensation plan with
respect to the $8 Million Bonus, the terms of which shall be mutually
agreed upon by the Employer and the Employee, which will (x) supersede
this Agreement with respect to the $8 Million Bonus and (y) permit the
Employee to elect to receive the $8 Million Bonus it a time later than
the time currently permitted herein.

(d) The Employer will pay to the Employee the sum of One
Million Dollars ($1,000,000.00) as soon as practicable after February 27,
1998. Such payment, subject only to such condition, is fully earned by
the Employee on the date hereof and not subject to any other condition,
except as provided in Section 2(f).

(e) The Employer shall grant $50,000 shares of the voting
common stock of the Employer on each of May 1, 1998, 1999, 2000, and 2001
(a total of 200,000 shares), provided that the number of shares of voting
common stock granted shall be adjusted proportionately in the event of
any stock split, combination, exchange or recapitalization having a
similar effect, other than the 4 for 1 stock split, occurring February
27, 1998. Such shares shall become fully deliverable (all 200,000 shares)
and vested on the earliest to occur of (i) a Change in Control of the
Employer (as defined in Section 5(d)(ii) herein), (ii) the Employee
ceasing to be employed by the Employer for any reason, subject to Section
2(f) below, or (iii) a Public Offering.

(f) The parties agree that the payments and stock grants
provided in Sections 2(c) through 2(e) are fully earned by the Employee
as of January 6, 1998 and at not subject to any condition or restriction,
except a provided in the following subsection 2(f)(i) and 2(f)(ii) below.

(i) Notwithstanding any provision in this Agreement, the
Employee shall not be entitled to receive the $8 Million
Bonus or any portion thereof if he terminates this Agreement
pursuant to Section 5(f) below prior to January 1, 1999. If
the Employee terminates this Agreement on or after January 1,
1999, he shall be fully vested in and receive full pay out of
the $8 Million Bonus in accordance with the terms of the
deferred compensation payment plan if and when such plan is
adopted, in accordance with Section 2(c) herein.

(ii) Notwithstanding any provision in this Agreement, the
Employee shall promptly return to the Employer, as
appropriate, All payments made to him pursuant to Sections
2(c) ad 2(d) and any shares of Employer stock issued to him
pursuant to Section 2(e), and the Employee shall forfeit any
compensation and shares which have not been paid or delivered
to him hereunder if, prior to January 6, 1999, the Employee
both terminates the Employment Period pursuant to Section
5(f) below and without the written consent of the Employer
becomes employed by Microelectronics Group, of Lucent
Technologies, Inc. (the "Former Employer") (other than on
account of the acquisition of an interest in the Employer by
the Former Employer).

(g) On or prior to March 30, 1998 the Employer, shall grant
the Employee options, in form reasonably satisfactory to the Employee, to
purchase 1,000,000 shares of the voting common stock of the Employer
(subject to restrictions on exercise as provided below) and which expire
ten years after the date of the grant of the options, provided that the
number of options granted and the exercise price for such options shall
be adjusted proportionately in the event of any stock split, combination,
exchange or recapitalization having a similar effect. The exercise price
for 500,000 shares of such stock shall be $5 per share (the "$5 Option")
and the price for the other 500,000 shares shall be $10 per share (the
"$10 Option"). The $5 option and the $10 option shall each become
exercisable on follows: (1) 62,500 shares under each Option shall be
immediately exercisable, (ii) 62,500 shares under each Option on December
31, 1998, and (iii) 31,250 shares under each Option at the end of each
calendar quarter in each of calendar years 1999, 2000, and 2001, provided
that the Employee is employed by the Employer on the date such options
become exercisable. Notwithstanding the foregoing, the options shall
become immediately exercisable upon the occurrence of any of the events
described in Sections 5(a), 5(b), 5(d), and 5(e), or in the event of a
Public Offering. Each year during the Employment Period, the Employee
shall be considered for grants of additional stock options based on the
Employee's performance.

3. Benefits.

During the Employment Period, the Employee shall be entitled
to the following expense reimbursements and benefits and perquisites:

(a) a suitable automobile. which shall be replaced with a new
automobile once every two years and all reasonable expenses associated
with the automobile. including but not limited to, liability insurance;

(b) customary directors' and officers' liability insurance
for the Employee, the other members of the Board and the other executives
of the Employer, and with respect to the Employee's activities on behalf
of the Employer, an indemnity in accordance with Section 9 herein;

(c) the Employer will adopt (and the Board will approve)
savings, retirement and incentive plans for its senior executive officers
which have been recommended by the Employee and are reasonably acceptable
to the Board, and the Employee will be entitled to fully participate on
the same basis as other senior executives;

(d) the Employer will adopt (and the Board will approve) such
qualified and nonqualified stock option plans for its senior executive
officers and others, which have been recommended by the Employee and are
reasonably acceptable to the Board, and the Employee will be entitled to
participate fully in the award of options under such plans on the same
basis as other senior executives; and

(e) the Employee and/or the Employee's family, as the case
may be, shall be eligible for participation in, and shall receive all
benefits under the medical, dental, life and disability insurance plans
which are at least equivalent in amounts and coverage to that which is
customary for chief executive officers in the Employer's industry. Should
such amounts and coverage described in this subsection (e), in any area,
be materially less, or cost the Employee materially more, than the
amounts and coverage the Employee enjoyed with the Former Employer
immediately prior to his resignation therefrom, the Employer will, at the
Employee's election, provide him with the equivalent coverage and
amounts, and at the same cost to the Employee, as he enjoyed with the
Former Employer, but only if, in the Employer's reasonable judgment, the
extra cost of doing so is not excessive and the providing of such extra
benefits does not unduly disrupt the continuity or effectiveness of
similar benefits made available to other senior executives of the
Employer. Evidence of insurability shall be waived, although the Employee
will agree to a standard physical examination.

(f) During the Employment Period, the Employee shall be
entitled to paid vacation of at least four (4) weeks per year. The
Employee shall have the unlimited right to carry over unused vacation
days and sick days and similar benefits consistent with the policies
applicable to other senior executives of the Employer

(g) The Employer will pay or reimburse the Employee for
reasonable expenses incurred by the Employee in promoting the business of
the Employer and in attending professional and educational events which
are reasonably related to the business of the Employer. Such expenses may
include, at the Employee's election, initiation payments and dues, at
such clubs as the Employee shall reasonably request.

(h) During the Employment Period. the Employer shall furnish
the Employee with a home computer system and shall assist the Employee in
integrating the system with the Employer's computer systems.

4. Relocation.

(a) The Employee will relocate from his New Jersey home to a
home selected by him in Northern California. The Employee shall perform
his obligations to the Employer from a base in Northern California, and
shall not be required to relocate again during the term of this
Agreement, although he shall travel as required by his duties hereunder.

(b) The Employer will pay the following relocation expenses
incurred by the Employee in connection with his move to California, all
of which shall be "grossed up" so that there will be no after-tax
consequences to the Employee of having received the following relocation
benefits:

(i) the Employee's reasonable relocation costs to
California, including moving costs;

(ii) the cost of appropriate temporary quarters for the
Employee and his immediate family in California from the
date of his employment with the Employer until he moves into
a new home in California, but in no event later than
December 31, 1998;

(iii) reasonable travel to and from California and New
Jersey for the Employee and his immediate family for a
period of two years from January 6, 1998, and lodging, meals
and related expenses for the Employee and his immediate
family until he moves into a permanent home in California;
and

(iv) the Employer will cause the Employee's New Jersey
home to be purchased for its appraised value (as determined
by an independent appraiser mutually agreed upon by the
parties) no later than six (6) months after the date the
Employee puts the home on the market. If the Employee sells
his house in an arms length transaction with the consent of
the Employer for less than such amount before that time, the
Employer shall pay him the difference between such appraised
value and the proceeds of the sale.

5. Employment Period.

The Employment Period shall commence on February 27, 1998
(the "Effective Date') and shall terminate on the day
preceding the fifth anniversary of the Effective Date (the
"Scheduled Termination Date"); provided, however, that the
Employee's employment hereunder may be terminated during the
Employment Period prior to the Scheduled Termination Date
upon the earliest to occur of the following events (at which
time the Employment Period shall be terminated):

(a) Death. The Employee's employment hereunder shall terminate
upon his death.

(b) Disability. The Employer or the Employee shall be
entitled to terminate the Employee's employment hereunder for Disability.
For purposes of this Agreement the term "Disability" shall mean that, as
a result of the Employee's incapacity due to physical or mental illness,
the Employee shall have been unable to perform his material duties
hereunder for a period of six (6) consecutive months.

(c) Cause. The Employer may terminate the Employee's
employment hereunder for Cause. For purposes of this Agreement, the term
"Cause" shall mean: (i) the willful and continued failure of the Employee
substantially to perform the Employee's duties under this Agreement
(other than as a result of physical or mental illness or injury), after
the Board delivers to the Employee a written demand for substantial
performance that specifically identifies the manner in which the Board
believes that the Employee has not substantially performed the Employee's
duties hereunder and the failure of the Employee to cease such willful
and continued failure within 30 days after having received such demand;
and (ii) conviction of a felony involving moral turpitude.

(d) Good Reason. The Employee may terminate his employment
hereunder for Good Reason (and such termination shall be treated as if it
were a termination by the Employer without Cause, and not a voluntary
termination by the Employee).

(i) For purposes of this Agreement, the term "Good
Reason" shall mean (A) the Employer has committed a material
breach of this Agreement and has not cured such breach within
30 days notice of such breach from the Employee or (B) the
Employee elects to terminate his employment within one year
after a Change in Control (other than on account of a Public
Offering).

(ii) For purposes of this Agreement, the term "Change
in Control" of the Employer shall mean the occurrence of any
of the following events: (A) any sale, lease, exchange or
other transfer (in one transaction or a series of related
transactions. directly or indirectly) of all or substantially
all of the assets of the Employer to any Person (as defined
below) or group of related persons for purposes of Section
13(d) of the Securities Exchange Act of 1934 (a "Group'),
together with any affiliates thereof (other than to TPG
Partners II. L.P. ("TPG") or any of its affiliates, unless
the transfer to TPG and its affiliates is part of a larger
transaction which would otherwise came a Change in Control to
occur); (B) the approval by the holders of capital stock of
the Employer of any plan or proposal for the liquidation or
dissolution of the Employer; (C) any Person or Group (other
than TPG or its affiliates) shall become the owner, directly
or indirectly, beneficially or of record, of shares
representing more of the aggregate voting power of the issued
and outstanding stock entitled to vote in the elections of
directors (the "Voting Stock") of the Employer than TPG and
its affiliates own, directly or indirectly, beneficially or
of record; (D) the replacement of a majority of the Board
over a two-year period from the directors who constituted the
Board at the beginning of such two-year period and such
replacement shall not have been approved by a vote of at
least a majority of the Board then still in office who either
were members of such Board at the beginning of such two year
period or whose election as a member of such Board was
previously so approved or who were nominated by, or designees
of, TPG or its Affiliates; (E) any Person or Group other than
TPG or its affiliates shall have acquired the power to elect
a majority of the members of the Board; or (F) a merger or
consolidation of the Employer with another entity in which
holders of the common stock of the Employer immediately prior
to the consummation of the transaction hold, directly or
indirectly, immediately following the consummation of the
transaction less than 50% of the common equity interest in
the surviving corporation in such transaction.

(iii) For purposes of this Agreement, the term "Person" shall
mean any individual, partnership, corporation, limited
liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political
subdivision thereof.

(e) Without Cause. The Employer may terminate the Employee's
employment hereunder without Cause.

(f) Without Good Reason. The Employee may terminate his employment
hereunder without Good Reason.

6. Termination Procedure.

(a) Notice of Termination. Any termination of the Employee's
employment by the Employer or by the Employee during the Employment
Period (other than termination pursuant to Section 5(a) ) shall be
communicated by written Notice of Termination to the other party hereto
in accordance with Section 15(a). For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the
provision so indicated and shall attach or reference any prior notices
required under Section 5.

