ZILOG INC, 10-K405, 2000-03-30

ZILOG INC
10-K405, 2000-03-30
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, 1999, or

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

For the transition period __________ to __________

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 $15,527,008
and $885,096, respectively, as of March 1, 2000 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, 2000, 31,053,936 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 7A. Quantitative and Qualitative Disclosures About Market Risk
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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - 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 and Z80 are registered trademarks of ZiLOG, Inc.

Extreme Connectivity c ZiLOG, Inc. 1999

PART I

ITEM 1. BUSINESS

Executive Summary

ZiLOG, Inc. (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 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 advanced embedded product applications include microcontrollers
for home appliances, ICs in televisions that provide digital tuning control
features (on-screen display, channel, volume and color brightness), and
ASSPs in remote control units that send instructions to televisions and
VCRs.

In 1999, ZiLOG redefined its mission to become a leading provider of
advanced embedded solutions for the Internet, communications, human
interface and control markets. The Company's intent is to become a key
enabler in the age of "Extreme Connectivity". As used by ZiLOG, Extreme
Connectivity means that people will increasingly have the opportunity, if
they choose, to be connected to each other, and to their electronic
devices, at any time, and from anywhere, due in large part to advances in
semiconductor technology. To help bring this about, ZiLOG's three business
units --- Home Entertainment, Integrated Controls and Communications ---
developed specific strategies to address critical aspects of Extreme
Connectivity. For example, the Company's Integrated Controls and Home
Entertainment business units are developing hardware and software solutions
for smart home appliances and building controls, while Communications
focuses on product solutions that will expand the communications
infrastructure capacity for the Internet and telecommunications markets.
The Company's current activities increase the capacity for global
communications and connectivity in the home or the office.

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. ZiLOG's customer base includes
many leaders in their respective industries, including Acer, Alcatel, Black
and Decker, Chamberlain, Digital Security Controls, Globespan, Kimball
Electronics, Logitech, Microsoft, Motorola, Minebea Company Ltd., Northern
Telecom, Qualcomm, Samsung, Thomson Consumer Electronics, and Zenith.

Headquartered in Campbell, California, the Company has wafer fabrication
facilities in Nampa, Idaho and a final test facility in the Philippines.
Starting in January 1999, the Company outsourced all assembly operations to
subcontractors in Indonesia and the Philippines. For the fiscal year ended
December 31, 1999, the Company had revenue of $245.1 million, a net loss of
$37.9 million and EBITDA of $46.5 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.

ZiLOG's stock is privately held and its bonds are publicly traded. The
Company's common stock was previously listed on the New York Stock Exchange
and traded under the symbol "ZLG" until February 27, 1998. 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").

Unless the context of this document 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 Semiconductor Industry
Association (SIA), worldwide semiconductor product sales totaled $149.5
billion in 1999. The semiconductor industry is currently comprised of
three broad product segments: micro-logic devices, memory devices, and
analog and discrete devices. Micro-logic devices, which process data,
include microprocessors, microcontrollers and digital signal processors.
This segment represents approximately 51% of total industry sales. Memory
devices, which store data, represent approximately 21% of total industry
sales. Analog and discrete devices process or amplify electronic signals
and represent approximately 28% of total industry sales. The Micro-logic
device segment further consists of three distinct categories: (i) general
purpose logic products, 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 tailored for a
particular application, but are not proprietary to a single customer.

ZiLOG develops, manufactures and markets ASSPs in the Micro-logic device
segment. 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, which operate personal computers.
Instead, ZiLOG's products operate or perform specialized functions in
products such as, garage door openers, home appliances, security systems
and televisions, all of which exhibit increasing degrees of IC content.

Markets

ZiLOG relies upon its knowledge, experience, customer relationships as well
as proprietary core and cell designs to target products in the rapidly
growing Extreme Connectivity market, which includes communications,
integrated controls and home entertainment products. 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 attract multiple customers
in the same market and create industry standards. The Company believes it
is well-positioned with respect to the trends in its target market areas,
which include smart home and building control electronics, home
entertainment electronics products and communications infrastructure
products for the Internet and telecommunications markets.

ZiLOG currently offers more than 760 products (independent of customer
specific read only memory codes), sold in a wide selection of package,
speed grade and other configurations, which are sold to approximately 200
distributors and original equipment manufacturers ("OEMs"). ZiLOG's
customers include Acer, Alcatel, Black and Decker, Chamberlain, Digital
Security Controls, Globespan, Kimball Electronics, Logitech, Microsoft,
Motorola, Minebea Company Ltd., Northern Telecom, Qualcomm, Samsung,
Thomson Consumer Electronics, and Zenith.

ZiLOG targets applications in communications, integrated controls and home
entertainment markets. ZiLOG's Communications business unit is
predominantly based on the Company's Z80 line of 8-bit microprocessors and
serial communication devices. The Company's Home Entertainment and
Integrated Controls business units target consumer and industrial
applications and are based largely on ZiLOG's Z8 line of 8-bit
microcontrollers and digital signal processors. Accordingly, for purposes
of segment financial reporting, Home Entertainment and Integrated Controls
have been aggregated together.

Communications: In 1999, the company announced the development of two new
major product families --- the Cartezian Communications Engine, and the
eZ80 Internet Engine --- to address the growing needs of the communications
marketplace. The initial eZ80 Internet engine and Cartezian products are
currently in development and are expected to be commercially available in
the second half of 2000. These product families expand the capacity or
bandwidth for data and voice communication products. The Cartezian
Communications Engine is a family of embedded communications processors
that combine the efficiency of reduced instruction set computing ("RISC")
with the high-end performance of digital signal processors ("DSP"). The
Cartezian solution is built around a 32-bit RISC/DSP processor and RISC/DSP
edge processors, a rich set of communications peripherals, and software
stacks. The family includes the Cartezian routers and Cartezian switches
that provide scalable solutions for Local Area Networks ("LANs"), routers,
switches, central office line cards, digital subscriber line access
multiplexer ("DSLAM"), and Small Office Home Office (SOHO) applications.
The eZ80 is a high-performance 8-bit microprocessor that delivers embedded
access to the Internet and a clear migration path for customers who already
use Z80 microprocessors. The eZ80 Internet Engine is optimized for
electronic transactions, smart networked devices, web management and
factory automation applications. The Company believes that its
communications products are well positioned to address the Extreme
Connectivity requirements of the Internet. The worldwide communications
market is growing in response to the need to connect computer systems and
other electronic devices at remote locations via the Internet. 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's microprocessors are optimized for use in communications
applications such as Ethernet routers, bridges, data switches, modems,
terminals, local area networks and wide area networks.

Integrated Controls: The Company's integrated controls products address a
need for embedded intelligence and control functions in everyday devices,
such as home appliances and building security systems. ZiLOG manufactures
ASSP microcontrollers for a wide variety of applications, including
coffeemakers, smoke alarms, garage door openers, security control panels,
battery chargers, cordless phones, automated meter readers, keyboards and
pointing devices. In addition to providing customers with ASSP
microcontrollers, the Company is focused on producing Extreme Connectivity
solutions for the connected home environment. This effort includes
bundling silicon and connectivity software for connected home appliances,
security systems and wireless communications devices. The types of devices
that may be connected include coffeemakers, alarm clocks, indoor and
outdoor lighting, smoke detectors, telephones, fax machines, thermostats,
bathroom scales, kitchen mixers, handheld organizers, water heaters, window
alarms, garage door openers, security cameras and remote control devices,
such as handheld computing products. ZiLOG is working with major
manufacturers to develop the technology solutions for these consumer
products. The Company's Wave chip family introduced in 1999 is integral to
this effort. Wave chips are DSP-based voice and data controllers for
wireless spread spectrum applications. They are designed for wireless data
terminals, point-of-sale systems and handheld computing devices. The
Company's Wave Communicator, a new product, provides cordless phone and
remote control capabilities for handheld computing devices.

Home Entertainment: The increase in use of ASSPs in home entertainment has
created worldwide market opportunities for ZiLOG. Sophisticated ASSPs,
such as television and infrared remote controllers, are increasingly found
in home entertainment products including televisions 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. Home
Entertainment products designed for Extreme Connectivity markets include
MailTV and the Advanced Human Interface ("AHI") Navigator. ZiLOG's MailTV
module, first introduced in the European market, can transform a TV into a
communications platform and is capable of email interaction, Internet text
browsing and e-commerce transactions, such as e-banking. The AHI Navigator
is a next-generation "smart" remote control for entertainment systems that
can recognize handwriting. AHI Navigator's laptop-style touchpad enables
users to access TV controls, video, email and the Internet by using their
fingertips to create handwritten messages and commands. The Company is
also developing Integrated Digital Decoders for TVs that combine on-screen
display and video decoder functionality and improve picture quality.

Business Strategy

To accomplish the Company's goal of becoming the Extreme Connectivity
Company, ZiLOG enacted the following strategic initiatives in 1999:

Provide 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.

Expand Internet site usefulness: The dramatic growth of e-commerce in 1999
demonstrates the continuing importance of developing easy-to-use and
comprehensive web sites. Design engineers, according to an industry
survey, say that Internet access is either a critical or important factor
for design engineers to choose a semiconductor supplier. Recently, ZiLOG
expanded the usefulness and convenience of its Internet site, "ZiLOG.com",
to increase its utility as a major marketing and sales tool. These steps
include:

o Redesigning the entire site with the design engineer in mind,
including adding a parametric search engine
o Highlighting new products and services on the home page
o Linking with the Company's partners' websites
o Centralizing technical support information
o Enabling on-site e-commerce
o Posting the Company's most-requested documentation

Increase operational efficiency: The Company has made significant capital
expenditures of approximately $267 million over the last five 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."

Increase customer focus: In 1998, the Company adopted an operating
philosophy that customer relations were of supreme importance. All
employees are asked to fulfill the needs of customers. By improving
customer contact at many levels, the Company expects to increase design
wins and sales with both existing and new customers. To accomplish this
goal, in 1999, a Customer Relations department was created to focus on
meeting customer needs and the customer support center in Austin, Texas was
established to improve customer communications. 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.

The Company began implementing its business strategies in 1998 and has
continued to refine and focus on these initiatives throughout 1999. To
promote its business strategy, ZiLOG has added resources in the areas of
advertising and trade shows. In addition, each of the Company's business
units has developed comprehensive product road maps, all of which center
on developing product solutions that provide customers with Extreme
Connectivity features.

Recent development: On March 22, 2000, ZiLOG acquired 20% of the common
stock of Qualcore Group, Inc. ("Qualcore") for cash of $8.0 million
pursuant to a Purchase and Sale Agreement. ZiLOG intends to account for
its investment in Qualcore common stock using the equity method.
Qualcore and its wholly owned subsidiaries have approximately 105
employees in the United States and India who are engaged in the design of
digital logic integrated circuits and related intellectual property.

Research and Development

ZiLOG believes that the continued introductions of new product solutions
in its target markets are essential to its growth. Accordingly, during
1999, the Company focused on growing and enhancing its research and
development in the areas of product and design tool development. In April
1999, ZiLOG acquired the assets of Seattle Silicon Corporation, a fabless
semiconductor company that offers product design capability for analog and
mixed signal system-on-a-chip technology. In the fourth quarter of 1999,
the Company opened a design center in Bangalore, India and acquired the
assets of Production Languages Corporation ("PLC") in Fort Worth, Texas.
Both the India Design Center and PLC are focused on development of
embedded software and development tools optimized for ZiLOG's products and
the costs of such development activities are treated as period expenses.
As of December 31, 1999, the Company employed 171 people in research and
development as compared to 139 people at December 31, 1998. Expenditures
for research and development in 1999, 1998 and 1997 were approximately
$32.8 million, $28.8 million, and $30.5 million, respectively, representing
approximately 13%, 14%, and 12%, respectively, of net sales. Design
engineers, through the use of the Company's proprietary design library,
create most of ZiLOG's new products. Most of the product 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 minimized as manufacturing technology advances to smaller
dimensions.

Manufacturing

ZiLOG operates two semiconductor fabrication facilities in Nampa, Idaho,
which contain fabrication modules equipped to produce ICs 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, based on current staffing levels, the Company estimates its
facilities are operating at approximately 80% 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.

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. ZiLOG's manufacturing 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.

In 1999, ZiLOG's facilities in Nampa, Idaho and the Philippines 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

The Company markets its products throughout the world to original equipment
manufacturers ("OEMs") utilizing a direct sales force. In addition to its
direct sales force, ZiLOG uses distributors in all of its business regions.
In 1999, the Company derived approximately 41 percent of its net sales
from direct sales to OEM customers and 59% from sales through distributors.
The Company's products are sold in the communications, integrated controls
and home entertainment markets as well as the military and aerospace
industries. 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.

The Company's direct sales force of approximately 110 people, focuses on
three geographic areas: Americas, Europe, and Asia, including Japan. ZiLOG
has sales offices located in the metropolitan areas of Atlanta, Austin,
Boston, Campbell, Chicago, Cleveland, Dallas, Minneapolis, Orange County,
Philadelphia, Portland, Beijing, Erfurt, Hong Kong, Kuala Lumpur, London,
Munich, Seoul, Shanghai, Shenzhen, Singapore, Taipei, Tokyo, Toronto and
Vancouver.

Customer support is handled by ZiLOG's Worldwide Customer Support Center in
Austin, Texas. This facility provides responses for customer questions,
product availability and order entry administration for the Americas and
Japan.

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.

Early in 2000, the Company announced a full service distribution agreement
with Pioneer-Standard Electronics, Inc. ("Pioneer") based in Cleveland,
Ohio, whereby Pioneer became the exclusive full service distributor of
ZiLOG products in North America. This partnership is expected to result in
an increase of activity in the North American market, which is perceived as
a growth market for ZiLOG's Extreme Connectivity solutions.

During the years ended December 31, 1999 and 1998, one distributor, Arrow
Electronics, Inc., accounted for approximately 12.6% and 10.5% of net
sales, respectively. In 1997, no single customer accounted for more than
10% of net sales.

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: expertise in the technology of a broad range of applications in
the communications, integrated controls and home entertainment markets;
design methodology which includes an extensive library of customer familiar
cores and cells; and 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 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. ZiLOG's Communications products
compete with products sold by Motorola and Advanced Micro Devices. The
Company's Integrated Control products compete with integrated circuits sold
by Microchip and ST Microelectronics. Home Entertainment products
manufactured by ZiLOG compete with semiconductors sold by Samsung,
Mitsubishi and Sanyo. However, the Company believes no single competitor
addresses exactly the same set of products or markets as ZiLOG.

Backlog

The Company's backlog of released orders as of December 31, 1999 was
approximately $43.0 million as compared to $33.2 million at December 31,
1998. 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 106 U.S. and 8 foreign patents and has 43 U.S. and 17 foreign
patent applications pending. ZiLOG has also filed and received one
patent outside of the U.S. The Company has more than 75 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 6 registered trademarks and has common law rights in 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 150 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 "Legal Proceedings" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors That
May Affect Future Results-Intellectual Property Rights."

Employees

As of December 31, 1999, ZiLOG employed 1,351 full-time persons, including
933 in manufacturing, 171 in research and development, 177 in sales and
marketing and 70 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
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 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 in 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 1999, the Company opened a design center in
Bangalore, India and expects to enter into a lease agreement for
approximately 10,000 square feet. 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. The Company believes that its existing
facilities, together with the expansion of the design center in India,
will be adequate to meets its requirements for the next 12 months.

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. On April 16, 1999, the plaintiffs
filed their notice of appeal to the Ninth Circuit of Appeals. Based upon
information presently known to management, the Company is unable to
determine the ultimate resolution of this lawsuit or whether it will have
a material adverse effect on the Company's financial condition.

The Company is a party to an insurance coverage lawsuit in the Superior
Court of the State of California in and for Santa Clara County filed on
July 29, 1996, in which its former insurers, Pacific Indemnity Company,
Federal Insurance Company and Chubb & Son, Inc., claim that insurance
coverage did not exist for allegations made in an underlying lawsuit
brought by employees of the Company and their families who claimed that
they suffered personal injuries and discrimination because of alleged
exposure to chemicals at ZiLOG's manufacturing plant in Nampa, Idaho in
1993 and 1994. The insurers seek a declaration that insurance
coverage under the applicable policies did not exist, and they seek
reimbursement of attorneys' fees, costs and settlement funds expended on
the Company's behalf. A total of approximately six million, three hundred
thousand dollars ($6,300,000) plus interest is sought by the insurers.
Both the insurers and the Company have each brought separate motions for
summary judgment or, in the alternative, motions for summary adjudication.
All such motions were denied by the Superior Court, and the Court of
Appeals denied each party's respective petition for review of each denial
of their summary judgment motions. The Company petitioned the California
Supreme Court for review of the denial of its motion for summary judgment.
The California Supreme Court denied the Company's petition for review
without making a decision on the merits of the dispute. The insurers have
renewed their motion for summary adjudication. The Company is opposing
that motion. No trial date has been set. Based upon information presently
known to management, the Company is unable to determine the ultimate
resolution of this lawsuit or whether it will have a material adverse
effect on the Company's financial condition.

Two parties have notified ZiLOG that it may be infringing certain patents
and other intellectual property rights. In the event ZiLOG determines
that such notice 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 capital stock is no longer traded on an established public trading
market. 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 period
indicated, as reported by the New York Stock Exchange:

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

As of December 31, 1999, there were approximately 51 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 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 has 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 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 and the Credit Facility, 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.

Sales of restricted stock were made to the following individuals:

<TABLE>
<CAPTION>
Number
Name Date of Sale of Shares Consideration
------------------------- ------------ ----------- --------------
<S> <C> <C> <C>
Richard S. Frieland (1) 2/07/00 25,000 $4.00/share
Murray A. Goldman (1) 2/07/00 50,000 $4.00/share
Robert D. Norman 1/13/00 250,000 $4.00/share
Lionel N. Sterling (1) 2/01/00 100,000 $4.00/share

</TABLE>

Each of these sales was done pursuant to section 4 (2) of the Securities
Act of 1933.
-----------------------------------------------------------------

(1) Serves as a member of the Board of Directors; vests 50% per year over
two years.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands)
-------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net sales................. $245,138 $204,738 $261,097 $298,425 $265,122

Costs and expenses:
Cost of sales............ 158,768 163,315 171,722 175,319 135,066
Research and
development............ 32,777 28,846 30,467 30,548 24,546
Selling, general and
administrative......... 59,082 54,317 47,806 47,934 41,943
Special charges (1)...... 4,686 38,620 -- -- --
--------- --------- --------- --------- ---------
Total costs and
expenses................ 255,313 285,098 249,995 253,801 201,555
--------- --------- --------- --------- ---------
Operating income (loss)... (10,175) (80,360) 11,102 44,624 63,567
Other income (expense):
Interest income 2,567 3,755 3,167 2,733 3,034
Interest expense 28,954 24,375 275 290 358
Other, net................ (324) (796) 832 (911) (360)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes............ (36,886) (101,776) 14,826 46,156 65,883
Provision (benefit) for
income taxes............ 1,004 (14,248) 2,965 16,155 23,418
--------- --------- --------- --------- ---------
Net income (loss)......... ($37,890) ($87,528) $11,861 $30,001 $42,465
========= ========= ========= ========= =========

EBITDA(2)................. $46,555 $19,259 $75,456 $91,307 $89,478

Consolidated Balance Sheet
Data (at end of period):
Working capital........... $55,562 $46,807 $131,594 $88,567 $102,761
Total assets.............. $284,286 $297,071 $415,639 $401,066 $353,430
Notes payable............. $280,000 $280,000 $ -- $ -- $ --
Other non-current
liabilities............. $15,603 $6,349 $16,070 $16,050 $8,435
Shareholders' equity
(deficiency)............ ($89,768) ($48,231) $340,482 $325,280 $278,864

</TABLE>

(1) Special charges consist of asset write-downs and purchased in-process
R&D charge in 1999 and recapitalization and restructuring charges in
1998. See Note 5 of Notes to Consolidated Financial Statements.

(2) EBITDA represents earnings (losses) before interest, income taxes,
depreciation, amortization of intangible assets, 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, 1999, 1998 and 1997. 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.

Results of Operations

The Company's operating results have and will vary because of a number of
factors, including the timing and success of new product introductions,
customer design wins and losses, the success of cost reduction programs,
changes in product mix, volume, timing and shipment of orders and
fluctuations in manufacturing productivity. Sales comparisons are also
subject to customer order patterns and seasonality.

General

ZiLOG is a leading global design solutions company specializing in
embedded integrated circuits for the communications, home entertainment
and integrated controls markets. Headquartered in Campbell, California,
ZiLOG maintains design centers in Campbell, Austin and Fort Worth, Texas,
Nampa, Idaho, Seattle, Washington and Bangalore, India, a worldwide
customer service center in Austin, wafer fabrication manufacturing in
Nampa and test operations in Manila, Philippines. For the fiscal year
ended December 31, 1999, the Company generated net sales of $245.1
million, a net loss of $37.9 million and EBITDA of $46.6 million.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

ZiLOG's net sales of $245.1 million in 1999 grew 19.7% over 1998 sales of
$204.7 million. The increase was primarily attributable to higher unit
shipments for most of the Company's product lines as a result of improved
market conditions. ZiLOG's communications products experienced growth of
29.8% to $89.5 million in 1999 compared to 1998, which was the result of
higher unit shipments of embedded control, serial communications and modem
products and slightly higher average selling prices ("ASPs") for most
product lines. In 1999, net sales of the Company's integrated control
products grew 7.9% to $92.7 million as a result of higher unit shipments,
particularly of one-time programmable microcontrollers, while ASPs
remained unchanged from the prior year. This improvement was offset by a
decline in sales of peripheral products as its products are being designed
out of mouse-type pointing device applications at certain customers. As a
result, the bookings rate for peripheral products decreased substantially
in the second half of 1999 to approximately $9.9 million as compared to
approximately $17.0 million in the first half of 1999. In 1999, net sales
of home entertainment products increased 26.1% from 1998 to $63.0 million
due to higher unit shipments, offset partially by slightly lower ASPs of
both TV products and infrared remote control products.

Net sales for the Americas in 1999 grew 14.6% from last year to $113.3
million. Asia, including Japan, grew sales by 27.6% to $105.8 million and
in Europe net sales increased 13.4 % to $26.1 million.

Gross margin as a percent of net sales improved to 35.2% in 1999 from
20.2% in 1998. This improvement was a result of higher net sales and
related increases in factory utilization, ZiLOG's cost reduction programs,
and reduced depreciation expense, particularly in the Company's eight-inch
wafer fabrication facility. The Company completed the outsourcing of its
assembly operations to subcontractors in the first quarter of 1999.
Effective July 5, 1999, the Company changed the estimated useful lives of
certain machinery and equipment located in its eight-inch wafer fab in
Nampa, Idaho from five to seven years. This change in accounting estimate
resulted in a $9.1 million reduction of depreciation expense in the second
half of 1999 as compared to the amount that would have been recorded
under the previous useful life estimates. Had the accounting change been
in effect for the full year in 1999, it would have resulted in a $18.2
million reduction in depreciation expense compared to the amount that
would have been recorded under the previous useful life estimates. The
decision to change the estimated service period for these assets was based
on the Company's recent qualification of a new .35 micron wafer
manufacturing process in its eight-inch wafer fab and the transfer of many
of ZiLOG's products into this facility. Accordingly, the Company believes
that extending the service period on these assets is consistent with its
current production plans.

Late in the third quarter of 1998, ZiLOG implemented two actions to reduce
the cost structure of its wafer fabrication facilities in Nampa, Idaho.
The actions taken reduced the workforce by 20% and changed the shift
structure to accommodate the transfer of more wafer manufacturing into the
Company's more efficient, eight-inch fabrication facility from its five-
inch facility. The Company continues to manufacture wafers at or near the
staffed capacity of the 5-inch facility. Additionally, the Company was
able to negotiate significant reductions in raw material prices.

Research and development expenses increased to $32.8 million in 1999 from
$28.8 million in 1998 but decreased slightly as a percentage of sales,
dropping to 13.4% in 1999 from 14.1% in 1998. The 1999 increase in
research and development spending was due principally to higher product
and design tool development costs, including expenses associated with the
Company's new design centers in Seattle and Bangalore. 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.

Selling, general and administrative expenses increased to $59.1 million in
1999 from $54.3 million in 1998 and decreased as a percentage of net sales
to 24.1% in 1999 from 26.5% in 1998. The increase in selling, general and
administrative spending in 1999 was primarily due to increased personnel
costs, product advertising, promotion and trade show expenses and higher
commission on increased sales volume.

During 1999, the Company recorded special charges of $4.7 million.
Approximately $1.0 million was purchased in-process research and
development expense related to several partially developed semiconductor
product designs that were acquired through the acquisition of Seattle
Silicon in April 1999. ZiLOG also recognized a $3.7 million charge for
the write-down to estimated net realizable value of under-utilized test
equipment, which is being held for sale. The carrying value of such
assets at December 31, 1999 is $900,000 and is recorded in other current
assets on the consolidated balance sheet. The net realizable value of
assets held for disposal was based on an independent appraisal.

In 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 $1.7 million for
severance pay and benefits for terminated employees. These actions reduced
the Company's workforce in its Nampa, Idaho wafer fabrication facility by
approximately 120 positions and eliminated 33 positions in sales and
headquarters operations. The restructuring costs for the fourth quarter of
1998 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. In
connection with these actions, 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.

Interest expense increased to $29.0 million in 1999 from $24.4 million in
1998. The increase resulted from the first full year of interest expense
on the Company's Senior Notes issued in conjunction with the Merger in
February 1998. 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 on February 27,
2005 or their retirement.

The Company's provision for income taxes in 1999 reflects foreign income
taxes for certain profitable jurisdictions as well as foreign withholding
taxes. The 1998 tax benefit rate of 14% reflected the benefits from the
carryback of the operating losses, net of foreign income withholding
income taxes. Based on the weight of available evidence including the
Company's cumulative losses to date, the Company has provided a full
valuation allowance of $28.5 million against its net deferred tax assets.

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 in 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 reflected both lower unit volume shipments and a lower average
selling price ("ASPs"). Since communications products typically have
higher ASPs than the Company's average ASPs, the unit volume reduction of
communication product shipments resulted in an overall ASP decline in
1998.

Net sales of $98.8 million in 1998 for the Americas declined 26.9% from
1997. The decrease was primarily the result of lower unit volume of
communications products. Net sales of $82.9 million in Asia, including
Japan, decreased 16.4%, owing to the turmoil in several of the economies
comprising that region. Net sales of $23.0 million in Europe dropped
14.6% from the prior year.

Gross margin as a percent of net sales was 20.2% in 1998 compared to 34.2%
in 1997. The lower gross margin in 1998 was primarily attributable to
lower net sales, particularly communications products, and the under-
utilization of wafer fabrication manufacturing capacity.

Research and development expenses in 1998 were $28.8 million or 14.1% of
net sales compared to $30.5 million or 11.7% of net sales in 1997. 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. The
decrease in 1998 research and development expenses, as compared to 1997,
was primarily due to a decrease of $2.8 million 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 in 1998 increased 13.6% to
$54.3 million compared to $47.8 million in 1997, representing an increase
of 13.6%. The 1998 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.

Interest expense increased to $24.4 million in 1998 from $0.3 million
1997. The increase was primarily attributable to interest on the
Company's Senior Notes issued in conjunction with the Merger on February
27, 1998.

The Company's benefit for income taxes was 14.0% in 1998 compared to a
provision for income taxes of 20% in 1997. 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. The provision for income
tax in 1997 was lower than the expected tax rate due to the 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.
The Company's Philippines tax holiday expired in 1997.

Liquidity and Capital Resources

The Company's primary cash needs are debt service, working capital and
capital expenditures. As of December 31, 1999, the Company had cash and
cash equivalents of approximately $60.8 million. Additionally, ZiLOG has
a senior secured credit facility (the "Facility") from a commercial
lender (the "Lender") that provides for total borrowings of up to $40.0
million, which consist of a three-year revolving credit facility of up to
$25.0 million and a five-year capital expenditure line of up to $15.0
million which expire on December 30, 2001 and 2003, respectively.
Borrowings under the 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% (8.5 % at December 31, 1999)
for the revolving credit facility and the Lender's prime rate plus 1% (9.5
% at December 31, 1999) or LIBOR plus 3% (9.5% at December 31, 1999) for
the capital expenditure line. There have been no borrowings under either
facility as of December 31, 1999.

During 1999, the Company's operating activities generated net cash of
$24.4 million which was primarily attributable to an increase in accounts
payable, other accrued and non-current liabilities of $24.8 million and
adjusted by non-cash items including depreciation and amortization of
$52.4 million, a write-down of assets held for disposal of $3.7 million
and a charge for purchased in-process research and development of $1.0
million. These items were offset by a net loss of $37.9 million and an
increase in inventories, accounts receivable and other assets of $18.3
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.

Cash used for investing activities was $14.2 million during 1999. The
Company invested $8.3 million in new capital expenditures primarily for
new test equipment, product development tools and computer system upgrades
and $5.9 million for the acquisition of the net assets of Seattle Silicon
Corporation. In 1998, cash used for investing activities was $7.2 million
as the Company invested $21.3 million primarily in manufacturing
equipment, computer systems and office upgrades. This use of cash was
partially offset by $14.1 million in proceeds received from the sale of
short-term investments. In 1997, cash provided by investing activities of
$1.1 million was attributable to the sale of short-term investments, which
were almost entirely offset by capital expenditures in the amount of $38.4
million. In 2000, ZiLOG expects to invest approximately $40.0 million for
fixed asset additions, primarily for expansion of its sub-micron wafer
fabrication capacity in Nampa, Idaho.

On March 22, 2000 ZiLOG acquired 20% of the common stock of Qualcore
Group, Inc. ("Qualcore") for cash of $8.0 million pursuant to a Purchase
and Sale Agreement. ZiLOG intends to account for its investment in
Qualcore common stock using the equity method.

Cash used by financing activities of $0.2 million in 1999 was from
principal payments under capital leases offset by exercises of stock
options. 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 Partners II, L.P. 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.

ZiLOG's primary cash needs are debt service, working capital and capital
expenditures. 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. The Company has financed its
cash requirements for working capital and capital expenditures primarily
through internally generated cash flows and existing cash reserves. The
Company intends to spend approximately $40.0 million in capital
expenditures in 2000. Based upon the current level of operations,
management believes that cash flow from operations, available cash and
available borrowings under the Facility will be adequate to meet ZiLOG's
future requirements for working capital, capital expenditures, and other
expenditures and scheduled interest payments 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

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, 2001, and is not
expected to have any impact on the Company's results of operations or
financial condition.

In December 1999, the Securities and Exchange Commission (SEC) issued SEC
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. The Company has reviewed SAB 101 and is
evaluating the effect of its application to the Company's financial
statements.

