ATML - 2014 Q2 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014


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

For the transition period from to

Commission file number 0-19032

ATMEL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		77-0051991 (I.R.S. Employer Identification Number)

1600 Technology Drive, San Jose, California 95110

(Address of principal executive offices)

(408) 441-0311

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

On July 31, 2014, the Registrant had 418,533,619 outstanding shares of Common Stock.

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ATMEL CORPORATION

FORM 10-Q

QUARTER ENDED JUNE 30, 2014



	Page

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013	3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013	4
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2014 AND DECEMBER 31, 2013	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 4. CONTROLS AND PROCEDURES	32
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	33
ITEM 1A. RISK FACTORS	33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	48
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	49
ITEM 4. MINE SAFETY DISCLOSURES	49
ITEM 5. OTHER INFORMATION	49
ITEM 6. EXHIBITS	49
SIGNATURES	50
EXHIBITS	51

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atmel Corporation

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands, except for per share data)
Net revenue	$	355,534		$	347,816		$	692,895		$	676,959
Operating expenses
Cost of revenue	194,296			199,891			391,667			397,729
Research and development	70,082			67,362			139,834			135,670
Selling, general and administrative	64,783			58,912			128,862			122,489
Acquisition-related charges	1,497			1,759			3,125			4,014
Restructuring (credits) charges	(1,583		)	582			(1,807		)	43,396
Recovery of receivables from foundry suppliers	—			(83		)	—			(522		)
Gain on sale of assets	—			—			—			(4,430		)
Settlement charges	—			—			—			21,600
Total operating expenses	329,075			328,423			661,681			719,946
Income (loss) from operations	26,459			19,393			31,214			(42,987		)
Interest and other expense, net	(1,202		)	(738		)	(1,125		)	(386		)
Income (loss) before income taxes	25,257			18,655			30,089			(43,373		)
(Provision for) benefit from income taxes	(6,021		)	(5,679		)	(8,687		)	8,682
Net income (loss)	$	19,236		$	12,976		$	21,402		$	(34,691	)
Basic net income (loss) per share:
Net income (loss) per share	$	0.05		$	0.03		$	0.05		$	(0.08	)
Weighted-average shares used in basic net income (loss) per share calculations	421,090			428,239			423,233			428,617
Diluted net income (loss) per share:
Net income (loss) per share	$	0.05		$	0.03		$	0.05		$	(0.08	)
Weighted-average shares used in diluted net income (loss) per share calculations	422,834			430,536			424,876			428,617

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Atmel Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Net income (loss)	$	19,236		$	12,976		$	21,402		$	(34,691	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	799			730			1,133			(6,952		)
Actuarial losses related to defined benefit pension plans	(19		)	(16		)	(38		)	(31		)
Unrealized gain (losses) on investment arising during period	—			243			—			(96		)
Reclassification adjustment from sale of investment	—			—			328			—
Total other comprehensive income (loss)	780			957			1,423			(7,079		)
Total comprehensive income (loss)	$	20,016		$	13,933		$	22,825		$	(41,770	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Atmel Corporation

Condensed Consolidated Balance Sheets

(Unaudited)



	June 30, 2014		December 31, 2013
	(in thousands, except for par value)
ASSETS
Current assets
Cash and cash equivalents	$	263,971	$	276,881
Short-term investments	—		2,181
Accounts receivable, net of allowance for doubtful accounts of $1,861 and $1,926, respectively	198,984		206,757
Inventories	245,048		274,967
Prepaids and other current assets	97,582		92,234
Total current assets	805,585		853,020
Fixed assets, net of accumulated depreciation of $1,317,186 and $1,300,722, respectively	189,731		184,983
Goodwill	109,980		108,240
Intangible assets, net of accumulated amortization of $51,228 and $47,747, respectively	25,069		28,116
Other assets	161,629		178,167
Total assets	$	1,291,994	$	1,352,526
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	99,371	$	95,872
Accrued and other liabilities	128,334		155,406
Deferred income on shipments to distributors	46,622		42,594
Total current liabilities	274,327		293,872
Other long-term liabilities	113,202		120,727
Total liabilities	387,529		414,599
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock; par value $0.001; Authorized: 5,000 shares; no shares issued and outstanding	—		—
Common stock; par value $0.001; Authorized: 1,600,000 shares; Shares issued and outstanding: 418,490 at June 30, 2014 and 425,390 at December 31, 2013	418		425
Additional paid-in capital	782,628		838,908
Accumulated other comprehensive income	14,220		12,797
Retained earnings	107,199		85,797
Total stockholders’ equity	904,465		937,927
Total liabilities and stockholders’ equity	$	1,291,994	$	1,352,526

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Atmel Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended
	June 30, 2014			June 30, 2013
	(in thousands)
Cash flows from operating activities
Net income (loss)	$	21,402		$	(34,691	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization	27,401			38,747
Recovery of receivables from foundry supplier	—			(522		)
Deferred income taxes	1,593			5,985
Write-off of equipment deposit	1,730			—
Realized gain on sales of marketable securities	(385		)	—
Gain from foundry arrangements	—			(3,034		)
Accretion of interest on long-term debt	660			526
Share-based compensation expense	30,895			22,242
Excess tax benefit on share-based compensation	(1,014		)	(1,284		)
Non-cash acquisition-related and other charges, net	89			(206		)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable	7,844			(17,547		)
Inventories	29,907			24,743
Current and other assets	15,964			(27,408		)
Trade accounts payable	3,653			(23,548		)
Accrued and other liabilities	(38,134		)	20,123
Income taxes payable	(6,900		)	(19,591		)
Deferred income on shipments to distributors	4,028			12,124
Net cash provided by (used in) operating activities	98,733			(3,341		)
Cash flows from investing activities
Acquisitions of fixed assets	(25,880		)	(13,471		)
Proceeds from the sale of business	—			5,092
Sales of marketable securities	3,071			—
Acquisition of businesses, net of cash acquired	—			(25,852		)
Acquisitions of intangible assets	(1,995		)	(2,760		)
Net cash used in investing activities	(24,804		)	(36,991		)
Cash flows from financing activities
Repurchases of common stock	(83,499		)	(29,173		)
Proceeds from issuance of common stock	7,096			7,825
Tax payments related to shares withheld for vested restricted stock units	(10,767		)	(8,305		)
Excess tax benefit on share-based compensation	1,014			1,284
Net cash used in financing activities	(86,156		)	(28,369		)
Effect of exchange rate changes on cash and cash equivalents	(683		)	(668		)
Net decrease in cash and cash equivalents	(12,910		)	(69,369		)
Cash and cash equivalents at beginning of the period	276,881			293,370
Cash and cash equivalents at end of the period	$	263,971		$	224,001