(b) Date of Termination. For purposes of this Agreement,
"Date of Termination" shall mean (i) if the Employee's employment is
terminated by his death, the date of his death, (ii) if the Employee's
employment is terminated pursuant to Section 5(b), thirty (30) days after
Notice of Termination (provided that the Employee shall not have returned
to the substantial performance of his duties on a full-time basis during
such thirty (30) day period), (iii) if the Employee's employment is
terminated pursuant to Section 5(f), a date specified in the Notice of
Termination; and if the Employee's employment is terminated for any other
reason, the date on which a Notice of Termination is given or any later
date (within thirty (30) days (or any alternative time period agreed upon
by the parties) after the giving of such notice) set forth in such Notice
of Termination.

7. Termination Payments.

(a) Death. In the event of the termination of the Employee's
employment during the Employment period as a result of the Employee's
death, the Employee shall be entitled to all base salary carried to date
but unpaid, together with a bonus equal to the prior year's bonus (or, if
applicable, the 1998 bonus), prorated for the year of death. All stock
options of the Employee which have not become exercisable will be
automatically exercisable in full, and both those options and any other
stock options the Employee holds shall remain exercisable until the later
of the dates set forth in subclauses (A) and (B) of subclause (e)(ii) of
this Section 7.

(b) Disability. In the event of the termination of the
Employee's employment during the Employment Period as a result of the
Employee's Disability, the Employee shall be entitled to the benefits in
Section 3(e) for a period of five years thereafter and shall be further
entitled to the same benefits set forth in Section 7(a) above.

(c) For Cause. In the event of the termination of the
Employee's employment during the Employment Period by the Employer for
Cause, the Employee shall be entitled to his base salary earned prior to
the date of termination, and all stock options which have not become
exercisable shall immediately expire as of the commencement of business
on the date of termination. In addition, all stock options which are
exercisable on the date of termination must be exercised within six
months after the date of termination, otherwise, they shall expire and be
void.

(d) For Good Reason. In the event of the termination of the
Employee's employment during the Employment Period by the Employee for
Good Reason, such termination shall be deemed a termination by the
Employer without cause and the Employee shall be entitled to the same
payments and other benefits as are set forth in paragraph (e) of this
Section 7.

(e) Without Cause. In the event of the termination of the
Employee's employment during the Employment Period by the Employer
without Cause (i) (A) prior to or on April 1, 1999, the Employer shall as
a condition to termination, pay the Employee an amount equal to
$2,400,000 (three times his base salary), plus $1,800,000 (three times
his first year's minimum bonus), or (13) after April 1, 1999, the
Employer shall as a condition to termination, pay the Employee an amount
equal to two times the base salary (but based on a base salary of no less
than $800,000) earned by the Employee during the preceding twelve months
plus two times the last bonus (but based on a bonus of no less than
$600,000) paid to the Employee; and (ii) all stock options held by the
Employee which have not become exercisable will automatically become
exercisable in full, and both those stock options and any other stock
options the Employee holds shall remain exercisable until the later of
(A) December 31, 2004 or (B) the earlier of (1) ten years from the date
of grant or (2) a Public Offering of voting common stock of the Employer
after the date of termination.

(f) Without Good Reason. In the event of the termination of
the Employee's employment during the Employment Period by the Employee
without Good Reason, the Employee shall be entitled to his unpaid base
salary earned prior to the date of termination, and all stock options
which were exercisable immediately prior to such date of termination
shall remain exercisable until 24 months after the date of termination.
All stock options which were not exercisable at the date of termination
shall lapse, and the Employee shall have no right to exercise them at any
time.

(g) Bonus Payment. In addition to the payments provided in
Sections 7(a) through 7(f) above, and to the extent not inconsistent
therewith upon the Employee ceasing to be an employee of the Employer,
(i) he shall be entitled to such payouts and benefits under then existing
Employer retirement and other fringe benefit programs (excluding any
severance plans or arrangements) as are normally provided by the Employer
to its senior level employees in similar circumstances, and (ii) the $8
Million Bonus (including accrued interest to the date of payment) shall,
at the option of the Employee become due and payable in full on the later
of the date of termination or September 1, 1999, in the event of a
termination pursuant to this Section 7; provided that such payment shall
be subject to Section 2(f) and provided further that in the event of a
termination pursuant to Section 7(f), the Employer shall pay the payment
on the later of the date of termination or September 1, 1999, at the
Employee's election, provided that the Employer can pay such amount
without violating the provisions of any lending agreement it then has
with an institutional lender unaffiliated with TPG. If such amount cannot
be paid on such date by reason of the foregoing, the Employer shall pay
such amount as soon as possible, but in no event later than January 2,
2002

8. No Offset: Excise Tax.

(a) The payments and other consideration to the Employee
under this Agreement shall be made without offset or deduction of any
kind by the Employer, except customary deductions for taxes and other
deductions required by law.

(b) The amounts to which the Employee is entitled hereunder
shall be increased to the extent necessary to pay (i) any excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") on any portion of the compensation or benefits payable to
the Employee in connection with a Change in Control of the Employer and
(ii) any such excise tax and any other taxes imposed by the Code or under
state or local law on the payments provided for in this Section 8(b). The
Employee and the Employer agree to reasonably cooperate to mitigate the
amount of any such tax that might become payable. The Employer shall pay
to the Employee the payments, or portions thereof, provided for in this
Section 8(b) not later am fifteen (15) days prior to the date on which
such taxes, or portions thereof, are due as determined by the tax counsel
referred to below. Tax counsel (hereinafter "Tax Counsel') selected by
the Employer and reasonably acceptable to the Employee shall determine
whether the increase provided for by this Section 8(b) shall be required,
based on the actual tax rates to which the Employee is subject at the
time. The Employee shall provide Tax Counsel with the information that
such counsel reasonably requests in connection with such determination.
All determinations of Tax Counsel shall be binding on the Employee and
the Employer. Tax Counsel shall determine that payments shall be
increased only if, and to the extent that, it is more likely than not
that the payments or benefits are subject to a tax. In making the
determinations required by this Section 8(b), Tax Counsel may rely on
benefit consultants, accountants or other experts. The Employer agrees to
pay all reasonable fees and expenses of such Tax Counsel. If, subsequent
to the payment to the Employee of payments pursuant to this Section 8(b),
the Tax Counsel reasonably determines that the amount of the payments
paid pursuant to this Section 8(b) are greater than, or less than, the
amount required to have been paid, the Employee shall reimburse the
Employer an amount, or the Employer shall pay to the Employee an
additional amount, respectively, based upon such determination. In the
event that Tax Counsel reasonably determines that the Employee is
required to pay excise taxes, interest or penalties to a governmental
taxing authority as a result of his non-payment of taxes where such Tax
Counsel had determined that such taxes need not be paid, the Employer
shall pay to the Employee an additional amount equal to (i) the amount of
such interest and/or penalties, (ii) the excise tax which was not paid
and (iii) any excise tax and any other taxes imposed by the Code or under
state or local law on the payments provided for in this Section 8(b).

9. Indemnification.

(a) The Employer shall indemnify, defend and hold the
Employee harmless from and against any and all liability, damage, cost
expense, claim action, demand, suit or obligation arising from or
relating to this Agreement or the performance by the Employee of his
obligations hereunder, including on account of any act taken or omitted
to be taken by the Employee in connection with such agreement or the
business of the Employer, provided, that such act or omission was in good
faith and did not constitute grounds for the termination of the Employee
by the Employer for Cause; and provided further. that this obligation to
indemnify and defend shall not extend to disputes between the Employee
and the Employer, if any. which relate to the benefits from the Employer
to which the Employee believes he is entitled. The provisions of Section
10(b) of this Agreement, however, shall apply to such disputes.

10. Legal Fees.

(a) The Employer will pay, or reimburse the Employee for, the
reasonable expenses incurred by the Employee in negotiating and
documenting this Agreement and the Shareholders' Agreement described in
Section 11 below, including the reasonable fees and costs of attorneys
and consultants.

(b) In the event of litigation or any other proceeding
between the Employee and the Employer, arising from or pertaining to this
Agreement, the prevailing party in such litigation or other proceeding
shall be entitled to recover from the non-prevailing party the prevailing
party's reasonable attorneys' fees, costs and expenses (not limited to
taxable costs) including all expenses of experts, appeals and actions to
enforce awards.

11. Shareholders' Agreement.

(a) The Employer and the Employee shall enter into the
Shareholders' Agreement in the form attached hereto as Exhibit A;
provided that the following provisions shall control over any
inconsistent provisions of the Shareholders' Agreement:

(i) on one occasion at any time prior to the six-
month anniversary of the date the Employee's employment with the
Employer terminates, the Employee may request the Employer to
register a portion or all of the Employer voting common stock then-
owned by the Employee and, upon receipt of such request, (A) the
Employer shall register the number of shares of Employer voting
common stock requested by the Employee as soon as practicable after
the date of such request (but in no event later than 90 days
thereafter), or (B) at the Employer's option in lieu of the
obligation to so register, the Employer shall purchase the number
of shares requested to be so registered from the Employee as soon
as practicable after the date of such request (but in no event
later than 90 days thereafter), at a purchase price equal to the
product of the appraised fair market value per share of Employer
voting common stock and the number of shares of Employer common
stock requested to be registered by the Employee; (if such shares
or any portion thereof are registered, the Employer shall pay all
costs of registration, although the Employee shall be subject to
the underwriters' discount); and

(ii) all the voting common stock of the Employer held
by the Employee or which he is entitled to purchase from time to
time shall be subject to the antidilution provisions set out in
Exhibit "B", attached hereto.

(b) The appraisal with respect to Section 11(a)(i) above
shall be performed by a single investment banking firm selected by both
parties, acting reasonably, and such appraisal shall not take into
account any discount for the fact that such stock is illiquid and
represents a minority holding in the Employer. The cost of such appraisal
shall be borne by the Employer.

(c) Except as provided in Section 11(a)(i), the terms of this Section 11
shall survive until the later of the termination of this Agreement or February
27, 2008.

12. Restrictive Covenant.

(a) The Employee agrees not to disclose during the period of
employment to any person not employed by the Employer or employed as the
Employee's legal counsel, confidential information concerning the
Employer, including without limitation any inventions, processes, methods
of distribution or customer or Employer trade secrets. At any time when
he is not employed by the Employer, the Employee agrees not to disclose
to any person not employed by the Employer or employed as the Employee's
legal counsel trade secrets of the Employer or its customers which he
learned while employed by the Employer, except as consented to by the
Employer or such customer in writing. This clause (a) shall not preclude
the Employee from use or disclosure of (i) non-proprietary or non-
confidential information, (ii) confidential information concerning the
Employer in the conduct of the Employee's responsibilities hereunder or
required by law or court order or (iii) information which is available to
or known by the public.

(b) The parties hereto hereby declare that it is impossible
to measure in money the damages which will accrue to the Employer by
reason of a failure by the Employee to perform any of his obligations
under this Section 12. Accordingly, if the Employer institutes any action
or proceeding to enforce the provisions hereof, to the extent permitted
by applicable law, the Employee hereby waives the claim or defense that
the Employer has an adequate remedy at law, and the Employee shall not
urge in any such action or proceeding the claim or defense that any such
remedy at law exists.

(c) The restrictions in this Section 12, shall be in addition
to any restrictions imposed on the Employee by statute or at common law.

(d) The provisions of this Agreement shall be kept strictly
confidential by the Employee and the Employer and shall not be revealed
to any other person by either of them except (i) as required by law, (ii)
to legal and financial advisors; or (iii) as mutually agreed upon as
necessary in connection with the Employer's business.

13. Representations and Acknowledgments.

The Employee hereby represents and warrants to the Employer
that, to the best of his knowledge, after consultation with counsel, the
execution, delivery and performance of this Agreement does not violate
any provision of any agreement which the Employee has with the Former
Employer. The Employer acknowledges, however, that the Employee has an
obligation to the Former Employer not to disclose certain confidential
information, that the Employee intends to honor such obligation and that
honoring such obligation does not violate the foregoing representation
and warranty made by the Employee. The Employer further acknowledges that
the Employee is making no warranty or representation to the Employer
concerning whether the "inevitable disclosure" doctrine is applicable
to the transactions contemplated herein.