Year 2000 Compliance

In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ("Y2K") ready. In late 1999, ZiLOG completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company to date, has experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believes those systems successfully
responded to the Y2K date change. The Company had intended to replace
such systems in the ordinary course of business and the implementation was
not substantially accelerated due to Y2K. ZiLOG expended approximately
$4.6 million through 1999 in connection with information system
enhancements. To date, the Company is not aware of any material problems
resulting from Y2K issues, either with its products, its internal systems,
or the products and services it receives form third parties. The Company
will continue to monitor its mission critical applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any Y2K
matters that may arise are addressed properly. However, there can be no
assurance that the Company has identified and remediated all Y2K-related
systems issues.

Factors That May Affect Future Results

Change in North American Distributors. In January 2000, The Company
announced its intention to terminate its existing relationships with Arrow
Electronics Inc. ("Arrow"), Future Electronics Inc. ("Future") and Unique
Technologies ("Unique") in the North American marketplace. In 1999, these
distributors purchased $42.3 million of product from ZiLOG. The Company
has franchised Pioneer as its sole exclusive full service distributor in
North America. Pioneer is expected to take over the majority of the
business that ZiLOG previously conducted with Arrow, Future and Unique but
no assurances can be given that this transition will occur smoothly.
Although most of ZiLOG's products are only produced by the Company, some
products sold through distribution, such as the Z85C30 CMOS serial
communications controller, are manufactured and sold by other companies.
Terminated distributors may try to direct their customers to these second
sourced products. Other customers may not wish to transfer their business
to Pioneer and ZiLOG may lose certain business formerly sold through
distribution in this transition. There can be no guarantee that Pioneer
will meet or exceed the level of business formerly generated by Arrow,
Future and Unique. As a result, the Company's financial results may
differ materially from prior years.

Substantial leverage and ability to service indebtedness. ZiLOG has
incurred substantial indebtedness in connection with the recapitalization
of the Company, which became effective February 27, 1998. At December 31,
1999, ZiLOG had $280 million of consolidated long-term indebtedness and a
capital deficiency of $89.8 million.

The high degree to which the Company is leveraged may have important
consequences to the Company, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, product development, future acquisitions (if any), or other
purposes may be impaired or any such financing may not be available
on terms favorable to the Company; (ii) a substantial portion of the
Company'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 the Company; (iii) a decrease in net operating
cash flows or an increase in expenses could make it difficult for the
Company to meet its debt service requirements or force it to modify its
operations; and (iv) high leverage may place the Company 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.

To satisfy the Company's obligations under the Notes, 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 B2. Standard and Poor's current rating
of the Company's corporate credit and the Notes 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. The Company'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, the Company's ability
to introduce and sell new products and technologies on a timely basis,
execute on cost reduction programs, changes in product mix or fluctuations
in manufacturing yields which affect the Company's gross profit, market
acceptance of the Company'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 the Company's customers buy from a distributor or directly from
the Company.

The Company has learned that it is being designed out of pointing device
applications at a number of customers. The bookings rate for peripheral
products decreased substantially in the second half of 1999 to
approximately $9.9 million from approximately $17.0 million in the first
half of the year. This bookings trend is expected to result in lower sales
in peripheral products in the foreseeable future.

The Company's overall average selling prices increased slightly in 1999,
when compared to 1998. However, during 1997 and 1998, the Company
experienced significant declines in its overall average selling prices.
Significant reductions in selling prices may have a material adverse
effect on the Company. The Company will likely experience substantial
period-to-period fluctuations in future operating results due to general
industry conditions including cyclical periods of diminished product
demand, product mix, accelerated erosion of average selling prices and
production over-capacity or events occurring in the United States economy
or the economies of the worldwide markets the Company serves. A
significant decline in demand for the Company'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.

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 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 generate any increase in revenue. 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.
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 of 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; reductions in
workforce; changes of manufacturing mix; increased use of subcontractors
or wafer manufactureres for greater efficiency and lower short term costs;
changes in shift structures; and temporary plant shutdowns. Such cost-
cutting measures may not result in increased efficiency or profitability.
The Company intends to spend approximately $40.0 million in capital
expenditures in 2000. There is no assurance that the capital expenditures
will increase the Company's future sales or profitability.

Beginning in July 1999, the Company implemented a new Enterprise Resource
Planning ("ERP") system that is intended to improve order entry, supply
chain management and financial reporting. While ZiLOG believes that the
ERP system was properly installed without material adverse effect on the
Company, there can be no assurance that unforeseen circumstances
concerning ZiLOG's operation of the ERP system will not have a material
adverse effect on the Company.

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. ZiLOG acquired substantially all of the assets and
assumed the operating liabilities of Seattle Silicon Corporation on April
20, 1999 for approximately $6.1 million. On March 22, 2000, ZiLOG
acquired 20% of the common stock of Qualcore Group, Inc. ("Qualcore") for
cash of $8.0 million pursuant to a Purchase and Sale Agreement. 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 further acquisitions. Acquisitions involve a number of
risks that could adversely affect ZiLOG. The Company 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 and divert management's attention. 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 by cyclicality. The industry has experienced significant
economic downturns at various times in the last three decades,
characterized by diminished product demand, accelerated erosion of average
selling prices and production over-capacity. The Company will likely
experience substantial period-to-period fluctuations in future operating
results that are attributable 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 the Company's products are incorporated into personal computers
and peripherals. As a result, a slowdown in the demand for personal
computers and related peripherals or industry pressure to reduce prices
could adversely affect the Company's operating results. A significant
portion of the Company's sales are to the consumer electronics markets for
use in products such as television sets, infrared remote controls and
garage door openers. The consumer electronics markets are volatile and
rapid changes in customer preferences for electronics products could have
a material adverse effect on the Company.

Dependence on new products and technologies. The Company's operating
results will depend to a significant extent on its ability to continue to
introduce and sell 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. Any sales of new products 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 ZiLOG's
product markets could have a material adverse effect on the Company.

Customer concentration. For the year ended December 31, 1999, the
Company's 10 largest customers accounted for approximately 48% of the
Company's net sales, although no single customer accounted for more than
12.6% of net sales. Among the Company's ten (10) largest customers were
three (3) distributors who sell the Company's products in North America.
In January 2000, the Company announced its intention to sever its
relationships with Arrow, Future and Unique in North America and to
replace them with an exclusive full service distributor, Pioneer Standard.
It is anticipated that Pioneer Standard will become the Company's largest
distributor customer. In 1999, Arrow, Future and Unique purchased $42.3
million of its products on a worldwide basis and $36.5 million in North
America. The Company anticipates that Pioneer Standard will take over
most of this business. 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 very
few contracts with its direct customers. It does have a contract with
Pioneer and other distributors. 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 risks. The manufacture of
semiconductor products is highly complex and production yields are
sensitive to a wide variety of factors, including the level of
contaminants in the manufacturing environment, impurities in the materials
used and the performance of personnel and equipment. In addition, as is
common in the semiconductor industry, the Company has from time to time
experienced difficulty in effecting transitions to new manufacturing
processes, 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 that the
Company anticipates producing at its newer .35 and .65 micron CMOS process
facility ("MOD III") 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. The
Company 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 the
Company or its outside wafer foundries 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 MOD III facility
or to obtain wafers from outside suppliers as needed during periods of
increased demand could have a material adverse effect on the Company.

The Company's future success is dependent upon its ability to develop and
implement new design and process technologies. Semiconductor design and
process methodologies are extremely complex and subject to rapid
technological change, requiring large expenditures for research and
development. Most new products are extremely complex in design and many
use the Company's .35 and .65 micron CMOS processes. A failure to
successfully transition eligible products to either the .35 or .65
micron CMOS process could have a material adverse effect on the Company.
Manufacture of large complex integrated circuits 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.

The Company intends to have some of its new products fabricated by other
foundry manufacturers. Shortages in foundry capacity could adversely
impact the Company's financial results. Should the Company be unable to
obtain the requisite foundry capacity to manufacture its complex new
products, the Company's ability to achieve continued revenue growth might
be restricted. The inability to have new products manufactured at
foundries could also result in the loss of customers.

The Company uses outside contract assemblers for packaging its products.
Shortages in contract assembly capacity could adversely impact the
Company's financial results. Should the Company be unable to obtain
additional assembly capacity, the Company's ability to achieve continued
revenue growth might be restricted. Shortage of product could also result
in the loss of customers.

Competition. 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 the Company 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 the Company 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 the Company's 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 the Company's microprocessors, microcontrollers, digital
signal processors and other devices into their products, success of
competitors' products and general economic conditions.

International operations. Approximately 62% of the Company's net sales in
1999 were to foreign customers and the Company 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.

The Company purchases a substantial portion of its raw materials and
equipment from foreign suppliers. While the Company's export sales are
primarily United States dollar denominated transactions, the Company is
subject to the risks of conducting business internationally, including
unexpected changes in, or impositions of, legislative or regulatory
requirements, fluctuations in the United States dollar against foreign
currencies, which could increase the sales price in local currencies of
the Company's products in foreign markets or increase the cost of wafers
purchased by the Company, 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, the Company is
subject to general geo-political 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. There can be no assurance that such regulatory, geo-political,
economic and other factors will not adversely impact the Company in the
future or require ZiLOG to modify its current business practices. In
addition, the laws of certain foreign countries may not protect the
Company's intellectual property rights to the same extent as do the laws
of the United States.

The Company uses subcontractors for certain assembly and test services
located in the Philippines, Indonesia, Taiwan and Malaysia. The Company
also operates a test facility in the Philippines through two wholly owned
subsidiaries and has a significant capital investment at certain of these
facilities. A wholly owned subsidiary for software design and support
tool products was established by the Company in India in 1999. The
Company's reliance on personnel and assets and its maintenance of
inventories at these facilities entails certain political and economic
risks, including political instability and expropriation, currency
controls and exchange fluctuations, as well as changes in tax laws,
tariff and freight rates. No assurances of political or economic
stability in these countries can be given. The Company has not
experienced any significant interruptions in its business operations at
these locations to date. Nonetheless, any loss or disruption of
production could have a material adverse effect on the Company,
particularly if operations or air transportation from these locations were
disrupted for a substantial period of time.

Intellectual property rights. The Company's ability to compete will be
affected by its ability to protect its proprietary information. The
Company relies primarily on its trade secrets and technological know-how
in conducting its business. There can be no assurance that the steps
taken by the Company to protect its intellectual property will be adequate
to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are
substantially equivalent or superior to the Company'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 the Company, its foundries or its customers
with respect to existing or future products. In addition, the Company may
initiate claims or litigation against third parties for infringement of
the Company's proprietary rights or to determine the scope and validity of
the proprietary rights of the Company or others. Litigation by or against
the Company could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether
or not litigation is determined in favor of the Company. In the event of
an adverse result in any such litigation, the Company 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 the Company
would be successful in such development or acquisition or that any such
licenses, if available, would be obtainable on commercially reasonable
terms, and any such development or acquisition could require expenditures
by the Company of substantial time and other resources. Any such
litigation or adverse result therefrom could have an adverse effect on the
Company.

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 "Litigation" and "Business-Patents and Licenses."

Environmental regulation. The Company is subject to a variety of
government regulations related to the discharge or disposal of hazardous
materials used in its manufacturing process. Although the Company
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 the Company, limitation or
suspension of production or cessation of operations. Compliance with any
such future regulations could require the Company to acquire additional
equipment or to incur substantial other expenses. Any failure by the
Company to control the use of, or adequately restrict the discharge of,
hazardous materials could subject it to future liabilities. Further there
can be no assurance that the Company will not in the future incur
significant expense in connection with governmental investigations and/or
environmental or employee health and safety matters.

Restrictive debt covenants. The terms of the Notes and the Facility
contain a number of significant covenants that, among other things,
restrict the ability of the Company to dispose of assets, incur additional
indebtedness, prepay other 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.

The Company's ability to comply with such agreements may be affected by
events beyond its control, including prevailing economic, financial and
industry conditions. The breach of any of such covenants or restrictions
could result in a default, which would permit the holders of the Notes or
the Lender on the Facility, to declare all amounts borrowed thereunder to
be due and payable, together with accrued and unpaid interest.

Securities class action and other legal matters. The Company has been
named as a defendant in a purported class action lawsuit that 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 district court granted ZiLOG's motion to dismiss and entered
judgment in favor of all defendants. On April 16, 1999, the plaintiffs
filed their notice of appeal to the Ninth Circuit Court of Appeals. Based
upon information presently known to management, the Company is unable to
determine the ultimate resolution of this lawsuit or whether it will have
a material adverse effect on the Company's financial condition.

Lack of public market for the Notes and Capital Stock and 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 relate
primarily to the Company's short-term 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 table below presents principal amounts and related average interest
rates by year of maturity for the Company's cash equivalents and debt
obligation (in thousands):

<TABLE>
<CAPTION>
Fair
2000 2005 Total Value
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Equivalents:
Fixed rate.......... $59,623 $ -- $59,623 $59,623
Average interest rate...... 5.95% -- 5.95% --

Long-Term Debt:
Fixed rate.......... -- $280,000 $280,000 $255,500
Stated interest rate....... -- 9.50% 9.50% --

</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and supplementary data are
provided herein:

Report of Ernst & Young LLP, Independent Auditors pg. 27

Consolidated Balance Sheets as of December 31, 1999 and 1998 pg. 28

Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 pg. 29

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 pg. 30

Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended December 31, 1999, 1998 and 1997 pg. 31

Notes to Consolidated Financial Statements pg. 32

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, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of its operations, stockholders' equity (deficiency)
and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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, 2000

<PAGE>

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $60,806 $50,856
Accounts receivable, less allowance for doubtful
accounts of $423 in 1999 and $366 in 1998.......... 31,834 25,151
Inventories........................................... 28,456 22,232
Prepaid expenses and other current assets............. 12,917 7,521
---------- ----------
Total current assets.......................... 134,013 105,760
Property, plant and equipment, at cost:
Land, buildings and leasehold improvements............ 37,520 37,026
Machinery and equipment............................... 376,196 387,375
---------- ----------
413,716 424,401
Less: accumulated depreciation and amortization....... (277,570) (242,653)
---------- ----------
Net property, plant and equipment..................... 136,146 181,748
Other assets............................................ 14,127 9,563
---------- ----------
$284,286 $297,071
========== ==========

LIABILITIES AND STOCKEHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable...................................... $21,998 $16,381
Accrued compensation and employee benefits............ 32,656 24,595
Other accrued liabilities............................. 23,797 17,977
---------- ----------
Total current liabilities..................... 78,451 58,953

Notes payable........................................... 280,000 280,000
Other noncurrent liabilities............................ 15,603 6,349

Commitments and contingencies

Stockholders' 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, 1999 and
1998; aggregate liquidation preference $31,050 .... 25,000 25,000
Common Stock, $0.01 par value; 70,000,000 shares
authorized; 30,525,786 and 30,098,736 shares
issued and outstanding at December 31, 1999 and
1998, respectively. Class A Stock, $0.01 par
value; 30,000,000 shares authorized; 10,000,000
shares issued and outstanding at December 31,
1999 and 1998 ..................................... 405 401
Additional paid-in capital............................ 1,113 799
Accumulated deficit .................................. (116,286) (74,431)
---------- ----------
Total stockholders' deficiency ............... (89,768) (48,231)
---------- ----------
$284,286 $297,071
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................ $245,138 $204,738 $261,097

Costs and expenses:
Cost of sales.......................... 158,768 163,315 171,722
Research and development............... 32,777 28,846 30,467
Selling, general and administrative.... 59,082 54,317 47,806
Special charges ....................... 4,686 38,620 --
---------- ---------- ----------
255,313 285,098 249,995
---------- ---------- ----------
Operating income (loss).................. (10,175) (80,360) 11,102

Other income (expense):
Interest income........................ 2,567 3,755 3,167
Interest expense....................... (28,954) (24,375) (275)
Other, net ............................ (324) (796) 832
---------- ---------- ----------
Income (loss) before income taxes........ (36,886) (101,776) 14,826
Provision (benefit) for income taxes..... 1,004 (14,248) 2,965
---------- ---------- ----------
Net income (loss)........................ ($37,890) ($87,528) $11,861
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ ($37,890) ($87,528) $11,861
Adjustments to reconcile net (loss) income
to cash (used) provided by operating
activities:
Depreciation and amortization .............. 52,368 61,795 63,750
Write-down of assets held for disposal ..... 3,677 -- --
Charge for purchased in-process research
and development ........................... 1,009 -- --
Loss from disposition of equipment.......... 261 1,351 50
Deferred income taxes....................... -- (7,150) (2,229)
Changes in assets and liabilities:
Accounts receivable...................... (6,683) 6,482 (2,238)
Inventories.............................. (6,224) 10,736 1,501
Prepaid expenses and other assets........ (5,396) 13,875 201
Accounts payable......................... 5,617 (8,352) (4,053)
Accrued compensation and
employee benefits...................... 8,061 7,311 739
Other accrued and non-current
liabilities ........................... 9,579 (3,592) 3,062
--------- --------- ---------
Cash (used) provided by
operating activities.............. 24,379 (5,072) 72,644
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures......................... (8,269) (21,317) (38,437)
Acquisition of Seattle Silicon net of
cash acquired ............................. (5,931) -- --
Short-term investments:
Purchases.................................. -- -- (229,730)
Proceeds from sales........................ -- 14,127 141,936
Proceeds from maturities................... -- -- 127,304
--------- --------- ---------
Cash (used) provided by
investing activities.............. (14,200) (7,190) 1,073
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock....... 318 212 2,956
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 --
Principal payments under capital leases..... (547) -- --
--------- --------- ---------
Cash (used) provided by
financing activities.............. (229) (29,066) 2,956
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents................................. 9,950 (41,328) 76,673
Cash and cash equivalents at beginning
of period................................... 50,856 92,184 15,511
--------- --------- ---------
Cash and cash equivalents at end of
period...................................... $60,806 $50,856 $92,184
========= ========= =========
Supplemental disclosures of cash
flow information:
Interest paid during the year................ $26,869 $13,596 $ --
Income taxes paid (net refund) during the
year ...................................... ($7,137) ($1,955) $1,905
Supplemental disclosure of non-cash
financing activities:
Equipment purchased under capital leases.... $2,077 $ -- $ --

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(dollars in thousands)

<TABLE>
<CAPTION>
Accumu-
lated Total
Retained Other Stock-
Common Stock Common Stock Earnings Compre- holders'
Preferred Stock Voting 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, 1997 -- $ -- 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)

Issuance of Common Stock
under stock option plans... -- -- 127,050 1 -- -- 317 -- -- 318
Issuance of Common Stock for
employee compensation ..... -- -- 300,000 3 -- -- (3) -- -- --
Preferred dividends accrued.. -- -- -- -- -- -- -- (3,965) -- (3,965)
Net loss .................... -- -- -- -- -- -- -- (37,890) -- (37,890)
--------- -------- ----------- ------- ----------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1999. 250,000 $25,000 30,525,786 $305 10,000,000 $100 $1,113 ********* $ -- ($89,768)
========= ======== =========== ======= =========== ======= ========== ========= ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999

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.

Derivative instruments and hedging activities: 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, 2001, and is not expected to have any impact on
the Company's results of operations or financial condition.

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 ($196,000), ($215,000), and $940,000
for the years ended December 31, 1999, 1998 and 1997, 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>
Year Ended December 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Raw materials.................... $1,477 $2,439
Work-in-process.................. 20,146 17,844
Finished goods................... 6,833 1,949
---------- ----------
$28,456 $22,232
========== ==========
</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 between three
and seven years for machinery and equipment and 30 years for buildings.
Effective July 5, 1999, the Company changed the estimated useful lives of
certain machinery and equipment located in its eight-inch wafer fab in
Nampa, Idaho from five to seven years. The decision to change the
estimated service period for these assets was based on the Company's
recent qualification of a new .35 micron wafer manufacturing process in
its eight-inch wafer fab and the transfer of many of ZiLOG's products into
volume production in this facility. This change in accounting estimate
resulted in a $9.1 million reduction of depreciation expense in the second
half of 1999 as compared to the amount that would have been recorded
under the previous useful life estimates. Had the accounting change been
in effect for the full year in 1999, it would have resulted in a $18.2
million reduction in depreciation expense compared to the amount that
would have been recorded under the previous useful life estimates.
Accordingly, the Company believes that extending the service period on
these assets is consistent with its current production plans.
Amortization of leasehold improvements is computed using the shorter of
the remaining terms of the leases or the estimated economic lives of the
improvements. Depreciation expense of property, plant and equipment was
$51,110,000, $61,795,000 and $63,522,000 for 1999, 1998 and 1997,
respectively. Assets leased under a capital lease are recorded at the
present value of the lease obligation and amortized on a straight-line
basis over the lease term to depreciation expense. Amortization of leased
assets was $682,000 in 1999.

Advertising expenses: The Company accounts for advertising costs as
expense for the period in which they are incurred. Advertising expenses
for 1999, 1998 and 1997 were approximately $1,727,000, $473,000 and
$922,000, 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 10 below.

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, which were charged to retained earnings at the date of the
Merger.

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 6 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: ACQUISITION

On April 20, 1999, ZiLOG acquired substantially all of the assets and
assumed the operating liabilities of Seattle Silicon Corporation ("Seattle
Silicon") a fabless semiconductor company based in Bellevue, Washington
that offers a customized design capability for analog devices and mixed
signal system-on-a-chip (SOC) technology. The purchase price of
approximately $6.1 million, including acquisition costs of approximately
$0.4 million, was allocated based on fair values as follows: tangible net
assets of $0.1 million; in-process research and development of $1.0
million; and goodwill of $5.0 million (three-year amortization period).
For financial statement purposes, this acquisition was accounted for as a
purchase, and accordingly, the results of operations of Seattle Silicon
subsequent to April 20, 1999, are included in the Company's condensed
consolidated statements of operations.

In-process research and development was expensed in April 1999 because the
projects related to the acquired research and development (partially
developed semiconductor product designs), had not reached technological
feasibility and have no alternative future use. The nature of efforts
required to develop the purchased in-process technology into commercially
viable products primarily relates to completion of design, prototyping and
testing to ensure the products can be produced to meet customer design
specifications, including functions, features and performance
requirements. The Company believes that the anticipated time and costs to
complete these products are not significant. However, there can be no
assurance that these products will ever achieve commercial viability.

Factors considered in valuing in-process research and development included
the stage of development of each project, target markets and associated
risks of achieving technological feasibility and market acceptance of the
products. The value of the purchased in-process technology was determined
by estimating the projected net cash flows arising from commercialization
of the products over periods ranging from one to four years. These cash
flows were then discounted to their net present value using a discount
rate of 25 percent. The estimated stage of completion was applied to the
net present value of future discounted cash flows to arrive at the $1.0
million charge for in-process research and development that was
immediately written off to the statement of operations.

Due to the insignificance of Seattle Silicon's operations compared to
ZiLOG's financial statements, it was not deemed appropriate to disclose
pro forma results.

NOTE 4. FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and cash equivalents consist primarily of cash in bank accounts,
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 carrying amount on the balance sheet for cash and cash
equivalents at December 31, 1999 and 1998 were $60,806,000 and
$50,856,000, respectively, which approximates fair value, due to their
short maturities. Based on market quoted values, the Notes had an
estimated fair value of $255.5 million and $224.0 million at December 31,
1999 and 1998, respectively.

NOTE 5. SPECIAL CHARGES

During the second quarter of 1999, ZiLOG incurred Special Charges of $4.7
million. Approximately $1.0 million was purchased in-process research and
development related to several partially developed semiconductor product
designs that were acquired through the acquisition of Seattle Silicon in
April 1999 (see Note 3). ZiLOG also recognized a $3.7 million charge for
the write-down to estimated net realizable value of under-utilized test
equipment, which is being held for sale. The carrying value of such
assets at December 31, 1999 is $900,000 and is recorded in other current
assets on the consolidated balance sheet. The net realizable value of
assets held for disposal was based on an independent appraisal.

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). 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 completed the transition of its assembly
operations to subcontractors.

Special charges for the years ended December 31, 1999 and 1998 are as
follows (in thousands):

1999 1998
---------- ----------
<S> <C> <C>
Write-down of assets held for disposal ....... $3,677 $ --
Purchased in-process research and
development ............................... 1,009 --

Recapitalization:
Executive severance pay and new
executive bonuses......................... -- 13,195
Stock option buyout......................... -- 4,195
Bridge loan fees............................ -- 3,360
Employee retention bonuses.................. -- 9,511
Consultants, other.......................... -- 3,073

Restructuring of operations:
Employee severance and termination
benefits.................................. -- 4,060
Abandonment of equipment
and leasehold improvements............... -- 1,226
---------- ----------
$4,686 $38,620
========== ==========
</TABLE>

NOTE 6. 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 increased from 15,049,368 to
30,098,736 shares (on a post split basis). 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, as they
were either repurchased and cancelled, or exchanged for new common shares
and cancelled as a result of the Merger.

NOTE 7. 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 "Facility").
The revolving line of credit for the 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 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 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, 1999, the Company's total calculated
availability under the Facility was $38.5 million.

NOTE 8. 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. There are no cross
covenants between the Notes and the Facility.

NOTE 9. 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 1999). 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 $727,000, $721,000,
and $583,000 in 1999, 1998 and 1997, respectively. The discretionary
contribution for 1997 was approximately $1,820,000. There were no
discretionary contributions made for 1999 or 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 10. STOCKHOLDERS' EQUITY (DEFICIENCY)

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 in 1997. 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, 1999, 4.35 million
and 6.75 million shares have been reserved for issuance and 667,575 and
904,000 options have been granted under the Plan and the Executive Plan,
respectively. An executive was awarded 400,000 shares at zero
consideration during 1998. The Company recorded $1.0 million of
compensation expense in connection with the award in 1998. The shares
were issued 100,000 in 1998 and 300,000 in 1999.

A summary of the Company's activity for all stock option plans for the
years ended December 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
Shares Weighted
Available Average
for Option Exercise
Grant Outstanding Price
----------- ----------- ---------
<S> <C> <C> <C>
1994 Option Plan
- --------------------------
Balance at January 1, 1997 -- 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.................. -- (14,852) $14.05
Options canceled or repurchased
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 canceled................... 270,580 (270,580) $2.50
----------- -----------
Balance at January 1, 1999......... 1,701,550 6,198,450 $2.90

Shares reserved.................... 3,100,000 -- --
Options granted.................... (1,571,575) 1,571,575 $3.05
Shares granted..................... (300,000) -- $0.00
Options exercised.................. -- (127,050) $2.50
Options canceled................... 371,974 (371,974) $2.50
----------- -----------
Balance at December 31, 1999 3,301,949 7,271,001 $2.96
=========== ===========

</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1999:

<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>

$2.50 - $5.00 7,271,001 9.2 years $2.96 2,014,281 $3.14
========== ========= =========== =========
</TABLE>

The weighted average fair value of options granted in 1999, 1998 and 1997
were $1.13, $0.61, and $8.52 per share, respectively. Options that were
exercisable as of December 31, 1999, 1998 and 1997, were 2,014,281,
500,000 and 2,800,621, 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 December 31,1994 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
1999: risk free interest rate annual average of 6.7%, 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 were used: risk free
interest rate (annual average) of 6.1%, dividend yield of zero, volatility
factor of the expected market price of the Company's Common Stock of 47%,
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 1997; dividend yield of 0.0%; an expected life ranging up to .5
years; expected volatility factor of 48%; and a risk free interest rate of
6.0%. The weighted average fair value of those purchase rights granted
in March 1997 was $5.93. 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. Future pro forma net income (loss) results may be materially
different from actual amounts reported. The pro forma net income (loss)
amounts for the year ended December 31, 1999, 1998 and 1997 were
$(38,958,000), $(88,144,000), $2,012,000, respectively.

NOTE 11. INCOME TAXES

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

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current.................................. $ -- ($8,252) $3,036
Deferred................................. -- (6,364) (1,949)
--------- --------- ---------
-- (14,616) 1,087
State:
Current.................................. 197 293 565
Deferred................................. -- (1,499) 55
--------- --------- ---------
197 (1,206) 620
Foreign:
Current.................................. 807 861 1,593
Deferred................................. -- 713 (335)
--------- --------- ---------
807 1,574 1,258
--------- --------- ---------
Provision (benefit) for income taxes..... $1,004 ($14,248) $2,965
========= ========= =========
</TABLE>

The tax benefit associated with the exercise of stock options reduced
taxes currently payable as shown above $397,000 in 1997. Such benefit was
credited to additional paid-in-capital when realized.

Pretax income from foreign operations was $1,379,000, $658,000 and
$5,309,000 for the years ended December 31, 1999, 1998 and 1997,
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 $6,700,000 at December
31, 1999. If such amounts were remitted, the residual U.S. tax liability
(net of foreign tax credits), would be approximately $750,000.

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,
------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed expected provision (benefit)......($12,910) ($35,622) $5,189
State tax, net of federal benefit.......... 197 (784) 403
Tax exempt interest income................. -- (13) (721)
Foreign rates greater than (less than)
the federal rate......................... 593 1,327 (838)
Research and development credits........... -- -- (921)
Losses for which no current year benefit
is recognized............................ 12,630 17,451 --
Other...................................... 494 3,393 (147)
--------- --------- ---------
$1,004 ($14,248) $2,965
========= ========= =========
</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,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation..........................($17,606) ($17,606)

Deferred tax assets:
Net operating losses................................ 33,482 24,274
Accruals not currently deductible................... 6,803 5,845
Inventory valuation adjustments and reserves........ 2,700 3,398
Tax credits......................................... 2,340 1,065
Other............................................... 830 475
--------- ---------
46,155 35,057

Valuation allowance................................ (28,549) (17,451)

--------- ---------
Net deferred tax liabilities........................ $ -- $ --
========= =========
</TABLE>

Approximately $1,150,000 of the valuation allowance is attributable to stock
option deductions, the benefit of which will be credited to paid-in capital
when realized.

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, 1999 has been established to reflect these uncertainties.
The valuation allowance was established in 1998 in the amount of
$17,451,000 and increased by approximately $11,098,000 during the fiscal
year ended December 31, 1999.

As of December 31, 1999, the Company had federal and California net
operating loss carryforwards of approximately $92,000,000 and $15,000,000,
respectively, which will expire beginning in years 2003 through 2019, if
not utilized. As of December 31, 1999, the Company also had federal tax
credit carryforwards of approximately $2,340,000, 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 "change in
ownership" 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 and tax
credit carryforwards before full utilization.

NOTE 12. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its facilities and equipment under
noncancelable operating leases, which expire in 2000 through 2005. The
facility lease agreements 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. During 1999, the Company
entered into a capital lease agreement with a bargain purchase option to
acquire the assets at the end of the lease term.

Minimum future lease payments under these noncancelable leases at December
31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
--------- ---------
<S> <C> <C>
2000..................................... $800 $5,775
2001..................................... 879 5,297
2002..................................... -- 5,195
2003..................................... -- 4,862
2004..................................... -- 903
Thereafter............................... -- --
--------- ---------
Total minimum lease payments............. 1,679 $22,032
Less amount representing interest........ 148 =========
---------
Present value of minimum lease payments.. $1,531
=========
</TABLE>

Total operating lease expense, including month-to-month rentals, was
$6,609,000, $5,442,000 and $2,875,000 for the years ended December 31,
1999, 1998 and 1997, respectively.