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Atmel Corporation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position of Atmel Corporation (the “Company” or “Atmel”) and its subsidiaries as of June 30, 2014 and the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013 and cash flows for the six months ended June 30, 2014 and 2013. All intercompany balances have been eliminated. Because all of the annual disclosures required by U.S. generally accepted accounting principles ("GAAP") are not included, as permitted by the rules of the Securities and Exchange Commission (the “SEC”), these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The December 31, 2013 year-end balance sheet data was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The condensed consolidated statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, or for the entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these financial statements include provisions for excess and obsolete inventory, sales reserves and allowances, share-based compensation expense, allowances for doubtful accounts receivable, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, liabilities for uncertain tax positions and deferred tax asset valuation allowances. Actual results could differ materially from those estimates.

Inventories

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Market is based on estimated net realizable value. Determining market value of inventories involves numerous judgments, including estimating average selling prices and sales volumes for future periods. The Company establishes provisions for lower of cost or market and excess and obsolescence write-downs, which are charged to cost of revenue. The Company makes a determination regarding excess and obsolete inventory on a quarterly basis. This determination requires an estimate of the future demand for the Company’s products and involves an analysis of historical and forecasted sales levels by product, competitiveness of product offerings, market conditions, product lifecycles, as well as other factors. Excess and obsolete inventory write-downs are recorded when the inventory on hand exceeds management’s estimate of future demand for each product and are charged to cost of revenue.

The Company’s inventories include parts that have a potential for rapid technological obsolescence and are sold in a highly competitive industry. The Company writes down inventory that is considered excess or obsolete. When the Company recognizes a loss on such inventory, it establishes a new, lower-cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis. If inventory with a lower-cost basis is subsequently sold, it will result in higher gross margin for the products making up that inventory.

Inventories are comprised of the following:



	June 30, 2014		December 31, 2013
	(in thousands)
Raw materials and purchased parts	$	10,916	$	9,547
Work-in-progress	170,273		200,434
Finished goods	63,859		64,986
	$	245,048	$	274,967

Grant Recognition

Subsidy grants from government organizations are amortized as a reduction of expenses over the period the related obligations are fulfilled. Recognition of future subsidy benefits will depend on the Company's achievement of certain technical milestones, capital investment, spending goals, employment goals and other requirements.

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From time to time, the Company receives economic incentive grants and allowances from European governments, agencies and research organizations targeted at preserving employment at specific locations. The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditures and other conditions that must be met to receive and retain grant benefits. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts previously received. In addition, the Company may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to its plans for headcount, project spending, or capital investment at any of these specific locations. If the Company is unable to comply with any of the conditions in the grant agreements, the Company may face adverse actions from the government agencies providing the grants. If the Company were required to repay grant benefits, its results of operations and financial position could be materially adversely affected by the amount of such repayments.

Change in Accounting Estimate

During the first quarter of 2014, the Company revised its accounting estimate for the expected useful life of manufacturing equipment from five years to seven years. In reviewing the useful life of the Company's remaining manufacturing equipment during the fourth quarter of 2013, the Company determined that the adoption of its manufacturing light strategy, the consolidation of its back-end subcontracting activities during the prior several years and the transition of its business to common test platforms had resulted in an extension of the economic life of those assets. Management believes that this change better reflects the expected economic benefits from the use of its manufacturing equipment over time based on an analysis of historical experience and general industry practices. The revised useful life of the manufacturing equipment decreased the Company's depreciation by approximately $4.6 million and $9.2 million for the three and six months ended June 30, 2014, respectively. This change had the effect of increasing net income by $3.8 million and $4.4 million for the three and six months ended June 30, 2014, respectively. As the inventory turns, the quarterly benefit of the depreciation change will be recognized over the remainder of the year.

Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board issued Accounting Standard Update "ASU" No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

Note 2 BUSINESS COMBINATIONS

Integrated Device Technology's Smart Metering Business

On March 7, 2013, the Company completed the acquisition from Integrated Device Technology (“IDT”) of its smart metering business for a cash purchase price of $10.3 million. This business is included in the Company's Microcontroller segment. The acquisition was intended to enable the Company to offer complementary products and to enhance the Company's existing smart energy product portfolio. Prior to the acquisition, the assets of IDT's smart metering business consisted primarily of approximately 20 employees, inventory, intellectual property assets, customers and distributors and related revenue streams. The acquisition, therefore, qualified as a business for accounting purposes and was accounted for under the acquisition method of accounting.

The total purchase price paid by the Company exceeded the estimated fair value of the intangible assets of the acquired business, which were $3.5 million, and net tangible assets which were $1.4 million. Based on the foregoing, as part of the purchase price allocation, the Company allocated $5.4 million of the purchase price to goodwill.

Ozmo, Inc.

In the three months ended March 31, 2013, the Company paid $15.6 million of the total $64.4 million purchase for its Ozmo, Inc. acquisition, which was completed in December 2012.

Note 3 INVESTMENTS

Investments at December 31, 2013 primarily included corporate equity securities and an auction-rate security. In the three months ended March 31, 2014, the Company sold its investment in a corporate equity security which resulted in a realized gain of $0.4 million recorded under interest and other income, net in the condensed consolidated statements of operations.