14. Litigation with The Former Employer.

In the unlikely event that the Former Employer (i) contests
the Employee's right to enter into, or carry out his obligations under
this Agreement or (ii) attempts, on account of this Agreement to (A)
recover the value of options covering the stock of the Former Employer or
its parent which have been exercised by the Employee prior to January 6.
1998 or (B) deny to the Employee the benefit of any deferred compensation
or non-qualified retirement benefits to which the Employee is entitled
pursuant to the terms of such plan or arrangements then the Employer
agrees that it will, at its expense, provide legal counsel reasonably
acceptable to the Employee to represent the Employee in connection with
any discussions litigation or other proceeding in connection therewith.

15. Miscellaneous.

(a) Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and
delivered personally or sent by registered or certified mail, postage
prepaid, addressed as follows (or if it is sent through any other method
agreed upon by the parties):

If to the Employer:

ZILOG, Inc.
210 East Hacienda Avenue
Campbell, California 95008
Attention: Board of Directors and Secretary

with a copy to:

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

If to the Employee:

Mr. Curtis J. Crawford
151 Almandral Avenue
Atherton, CA 94027

with a copy to:

Charles Thornton, Esq.
Paul, Hastings, Janofsky & Walker LLP
Twenty-Ninth Floor
345 California Street
San Francisco. CA 94104-2635

or to such other address as any party hereto may designate by notice to
the others, and shall be deemed to have been given upon receipt.

(b) This Agreement. along with the Stockholders' Agreement
attached hereto as Exhibit "A", constitutes the entire Agreement among
the parties hereto with respect to the Employee's employment, and
supersedes and is in full substitution for any and all prior
understandings or agreements with respect to the Employee's employment
with the Employer.

(c) This Agreement may be amended only by an instrument in
writing signed by the parties hereto and any provision hereof may be
waived only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The failure
of any party hereto at any time to require the performance by any other
party hereto of any provision hereof shall in no way affect the full
right to require such performance at any time thereafter, nor shall the
waiver by any party hereto of a breach of any provision hereof be taken
or held to be a waiver of any succeeding breach of such provision or a
waiver of the provision itself or a waiver of any other provision of this
Agreement.

(d) (i) This Agreement is binding on and is for the benefit
of the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives.
Neither this Agreement not any right or obligation hereunder may
be assigned by the Employee.

(ii) The Employer shall require any successor (whether
direct or indirect, by purchase, merger. consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Employer expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the
Employer would have been required to perform it if no such
succession had taken place; provided that the Employer shall
continue to be responsible for all its obligations hereunder. As
used in this Agreement, "the Employer" shall mean both the
Employer as defined above and any such successor that assumes and
agrees to perform this Agreement, by operation of law or
otherwise.

(e) If any provision of this Agreement or portion thereof is
so broad, in scope or duration, so as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as is
enforceable.

(f) The Employer may withhold from ray amounts payable to the
Employee hereunder all federal, state, city or other taxes that the
Employer may reasonably determine are required to be withheld pursuant to
any applicable law or regulation.

(g) This Agreement shall be governed by and construed in
accordance with the laws of the State of CALIFORNIA, without reference to
its principles of conflicts of law.

(h) This Agreement may be executed in several counterparts,
including by the exchange of facsimile signature pages containing the
signatures of one, or both parties, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.

(i) The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or
affect the meaning of any provision hereof.

IN WITNESS WHEREOF. the parties have executed this Agreement.
as of the date first written above.

ZILOG, INC.

/s/ David M. Stanton

Name: David M. Stanton
Title: Member, Zilog Board of Directors

/s/ Curtis J. Crawford

<PAGE>

EXHIBIT "A"

STOCKHOLDIERS' AGREEMENT

by and among

ZiLOG, INC.,

TPG PARTNERS II, L.P.,

TPG INVESTORS II, L.P.,

TPG PARALLEL II, L.P.,

and

CURTIS CRAWFORD

dated as of August 7, 1998

<PAGE>

TABLE OF CONTENTS

ARTICLE I 2
SECTION 1.01 Definition 2
SECTION 1.02 Interpretation 6

ARTICLE II 6
SECTION 2.01 General Prohibition on Transfers of Securities 6
SECTION 2.02 Permitted Transfers by TPG 7
SECTION 2.03 Permitted Transfers by Crawford 7
SECTION 2.04 Tag-Along Rights 9
SECTION 2.05 Drag-Along Rights 10
SECTION 2.06 Transfer Costs; Closing 11
SECTION 2.07 Restrictive Legend 11

ARTICLE III 12
SECTION 3.01 Piggy Back Registration 12
SECTION 3.02 Registration Procedures 14
SECTION 3.03 Indemnification: Contribution 16

ARTICLE IV
SECTION 4.01 Transactions with Affiliates 18
SECTION 4.02 Amendment 18
SECTION 4.03 Specific Performance 18
SECTION 4.04 Successor and Assigns 19
SECTION 4.05 Shares Subject to this Agreement 19
SECTION 4.06 Notices 19
SECTION 4.07 Complete Agreement: Counterpart 21
SECTION 4.08 Term of the Agreement 21
SECTION.4.09 Headings 21
SECTION 4.10 Choice of Law 21
SECTION 4.11 Consent by TPG 21
SECTION 4.12 Effectiveness of Agreement 21

<PAGE>

THIS STOCKHOLDERS' AGREEMENT ("the Agreement"), dated as of
August 7, 1998, by and among ZILOG, INC. (the "Company'), TPG PARTNERS II
L.P. ("TPG Partners"), TPG INVEST0RS II L.P., TPG PARALLEL II. L.P.
("TPG Partners II L.P., TPG Investors II, L.P. and TPG Parallel II L.P.,
each a member and collectively referred to as "TPG"), and CURTIS J.
CRAWFORD ("Crawford").

WHEREAS. TPG Partners and the Company entered into an Agreement and
Plan of Merger dated as of July 20,1997, as amended by Amendments Number
One, Number Two and Number Three dated as of November 18. 1997. December 10,
1997 and January 26,1998, respectively. (the "Merger Agreement) which
provided for the merger (the "Merger") of TPG Zeus Acquisition Corporation,
a subsidiary of TPG Partners and into the Company with the Company being
the surviving corporation (hereinafter sometimes referred to as the
"Surviving Corporation");

WHEREAS, TPG has entered into an agreement in substantially the
form of this Agreement with the other stockholders of the Company;

WHEREAS, Crawford has purchased shares of Common Stock (as deemed
herein) and has the right to acquire additional shares of Common Stock
pursuant to his Employment Agreement with the Company, dated as of March
1, 1998 through certain restricted stock grant and options to purchase
additional shares of Common Stock; and

WHEREAS, Crawford may acquire additional shares of Common Stock
during his employment with the company;

WHEREAS, the parties hereto to desire to enter into this
Agreement for the purpose of agreeing to certain aspects of
their relationship with respect to the Company;

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 interest 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 contact or otherwise; and the terra.
"voting securities" means securities or interest 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.

"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 Crawford
by TPG pursuant to Section 2.05 hereof pursuant to which Crawford shall
transfer all of his 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 Crawford pursuant to such proposed transfer.

"Electing Stockholder" means, depending upon the context used.
Crawford following delivery of an Election Notice pursuant to
Section 2.04(a) hereof or Crawford following sale of his 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 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.

"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
Crawford on whose behalf Registrable Securities are being registered or
other general overhead expenses of Crawford or other expenses for the
preparation of financial statements or other data prepared by Crawford,
(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 of the Retaining
Stockholders' Agreement and Crawford, in the event that he requests
Registrable Securities to be included in each registration statement
pursuant to Section 3.01 hereof), financial advisor accountants or other
consultants or advisors engaged by Crawford and (iii) underwriting fee's,
discounts and commissions and applicable transfer taxes, if any,
applicable to the sale of Registrable Securities being registered by
Crawford which shall be borne in all cases by Crawford.

"Retaining Stockholders' Agreement" means the Stockholder
Agreement dated as of February 27, 1998 among Zilog, Inc, TPG Partners
II, L.P., TPG Investors II, L.P., TPG Parallel II, L.P., and Certain
Other Stockholders of ZiLOG, Inc.

"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" means all the parties (other than the Company) to
the Retaining Stockholders' Agreement, as the same may be amended from.
time to time.

"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 Crawford pursuant to
Section 2.04.

"TPG". has the meaning ascribed to it in the preamble hereto.

"TPG Partners" 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 one particular Article,
Section. Exhibit, Schedule or other subdivision:

(e) any references to agreements or contracts including this
Agreement similar such Agreement or contract 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.
Crawford shall not directly or indirectly. sell, assign, pledge,
hypothecate, encumber or otherwise dispose (voluntarily or
involuntarily)) of any Shares or any interest therein beneficially owned
by him (all of which " shall be deemed included in. the term "transfer"
as used it 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 Transfer 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
having beneficially owned by it to an Affiliate of TPG (a "TPG
Transferee"), then such member of TPG shall remain liable for such TPG
Transferees failure to perform its obligations under this Agreement with
respect to such transferred Shares such TPG Transferee shall take such
Shares such shares 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 (1i) such
other documents as may be reasonably necessary in the opinion of the
Company, to assume such obligations and (b) agree that it will not cease
to be = Affiliate of TPG unless prior to the time such TPG Transferee
ceases to be an Affiliate of TPG, such TPG Transferee transfer to such
member of TPG all Shares owned by such TPG Transferee.

SECTION 2.03 Permitted Transfers by Crawford

(a) Notwithstanding the provisions of Section 2.01 and without
first offering his Shares to TPG as contemplated by Section 2.03(c),
Crawford may transfer the Shares beneficially owned by him to a 100%
Affiliate of Crawford; provided, that Crawford shall remain liable for
such 100% Affiliate's failure to perform its obligations under this
Agreement with respect to such transferred Shares, such 100% Affiliate
shall take such Shares subject to all the provisions of this Agreement,
and prior to such transfer such 100% 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
Crawford 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 Crawford unless prior to the time such 100%
Affiliate ceases to be a 100% Affiliate of Crawford, such 100% Affliate
transfers to Crawford all Shares owned by such 100% Affiliate.

(b) Notwithstanding the provisions of Section 2.01 and without
first offering his Shares to TPG as contemplated by Section 2.03(c).
Crawford may pledge. hypothecate or encumber any Shares beneficially
owned by him to a financial institution: provided that 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 Crawford 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.

(c) 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)), Crawford may transfer
all or a portion of his Shares to a third party pursuant to a Bona Fide
Offer. If Crawford desires to transfer all or a portion of the Shares owned
by him to a third party, Crawford 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 Crawford proposes to
transfer and any other material term or condition of the transfer. If
Crawford has received any written offer to purchase all or a portion of the
Shares owned by him, 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 Crawford in writing of its election to
purchase such Shares (or to have such Shares purchased by its designee). If
TPG notifies Crawford 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 Crawford to the
third party provides for the payment of non-cash consideration. TPG may in
its discretion, in lieu thereof, pay Crawford in cash the fair market value
of such non-cash consideration (which fair market value shall be determined
by TPG if Crawford, in his sole discretion, agrees with such determination
or, in the absence of such agreement, by an independent investment bank
selected jointly by TPG and Crawford (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 Crawford does not receive such written notice form TPG within the 20 day
period, TPG shall be deemed to have declined to purchase such Shares and
Crawford 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 Crawford
under this Agreement with respect to such transferred Shares and (ii) such
other documents as may be reasonably necessary, in the opinion of TPG, to
assume such obligations; provided further that, if Crawford does not
complete the contemplated sale within 90 days of the Notice Date, the
provisions of this of 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 Section2.03(c) do not apply to transfers by Crawford pursuant to
Section 2.03(a), Section 2.03(b), 2.04,2.05, Section 3.01 or in connections
with any merger or business combination of the Company approved by the
Board.