Two parties have notified ZiLOG that it may be infringing certain patents
and othe,r intellectual property rights. In the event ZiLOG determines
that such notice 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.

ZiLOG 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 13. 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, 1999. ZiLOG purchased
semiconductor assembly and test services from AMT totaling approximately
$23.1 million, $7.1 million, and $8.1 million for the years ended December
31 1999, 1998 and 1997, respectively. ZiLOG had payables to AMT of
approximately $3,816,000 and $469,000 at December 31, 1999 and 1998,
respectively. Payment terms between ZiLOG and AMT are net 30 days.

NOTE 14. SEGMENT REPORTING

Effective January 1, 1998, the Company adopted FAS No. 131, "Disclosures
about Segment of an Enterprise and Related Information". FAS No. 131
establishes standards for reporting information about operating segments
and related disclosures about products, geographic information and major
customers.

ZiLOG is organized in three business units: Communications, Integrated
Controls and Home Entertainment. Consistent with the rules of FAS No. 131,
the Company has aggregated these three business units into two reportable
segments. Integrated Controls was combined with Home Entertainment
("IC/HE") as these business units both have similar gross margins and
target consumer and industrial customer applications based largely on
ZiLOG's Z-8 line of 8-bit microcontrollers and digital signal processors.
The Communications business unit is generally more profitable than the
Company's other business units and is predominantly based on the Company's
Z80 line of 8-bit microprocessors and serial communication devices.

ZiLOG's Chief Executive Officer has been identified as the chief operating
decision maker ("CODM") for FAS No.131 purposes as he assesses the
performance of the business units and decides how to allocate resources to
the business units. EBITDA, which 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, is the measure of
profit and loss that the CODM uses to assess performance and make
decisions. ZiLOG's sales and corporate marketing, manufacturing, central
technology, finance and administration groups are shared resources and
therefore allocated to operating segments included in the results below.
Interest income, interest expense and net other are considered to be
corporate items.

ZiLOG's business units do not sell to each other, and accordingly, there
are no inter-segment sales. ZiLOG's CODM does not review total assets by
operating segment and such data are not presented below since these items
are shared resources of the Company and not separated, therefore no
breakout by segment exists. The accounting policies for reporting
segments are the same as for the Company as a whole. Subsequent to the
Merger in 1998 the Company hired new management who defined the Company's
current internal reporting structure that included budgeting and
evaluating business unit's financial performance by the CODM commencing in
1999. During 1998 and 1997 the Company was managed and reported operating
results at the enterprise level and comparable segment financial data is
not available.

Information regarding reportable segments for the years ended December 31,
1999, 1998 and 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
Total
Communica- Corporate Consol-
tions IC/HE and Other idated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1999
------
Net Sales............................ $89,399 $155,739 $ -- $245,138
EBITDA............................... 35,663 10,228 664 46,555
Depreciation and amortization........ (10,614) (41,754) -- (52,368)
Special charges...................... -- -- (4,686) (4,686)
Interest income...................... -- -- 2,567 2,567
Interest expense..................... -- -- (28,954) (28,954)
Loss before tax...................... -- -- -- (36,886)

1998
------
Net sales............................ $68,913 $135,825 $ -- $204,738

1997
------
Net sales............................ $112,412 $148,685 $ -- $261,097

</TABLE>

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

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
United States............................ $93,361 $79,190 $106,858
China (including Hong Kong).............. 40,669 35,569 34,235
Korea.................................... 22,417 16,433 20,697
Thailand................................. 15,759 11,064 14,128
Taiwain R.O.C............................ 13,177 10,453 15,399
Germany 9,822 8,624 9,499
Other Foreign Countries.................. 49,933 43,405 60,281
--------- --------- ---------
$245,138 $204,738 $261,097
========= ========= =========
</TABLE>

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

<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
United States (including corporate assets)............$135,542 $169,140
Philippines........................................... 13,804 21,766
Other................................................. 1,990 405
--------- ---------
Total assets................................$151,336 $191,311
========= =========
</TABLE>

Major customers: During the years ended December 31, 1999 and 1998, one
distributor, Arrow Electronics, Inc., who buys from both segments,
accounted for approximately 12.6% and 10.5% of net sales, respectively.
In 1997, no single customer accounted for more than 10% of net sales.

NOTE 15. 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 original equipment
manufacturers in the areas of computers and peripherals, consumer
electronics, appliances and building controls. 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.

NOTE 16. QUARTERLY RESULTS (UNAUDITED)

The following table presents unaudited quarterly results (in thousands)
for the eight quarters of 1999 and 1998. 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. 3, July 4, April 4, Dec. 31, Oct.4, Jul. 5, Apr. 5,
1999 1999 1999 1999 1998 1998 1998 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................. $65,362 $64,528 $61,039 $54,209 $54,101 $52,530 $48,568 $49,539
Cost of sales......................... 39,076 39,488 41,794 38,410 39,604 42,070 40,874 40,767
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin........................ 26,286 25,040 19,245 15,799 14,497 10,460 7,694 8,772
--------- --------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Research and development............ 8,780 8,476 8,258 7,263 6,691 7,135 6,916 8,104
Selling, general and administrative. 15,192 14,786 14,598 14,506 13,809 13,656 12,911 13,941
Special charges..................... -- -- 4,686 -- 5,805 7,128 12,383 13,304
--------- --------- --------- --------- --------- --------- --------- ---------
23,972 23,262 27,542 21,769 26,305 27,919 32,210 35,349
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............... 2,314 1,778 (8,297) (5,970) (11,808) (17,459) (24,516) (26,577)

Other income (expense):
Interest, net....................... (6,473) (6,644) (6,651) (6,619) (5,950) (6,560) (6,291) (1,819)
Other, net.......................... (276) 180 (143) (85) (596) 51 (163) (88)
--------- --------- --------- --------- --------- --------- --------- ---------
Loss before income taxes.............. (4,435) (4,686) (15,091) (12,674) (18,354) (23,968) (30,970) (28,484)
Provision (benefit) for income taxes.. 254 250 250 250 (1,232) (2,314) (2,157) (8,545)
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss.............................. ($4,689) ($4,936) ($15,341) ($12,924) ($17,122) ($21,654) ($28,813) ($19,939)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>

NOTE 17. SUBSEQUENT EVENT (UNAUDITED)

On March 22, 2000 ZiLOG acquired approximately 20% of the common stock of
Qualcore Group, Inc. ("Qualcore") for cash of $8.0 million pursuant to a
Purchase and Sale Agreement. ZiLOG intends to account for its investment
in Qualcore common stock using the equity method.

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 .... 52 Chairman, President and Chief Executive Officer;
Director

William S. Price III .. 43 Director

David M. Stanton ...... 37 Director

Murray A. Goldman ..... 62 Director

Richard S. Friedland .. 49 Director

Lionel N. Sterling..... 62 Director

Alice Baluni .......... 54 Senior Vice President, Reliability and Quality
Assurance

Michael J. Bradshaw ... 50 Senior Vice President, Worldwide Operations

Michael D. Burger ..... 41 Senior Vice President, Worldwide Sales

Gerald J. Corvino ...... 52 Senior Vice President and Chief Information
Officer

Robert G. Couch ....... 48 Senior Vice President and Corporate Communications
Officer

Aydin Koc ............. 48 Senior Vice President and General Manager,
Home Entertainment

Didier J. LeLanic ..... 41 Senior Vice President and General Manager,
Communications Business Unit

Steven C. Mizell ...... 40 Senior Vice President, Chief Human Resources
Officer

Richard L. Moore ...... 65 Senior Vice President and Chief Technology Officer

Garry Patten 38 Senior Vice President and Chief Financial Officer

Richard R. Pickard ... 46 Senior Vice President, General Counsel and
Secretary

Edward P. Ponganis .... 49 Vice President and Assistant to the President

Shlomo Waser .......... 55 Senior Vice President and General Manager,
Integrated Controls Business Unit

W. Norman Wu .......... 47 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. In May 1999, Mr.
Crawford was named Chairman of the Board of Directors of ZiLOG, Inc. 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,
prior to the formation of Lucent Technologies, 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.
Mr. Crawford received his Doctorate of Philosophy in Organization and
Management from the Graduate School of Capella University in July of 1999.
He currently serves as Chairman of the Board of Directors of ON
Semiconductor and as a member of the Board of Directors of E. I. DuPont
and ITT Industries, Inc. Additionally, he serves as a member of the Board
of Trustees of DePaul University. 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 Continental Airlines, Inc., Del Monte Foods,
Denbury Resources, Inc., Vivra Specialty Partners, Inc., Landis & Gyr,
Belden & Blake Corporation, Punch Taverns, Aerfi, and American Center for
Wine, Food and Arts.

David M. Stanton became a director of the Company upon consummation of the
Merger. He is currently a founder of Francisco Partners, a technology
leveraged buyout firm. Mr. Stanton was a partner of Texas Pacific Group
from 1994 until August 1999. 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 received 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., ON
Semiconductor, Paradyne Networks, Inc., GT Com and MVX.com.

Murray A. Goldman joined the Board of Directors in August 1998. He was
employed at Motorola beginning 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 as Chairman of the
Board of Transmeta Corporation, and is a board member of Wafer Scale
Integration, Interactive Silicon and Huston Tillison College. He was
awarded masters and doctorate degrees from New York University after
receiving his bachelor's degree in electrical engineering from the
University of Pittsburgh.

Richard S. Friedland joined 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 Tech-Sym Corporation, Applied
Digital Solutions, Inc. and Video Network Communications, Inc., 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.

Lionel N. Sterling was appointed to the Board of Directors in January
2000. Mr. Sterling is President of Equity Resources, Inc., a private
investment firm. He was co-founder and managing partner of
Whitehead/Sterling, also a private investment firm, from 1988 through
1992. Previously, Mr. Sterling served as Chairman of the Board of Rayovac
Corporation and was Sector Executive and Chief Financial Officer at
American Can Company. Mr. Sterling is currently a member of the Board of
Directors of i-Stat Corporation and Specialty Chemical Resources, Inc., as
well as a member of private corporations and philanthropic organizations.
He received his MBA from New York University after receiving his
bachelor's degree in economics from Brooklyn College.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Gary Patten was appointed Senior Vice President and Chief Financial
Officer in November 1999. Prior to his joining ZiLOG, Mr. Patten was
Executive Vice President and Chief Financial Officer at Rockshox Inc. from
1998 to 1999 when he joined ZiLOG. Prior to his time at Rockshox, Mr.
Patten served as Chief Financial Officer for Powermate, a subsidiary of
The Coleman Company from 1997 to mid 1998. Mr. Patten joined the Coleman
Company in 1996 as Director, Corporate Financial Planning and Analysis.
Earlier, Mr. Patten was Manager of Business Analysis and Financial
Planning for Lexmark International from 1994 to 1996.

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.

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.

Shlomo Waser joined ZiLOG in February, 1999 as Senior Vice President and
General Manager of the Integrated Controls Business Unit. Prior to his
joining ZiLOG, Mr. Waser was employed by Phillips Semiconductors from 1988
to January 1999. In his last position at Phillips Semiconductors, Mr.
Waser served as 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.

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.

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 1999.
.
ITEM 11. EXECUTIVE COMPENSATION

Employment Contracts and Termination of Employment and Change in Control
Arrangements

The Company entered into an employment agreement with Mr. Crawford, which
provided 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. Mr. Crawford was
elected Chairman of the Board of Directors on May 28, 1999. The
employment agreement provides for an annual base salary of at least
$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, Mr. Crawford
received a base salary of $800,000 and a performance bonus of $700,000.
For 1999, Mr. Crawford received a base salary of $840,000 and earned a
performance bonus of $1,380,000.

Upon commencement of employment with the Company, Mr. Crawford received a
$1.0 million sign-on 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.

The Company issued Mr. Crawford 100,000 shares of Common Stock on May 1,
1998 and 300,000 shares on May 1, 1999. 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 was 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.

Pursuant to the employment agreements between ZiLOG and each of Michael J.
Bradshaw, Michael D. Burger, Gerald J. Corvino, Robert G. Couch, Aydin
Koc, Didier J. LeLannic, , Steven C. Mizell, Richard L. Moore, Gary
Patten, Richard R. Pickard, Shlomo Waser, W. Norman Wu, if any of such
executive officers terminates employment with ZiLOG 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 or the Executive Reward Program (Annual Incentive) Element
for awards granted prior to the effective date of termination of
employment, and (C) payouts under ZiLOG's Executive Bonus Plan or the
Executive Award Program - Long Term (Executive Incentive) Element for
awards granted prior to the effective date of termination of employment;
(ii) the executive officer's unvested stock options 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 See "Business-The
Merger."

The employment agreements for each of Messrs. Bradshaw, Burger, Corvino,
Couch, LeLannic, Koc, Mizell, Moore, Patten, Pickard, Waser and Wu provide
for: (i) awards and payouts under ZiLOG's Employee Performance Incentive
Plan, Executive Bonus Plan and Executive Reward Program (Annual Incentive
and Long Term Executive Incentive) Elements 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, Executive Bonus Plan and Executive Reward Program (Annual Incentive
and Long Term Executive Incentive) Elements 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.

Compensation of Directors

Each outside director receives an option grant of 15,000 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. 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

In 1999, the compensation committee was comprised of William S. Price III,
Chairman, Richard S. Friedland and Murray A. Goldman. 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
Chairman, Chief Executive Officer and President and Mr. Mizell as the
Senior Vice President of Human Resources provide staff to support this
committee. Neither Mr. Crawford nor Mr. Mizell participates 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, 1999,
1998 and 1997 by (i) the Company's chief executive officer and (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, 1999, (collectively, the "Named Executive Officers").

Annual Compensation Long-Term Compensation
--------------------------------- -----------------------
Other Securities All
Annual Restricted Underlying Other
Name and Compensa- Stock Options/ Compensa-
Principal Position Year Salary($) Bonus($)(1) tion($) Awards ($) SAR(#) tion($)(2)
- -------------------------- -------- ---------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
C.J. Crawford 1999 $839,231 $1,380,000 $47,026 (3) 750,000 (4) -- $2,400
Chairman, President and CEO 1998 794,871 1,700,000 422,093 (3) 250,000 (4) 2,000,000 2,400
1997 -- -- -- -- -- --

Didier J. LeLannic 1999 226,962 252,000 -- -- -- 2,400
Senior Vice President and 1998 53,558 18,000 -- -- 180,000 --
General Manager 1997 -- -- -- -- -- --

M.J. Bradshaw 1999 243,098 234,000 -- -- -- 2,400
Senior Vice President, 1998 244,331 81,000 -- -- 120,000 2,400
Worldwide Operations 1997 220,823 44,000 -- -- 20,350 17,538

Gerald J. Corvino 1999 232,944 220,000 734 -- -- 2,400
Senior Vice President, 1998 179,808 99,000 -- -- 150,000 1,363
Chief Information Officer 1997 -- -- -- -- -- --

W. Norman Wu 1999 232,454 230,000 -- -- -- 2,400
Senior Vice President, 1998 136,154 90,000 -- -- 180,000 1,558
Chief Strategy Officer 1997 -- -- -- -- -- --

</TABLE>

(1) For each named executive in the table above, one-half of the amount
indicated is a long-term bonus earned in 1999 of which 50% of that
amount will be paid in February 2001 and 50% paid in February 2002.
Such long-term bonuses require that the executive be employed by
ZiLOG, Inc. at the time of distribution.
(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.
(3) Represents the amount paid for relocation expenses in 1999 of $391,394
and $30,699 for other payroll gross-ups for Mr. Crawford incurred in
1998.
(4) Reflects 300,000 shares of ZiLOG, Inc. Common Stock issued to Mr.
Crawford in 1999; in 1998, 100,000 shares of ZiLOG's Common Stock were
issued.

No options were granted to any of the named Executive Officers in 1999.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1999

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, 1999.
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, 1999, as determined by the Board of Directors ($4.00 per
share).

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1999

<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>
Curtis J. Crawford -- $ -- 1,000,000 /1,000,000 750,000 / 750,000
Didier J. LeLannic -- -- 45,000 / 135,000 67,500 / 202,500
Michael J. Bradshaw -- -- 30,000 / 90,000 45,000 / 135,000
Gerald J. Corvino -- -- 37,500 / 112,500 56,250 / 168,750
W. Norman Wu -- -- 45,000 / 135,000 67,500 / 202,500

</TABLE>

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, 2000, 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 84.3% 9,693,620 96.9%
201 Main Street
Suite 2420
Fort Worth, TX 76102(2)

Curtis J. Crawford (3) 2,127 * 1,754,786 5.7 85,106 *

Didier J. LeLannic (4) -- -- 45,000 * -- --

Michael J. Bradshaw (5) -- -- 141,840 * -- --

Gerald J. Corvino (6) -- -- 37,500 * -- --

W. Norman Wu (7) -- -- 45,000 * -- --

William S. Price, III -- -- -- -- -- --

David M. Stanton -- -- -- -- -- --

Murray A. Goldman -- -- 53,750 * -- --

Richard S. Friedland -- -- 28,750 * -- --

Lionel N. Sterling -- -- 100,000 * -- --

All current executive 2,127 * 2,516,914 8.1 85,106 *
officers and
directors, as a group
(20 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) Mr. Price serves as a director for the Company and also is a partner of
TPG Partners II, L.P., and disclaims beneficial ownership of such
securities except to the extent of his respective pecuniary interests
therein.
(3) Includes 1,000,000 shares which Mr. Crawford has the right to acquire
within 60 days of March 1, 2000 through the exercise of options.
(4) Includes 45,000 shares, which Mr. LeLannic has the right to acquire
within 60 days of March 1, 2000 through the exercise of options.
(5) Includes 30,000 shares, which Mr. Bradshaw has the right to acquire
within 60 days of March 1, 2000 through the exercise of options.
(6) Includes 37,500 shares, which Mr. Corvino has the right to acquire
within 60 days of March 1, 2000 through the exercise of options.
(7) Includes 45,000 shares, which Mr. Wu has the right to acquire within 60
days of March 1, 2000 through the exercise of options.
(8) Includes 3,750 shares, which Dr. Goldman has the right to acquire
within 60 days of March 1, 2000 through the exercise of options.
(9) Includes 3,750 shares, which Mr. Friedland has the right to acquire
within 60 days of March 1, 2000 through the exercise of options.

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.

During 1999, the Company made an interest-free loan in the amount of
$65,000 to Mr. Michael D. Burger, Senior Vice President, Worldwide Sales.
This indebtedness was repaid in February 2000.

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 pg. 27

Consolidated Balance Sheets as of December 31, 1999 and 1998 pg. 28

Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 pg. 29

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 pg. 30

Consolidated Statements of Shareholders' Equity (Deficiency)
for the Years Ended December 31, 1999, 1998 and 1997 pg. 31

Notes to Consolidated Financial Statements pg. 32

2. Financial Statement Schedules

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

Form 10-K
Page

Schedule II Valuation and Qualifying Accounts II-1

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, 1999.

(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.

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 29, 2000
------------------------------------
(Curtis J. Crawford)
(Chairman, 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 Chairman, President and Chief March 29, 2000
- -------------------------- Executive Officer and Director
(Curtis J. Crawford)

/s/ GARRY PATTEN Senior Vice President, Chief March 29, 2000
- -------------------------- Financial Officer
(Gary Patten)

/s/ RICHARD S. FRIEDLAND Director March 29, 2000
- --------------------------
(Richard S. Friedland)

/s/ MURRAY A GOLDMAN Director March 29, 2000
- --------------------------
(Murray A. Goldman)

/s/ WILLIAM S. PRICE, III Director March 29, 2000
- --------------------------
(William S. Price)

/s/ DAVID M. STANTON Director March 29, 2000
- --------------------------
(David M. Stanton)

/s/ LIONEL N. STERLING Director March 29, 2000
- --------------------------
(Lionel.N. Sterling)

</TABLE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -------------------------------------------------------------
<C> <S>
2.1(a) 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(a) 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(a) 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(a) Amendment Number Three to the Recapitalization Agreement, dated as
of January 26, 1998, by and between TPG Partners II, L.P., TPG
Zeus Acquisition Corporation and ZiLOG, Inc.

3.1(a) Certificate of Incorporation of ZiLOG, Inc.

3.2(a) Certificate of Merger of TPG Zeus Acquisition Corporation into
ZiLOG, Inc filed with the Delaware Secretary of State on February
27, 1998.

3.3(a) Bylaws of ZiLOG, Inc.

3.4(a) Certificate of Designation of Series A Cumulative Preferred Stock
of ZiLOG, Inc.

3.5(b) Certificate of Amendment of Certificate of Incorporation of ZiLOG,
Inc.

4.1(a) 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(a) 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(a) 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(a) Form of 9 1/2% Senior Secured Notes due 2005 of ZiLOG, Inc.

4.5(a) 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(a) 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(a) 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(a) 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(a) 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(a) 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(a) 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(a) 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(a) 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(a) 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(a) 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(c) Credit Agreement, dated December 30, 1998, by and between ZiLOG,
Inc. and The CIT Group/ Business Credit, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

10.16(a) 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, as amended.

10.18 ZiLOG, Inc. 1998 Executive Officer Stock Incentive Plan, as amended.

10.19 Employment Agreement, dated November 1, 1999, by and between Gary
Patten and ZiLOG, Inc. (1).

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

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

10.22 Restricted Share Agreement, dated February 7, 2000, by and between
Richard S. Friedland and ZiLOG, Inc.

10.23 Restricted Share Agreement, dated February 7, 2000, by and between
Murray A. Goldman and ZiLOG, Inc.

10.24 Restricted Share Agreement, dated February 1, 2000, by and between
Lionel Sterling and ZiLOG, Inc.

10.25 Distributor Agreement, dated February 2, 2000 by and between
Pioneer-Standard Electronics, Inc. and ZiLOG, Inc.

12.1 Computation of Ratio of Earnings to Fixed Charges.

21.1(a) Subsidiaries of ZiLOG, Inc.

23.1 Consent of Ernst & Young LLP, independent auditors.

25.1(a) 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.
</TABLE>
__________________

(a)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.

(b)Incorporation 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.

(c)Incorporation herin by reference to the Exhibit of the same number
in the Company's Annual report on Form 10-K for the year ended
December 31, 1998.

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

<PAGE>

SCHEDULE II
ZiLOG, INC.
VALUATION AND QUALIFYING ACCOUNTS
(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, 1999:
Allowance for doubtful accounts.. $366 $127 ($70) $423

December 31, 1998:
Allowance for doubtful accounts.. $250 $153 ($37) $366

December 31, 1997:
Allowance for doubtful accounts.. $250 $189 ($189) $250
</TABLE>
- ------------------------

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

EXHIBIT 10.17

ZILOG, INC.
1998 LONG-TERM STOCK INCENTIVE PLAN, as amended
(Includes actions of First Instrument of Amendment)

TABLE OF CONTENTS
Page
ARTICLE 1. INTRODUCTION ----------------------------------- 4
ARTICLE 2. ADMINISTRATION --------------------------------- 4
2.1 Committee Composition --------------------------------- 4
2.2 Committee Responsibilities ---------------------------- 4
ARTICLE 3. SHARES AVAILABLE FOR GRANTS ------------------- 5
3.1 Basic Limitation -------------------------------------- 5
3.2 Additional Shares ------------------------------------- 5
3.3 Dividend Equivalents ---------------------------------- 5
ARTICLE 4. ELIGIBILITY ------------------------------------ 5
4.1 General Rules ----------------------------------------- 5
4.2 Incentive Stock Options ------------------------------- 5
ARTICLE 5. OPTIONS ---------------------------------------- 5
5.1 Stock Option Agreement -------------------------------- 5
5.2 Number of Shares -------------------------------------- 6
5.3 Exercise Price ---------------------------------------- 6
5.4 Exercisability and Term ------------------------------- 6
5.5 Effect of Change in Control --------------------------- 6
5.6 Modification or Assumption of Options ----------------- 6
ARTICLE 6. PAYMENT FOR OPTION SHARES ---------------------- 6
6.1 General Rule ------------------------------------------ 6
6.2 Surrender of Stock ------------------------------------ 7
6.3 Exercise/Sale ----------------------------------------- 7
6.4 Exercise/Pledge --------------------------------------- 7
6.5 Promissory Note --------------------------------------- 7
6.6 Other Forms of Payment -------------------------------- 7
ARTICLE 7. STOCK APPRECIATION RIGHTS ---------------------- 7
7.1 SAR Agreement ----------------------------------------- 7
7.2 Number of Shares -------------------------------------- 7
7.3 Exercise Price ---------------------------------------- 7
7.4 Exercisability and Term ------------------------------- 7
7.5 Effect of Change in Control --------------------------- 8
7.6 Exercise of SARs -------------------------------------- 8
7.7 Modification or Assumption of SARs -------------------- 8
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS -------------- 8
8.1 Time, Amount and Form of Awards ----------------------- 8
8.2 Payment for Awards ------------------------------------ 8
8.3 Vesting Conditions ------------------------------------ 8
8.4 Form and Time of Settlement of Stock Units ------------ 9
8.5 Death of Recipient ------------------------------------ 9
8.6 Creditors' Rights ------------------------------------- 9
ARTICLE 9. VOTING AND DIVIDEND RIGHTS --------------------- 9
9.1 Restricted Shares ------------------------------------- 9
9.2 Stock Units ------------------------------------------- 9
ARTICLE 10. PROTECTION AGAINST DILUTION ------------------- 10
10.1 Adjustments ------------------------------------------ 10
10.2 Reorganizations -------------------------------------- 10
ARTICLE 11. AWARDS UNDER OTHER PLANS ---------------------- 10
ARTICLE 12. LIMITATION ON RIGHTS -------------------------- 10
12.1 Retention Rights ------------------------------------- 10
12.2 Shareholders' Rights --------------------------------- 11
12.3 Regulatory Requirements ------------------------------ 11
ARTICLE 13. LIMITATION ON PAYMENTS ------------------------ 11
13.1 Basic Rule ------------------------------------------- 11
13.2 Reduction of Payments -------------------------------- 11
13.3 Overpayments and Underpayments ----------------------- 12
13.4 Related Corporations --------------------------------- 12
ARTICLE 14. WITHHOLDING TAXES ----------------------------- 12
14.1 General ---------------------------------------------- 12
14.2 Share Withholding ------------------------------------ 12
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS -------------- 12
15.1 General ---------------------------------------------- 12
15.2 Trusts ----------------------------------------------- 13
ARTICLE 16. FUTURE OF THE PLAN ---------------------------- 13
16.1 Term of the Plan ------------------------------------- 13
16.2 Amendment or Termination ----------------------------- 13
ARTICLE 17. DEFINITIONS ----------------------------------- 13
ARTICLE 18. EXECUTION ------------------------------------- 16

ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on August 14, 1998, subject to approval
by the Company's shareholders. The Plan is effective August 14, 1998.
This Plan will be approved by the shareholders of the Company consistent
with applicable laws, within twelve (12) months before or after August 14,
1998.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of shareholder value by (a) encouraging Key Employees to
focus on critical long-range objectives, (b) encouraging the attraction
and retention of Key Employees with exceptional qualifications and
(c) linking Key Employees directly to shareholder interests through
increased stock ownership. The Plan seeks to achieve this purpose by
providing for Awards in the form of Restricted Shares, Stock Units,
Options (which may constitute incentive stock options or nonstatutory
stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of California (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by a
Committee appointed by the Board. Effective with the Company's initial
public offering, the Committee shall consist of two or more directors of
the Company who shall satisfy the requirements of Rule 16b-3 (or its
successor) under the Exchange Act with respect to the grant of Awards to
persons who are officers or directors of the Company under Section 16 of
the Exchange Act or the Board itself.
The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not qualify
under Rule 16b-3, who may administer the Plan with respect to Key
Employees who are not considered officers or directors of the Company
under Section 16 of the Exchange Act, may grant Awards under the Plan to
such Key Employees and may determine all terms of such Awards. No
director of the Company shall participate in any decision (whether by
Committee action or otherwise) that affects an Award granted to such
director pursuant to the Plan unless the decision affects all Awards
granted to all Key Employees under the Plan.
2.2 Committee Responsibilities. The Committee shall:
(a) select the Key Employees who are to receive Awards under the Plan;
(b) determine the type, number, vesting requirements and other features
and conditions of such Awards;
(c) interpret the Plan; and all agreements or documents or other rules
or regulations related to the Plan and prescribe the form of and terms and
conditions of any instrument evidencing such Awards, and
(d) make all other decisions relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan
shall be final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan shall
be authorized but unissued shares or treasury shares. The aggregate number
of Common Shares reserved for award as Restricted Shares, Stock Units,
Options and SARs shall be limited to 4,650,000 Common Shares (after giving
effect to the 2-for-1 stock split approved by the Board of Directors on
August 14, 1998) on a fully diluted basis. The limitation of this
Section 3.1 shall be subject to adjustment pursuant to Article 10. No
person will be eligible to receive more than 2,000,000 Common Shares in
any calendar year under this Plan pursuant to the grant of awards
hereunder. A person may be granted more than one award under this Plan.
3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or
if Options or SARs terminate for any other reason before being exercised,
then such Stock Units, Options or SARs shall again become available for
Awards under the Plan. If SARs are exercised, then only the number of
Common Shares (if any) actually issued in settlement of such SARs shall
reduce the number available under Section 3.1 and the balance shall again
become available for Awards under the Plan. If Restricted shares are
forfeited before any dividends have been paid with respect to such
Restricted Shares, then such Restricted Shares shall again become
available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under
the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors) shall be eligible for designation as Participants
by the Committee.
4.2 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for
the grant of ISOs. In addition, a Key Employee who owns more than ten
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company or any of its Parents or Subsidiaries
shall not be eligible for the grant of an ISO unless the requirements set
forth in section 422(c)(5) of the Code are satisfied.

ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and
the Company. Such Option shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with
the Plan. The Stock Option Agreement shall specify whether the Option is
an ISO or an NSO. The provisions of the various Stock Option Agreements
entered into under the Plan need not be identical. A Stock Option
Agreement may provide that new Options will be granted automatically to
the Optionee when he or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no
event be less than one-hundred percent (100%) of the Fair Market Value of
a Common Share on the date of grant. In the case of an NSO, the Exercise
Price will be determined by the Committee when the NSO is granted and may
not be less than eighty-five percent (85%) of the Fair Market Value of a
Common Share on the date of grant; provided that the Exercise Price of any
NSO granted to an Executive Officer who owns more than ten percent (10%)
of the total combined voting power of all classes of outstanding stock of
the Company or any of its Parents or Subsidiaries will not be less than
110% of the Fair Market Value on the date of grant.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become
exercisable. To the extent required by applicable law, Options shall vest
at least as rapidly as 20% annually over a five-year period. The Stock
Option Agreement shall also specify the term of the Option; provided that
the term of an ISO, and to the extent required by applicable law a NSO,
shall in no event exceed ten (10) years from the date of grant. To the
extent required by applicable law, Options shall be exercisable for a
period of six months following termination of employment due to death or
disability and 30 days following termination of employment (other than
terminations for cause, as defined in the Company's personnel policies).
A Stock Option Agreement may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service.
Options may be awarded in combination with SARs, and such an Award may
provide that the options will not be exercisable unless the related SARs
are forfeited. NSOs may also be awarded in combination with Restricted
Shares or Stock Units, and such an Award may provide that the NSOs will
not be exercisable unless the related Restricted Shares or Stock Units are
forfeited.
5.5 Effect of Change in Control. The committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
fully exercisable as to all Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company. If the
Committee finds that there is a reasonable possibility that, within the
succeeding six months, a Change in Control will occur with respect to the
Company, then the Committee at its sole discretion may determine that any
or all outstanding Options shall become fully exercisable as to all Common
Shares subject to such Options.
5.6 Modification or Assumption of Options. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options
or may accept the cancellation of outstanding options (whether granted by
the Company or by another issuer) in return for the grant of new options
for the same or a different number of shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification
of an Option shall, without the consent of the Optionee, alter or impair
his or her rights or obligations under such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be
made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept payment
in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made
with Common Shares which have already been owned by the Optionee for such
duration as shall be specified by the Committee. Such Common Shares shall
be valued at their Fair Market Value on the date when the new Common
Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company)
of an irrevocable direction to a securities broker approved by the Company
to sell Common Shares and to deliver all or part of the sales proceeds to
the Company in payment of all or part of the Exercise Price and any
withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company)
of an irrevocable direction to pledge Common Shares to a securities broker
or lender approved by the Company, as security for a loan, and to deliver
all or part of the loan proceeds to the Company in payment of all or part
of the Exercise Price and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment for all or any part of the Exercise Price may be made with a full-
recourse promissory note.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of a SAR under the Plan shall be
evidenced by a SAR Agreement between the Optionee and the Company. Such
SAR shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various SAR Agreements entered into under the Plan need
not be identical. SARs may be granted in consideration of a reduction in
the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 10.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise
Price. A SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may
provide for accelerated exercisability in the event of the Optionee's
death, disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of
the Optionee's service. SARs may also be awarded in combination with
Options, Restricted Shares or Stock Units, and such an Award may provide
that the SARs will not be exercisable unless the related Options,
Restricted Shares or Stock Units are forfeited. A SAR may be included in
an ISO only at the time of grant but may be included in an NSO at the time
of grant or at any subsequent time, but not later than six months before
the expiration of such NSO. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 Effect of Change in Control. The Committee may determine, at the
time of granting a SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event that
a Change in Control occurs with respect to the Company. If the Committee
finds that there is a reasonable possibility that, within the succeeding
six months, a Change in Control will occur with respect to the Company,
then the Committee at its sole discretion may determine that any or all
outstanding SARs shall become fully exercisable as to all Common Shares
subject to such SARs.
7.6 Exercise of SARs. If, on the date when a SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but
any portion of such SAR has not been exercised or surrendered, then such
SAR shall automatically be deemed to be exercised as of such date with
respect to such portion. Upon exercise of a SAR, the optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination
of Common Shares and cash, as the Committee shall determine. The amount
of cash and/or the Fair Market Value of Common Shares received upon
exercise of SARs shall, in the aggregate, be equal to the amount by which
the Fair Market Value (on the date of surrender) of the Common Shares
subject to the SARs exceeds the Exercise Price.
7.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the
Company or by another issuer) in return for the grant of new SARs for the
same or a different number of shares and at the same or a different
exercise price. The foregoing notwithstanding, no modification of a SAR
shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may be
granted in the form of Restricted Shares, in the form of Stock Units, or
in any combination of both. Restricted Shares or Stock Units may also be
awarded in combination with NSOs or SARs, and such an Award may provide
that the Restricted Shares or Stock Units will be forfeited in the event
that the related NSOs or SARs are exercised.
8.2 Payment for Awards. The Committee may, in its absolute discretion,
require a recipient of an Award under this Article 8 to make a cash
payment in consideration of receipt of such Award, provided such recipient
shall not be under any obligation to make such cash payment if the
recipient decides to decline the receipt of such Award.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award
Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The
Committee may determine, at the time of making an Award or thereafter,
that such Award shall become fully vested in the event that a Change in
Control occurs with respect to the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or
(c) any combination of both. The actual number of Stock Units eligible
for settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method
based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have
lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend
equivalents. Until an Award of Stock Units is settled, the number of such
Stock Units shall be subject to adjustment pursuant to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under
the Plan shall designate one or more beneficiaries for this purpose by
filing the prescribed form with the Company. A beneficiary designation
may be changed by filing the prescribed form with the Company at any time
before the Award recipient's death. If no beneficiary was designated or
if no designated beneficiary survives the Award recipient, then any Stock
Units Award that becomes payable after the recipient's death shall be
distributed to the recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to
the terms and conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded under
the Plan shall have the same voting, dividend and other rights as the
Company's other shareholders. A Stock Award Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such additional Restricted
Shares shall be subject to the same conditions and restrictions as the
Award with respect to which the dividends were paid. Such additional
Restricted Shares shall not reduce the number of Common Shares available
under Article 3.
9.2 Stock Units. The holders of stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with
an amount equal to all cash dividends paid on one Common Share while the
Stock Unit is outstanding. Dividend equivalents may be converted into
additional Stock Units. Settlement of dividend equivalents may be made in
the form of cash, in the form of Common Shares, or in a combination of
both. Prior to distribution, any dividend equivalents which are not paid
shall be subject to the same conditions and restrictions as the Stock
Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall
make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:
(a) the number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) the number of Stock Units included in any prior Award which has not
yet been settled;
(c) the number of Common Shares covered by each outstanding option and
SAR; or
(d) the Exercise Price under each outstanding Option and SAR.
Except as provided in this Article 10, a Participant shall have no rights
by reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, SARs, Restricted
Shares and Stock Units shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a
surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce
the number of Common Shares available under Article 3.
ARTICLE 12. LIMITATION ON RIGHTS.
12.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent, a Subsidiary or an
Affiliate. The Company and its Parents and Subsidiaries reserve the right
to terminate the service of any employee, consultant or director at any
time, and for any reason, subject to applicable laws, the Company's
certificate of incorporation and by-laws and a written employment
agreement (if any).
12.2 Shareholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a shareholder with respect to any Common
Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date
when such certificate is issued, except as expressly provided in
Articles 8, 9 and 10.
12.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares
under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required.
The Company reserves the right to restrict, in whole or in part, the
delivery of Common Shares pursuant to any Award prior to the satisfaction
of all legal requirements relating to the issuance of such Common Shares,
to their registration, qualification or listing or to an exemption from
registration, qualification or listing. Notwithstanding any provisions
herein to the contrary, nothing herein shall be deemed to require the
Company to and the Company shall be under no obligation to register any
Shares.
12.4 Condition Precedent to Issuance of Common Shares. Prior to the
existence of a Public Market for the Common Shares, it shall be a
condition precedent to any issuance of any Common Share to the
Participant, that the Participant agrees to be bound by and executes the
Management Stockholders' Agreement. The rights and obligations of the
Participant with respect to the Common Shares obtained through the grant
of Awards under the Plan shall be governed by the terms and conditions of
the Management Stockholders' Agreement.
ARTICLE 13. LIMITATION ON PAYMENTS.
13.1 Basic Rule. In the event that the severance and other benefits
provided to a Participant (i) constitute "parachute payments" within the
meaning of section 280G of the Code and (ii) but for this Article 13, such
severance and benefits would be subject to the excise tax imposed by
section 4999 of the Code, then Participant's benefits shall be payable
either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of such
severance and other benefits being subject to excise tax under section
4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by
section 4999 of the Code, results in the receipt by the Participant on an
after-tax basis, of the greatest amount of benefits under Article 13.
13.2 Reduction of Payments. If the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment would be
nondeductible by the Company because of section 280G of the Code, then the
Company shall promptly give the Participant notice to that effect and a
copy of the detailed calculation thereof. The Participant may then elect,
in his or her sole discretion, which and how much of the payments shall be
eliminated or reduced and shall advise the Company in writing of his or
her election. All determinations made by the Auditors under this
Article 13 shall be binding upon the Company and the Participant and shall
be made within sixty (60) days of the date when a payment by the Company
for the benefit of the Participant becomes payable or transferable. As
promptly as practicable following such determination and the elections
hereunder, the Company shall pay or transfer to or for the benefit of the
Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in
the future such amounts as become due to him or her under the Plan.
13.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that any payments
will have been made by the Company which should not have been made (an
"Overpayment") or that additional payments which will not have been made
by the Company could have been made (an "Underpayment"), consistent in
each case with the calculation of the amount hereunder. In the event that
the Auditors, based upon the assertion of a deficiency by the Internal
Revenue Service against the Company or the Participant which the Auditors
believe has a high probability of success, determine that an Overpayment
has been made, such Overpayment shall be treated for all purposes as a
loan to the Participant which he or she shall repay to the Company,
together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such
payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that
an Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code.
13.4 Related Corporations. For purposes of this Article 13, the term
"Company" shall include affiliated corporations to the extent determined
by the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 14. WITHHOLDING TAXES.
14.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied.
14.2 Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that
otherwise would be issued to him or her or by surrendering all or a
portion of any Common Shares that he or she previously acquired. Such
Common Shares shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions,
including any restrictions required by rules of the Securities and
Exchange Commission.
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS.
15.1 General. Except as provided in Article 14, or in a stock option
agreement, or as required by applicable law, an Award granted under the
Plan shall not be anticipated, assigned, attached, garnished, optioned,
transferred or made subject to any creditor's process, whether
voluntarily, involuntarily or by operation of law. An Option or SAR may
be exercised during the lifetime of the Optionee only by him or her or by
his or her guardian or legal representative. Any act in violation of this
Article 15 shall be void. However, this Article 15 shall not preclude a
Participant from designating a beneficiary who will receive any
outstanding Awards in the event of the Participant's death, nor shall it
preclude a transfer of Awards by will or by the laws of descent and
distribution.
15.2 Trusts. Neither this Article 15 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted
Shares or Stock Units to (a) the trustee of a trust that is revocable by
such Participant alone, both at the time of the transfer or assignment and
at all times thereafter prior to such Participant's death, or (b) the
trustee of any other trust to the extent approved in advance by the
Committee in writing. A transfer or assignment of Restricted Shares or
Stock Units from such trustee to any person other than such Participant
shall be permitted only to the extent approved in advance by the Committee
in writing, and Restricted Shares or Stock Units held by such trustee
shall be subject to all of the conditions and restrictions set forth in
the Plan and in the applicable Stock Award Agreement, as if such trustee
were a party to such Agreement.
ARTICLE 16. FUTURE OF THE PLAN.
16.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on August 14, 1998, subject to approval by the Company's
shareholders and no Awards shall be exercisable until such approval is
obtained. To the extent required by applicable law, the Plan shall
terminate on August 13, 2008, except that the Plan may be terminated under
Section 16.2; provided, however, that no ISO may be granted after
August 13, 2008.
16.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's shareholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be
granted under the Plan after the termination thereof. The termination of
the Plan, or any amendment thereof, shall not affect any Award previously
granted under the Plan.
ARTICLE 17. DEFINITIONS.
17.1 "Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
17.2 "Award" means any award of an Option, a SAR, a Restricted Share or a
Stock Unit under the Plan.
17.3 "Board" means the Company's Board of Directors, as constituted from
time to time.
17.4 "Change in Control" means the occurrence of any "person" (as defined
in Section 13(d) of the Exchange Act), other than the Company, its Parent
or Subsidiary or employee benefit plan or trust maintained by the Company,
its Parent or Subsidiary, becoming the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 25%
of the Common Shares of the Company outstanding at such time, without the
prior approval of the Board.
17.5 "Code" means the Internal Revenue code of 1986, as amended.
17.6 "Committee" means a committee of the Board, as described in
Article 2.
17.7 "Common Share" means one share of the common stock of the Company.
17.8 "Company" means Zilog, Inc., a Delaware corporation.
17.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
17.10 "Exercise Price," in the case of an Option, means the amount for
which one common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in
the case of a SAR, means an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one Common
Share in determining the amount payable upon exercise of such SAR.
17.11 "Fair Market Value" means the market price of Common Shares, as of
any Valuation Date, determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
NASDAQ system for such date;
(c) If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Western Edition of The Wall
Street Journal. Such determination shall be conclusive and binding on all
persons.
17.12 "ISO" means an incentive stock option described in section 422(b) of
the Code.
17.13 "Key Employee" means (a) a common-law employee of the Company,
a Parent, a Subsidiary or an Affiliate; (b) a consultant or adviser who
provides services to the Company, a Parent, a Subsidiary or an Affiliate
as an independent contractor, or (c0 a member of the Board of Directors of
the Company.
17.13a "Management Stockholders' Agreement" shall mean the Management
Stockholders' Agreement, substantially in the form attached hereto as
Exhibit A, or such other similar agreement as may be entered into between
the Company and any Participant as prescribed by the Committee.
17.14 "NSO" means an employee stock option not described in section 422 of
the Code.
17.15 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
17.16 "Optionee" means an individual or estate who holds an Option or SAR.
17.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. A corporation that
attains the status of a Parent on a date after the adoption of the Plan
shall be considered a Parent commencing as of such date.
17.18 "Participant" means an individual or estate who holds an Award.
17.19 "Plan" means this Zilog, Inc. 1998 Long-Term Stock Incentive Plan,
as it may be amended from time to time.

17.19a "Public Market" for the Common Shares shall be deemed to exist for
purposes of the Plan if the Common Shares are registered under Section
12(b) or 12(g) of the Exchange Act and trading regularly occurs in such
Common Shares in, on or through the facilities of securities exchanges
and/or inter-dealer quotation systems in the United States (within the
meaning of Section 902(n) of the Securities Act) or any designated
offshore securities market (within the meaning of Rule 902(a) of the
Securities Act).
17.20 "Restricted Share" means a Common Share awarded under the Plan.
17.21 "SAR" means a stock appreciation right granted under the Plan.
17.22 "Share" means one share of the common stock of the Company.
17.23 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining
to his or her SAR.
17.24 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Stock Unit which contains the
terms, conditions and restrictions pertaining to such Restricted Share or
Stock Unit.
17.25 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
17.26 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
17.27 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain. A corporation that attains the status of a Subsidiary on a date
after the adoption of the Plan shall be considered a Subsidiary commencing
as of such date.
17.28 "Valuation Date" shall mean (i) prior to the existence of a Public
Market for the Common Stock, the last day of each calendar quarter or (ii)
on or after the existence of a Public Market for the Common Shares, the
trading date immediately preceding the date of the relevant transaction.

ARTICLE 18. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to affix the corporate name and seal hereto.
ZILOG, INC.
By /s/ Curtis J. Crawford___

EXHIBIT 10.18

ZILOG, INC.
1998 EXECUTIVE OFFICER STOCK INCENTIVE PLAN, as amended
(Includes actions of First Instrument of Amendment)

ARTICLE 1. INTRODUCTION -------------------------------------- 4
ARTICLE 2. ADMINISTRATION ------------------------------------- 4
2.1 Committee Composition ------------------------------------- 4
2.2 Committee Responsibilities -------------------------------- 4
ARTICLE 3. SHARES AVAILABLE FOR GRANTS ------------------------ 5
3.1 Basic Limitation ------------------------------------------ 5
3.2 Additional Shares ----------------------------------------- 5
3.3 Dividend Equivalents -------------------------------------- 5
ARTICLE 4. ELIGIBILITY ---------------------------------------- 5
4.1 General Rules --------------------------------------- 5
4.2 Incentive Stock Options ----------------------------------- 5
ARTICLE 5. OPTIONS -------------------------------------------- 5
5.1 Stock Option Agreement ------------------------------------ 5
5.2 Number of Shares ------------------------------------------ 5
5.3 Exercise Price -------------------------------------------- 6
5.4 Exercisability and Term ----------------------------------- 6
5.5 Effect of Change in Control ------------------------------- 6
5.6 Modification or Assumption of Options --------------------- 6
ARTICLE 6. PAYMENT FOR OPTION SHARES -------------------------- 7
6.1 General Rule ---------------------------------------------- 7
6.2 Surrender of Stock ---------------------------------------- 7
6.3 Exercise/Sale --------------------------------------- 7
6.4 Exercise/Pledge ------------------------------------------- 7
6.5 Promissory Note ------------------------------------------- 7
6.6 Other Forms of Payment ------------------------------------ 7
ARTICLE 7. STOCK APPRECIATION RIGHTS ------------------------- 7
7.1 SAR Agreement --------------------------------------- 7
7.2 Number of Shares ------------------------------------------ 7
7.3 Exercise Price -------------------------------------------- 8
7.4 Exercisability and Term ----------------------------------- 8
7.5 Effect of Change in Control ------------------------------- 8
7.6 Exercise of SARs ------------------------------------------ 8
7.7 Modification or Assumption of SARs ------------------------ 8
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS ------------------ 8
8.1 Time, Amount and Form of Awards ----------------------- 8
8.2 Payment for Awards ---------------------------------------- 9
8.3 Vesting Conditions ---------------------------------------- 9
8.4 Form and Time of Settlement of Stock Units ---------------- 9
8.5 Death of Recipient ---------------------------------------- 9
8.6 Creditors, Rights ----------------------------------------- 9
ARTICLE 9. VOTING AND DIVIDEND RIGHTS ------------------------- 10
9.1 Restricted Shares ----------------------------------------- 10
9.2 Stock Units ----------------------------------------------- 10
ARTICLE 10. PROTECTION AGAINST DILUTION ----------------------- 10
10.1 Adjustments ---------------------------------------------- 10
10.2 Reorganizations ------------------------------------------ 10
ARTICLE 11. AWARDS UNDER OTHER PLANS -------------------------- 11
ARTICLE 12. LIMITATION ON RIGHTS ------------------------------ 11
12.1 Retention Rights ----------------------------------------- 11
12.2 Shareholders' Rights ------------------------------------- 11
12.3 Regulatory Requirements ---------------------------------- 11
ARTICLE 13. LIMITATION ON PAYMENTS ---------------------------- 11
13.1 Basic Rule ----------------------------------------------- 11
13.2 Reduction of Payments ------------------------------------ 12
13.3 Overpayments and Underpayments --------------------------- 12
13.4 Related Corporations ------------------------------------- 12
ARTICLE 14. WITHHOLDING TAXES --------------------------------- 12
14.1 General -------------------------------------------------- 13
14.2 Share Withholding ---------------------------------------- 13
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS ------------------ 13
15.1 General -------------------------------------------------- 13
15.2 Trusts ----------------------------------------------- 13
ARTICLE 16. FUTURE OF THE PLAN -------------------------------- 14
16.1 Term of the Plan ----------------------------------------- 14
16.2 Amendment or Termination --------------------------------- 14
ARTICLE 17. DEFINITIONS --------------------------------------- 14
ARTICLE 18. EXECUTION ----------------------------------------- 17

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan shall
be authorized but unissued shares or treasury shares. The aggregate
number of Common Shares reserved for award as Restricted Shares, Stock
Units, Options and SARs shall be limited to 6,750,000 Common Shares (after
giving effect to the 2-for-1 stock split approved by the Board of
Directors on August 14, 1998) on a fully diluted basis. The limitation of
this Section 3.1 shall be subject to adjustment pursuant to Article 10.
No person will be eligible to receive more than 3,000,000 Common Shares in
any calendar year under this Plan pursuant to the grant of awards
hereunder. A person may be granted more than one award under this Plan.
3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or
if Options or SARs terminate for any other reason before being exercised,
then such Stock Units, Options or SARs shall again become available for
Awards under the Plan. If SARs are exercised, then only the number of
Common Shares (if any) actually issued in settlement of such SARs shall
reduce the number available under Section 3.1 and the balance shall again
become available for Awards under the Plan. If Restricted Shares are
forfeited before any dividends have been paid with respect to such
Restricted Shares, then such Restricted Shares shall again become
available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under
the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Executive Officers shall be eligible for
designation as Participants by the Committee.
4.2 Incentive Stock Options. Only Executive Officers who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for
the grant of ISOs. In addition, an Executive Officer who owns more than
ten percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company or any of its Parents or Subsidiaries
shall not be eligible for the grant of an ISO unless the requirements set
forth in section 422(c)(5) of the Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and
the Company. Such Option shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with
the Plan. The Stock Option Agreement shall specify whether the Option is
an ISO or an NSO. The provisions of the various Stock Option Agreements
entered into under the Plan need not be identical. A Stock Option
Agreement may provide that new Options will be granted automatically to
the Optionee when he or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no
event be less than one-hundred percent (100%) of the Fair Market Value of
a Common Share on the date of grant. In the case of an NSO, the
Exercise Price will be determined by the Committee when the NSO is granted
and may not be less than eighty-five percent (85%) of the Fair Market
Value of a Common Share on the date of grant; provided that the Exercise
Price of any NSO granted to an Executive Officer who owns more than ten
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company or any of its Parents or Subsidiaries
will not be less than 110% of the Fair Market Value on the date of grant.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of
the Option; provided that the term of an ISO shall in no event exceed ten
(10) years from the date of grant. To the extent required by applicable
law, Options shall be exercisable for a period of six months following
termination of employment due to death or disability and 30 days following
termination of employment (other than terminations for cause, as defined
in the Company's personnel policies). A Stock Option Agreement may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will
not be exercisable unless the related SARs are forfeited. NSOs may also
be awarded in combination with Restricted Shares or Stock Units, and such
an Award may provide that the NSOs will not be exercisable unless the
related Restricted Shares or Stock Units are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
fully exercisable as to all Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company. If the
Committee finds that there is a reasonable possibility that, within the
succeeding six months, a Change in Control will occur with respect to the
Company, then the Committee at its sole discretion may determine that any
or all outstanding Options shall become fully exercisable as to all Common
Shares subject to such Options.
5.6 Modification or Assumption of Options. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options
or may accept the cancellation of outstanding options (whether granted by
the Company or by another issuer) in return for the grant of new options
for the same or a different number of shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification
of an Option shall, without the consent of the Optionee, alter or impair
his or her rights or obligations under such Option.

ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be
made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept payment
in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made
with Common Shares which have already been owned by the Optionee for such
duration as shall be specified by the Committee. Such Common Shares shall
be valued at their Fair Market Value on the date when the new Common
Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company)
of an irrevocable direction to a securities broker approved by the Company
to sell Common Shares and to deliver all or part of the sales proceeds to
the Company in payment of all or part of the Exercise Price and any
withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company)
of an irrevocable direction to pledge Common Shares to a securities broker
or lender approved by the Company, as security for a loan, and to deliver
all or part of the loan proceeds to the Company in payment of all or part
of the Exercise Price and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment for all or any part of the Exercise Price may be made with a
full-recourse promissory note.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of a SAR under the Plan shall be
evidenced by a SAR Agreement between the Optionee and the Company. Such
SAR shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various SAR Agreements entered into under the Plan need
not be identical. SARs may be granted in consideration of a reduction in
the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 10.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise
Price. A SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may
provide for accelerated exercisability in the event of the Optionee's
death, disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of
the Optionee's service. SARs may also be awarded in combination with
Options, Restricted Shares or Stock Units, and such an Award may provide
that the SARs will not be exercisable unless the related Options,
Restricted Shares or Stock Units are forfeited. A SAR may be included in
an ISO only at the time of grant but may be included in an NSO at the time
of grant or at any subsequent time, but not later than six months before
the expiration of such NSO. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 Effect of Change in Control. The Committee may determine, at the
time of granting a SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event that
a Change in Control occurs with respect to the Company. If the Committee
finds that there is a reasonable possibility that, within the succeeding
six months, a Change in Control will occur with respect to the Company,
then the Committee at its sole discretion may determine that any or all
outstanding SARs shall become fully exercisable as to all Common Shares
subject to such SARs.
7.6 Exercise of SARs. If, on the date when a SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but
any portion of such SAR has not been exercised or surrendered, then such
SAR shall automatically be deemed to be exercised as of such date with
respect to such portion. Upon exercise of a SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination
of Common Shares and cash, as the Committee shall determine. The amount
of cash and/or the Fair Market Value of Common Shares received upon
exercise of SARs shall, in the aggregate, be equal to the amount by which
the Fair Market Value (on the date of surrender) of the Common Shares
subject to the SARs exceeds the Exercise Price.
7.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the
Company or by another issuer) in return for the grant of new SARs for the
same or a different number of shares and at the same or a different
exercise price. The foregoing notwithstanding, no modification of a SAR
shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may be
granted in the form of Restricted Shares, in the form of Stock Units, or
in any combination of both. Restricted Shares or Stock Units may also be
awarded in combination with NSOs or SARs, and such an Award may provide
that the Restricted Shares or Stock Units will be forfeited in the event
that the related NSOs or SARs are exercised.
8.2 Payment for Awards. The Committee may, in its absolute discretion,
require a recipient of an Award under this Article 8 to make a cash
payment in consideration of receipt of such Award, provided such recipient
shall not be under any obligation to make such cash payment if the
recipient decides to decline the receipt of such Award.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award
Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The
Committee may determine, at the time of making an Award or thereafter,
that such Award shall become fully vested in the event that a Change in
Control occurs with respect to the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or
(c) any combination of both. The actual number of Stock Units eligible
for settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method
based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have
lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend
equivalents. Until an Award of Stock Units is settled, the number of such
Stock Units shall be subject to adjustment pursuant to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under
the Plan shall designate one or more beneficiaries for this purpose by
filing the prescribed form with the Company. A beneficiary designation
may be changed by filing the prescribed form with the Company at any time
before the Award recipient's death. If no beneficiary was designated or
if no designated beneficiary survives the Award recipient, then any Stock
Units Award that becomes payable after the recipient's death shall be
distributed to the recipient's estate.
8.6 Creditors, Rights. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to
the terms and conditions of the applicable Stock Award Agreement.

ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded under
the Plan shall have the same voting, dividend and other rights as the
Company's other shareholders. A Stock Award Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such additional Restricted
Shares shall be subject to the same conditions and restrictions as the
Award with respect to which the dividends were paid. Such additional
Restricted Shares shall not reduce the number of Common Shares available
under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with
an amount equal to all cash dividends paid on one Common Share while the
Stock Unit is outstanding. Dividend equivalents may be converted into
additional Stock Units. Settlement of dividend equivalents may be made in
the form of cash, in the form of Common Shares, or in a combination of
both. Prior to distribution, any dividend equivalents which are not paid
shall be subject to the same conditions and restrictions as the Stock
Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall
make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:
(a) the number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) the number of Stock Units included in any prior Award which has not
yet been settled;
(c) the number of Common Shares covered by each outstanding Option and
SAR; or
(d) the Exercise Price under each outstanding Option and SAR.
Except as provided in this Article 10, a Participant shall have no rights
by reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, SARs, Restricted
Shares and Stock Units shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a
surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce
the number of Common Shares available under Article 3.
ARTICLE 12. LIMITATION ON RIGHTS.
12.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent, a Subsidiary or an
Affiliate. The Company and its Parents and Subsidiaries reserve the right
to terminate the service of any employee, consultant or director at any
time, and for any reason, subject to applicable laws, the Company's
certificate of incorporation and by-laws and a written employment
agreement (if any).
12.2 Shareholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a shareholder with respect to any Common
Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date
when such certificate is issued, except as expressly provided in
Articles 8, 9 and 10.
12.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares
under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required.
The Company reserves the right to restrict, in whole or in part, the
delivery of Common Shares pursuant to any Award prior to the satisfaction
of all legal requirements relating to the issuance of such Common Shares,
to their registration, qualification or listing or to an exemption from
registration, qualification or listing. Notwithstanding any provisions
herein to the contrary, nothing herein shall be deemed to require the
Company to and the Company shall be under no obligation to register any
Shares.
12.4 Condition Precedent to Issuance of Common Shares. Prior to the
existence of a Public Market for the Common Shares, it shall be a
condition precedent to any issuance of any Common Share to the
Participant, that the Participant agrees to be bound by and executes the
Management Stockholders' Agreement. The rights and obligations of the
Participant with respect to the Common Shares obtained through the grant
of Awards under the Plan shall be governed by the terms and conditions of
the Management Stockholders' Agreement.
ARTICLE 13. LIMITATION ON PAYMENTS.
13.1 Basic Rule. In the event that the severance and other benefits
provided to a Participant (i) constitute "parachute payments" within the
meaning of section 280G of the Code and (ii) but for this Article 13, such
severance and benefits would be subject to the excise tax imposed by
section 4999 of the Code, then Participant's benefits shall be payable
either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of such
severance and other benefits
being subject to excise tax under section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by
section 4999 of the Code, results in the receipt by the Participant on an
after-tax basis, of the greatest amount of benefits under Article 13.
13.2 Reduction of Payments. If the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment would be
nondeductible by the Company because of section 280G of the Code, then the
Company shall promptly give the Participant notice to that effect and a
copy of the detailed calculation thereof. The Participant may then elect,
in his or her sole discretion, which and how much of the payments shall be
eliminated or reduced and shall advise the Company in writing of his or
her election. All determinations made by the Auditors under this
Article 13 shall be binding upon the Company and the Participant and shall
be made within sixty (60) days of the date when a payment by the Company
for the benefit of the Participant becomes payable or transferable. As
promptly as practicable following such determination and the elections
hereunder, the Company shall pay or transfer to or for the benefit of the
Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in
the future such amounts as become due to him or her under the Plan.
13.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that any payments
will have been made by the Company which should not have been made (an
"Overpayment") or that additional payments which will not have been made
by the Company could have been made (an "Underpayment"), consistent in
each case with the calculation of the amount hereunder. In the event that
the Auditors, based upon the assertion of a deficiency by the Internal
Revenue Service against the Company or the Participant which the Auditors
believe has a high probability of success, determine that an Overpayment
has been made, such Overpayment shall be treated for all purposes as a
loan to the Participant which he or she shall repay to the Company,
together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such
payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that
an Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code.
13.4 Related Corporations. For purposes of this Article 13, the term
"Company" shall include affiliated corporations to the extent determined
by the Auditors in accordance with section 280G(d)(5) of the Code.