All marketable securities are deemed by management to be available-for-sale and are reported at fair value, with the exception of the auction-rate security as described below. Net unrealized gains and losses that are deemed to be temporary are reported within stockholders’ equity on the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive income. Unrealized losses that are deemed to be other-than-temporary are recorded in the condensed consolidated statements of operations in the period such determination is made. Gross realized gains or losses are recorded based

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on the specific identification method. For each of the three and six months ended June 30, 2014 and 2013, the Company did not have realized gains or losses on short-term investments other than the $0.4 million gain discussed above. The Company’s investments are further detailed in the table below:



	June 30, 2014				December 31, 2013
	Adjusted Cost		Fair Value		Adjusted Cost			Fair Value
	(in thousands)
Corporate equity securities	$	—	$	—	$	2,687		$	2,181
Auction-rate security	983		1,066		983			1,066
	983		$	1,066	3,670			$	3,247
Unrealized gains	83				83
Unrealized losses	—				(506		)
Net unrealized (losses) gains	83				(423		)
Fair value	$	1,066			$	3,247
Amount included in short-term investments			$	—				$	2,181
Amount included in other assets			1,066					1,066
			$	1,066				$	3,247

For the three months ended June 30, 2014, auctions for the Company's sole auction-rate security continued to fail and as a result this security continues to be illiquid. The Company concluded that the $1.1 million auction-rate security is unlikely to be liquidated within the next twelve months and classified this security as a long-term investment, which is included in other assets on the condensed consolidated balance sheets. This auction-rate security had a contractual maturity greater than 10 years and totaled $1.0 million (at adjusted cost) as of June 30, 2014.

The Company has classified all investments with original maturity dates of 90 days or more as short-term as it has the ability and intent to liquidate them within the year, with the exception of the Company’s remaining auction-rate security, which has been classified as long-term investment and included in other assets on the condensed consolidated balance sheets.

Note 4 FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price)”. The accounting standard establishes a consistent framework for measuring fair value and expands disclosure requirements regarding fair value measurements. This accounting standard, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The tables below present the balances of investments measured at fair value on a recurring basis:



	June 30, 2014
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash
Money market funds	$	1,255	$	1,255	$	—	$	—

Other assets
Auction-rate security	1,066		—		—		1,066
Investment funds - Deferred compensation plan assets
Institutional money market funds	2,053		2,053		—		—
Fixed income	847		847		—		—
Marketable equity securities	3,407		3,407		—		—
Total institutional funds - Deferred compensation plan	6,307		6,307		—		—
Total other assets	7,373		6,307		—		1,066
Total	$	8,628	$	7,562	$	—	$	1,066

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	December 31, 2013
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash
Money market funds	$	1,245	$	1,245	$	—	$	—

Short-term investments
Corporate equity securities	2,181		2,181		—		—

Other assets
Auction-rate security	1,066		—		—		1,066
Investment funds - Deferred compensation plan assets
Institutional money market funds	2,225		2,225		—		—
Fixed income	338		338		—		—
Marketable equity securities	3,279		3,279		—		—
Total institutional funds - Deferred compensation plan	5,842		5,842		—		—
Total other assets	6,908		5,842		—		1,066
Total	$	10,334	$	9,268	$	—	$	1,066

The Company’s investments, with the exception of its auction-rate security, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, or broker or dealer quotations. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

Auction-rate securities are classified within Level 3 because significant assumptions for such securities are not observable in the market. The total amount of assets measured using Level 3 valuation methodologies represented less than 1% of the Company's total assets as of June 30, 2014.

There were no changes in Level 3 assets measured at fair value on a recurring basis for the three and six months ended June 30, 2014 and the year ended December 31, 2013. There were no transfers between Level 1 and 2 hierarchies for the three and six months ended June 30, 2014 and the year ended December 31, 2013.

Note 5 BORROWING ARRANGEMENTS

Senior Secured Revolving Credit Facility

On December 6, 2013, the Company entered into a five-year $300.0 million, senior secured revolving credit facility (the “Facility”), the terms of which are set forth in a Credit Agreement (the “Credit Agreement”) among the Company, a group of lenders led by Morgan Stanley Senior Funding, Inc., as administrative agent, and Union Bank N.A., BNP Paribas and SunTrust Bank as co-syndication agents. The Company may increase the aggregate availability under the Facility through a customary “accordion” feature in an amount not to exceed $250.0 million. The Company recorded debt issuance costs of $2.1 million in December 2013, which are being amortized over the expected five-year term of the Facility.

Borrowings under the Facility will be available for general corporate purposes, including working capital, stock repurchases, acquisitions and other purposes. Amounts outstanding under the Facility are due on the earlier of December 6, 2018 or 180 days prior to the maturity date of any Permitted Convertible Notes (as defined in the Credit Agreement) if, in the latter case, the Company does not otherwise have available sufficient unrestricted cash and other investments to redeem the Permitted Convertible Notes.

The Company may prepay loans under the Credit Agreement at any time, in whole or in part, upon payment of accrued interest and break funding payments, if applicable. The Company may terminate or reduce the Facility at any time without penalty. The obligations under the Facility are guaranteed by certain domestic subsidiaries of the Company, are secured by a pledge of substantially all of the assets of the Company and the guarantors, and contains affirmative, negative and financial covenants. Affirmative covenants include, among other things, the delivery of financial statements and other information. Negative covenants include, among other things, limitations on asset sales, mergers and acquisitions, indebtedness, liens, investments and transactions with affiliates. The financial covenants require the Company to maintain compliance with a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum fixed charge coverage ratio. The Credit Agreement includes customary events of default that include, among other things, non-payment defaults, inaccuracy of representations and warranties, covenant defaults,

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cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults and a change of control default. The occurrence of an event of default could result in an acceleration of obligations under the Credit Agreement. As of June 30, 2014, there were no outstanding borrowings under the Facility. See Note 16 of Notes to Condensed Consolidated Financial Statements for information regarding the subsequent events related to the Facility.