SEC11ON 2.04 Tag-Along-Rights. (a) 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 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 the Electing Stockholder (in lieu of
purchasing from TPG) that number of shares of Common Stock then owned by
the Electing Stockholder that equals the product of (1) the number of
shares of Common Stock then owned by the 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
Crawford promptly 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
Crawford that may be sold by Crawford pursuant: to this Section 2.04(a)
(the "Tag-Along Notice") and shall provide a copy of such binding
agreement to Crawford. Any purchase, by the Prospective Purchaser of the
Applicable Amount of shares of Common Stock of the 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.
Crawford 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
Crawford notifies TPG in writing of its election to exercise Tag-Along
Rights within 20 days of the receipt of a Tag-Along Notice and Crawford
subsequently receives an amendment or supplement to such Tag-Along Notice
from TPG. Crawford shall be able to withdraw his 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 Crawford within 20
days of receipt of the Tag-Along Notice (or any amendment or supplement
thereto), Crawford shall be deemed to have elected not to exercise his
Tag-Along Rights hereunder. Notwithstanding anything to the contrary
contained herein, (i) TPG shall not be obligated to cause it Prospective
Purchaser to purchase Crawford's 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 Crawford.

(b)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 the Electing Stockholder. Notwithstanding the
foregoing, in the event the Electing Stockholder breaches any obligation
he may have under this Section 2.04 or, in the event that any
representation and warranty of the 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
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 the 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 Crawford shall transfer, subject to the
terms and conditions set forth below, at the sole election of TPG
(exercisable by delivery to Crawford 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 his shares of Common Stock to such Person;
provided that (I) Crawford 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 Crawford shall not be obligated to transfer
his 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 Crawford breaches
his obligations under this Section 2.05 or, in the event that any
misrepresentation and warranty of Crawford contained in the purchase
agreement with the Person making the Bona Fide Offer is not true and
correct as of the date make or as of the proposed closing date or
Crawford shall fail to perform any 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 Crawford 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 Crawford in respect of such breach.

SECTION 2.06 Transfer Costs, Closing

In the event Crawford receives a Tag-Along Notice or Drag-Along
Notice pursuant to Section 2.04 or 2.05, as the case may be. Crawford
agrees to use his 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 Crawford), 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 Crawford 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, and
disbursements of counsel), or to be paid by Crawford as provided for in
the relevant purchase agreement. Shall be borne by Crawford.

(b) The closing of any transfer of Shares pursuant to Section
2.03(c), 2.04 or 2.05 shall take place at the offices of the Company (or
at such other place as the participants shall mutually agree upon.) not
later than 90 days form the receipt by TPG of a Notice of Offer or from
the receipt by Crawford of the Tag-Along Notice or the Drag-Along
Notice, as the case my be (subject to the expiration of any waiting
period under the HSR Act and the other terms and conditions provided in
the underlying purchase agreement). At such closing, the 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

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 AUGUST 7, 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 Crawford 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 Crawford 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 Crawford 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 Crawford, to the extent required to permit the disposition (
in accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so the 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 foe any reason not to register or delay the
registration of such securities, the Company may, at its
election, give written notice of such 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 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, then the Company shall promptly furnish
Crawford accompanying such opinion, the registration of 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 that number of Registrable
Securities that equals the product of (1) the number of
Registrable Securities requested by Crawford pursuant to this
Section3.01 multiplied by (2) a fraction, the numerator of
which equals the number of Registrable Securities to be
registered on behalf of the Stockholders by the Company
pursuant to Section 3.01 of the Retaining Stockholders'
Agreement); and

(iii) Crawford shall be permitted to withdraw all or
part of such Registrable Securities requested pursuant to
this Section 3.01 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
Crawford requesting withdrawal in connection with such
registration shall be paid by Crawford.

(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 options or other
employee benefit plan or (B) in connection with and Initial
Public Offering unless the Company permits any Stockholder to
participate in such Initial Public Offering, in which case,
Crawford shall be allowed to participate in such offering ,
and the Company shall be obligated to give prompt written
notice to Crawford of his right to do so.

(v) Crawford 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 hive
(I) Crawford, if he beneficially owns in excess of 5% of the shares
of Common Stock then outstanding, to be registered under such
registration statement, (ii) his underwriters, if any, and (iii)
his respective counsel and accountants such reasonable access to
its books and records and such opportunities to discuss the
business of the Company woth its officers and the independent
public accountants who have certified its financial statemnets as
shall be necessary , in the opinion of Crawford's 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 the
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 Crawford.

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 pracitcable:

(i) prepare and file with the SEC a registration
statement with respect to such Registrable Securititres and
use its reasonable best offers to cause such registration
statement to become effective:

(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the
provisions of the 1933 Act with respect to the disposition
of all Registrable Securities covered by such registration
gtatement 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 Crawford, thereof
set forth in such registration statement or the expiration of
six (6) months after such registrations statement becomes
effective;

(iii) furnish Crawford with 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 such documents
incorporated by reference in such registration statement or
prospectus, and other such documents, as Crawford may
reasonably request in order to facilitate the disposition of
the Registrable Securities being sold by him:

(iv) use its reasonable best effort to register or
qualify all Registrable Securities covered by such
registration statement under such other securities or blue
sky laws of such jurisdictions as Crawford shall reasonably
request, and do any and all other acts and things which may
be reasonably request, and do any and all other acts and
thing which may be reasonably necessary or advisable to
enable Crawford 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 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 Crawford, in the
event he is the holder of at least twenty-five percent (25%)
of the Registrable Securities covered by the registration
statement, upon his request, a signed counterpart, addressed
to Crawford, of an opinion of counsel for the Company, dated
the effective date of such registration statement (or, if
such registration includes and 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 mattes of the
type customarily covered by "cold comfort" letters as
Crawford, in the event he is the holder of a majority of the
Registrable Securities covered by the registration statement,
may request:

(vii) promptly notify Crawford, in the event his is the
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, included and 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 Crawford prepare and furnish to
Crawford a reasonable number of copies of a supplement to or
an amendment of such prospectus as may ne necessary so that,
as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include and 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 existing:

(viii) otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC,
and generally make available to Crawford an earnings
statement satisfying the provisions of Section11(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 the 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 his participation in the
registration, Crawford (I) to furnish the Company with such information
regarding Crawford 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
Crawford) 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 (I) in the case of any registration statement
(including any related notification or document incident to such
registration statement) filed pursuant to Section 3.01,
Crawford, in the event he is the seller of any Registrable
Securities covered by such registrations statement, 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 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 and 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 the 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 make 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.

(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 Crawford and his
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, of 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 make by
or on behalf of the Company or any such director, officer, or
controlling Person and shall survive the transfer of such
securities by Crawford.

(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 to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of his Section 3.03 except to the extent that the
indemnifying party's liabilities and obligations under this Section3.03 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 satisfied 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 in
such proceeding. No indemnifying party will consent to entry of any
judgement or enter into any settlement which does 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. All transaction
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 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.

SECTION 4.02 Amendment . This Agreement may be altered or
amended only with the written consent of the Company., TPG and Crawford.
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 4.03 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 4.04 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 trasferee
of its Shares other than a transferee pursuant to Article III or pursuant to
a Rule 144 or rule 144(k) Sale and (ii) Crawford may assign any of his
rights hereunder to any transferee of his 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 thereafter have no tights or
obligations hereunder except as expressly provided for elsewhere in this
Agreement, included without limitation, Section 2.03(a) and Section 3.03.

SECTION 4.05 Shares Subject to this Agreement. All Shares of the
Company (or any successor thereto) beneficially owned or hereafter
acquired by Crawford. TPG or any of their respective 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 4.06 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.
345 California Street, Suite 3300
San Francisco, California 94104
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 Compaty, to:

Zilog, Inc.Suite 110
910 East Hamilton Avenue
Campbell, California 95008
Attention; Richard R. Pickard. Esq.
Facsimile: (408) 374-8183

with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto. CA 94304-1115
Attention: Katharine A. Martin. Esq.
Facsimile: (650) 233-4545

Curtis J. Crawford
151 Almandral Avenue
Atherton. CA 94027

with a Copy to:
Charles Thornton Esq.
Paul, Hastings, Janofsky & Walker L.L.P.
Twenty-Ninth Floor
345 California Street
San Francisco. CA 94104-2635

Each party. by written notice given, to the other parties in accordance
with this Section 4.06, 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.

SECTION 4.07 Complete Agreement: Counterparts. This Agreement,
together with the Employment Agreement dated as of March 1, 1998
between the Company and Crawford. 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.

SECT10N 4.08 1= Term of the Agreement. Unless this Section 4.08 is
amended in accordance with the provisions of Section 4.02 hereof, this
Agreement shall expire on February 27. 2006; provided that the provisions
of Article III of this Agreement shall expire upon the earlier of
February 27. 2006 and the completion of the Initial Public Offering;
provided further that the provisions of Article III of this Agreement
shall expire on February 27, 2013.

SECTION 4.09 Headings. The section headings herein are of
convenience of reference only and in no way define, limit or extend the
scope or intent of this Agreement or any provisions hereof.

SECTION 4.10 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 rquested, addressed to the party at the address appearing in
Section 4.06 together with a copy to be delivered to such party's attorneys
as provided in Section 4.06 The partied 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 4.11 Consent by TPG 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.
SECTION 4.12 Effectiveness of Agreement. This Agreement shall be
effective upon execution by all parties hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.

TPG PARTNERS 11, L.P"
By TPGenParII, L.P., General Partner
By TPG Advisors II, Inc., General Partner

By: /s/ David Staton
---------------------------
Title: Vice President
TPG INVESTORS II, L.P.

By TPG GenPAR II, L.P., General Partner
By TPG Advisors II, Inc., General Partner

By: /s/ David Staton
---------------------------
Title: Vice President

TPG Parallel II, L.P.
By TPG Advisors II, Inc., General Partner

By: /s/ David Staton
---------------------------
Title: Vice President

ZILOG. INC.
By: /s/ David Staton
---------------------------
Title: Board Member

CURTIS J. CRAWFORD
/s/ Curtis J. Crawford
---------------------------
(signature)

SCHEDULE I

SCHEDULE OF RETAINING STOCKHOLDERS

EXHIBIT "B"

All stock received by the Employee under Section 2(e) and all
options to purchase stock provided by Section 2(g) shall be subject to the
following antidilution provisions.

1. The number of shares of stock of the Employer which am at
any time subject to options held by the Employee, and the exercise prices
for such options, shall be adjusted proportionately in the event of any
stock split, combination, exchange or recapitalization. having a similar
effect.

2. If the Employer issues any common voting stock of the
Employer for a Per share price less than the per share exercise price
applicable to any shares of voting common stock subject to any options
held by the Employee. the exercise price for those shares of stock shall
be automatically reduced to that lower per shares exercise price;
provided that the $40 Option shall only be reduced by the mount by which
the exercise price of the S20 Option exceeds the option price at which
the Employer issues such voting Stock. This paragraph shall not be
applicable to: (i) a proportionate dividend to the holders of the Voting
Stock; (ii) the bona fide offer and sale of Voting Stock in a Public
Offering, or in a non-public offering to a person or persons who are not
affiliated with my then existing shareholder of the Employer, or (iii)
the bona fide offer and sale of Voting Stock in an acquisition or similar
transaction by the Employer unless a Person or Persons affiliated with
then existing shareholders of the Employer have a substantial interest,
directly or indirectly, in other entities involved m such acquisition or
other transaction.

3. The Employee shall have a fight of first refusal to
participate on a proportional basis (according to his fully diluted
percentage interest W the Employer) in any offering of capital stock by
the Employer that has greater voting rights than the voting common stock
to which the Employee is entitled pursuant to Section 2(e).

Exhibit 10.19

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between Zilog, Inc., a Delaware
corporation (hereinafter "Zilog") and Jim Thorburn (hereinafter
"Thorburn"), whereby Zilog and Thorburn agree that Thorburn accepts
employment as Senior Vice President and Chief Financial Officer of
Zilog, under the following terms and conditions:

1. Term. Zilog and Thorburn agree that Thorburn will be Senior Vice President
and Chief Financial Officer of Zilog for a period of twenty-four (24) months,
commencing on 5-22-98 and ending 5-21-00. This Agreement may be extended
upon written agreement of Zilog and Thorburn. If during the term of this
Agreement a "Change in Control" of Zilog occurs, the term of this Agreement
will be extended for a period of twenty four (24) months commencing on the
earlier of the effective date of the Change in Control or the date this
Agreement would otherwise expire; provided, however, in the case of a Change
in Control that is subject to an agreement that is executed before the date
this Agreement would otherwise expire but becomes effective on a closing date
that will occur after the date this Agreement would otherwise expire, there
will be no such automatic twenty-four month extension if the closing date
does not occur within six (6) months after the date this Agreement would
otherwise expire. Under these circumstances the term of this Agreement shall
be extended six (6) months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:

(i) A change in the composition of the board of directors of Zilog, Inc.,
as a result of which fewer than two-thirds of the incumbent directors
are directors who either:

(a) Had been directors of Zilog, Inc. twenty-four (24) months prior
to such change; or

(iii) the sale of all or substantially all of the assets of Zilog, Inc. to a
third party who is not an affiliate (including a parent or subsidiary)
of Zilog, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation, sale,
reorganization, dissolution or other such event or series of events,
which in the opinion of a majority of the members of the board of
Zilog, Inc. (as reflected in a written resolution of the board of
Zilog, inc.) has resulted in a change of control of Zilog, Inc.