ARTICLE 14. WITHHOLDING TAXES.
14.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied.
14.2 Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that
otherwise would be issued to him or her or by surrendering all or a
portion of any Common Shares that he or she previously acquired. Such
Common Shares shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions,
including any restrictions required by rules of the Securities and
Exchange Commission.
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS.
15.1 General. Except as provided in Article 14, or in a stock option
agreement, an Award granted under the Plan shall not be anticipated,
assigned, attached, garnished, optioned, transferred or made subject to
any creditor's process, whether voluntarily, involuntarily or by operation
of law. An Option or SAR may be exercised during the lifetime of the
Optionee only by him or her or by his or her guardian or legal
representative. Any act in violation of this Article 15 shall be void.
However, this Article 15 shall not preclude a Participant from designating
a beneficiary who will receive any outstanding Awards in the event of the
Participant's death, nor shall it preclude a transfer of Awards by will or
by the laws of descent and distribution.
15.2 Trusts. Neither this Article 15 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted
Shares or Stock Units to (a) the trustee of a trust that is revocable by
such Participant alone, both at the time of the transfer or assignment and
at all times thereafter prior to such Participant's death, or (b) the
trustee of any other trust to the extent approved in advance by the
Committee in writing. A transfer or assignment of Restricted Shares or
Stock Units from such trustee to any person other than such Participant
shall be permitted only to the extent approved in advance by the Committee
in writing, and Restricted Shares or Stock Units held by such trustee
shall be subject to all of the conditions and restrictions set forth in
the Plan and in the applicable Stock Award Agreement, as if such trustee
were a party to such Agreement.

ARTICLE 16. FUTURE OF THE PLAN.
16.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on August 14, 1998, subject to the approval of the Company's
shareholders and no Awards shall be exercisable until such approval is
obtained. To the extent required by applicable law, the Plan shall
terminate on August 13, 2008, except that the Plan may be terminated under
Section 16.2; provided, however, that no ISO may be granted after
August 13, 2008.
16.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's shareholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be
granted under the Plan after the termination thereof. The termination of
the Plan, or any amendment thereof, shall not affect any Award previously
granted under the Plan.
ARTICLE 17. DEFINITIONS.
17.1 "Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
17.2 "Award" means any award of an Option, a SAR, a Restricted Share or a
Stock Unit under the Plan.
17.3 "Board" means the Company's Board of Directors, as constituted from
time to time.
17.4 "Change in Control" means the occurrence of any "person" (as defined
in Section 13(d) of the Exchange Act), other than the Company, its Parent
or Subsidiary or employee benefit plan or trust maintained by the Company,
its Parent or Subsidiary, becoming the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 25%
of the Common Shares of the Company outstanding at such time, without the
prior approval of the Board.
17.5 "Code" means the Internal Revenue Code of 1986, as amended.
17.6 "Committee" means a committee of the Board, as described in
Article 2.
17.7 "Common Share" means one share of the common stock of the Company.
17.8 "Company" means Zilog, Inc., a Delaware corporation.
17.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
17.10 "Executive Officer" means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate who is an officer of the Company, a
Parent, a Subsidiary or an Affiliate.
17.11 "Exercise Price" in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in
the case of a SAR, means an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one Common
Share in determining the amount payable upon exercise of such SAR.
17.12 "Fair Market Value" means the market price of Common Shares, as of
any Valuation Date, determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
NASDAQ system for such date;
(c) If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Western Edition of The Wall
Street Journal. Such determination shall be conclusive and binding on all
persons.
17.13 "ISO" means an incentive stock option described in section 422(b) of
the Code.
17.13a "Management Stockholders' Agreement" shall mean the Management
Stockholders' Agreement, substantially in the form attached hereto as
Exhibit A, or such other similar agreement as may be entered into between
the Company and any Participant as prescribed by the Committee.
17.14 "NSO" means an employee stock option not described in section 422 of
the Code.
17.15 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
17.16 "Optionee" means an individual or estate who holds an Option or SAR.
17.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. A corporation that
attains the status of a Parent on a date after the adoption of the Plan
shall be considered a Parent commencing as of such date.
17.18 "Participant" means an individual or estate who holds an Award.
17.19 "Plan" means this Zilog, Inc. 1998 Executive Officer Stock Incentive
Plan, as it may be amended from time to time.
17.19a "Public Market" for the Common Shares shall be deemed to exist for
the purposes of the Plan if the Common Shares are registered under Section
12(b) or 12(g) of the Exchange Act and trading regularly occurs in such
Common Shares in, or through the facilities of securities exchanges and/or
inter-dealer quotation systems in the United States (within the meaning of
Section 902(n) of the Securities Act) or any designated offshore
securities market (within the meaning of Rule 902(a) of the Securities
Act).
17.20 "Restricted Share" means a Common Share awarded under the Plan.
17.21 "SAR" means a stock appreciation right granted under the Plan.
17.22 "Share" means one share of the common stock of the Company.
17.23 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining
to his or her SAR.
17.24 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Stock Unit which contains the
terms, conditions and restrictions pertaining to such Restricted Share or
Stock Unit.
17.25 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
17.26 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
17.27 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain. A corporation that attains the status of a Subsidiary on a date
after the adoption of the Plan shall be considered a Subsidiary commencing
as of such date.
17.28 "Valuation Date" shall mean (i) prior to the existence of a Public
Market for the Common Stock, the last day of each calendar quarter or (ii)
on or after the existence of a Public Market for the Common Shares, the
trading date immediately preceding the date of the relevant transaction.

EXHIBIT 10.19

ZILOG
EMPLOYMENT AGREEMENT

This Agreement is made by and between Zilog, Inc., a Delaware corporation
(hereinafter "Zilog") and Gary Patten (hereinafter "Patten"), whereby
Zilog and Patten agree that Patten accepts employment as Senior Vice
President and Chief Financial Officer of Zilog, under the following terms
and conditions:

1. Term. Zilog and Patten agree that Patten will be Senior Vice President
and Chief Financial Officer of Zilog for a period of twenty-four (24)
months, commencing on 11-01-99 and ending 11-01-2001. This Agreement may
be extended upon written agreement of Zilog and Patten. 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) 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. Patten 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 Patten 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 Patten 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. Patten'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. Patten
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 Patten 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, Patten will be entitled to such
benefits as Zilog normally provides its executives. In addition, Zilog
will provide Patten with Directors and officers (D&O) insurance in an
amount deemed appropriate by the Company.

5. Company Policies. Patten 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 Patten at any time during the term of this Agreement, for
any reason or for no reason, with or without cause, by giving Patten at
least thirty (30) days written notice of such termination or compensation
in lieu of notice; and Patten 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 Patten, 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 Patten, if his
employment with Zilog is terminated prior to the end of this Agreement,
shall be as follows:

A. If Patten 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 Patten pursuant to the
terms of EPIP prior to the effective date of
resignation, and (3) payouts under the Executive Bonus which become payable to
Patten 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 Patten.

B. If Patten 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 Patten's authority, responsibility or status as Senior
Vice President and Chief Financial Officer such that Patten 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 Patten'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 Council;

(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 Patten'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 Patten of
such breach.

C. If Patten retires as defined in POL #054 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 Patten.

D. If Zilog terminates Patten'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
Patten 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 Patten pursuant to the terms of the Executive Bonus prior to
expiration of the term of this Agreement. Patten 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
Patten.

E. If Zilog terminates Patten during the term of this Agreement for Cause,
or for Detrimental Activity as defined herein, Zilog will have no further
monetary obligation to Patten other than: (1) any base salary then due
and owing for services previously performed, (2) payouts under EPIP which
become payable to Patten pursuant to the terms of EPIP prior to the
effective date of termination, and (3) payouts under the Executive Bonus
which become payable to Patten 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 Patten's effectiveness
in the performance of his duties, or willful and reckless disregard for
the best interests of the Company.

F. If Patten 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 Patten 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 Patten 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 Patten'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 Patten'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 Patten when his employment
terminates. During the remaining term of this Agreement Patten (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
Patten under its group insurance policies during such period.

H. Zilog shall provide Patten 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 Patten 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 Patten.

In the event that it is determined that any payment or distribution of any
type to or for the benefit of Patten 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 Patten shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount that shall fund the
payment by Patten 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
Patten within seven (7) business days of Patten's termination date, if
applicable, or such earlier time as is requested by Zilog or by Patten (if
Patten 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 Patten, it shall furnish Patten with a written statement that
such Auditors have concluded that no Excise Tax is payable (including the
reasons therefor) and that Patten 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 Patten within five (5)
business days after the Determination is delivered to Zilog or Patten.
Any determination by the Auditors shall be binding upon Zilog and Patten,
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
Patten. 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) Patten shall in no event be obligated to
return to Zilog an amount greater than the net after-tax portion of the
Overpayment that Patten 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 Patten 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 Patten's repaying to Zilog an amount which is
less than the Overpayment.

8. Patten Representations. Patten 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 Patten as indicated in
Zilog's personnel records or such other address as Patten shall specify in
writing, and if by Patten 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
Patten, 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. Patten 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 Patten, 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 Patten shall not operate or be construed as a waiver of
any subsequent breach by Patten.

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. Employee Proprietary Rights and Non-Disclosure Agreement, attached as
Exhibit IV;
B. Conflict of Interest Statement, attached as Exhibit V;
C. Policy on Business Ethics, attached as Exhibit VII; and
D. POL #054, 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: November 1, 1999
(DATE)

By: /s/ Gary Patten__________ By: /s/ Steven. C. Mizell____

Dated _November 1, 1999________ Dated __November 1, 1999_____

EXHIBIT 10.22

ZILOG, INC.
1998 LONG-TERM STOCK INCENTIVE PLAN
RESTRICTED SHARE AGREEMENT
RESTRICTED SHARE AGREEMENT (this "Agreement"), dated as of February 7,
2000, between ZiLOG, Inc. (the "Company") and Richard S. Friedland (the
"Participant").
WHEREAS, the Participant is a member of the Board of Directors of the
Company or an affiliate of the Company and in such capacity is hereby
granted the one-time opportunity to purchase shares (the "Restricted
Shares") of common stock of the Company, $0.01 par value per share
("Common Stock"), pursuant to the Company's 1998 Long-Term Stock Incentive
Plan (the "Plan") and subject to the terms and conditions provided herein
and in the Plan;
WHEREAS, Section 12.4 of the Plan requires the Participant to execute this
Agreement if the Participant wishes to purchase the Restricted Shares;
WHEREAS, upon executing this Agreement, the Participant and the Company
desire to have this Agreement apply to the Restricted Shares to be
purchased pursuant to the Plan by the Participant.
NOW THEREFORE, in consideration of the premises hereinafter set forth, and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows.
1. Grant of Restricted Share Award. Pursuant to, and subject to, the
terms and conditions set forth herein (including the payment of the
Purchase Price) and in the Plan, the Company hereby grants to the
Participant an Award (the "Restricted Share Award") under which the
Participant is hereby offered the opportunity to purchase 25,000 shares of
Common Stock of the Company.
2. Grant Date. The Grant Date of the Restricted Share Award is the date
of this Agreement.
3. Purchase Price of Restricted Share. The purchase price for each share
(the "Purchase Price") offered under this Restricted Share Award is $4.00.
The Participant must pay the aggregate Purchase Price by certified check
made out to the Company within thirty days of the date hereof. If the
Company does not receive payment of the Purchase Price in appropriate form
by the close of business on such date, this Restricted Share Award shall
automatically, and without any further action by the Company, expire.
4. Vesting Date. Fifty percent of the Restricted Share Award shall become
vested on each of the first through second anniversaries of the Grant
Date, respectively, provided the Participant's employment with the Company
has not terminated for any reason other than on account of his death or
Disability prior to any such anniversary. In the event the Participant's
employment with the Company terminates on account of his death or
Disability, or after a Change in Control the Participant's employment is
terminated by the Company, any unvested portion of the Restricted Share
Award shall immediately become vested on such date of termination.
Unvested Restricted Shares are subject to specific repurchase rights
provided in Section 7(b) herein which continue after the existence of a
Public Market for the Common Stock. For purposes of this Agreement, the
term "employment" shall mean the performance of services to the Company by
the Participant as a member of the Board of Directors of the Company, and
the term "Disability" shall mean that the Participant is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted, or can be expected to last, for a continuous
period of not less than six months. The Company shall hold the Restricted
Shares in escrow and shall release to the Participant the appropriate
number of Restricted Shares in accordance with this vesting provision.
5. Participant's Acknowledgments and Representations.
(a)The Participant hereby acknowledges and agrees that (i) he is under no
obligation to purchase the Restricted Shares hereunder, (ii) he has
received a copy of and has read and fully understands the Plan and this
Agreement, and (iii) all decisions, determinations and interpretations of
the Committee or the Board of Directors of the Company in respect of the
Plan or this Agreement shall be final, conclusive and binding.
(b) The Participant hereby represents and warrants (i) the Restricted
Shares are being acquired for the Participant's own account, for
investment purposes only and not with a view to or in connection with any
distribution, reoffer, resale, public offering or other disposition
thereof not in compliance with the United States Securities Act of 1933
and the rules and regulations thereunder or any other applicable United
States federal or state securities laws or regulations or any other Non-
U.S. or local law or regulation; (ii) the Participant, either alone or
together with his representatives, possess such expertise, knowledge, and
sophistication in financial and business matters generally, and in the
type of transactions in which the Company or its affiliates proposes to
engage in specifically, that the Participant is capable of evaluating the
merits and risks of his proposed investment; (iii) the Participant has had
access to all of the information with respect to the Restricted Shares
that the Participant deems necessary to make a complete evaluation thereof
and the Participant has had the opportunity to question the Company
concerning such Restricted Shares; (iv) the Participant's decision to
acquire the Restricted Shares for investment has been based solely upon
the evaluation made by the Participant and not on any representations or
statements made by the Company, any of its affiliates or any employee or
agent thereof; and (v) the Participant is aware that (1) the shares of
common stock of the Company are not traded on any securities exchange and
there is no market for the shares of common stock and (2) this Agreement
provides significant restrictions on the Participant's ability to sell,
transfer, assign, mortgage, hypothecate, or otherwise encumber the
Restricted Shares prior to the date such Restricted Shares vest in
accordance with Section 4 herein and prior to existence of a Public Market
(as defined in Section 9 herein).
6. Issuance of Restricted Shares. The Participant acknowledges and agrees
that the certificate for the Restricted Shares shall bear the following
legends (except that the second paragraph of this legend shall not be
required after the Restricted Shares have been registered and except that
the first paragraph of this legend shall not be required after both the
Restricted Shares have become vested pursuant to Section 4 hereof and the
termination of the provisions of Sections 7 and 8 hereof pursuant to
Section 9 hereof):
The shares represented by this certificate are subject to the
terms and conditions of a Restricted Share Agreement dated as
of February 7, 2000 and may not be sold, transferred,
hypothecated, assigned or encumbered, except as may be
permitted by the aforesaid Agreement. A copy of the
Restricted Share Agreement is available through the Secretary
of the Company.
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be sold, transferred,
pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act
of 1933 or an opinion of counsel for the Company that
registration is not required under said Act.
Upon the termination of this Agreement, or upon registration of the
Restricted Shares under the Securities Act of 1933, as amended (the
"Securities Act"), the Participant shall have the right to exchange any
Restricted Shares containing the above legend (i) in the case of the
registration of the Restricted Shares, for Restricted Shares legended only
with the first paragraph described above and (ii) in the case of the
termination of this Agreement, for Restricted Shares legended only with
the second paragraph described above.
7. Transfer of Restricted Shares; Call Rights.
(a) The Participant agrees that he will not cause or permit the Restricted
Shares or his interest in the Restricted Shares to be sold, transferred,
hypothecated, assigned or encumbered except as expressly permitted by this
Section 7 or Section 8 hereof; provided, however, that the Restricted
Shares or any such interest may be transferred (i) on the Participant's
death by bequest or inheritance to the Participant's executors,
administrators, testamentary trustees, legatees or beneficiaries, or (ii)
during the Participant's lifetime, to a trust or custodianship created by
the Participant, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal
descendants (by blood or adoption), subject in any such case to the
agreement by each transferee (other than the Company or as otherwise
permitted by the Company) in writing to be bound by the terms of this
Agreement and provided in any such case that no such transfer that would
cause the Company to be required to register the Common Stock under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), shall be permitted.
(b) The Company (or its designated assignee) shall have the right, during
the ninety-day period immediately following the termination of the
employment of the Participant with the Company to purchase from the
Participant and the Participant shall sell to the Company (or its
designated assignee), the unvested portion of the Restricted Share Award
at a per share price equal to the lesser of (i) the Participants' Purchase
Price or (ii) the Fair Market Value of a share of Common Stock determined
as of the Valuation Date immediately preceding the date as of which such
repurchase right is exercised.
(c) The Company (or its designated assignee) shall have the right, during
the ninety-day period immediately following the termination of the
employment of the Participant with the Company to purchase from the
Participant, and upon the exercise of such right the Participant shall
sell to the Company (or its designated assignee), all or any portion of
the Restricted Shares which are vested and which are held by the
Participant as of the date as of which such right is exercised at a per
share price equal to the Fair Market Value (as defined in the Plan) of a
share of Common Stock determined as of the Valuation Date (as defined in
the Plan) immediately preceding the date as of which such right is
exercised.
(d) The Company (or its designated assignee) shall exercise the rights
provided in paragraphs (b) and (c) of this Section 7 by delivering to the
Participant a written notice specifying its intent to purchase Restricted
Shares held by the Participant, the date as of which such right is to be
exercised and the number of Restricted Shares to be purchased. Such
purchase and sale shall occur on such date as the Company (or its
designated assignee) shall specify which date shall not be later than
ninety (90) days after the fiscal quarter-end immediately following the
date as of which the Company's right is exercised; provided that the
Company may delay any such payment in the event such payment will result
in the violation of the terms or provisions of, or result in a default or
event of default under, any guarantee, financing or security agreement or
document entered into by the Company or any of its Affiliates and in
effect on such date (hereinafter a "Financing Agreement"). In the event
the payment of the purchase price is delayed as a result of a restriction
imposed by a Financing Agreement as provided above, such payment shall be
made without the application of further conditions or impediments as soon
as practicable after the payment of such purchase price would no longer
result in the violation of the terms or provisions of, or result in a
default or event of default under, any Financing Agreement, and such
payment shall equal the amount that would have been paid to the
Participant if no delay had occurred plus interest for the period from the
date on which the purchase price would have been paid but for the delay in
payment provided herein to the date on which such payment is made (the
"Delay Period"), calculated at an annual rate equal to the average annual
prime rate plus two percent charged during the Delay Period by a
nationally recognized bank designated by the Board.
8. Certain Rights.
(a) Drag Along Rights. If the Majority Stockholder (as defined below)
desires to sell all or substantially all of its shares of Common Stock to
a good faith independent purchaser (a "Purchaser") (other than any other
investment partnership, limited liability company or other entity
established for investment purposes and controlled by the principals of
the Majority Stockholder or any of its affiliates and other than any
employees of the Majority Stockholder hereinafter referred to as a
"Permitted Transferee") and said Purchaser desires to acquire all or
substantially all of the issued and outstanding shares of Common Stock (or
all or substantially all of the assets of the Company) upon such terms and
conditions as agreed to with the Majority Stockholder, the Participant
agrees to sell all of his Restricted Shares to said Purchaser (or to vote
all of his Restricted Shares in favor of any merger or other transaction
which would effect a sale of such shares of Common Stock or assets of the
Company) at the same price per share of Common Stock and pursuant to the
same terms and conditions with respect to payment for the shares of Common
Stock as agreed to by the Majority Stockholder. In such case, the
Majority Stockholder shall give written notice of such sale to the
Participant at least thirty (30) days prior to the consummation of such
sale, setting forth (i) the consideration to be received by the holders of
shares of Common Stock, (ii) the identity of the Purchaser, (iii) any
other material items and conditions of the proposed transfer and (iv) the
date of the proposed transfer.
(b) Tag Along Rights.
(i) Subject to paragraph (iv) of this Section 8(b), if the Majority
Stockholder or its Permitted Transferee proposes to transfer any of its
shares of Common Stock to a Purchaser (other than a Permitted Transferee),
then the Company shall cause the Majority Stockholder or his Permitted
Transferee (hereinafter referred to as a "Selling Stockholder") to give
written notice of such proposed transfer to the Participant (the "Selling
Stockholder's Notice") at least thirty (30) days prior to the consummation
of such proposed transfer, and to provide notice to all other stockholders
of the Company to whom the Majority Stockholder has granted similar "tag-
along" rights (such stockholders together with the Participant, referred
to herein as the "Other Stockholders") setting forth (A) the number of
shares of Common Stock offered, (B) the consideration to be received by
such Selling Stockholder, (C) the identity of the Purchaser, (D) any other
material items and conditions of the proposed transfer and (E) the date of
the proposed transfer.
(ii) Upon delivery of the Selling Stockholder's Notice, the Participant
may elect to sell up to the sum of (A) the Pro Rata Portion (as defined in
Section 8(c)(ii)) and (B) the Excess Pro Rata Portion (as defined in
Section 8(c)(iii)) of the vested portion of his Restricted Shares, at the
same price per share of Common Stock and pursuant to the same terms and
conditions with respect to payment for the shares of Common Stock as
agreed to by the Selling Stockholder, by sending written notice to the
Selling Stockholder within fifteen (15) days after the date of the Selling
Stockholder's Notice, indicating his election to sell up to the sum of the
Pro Rata Portion plus the Excess Pro Rata Portion of his Restricted Shares
in the same transaction. Following such fifteen-day period, the Selling
Stockholder and each Other Stockholder who has served notice on the
Selling Stockholder shall be permitted to sell to the Purchaser on the
terms and conditions set forth in the Selling Stockholder's Notice the sum
of (X) the Pro Rata Portion and (Y) the Excess Pro Rata Portion of its
Restricted Shares.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 8(b) shall not apply to any sale or transfer by
the Majority Stockholder of shares of Common Stock unless and until the
Majority Stockholder, after giving effect to the proposed sale or
transfer, shall have sold or transferred in the aggregate (other than to
Permitted Transferees) shares of Common Stock, representing 7.5% of shares
of Common Stock owned by the Majority Stockholder on the date hereof.
(c) Definitions. For purposes of this Section 8, the following
capitalized terms shall have the following meanings:
(i) "Majority Stockholder" shall mean TPG Partners II, L.P., TPG Investors
II, L.P., and TPG Parallel II, L.P.
(ii) "Pro Rata Portion" shall mean, with respect to shares of Common Stock
held by the Participant or Selling Stockholder, as the case may be, a
number equal to the product of (x) the total number of such shares then
owned by the Participant or the Selling Stockholder, as the case may be,
and (y) a fraction, the numerator of which shall be the total number of
such shares proposed to be sold to the Purchaser as set forth in the
Selling Stockholder's Notice, and the denominator of which shall be the
total number of such shares then outstanding (including such shares
proposed to be sold by the Selling Stockholder); provided that, in the
event any of the Other Stockholders (including the Participant) elects to
sell less than his or her Pro Rata Portion, such lesser amount shall be
deemed to be his or her Pro Rata Portion for purposes of this Agreement,
and provided that any fraction of a share resulting from such calculation
shall be disregarded for purposes of determining the Pro Rata Portion.
(iii) "Excess Pro Rata Portion" shall mean, with respect to each Other
Stockholder and the Participant, a whole number equal to the product of
(x) the number of Non-Elected Shares (as defined below) and (y) a
fraction, the numerator of which shall be such Participant's Pro Rata
Portion, and the denominator of which shall be the number of Elected
Shares (as defined below), provided that any fraction of a share resulting
from such calculation shall be disregarded for purposes of determining the
Excess Pro Rata Portion. With respect to the Selling Stockholder, "Excess
Pro Rata Portion" shall mean the excess, if any, of the number of Non-
Elected Shares over the aggregate Excess Pro Rata Portions of the Other
Stockholders (including the Participant.)
(iv) "Elected Shares" shall mean the sum of (x) the aggregate Pro Rata
Portions with respect to the shares of Common Stock of all of the Other
Stockholders (including the Participant) that have elected to exercise in
full their rights to sell their Pro Rata Portion of shares of Common
Stock, and (y) the Selling Stockholder's Pro Rata Portion of shares of
Common Stock.
(v) "Non-Elected Shares" shall mean the excess, if any, of the total
number of shares of Common Stock proposed to be sold to a Purchaser as set
forth in a Selling Stockholder's Notice over the aggregate Pro Rata
Portions with respect to shares of Common Stock of all of the Other
Stockholders (including the Participant) that have elected to exercise
their rights to sell their Pro Rata Portions of Shares of Common Stock.
9. Termination. The transfer restrictions provided in Sections 7 and 8
hereof shall terminate immediately following the existence of a Public
Market for the Common Stock except that the provisions contained in
Section 7 hereof shall continue with respect to each Restricted Share
prior to such shares becoming vested pursuant to Section 4 hereof and
during such period of time, if any, as the Participant is precluded from
selling such Restricted Shares pursuant to Rule 144 of the Securities Act.
For this purpose, a "Public Market" for the Common Stock shall be deemed
to exist if the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act and trading regularly occurs in such Common Stock in, on
or through the facilities of securities exchanges and/or inter-dealer
quotation systems in the United States (within the meaning of Section
902(n) of the Securities Act) or any designated offshore securities market
(within the meaning of Rule 902(a) of the Securities Act).
10. Distributions With Respect To Restricted Shares. As used herein, the
term "Restricted Shares" includes securities of any kind whatsoever
distributed with respect to the Common Stock acquired by the Participant
pursuant to the Plan and this Agreement or any such securities resulting
from a stock split or consolidation involving such Common Stock.
11. Amendment; Assignment. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by authorized representatives of the parties
or, in the case of a waiver, by an authorized representative of the party
waiving compliance. No such written instrument shall be effective unless
it expressly recites that it is intended to amend, supersede, cancel,
renew or extend this Agreement or to waive compliance with one or more of
the terms hereof, as the case may be. Except for the Participant's right
to assign his or her rights under Section 7(a) or the Company's right to
assign its rights under Sections 7(b) and 7(c), no party to this Agreement
may assign any of its rights or obligations under this Agreement without
the prior written consent of the other parties hereto.
12. Notices. Each notice and other communication hereunder shall be in
writing and shall be deemed to have been duly given on the date it is
delivered in person, on the next business day if delivered by overnight
mail or other reputable overnight courier, or the third business day if
sent by registered mail, return receipt requested, to the parties as
follows:
If to the Participant, to his most recent address shown on records of the
Company or its Affiliate;
If to the Company:
ZiLOG, Inc.
910 East Hamilton Avenue
Campbell, California 95008
Attention: Richard R. Pickard, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of
which together shall constitute one and the same document.
14. Governing Law. 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.
15. Binding Effect; Third Party Beneficiary Rights. This Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the heirs,
personal representatives, successors and permitted assigns of the parties
hereto. Nothing expressed or referred to in this Agreement is intended or
shall be construed to give any person other than the parties to this
Agreement, or their respective heirs, personal representatives, successors
or assigns, any legal or equitable rights, remedy or claim under or in
respect of this Agreement or any provision contained herein except that
the Majority Stockholder shall have all the rights, remedies and claims
hereunder as if it were an original signatory hereto.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
17. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
18. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

/s/ Richard S. Frieland__
Richard S. Friedland

/s/ Gary Patten__________
Gary Patten
Chief Financial Officer
ZiLOG, Inc.