Note 6 STOCKHOLDERS’ EQUITY

Share-Based Compensation

The following table summarizes share-based compensation, net of the amount capitalized in inventory, included in operating results:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Cost of revenue	$	1,971		$	1,609		$	3,287		$	3,453
Research and development	4,383			3,016			9,112			7,624
Selling, general and administrative	8,924			2,855			18,496			11,165
Total share-based compensation expense, before income taxes	15,278			7,480			30,895			22,242
Tax benefit	(3,320		)	(563		)	(6,244		)	(3,169		)
Total share-based compensation expense, net of income taxes	$	11,958		$	6,917		$	24,651		$	19,073

Restricted Stock Units, Employee Stock Purchase Plan and Stock Options

In May 2005, Atmel’s stockholders initially approved Atmel’s 2005 Stock Plan (as amended, the “2005 Stock Plan”). On May 9, 2013, Atmel's stockholders approved an amendment to the 2005 Stock Plan to increase the number of shares allocated to the 2005 Stock Plan by 25.0 million shares. As of June 30, 2014, 158.0 million shares had been cumulatively authorized for issuance under the 2005 Stock Plan, and 25.8 million shares remained available for issuance without giving effect to any adjustment that may be required by the terms of the 2005 Stock Plan in respect of shares underlying restricted stock or restricted stock units. Under the 2005 Stock Plan, Atmel may issue common stock directly, grant options to purchase common stock or grant restricted stock units payable in common stock to employees, consultants and directors of Atmel. Restricted stock units generally vest on a quarterly basis over a service period of up to four years from the grant date, although restricted stock unit grants to newly-hired employees generally have a one-year cliff vest equal to one-quarter of the total grant. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

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Activity under Atmel’s 2005 Stock Plan is set forth below:



			Outstanding Options			Weighted-
					Exercise	Average
	Available for Grant		Number of Options		Price per Share	Exercise Price per Share
	(in thousands, except for per share data)
Balances, December 31, 2013	21,245		3,635		$2.13-$10.01	$	4.50
Restricted stock units issued	(201	)
Plan adjustment for restricted stock units issued	(115	)
Restricted stock units cancelled	211
Plan adjustment for restricted stock units cancelled	134
Performance-based restricted stock units cancelled	47
Plan adjustment for performance-based restricted stock units cancelled	29
Options cancelled/expired/forfeited	2		(2	)	$4.92-$7.25	$	6.02
Options exercised	—		(322	)	$2.65-$7.38	$	4.30
Balances, March 31, 2014	21,352		3,311		$2.13-$10.01	$	4.52
Restricted stock units issued	(330	)
Plan adjustment for restricted stock units issued	(188	)
Restricted stock units cancelled	532
Plan adjustment for restricted stock units cancelled	327
Performance-based restricted stock units cancelled	2,559
Plan adjustment for performance-based restricted stock units cancelled	1,561
Options cancelled/expired/forfeited	1		(1	)	$5.75-$5.75	$	5.75
Options exercised	—		(85	)	$3.18-$6.28	$	4.00
Balances, June 30, 2014	25,814		3,225		$2.13-$10.01	$	4.53

Restricted stock units are granted from the pool of options available for grant. Every share underlying restricted stock, restricted stock units (including performance-based restricted stock units), or stock purchase rights issued on or after May 9, 2013 is counted against the numerical limit for options available for grant as 1.57 shares, as reflected in the table above in the line items for "Plan adjustments", except that restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 9, 2013 but on or after May 18, 2011, is counted against the numerical limit for options available for grant as 1.61 shares, and restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 18, 2011 and on or after May 14, 2008, is counted against the numerical limit for options available for grant as 1.78 shares. If shares issued pursuant to any restricted stock, restricted stock unit, and stock purchase right agreements are cancelled, forfeited or repurchased by the Company, the number of shares returned to the 2005 Stock Plan will be multiplied by the same ratios above under which such shares were issued and will again become available for issuance.

As of June 30, 2014, there were 25.8 million shares available for issuance under the 2005 Stock Plan, or 16.4 million shares after giving effect to the applicable ratios under the 2005 Stock Plan for issuances of restricted stock units, as described above.

Restricted Stock Units

Activity related to restricted stock units is set forth below:

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	Number of Units		Weighted-Average Grant Date Fair Value
	(in thousands, except for per share data)
Balances, December 31, 2013	21,137		$	8.84
Restricted stock units issued	201		8.12
Restricted stock units vested	(1,629	)	7.91
Restricted stock units cancelled	(211	)	8.02
Performance-based restricted stock units cancelled	(47	)	13.83
Balances, March 31, 2014	19,451		$	9.08
Restricted stock units issued	330		8.20
Restricted stock units vested	(2,051	)	7.81
Restricted stock units cancelled	(532	)	7.84
Performance-based restricted stock units cancelled	(2,559	)	13.47
Balances, June 30, 2014	14,639		$	8.52

As of June 30, 2014, total unearned share-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $90.1 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.05 years.

Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying such restricted stock units are not considered issued and outstanding. Upon vesting of restricted stock units, shares withheld by the Company to pay taxes are retired.

Performance-Based Restricted Stock Units

On December 17, 2013, the Company adopted the Atmel 2014 Long-Term Performance-Based Incentive Plan (the “2014 Plan”), which provides for the grant of performance-based restricted stock units to Company participants. The Company issued 1.0 million shares under the 2014 Plan for the year ended December 31, 2013. The Company records performance-based restricted stock units issued under the 2014 Plan based on achievement of the “target” performance metrics, which will result in a participant being credited with 100% of the performance-based shares awarded to that participant under the 2014 Plan. Achievement at the “maximum” performance metrics will result in a participant being credited with 300% of the performance-based shares awarded to that participant under the 2014 Plan.

Performance metrics for the 2014 Plan are based principally on corporate level and business unit non-GAAP gross margin metrics, calculated at the end of each 2014 calendar quarter (other than the Company’s XSense business unit for which the performance metric will be based on 2014 cumulative calendar year revenue). Vesting of performance-based restricted stock units under the 2014 Plan is expected to commence, assuming achievement of the underlying performance metrics, in the first calendar quarter of 2015. Performance metrics and awards are not cumulative or duplicative (the final award will be based, subject to adjustment, on the highest non-GAAP gross margin achieved during the performance period). Performance-based shares may be credited to participants at the end of any calendar quarter if a non-GAAP gross margin performance metric has been achieved at that quarter end. Additional performance-based shares may be credited for performance that falls between “threshold” and “target” or “target” and “maximum” metrics. In the event that a performance metric is achieved and the applicable non-GAAP gross margin performance metric, in the next succeeding 2014 calendar quarter, falls more than 2% below the previously achieved performance metric, the number of performance-based shares credited to a participant will be adjusted, based on average performance over the affected quarterly periods, to reflect that reduced performance. For participants who are included within the 2014 Plan at any time after January 1, 2014, awards will be pro-rated to reflect the actual time a participant has been an employee of, or a service provider to, the Company. The Company recorded total share-based compensation expense related to performance-based restricted stock units of $0.9 million and $2.0 million under the 2014 Plan in the three and six months ended June 30, 2014, respectively.