2. Extent of Services. Thorburn shall devote his entire time, attention and
energies to his position as Senior Vice President and Chief Financial Officer
of Zilog and shall not, during the term of this Employment Agreement, be
engaged in any other business activity, except as set forth below, whether or
not such business activity is pursued for gain, profit or other pecuniary
advantage; provided, that Thorburn may engage in: 1) personal investment
activities: or 2) service on Boards of Directors of other companies;
consistent with Zilog's Conflict of Interest policy.

3. Compensation.

A. Salary. For each month of employment, Zilog will pay, or cause to be
paid, to Thorburn the sum of at least $18,750.00 as base salary. Such
sum will be paid in monthly installments or such other normal periodic
payment schedule as Zilog may establish for its executives. Thorburn's
salary will be reviewed periodically in accordance with established
salary review procedures and adjustments to his salary, if any, will be
based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan. Thorburn
will be eligible to receive Awards and Payouts in accordance with the
terms of the Zilog Employee Performance Incentive Plan (hereinafter
"EPIP"), and the EPIP Executive Bonus Plan (hereinafter "Executive
Bonus") as such plans may be modified from time to time and as
modified by this Agreement.

C. Zilog Employee Stock Option Plan. Zilog has provided to Thorburn stock
options under the 1998 Long Term Incentive Plan (hereinafter "LTIP"),
a copy of such plan being attached hereto. Vesting will continue in
accordance with the plan provisions during the term of this Agreement.

4. Benefits. As an employee of Zilog, Thorburn will be entitled to such
benefits as Zilog normally provides its executives. In addition, Zilog will
provide Thorburn with Directors and officers (D&O) insurance in an amount
deemed appropriate by the Company.

5. Company Policies. Thorburn agrees to be bound by all Zilog Company Policies
applicable to its employees including but not limited to Business Ethics,
Conflict of interest, Proprietary Information and Antitrust Compliance, and
he agrees to sign any such documents as Zilog requests evidencing such
agreement.

6. Termination of Employment. Zilog reserves the right to terminate the
employment of Thorburn at any time during the term of this Agreement, for any
reason or for no reason, with or without cause, by giving Thorburn at least
thirty (30) days written notice of such termination or compensation in lieu
of notice; and Thorburn may terminate his employment by giving at least thirty
(30) days written notice to Zilog. Zilog reserves the right to accelerate any
deferred resignation date given it by Thorburn, and any such acceleration of
such date will not alter the character of such termination from voluntary to
involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, Zilog'' obligations to Thorburn, if his employment
with Zilog is terminated prior to the end of this Agreement, shall be as
follows:

A. If Thorburn voluntarily resigns his employment for 1) other than Good
Reason (as defined in paragraph 7.B. below) or 2) other than Retirement
(as defined in Paragraph 7.C. below) or 3) other than the sale, merger
or change in ownership of Zilog (as defined in paragraph 7.G. below)
prior to the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) payouts under EPIP which become payable to Thorburn
pursuant to the terms of EPIP prior to the effective date of
resignation, and (3)

B. payouts under the Executive Bonus which become payable to Thorburn
pursuant to the terms of the Executive Bonus prior to the effective
date of resignation. Upon payment of the foregoing items, Zilog will
have no further obligation to Thorburn.

C. If Thorburn voluntarily resigns his employment for Good Reason, as
defined herein, prior to the termination date of this Agreement, he
will be entitled to the benefits provided in Paragraph 7.D. below.
Good Reason, as used herein, shall mean:

(i) a reduction in Thorburn's authority, responsibility or status as
Senior Vice President and Chief Financial Officer such that
Thorburn ceases to be an "officer" as that term is defined in
the regulations under Section 16 of the Securities Exchange Act
of 1934;

(ii) a reduction in Thorburn's base salary other than in connection
with a general reduction applicable to the Senior Vice Presidents
of Zilog who are members of the Executive Committee;

(iii) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the Deferred
Compensation Plan, or those that may occur for the Zilog employee
group in general in accord with a general policy change;

(iv) a requirement to relocate, except for the office relocations that
would not increase Thorburn's one-way commute distance by more
than 20 miles;

(v) any material breach of this Agreement on the part of Zilog not
fully remedied by Zilog within sixty (to) days after written
notice by Thorburn of such breach.

D. If Thorburn retires as defined in PM60-05 prior to the termination date
of this Agreement, he will be entitled to the following at the
effective date of retirement: (1) base salary then due and owing for
services previously performed, (2) payouts under EPIP for Awards made
prior to the effective date of the retirement, and (3) payouts under
the Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
Zilog's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, Zilog will have no
further obligation to Thorburn.

E. If Zilog terminates Thorburn's employment during the term of this
Agreement other than for 1) Cause or Detrimental Activity as defined in
7.E. below, or 2) the sale, merger or change in ownership of Zilog (as
defined in paragraph 7.G. below) he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are payable
to Thorburn pursuant to the terms of EPIP prior to expiration of the
term of this Agreement, and (3) payouts under the Executive Bonus for
Awards made prior to the effective date of termination of employment
which payouts are payable to Thorburn pursuant to the terms of the
Executive Bonus prior to expiration of the term of this Agreement.
Thorburn will not be eligible for Awards under EPIP or the Executive
Bonus made after the date on which his employment at Zilog ceased of
for payouts made on any Awards after the expiration date of this
Agreement. Vesting of stock options granted under LTIP will continue
for the period remaining in the Agreement. Upon the payment of the
foregoing items, Zilog will have no further obligation to Thorburn.

F. If Zilog terminates Thorburn during the term of this Agreement for
Cause, or for Detrimental Activity as defined herein, Zilog will have
no further monetary obligation to Thorburn other than: (1) any base
salary then due and owing for services previously performed, (2)
payouts under EPIP which become payable to Thorburn pursuant to the
terms of EPIP prior to the effective date of termination, and (3)
payouts under the Executive Bonus which become payable to Thorburn
pursuant to the terms of the Executive Bonus prior to the effective
date of termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction of any criminal or
civil law involving moral turpitude, willful misconduct which results
in a material reduction in Thorburn's effectiveness in the performance
of his duties, or willful and reckless disregard for the best interests
of the Company.

G. If Thorburn ceases to be an employee of Zilog during the term of this
Agreement because of total and permanent disability or death, Zilog's
obligations to Thorburn or his beneficiaries will be limited solely to:
(1) any base salary then due and owing for services previously
performed, (2) payouts in accordance with the terms of EPIP, (3)
payouts in accordance with the terms of the Executive Bonus and (4) any
benefits including LTIP benefits normally provided by Zilog it its
employees due to or on account of total and permanent disability or
death.

H. If Thorburn leaves his employment, either voluntarily for Good Reason
or involuntarily for reasons other than for Cause or Detrimental
Activity, following the effective date of a Change in Control prior to
the termination date of this Agreement, he will be entitled to receive
the following: (1) the then current base salary for the period
remaining in this Agreement, payable in a cash lump sum not more than
five (5) business days following the date of leaving employment, (2)
payouts under EPIP for Awards made prior to the effective date of
termination of employment, and (3) payouts under the Executive Bonus
for Awards made prior to the effective date of termination of
employment. EPIP and Executive Bonuses shall also be awarded for the
year in which the termination of employment occurs and shall be
calculated in accordance with the terms of such arrangements assuming
the date of Thorburn's termination is the last day of Zilog's fiscal
year and based on Zilog's financial performance for the portion of such
fiscal year that includes calculated financials for Zilog as a separate
entity. All of the above EPIP and Executive Bonus Awards shall be paid
in a cash lump sum within five (5) business days of the date of
Thorburn's termination of employment. All outstanding unvested stock
options whether granted under LTIP or otherwise will continue to vest
for the period of time remaining in the Agreement (the "Continuation
Period"). Regardless of the provisions of LTIP or any other plans or
agreements, the Continuation Period shall be counted as employment with
Zilog for purposes of vesting under all options and for purposes of
determining the expiration date of any stock options held by Thorburn
when his employment terminates. During the remaining term of this
Agreement Thorburn (and, where applicable, his dependents) shall be
entitled to continue participation in the group insurance plans
maintained by Zilog, including life, disability and health insurance
programs, as if he were still an employee of Zilog. To the extend that
Zilog finds it impossible to cover Thorburn under its group insurance
policies during such period,

I. Zilog shall provide Thorburn with individual policies which offer at
least the same level of coverage and which impose not more than the
same costs on him as if he were still an employee of Zilog. The
foregoing notwithstanding, in the event that Thorburn becomes eligible
for comparable group insurance coverage in connection with new
employment, the coverage provided by Zilog under this paragraph shall
terminate immediately. Any group health continuation coverage that
Zilog is otherwise required to offer under the Consolidated Omnibus
Budget Reconciliation Act of 1986 ("COBRA") shall be offered when
coverage under this paragraph terminates.

Except as provided in the paragraph immediately following, upon payment
of the foregoing items, Zilog will have no further obligation to
Thorburn.

In the event that it is determined that any payment or distribution of
any type to or for the benefit of Thorburn made by Zilog, any of its
affiliates, by any person who acquires ownership or effective control
of Zilog or ownership of a substantial portion of Zilog's assets
(within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code")) or by
any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Total Payments"), would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise Tax"), then
Thorburn shall be entitled to receive an additional payment (a "Gross-
Up Payment") in an amount that shall fund the payment by Thorburn of
any Excise Tax on the Total Payments as well as all income taxes
imposed on the Gross-Up Payment, any Excise Tax imposed on the Gross-Up
Payment and any interest or penalties imposed with respect to taxes on
the Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of whether any
of the total Payments are "parachute payments" (within the meaning of
Section 280G of the Code) that are required to be made hereunder,
including all determinations of whether a Gross-Up Payment is required
and of the amount of such Gross-Up Payment, shall be made by the
independent auditors retained by Zilog most recently prior to the
Change In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matters, both to Zilog and to Thorburn within
seven (7) business days of Thorburn's termination date, if applicable,
or such earlier time as is requested by Zilog or by Thorburn (if
Thorburn reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Auditors determine that no Excise
Tax is payable by Thorburn, it shall furnish Thorburn with a written
statement that such Auditors have concluded that no Excise Tax is
payable (including the reasons therefor) and that Thorburn has
substantial authority not to report any Excise Tax on his federal
income tax return. If a Gross-Up Payment is determined to be payable,
it shall be paid to Thorburn within five (5) business days after the
Determination is delivered to Zilog or Thorburn. Any determination by
the Auditors shall be binding upon Zilog and Thorburn, absent manifest
error.

As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Auditors
hereunder, it is possible that Gross-Up Payments not made by Zilog
should have been made ("Underpayments") or that Gross-Up Payments
will have been made by Zilog which should not have been made
("Overpayments"). In either event, the Auditors shall determine the
amount of the Underpayment or Overpayment that has occurred. In the
case of an Underpayment, the amount of such Underpayment shall promptly
be paid by Zilog to or for the benefit or Thorburn. In the case of an
Overpayment, the employee shall, at the direction and expense of Zilog,
take such steps as are reasonably necessary (including the filing of
returns and claims for refund), follow reasonable instructions from,
and procedures established by, Zilog and otherwise reasonably cooperate
with Zilog to correct such Overpayment; provided, however, that (a)
Thorburn shall in no event be obligated to return to Zilog an amount
greater than the net after-tax portion of the Overpayment that Thorburn
has retained or has recovered as a refund from the applicable taxing
authorities, and (b) this provision shall be interpreted in a manner
consistent with the intent of this excise tax restoration provision
which is to make Thorburn whole, on an after-tax basis, for the
application of the Excise Tax, it being understood that the correction
of an Overpayment may result in Thorburn's repaying to Zilog an amount
which is less than the Overpayment.