EXHIBIT 10.23

ZILOG, INC.
1998 LONG-TERM STOCK INCENTIVE PLAN
RESTRICTED SHARE AGREEMENT
RESTRICTED SHARE AGREEMENT (this "Agreement"), dated as of February 7,
2000 between ZiLOG, Inc. (the "Company") and Murray A. Goldman (the
"Participant").
WHEREAS, the Participant is a member of the Board of Directors of the
Company or an affiliate of the Company and in such capacity is hereby
granted the one-time opportunity to purchase shares (the "Restricted
Shares") of common stock of the Company, $0.01 par value per share
("Common Stock"), pursuant to the Company's 1998 Long-Term Stock Incentive
Plan (the "Plan") and subject to the terms and conditions provided herein
and in the Plan;
WHEREAS, Section 12.4 of the Plan requires the Participant to execute this
Agreement if the Participant wishes to purchase the Restricted Shares;
WHEREAS, upon executing this Agreement, the Participant and the Company
desire to have this Agreement apply to the Restricted Shares to be
purchased pursuant to the Plan by the Participant.
NOW THEREFORE, in consideration of the premises hereinafter set forth, and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows.
1. Grant of Restricted Share Award. Pursuant to, and subject to, the
terms and conditions set forth herein (including the payment of the
Purchase Price) and in the Plan, the Company hereby grants to the
Participant an Award (the "Restricted Share Award") under which the
Participant is hereby offered the opportunity to purchase 50,000 shares of
Common Stock of the Company.
2. Grant Date. The Grant Date of the Restricted Share Award is the date
of this Agreement.
3. Purchase Price of Restricted Share. The purchase price for each share
(the "Purchase Price") offered under this Restricted Share Award is $4.00.
The Participant must pay the aggregate Purchase Price by wire transfer or
by certified check made out to the Company within thirty days of the date
hereof. If the Company does not receive payment of the Purchase Price in
appropriate form by the close of business on such date, this Restricted
Share Award shall automatically, and without any further action by the
Company, expire.
4. Vesting Date. Fifty percent of the Restricted Share Award shall become
vested on each of the first through second anniversaries of the Grant
Date, respectively, provided the Participant's employment with the Company
has not terminated for any reason other than on account of his death or
Disability prior to any such anniversary. In the event the Participant's
employment with the Company terminates on account of his death or
Disability, or after a Change in Control the Participant's employment is
terminated by the Company, any unvested portion of the Restricted Share
Award shall immediately become vested on such date of termination.
Unvested Restricted Shares are subject to specific repurchase rights
provided in Section 7(b) herein which continue after the existence of a
Public Market for the Common Stock. For purposes of this Agreement, the
term "employment" shall mean the performance of services to the Company by
the Participant as a member of the Board of Directors of the Company, and
the term "Disability" shall mean that the Participant is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted, or can be expected to last, for a continuous
period of not less than six months. The Company shall hold the Restricted
Shares in escrow and shall release to the Participant the appropriate
number of Restricted Shares in accordance with this vesting provision.
5. Participant's Acknowledgments and Representations.
(a) The Participant hereby acknowledges and agrees that (i) he is under no
obligation to purchase the Restricted Shares hereunder, (ii) he has
received a copy of and has read and fully understands the Plan and this
Agreement, and (iii) all decisions, determinations and interpretations of
the Committee or the Board of Directors of the Company in respect of the
Plan or this Agreement shall be final, conclusive and binding.
(b) The Participant hereby represents and warrants (i) the Restricted
Shares are being acquired for the Participant's own account, for
investment purposes only and not with a view to or in connection with any
distribution, reoffer, resale, public offering or other disposition
thereof not in compliance with the United States Securities Act of 1933
and the rules and regulations thereunder or any other applicable United
States federal or state securities laws or regulations or any other Non-
U.S. or local law or regulation; (ii) the Participant, either alone or
together with his representatives, possess such expertise, knowledge, and
sophistication in financial and business matters generally, and in the
type of transactions in which the Company or its affiliates proposes to
engage in specifically, that the Participant is capable of evaluating the
merits and risks of his proposed investment; (iii) the Participant has had
access to all of the information with respect to the Restricted Shares
that the Participant deems necessary to make a complete evaluation thereof
and the Participant has had the opportunity to question the Company
concerning such Restricted Shares; (iv) the Participant's decision to
acquire the Restricted Shares for investment has been based solely upon
the evaluation made by the Participant and not on any representations or
statements made by the Company, any of its affiliates or any employee or
agent thereof; and (v) the Participant is aware that (1) the shares of
common stock of the Company are not traded on any securities exchange and
there is no market for the shares of common stock and (2) this Agreement
provides significant restrictions on the Participant's ability to sell,
transfer, assign, mortgage, hypothecate, or otherwise encumber the
Restricted Shares prior to the date such Restricted Shares vest in
accordance with Section 4 herein and prior to existence of a Public Market
(as defined in Section 9 herein).
6. Issuance of Restricted Shares. The Participant acknowledges and agrees
that the certificate for the Restricted Shares shall bear the following
legends (except that the second paragraph of this legend shall not be
required after the Restricted Shares have been registered and except that
the first paragraph of this legend shall not be required after both the
Restricted Shares have become vested pursuant to Section 4 hereof and the
termination of the provisions of Sections 7 and 8 hereof pursuant to
Section 9 hereof):
The shares represented by this certificate are subject to the
terms and conditions of a Restricted Share Agreement dated as
of February 7, 2000 and may not be sold, transferred,
hypothecated, assigned or encumbered, except as may be
permitted by the aforesaid Agreement. A copy of the
Restricted Share Agreement is available through the Secretary
of the Company.
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be sold, transferred,
pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act
of 1933 or an opinion of counsel for the Company that
registration is not required under said Act.
Upon the termination of this Agreement, or upon registration of the
Restricted Shares under the Securities Act of 1933, as amended (the
"Securities Act"), the Participant shall have the right to exchange any
Restricted Shares containing the above legend (i) in the case of the
registration of the Restricted Shares, for Restricted Shares legended only
with the first paragraph described above and (ii) in the case of the
termination of this Agreement, for Restricted Shares legended only with
the second paragraph described above.
7. Transfer of Restricted Shares; Call Rights.
(a) The Participant agrees that he will not cause or permit the Restricted
Shares or his interest in the Restricted Shares to be sold, transferred,
hypothecated, assigned or encumbered except as expressly permitted by this
Section 7 or Section 8 hereof; provided, however, that the Restricted
Shares or any such interest may be transferred (i) on the Participant's
death by bequest or inheritance to the Participant's executors,
administrators, testamentary trustees, legatees or beneficiaries, or (ii)
during the Participant's lifetime, to a trust or custodianship created by
the Participant, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal
descendants (by blood or adoption), subject in any such case to the
agreement by each transferee (other than the Company or as otherwise
permitted by the Company) in writing to be bound by the terms of this
Agreement and provided in any such case that no such transfer that would
cause the Company to be required to register the Common Stock under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), shall be permitted.
(b) The Company (or its designated assignee) shall have the right, during
the ninety-day period immediately following the termination of the
employment of the Participant with the Company to purchase from the
Participant and the Participant shall sell to the Company (or its
designated assignee), the unvested portion of the Restricted Share Award
at a per share price equal to the lesser of (i) the Participants' Purchase
Price or (ii) the Fair Market Value of a share of Common Stock determined
as of the Valuation Date immediately preceding the date as of which such
repurchase right is exercised.
(c) The Company (or its designated assignee) shall have the right, during
the ninety-day period immediately following the termination of the
employment of the Participant with the Company to purchase from the
Participant, and upon the exercise of such right the Participant shall
sell to the Company (or its designated assignee), all or any portion of
the Restricted Shares which are vested and which are held by the
Participant as of the date as of which such right is exercised at a per
share price equal to the Fair Market Value (as defined in the Plan) of a
share of Common Stock determined as of the Valuation Date (as defined in
the Plan) immediately preceding the date as of which such right is
exercised.
(d) The Company (or its designated assignee) shall exercise the rights
provided in paragraphs (b) and (c) of this Section 7 by delivering to the
Participant a written notice specifying its intent to purchase Restricted
Shares held by the Participant, the date as of which such right is to be
exercised and the number of Restricted Shares to be purchased. Such
purchase and sale shall occur on such date as the Company (or its
designated assignee) shall specify which date shall not be later than
ninety (90) days after the fiscal quarter-end immediately following the
date as of which the Company's right is exercised; provided that the
Company may delay any such payment in the event such payment will result
in the violation of the terms or provisions of, or result in a default or
event of default under, any guarantee, financing or security agreement or
document entered into by the Company or any of its Affiliates and in
effect on such date (hereinafter a "Financing Agreement"). In the event
the payment of the purchase price is delayed as a result of a restriction
imposed by a Financing Agreement as provided above, such payment shall be
made without the application of further conditions or impediments as soon
as practicable after the payment of such purchase price would no longer
result in the violation of the terms or provisions of, or result in a
default or event of default under, any Financing Agreement, and such
payment shall equal the amount that would have been paid to the
Participant if no delay had occurred plus interest for the period from the
date on which the purchase price would have been paid but for the delay in
payment provided herein to the date on which such payment is made (the
"Delay Period"), calculated at an annual rate equal to the average annual
prime rate plus two percent charged during the Delay Period by a
nationally recognized bank designated by the Board.
8. Certain Rights.
(a) Drag Along Rights. If the Majority Stockholder (as defined below)
desires to sell all or substantially all of its shares of Common Stock to
a good faith independent purchaser (a "Purchaser") (other than any other
investment partnership, limited liability company or other entity
established for investment purposes and controlled by the principals of
the Majority Stockholder or any of its affiliates and other than any
employees of the Majority Stockholder hereinafter referred to as a
"Permitted Transferee") and said Purchaser desires to acquire all or
substantially all of the issued and outstanding shares of Common Stock (or
all or substantially all of the assets of the Company) upon such terms and
conditions as agreed to with the Majority Stockholder, the Participant
agrees to sell all of his Restricted Shares to said Purchaser (or to vote
all of his Restricted Shares in favor of any merger or other transaction
which would effect a sale of such shares of Common Stock or assets of the
Company) at the same price per share of Common Stock and pursuant to the
same terms and conditions with respect to payment for the shares of Common
Stock as agreed to by the Majority Stockholder. In such case, the
Majority Stockholder shall give written notice of such sale to the
Participant at least thirty (30) days prior to the consummation of such
sale, setting forth (i) the consideration to be received by the holders of
shares of Common Stock, (ii) the identity of the Purchaser, (iii) any
other material items and conditions of the proposed transfer and (iv) the
date of the proposed transfer.
(b) Tag Along Rights.
(i) Subject to paragraph (iv) of this Section 8(b), if the Majority
Stockholder or its Permitted Transferee proposes to transfer any of its
shares of Common Stock to a Purchaser (other than a Permitted Transferee),
then the Company shall cause the Majority Stockholder or his Permitted
Transferee (hereinafter referred to as a "Selling Stockholder") to give
written notice of such proposed transfer to the Participant (the "Selling
Stockholder's Notice") at least thirty (30) days prior to the consummation
of such proposed transfer, and to provide notice to all other stockholders
of the Company to whom the Majority Stockholder has granted similar "tag-
along" rights (such stockholders together with the Participant, referred
to herein as the "Other Stockholders") setting forth (A) the number of
shares of Common Stock offered, (B) the consideration to be received by
such Selling Stockholder, (C) the identity of the Purchaser, (D) any other
material items and conditions of the proposed transfer and (E) the date of
the proposed transfer.
(ii) Upon delivery of the Selling Stockholder's Notice, the Participant
may elect to sell up to the sum of (A) the Pro Rata Portion (as defined in
Section 8(c)(ii)) and (B) the Excess Pro Rata Portion (as defined in
Section 8(c)(iii)) of the vested portion of his Restricted Shares, at the
same price per share of Common Stock and pursuant to the same terms and
conditions with respect to payment for the shares of Common Stock as
agreed to by the Selling Stockholder, by sending written notice to the
Selling Stockholder within fifteen (15) days after the date of the Selling
Stockholder's Notice, indicating his election to sell up to the sum of the
Pro Rata Portion plus the Excess Pro Rata Portion of his Restricted Shares
in the same transaction. Following such fifteen-day period, the Selling
Stockholder and each Other Stockholder who has served notice on the
Selling Stockholder shall be permitted to sell to the Purchaser on the
terms and conditions set forth in the Selling Stockholder's Notice the sum
of (X) the Pro Rata Portion and (Y) the Excess Pro Rata Portion of its
Restricted Shares.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 8(b) shall not apply to any sale or transfer by
the Majority Stockholder of shares of Common Stock unless and until the
Majority Stockholder, after giving effect to the proposed sale or
transfer, shall have sold or transferred in the aggregate (other than to
Permitted Transferees) shares of Common Stock, representing 7.5% of shares
of Common Stock owned by the Majority Stockholder on the date hereof.
(c) Definitions. For purposes of this Section 8, the following
capitalized terms shall have the following meanings:
(i) "Majority Stockholder" shall mean TPG Partners II, L.P., TPG Investors
II, L.P., and TPG Parallel II, L.P.
(ii) "Pro Rata Portion" shall mean, with respect to shares of Common Stock
held by the Participant or Selling Stockholder, as the case may be, a
number equal to the product of (x) the total number of such shares then
owned by the Participant or the Selling Stockholder, as the case may be,
and (y) a fraction, the numerator of which shall be the total number of
such shares proposed to be sold to the Purchaser as set forth in the
Selling Stockholder's Notice, and the denominator of which shall be the
total number of such shares then outstanding (including such shares
proposed to be sold by the Selling Stockholder); provided that, in the
event any of the Other Stockholders (including the Participant) elects to
sell less than his or her Pro Rata Portion, such lesser amount shall be
deemed to be his or her Pro Rata Portion for purposes of this Agreement,
and provided that any fraction of a share resulting from such calculation
shall be disregarded for purposes of determining the Pro Rata Portion.
(iii) "Excess Pro Rata Portion" shall mean, with respect to each Other
Stockholder and the Participant, a whole number equal to the product of
(x) the number of Non-Elected Shares (as defined below) and (y) a
fraction, the numerator of which shall be such Participant's Pro Rata
Portion, and the denominator of which shall be the number of Elected
Shares (as defined below), provided that any fraction of a share resulting
from such calculation shall be disregarded for purposes of determining the
Excess Pro Rata Portion. With respect to the Selling Stockholder, "Excess
Pro Rata Portion" shall mean the excess, if any, of the number of Non-
Elected Shares over the aggregate Excess Pro Rata Portions of the Other
Stockholders (including the Participant.)
(iv) "Elected Shares" shall mean the sum of (x) the aggregate Pro Rata
Portions with respect to the shares of Common Stock of all of the Other
Stockholders (including the Participant) that have elected to exercise in
full their rights to sell their Pro Rata Portion of shares of Common
Stock, and (y) the Selling Stockholder's Pro Rata Portion of shares of
Common Stock.
(v) "Non-Elected Shares" shall mean the excess, if any, of the total
number of shares of Common Stock proposed to be sold to a Purchaser as set
forth in a Selling Stockholder's Notice over the aggregate Pro Rata
Portions with respect to shares of Common Stock of all of the Other
Stockholders (including the Participant) that have elected to exercise
their rights to sell their Pro Rata Portions of Shares of Common Stock.
9. Termination. The transfer restrictions provided in Sections 7 and 8
hereof shall terminate immediately following the existence of a Public
Market for the Common Stock except that the provisions contained in
Section 7 hereof shall continue with respect to each Restricted Share
prior to such shares becoming vested pursuant to Section 4 hereof and
during such period of time, if any, as the Participant is precluded from
selling such Restricted Shares pursuant to Rule 144 of the Securities Act.
For this purpose, a "Public Market" for the Common Stock shall be deemed
to exist if the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act and trading regularly occurs in such Common Stock in, on
or through the facilities of securities exchanges and/or inter-dealer
quotation systems in the United States (within the meaning of Section
902(n) of the Securities Act) or any designated offshore securities market
(within the meaning of Rule 902(a) of the Securities Act).
10. Distributions With Respect To Restricted Shares. As used herein, the
term "Restricted Shares" includes securities of any kind whatsoever
distributed with respect to the Common Stock acquired by the Participant
pursuant to the Plan and this Agreement or any such securities resulting
from a stock split or consolidation involving such Common Stock.
11. Amendment; Assignment. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by authorized representatives of the parties
or, in the case of a waiver, by an authorized representative of the party
waiving compliance. No such written instrument shall be effective unless
it expressly recites that it is intended to amend, supersede, cancel,
renew or extend this Agreement or to waive compliance with one or more of
the terms hereof, as the case may be. Except for the Participant's right
to assign his or her rights under Section 7(a) or the Company's right to
assign its rights under Sections 7(b) and 7(c), no party to this Agreement
may assign any of its rights or obligations under this Agreement without
the prior written consent of the other parties hereto.
12. Notices. Each notice and other communication hereunder shall be in
writing and shall be deemed to have been duly given on the date it is
delivered in person, on the next business day if delivered by overnight
mail or other reputable overnight courier, or the third business day if
sent by registered mail, return receipt requested, to the parties as
follows:
If to the Participant, to his most recent address shown on records of the
Company or its Affiliate;
If to the Company:
ZiLOG, Inc.
910 East Hamilton Avenue
Campbell, California 95008
Attention: Richard R. Pickard, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of
which together shall constitute one and the same document.
14. Governing Law. 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.
15. Binding Effect; Third Party Beneficiary Rights. This Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the heirs,
personal representatives, successors and permitted assigns of the parties
hereto. Nothing expressed or referred to in this Agreement is intended or
shall be construed to give any person other than the parties to this
Agreement, or their respective heirs, personal representatives, successors
or assigns, any legal or equitable rights, remedy or claim under or in
respect of this Agreement or any provision contained herein except that
the Majority Stockholder shall have all the rights, remedies and claims
hereunder as if it were an original signatory hereto.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
17. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
18. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
* * * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

/s/ Murray A. Goldman_______
Murray A. Goldman

/s/ Gary Patten____________
Gary Patten
Chief Financial Officer
ZiLOG, Inc.

EXHIBIT 10.24

ZILOG, INC.
1998 LONG-TERM STOCK INCENTIVE PLAN
RESTRICTED SHARE AGREEMENT
RESTRICTED SHARE AGREEMENT (this "Agreement"), dated as of February 1,
2000, between ZiLOG, Inc. (the "Company") and Lionel Sterling (the
"Participant").
WHEREAS, the Participant is a member of the Board of Directors of the
Company or an affiliate of the Company and in such capacity is hereby
granted the one-time opportunity to purchase shares (the "Restricted
Shares") of common stock of the Company, _$0.01 par value per share
("Common Stock"), pursuant to the Company's 1998 Long-Term Stock Incentive
Plan (the "Plan") and subject to the terms and conditions provided herein
and in the Plan;
WHEREAS, Section 12.4 of the Plan requires the Participant to execute this
Agreement if the Participant wishes to purchase the Restricted Shares;
WHEREAS, upon executing this Agreement, the Participant and the Company
desire to have this Agreement apply to the Restricted Shares to be
purchased pursuant to the Plan by the Participant.
NOW THEREFORE, in consideration of the premises hereinafter set forth, and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows.
1. Grant of Restricted Share Award. Pursuant to, and subject to, the
terms and conditions set forth herein (including the payment of the
Purchase Price) and in the Plan, the Company hereby grants to the
Participant an Award (the "Restricted Share Award") under which the
Participant is hereby offered the opportunity to purchase 100,000 shares
of Common Stock of the Company.
2. Grant Date. The Grant Date of the Restricted Share Award is the date
of this Agreement.
3. Purchase Price of Restricted Share. The purchase price for each share
(the "Purchase Price") offered under this Restricted Share Award is $4.00.
The Participant must pay the aggregate Purchase Price by certified check
made out to the Company within thirty days of the date hereof. If the
Company does not receive payment of the Purchase Price in appropriate form
by the close of business on such date, this Restricted Share Award shall
automatically, and without any further action by the Company, expire.
4. Vesting Date. Fifty percent of the Restricted Share Award shall become
vested on each of the first through second anniversaries of the Grant
Date, respectively, provided the Participant's employment with the Company
has not terminated for any reason other than on account of his death or
Disability prior to any such anniversary. In the event the Participant's
employment with the Company terminates on account of his death or
Disability, or after a change in control the Participant's employment is
terminated by the Company, any unvested portion of the Restricted Share
Award shall immediately become vested on such date of termination.
Unvested Restricted Shares are subject to specific repurchase rights
provided in Section 7(b) herein which continue after the existence of a
Public Market for the Common Stock. For purposes of this Agreement, the
term "employment" shall mean the performance of services to the Company by
the Participant as a member of the Board of Directors of the Company, and
the term "Disability" shall mean that the Participant is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted, or can be expected to last, for a continuous
period of not less than six months. The Company shall hold the Restricted
Shares in escrow and shall release to the Participant the appropriate
number of Restricted Shares in accordance with this vesting provision.

5. Participant's Acknowledgments and Representations.
(a) The Participant hereby acknowledges and agrees that (i) he is under no
obligation to purchase the Restricted Shares hereunder, (ii) he has
received a copy of and has read and fully understands the Plan and this
Agreement, and (iii) all decisions, determinations and interpretations of
the Committee or the Board of Directors of the Company in respect of the
Plan or this Agreement shall be final, conclusive and binding.
(b) The Participant hereby represents and warrants (i) the Restricted
Shares are being acquired for the Participant's own account, for
investment purposes only and not with a view to or in connection with any
distribution, reoffer, resale, public offering or other disposition
thereof not in compliance with the United States Securities Act of 1933
and the rules and regulations thereunder or any other applicable United
States federal or state securities laws or regulations or any other Non-
U.S. or local law or regulation; (ii) the Participant, either alone or
together with his representatives, possess such expertise, knowledge, and
sophistication in financial and business matters generally, and in the
type of transactions in which the Company or its affiliates proposes to
engage in specifically, that the Participant is capable of evaluating the
merits and risks of his proposed investment; (iii) the Participant has had
access to all of the information with respect to the Restricted Shares
that the Participant deems necessary to make a complete evaluation thereof
and the Participant has had the opportunity to question the Company
concerning such Restricted Shares; (iv) the Participant's decision to
acquire the Restricted Shares for investment has been based solely upon
the evaluation made by the Participant and not on any representations or
statements made by the Company, any of its affiliates or any employee or
agent thereof; and (v) the Participant is aware that (1) the shares of
common stock of the Company are not traded on any securities exchange and
there is no market for the shares of common stock and (2) this Agreement
provides significant restrictions on the Participant's ability to sell,
transfer, assign, mortgage, hypothecate, or otherwise encumber the
Restricted Shares prior to the date such Restricted Shares vest in
accordance with Section 4 herein and prior to existence of a Public Market
(as defined in Section 9 herein).

6. Issuance of Restricted Shares. The Participant acknowledges and agrees
that the certificate for the Restricted Shares shall bear the following
legends (except that the second paragraph of this legend shall not be
required after the Restricted Shares have been registered and except that
the first paragraph of this legend shall not be required after both the
Restricted Shares have become vested pursuant to Section 4 hereof and the
termination of the provisions of Sections 7 and 8 hereof pursuant to
Section 9 hereof):
The shares represented by this certificate are subject to the
terms and conditions of a Restricted Share Agreement dated as
of February 1, 2000 and may not be sold, transferred,
hypothecated, assigned or encumbered, except as may be
permitted by the aforesaid Agreement. A copy of the
Restricted Share Agreement is available through the Secretary
of the Company.
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be sold, transferred,
pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act
of 1933 or an opinion of counsel for the Company that
registration is not required under said Act.
Upon the termination of this Agreement, or upon registration of the
Restricted Shares under the Securities Act of 1933, as amended (the
"Securities Act"), the Participant shall have the right to exchange any
Restricted Shares containing the above legend (i) in the case of the
registration of the Restricted Shares, for Restricted Shares legended only
with the first paragraph described above and (ii) in the case of the
termination of this Agreement, for Restricted Shares legended only with
the second paragraph described above.
7. Transfer of Restricted Shares; Call Rights.
(a) The Participant agrees that he will not cause or permit the Restricted
Shares or his interest in the Restricted Shares to be sold, transferred,
hypothecated, assigned or encumbered except as expressly permitted by this
Section 7 or Section 8 hereof; provided, however, that the Restricted
Shares or any such interest may be transferred (i) on the Participant's
death by bequest or inheritance to the Participant's executors,
administrators, testamentary trustees, legatees or beneficiaries, or (ii)
during the Participant's lifetime, to a trust or custodianship created by
the Participant, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal
descendants (by blood or adoption), subject in any such case to the
agreement by each transferee (other than the Company or as otherwise
permitted by the Company) in writing to be bound by the terms of this
Agreement and provided in any such case that no such transfer that would
cause the Company to be required to register the Common Stock under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), shall be permitted.
(b) The Company (or its designated assignee) shall have the right, during
the ninety-day period immediately following the termination of the
participation on the Board of Directors of the Participant with the
Company to purchase from the Participant and the Participant shall sell to
the Company (or its designated assignee), the unvested portion of the
Restricted Share Award at a per share price equal to the lesser of (i) the
Participants' Purchase Price or (ii) the Fair Market Value of a share of
Common Stock determined as of the Valuation Date immediately preceding the
date as of which such repurchase right is exercised.
(c) The Company (or its designated assignee) shall have the right, during
the ninety-day period immediately following the termination of the
participation on the Board of Directors of the Participant with the
Company to purchase from the Participant, and upon the exercise of such
right the Participant shall sell to the Company (or its designated
assignee), all or any portion of the Restricted Shares which are vested
and which are held by the Participant as of the date as of which such
right is exercised at a per share price equal to the Fair Market Value (as
defined in the Plan) of a share of Common Stock determined as of the
Valuation Date (as defined in the Plan) immediately preceding the date as
of which such right is exercised.
(d) The Company (or its designated assignee) shall exercise the rights
provided in paragraphs (b) and (c) of this Section 7 by delivering to the
Participant a written notice specifying its intent to purchase Restricted
Shares held by the Participant, the date as of which such right is to be
exercised and the number of Restricted Shares to be purchased. Such
purchase and sale shall occur on such date as the Company (or its
designated assignee) shall specify which date shall not be later than
ninety (90) days after the fiscal quarter-end immediately following the
date as of which the Company's right is exercised; provided that the
Company may delay any such payment in the event such payment will result
in the violation of the terms or provisions of, or result in a default or
event of default under, any guarantee, financing or security agreement or
document entered into by the Company or any of its Affiliates and in
effect on such date (hereinafter a "Financing Agreement"). In the event
the payment of the purchase price is delayed as a result of a restriction
imposed by a Financing Agreement as provided above, such payment shall be
made without the application of further conditions or impediments as soon
as practicable after the payment of such purchase price would no longer
result in the violation of the terms or provisions of, or result in a
default or event of default under, any Financing Agreement, and such
payment shall equal the amount that would have been paid to the
Participant if no delay had occurred plus interest for the period from the
date on which the purchase price would have been paid but for the delay in
payment provided herein to the date on which such payment is made (the
"Delay Period"), calculated at an annual rate equal to the average annual
prime rate plus two percent charged during the Delay Period by a
nationally recognized bank designated by the Board.
8. Certain Rights.
(a) Drag Along Rights. If the Majority Stockholder (as defined below)
desires to sell all or substantially all of its shares of Common Stock to
a good faith independent purchaser (a "Purchaser") (other than any other
investment partnership, limited liability company or other entity
established for investment purposes and controlled by the principals of
the Majority Stockholder or any of its affiliates and other than any
employees of the Majority Stockholder hereinafter referred to as a
"Permitted Transferee") and said Purchaser desires to acquire all or
substantially all of the issued and outstanding shares of Common Stock (or
all or substantially all of the assets of the Company) upon such terms and
conditions as agreed to with the Majority Stockholder, the Participant
agrees to sell all of his Restricted Shares to said Purchaser (or to vote
all of his Restricted Shares in favor of any merger or other transaction
which would effect a sale of such shares of Common Stock or assets of the
Company) at the same price per share of Common Stock and pursuant to the
same terms and conditions with respect to payment for the shares of Common
Stock as agreed to by the Majority Stockholder. In such case, the
Majority Stockholder shall give written notice of such sale to the
Participant at least thirty (30) days prior to the consummation of such
sale, setting forth (i) the consideration to be received by the holders of
shares of Common Stock, (ii) the identity of the Purchaser, (iii) any
other material items and conditions of the proposed transfer and (iv) the
date of the proposed transfer.
(b) Tag Along Rights.
(i) Subject to paragraph (iv) of this Section 8(b), if the Majority
Stockholder or its Permitted Transferee proposes to transfer any of its
shares of Common Stock to a Purchaser (other than a Permitted Transferee),
then the Company shall cause the Majority Stockholder or his Permitted
Transferee (hereinafter referred to as a "Selling Stockholder") to give
written notice of such proposed transfer to the Participant (the "Selling
Stockholder's Notice") at least thirty (30) days prior to the consummation
of such proposed transfer, and to provide notice to all other stockholders
of the Company to whom the Majority Stockholder has granted similar "tag-
along" rights (such stockholders together with the Participant, referred
to herein as the "Other Stockholders") setting forth (A) the number of
shares of Common Stock offered, (B) the consideration to be received by
such Selling Stockholder, (C) the identity of the Purchaser, (D) any other
material items and conditions of the proposed transfer and (E) the date of
the proposed transfer.
(ii) Upon delivery of the Selling Stockholder's Notice, the Participant
may elect to sell up to the sum of (A) the Pro Rata Portion (as defined in
Section 8(c)(ii)) and (B) the Excess Pro Rata Portion (as defined in
Section 8(c)(iii)) of the vested portion of his Restricted Shares, at the
same price per share of Common Stock and pursuant to the same terms and
conditions with respect to payment for the shares of Common Stock as
agreed to by the Selling Stockholder, by sending written notice to the
Selling Stockholder within fifteen (15) days after the date of the Selling
Stockholder's Notice, indicating his election to sell up to the sum of the
Pro Rata Portion plus the Excess Pro Rata Portion of his Restricted Shares
in the same transaction. Following such fifteen-day period, the Selling
Stockholder and each Other Stockholder who has served notice on the
Selling Stockholder shall be permitted to sell to the Purchaser on the
terms and conditions set forth in the Selling Stockholder's Notice the sum
of (X) the Pro Rata Portion and (Y) the Excess Pro Rata Portion of its
Restricted Shares.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 8(b) shall not apply to any sale or transfer by
the Majority Stockholder of shares of Common Stock unless and until the
Majority Stockholder, after giving effect to the proposed sale or
transfer, shall have sold or transferred in the aggregate (other than to
Permitted Transferees) shares of Common Stock, representing 7.5% of shares
of Common Stock owned by the Majority Stockholder on the date hereof.
(c) Definitions. For purposes of this Section 8, the following
capitalized terms shall have the following meanings:
(i) "Majority Stockholder" shall mean TPG Partners II, L.P., TPG Investors
II, L.P., and TPG Parallel II, L.P.
(ii) "Pro Rata Portion" shall mean, with respect to shares of Common Stock
held by the Participant or Selling Stockholder, as the case may be, a
number equal to the product of (x) the total number of such shares then
owned by the Participant or the Selling Stockholder, as the case may be,
and (y) a fraction, the numerator of which shall be the total number of
such shares proposed to be sold to the Purchaser as set forth in the
Selling Stockholder's Notice, and the denominator of which shall be the
total number of such shares then outstanding (including such shares
proposed to be sold by the Selling Stockholder); provided that, in the
event any of the Other Stockholders (including the Participant) elects to
sell less than his or her Pro Rata Portion, such lesser amount shall be
deemed to be his or her Pro Rata Portion for purposes of this Agreement,
and provided that any fraction of a share resulting from such calculation
shall be disregarded for purposes of determining the Pro Rata Portion.
(iii) "Excess Pro Rata Portion" shall mean, with respect to each Other
Stockholder and the Participant, a whole number equal to the product of
(x) the number of Non-Elected Shares (as defined below) and (y) a
fraction, the numerator of which shall be such Participant's Pro Rata
Portion, and the denominator of which shall be the number of Elected
Shares (as defined below), provided that any fraction of a share resulting
from such calculation shall be disregarded for purposes of determining the
Excess Pro Rata Portion. With respect to the Selling Stockholder, "Excess
Pro Rata Portion" shall mean the excess, if any, of the number of Non-
Elected Shares over the aggregate Excess Pro Rata Portions of the Other
Stockholders (including the Participant.)
(iv) "Elected Shares" shall mean the sum of (x) the aggregate Pro Rata
Portions with respect to the shares of Common Stock of all of the Other
Stockholders (including the Participant) that have elected to exercise in
full their rights to sell their Pro Rata Portion of shares of Common
Stock, and (y) the Selling Stockholder's Pro Rata Portion of shares of
Common Stock.
(v) "Non-Elected Shares" shall mean the excess, if any, of the total
number of shares of Common Stock proposed to be sold to a Purchaser as set
forth in a Selling Stockholder's Notice over the aggregate Pro Rata
Portions with respect to shares of Common Stock of all of the Other
Stockholders (including the Participant) that have elected to exercise
their rights to sell their Pro Rata Portions of Shares of Common Stock.
9. Termination. The transfer restrictions provided in Sections 7 and 8
hereof shall terminate immediately following the existence of a Public
Market for the Common Stock except that the provisions contained in
Section 7 hereof shall continue with respect to each Restricted Share
prior to such shares becoming vested pursuant to Section 4 hereof and
during such period of time, if any, as the Participant is precluded from
selling such Restricted Shares pursuant to Rule 144 of the Securities Act.
For this purpose, a "Public Market" for the Common Stock shall be deemed
to exist if the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act and trading regularly occurs in such Common Stock in, on
or through the facilities of securities exchanges and/or inter-dealer
quotation systems in the United States (within the meaning of Section
902(n) of the Securities Act) or any designated offshore securities market
(within the meaning of Rule 902(a) of the Securities Act).
10. Distributions With Respect To Restricted Shares. As used herein, the
term "Restricted Shares" includes securities of any kind whatsoever
distributed with respect to the Common Stock acquired by the Participant
pursuant to the Plan and this Agreement or any such securities resulting
from a stock split or consolidation involving such Common Stock.
11. Amendment; Assignment. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by authorized representatives of the parties
or, in the case of a waiver, by an authorized representative of the party
waiving compliance. No such written instrument shall be effective unless
it expressly recites that it is intended to amend, supersede, cancel,
renew or extend this Agreement or to waive compliance with one or more of
the terms hereof, as the case may be. Except for the Participant's right
to assign his or her rights under Section 7(a) or the Company's right to
assign its rights under Sections 7(b) and 7(c), no party to this Agreement
may assign any of its rights or obligations under this Agreement without
the prior written consent of the other parties hereto.
12. Notices. Each notice and other communication hereunder shall be in
writing and shall be deemed to have been duly given on the date it is
delivered in person, on the next business day if delivered by overnight
mail or other reputable overnight courier, or the third business day if
sent by registered mail, return receipt requested, to the parties as
follows:
If to the Participant, to his most recent address shown on records of the
Company or its Affiliate;
If to the Company:
ZiLOG, Inc.
910 East Hamilton Avenue
Campbell, California 95008
Attention: Richard R. Pickard, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of
which together shall constitute one and the same document.
14. Governing Law. 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.
15. Binding Effect; Third Party Beneficiary Rights. This Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the heirs,
personal representatives, successors and permitted assigns of the parties
hereto. Nothing expressed or referred to in this Agreement is intended or
shall be construed to give any person other than the parties to this
Agreement, or their respective heirs, personal representatives, successors
or assigns, any legal or equitable rights, remedy or claim under or in
respect of this Agreement or any provision contained herein except that
the Majority Stockholder shall have all the rights, remedies and claims
hereunder as if it were an original signatory hereto.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
17. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
18. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
* * * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

_/s/ Lionel Sterling_______
Lionel Sterling

/s/ Gary Patten____________
Gary Patten
Chief Financial Officer
ZiLOG, Inc.