The performance period under the Company's 2011 Long-Term Performance-Based Incentive Plan (the “2011 Plan"), adopted in May 2011, ended on December 31, 2013. The total performance-based restricted stock units forfeited under the 2011 Plan were 3.3 million.

Employee Stock Purchase Plan

Under the 2010 Employee Stock Purchase Plan (“2010 ESPP”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85% of the fair market value of the common stock at the date of commencement of the six-month offering period or 85% of the fair market value on the last day of the offering period. Purchases are limited to 10% of an employee’s eligible compensation subject to a maximum annual employee contribution limit of $25,000 of the market value of the shares (determined at the time the share is granted) per calendar year. There were 0.8 million and 1.0 million shares purchased under the 2010 ESPP for the six months ended June 30, 2014 and 2013 at an average price per share of $6.43 and $5.00,

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respectively. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 19.8 million shares were available for issuance at June 30, 2014.

The fair value of each purchase under the 2010 ESPP is estimated on the date of the beginning of the offering period using the Black-Scholes option-pricing model. The following assumptions were utilized to determine the fair value of the 2010 ESPP shares:



	Three and Six Months Ended
	June 30, 2014		June 30, 2013
Risk-free interest rate	0.07	%	0.13	%
Expected life (years)	0.50		0.50
Expected volatility	32	%	50	%
Expected dividend yield	—		—

The weighted-average fair value per share under the 2010 ESPP for purchase periods beginning in the six months ended June 30, 2014 and 2013 were $1.64 and $1.29, respectively. Cash proceeds from the issuance of shares under the Company’s ESPP were $5.4 million and $5.1 million for the six months ended June 30, 2014 and 2013, respectively.

Common Stock Repurchase Program

Atmel’s Board of Directors has, since 2010, authorized an aggregate of $1.0 billion of funding for the Company’s common stock repurchase program. The repurchase program does not have an expiration date, and the number of shares repurchased and the timing of repurchases are based on the level of the Company’s cash balances, general business and market conditions, regulatory requirements, and other factors, including alternative investment opportunities. As of June 30, 2014, $256.0 million remained available for repurchasing common stock under this program.

During the three and six months ended June 30, 2014, Atmel repurchased 3.6 million and 10.5 million shares, respectively, of its common stock in the open market at an average repurchase price of $8.00 and $7.98 per share, respectively, excluding commission, and subsequently retired those shares (except for a limited number of shares re-issued to support restricted stock unit grants outside of the U.S.). Common stock and additional paid-in capital were reduced by $28.5 million and $83.5 million, excluding commission, for the three and six months ended June 30, 2014, respectively, and $13.7 million and $29.2 million for the three and six months ended June 30, 2013, respectively, as a result of the stock repurchases.

Note 7 ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income is defined as a change in equity of a company during a period, from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive income for the Company arises from foreign currency translation adjustments, actuarial loss related to defined benefit pension plans and net unrealized loss on investments. The following table summarizes the changes in accumulated balances of other comprehensive income, net of tax:



	Foreign currency translation adjustments		Defined benefit pension plans			Change in unrealized loss on investments			Total
	(in thousands)
Balance as of December 31, 2013	$	14,952	$	(2,153	)	$	(2	)	$	12,797
Other comprehensive income before reclassifications	1,133		—			—			1,133
Amounts reclassified from accumulated other comprehensive income	—		(38		)	328			290
Net increase in other comprehensive income	1,133		(38		)	328			1,423
Balance as of June 30, 2014	$	16,085	$	(2,191	)	$	326		$	14,220

Amounts reclassified from accumulated other comprehensive income were mainly related to losses on available-for-sale securities. These reclassifications impacted "interest and other expense, net" on the condensed consolidated statements of operations.

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Note 8 COMMITMENTS AND CONTINGENCIES

Commitments

Indemnification

As is customary in the Company’s industry, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of the Company’s products. From time to time, the Company will indemnify customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of the Company’s products and services, usually up to a specified maximum amount. In addition, as permitted under state laws in the United States, the Company has entered into indemnification agreements with its officers and directors and certain employees, and the Company’s bylaws permit the indemnification of the Company’s agents. The estimated fair value of the liability is not material.

Purchase Commitments

As of June 30, 2014, the Company, or its affiliates, had certain non-cancellable commitments which were not included on the condensed consolidated balance sheets. These include the outstanding capital purchase commitments of approximately $2.8 million and wafer purchase commitments of approximately $61.0 million.

Contingencies

Legal Proceedings

The Company is party to various legal proceedings. Management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on its financial position, results of operations and statements of cash flows. If an unfavorable ruling were to occur in any of the legal proceedings described below or other legal proceedings that were not deemed material as of June 30, 2014, there exists the possibility of a material adverse effect on the Company's financial position, results of operations and cash flows. The Company has accrued for losses related to litigation that it considers probable and for which the loss can be reasonably estimated. In the event that a probable loss cannot be reasonably estimated, it has not accrued for such losses. Management makes a determination as to when a potential loss is reasonably possible based on relevant accounting literature and then includes appropriate disclosure of the contingency. As the Company continues to monitor litigation matters, whether deemed material as of June 30, 2014 or not, its determination could change, and the Company may decide, at some future date, to establish an appropriate reserve.

French Insolvency-Related Litigation - LFoundry and Atmel Rousset. In June 2010, the Company's French subsidiary, Atmel Rousset S.A.S. (“Atmel Rousset”), sold its wafer manufacturing facility in Rousset, France to LFoundry GmbH (“LF”). In connection with this transaction, Atmel Rousset also executed, among other agreements, a take-or-pay supply agreement (the “Supply Agreement”) requiring Atmel Rousset or its affiliates to purchase wafers from LF’s subsidiary, LFoundry Rousset S.A.S. (“LFR”), which operates the facility; Atmel Rousset’s commitment under that Supply Agreement was fully satisfied in mid-2013. On June 26, 2013, LFR filed an insolvency declaration with the Commercial Court of Paris (the “Paris Court”). Two months later, on August 22, 2013, Atmel Rousset received a petition through which LFR, by its judicially-appointed receivers and administrator (collectively, “Administrator”), sought to extend the bankruptcy proceedings to include Atmel Rousset. On February 12, 2014, the Paris Court rejected the Administrator’s petition in its entirety. The period within which the Administrator was legally entitled to appeal this matter has expired, and the matter is concluded.