8. Thorburn Representations. Thorburn represents to Zilog that to the best of
his knowledge he is under no obligation to any employer or third party which
would preclude his full, complete and unfettered discharge of his duties
under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in writing,
and if by Zilog shall be addressed to Thorburn as indicated in Zilog's
personnel records or such other address as Thorburn shall specify in writing,
and if by Thorburn to Zilog at:

Zilog, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Vice President, Human Resources

Such addresses may be changed by written notice from either Zilog or
Thorburn, to the other.

10. Amendment. This Agreement may be amended only in writing, signed by both
parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon Zilog, its successors and assigns. Thorburn may not assign,
transfer, pledge or hypothecate any of his rights or obligations hereunder,
Awards or payouts under EPIP or the Executive Bonus or other compensation to
which he may be entitled hereunder. Zilog will require any successor
(whether direct or indirect, by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the business and/or assets of
Zilog to assume expressly and agree, in substance and form satisfactory to
Thorburn, to perform this Agreement in the same manner and to the same extent
Zilog would be required to perform it if no succession had taken place.

12. Waiver of Breach. The waiver by Zilog of a breach of any provision of this
Agreement by Thorburn shall not operate or be construed as a waiver of any
subsequent breach by Thorburn.

13. Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision
hereof.

14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:

15. Governing Law. This Employment Agreement shall be governed by the laws of
the State of California, without regard to conflict of laws principles.

Executed effective: May 22, 1998
-------------------
(DATE)

By: /s/ James M. Thorburn By:_/s/ Curtis J. Crawford_____

Dated: May 22, 1998 Dated: May 22, 1998

Exhibit 10.20

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between ZiLOG, Inc., a Delaware
corporation (hereinafter "ZiLOG") and Didier Le Lannic (hereinafter
"Le Lannic"), whereby ZiLOG and Le Lannic agree that Le Lannic accepts
employment as Senior Vice President & G.M. Communications of ZiLOG,
under the following terms and conditions:

1. Term. ZiLOG and Le Lannic agree that Le Lannic will be Senior Vice President
& G.M. Communications of ZiLOG for a period of twenty-four (24) months,
commencing on your date of hire. This Agreement may be extended upon written
agreement of ZiLOG and Le Lannic. If during the term of this Agreement a
"Change in Control" of ZiLOG occurs, the term of this Agreement will be
extended for a period of twenty four (24) months commencing on the earlier of
the effective date of the Change in Control or the date this Agreement would
otherwise expire; provided, however, in the case of a Change in Control that
is subject to an agreement that is executed before the date this Agreement
would otherwise expire but becomes effective on a closing date that will
occur after the date this Agreement would otherwise expire, there will be no
such automatic twenty-four month extension if the closing date does not occur
within six (6) months after the date this Agreement would otherwise expire.
Under these circumstances the term of this Agreement shall be extended six
(6) months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:

(i) A change in the composition of the board of directors of ZiLOG, Inc.,
as a result of which fewer than two-thirds of the incumbent directors
are directors who either:

(a) had been directors of ZiLOG, Inc. twenty-four (24) months prior
to such change; or

(b) were elected, or nominated for election, to the board of
directors of ZiLOG, Inc. with the affirmative votes of at least a
majority of the directors who had been directors of ZiLOG, inc.
twenty-four (24) months prior to such change and who were still
in office at the time of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and 14(d) of the
Exchange Act) other than ZiLOG, Inc. (or its designee), by the
acquisition or aggregation of securities is or becomes the beneficial
owner, directly or indirectly of securities of ZiLOG, Inc. representing
twenty percent (20%) or more of the combined voting power of ZiLOG,
Inc.'s then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at
elections of directors;

(iii) the sale of all or substantially all of the assets of ZiLOG, Inc. to a
third party who is not an affiliate (including a parent or subsidiary)
of ZiLOG, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation, sale,
reorganization, dissolution or other such event or series of events,
which in the opinion of a majority of the members of the board of
ZiLOG, Inc. (as reflected in a written resolution of the board of
ZiLOG, inc.) has resulted in a change of control of ZiLOG, Inc.

2. Extent of Services. Le Lannic shall devote his entire time, attention and
energies to his position as Senior Vice President & G.M. Communications of
ZiLOG and shall not, during the term of this Employment Agreement, be engaged
in any other business activity, except as set forth below, whether or not
such business activity is pursued for gain, profit or other pecuniary
advantage; provided, that Le Lannic may engage in: 1) personal investment
activities: or 2) service on Boards of Directors of other companies;
consistent with ZiLOG's Conflict of Interest policy; or 3) advisory and
community activities that do not affect his time commitment to ZiLOG.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or cause to be
paid, to Le Lannic the sum of at least $18,750.00 as base salary.
Such sum will be paid in monthly installments or such other normal
periodic payment schedule as ZiLOG may establish for its executives.
Le Lannic's salary will be reviewed periodically in accordance with
established salary review procedures and adjustments to his salary, if
any, will be based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan. Le
Lannic will be eligible to receive Awards and Payouts in accordance
with the terms of the ZiLOG Employee Performance Incentive Plan
(hereinafter "EPIP"), and the EPIP Executive Bonus Plan (hereinafter
"Executive Bonus") as such plans may be modified from time to time and
as modified by this Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to Le Lannic
stock options under the 1998 Long Term Incentive Plan (hereinafter
"EOSIP"), a copy of such plan being attached hereto. Vesting will
continue in accordance with the plan provisions during the term of this
Agreement.

4. Benefits. As an employee of ZiLOG, Le Lannic will be entitled to such
benefits as ZiLOG normally provides its executives. In addition, ZiLOG will
provide Le Lannic with Directors and officers (D&O) insurance in an amount
deemed appropriate by the Company for his level of responsibility.

5. Company Policies. Le Lannic agrees to be bound by all ZiLOG published
Company Policies applicable to its employees including but not limited to
Business Ethics, Conflict of interest, Proprietary Information and Antitrust
Compliance, and he agrees to sign any such reasonable documents as ZiLOG
requests evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate the
employment of Le Lannic at any time during the term of this Agreement, for
any reason or for no reason, with or without cause, by giving Le Lannic at
least thirty (30) days written notice of such termination or compensation in
lieu of notice; and Le Lannic may terminate his employment by giving at least
thirty (30) days written notice to ZiLOG. ZiLOG reserves the right to
accelerate any deferred resignation date given it by Le Lannic, and any such
acceleration of such date will not alter the character of such termination
from voluntary to involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, ZiLOG's obligations to Le Lannic, if his
employment with ZiLOG is terminated prior to the end of this Agreement, shall
be as follows:

A. If Le Lannic voluntarily resigns his employment for 1) other than Good
Reason (as defined in paragraph 7.B. below) or 2) other than Retirement
(as defined in Paragraph 7.C. below) or 3) other than the sale, merger
or change in ownership of ZiLOG (as defined in paragraph 7.G. below)
prior to the termination date of this Agreement, he will be entitled
to: (1) base salary then due and owing for services previously
performed, (2) payouts under EPIP which become payable to Le Lannic
pursuant to the terms of EPIP prior to the effective date of
resignation, and (3)
payouts under the Executive Bonus which become payable to Le Lannic
pursuant to the terms of the Executive Bonus prior to the effective
date of resignation. Upon payment of the foregoing items, ZiLOG will
have no further obligation to Le Lannic.

B. If Le Lannic voluntarily resigns his employment for Good Reason, as
defined herein, prior to the termination date of this Agreement, he
will be entitled to the benefits provided in Paragraph 7.D. below.
Good Reason, as used herein, shall mean:

(i) a reduction in Le Lannic's authority, responsibility or status as
Senior Vice President & G.M. Communications such that Le Lannic
ceases to be an "officer" as that term is defined in the
regulations under Section 16 of the Securities Exchange Act of
1934;

(ii) a reduction in Le Lannic's base salary other than in connection
with a general reduction applicable to the Senior Vice Presidents
of ZiLOG who are members of the Executive Committee;

(iii) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the Deferred
Compensation Plan, or those that may occur for the ZiLOG employee
group in general in accord with a general policy change;

(iv) a requirement to relocate, except for the office relocations that
would not increase Le Lannic's one-way commute distance by more
than 20 miles;

(v) any material breach of this Agreement on the part of ZiLOG not
fully remedied by ZiLOG within sixty (60) days after written
notice by Le Lannic of such breach.

C. If Le Lannic retires as defined in PM60-05 prior to the termination
date of this Agreement, he will be entitled to the following at the
effective date of retirement: (1) base salary then due and owing for
services previously performed, (2) payouts under EPIP for Awards made
prior to the effective date of the retirement, and 3) payouts under the
Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
ZiLOG's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, ZiLOG will have no
further obligation to Le Lannic.

D. If ZiLOG terminates Le Lannic's employment during the term of this
Agreement other than for 1) Cause or Detrimental Activity as defined in
7.E. below, or 2) the sale, merger or change in ownership of ZiLOG (as
defined in paragraph 7.G. below) he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are payable
to Le Lannic pursuant to the terms of EPIP prior to expiration of the
term of this Agreement, and (3) payouts under the Executive Bonus for
Awards made prior to the effective date of termination of employment
which payouts are payable to Le Lannic pursuant to the terms of the
Executive Bonus prior to expiration of the term of this Agreement. Le
Lannic will not be eligible for Awards under EPIP or the Executive
Bonus made after the date on which his employment at ZiLOG ceased or
for payouts made on any Awards after the expiration date of this
Agreement. Vesting of stock options granted under EOSIP will continue
for the period remaining in the Agreement. Upon the payment of the
foregoing items, ZiLOG will have no further obligation to Le Lannic.

E. If ZiLOG terminates Le Lannic during the term of this Agreement for
Cause, or for Detrimental Activity as defined herein, ZiLOG will have
no further monetary obligation to Le Lannic other than: (1) any base
salary then due and owing for services previously performed, 2) payouts
under EPIP which become payable to Le Lannic pursuant to the terms of
EPIP prior to the effective date of termination, and (3) payouts under
the Executive Bonus which become payable to Le Lannic pursuant to the
terms of the Executive Bonus prior to the effective date of
termination. Cause or Detrimental Activity shall be a willful
violation of a major company policy, conviction of any criminal or
civil law involving moral turpitude, willful misconduct which results
in a material reduction in Le Lannic's effectiveness in the performance
of his duties, or willful and reckless disregard for the best interests
of the Company.

F. If Le Lannic ceases to be an employee of ZiLOG during the term of this
Agreement because of total and permanent disability or death, ZiLOG's
obligations to Le Lannic or his beneficiaries will be limited solely
to: (1) any base salary then due and owing for services previously
performed, (2) payouts in accordance with the terms of EPIP, (3)
payouts in accordance with the terms of the Executive Bonus and 4) any
benefits including EOSIP benefits normally provided by ZiLOG it its
employees due to or on account of total and permanent disability or
death.