EXHIBIT 10.25

DISTRIBUTOR AGREEMENT

This Agreement, made and entered into this second day of February, 2000
(the "Effective Date"), by and between ZiLOG, INC., a Delaware Corporation
and its wholly owned subsidiaries (hereinafter collectively referred to as
"ZiLOG") and PIONEER-STANDARD ELECTRONICS, INC., a corporation organized
under the laws of Ohio (hereinafter referred to as "Distributor").

IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, THE PARTIES
AGREE AS FOLLOWS:

1. DEFINITIONS

When used herein,

(a) "Code X Products" shall mean those Products that are not recommended
for distributor stock. These Products are listed under the Code X
category in the ZiLOG Price List as it may be revised from time to time.

(b) "Customer Product Specifications", "CPS" or "Product Specifications"
shall mean those ZiLOG documents that specify the performance
characteristics of particular ZiLOG Products.

(d) "Distributor Confidential Information" means all trade secrets related
to Distributor which is communicated by Distributor to ZiLOG will be
deemed as if marked confidential, including, without limitation,
Distributor's business plans, marketing plans, customer lists, information
contained in point-of-sale reports supplied by Distributor to ZiLOG
pursuant to the terms hereof, pricing, contractual terms, sales plans, and
inventory and inventory strategies and programs; provided, however, that
Distributor Confidential Information does not include: (i) any
information which ZiLOG had in its possession through lawful means prior
to disclosure by Distributor; (ii) any information which is or becomes
publicly known through no action or inaction of the ZiLOG; (iii) any
information which is furnished to others by Distributor without
restriction on disclosure; (iv) any information which is hereafter
furnished to ZiLOG by a third party, as a matter of right and without
restriction on disclosure; or (v) information which is independently
developed by ZiLOG without use of or reference to the Distributor
Confidential Information.

(e) "DSR" means a Distributor Stock Rotation authorization issued by ZiLOG
to Distributor;

(f) "Industrial Property Rights" means all patents, trademarks, mask work
rights, trade names, inventions, copyrights, know-how or trade secrets
relating to the origin, design, manufacture, programming, operation or
service of the Products, owned by ZiLOG or to which ZiLOG has a legitimate
right of use, as the same exists as of the date of this Agreement or is
developed or acquired by ZiLOG during the term hereof;

(g) "Non Standard Products" means a Product manufactured to either a
specific requirement of one or a limited number of customers, a Product or
a Product containing packaging or labeling which is customized in any
manner to meet the specific needs of one or a limited number of customers,
or a Product not included in the Price List or identified by ZiLOG as not
being approved for stock rotation, return or price protection privileges.
Non Standard Products include, but are not limited, to ROM coded Products,
OTP Products programmed By ZiLOG, Products with unusual or nonstandard
packaging or markings, and Products with certain SL XX numbers assigned.

(h) "Price" means those prices set forth from time to time in the ZiLOG
Price Book; as Distributor cost.

(i) "Price Book" means the standard Price List maintained and updated from
time to time by ZiLOG;

(j) "Products" means the Standard Products, the Non Standard Products and
Code X Products.

(k) "RMA" means a return material authorization issued by ZiLOG to
Distributor;

(l) "Technical Data" means all information in written, graphic or tangible
form, or in any magnetic, electronic or machine readable form, relating to
the design, manufacture, programming, operation, fit, function or service
of the Products including, without limitation, Industrial Property Rights;

(m) "Territory" means the geographic area or areas described in Exhibit A,
attached to this Agreement and incorporated herein by reference, as such
Exhibit may hereafter be amended from time to time by ZiLOG;

(n) "Trademarks" means those trademarks, service marks, trade names,
slogans, labels, logos and other trade-identifying symbols as are or have
been developed, used and owned by ZiLOG;

(o) Standard Products are those ZiLOG Products that are not Non Standard
Products or Code X Products, and are purchased by Distributor from ZiLOG
at the distributor cost as shown in the ZiLOG Distributor Price List.

2. APPOINTMENT AND RELATIONSHIP

(a) Subject to the terms stated herein, ZiLOG appoints Distributor, and
Distributor hereby accepts such appointment, as ZiLOG's authorized full-
service Distributor for the Products in the Territory. To the extent the
Products contain any software which is being licensed under the terms
contained in the documentation accompanying such software, ZiLOG hereby
grants to Distributor a license to sublicense such software, upon the
terms and conditions set forth in the documentation accompanying such
software, to its customers.

(b) During the initial twelve (12) month period following the Effective
Date, Distributor shall be the exclusive full-service distributor of
Products within the Territory. Following the completion of the initial
twelve (12) month period, Distributor shall continue to be the exclusive
distributor of Products within the Territory unless such exclusivity is
terminated by ZiLOG at any time thereafter by giving Distributor at least
thirty (30) days notice of the termination of the exclusivity prior to the
effective date of such termination. Any such termination of exclusivity
shall be in ZiLOG's sole and absolute discretion, with or without cause,
and ZiLOG shall have no liability whatsoever on account of ZiLOG's
termination of the exclusivity pursuant hereto.

(c) Notwithstanding the provisions of paragraph (b), above, ZiLOG shall
have the right to terminate Distributor's exclusivity if Distributor
defaults under any provision of this Agreement and such default is not
cured within any applicable cure periods specified herein. Termination of
Distributor's exclusivity following a default is in addition to any other
rights and remedies ZiLOG may have either hereunder (including, without
limitation, termination of this Agreement) or at law or in equity. In
addition, ZiLOG shall have the right to terminate Distributor's
exclusivity if Distributor fails to meet sales objectives for the
Products, as such sales objectives have been previously mutually agreed to
by the parties. Upon termination of Distributor's exclusivity without
termination of this Agreement, all rights and obligations of Distributor
and of ZiLOG hereunder shall continue with the exception that Distributor
will, from that point forward, be a non-exclusive distributor of the
Products in the Territory.

(d) Notwithstanding the provisions of paragraph (b), above, the following
shall constitute exceptions to the exclusivity granted to Distributor
pursuant to subparagraph (b), above:

(i) ZiLOG reserves the right, on behalf of itself and any of its
subsidiaries and affiliates, to sell Products directly to customers within
the Territory. In addition, ZiLOG and its subsidiaries and affiliates may
establish house accounts within the Territory, which may be exclusively
serviced by ZiLOG.

(ii) ZiLOG may authorize so-called "catalog houses" who are not full
service distributors to sell Products within the Territory.

(iii) Distributor acknowledges that, as of the Effective Date, ZiLOG
currently has relationships within the Territory with other third party
distributors. ZiLOG shall promptly attempt to terminate these
relationships with other third party full service distributors in the
Territory. In the event ZiLOG is unable to terminate the existing
agreements with such distributors on terms and conditions which, in
ZiLOG's sole opinion, are commercially reasonable, then the exclusivity
provided in subparagraph (b), above, shall not be applicable to any such
Distributor. For so long as it may reasonably take ZiLOG to extricate
itself from relationships with other third party distributors in the
Territory, Distributors will not seek remedies from ZiLOG, but will build
its capabilities to serve ZiLOG as an exclusive full service Distributor
within the territory. Should the period for ZiLOG to extricate itself
from relationships with other third party distributors in the Territory
exceed six (6) months from the Effective Date of this Agreement, the
parties will meet to make mutually acceptable business arrangements under
the circumstances that exist at that time.

(iv) Distributor acknowledges that, as of the Effective Date, ZiLOG has an
existing agreement for exclusive distribution of Products for use by the
United States military and/or in military applications with a third party
distributor. In the event ZiLOG is unable to terminate that agreement on
terms and conditions which, in ZiLOG's sole opinion, are commercially
reasonable, then the exclusivity provided in subparagraph (b), above,
shall not apply to such distributor, and Distributor shall be prohibited
hereunder from distributing Products for or to the United States military
or for use in military applications.

(v) In the event ZiLOG is able to terminate one or more of the agreements
referenced in subparagraphs (iii) and (iv), above, on commercially
reasonable terms, then Distributor's exclusivity shall not be applicable
to any sales by any such distributors made in the Territory in accordance
with the terms and conditions of the termination agreement negotiated
between ZiLOG and such distributors.

(vi) The exclusivity granted to Distributor pursuant to paragraph (b)
shall not be applicable to any sales which are the subject of any of the
exceptions set forth in this subparagraph (d).

(e) The relationship of ZiLOG and Distributor established by this
Agreement is that of independent contractors, and nothing contained in
this agreement shall be construed to: (1) give either party the power to
direct and control the day-to-day activities of the other; or (2)
constitute the parties as partners, joint ventures, co-owners or as
participants in a joint or common undertaking. Distributor, its agents
and employees, are not the representatives of ZiLOG for any purpose except
as expressly set forth in this Agreement, and they do not have any power
or authority as agent, employee or in any other capacity to represent, act
for, bind, or otherwise create or assume any obligation on behalf of ZiLOG
for any purpose whatsoever. All financial obligations associated with
Distributor's business are the sole responsibility of Distributor. All
sales and other agreements between Distributor and its customers are
Distributor's exclusive responsibility and will have no effect on
Distributor's obligations under this Agreement. Distributor shall be
solely responsible for, and shall indemnify and hold ZiLOG free and
harmless from, any and all claims, liabilities, causes of action, damages,
lawsuits, costs or expenses (including, without limitation, attorneys'
fees) arising out of or related to the acts of Distributor, its employees,
servants, agents, contractors, independent sales personnel or
representatives, or any of them.

(f) ZiLOG agrees that, subject to the exceptions granted pursuant to
subparagraph (d), above, ZiLOG shall not authorize any other full service
distributors to sell Products within the Territory. In the event a full
service distributor other than Distributor does sell within the Territory
without ZiLOG's authorization, ZiLOG may, but shall not be required to,
initiate such action as ZiLOG may determine is appropriate under the
circumstances. ZiLOG shall have no liability whatsoever to Distributor as
a result of any action or failure to act by ZiLOG against any unauthorized
distributor selling Products within the Territory. In the event any such
unauthorized full service distributor sells a substantial quantity of the
Products within the Territory which substantially undermines the exclusive
nature of Distributor's relationship hereunder, and ZiLOG does not elect
to initiate some action against such unauthorized Distributor within sixty
(60) days of receiving written notice from Distributor that Distributor
considers the unauthorized distributor as substantially undermining its
exclusivity hereunder, then Distributor shall have the right to terminate
the exclusive nature of this Agreement by written notice thereof to ZiLOG.
From and after the effective date of such notice, Distributor shall become
a non-exclusive distributor of ZiLOG hereunder, and ZiLOG shall have the
right to authorize other full-service distributors within the Territory.

(g) Notwithstanding any other provision of this Agreement, Distributor
acknowledges that the Products are not designed, made, or intended for use
in any application where failure or inaccuracy might cause death or
personal injury including, without limitation, life support applications
and products, and notwithstanding any other provision of this Agreement to
the contrary, Distributor is hereby prohibited from using the Products or
selling the Products to customers where a Product, or any part thereof, is
to be used in any such application. Distributor agrees that ZiLOG shall
not be liable, in whole or in part, for any claims or damages arising out
of or in connection with the use and performance of any Product in such
applications. If Distributor uses a Product or sells to a customer who
uses such Product for such applications, Distributor shall indemnify and
hold ZiLOG harmless from any claims, loss, cost, damage, expense, or
liability, including attorneys' fees, arising out of or in connection with
such use.

3. OBLIGATIONS OF DISTRIBUTOR

In addition to the other obligations of Distributor set forth elsewhere in
this Agreement, Distributor shall at its own expense:

(a) Exert its commercially reasonable efforts to introduce, diligently
promote and solicit the sale of the Products through advertising; personal
customer contact; distribution of information literature, catalogs, data
sheets and other sales and marketing materials furnished by ZiLOG for such
purpose; and other appropriate sales and marketing techniques;

(b) Exert its commercially reasonable efforts to meet or exceed the sales
objectives for the Products which have previously been mutually agreed to
by the parties;

(d) Inform ZiLOG of all stocking locations.

(e) Assist ZiLOG in assessing customer requirements for the Products and
modifications and improvements thereto, in terms of quantity, quality,
design, functional capability and other features, with a view toward
maximizing the potential market for the Products within the Territory. To
this end, Distributor will promptly furnish ZiLOG with copies of any
correspondence or other communications, or written descriptions of any
verbal communications, from its customers, potential customers and other
contacts with respect to the use of or application for the Products,
suggested modifications or improvements to the Products, reliability of
the Products, or otherwise related in any manner to the Products or the
design, functionality, fit or other aspects of the Products, and the like;
provided, however, that Distributor shall not be required to disclose
proprietary information of such customers which are protected by
nondisclosure agreements and which relate to the technical specifications
of products developed by such customers or business plans of such
customers, it being agreed that Distributor shall not enter into any
nondisclosure agreements with customers which prohibit Distributor from
making any of the disclosures required herein as they relate to the
Products or the use thereof by such customers;

(f) Devote sufficient financial resources and qualified personnel,
including appropriate numbers of application engineers, to effectively
interact with customers in the Distributor's Territory as may be required
to fulfill Distributor's responsibilities under this Agreement.
Distributor agrees that it shall exclusively dedicate no less than twenty
(20) full-time personnel whose sole function shall be to interact with and
service customers for Products within the Territory. ZiLOG acknowledges
that Distributor does not presently as of the Effective Date of this
Agreement have personnel in place in this regard, and that Distributor
will be proceeding to staff these positions as soon as possible hereafter.
Notwithstanding the foregoing, however, in the event Distributor's
exclusivity is terminated by either party hereunder, and Distributor
continues to act as a non-exclusive distributor for ZiLOG, then the
requirements imposed for exclusive dedication of full time personnel under
this subparagraph (f) shall no longer be applicable to Distributor from
and after the date Distributor is no longer acting as the exclusive
Distributor of ZiLOG. The parties shall meet and mutually agree upon
commercially reasonable staffing levels for Distributor to maintain in its
role as a non-exclusive Distributor in the Territory pursuant to the
applicable terms of this Agreement.

(g) Arrange for specialty application engineering assistance from ZiLOG
when such technical assistance is required or requested by a customer;

(h) Distributor shall send to ZiLOG within 10 working days after the end
of each calendar month, a resale report listing all sales transactions and
current inventory relating to ZiLOG Products. Such resale report will be
submitted to ZiLOG, covering the previous month, in a format, and
containing the information, as may be requested from time to time by
ZiLOG. ZiLOG shall have the right, upon no less than twenty-four (24)
hours prior written notice, to audit or have audited all such information
from time to time, and shall be given access to the relevant books,
records and place or places of business of Distributor for this purpose.
The right to audit shall be exercisable not more than once in any twelve
(12) month period unless the audit reveals a material discrepancy in the
reports submitted by Distributor, in which case ZiLOG shall have the right
to audit any time after three (3) months following the adverse audit
report. The obligation to send monthly reports, together with the right
to audit, shall continue for twelve (12) months after termination of this
Agreement, or until Distributor no longer holds any Products in inventory,
whichever is shorter. All costs associated with any such audit shall be
borne by ZiLOG unless the audit reveals a material discrepancy in such
information, in which case Distributor shall reimburse ZiLOG for all costs
incurred by ZiLOG in conducting such audit. For purposes of this
subparagraph (h), a "material discrepancy" exists if dollar or unit
volumes for any customer or in the aggregate are misstated by more than
ten percent (10%); or if there is a failure to report sales of Products to
any specific customer. All such monthly resale and inventory reports
shall be subject to the confidentiality provisions set forth in paragraph
14, below.

(i) Obtain tax exemption certificates or pay all sales and use taxes
applicable to the sale or purchase of Products hereunder. Distributor is
solely liable and agrees to indemnify and hold ZiLOG harmless with respect
to all tariffs, duties, excise, value added, sales, use or other taxes or
charges levied on the purchase, sale, export or re-export of the Products
by Distributor.

(j) Distributor shall exercise reasonable efforts to maintain a sufficient
inventory of the Products so that customer demands will be satisfied
without undue delay. As the inventory of the Products is reduced through
resales, Distributor will reorder sufficient quantities to replenish stock
to levels which ensure that customer demands will be satisfied without
undue delay.

4. OBLIGATIONS OF ZiLOG

ZiLOG shall:

(a) Exert its reasonable efforts to supply Distributor's requirements for
the Products on the terms and conditions of this Agreement; provided,
however, that ZiLOG shall be under no obligation to Distributor to
develop, continue, discontinue, change or retain any of the Products;

(b) Keep Distributor informed of all new Products offered for sale in the
Territory;

(c) Furnish engineering and sales assistance, training and consultation at
ZiLOG's manufacturing plant or elsewhere as determined by ZiLOG and as
required or desirable, in ZiLOG's judgment, to Distributor's personnel;

(d) Provide Distributor, with reasonable quantities of Product literature;

(e) Allow Distributor to have access to ZiLOG's design centers situated
within the Territory for purposes which are necessary or appropriate to
fulfill Distributor's distribution function hereunder;

(f) Provide assistance to Distributor in affecting the orderly transition
of accounts from the current distributors of ZiLOG to Distributor.

5. PRODUCT RETURN RIGHTS

(a) Standard Products are returnable for warranty claims under the terms
and conditions of Section 8 below. Standard Products are price protected
under the terms of Section 9 below and are subject to stock
rotation privileges under Section 11 below. Standard Products may be
returned in accordance with the provisions of Section 11 below if ZiLOG
discontinues that Product.

(b) Code X Products and Non Standard Products may not be returned by
distributor to ZiLOG at any time, except for warranty claims under Section
8 below. In addition, Code X Products and Non Standard Products are not
price protected, and are not subject to being stock rotatedCode X Products
and Non Standard Products are not subject to return for any reason,
whether on termination of this Agreement, if ZiLOG discontinues this type
of Product, or otherwise.

6. PURCHASE TERMS

(a) All Products purchased by Distributor from ZiLOG during the term of
this Agreement shall be pursuant to purchase orders issued by Distributor
as confirmed by ZiLOG's sales order acknowledgment and subject to the
terms and conditions of this Agreement. Nothing contained in any such
request for quotation, purchase order or sales order acknowledgement shall
in any way effect the standard terms and conditions of purchase and sale.
Any preprinted terms and conditions contained on any credit applications,
purchase orders, order acknowledgments, request for quotations,
quotations, packing slips, invoices, payment instruments or other
documents submitted by either party which are different than, in addition
to or inconsistent with any term or condition specified in this Agreement
shall be null, void and of no force or effect unless such term or terms
are specifically agreed to by both parties in a separate written document
executed by both parties specifically referencing such terms and
specifically indicating each party's acceptance thereof.

(b) All purchase orders submitted by Distributor to ZiLOG are subject to
acceptance by ZiLOG at its corporate office in Campbell, California or
such other place as ZiLOG may designate in writing to Distributor. ZiLOG
reserves the right in its sole discretion to refuse to accept new purchase
orders, or to place existing purchase orders on hold. All orders accepted
by ZiLOG shall be subject to, and ZiLOG will have no liability for,
cancellation by ZiLOG due to force majeure, Product allocations, Product
shortages, delays or failures in production or delivery, manufacturing or
production capacity shortages, or for any other reason, as determined by
ZiLOG. ZiLOG shall notify Distributor of any purchase orders or any
portion of any purchase order which cannot be filled as soon as reasonably
possible after ZiLOG determines that such purchase order or portion
thereof cannot be filled. ZiLOG reserves the right to reject any order
without prejudicing the relationship between ZiLOG and Distributor;

(c) The purchase price for each Product listed in the Price Book shall be
as specified in the Distributor Cost column in ZiLOG's then current Price
Book. For any Products not listed in the Price Book, Distributor shall
request a quote from ZiLOG. Prices quoted by ZiLOG on Products not in the
Price Book shall be valid for thirty (30) days following the date of the
quote from ZiLOG unless otherwise specified; provided, however, that the
quoted price shall be valid only for Products booked during such thirty
(30) day period for which shipment shall occur within twelve (12) months
from the date of booking. ZiLOG may, from time to time, in its sole
discretion, amend the Price List and/or its specific Product quotations as
it applies to some or all of the Products. The amended prices shall be
applied as specified in paragraph 9, below.

(d) Minimum order and line item quantities for purchase orders from
Distributor for other than Standard Products shall be those specified in
the Price List or by separate agreement if not specified in the Price
List. All Products must be entered in conformance with ZiLOG's order
entry procedures.

(e) Distributor may cancel or reschedule the delivery of any purchase
order or portion thereof, without charge, in accordance with the
following:

Product Category
Days prior to
scheduled delivery
Cancellation or
reschedule privilege

Standard
0 - 30 days
Not permitted

Over 30 days
Permitted

Non Standard Products
and Code X Products
0 - 60 days
Over 60 days
Not permitted
Permitted

(g) Terms of payment to ZiLOG for the purchase price of the Products
(including freight, taxes and other costs to be paid by Distributor) shall
either be two percent (2%) discount if received net ten (10) days from the
date of invoice, or full amount due net thirty (30) days from date of
invoice, cash in advance, cash on delivery, or letter of credit at ZiLOG's
sole discretion. For payments made by mail, the date of payment is the
date of receipt by ZiLOG. ZiLOG reserves the right to modify any credit
terms provided to Distributor from time to time, as determined by ZiLOG in
its sole discretion; provided, however, that if such modification does not
result from late payments or lack of payments from Distributor, ZiLOG
shall give at least thirty (30) days notice of the change in credit terms
to Distributor prior to the effective date of such change. Such right
shall include, but not be limited to, withholding shipment or ceasing
production on any of Distributor's orders until ZiLOG receives valid
payment on all outstanding sums owed to ZiLOG by Distributor, or until
ZiLOG receives full payment in advance, at ZiLOG's option. Any such
action shall not effect the liability of Distributor for payment for any
Products on purchase orders, or portions thereof, which are outstanding
and which are not subject to cancellation by Distributor hereunder.

7. DELIVERY, TITLE AND RISKS

(a) Delivery schedules are estimates based on anticipated production,
yields, and the like. ZiLOG will not be liable to Distributor or its
customer for delays or non-delivery of Products. If circumstances
warrant, ZiLOG may allocate production and deliveries of the Products
among various customers and/or distributors in such manner as ZiLOG may
determine, in its sole discretion. ZiLOG shall use commercially
reasonable efforts to provide Distributor with notice of any such delays
or circumstances promptly upon becoming aware of the same.

(b) Title and risk of loss or damage to the Products will pass to
Distributor at the time of delivery of the shipment to the carrier at San
Francisco, California, or such other place within the continental United
States as ZiLOG may designate to Distributor in writing. Distributor will
give ZiLOG timely notice in designating a carrier, and any such
designation will not affect the foregoing passage of title and risks or
Distributor's responsibility for payment of transportation charges. It is
the responsibility of the Distributor to note any discrepancies (missing
or damaged cartons, broken seals, etc.) on carrier's waybill at the time
of receipt.

(c) ZiLOG may drop ship Products to the customer of Distributor at the
request of Distributor. Distributor will be responsible for such drop
shipments in the same manner as though the shipment had been made directly
to Distributor.

(d) If ZiLOG ships Product against an order that was cancelled validly by
Distributor in accordance with Section 6 supra, ZiLOG shall assume the
risk of loss for such Product during shipment. Distributor shall use
reasonable best efforts to recover any such shipments and return same to
ZiLOG. All shipping and freight costs for any Product shipped by ZiLOG as
set forth in this Section 7(d) shall be borne by ZiLOG.

(e) All costs related to the shipment of Product to Distributor including,
without limitation, costs of insurance, transportation and freight, shall
be paid by, and be the exclusive liability of, Distributor.

8. WARRANTY

(a) ZiLOG warrants to Distributor that, for one (1) year from the date of
shipment from Distributor to its customer or one (1) year from the date of
drop shipment by ZiLOG to Distributor's customer, that Products are free
from defects in material and workmanship, and conform to the published
Customer Product Specifications (CPS) or Product Specifications
applicable to the particular Product at the time of production.
Notwithstanding the foregoing, however, ZiLOG makes no warranty for any
software which it may deliver to Distributor, nor does it make any
warranty on any part or product not manufactured or produced by ZiLOG, and
any such software or non-manufactured parts are provided strictly in an
"AS-IS" condition, without any representation or warranty whatsoever,
unless such the documentation accompanying such software and/or non-
manufactured parts provide otherwise. The express warranties for Products
provided in this subsection (a), subject to all limitations set forth
elsewhere in this agreement including, without limitation, the limitations
set forth in this paragraph 8 and in paragraph 19(b), below, shall inure
to the benefit of Distributor's customers; provided, however, that
Distributor shall facilitate any warranty claims which may be made by
customers hereunder.

(b) Except as otherwise stated herein, ZiLOG will either repair, replace
or issue a credit for the purchase price of any defective Products,
provided: (1) ZiLOG is notified promptly on discovery of the asserted
defect or manifestation thereof, but not later than a period of time equal
to ZiLOG's warranty period applicable to the allegedly defective Products,
as specified in subparagraph (a), above; and (2) ZiLOG verifies the
asserted defect.

(c) No warranty shall apply to experimental, developmental, preproduction,
sample, "fallout" (i.e., out of specification, with notice) or promotional
Products. The warranty for Non Standard Products will be that, if any,
expressly set forth in ZiLOG's sales order acknowledgment of Distributor's
purchase order for the Non Standard Product.

(d) Products which are allegedly defective must, in all cases, be returned
by Distributor in accordance with the provisions of Section 10.

(e) The warranties stated herein will be ineffective: (i) where the
Products which Distributor alleges are defective have been repaired or
altered by anyone other than the personnel or authorized representatives
of ZiLOG, unless such repair or alteration was effected pursuant to the
prior written approval of ZiLOG or (ii) where testing and examination by
ZiLOG reveals the alleged defect to have been caused by misuse, neglect,
improper installation or any other cause beyond the range of intended use
of the Products, or by accident, fire or other hazard.

(f) Distributor or Distributor's customer retains sole responsibility for
all software, information or memory data stored on or integrated with any
of the Non Standard Product returned to ZiLOG under this warranty.

(g) ZiLOG MAKES NO OTHER WARRANTIES AND DISTRIBUTOR ACCEPTS THE FOREGOING
IN LIEU OF ANY AND ALL OTHER WARRANTIES WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF
MERCHANTABILITY, ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
OR ANY IMPLIED OR STATUTORY WARRANTY OF NONINFRINGEMENT. ZiLOG's
WARRANTIES WILL NOT BE ENLARGED BY ANY REPRESENTATIONS, DESCRIPTION,
ADVICE, SAMPLES, MODELS OR OTHERWISE.

(h) DISTRIBUTOR, ON BEHALF OF ITSELF AND ALL OF ITS CUSTOMERS, SUCCESSORS
AND ASSIGNS, ACKNOWLEDGES AND AGREES THAT THE SOLE AND EXCLUSIVE REMEDY
FOR ANY DEFECTIVE PRODUCT SHALL BE THE REPAIR, REPLACEMENT OR CREDIT OF
THE PURCHASE PRICE ASSOCIATED WITH SUCH DEFECTIVE PRODUCT, AND DISTRIBUTOR
HEREBY WAIVES ANY AND ALL CLAIMS, LIABILITIES, DAMAGES AND CAUSES OF
ACTION, WHETHER IN CONTRACT, WARRANTY, TORT OR OTHERWISE, AGAINST ZiLOG ON
ACCOUNT OF ANY SUCH DEFECTIVE PRODUCT. IN THE EVENT DISTRIBUTOR FAILS TO
OBTAIN LIMITATIONS ON DAMAGES WHICH LIMIT LIABILITY TO A CUSTOMER OR
CUSTOMERS TO AT LEAST THE SAME DEGREE AS STATED HEREIN, DISTRIBUTOR AGREES
TO INDEMNIFY AND HOLD ZiLOG HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
LIABILITIES, CAUSES OF ACTION, COSTS AND EXPENSES INCURRED BY ZiLOG FROM
SUCH CUSTOMERS ON ACCOUNT OF ANY ALLEGEDLY DEFECTIVE PRODUCT SHIPPED TO
DISTRIBUTOR OR DROP SHIPPED TO DISTRIBUTOR'S CUSTOMER BY ZiLOG IN EXCESS
OF THE LIABILITY AMOUNTS STATED HEREIN. DISTRIBUTOR ACKNOWLEDGES AND
AGREES THAT THE REMEDIES PROVIDED HEREIN ARE EXCLUSIVE, AND THAT
DISTRIBUTOR SHALL HAVE NO OTHER REMEDIES, WHETHER AT LAW OR IN EQUITY.

(i) Infringement Claims:

(1) Notwithstanding the other provisions of this paragraph 8 to the
contrary, but subject to the limitations contained in this paragraph 8 and
in paragraph 19(b), below, ZiLOG agrees, at its own expense, to defend
Distributor from and against any claim, suit or proceeding, and to pay all
judgments and costs finally awarded against Distributor by reason of any
claim, suit or proceeding insofar as it is based upon an allegation that
the Products or any part thereof furnished by ZiLOG infringe any U.S.
patent or copyright, if ZiLOG is notified properly of such claim in
writing and is given authority and full and proper information and
assistance for defense of the same. In case such Products, or any part
thereof, are held in such suit to constitute infringement and the use of
such Products or any part is enjoined, ZiLOG shall, at is sole discretion
and at its own expense: (1) procure for Distributor the right to continue
using the Products or part; (2) replace or modify the same so that it
become noninfringing; or (3) remove such Products or part thereof and,
upon return of the Product or part held in Distributor's inventory, grant
Distributor a credit for the price paid by Distributor for such Product or
part held in Distributor's inventory. The items listed herein, subject to
the limitations set forth in this paragraph 8 and in paragraph 19(b),
below, constitute ZiLOG's sole and exclusive obligations for any
infringement allegation, and constitutes the sole and exclusive remedies
of Distributor for any such infringement allegation.