French Insolvency-Related Litigation - LFoundry and Atmel Corporation, et al. On June 26, 2013, LFR filed an insolvency declaration with the Paris Civil Court, as described above under “Legal Proceedings - French Insolvency-Related Litigation - LFoundry and Atmel Rousset.” On September 6, 2013, LFR’s judicially-appointed receivers submitted a further petition to the Paris Court seeking to hold the Company and its subsidiary Atmel B.V. jointly and severally liable to LFR for damages in the approximate amount of 135.0 million Euros. LFR alleges that the Company and Atmel B.V. defrauded LFR (x) in connection with Atmel Rousset’s 2010 sale of its manufacturing facility to LF, the German parent of LFR, and (y) through their business conduct with LFR after the sale. The Company and Atmel B.V. consider LFR’s claims specious, defamatory and devoid of merits, based on the following facts among others: (a) neither was a party to the sale transaction or the supply agreement executed in conjunction with the transaction; (b) the sale transaction, when consummated in 2010, fully complied with all applicable French laws; (c) the assets transferred by Atmel Rousset to LFR had a net value at the time of sale in excess of 80 million Euros, as confirmed, prior to the sale, by an independent auditor appointed by the Paris Court; (d) LFR assumed no debt in connection with the transaction; (e) LF was, at the time of the transaction, a financially stable and experienced foundry operator; (f) Atmel Rousset’s Workers’ Council (representing all Atmel Rousset employees prior to the sale), after receiving detailed information about LF and the transaction, and the analysis of its own independent financial expert, unanimously approved the transaction; (g) Atmel Rousset (or its affiliates) fully satisfied the commitment to purchase wafers from LFR, as acknowledged by LFR, by mid-2013; (h) in the three years after the sale, LFR received from Atmel Rousset (or present and past affiliates) payments for wafers and other services aggregating more than $400.0 million; and (i) any failure by LFR to diversify its revenue stream or reduce its dependence on Atmel Rousset over the course of three years resulted solely from ineffectual LFR management. The Company and Atmel B.V. intend to defend themselves vigorously in this matter, and included in their responsive submission a counterclaim against the receivers for abuse of process. On December 26, 2013, LFR

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suspended operations and commenced a judicially-supervised liquidation. The Company understands that on July 17, 2014, LFR’s judicially-appointed liquidator signed a request that the Court dismiss LFR’s petition without prejudice.

Southern District of New York Action by LFR and LFR Employees. On March 4, 2014, LFR and Jean-Yves Guerrini, on behalf of himself and a putative class of LFR employees, filed an action in the United States District Court for the Southern District of New York against the Company, Atmel Rousset and LF, LFR’s German parent. The complaint, which seeks significant damages, alleges claims for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), RICO conspiracy, fraud, tortious interference with contract, trespass to chattels, and to void Atmel Rousset’s 2010 sale of its wafer manufacturing facility to LF, The asserted claims are predicated on the same factual allegations as the matter described above in “French Insolvency-Related Litigation - LFoundry and Atmel Corporation et al.,” are similarly devoid of merit, and, the Company will contend, are inappropriate for review in a U.S. court. The Company and Atmel Rousset will defend vigorously against these claims, and intend to assert counterclaims and seek other relief, as appropriate.

Other Contingencies

From time to time, the Company is notified of claims that its products may infringe patents, or other intellectual property, issued to or owned by other parties. The Company periodically receives demands for indemnification from its customers with respect to intellectual property matters. The Company also periodically receives claims relating to the quality of its products, including claims for additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting defective products, costs for product recalls or other damages. Receipt of these claims and requests occurs in the ordinary course of the Company's business, and the Company responds based on the specific circumstances of each event. The Company undertakes an accrual for losses relating to those types of claims when it considers those losses “probable” and when a reasonable estimate of loss can be determined.

Product Warranties

The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The Company’s products are generally covered by a warranty typically ranging from 30 days to three years.

The following table summarizes the activity related to the product warranty liability:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Balance at beginning of period	$	3,749		$	4,629		$	3,686		$	4,832
Accrual for warranties during the period, net	899			301			1,845			788
Actual costs incurred	(896		)	(859		)	(1,779		)	(1,549		)
Balance at end of period	$	3,752		$	4,071		$	3,752		$	4,071

Product warranty liability is included in accrued and other liabilities on the condensed consolidated balance sheets.

Guarantees

In the ordinary course of business, the Company may provide standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. The Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.

Note 9 INCOME TAXES

The Company estimates its annual effective tax rate at the end of each quarter. In making these estimates, the Company considers, among other things, annual pre-tax income, the geographic mix of pre-tax income and the application and interpretations of tax laws, treaties and judicial developments, in collaboration with its tax advisors, and possible outcomes of audits.

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The following table presents the (provision for) benefit from income taxes and the effective tax rates:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands, except for percentages)
Income (loss) before income taxes	$	25,257		$	18,655		$	30,089		$	(43,373	)
(Provision for) benefit from income taxes	$	(6,021	)	$	(5,679	)	$	(8,687	)	$	8,682
Effective tax rate	23.83		%	30.44		%	28.87		%	20.02		%

For the three and six months ended June 30, 2014, the Company recorded an income tax provision of $6.0 million and $8.7 million, respectively. For the three and six months ended June 30, 2014, the significant components of the tax provision were from operations in jurisdictions with operating profits. The Company’s effective tax rate for the six months ended June 30, 2014 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax jurisdictions.

For the three and six months ended June 30, 2013, the Company recorded an income tax provision of $5.7 million and an income tax benefit of $8.7 million, respectively. For the three months ended June 30, 2013, the significant components of the tax provision were from operations in jurisdictions with operating profits. For the six months ended June 30, 2013, the tax benefit included discrete benefits from restructuring cost incurred in various jurisdictions, settlement charges and the federal research and development tax credit which was reinstated on January 2, 2013 for two years, partially offset by a discrete charge from gain recognized on the sale of the serial flash product line. The Company's effective tax rate for the six months ended June 30, 2013 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax jurisdictions.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2003 through 2013 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2003 through 2013 tax years generally remain subject to examination by their respective tax authorities.