G. If Le Lannic leaves his employment, either voluntarily for Good Reason
or involuntarily for reasons other than for Cause or Detrimental
Activity, following the effective date of a Change in Control prior to
the termination date of this Agreement, he will be entitled to receive
the following: (1) the then current base salary for the period
remaining in this Agreement, payable in a cash lump sum not more than
five (5) business days following the date of leaving employment, (2)
payouts under EPIP for Awards made prior to the effective date of
termination of employment, and (3) payouts under the Executive Bonus
for Awards made prior to the effective date of termination of
employment. EPIP and Executive Bonuses shall also be awarded for the
year in which the termination of employment occurs and shall be
calculated in accordance with the terms of such arrangements assuming
the date of Le Lannic's termination is the last day of ZiLOG's fiscal
year and based on ZiLOG's financial performance for the portion of such
fiscal year that includes calculated financials for ZiLOG as a separate
entity. All of the above EPIP and Executive Bonus Awards shall be paid
in a cash lump sum within five (5) business days of the date of Le
Lannic's termination of employment. All outstanding unvested stock
options whether granted under EOSIP or otherwise will continue to vest
for the period of time remaining in the Agreement (the "Continuation
Period"). Regardless of the provisions of EOSIP or any other plans or
agreements, the Continuation Period shall be counted as employment with
ZiLOG for purposes of vesting under all options and for purposes of
determining the expiration date of any stock options held by Le Lannic
when his employment terminates. During the remaining term of this
Agreement Le Lannic (and, where applicable, his dependents) shall be
entitled to continue participation in the group insurance plans
maintained by ZiLOG, including life, disability and health insurance
programs, as if he were still an employee of ZiLOG. To the extend that
ZiLOG finds it impossible to cover Le Lannic under its group insurance
policies during such period,

H. ZiLOG shall provide Le Lannic with individual policies which offer at
least the same level of coverage and which impose not more than the
same costs on him as if he were still an employee of ZiLOG. The
foregoing notwithstanding, in the event that Le Lannic becomes eligible
for comparable group insurance coverage in connection with new
employment, the coverage provided by ZiLOG under this paragraph shall
terminate immediately. Any group health continuation coverage that
ZiLOG is otherwise required to offer under the Consolidated Omnibus
Budget Reconciliation Act of 1986 ("COBRA") shall be offered when
coverage under this paragraph terminates.

Except as provided in the paragraph immediately following, upon payment
of the foregoing items, ZiLOG will have no further obligation to Le
Lannic.

In the event that it is determined that any payment or distribution of
any type to or for the benefit of Le Lannic made by ZiLOG, any of its
affiliates, by any person who acquires ownership or effective control
of ZiLOG or ownership of a substantial portion of ZiLOG's assets
(within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code") or by
any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Total Payments"), would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise Tax"), then Le
Lannic shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount that shall fund the payment by Le Lannic of any
Excise Tax on the Total Payments as well as all income taxes imposed on
the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to taxes on the
Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of whether any
of the total Payments are "parachute payments" (within the meaning of
Section 280G of the Code) that are required to be made hereunder,
including all determinations of whether a Gross-Up Payment is required
and of the amount of such Gross-Up Payment, shall be made by the
independent auditors retained by ZiLOG most recently prior to the
Change In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed supporting
calculations regarding the amount of any Gross-Up Payment and any other
relevant matters, both to ZiLOG and to Le Lannic within seven (7)
business days of Le Lannic's termination date, if applicable, or such
earlier time as is requested by ZiLOG or by Le Lannic (if Le Lannic
reasonably believes that any of the Total Payments may be subject to
the Excise Tax). If the Auditors determine that no Excise Tax is
payable by Le Lannic, it shall furnish Le Lannic with a written
statement that such Auditors have concluded that no Excise Tax is
payable (including the reasons therefor) and that Le Lannic has
substantial authority not to report any Excise Tax on his federal
income tax return. If a Gross-Up Payment is determined to be payable,
it shall be paid to Le Lannic within five (5) business days after the
Determination is delivered to ZiLOG or Le Lannic. Any determination by
the Auditors shall be binding upon ZiLOG and Le Lannic, absent manifest
error.

As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Auditors
hereunder, it is possible that Gross-Up Payments not made by ZiLOG
should have been made ("Underpayments") or that Gross-Up Payments will
have been made by ZiLOG which should not have been made
("Overpayments"). In either event, the Auditors shall determine the
amount of the Underpayment or Overpayment that has occurred. In the
case of an Underpayment, the amount of such Underpayment shall promptly
be paid by ZiLOG to or for the benefit or Le Lannic. In the case of an
Overpayment, the employee shall, at the direction and expense of ZiLOG,
take such steps as are reasonably necessary (including the filing of
returns and claims for refund), follow reasonable instructions from,
and procedures established by, ZiLOG and otherwise reasonably cooperate
with ZiLOG to correct such Overpayment; provided, however, that (a) Le
Lannic shall in no event be obligated to return to ZiLOG an amount
greater than the net after-tax portion of the Overpayment that Le
Lannic has retained or has recovered as a refund from the applicable
taxing authorities, and (b) this provision shall be interpreted in a
manner consistent with the intent of this excise tax restoration
provision which is to make Le Lannic whole, on an after-tax basis, for
the application of the Excise Tax, it being understood that the
correction of an Overpayment may result in Le Lannic's repaying to
ZiLOG an amount which is less than the Overpayment.

8. Le Lannic Representations. Le Lannic represents to ZiLOG that to the best
of his knowledge he is under no obligation to any employer or third party which
would preclude his full, complete and unfettered discharge of his duties
under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in writing, and
if by ZiLOG shall be addressed to Le Lannic as indicated in ZiLOG's personnel
records or such other address as Le Lannic shall specify in writing, and if
by Le Lannic to ZiLOG at:

ZiLOG, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Senior Vice President, Human Resources

Such addresses may be changed by written notice from either ZiLOG or Le
Lannic, to the other.

10. Amendment. This Agreement may be amended only in writing, signed by both
parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon ZiLOG, its successors and assigns. Le Lannic may not assign,
transfer, pledge or hypothecate any of his rights or obligations hereunder,
Awards or payouts under EPIP or the Executive Bonus or other compensation to
which he may be entitled hereunder. ZiLOG will require any successor
(whether direct or indirect, by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the business and/or assets of
ZiLOG to assume expressly and agree, in substance and form satisfactory to Le
Lannic, to perform this Agreement in the same manner and to the same extent
ZiLOG would be required to perform it if no succession had taken place.

12. Waiver of Breach. The waiver by ZiLOG or by Le Lannic of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.

13. Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision
hereof.

14. Entire Agreement. This entire Agreement consists of this document, together
with the following documents:

15. Governing Law. This Employment Agreement shall be governed by the laws of
the State of California, without regard to conflict of laws principles.

Executed effective November 11, 1998
-------------------
(DATE)

By: /s/ Didier J. LeLannic By: /s/ Steven C. Mizell

Dated: November 11, 1998 Dated: November 11, 1998

Exhibit 10.21

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between ZiLOG, Inc., a Delaware corporation
(hereinafter "ZiLOG") and Aydin Koc (hereinafter "Koc"), whereby ZiLOG and Koc
agree that Koc accepts employment as Senior Vice President and General Manager,
Home Entertainment Group of ZiLOG, under the following terms and conditions:

1. Term. ZiLOG and Koc agree that Koc will be Senior Vice President and General
Manager, Home Entertainment Group of ZiLOG for a period of twenty-four (24)
months, commencing on your date of hire. This Agreement may be extended upon
written agreement of ZiLOG and Koc. If during the term of this Agreement a
"Change in Control" of ZiLOG occurs, the term of this Agreement will be
extended for a period of twenty four (24) months commencing on the earlier of
the effective date of the Change in Control or the date this Agreement would
otherwise expire; provided, however, in the case of a Change in Control that
is subject to an agreement that is executed before the date this Agreement
would otherwise expire but becomes effective on a closing date that will
occur after the date this Agreement would otherwise expire, there will be no
such automatic twenty-four month extension if the closing date does not occur
within six (6) months after the date this Agreement would otherwise expire.
Under these circumstances the term of this Agreement shall be extended six
(6) months from the date it would otherwise expire.

For the purposes of this Agreement, "Change in Control" shall mean the
occurrence of any of the following events:

(i) A change in the composition of the board of directors of ZiLOG, Inc.,
as a result of which fewer than two-thirds of the incumbent directors
are directors who either:

(a) Had been directors of ZiLOG, Inc. twenty-four (24) months prior
to such change; or

(b) were elected, or nominated for election, to the board of
directors of ZiLOG, Inc. with the affirmative votes of at least a
majority of the directors who had been directors of ZiLOG, inc.
twenty-four (24) months prior to such change and who were still
in office at the time of the election or nomination;

(ii) any "person" (as such term is used in sections 13(d) and 14(d) of the
Exchange Act) other than ZiLOG, Inc. (or its designee), by the
acquisition or aggregation of securities is or becomes the beneficial
owner, directly or indirectly of securities of ZiLOG, Inc. representing
twenty percent (20%) or more of the combined voting power of ZiLOG,
Inc.'s then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at
elections of directors;

(iii) the sale of all or substantially all of the assets of ZiLOG, Inc. to a
third party who is not an affiliate (including a parent or subsidiary)
of ZiLOG, Inc., or;

(iv) any acquisition of stock, tender offer, merger, consolidation, sale,
reorganization, dissolution or other such event or series of events,
which in the opinion of a majority of the members of the board of
ZiLOG, Inc. (as reflected in a written resolution of the board of
ZiLOG, inc.) has resulted in a change of control of ZiLOG, Inc.

2. Extent of Services. Koc shall devote his entire time, attention and
energies to his position as Senior Vice President and General Manager, Home
Entertainment Group of ZiLOG and shall not, during the term of this
Employment Agreement, be engaged in any other business activity, except as
set forth below, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage; provided, that Koc may engage in: 1)
personal investment activities: or 2) service on Boards of Directors of other
companies; consistent with ZiLOG's Conflict of Interest policy; or 3)
advisory and community activities that do not affect his time commitment to
ZiLOG.

3. Compensation.

A. Salary. For each month of employment, ZiLOG will pay, or cause to be
paid, to Koc the sum of at least $18,750.00 as base salary. Such sum
will be paid in monthly installments or such other normal periodic
payment schedule as ZiLOG may establish for its executives. Koc's
salary will be reviewed periodically in accordance with established
salary review procedures and adjustments to his salary, if any, will be
based upon such reviews.

B. Employee Performance Incentive Plan and Executive Bonus Plan. Koc will
be eligible to receive Awards and Payouts in accordance with the terms
of the ZiLOG Employee Performance Incentive Plan (hereinafter
"EPIP"), and the EPIP Executive Bonus Plan (hereinafter "Executive
Bonus") as such plans may be modified from time to time and as
modified by this Agreement.

C. ZiLOG Employee Stock Option Plan. ZiLOG has provided to Koc stock
options under the 1998 Long Term Incentive Plan (hereinafter "LTIP"),
a copy of such plan being attached hereto. Vesting will continue in
accordance with the plan provisions during the term of this Agreement.

4. Benefits. As an employee of ZiLOG, Koc will be entitled to such benefits as
ZiLOG normally provides its executives. In addition, ZiLOG will provide Koc
with Directors and officers (D&O) insurance in an amount deemed appropriate
by the Company for his level of responsibility.

5. Company Policies. Koc agrees to be bound by all ZiLOG published Company
Policies applicable to its employees including but not limited to Business
Ethics, Conflict of interest, Proprietary Information and Antitrust
Compliance, and he agrees to sign any such reasonable documents as ZiLOG
requests evidencing such agreement.

6. Termination of Employment. ZiLOG reserves the right to terminate the
employment of Koc at any time during the term of this Agreement, for any
reason or for no reason, with or without cause, by giving Koc at least thirty
(30) days written notice of such termination or compensation in lieu of
notice; and Koc may terminate his employment by giving at least thirty (30)
days written notice to ZiLOG. ZiLOG reserves the right to accelerate any
deferred resignation date given it by Koc, and any such acceleration of such
date will not alter the character of such termination from voluntary to
involuntary.

7. Payment Upon Termination. Notwithstanding any other provisions of this
Agreement to the contrary, ZiLOG's obligations to Koc, if his employment with
ZiLOG is terminated prior to the end of this Agreement, shall be as follows:

A. If Koc voluntarily resigns his employment for 1) other than Good Reason
(as defined in paragraph 7.B. below) or 2) other than Retirement (as
defined in Paragraph 7.C. below) or 3) other than the sale, merger or
change in ownership of ZiLOG (as defined in paragraph 7.G. below) prior
to the termination date of this Agreement, he will be entitled to: (1)
base salary then due and owing for services previously performed, (2)
payouts under EPIP which become payable to Koc pursuant to the terms of
EPIP prior to the effective date of resignation, and (3)
payouts under the Executive Bonus which become payable to Koc pursuant
to the terms of the Executive Bonus prior to the effective date of
resignation. Upon payment of the foregoing items, ZiLOG will have no
further obligation to Koc.