(2) Distributor shall have the right to employ separate counsel in any
claim, suit or proceeding set forth in subparagraph 8(i)(1), above and to
participate in the defense thereof, but the fees and expenses of
Distributor's counsel shall not be borne by ZiLOG. ZiLOG shall not be
liable to indemnify Distributor for any settlement effected without
ZiLOG's consent.

(3) The indemnification set forth in subparagraph 8(i)(1), above, shall
not apply and Distributor shall indemnify ZiLOG and hold it harmless from
all liability, claim, damage or expense (including, without limitation,
costs of suit and attorneys' fees) if the infringement is alleged to arise
from or is otherwise based upon ZiLOG's compliance with particular
requirements of Distributor or Distributor's customer that differ from
ZiLOG's standard specifications for the Products, or the infringement is
alleged to arise from modifications or alterations of the Products, or the
infringement arises from a combination of the Products with other items
not furnished or manufactured by ZiLOG.

(4) Distributor agrees that ZiLOG shall not be liable for any collateral,
incidental or consequential damages arising out of an infringement claim.

(5) The foregoing indemnities are personal to Distributor, and do not
apply to any customer of Distributor or any other third party other than
Distributor.

(6) The foregoing, as limited under this paragraph 8 and under paragraph
19(b) states the entire liability of ZiLOG for infringement claims.

9. PRICING

a) Pricing for Standard Products for purchase by distributors are
published by ZiLOG in one or more price books (each being termed a
"Distributor Price Book"), which are issued periodically. Distributor is
entitled to use this pricing for orders of all Standard Products from
ZiLOG. ZiLOG reserves the right to change prices for Standard Products
upon at least thirty (30) days prior notice to Distributor. Notification
of changed pricing shall be via a new price list or addendum to the
Distributor Price Book.

(b) In the event of a reduction in the price of Standard Products sold
hereunder, ZiLOG will issue a price protection form to Distributor listing
the affected Products, their old and new prices. On the effective date of
such price change, representatives of ZiLOG may audit the physical
inventory of selected locations to check the accuracy of the physical
inventory of the affected Standard Products and complete the price
protection form, which if not completed by ZiLOG, will be completed by
Distributor, setting forth the credit due the Distributor which shall be
equal to the difference between the old price previously paid to ZiLOG by
Distributor, less any prior price protection or other credits granted by
ZiLOG, and the new price for the Product multiplied by the quantity of
each such Product which was acquired directly from ZiLOG in Distributor's
inventories. In determining the price previously paid to ZiLOG by
Distributor, a first-in first-out inventory system will be presumed, with
the price of the latest shipments applying to the on-hand inventory first.
Notwithstanding the foregoing, however, price protection will not be
afforded for Products that were in Distributor's inventory for more than
twenty-four (24) months. This price protection provision shall not apply
to any Code X Products or Non Standard Products. As of the date of the
price decrease, the current backlog for the affected Product(s) will be
changed to reflect the new (lower) pricing.

(c) Distributor will not be eligible for price protection credit if
Distributor fails to return the price protection claim within forty-five
(45) days from the date of the price change. ZiLOG shall have the right
to conduct a physical inventory at any or all locations for which price
protection is requested. Price protection will only apply to Standard
Products procured directly from ZiLOG by the Distributor. Price
Protection is not available as a cash refund; it applies only as a credit
to monies due on account or future purchase orders unless this agreement
is terminated. In that case, payment will be issued if necessary.

(d) In the event of a price increase of Standard Products, the new
(higher) price will be effective on the date specified in the notice of
price change (which shall be no sooner than thirty (30) days after the
date of the notice), and pricing of the current backlog for the affected
Standard Product(s) as of the effective date will be changed to reflect
the new (higher) pricing on the effective date specified in the notice of
price increase as required in Section 9 (a) above. Notwithstanding the
foregoing, if the Distributor demonstrates to ZiLOG that Distributor had,
prior to receipt of notification of the price increase, a valid order from
its customers at the lower price for the affected Standard Products
scheduled to ship within ninety (90) days of the price increase, then
ZiLOG will honor the old, lower price for the affected Standard Product(s)
if that order ships as scheduled. Neither cancellations nor adjustments
to the schedule shall be permitted without triggering the price increase.
Price increases on all Products other than Standard shall be effective
immediately on the effective date of the notice specified in Section 9 (a)
above.

10. RETURN AND RETURN MATERIAL AUTHORIZATION (RMA) PROCEDURE

(a) If Distributor wishes to return any defective Products covered under
the warranty provisions hereof to ZiLOG, Distributor must first contact
the sales office of ZiLOG or a ZiLOG sales representative. At ZiLOG's
discretion and dependent upon problems involved, ZiLOG may dispatch a
representative to Distributor or Distributor's customer to examine the
Products and remove samples for testing by ZiLOG, or may require
Distributor or Distributor's customer to send ZiLOG a representative
sample for testing by ZiLOG. If ZiLOG determines that the Products are,
in fact, defective, and are covered by the warranty provisions contained
herein, then ZiLOG will issue an RMA number to Distributor. On receipt of
an RMA number, Distributor may return the applicable Products to the ZiLOG
facility indicated on the RMA within thirty (30) days from the issuance
date of such RMA. ZiLOG will assume the risk of loss or damages to
authorized returns after receipt of the Products at ZiLOG's plant.

(b) Distributor will prepay return freight, and clearly label each
container with the RMA number. Unauthorized or nonconforming returns will
be reshipped to Distributor at Distributor's cost.

(c) All returned Products are subject to inspection and test by ZiLOG. If
such inspection and test establishes to ZiLOG's reasonable satisfaction
that the Product is defective and the Product is covered under the
warranty provisions contained herein, then credit, repair or replacement
will be given for the returned Products provided the same are in
acceptable containers, have not been misused or altered in any manner from
the original form and design, and are otherwise covered under the warranty
provisions contained herein. If ZiLOG determines that the Products meet
specification or have been misused or altered as specified above, ZiLOG
shall reship the Products to Distributor, with all shipping charges being
paid or reimbursed by Distributor. The parts count of ZiLOG shall prevail
to resolve any dispute on returned shipment quantities absent manifest
error. In the event of a dispute between the Distributor and ZiLOG as to
the existence of a quality related reason or as to quantities of a
returned shipment, the Distributor will be given an opportunity to verify
ZiLOG's determination, but absent manifest error, ZiLOG's determination
shall prevail.

11. INVENTORY AND STOCK ADJUSTMENT

(a) Distributor shall exercise reasonable efforts to maintain a sufficient
inventory of the Products so that customer demands will be satisfied
without undue delay. In this respect, Distributor shall maintain a
minimum aggregate inventory at mutually agreed upon quantities.

(b) ZiLOG will give Distributor written notice of the discontinuance or
change in status to Code X of any of its Standard Products. Within sixty
(60) days of receipt of such notice, Distributor shall notify ZiLOG in
writing of its inventories of such formerly Standard Products - now
Discontinued Products or Code X Products. Thereafter, ZiLOG will issue
an RMA to Distributor authorizing the return of the newly classified
Discontinued Products or Code X Products to ZiLOG that were originally
purchased by Distributor directly from ZiLOG and that ZiLOG and
Distributor mutually agree may be returned. Provided that Distributor has
complied with all the requirements set forth in subsection (d) below and
the newly classified Discontinued or Code X Product is returned to ZiLOG
within thirty (30) days after issuance of an RMA, newly classified
Discontinued Products or Code X Products returned for credit, will be
credited at either the current Price or at the original purchase price
paid by Distributor, less any price reduction credits received by
Distributor, whichever is less. In determining the original purchase
price paid by Distributor, a first in first out inventory valuation system
shall be used. Any RMA issued pursuant to this subsection shall be and
become null and void if Distributor fails to return the subject newly
classified Discontinued Products or Code X Products within said thirty
(30) day period.

(c) ZiLOG will allow Distributor to return for exchange a stock rotation
of Standard Products which Distributor acquired directly from ZiLOG. No
stock rotation will be provided for Code X Products or Non Standard
Products. Prior written authorization must be provided by ZiLOG and
issuance of a Distributor Stock Rotation Form must be obtained from ZiLOG
in each instance that Distributor wishes to effect an exchange of Standard
Products. The return for exchange privilege granted Distributor hereunder
shall be limited to once every three (3) months, and shall be limited to
four percent (4%) of the net dollar amount of Standard Product purchases
during the proceeding three (3) months. Code X Products and Nonstandard
Products will be excluded from any calculation of net dollar amount, as
they are not eligible for return. All DSR returns must be preceded or
accompanied by a noncancelable purchase order equal to or greater in value
than the returned Standard Product. The noncancelable purchase order may
be applied to orders previously submitted by Distributor which have not
yet been finalized and noncancelable. Delivery must be requested within
the same month as the RMA is issued.

(d) Distributor may, during the thirty (30) day period following the
completion of the first twelve (12) months of this Agreement, return for
credit up to one hundred percent (100%) of the first stocking order
submitted by Distributor hereunder. In addition, Distributor may, after
the twelve (12) month period following the introduction of a new Product,
and within thirty (30) days after the expiration of such twelve (12) month
period, return for credit up to one hundred percent (100%) of the first
new Product stocking order. Returns under this subparagraph 11(d) shall
be subject to all terms and conditions set forth in subparagraph 11(c),
above; provided, however, that such returns will not be counted as "stock
rotation" for purposes of computing the quantity of Products otherwise
returnable by Distributor under subparagraph 11(c), above. Distributor
shall have no right to return any of the Products specified hereunder
after the expiration of the thirty (30) day period in which Distributor
has the right to return a Product specified herein.

(e) The following shall apply to all returns:

(i) To be sent to the facility specified by ZiLOG at the risk and expense
(freight prepaid) of Distributor;

(ii) To be in acceptable containers, original packaging and to be in
resalable condition as determined by ZiLOG;

(iii) No returns accepted for a return value of the Products of less than
$100.00 per return.

(iv) Products discontinued by ZiLOG may be returned for credit.
Discontinued Products must be returned within thirty (30) days of date
Distributor is notified by ZiLOG of discontinuance or in conformance with
Return Material Authorization.

12. DISTRIBUTOR DESIGN WIN REGISTRATION PROGRAM

ZiLOG provides a design registration program, whereby distributors will be
eligible for special pricing based upon their ability to secure design-ins
at their customers for certain Products, upon such terms and conditions as
ZiLOG shall determine from time to time and as communicated to
Distributor.

13. TERM AND TERMINATION

(a) This Agreement shall continue in full force and effect from the date
set forth in the first paragraph of this Agreement until terminated by:

(i) Either party, without cause, provided at least thirty (30) days' prior
written notice to such effect is given to the other party; provided,
however, that ZiLOG may not terminate this Agreement pursuant to this
Paragraph 13(a)(i) without cause during the first twelve (12) months
following the Effective Date; or

(ii) Either party, if one of the parties shall fail to perform any of the
material covenants of this Agreement which it has an obligation to perform
and such breach or alleged breach is not cured and/or substantial activity
proving due diligence in curing the breach is not undertaken within the
applicable cure period specified in Paragraph 18, below; or

(iii) Either party, if any proceeding in bankruptcy, insolvency or other
law for the relief of debtors, including the appointment of any receiver
or trustee or assignment for the benefit of creditors, shall be instituted
by or against either party.

(b) Both ZiLOG and Distributor have considered the possibility of
expenditures necessary in preparing for performance of this Agreement and
the possible losses and damage incident to each in the event of
termination, and it is understood that neither party shall be liable to
the other for damages in any form by reason of termination of this
Agreement at any time, even though, for example, ZiLOG or any other
distributor may thereafter complete a transaction initiated by
Distributor.

(i) ZiLOG may, at its option, cancel any or all unfilled purchase orders
with delivery scheduled beyond three (3) months of the effective date of
the termination.

(ii) Distributor shall discontinue immediately all activities as a ZiLOG
Distributor including, without limitation, all advertising or reference to
the Products, save already printed catalogs or for selling Products
remaining in inventory or which are shipped by ZiLOG following termination
hereof;

(iii) In the event ZiLOG terminates this Agreement without cause, or in
the event Distributor cancels this Agreement with cause, ZiLOG will
repurchase from Distributor any or all unsold Standard Products purchased
from ZiLOG within the last twenty-four (24) months, in Distributor's
inventory at the price paid by Distributor after deduction of all price
protection credits or other credits issued by ZiLOG granted in Section 9
of this Agreement or otherwise, using a first in first out inventory
valuation system.

(iv) In the event Distributor terminates this Agreement without cause, or
ZiLOG terminates this Agreement with cause, ZiLOG will repurchase from
Distributor any or all unsold Standard Products purchased from ZiLOG
within the last twenty-four (24) months, in Distributor's inventory at the
same price as set forth in subsection (c) (iii) above, less a fifteen
percent (15%) restocking charge to be deducted by ZiLOG, using a first in
first out inventory valuation system.

(v) Unless otherwise agreed to in writing, ZiLOG will have no obligation
to repurchase Non-Standard Products or Code X Products from Distributor.

14. INDUSTRIAL PROPERTY RIGHTS AND CONFIDENTIAL INFORMATION

(a) Distributor agrees that the Industrial Property Rights to the Products
and all Trademarks are and shall remain the sole property of ZiLOG. The
use by Distributor of any Industrial Property Rights and Trademarks
(including, but not limited to, any trademark, trade name or copyrighted
material) is authorized only for the purposes herein set forth and upon
termination of this Agreement for any reason such authorization shall
cease.

(b) Distributor acknowledges that all information included in the
Technical Data and any other information unique to ZiLOG's business
operation which is disclosed or revealed to Distributor in connection with
the performance of this Agreement other than the information included in
customer literature prepared by ZiLOG ("Confidential Information", is
confidential and of substantial value to ZiLOG, which value would be
impaired if such information were disclosed to third parties.
Confidential Information includes, but is not limited to, communications
or data in any form including, without limitation, oral, written, graphic
or electromagnetic form, which contain any information related to ZILOG
and/or its products and/or its business including, without limitation,
processes, patents, patent applications, technology, know-how, techniques,
improvements, inventions, business plans and strategies, marketing plans,
product plans, trade secrets, customer lists, supplier lists, transaction
methods and relationships between ZILOG and other entities, clients,
financial records or information, phone numbers, addresses, security
records and methods, formulas, development and marketing methods, designs,
design practices, product or material sources and relationships, potential
customers and listings, employee information, contractor information, any
information learned by Distributor in the process of examining any
information supplied by ZILOG, and any other information of any nature and
in any form disclosed to Distributor by ZILOG or learned by Distributor,
which relates to or is useful in ZILOG's current or anticipated future
business operations, but does not include any information which
Distributor proves it had in its possession through lawful means prior to
disclosure by ZILOG, and any information which is or becomes publicly
known through no action or inaction of Distributor. Confidential
Information shall include all such information, whether disclosed to
Distributor prior to or subsequent to Distributor's execution of this
Agreement. Distributor will not use in any way for its own account or the
account of any third party, nor disclose to any third party, any
Confidential Information of ZiLOG. Distributor will take every reasonable
precaution to protect the confidentiality of such Confidential Information
consistent with the efforts exercised by it with respect to its own
confidential business information, but in no event less than a reasonable
level of protection. Distributor will not publish any technical
description of the Products beyond the descriptions published by ZiLOG.
In the event of termination of this Agreement, the obligations of
Distributor hereunder shall survive such termination and there shall be no
use or disclosure by Distributor of any Confidential Information of ZiLOG
until such time as the Confidential Information enters the public domain
through no act or omission of Distributor.

(c) ZiLOG agrees that the Distributor Confidential Information and all
trademarks belonging to Distributor are and shall remain the sole property
of Distributor. ZiLOG is permitted to use any Distributor Confidential
Information internally only (including ZiLOG's agents) for purposes of
paying commissions to sales representatives, studying markets and demand
information, determining potential new product development, and
determining Distributor's compliance with the terms and conditions of this
Agreement. ZiLOG agrees to keep any Distributor Confidential Information
confidential, and agrees to protect such information to the same degree as
it protects its own trade secrets. The Distributor Confidential
Information in any point of sale reports shall not be used by any of
ZiLOG's personnel, agents or by any other authorized distributors of ZiLOG
to the detriment or damage of Distributor or Distributor's sales of any
Products to any of its customers. The obligation to maintain the
confidentiality of the Distributor Confidential Information, and the
restrictions on use of the Distributor Confidential Information, shall
survive for a period of two (2) years following the termination of this
Agreement, after which ZiLOG shall have the full right to use Distributor
Confidential Information for any purpose.

15. TRADEMARKS

(a) ZiLOG authorizes Distributor to use the Trademarks in the Territory
during the term of this Agreement for the sole purpose of the sale and
distribution of Products. Distributor acquires no right to the Trademarks
by its use and may only use Trademarks for the duration of this Agreement
and to the extent specified herein. Distributor will not adopt or use
either during the term of this Agreement or thereafter any trademark trade
name, slogan, label or logo similar to the Trademarks. Distributor will
not use or display the Trademarks in any manner which states or implies
that the relationship between Distributor and ZiLOG is anything but a
Distributor relationship. ZiLOG may, in its sole discretion, modify,
amend, alter or revoke Distributor's rights to use any Trademarks, and
Distributor agrees to comply with all rules and regulations regarding the
use of Trademarks as ZiLOG may, from time to time, set forth in its
Distributor Policies.

(b) Distributor will not, without ZiLOG's prior written consent, remove,
alter or modify the identification numbers, date codes, labels, or
Trademarks on the Products.

(c) Distributor recognizes that the Trademarks, whether or not registered,
are valid and the exclusive property of ZiLOG, and Distributor's right to
use the Trademarks arises only out of this Agreement. Distributor shall
do nothing which might impair the validity or dilute the distinctiveness
of the Trademarks or the goodwill attached thereto and symbolized thereby
and Distributor will cooperate fully with ZiLOG in protecting the
Trademarks including executing and filing whatever documents and
performing whatever actions are considered necessary or desirable by ZiLOG
for maintenance and protection of the Trademarks.

16. ETHICS, CONFLICT OF INTEREST

(a) Each party shall comply with all applicable laws and governmental
rules and regulations. Each party acknowledges that neither party is
expected or authorized to take any action in the name of or on behalf of
the other which would violate any such laws, rules or regulations.

(b) Distributor agrees that all financial settlements, reports, and
billings rendered will, in reasonable detail, accurately and fairly
reflect the facts about all activities and transactions handled.

(c) Each party shall at all times during the term of this Agreement use
reasonable efforts to ensure that no action is taken by such party, its
agents and subcontractors which could or might result in or give rise to
the existence of conditions prejudicial to or in conflict with the best
interest ofthe other. In particular, but without limiting the generality
of the foregoing, each party shall take or cause to be taken all necessary
and proper precautions to prevent such party's agents, employees and
subcontractors from receiving or making, providing or offering to any
person who could or might be in a position to influence the decisions
hereunder of the other party with respect to the Agreement any substantial
gift, entertainment, payment, loan or other consideration.

17. EXPORT CONTROL REGULATIONS

(a) All sales of the Products to Distributor shall be subject to the
pertinent laws, rules and regulations including, without limitation, as
the Export Administration Regulations of the United States, the Tax Reform
Act and the laws of the Territory. This Agreement is specifically subject
to all applicable federal and state laws and regulations relating to
restrictive trade practices or boycotts. In no event shall either party
be bound by any terms and conditions that contravene such pertinent laws.

(b) ZiLOG shall take all steps necessary to obtain, at ZiLOG's expense,
all required licenses from the United States Office of Export
Administration and/or other authorities to permit the exportation of
Products to Distributor's place of business in the Territory. Any further
licenses required for Distributor to export any Products to its customers
shall be obtained by Distributor at its sole cost and expense. Each party
represents and warrants that it will fully comply with any and all import,
export and other laws of any governmental agency having jurisdiction over
import and/or export of Products bysuch party, and each party agrees to
indemnify and hold the other harmless from and against any and all claims,
liabilities, causes of action, damages, fines, penalties, costs and
expenses (including, without limitation, attorneys' fees) which may be
incurred by the other as a result of such party's failing to comply with
all import and export laws applicable to such party's sale of Products.

(d) Distributor agrees that the Products and documentation will not be
used, sold, leased, disclosed, reexported, or otherwise dealt with in
violation of the licenses and applicable regulations. Distributor
acknowledges its awareness of the regulations and the requirements to
obtain approval from the U.S. Government for reexport.

(e) If Distributor wishes to receive Products as a consignee under ZiLOG's
distribution license, Distributor acknowledges the requirement to have an
Export Compliance Program, subject to review by ZiLOG and the U.S.
Government.

18. DEFAULT

(a) ZiLOG shall not be in default of this Agreement unless Distributor has
given ZiLOG written notice of its default, and ZiLOG has not, within
thirty (30) days of its receipt of Distributor's notice of default, cured
such default or, if the nature of the default is such that it cannot be
reasonably cured within a thirty (30) day period, has commenced curing
such default within such thirty (30) day period and diligently prosecutes
curing such default to completion. In the event of a default by ZiLOG,
then, in no event shall ZiLOG be liable for an amount greater than the
purchase price paid by Distributor to ZiLOG for any Product purchased by
Distributor which is the subject of ZiLOG's default, or, if the default
does not involve Product which has been shipped to Distributor, then
Distributor's sole and exclusive remedy shall be to terminate this
Agreement. Distributor hereby waives any and all other remedies it may
have on account of ZiLOG's default hereunder.

(b) Distributor shall not be in default of this Agreement unless ZiLOG has
given Distributor written notice of its default, and Distributor has not,
within thirty (30) days of the date of ZiLOG's notice, cured such default
or, if the nature of the default is such that it cannot be reasonably
cured within a thirty (30) day period, has commenced curing such default
within such thirty (30) day period and diligently prosecutes curing such
default to completion. In the event of a default by Distributor, then
ZiLOG shall have all rights and remedies available to it under this
Agreement, at law or in equity.

19. EXCLUSIVE REMEDIES

(a) THE REMEDIES PROVIDED HERIN ARE DISTRIBUTOR'S AND ZILOGS SOLE AND
EXCLUSIVE REMEDIES FOR ANY ACTION ARISING OUT OF OR RELATED TO THIS
AGREEMENT. NEITHER ZiLOG NOR DISTRIBUTOR WILL BE LIABLE FOR ANY DIRECT,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER LEGAL THEORY. IN ADDITION, NEITHER ZiLOG NOR
DISTRIBUTOR WILL BE LIABLE FOR LOST PROFITS OR INJURY TO GOODWILL, EVEN IF
ZiLOG OR DISTRIBUTOR SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SAME.

(b) THE MAXIMUM LIABILITY OF ZiLOG OR DISTRIBUTOR RESPECTIVELY AND THE
MAXIMUM RECOVERY AVAILABLE TO THE OTHER FOR ANY CLAIM ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR INVOLVING PRODUCTS PURCHASED FOR RESALE WILL
NOT IN THE AGGREGATE EXCEED THE PURCHASE PRICE ACTUALLY PAID FOR THE
PRODUCTS WHICH ARE THE SUBJECT OF THE CLAIM DURING THE SIX (6) MONTH
PERIOD PRECEDING THE CLAIM, LESS ANY CREDITS PREVIOUSLY GRANTED TO
DISTRIBUTOR ON ACCOUNT OF SUCH PRODUCTS OR FIVE MILLION DOLLARS ($5
Million), WHICHEVER IS LOWER.

20. CHOICE OF LAW, ARBITRATION, LIMITATIONS

(a) This Agreement is made and entered into in the state of California,
and shall be construed and the legal relationship between the parties
hereto determined in accordance with the laws of California, without
giving effect to any conflict of laws principles.

(b) With the exception of any controversy or claim involving a third party
or arising out of the confidentiality and intellectual property
indemnification provisions of this Agreement, the parties agree that any
other controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with
the then current expedited rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. Any such arbitration shall be
conducted in San Jose, California. Each party shall bear its own expenses
for any arbitration. The arbitrator shall have no authority to award
punitive damages and may not, in any event, make any ruling, finding or
award that does not conform to the plain reading of the terms and
conditions of this Agreement.

(c) Debits from Distributor will not be accepted on such items as alleged
short shipment, proof of delivery or pricing issues more than six (6)
months from the date of shipment of Product. Such claims will be null and
void after six (6) months from the date of shipment. This provision shall
not take precedence over more restrictive provisions including but not
limited to Sections 9 (c), 11 (b) and 11 (d) (vi).

21. NOTICES

Any notice, report, request or demand required or permitted by this
Agreement shall be given either personally or sent by either party to the
other by registered or certified mail, return receipt requested, addressed
to the other party at their principal business address set forth below:

IF NOTICE TO ZiLOG:

ZiLOG, INC.
910 East Hamilton Avenue
Campbell, CA 95008
Attention: Vice President, Sales

and, if such notice relates to a breach of this Agreement by ZiLOG or
termination by Distributor, then a copy shall be provided to:

ZiLOG, INC.
910 East Hamilton Avenue
Campbell, CA 95008
Attention: General Counsel

IF TO DISTRIBUTOR;
4800 East 131st Street
Cleveland, Ohio 44205
Attention: President, Industrial Electronics Division

or such other address as either party may designate to the other by
written notice so given. All such notices, requests, demands and other
communications shall be deemed to be given or made when received by the
named addressee.

22. GENERAL

(a) Setoffs. Distributor shall not be permitted to set off any debts owed
by Distributor to ZiLOG without written agreement by ZiLOG confirming the
proposed set off.

(b) Waivers. Any delay or failure to enforce any right or remedy
hereunder will not constitute a waiver of such right or remedy with
respect to any current or subsequent default.

(c) Assignment. This Agreement is personal to Distributor and shall not
be assigned by Distributor except with the prior written consent of ZiLOG,
which consent may be granted or withheld in ZiLOG's sole discretion. Any
assignment without such consent shall give ZiLOG the right to declare this
Agreement null and void, without thereby relieving Distributor of any debt
owed to ZiLOG hereunder. A material change in ownership of Distributor
shall be deemed to be an attempted assignment. ZiLOG may assign this
Agreement to a successor in interest. Permitted assignments shall, among
other things, require that the assignee assume all of the rights, duties
and liabilities of the assignor as of the date of assignment.

(d) Modifications. No modification, change or amendment to this
Agreement, nor any waiver of any rights in respect hereto, shall be
effective unless in writing signed by the parties.

(e) No License. No rights to manufacture, duplicate or otherwise copy or
reproduce the Products (including software supplied with such Products)
are granted by this Agreement. Further, no licenses are granted or
implied by this Agreement under any rights, except the right to sell the
Products. ZiLOG reserves the right to license any company, within or
without the Territory, to manufacture any Products. Such licensing
agreements may grant sale and distribution rights to the licensee within
and/or without the Territory.

(f) Severability. If any provision of this Agreement proves to be or
becomes invalid or unenforceable under any applicable law, then such
provision shall be deemed modified to the extent necessary to make such
provision valid and enforceable; if such provision may not be so saved, it
shall be severed from the Agreement and the remainder of the Agreement
shall remain in full force and effect.

(g) Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof, and merges and
integrates herein all substantive discussions and communications on which
agreement had been reached between the parties up to the date hereof.
This Agreement supersedes all prior agreements, understanding,
communications and courses of dealing between the parties, except that
neither party shall be relieved thereby from payment of any invoice or
rightful claim, under a prior written agreement, which was outstanding and
unpaid on the date hereof

(h) Attorneys' Fees. In the event that any litigation, arbitration, or
other proceeding is commenced between the parties hereto or their personal
representatives, successors or assigns concerning the enforcement or
interpretation of any provision of this Agreement or the rights and duties
of any party in relation thereto, the party or parties prevailing in such
litigation, arbitration or other proceeding shall be entitled, in addition
to such other relief as may be granted, to all attorneys' fees and costs
incurred in such litigation, arbitration or other proceeding, and in any
appeal or enforcement of any judgment rendered therein.

(i) Neutral construction. The parties hereto agree that this Agreement
will be interpreted neutrally, and that it should not be construed for or
against any party deemed to be the drafter thereof.

IN WITNESS WHEREOF, each of the parties has signed this Agreement on the
date first set forth above.

ZiLOG, INC. PIONEER-STANDARD ELECTRONICS, INC.

By: /s/Curtis J. Crawford____ By: /s/Art Rhein___________

Printed Name: Curtis J. Crawford__ Printed Name: Art Rhein____

Title: President and CEO_________ Title: President and COO___

EXHIBIT A

TERRITORY:

The Territory(ies) appointed shall be: That portion of the United States
of America consisting of the fifty (50) states of the United States of
America, the District of Columbia and Puerto Rico; all provinces and
territories in Canada; and all states in Mexico.

Exhibit 12.1

ZiLOG, Inc.
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings (Loss) Before Income
Taxes And Fixed Charges:
Income (loss) before income
taxes.......................($36,886) ($101,776) $14,826 $46,156 $65,883
Add interest on Notes Payable. 26,600 22,462 -- -- --
Add amortization of debt
issuance costs.............. 1,394 1,628 -- -- --
--------- ----------- --------- --------- ---------
Income (loss) before income
taxes and fixed charges... ($8,892) ($77,686) $14,826 $46,156 $65,883
========= =========== ========= ========= =========
Fixed Charges:
Interest on Notes Payable..... $26,600 $22,462 $ -- $ -- $ --
Amortization of debt issuance
costs....................... 1,394 1,628 -- -- --
--------- ----------- --------- --------- ---------
$27,994 $24,090 $ -- $ -- $ --
========= =========== ========= ========= =========
Ratio of esrnings to fixed
charges (1)..................... (0.32) (3.22) N/A N/A N/A
========= =========== ========= ========= =========
</TABLE>

(1) Earnings before income taxes and fixed charges were insufficient to cover
fixed charges in 1999 and 1998 by $36,886 and $101,776, respectively.

Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-81697) pertaining to the 1998 Long Term Stock Incentive
Plan and the 1998 Executive Officer Incentive Plan of Zilog Inc. of our
report dated January 18, 2000, with respect to the consolidated financial
statements and schedule of ZiLOG Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1999.

/s/ Ernst & Young LLP
San Jose, California
March 28, 2000

<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, 1999 and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER>1000

<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<PERIOD-TYPE> 12-MOS
<CASH> 60,806
<SECURITIES> 0
<RECEIVABLES> 32,257
<ALLOWANCES> 423
<INVENTORY> 28,456
<CURRENT-ASSETS> 134,013
<PP&E> 413,716
<DEPRECIATION> 277,570
<TOTAL-ASSETS> 284,286
<CURRENT-LIABILITIES> 78,451
<BONDS> 280,000
0
25,000
<COMMON> 405
<OTHER-SE> (115,173)
<TOTAL-LIABILITY-AND-EQUITY> 284,286
<SALES> 245,138
<TOTAL-REVENUES> 245,138
<CGS> 158,768
<TOTAL-COSTS> 158,768
<OTHER-EXPENSES> 32,777
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 28,954
<INCOME-PRETAX> (36,886)
<INCOME-TAX> 1,004
<INCOME-CONTINUING> (37,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,890)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00

</TABLE>