Currently, the Company has tax audits in progress in various foreign jurisdictions. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. While the Company believes that the resolution of these audits will not have a material adverse impact on the Company's results of operations, the outcome is subject to uncertainty.

At June 30, 2014 and December 31, 2013, the Company had $88.7 million and $87.5 million of unrecognized tax benefits, respectively, which, if recognized, would affect the effective tax rate. The increase in unrecognized tax benefits during the six months ended June 30, 2014 was primarily due to various foreign tax matters.

Increases or decreases in unrecognizable tax benefits could occur over the next 12 months due to tax law changes, unrecognized tax benefits established in the normal course of business, or the conclusion of ongoing tax audits in various jurisdictions around the world. The Company believes that before June 30, 2015, it is reasonably possible that either certain audits will conclude or the statutes of limitations relating to certain income tax examination periods will expire, or both. If the Company reaches settlement with the tax authorities and/or such statutes of limitation expire, the Company expects to record a corresponding adjustment to the applicable unrecognized tax benefits. Given the uncertainty as to settlement terms, the timing of payments and the impact of such settlements on other uncertain tax positions, the Company estimates that the range of potential decreases in underlying uncertain tax positions may be between $0 and $5.0 million over the next 12 months, although those estimates are subject to various factors beyond the Company's control. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. The Company regularly assesses its tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.

Note 10 PENSION PLANS

The Company sponsors defined benefit pension plans that cover substantially all of its French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The plans are unfunded. Pension liabilities and charges are based upon various assumptions, updated annually, including discount rates, future salary increases, employee turnover, and mortality rates.

The Company’s French pension plan provides for termination benefits paid to covered French employees only at retirement, and consists of approximately one to five months of salary. The Company’s German pension plan provides for defined benefit payouts for covered German employees following retirement.

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The aggregate net pension expense relating to these two plans are as follows:



	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	(in thousands)
Service costs	$	393	$	451	$	782	$	912
Interest costs	388		357		773		722
Amortization of actuarial loss	19		15		38		31
Net pension period cost	$	800	$	823	$	1,593	$	1,665

The Company’s net pension period cost for 2014 is expected to be approximately $3.2 million. Cash funding for benefits paid was $0.1 million and $0.2 million for the three and six months ended June 30, 2014, respectively. The Company expects total contribution to these plans to be approximately $0.5 million in 2014.

Note 11 OPERATING AND GEOGRAPHICAL SEGMENTS

The Company designs, develops, manufactures and sells semiconductor integrated circuit products. The Company’s operating segments represent management’s view of the Company’s businesses and how it allocates Company resources and measures performance of its major components. Each segment consists of product families with similar requirements for design, development and marketing. Each segment requires different design, development and marketing resources to produce and sell products.

During the first quarter of 2014, the Company realigned its business segments to better allocate resources and to focus more effectively on core markets. As a result, the Company created a new reportable segment entitled "Multi-Market and Other" and eliminated the former Application Specific Integrated Circuit (“ASIC”) segment. A summary of each reportable segment follows:


•	Microcontroller. This segment includes AVR 8-bit and 32-bit products, ARM based products, capacitive touch products, including maXTouch and QTouch, 8051 based products, designated wireless products, including low power radio and SOC products that meet Zigbee and Wi-Fi specifications and custom application specific microcontroller products.


•	Nonvolatile Memory. This segment includes electrically erasable programmable read-only ("EEPROM"), erasable programmable read-only memory (“EPROM”) devices and secure cryptographic memory products.


•	Automotive. This segment includes high voltage, connectivity and mixed signal products for automotive applications and RF identification products.


•	Multi-Market and Other. This segment includes application specific and standard products for aerospace, programmable logic products, foundry business and XSense products.

Prior period operating segment presentations have been revised to conform to the Company's revised segment reporting.

The Company continually evaluates operating segment performance based on revenue and income or loss from operations excluding share-based compensation and other non-recurring items. Because the Company’s operating segments reflect the manner in which management reviews its business, they necessarily involve subjective judgments that management believes are reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Operating segments may also be changed or modified, as is being done with this Quarterly Report on Form 10Q, to reflect products, technologies or applications that are newly created, or that change over time, or other business conditions that evolve, each of which may result in reassessing specific segments and the elements included within each of those segments.

Operating segments are defined by the products they design and sell. They do not sell to each other. The Company’s net revenue and segment (loss) income from operations for each reportable segment is as follows:

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Information about Reportable Segments



	Micro- Controller		Nonvolatile Memory		Automotive		Multi-Market and Other			Total
	(in thousands)
Three months ended June 30, 2014
Net revenue from external customers	$	254,775	$	40,180	$	35,994	$	24,585		$	355,534
Segment income (loss) from operations	$	30,326	$	8,036	$	3,284	$	(900	)	$	40,746
Three months ended June 30, 2013
Net revenue from external customers	$	247,016	$	36,351	$	36,319	$	28,130		$	347,816
Segment income from operations	$	15,170	$	5,318	$	1,403	$	5,726		$	27,617

Six months ended June 30, 2014
Net revenue from external customers	$	489,915	$	75,832	$	76,965	$	50,183		$	692,895
Segment income (loss) from operations	$	49,152	$	13,083	$	10,038	$	(1,457	)	$	70,816
Six months ended June 30, 2013
Net revenue from external customers	$	475,381	$	71,509	$	75,798	$	54,271		$	676,959
Segment income from operations	$	19,975	$	10,164	$	2,713	$	8,947		$	41,799

The Company's primary products are semiconductor integrated circuits, which constitutes a group of similar products. Therefore, it is impracticable to differentiate the revenues from external customers for each product sold. The Company does not allocate assets by segment, as management does not use asset information to measure or evaluate a segment’s performance.