B. If Koc voluntarily resigns his employment for Good Reason, as defined
herein, prior to the termination date of this Agreement, he will be
entitled to the benefits provided in Paragraph 7.D. below. Good
Reason, as used herein, shall mean:

(i) a reduction in Koc's authority, responsibility or status as
Senior Vice President and General Manager, Home Entertainment
Group such that Koc ceases to be an "officer" as that term is
defined in the regulations under Section 16 of the Securities
Exchange Act of 1934;

(ii) a reduction in Koc's base salary other than in connection with a
general reduction applicable to the Senior Vice Presidents of
ZiLOG who are members of the Executive Committee;

(iii) a reduction in form and effect or cessation of any benefit or
compensation plan, except EPIP, the Executive Bonus, the Deferred
Compensation Plan, or those that may occur for the ZiLOG employee
group in general in accord with a general policy change;

(iv) a requirement to relocate, except for the office relocations that
would not increase Koc's one-way commute distance by more than 20
miles;

(v) any material breach of this Agreement on the part of ZiLOG not
fully remedied by ZiLOG within sixty (60) days after written
notice by Koc of such breach.

C. If Koc retires as defined in PM60-05 prior to the termination date of
this Agreement, he will be entitled to the following at the effective
date of retirement: (1) base salary then due and owing for services
previously performed, (2) payouts under EPIP for Awards made prior to
the effective date of the retirement, and 3) payouts under the
Executive Bonus for Awards made prior to the effective date of the
retirement. EPIP and Executive Bonus Awards may also be granted at
ZiLOG's sole discretion for the year in which the retirement occurs,
prorated to the date of the retirement. Payouts for all Awards will be
made at the same time and on the same schedule as those for active
employees. Upon the payment of the foregoing items, ZiLOG will have no
further obligation to Koc.

D. If ZiLOG terminates Koc's employment during the term of this Agreement
other than for 1) Cause or Detrimental Activity as defined in 7.E.
below, or 2) the sale, merger or change in ownership of ZiLOG (as
defined in paragraph 7.G. below) he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, (2) payouts under EPIP for Awards made prior to the
effective date of termination of employment which payouts are payable
to Koc pursuant to the terms of EPIP prior to expiration of the term of
this Agreement, and (3) payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment which
payouts are payable to Koc pursuant to the terms of the Executive Bonus
prior to expiration of the term of this Agreement. Koc will not be
eligible for Awards under EPIP or the Executive Bonus made after the
date on which his employment at ZiLOG ceased or for payouts made on any
Awards after the expiration date of this Agreement. Vesting of stock
options granted under LTIP will continue for the period remaining in
the Agreement. Upon the payment of the foregoing items, ZiLOG will
have no further obligation to Koc.

E. If ZiLOG terminates Koc during the term of this Agreement for Cause, or
for Detrimental Activity as defined herein, ZiLOG will have no further
monetary obligation to Koc other than: (1) any base salary then due
and owing for services previously performed, 2) payouts under EPIP
which become payable to Koc pursuant to the terms of EPIP prior to the
effective date of termination, and (3) payouts under the Executive
Bonus which become payable to Koc pursuant to the terms of the
Executive Bonus prior to the effective date of termination. Cause or
Detrimental Activity shall be a willful violation of a major company
policy, conviction of any criminal or civil law involving moral
turpitude, willful misconduct which results in a material reduction in
Koc's effectiveness in the performance of his duties, or willful and
reckless disregard for the best interests of the Company.

F. If Koc ceases to be an employee of ZiLOG during the term of this
Agreement because of total and permanent disability or death, ZiLOG's
obligations to Koc or his beneficiaries will be limited solely to: (1)
any base salary then due and owing for services previously performed,
(2) payouts in accordance with the terms of EPIP, (3) payouts in
accordance with the terms of the Executive Bonus and 4) any benefits
including LTIP benefits normally provided by ZiLOG it its employees due
to or on account of total and permanent disability or death.

G. If Koc leaves his employment, either voluntarily for Good Reason or
involuntarily for reasons other than for Cause or Detrimental Activity,
following the effective date of a Change in Control prior to the
termination date of this Agreement, he will be entitled to receive the
following: (1) the then current base salary for the period remaining
in this Agreement, payable in a cash lump sum not more than five (5)
business days following the date of leaving employment, (2) payouts
under EPIP for Awards made prior to the effective date of termination
of employment, and (3) payouts under the Executive Bonus for Awards
made prior to the effective date of termination of employment. EPIP
and Executive Bonuses shall also be awarded for the year in which the
termination of employment occurs and shall be calculated in accordance
with the terms of such arrangements assuming the date of Koc's
termination is the last day of ZiLOG's fiscal year and based on ZiLOG's
financial performance for the portion of such fiscal year that includes
calculated financials for ZiLOG as a separate entity. All of the above
EPIP and Executive Bonus Awards shall be paid in a cash lump sum within
five (5) business days of the date of Koc's termination of employment.
All outstanding unvested stock options whether granted under LTIP or
otherwise will continue to vest for the period of time remaining in the
Agreement (the "Continuation Period"). Regardless of the provisions
of LTIP or any other plans or agreements, the Continuation Period shall
be counted as employment with ZiLOG for purposes of vesting under all
options and for purposes of determining the expiration date of any
stock options held by Koc when his employment terminates. During the
remaining term of this Agreement Koc (and, where applicable, his
dependents) shall be entitled to continue participation in the group
insurance plans maintained by ZiLOG, including life, disability and
health insurance programs, as if he were still an employee of ZiLOG.
To the extend that ZiLOG finds it impossible to cover Koc under its
group insurance policies during such period,

H. ZiLOG shall provide Koc with individual policies which offer at least
the same level of coverage and which impose not more than the same
costs on him as if he were still an employee of ZiLOG. The foregoing
notwithstanding, in the event that Koc becomes eligible for comparable
group insurance coverage in connection with new employment, the
coverage provided by ZiLOG under this paragraph shall terminate
immediately. Any group health continuation coverage that ZiLOG is
otherwise required to offer under the Consolidated Omnibus Budget
Reconciliation Act of 1986 ("COBRA") shall be offered when coverage
under this paragraph terminates.

Except as provided in the paragraph immediately following, upon payment
of the foregoing items, ZiLOG will have no further obligation to Koc.

In the event that it is determined that any payment or distribution of
any type to or for the benefit of Koc made by ZiLOG, any of its
affiliates, by any person who acquires ownership or effective control
of ZiLOG or ownership of a substantial portion of ZiLOG's assets
(within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code") or by
any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Total Payments"), would be subject to the excise tax imposed by
section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or
penalties, are collectively referred to as the "Excise Tax"), then
Koc shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount that shall fund the payment by Koc of any
Excise Tax on the Total Payments as well as all income taxes imposed on
the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to taxes on the
Gross-Up Payment or any Excise Tax.

All mathematical determinations and all determinations of whether any
of the total Payments are "parachute payments" (within the meaning of
Section 280G of the Code) that are required to be made hereunder,
including all determinations of whether a Gross-Up Payment is required
and of the amount of such Gross-Up Payment, shall be made by the
independent auditors retained by ZiLOG most recently prior to the
Change In Control (the "Auditors"), who shall provide their
determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matters, both to ZiLOG and to Koc within seven
(7) business days of Koc's termination date, if applicable, or such
earlier time as is requested by ZiLOG or by Koc (if Koc reasonably
believes that any of the Total Payments may be subject to the Excise
Tax). If the Auditors determine that no Excise Tax is payable by Koc,
it shall furnish Koc with a written statement that such Auditors have
concluded that no Excise Tax is payable (including the reasons
therefor) and that Koc has substantial authority not to report any
Excise Tax on his federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Koc within five (5)
business days after the Determination is delivered to ZiLOG or Koc.
Any determination by the Auditors shall be binding upon ZiLOG and Koc,
absent manifest error.

As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Auditors
hereunder, it is possible that Gross-Up Payments not made by ZiLOG
should have been made ("Underpayments") or that Gross-Up Payments
will have been made by ZiLOG which should not have been made
("Overpayments"). In either event, the Auditors shall determine the
amount of the Underpayment or Overpayment that has occurred. In the
case of an Underpayment, the amount of such Underpayment shall promptly
be paid by ZiLOG to or for the benefit or Koc. In the case of an
Overpayment, the employee shall, at the direction and expense of ZiLOG,
take such steps as are reasonably necessary (including the filing of
returns and claims for refund), follow reasonable instructions from,
and procedures established by, ZiLOG and otherwise reasonably cooperate
with ZiLOG to correct such Overpayment; provided, however, that (a) Koc
shall in no event be obligated to return to ZiLOG an amount greater
than the net after-tax portion of the Overpayment that Koc has retained
or has recovered as a refund from the applicable taxing authorities,
and (b) this provision shall be interpreted in a manner consistent with
the intent of this excise tax restoration provision which is to make
Koc whole, on an after-tax basis, for the application of the Excise
Tax, it being understood that the correction of an Overpayment may
result in Koc's repaying to ZiLOG an amount which is less than the
Overpayment.

8. Koc Representations. Koc represents to ZiLOG that to the best of his
knowledge he is under no obligation to any employer or third party which
would preclude his full, complete and unfettered discharge of his duties
under this Agreement.

9. Notices. Any notices required to be given hereunder shall be in writing,
and if by ZiLOG shall be addressed to Koc as indicated in ZiLOG's personnel
records or such other address as Koc shall specify in writing, and if by Koc
to ZiLOG at:

ZiLOG, Inc.
Suite 110
910 East Hamilton Avenue
Campbell, California 95008
ATTENTION: Vice President, Human Resources

Such addresses may be changed by written notice from either ZiLOG or Koc, to
the other.

10. Amendment. This Agreement may be amended only in writing, signed by both
parties hereto.

11. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon ZiLOG, its successors and assigns. Koc may not assign,
transfer, pledge or hypothecate any of his rights or obligations hereunder,
Awards or payouts under EPIP or the Executive Bonus or other compensation to
which he may be entitled hereunder. ZiLOG will require any successor
(whether direct or indirect, by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the business and/or assets of
ZiLOG to assume expressly and agree, in substance and form satisfactory to
Koc, to perform this Agreement in the same manner and to the same extent
ZiLOG would be required to perform it if no succession had taken place.

12. Waiver of Breach. The waiver by ZiLOG or by Koc of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.

13. Severability. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision
hereof.

14. Entire Agreement. This entire Agreement consists of this document,
together with the following documents:

A. EPIP, to be attached as Exhibit I when finalized;
B. Executive Bonus, to be attached as Exhibit II when finalized;
C. ZiLOG 1998 Long Term Incentive Plan, to be attached as Exhibit III when
finalized;
D. Employee Proprietary Rights and Non-Disclosure Agreement, attached as
Exhibit IV;
E. Conflict of Interest Statement, attached as Exhibit V;
F. Policy on Business Ethics, attached as Exhibit VII; and
G. PM60-05, attached as Exhibit VIII.

15. Governing Law. This Employment Agreement shall be governed by the laws of
the State of California, without regard to conflict of laws principles.

Executed effective: August 3, 1998
-------------------
(DATE)

By: /s/ Aydin Koc By: /s/ Curtis J. Crawford

Dated: August 3, 1998 Dated: August 3, 1998

<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Balance Sheet and Statement of Operations included in the
Company's Form 10-K for the year ended December 31, 1998 and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER>1000

<S> <C>
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<PERIOD-TYPE> 12-MOS
<CASH> 50,856
<SECURITIES> 0
<RECEIVABLES> 25,517
<ALLOWANCES> 366
<INVENTORY> 22,232
<CURRENT-ASSETS> 105,760
<PP&E> 424,401
<DEPRECIATION> 242,653
<TOTAL-ASSETS> 297,071
<CURRENT-LIABILITIES> 58,953
<BONDS> 280,000
0
25,000
<COMMON> 401
<OTHER-SE> (73,632)
<TOTAL-LIABILITY-AND-EQUITY> 297,071
<SALES> 204,738
<TOTAL-REVENUES> 204,738
<CGS> 163,315
<TOTAL-COSTS> 163,315
<OTHER-EXPENSES> 28,846
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 24,375
<INCOME-PRETAX> (101,776)
<INCOME-TAX> (14,248)
<INCOME-CONTINUING> (87,528)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,528)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00

</TABLE>