Reconciliation of Segment Information to Condensed Consolidated Statements of Operations



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Total segment income from operations	$	40,746		$	27,617		$	70,816		$	41,799
Unallocated amounts:
Share-based compensation expense	(15,278		)	(7,480		)	(30,895		)	(22,242		)
Loss from manufacturing facility damage and shutdown	—			—			(7,056		)	—
Acquisition-related charges	(1,497		)	(1,759		)	(3,125		)	(4,014		)
French building underutilization and other	(1,166		)	—			(2,462		)	—
Restructuring credits (charges)	1,583			(582		)	1,807			(43,396		)
Gain related to foundry arrangements	2,071			1,514			2,129			1,514
Recovery of receivables from foundry supplier	—			83			—			522
Settlement charges	—			—			—			(21,600		)
Gain on sale of assets	—			—			—			4,430
Consolidated income (loss) from operations	$	26,459		$	19,393		$	31,214		$	(42,987	)

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Geographic sources of revenue were as follows:



	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	(in thousands)
China, including Hong Kong	$	114,081	$	107,211	$	207,282	$	205,901
Germany	50,478		51,521		109,739		100,105
United States	50,348		45,213		103,258		89,394
South Korea	29,900		36,899		62,932		80,110
Taiwan	19,211		10,504		29,929		23,796
Singapore	16,647		10,068		28,237		18,795
Japan	8,860		8,745		14,400		18,903
France	2,709		11,802		5,789		17,873
Rest of Europe	35,451		28,995		73,804		57,388
Rest of Asia-Pacific	21,760		32,507		45,782		55,312
Rest of the World	6,089		4,351		11,743		9,382
Total net revenue	$	355,534	$	347,816	$	692,895	$	676,959

Net revenue is attributed to regions based on ship-to locations.

The Company had one distributor that accounted for 17% of net revenue in the three months ended June 30, 2014. The Company had two distributors that accounted for 16% and 11%, respectively, of net revenue in the six months ended June 30, 2014. No end customer accounted for 10% or more of net revenue in the three and six months ended June 30, 2014. The Company had one customer and one distributor, each of which accounted for 16% and 13% of net revenue in the three months ended June 30, 2013, respectively, and 14% and 12% of net revenue in the six months ended June 30, 2013, respectively.

Three distributors accounted for 22%, 11% and 11%, respectively, of accounts receivable at June 30, 2014 and no end customer accounted for 10% or more of accounts receivable at June 30, 2014. Two distributors accounted for 17% and 11%, respectively, of accounts receivable at June 30, 2013.

Physical locations of tangible long-lived assets were as follows:



	June 30, 2014		December 31, 2013
	(in thousands)
United States	$	111,550	$	104,912
Philippines	53,353		50,472
Germany	23,170		24,244
France	16,318		17,249
Rest of Asia-Pacific	19,955		23,815
Rest of Europe	7,869		7,026
Total	$	232,215	$	227,718

Excluded from the table above as of June 30, 2014 and December 31, 2013 are goodwill of $110.0 million and $108.2 million, respectively, intangible assets, net of $25.1 million and $28.1 million, respectively, and deferred income tax assets of $118.1 million and $134.4 million, respectively.

Note 12 GAIN ON SALE OF ASSETS

On September 28, 2012, the Company completed the sale of its Serial Flash product line. Under the terms of the sale agreement, the Company transferred assets to the buyer, which assumed certain liabilities, in return for cash consideration of $25.0 million. As part of the sale transaction, the Company granted the buyer an exclusive option to purchase the Company's remaining $7.0 million of Serial Flash inventory, which the buyer fully exercised during the first quarter of 2013. As a result of the sale of that $7.0 million of remaining inventory, the Company recorded a gain of $4.4 million in the three months ended March 31, 2013 to reflect receipt of payment upon exercise of the related purchase option and the completion of the sale of the Serial Flash product line.

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Note 13 RESTRUCTURING CHARGES

The following table summarizes the activity related to the accrual for restructuring charges detailed by event:



	Q2'10		Q2'12			Q1'13			Q3'13			Total
	(in thousands)
Balance at January 1, 2014 - Restructuring Accrual	$	281	$	897		$	22,949		$	1,314		$	25,441
Credits - Employee termination costs, net of change in estimate	—		—			—			(224		)	(224		)
Payments - Employee termination costs	—		(383		)	(7,426		)	(471		)	(8,280		)
Foreign exchange (gain) loss	—		—			(28		)	5			(23		)
Balance at March 31, 2014 - Restructuring Accrual	$	281	$	514		$	15,495		$	624		$	16,914
Credits - Employee termination costs, net of change in estimate	—		—			(1,703		)	120			(1,583		)
Payments - Employee termination costs	—		(217		)	(5,154		)	(547		)	(5,918		)
Foreign exchange gain	—		—			(20		)	—			(20		)
Balance at June 30, 2014 - Restructuring Accrual	$	281	$	297		$	8,618		$	197		$	9,393



	Q2'10			Q2'12			Q4'12			Q1'13			Total
	(in thousands)
Balance at January 1, 2013 - Restructuring Accrual	$	439		$	7,418		$	8,365		$	—		$	16,222
(Credits) charges - Employee termination costs, net of change in estimate	—			—			(460		)	42,821			42,361
Charges - Other	—			—			—			453			453
Payments - Employee termination costs	—			(2,206		)	(5,161		)	—			(7,367		)
Payments - Other	—			—			(45		)	(453		)	(498		)
Foreign exchange gain	—			—			(16		)	—			(16		)
Balance at March 31, 2013 - Restructuring Accrual	$	439		$	5,212		$	2,683		$	42,821		$	51,155
(Credits) charges - Employee termination costs, net of change in estimate	—			180			(310		)	941			811
Charges - Other	—			—			(230		)	—			(230		)
Payments - Employee termination costs	(158		)	(812		)	(1,860		)	(5,853		)	(8,683		)
Payments - Other	—			—			(185		)	—			(185		)
Foreign exchange loss	—			—			—			141			141
Balance at June 30, 2013 - Restructuring Accrual	$	281		$	4,580		$	98		$	38,050		$	43,009

The Company records restructuring liabilities related to workforce reductions when the accounting recognition criteria are met and consistent with management's approval and commitment to the restructuring plans in each particular quarter. The restructuring plans identify the number of employees to be terminated, job classifications and functions, location and the date the plan is expected to be completed.

2013 Restructuring Charges

Restructuring charges in the first quarter of 2013 were primarily related to workforce reductions at the Company's subsidiaries in Rousset, France ("Rousset"), Nantes, France (“Nantes”), and Heilbronn, Germany ("Heilbronn").

Rousset and Nantes

In 2013, each of Rousset and Nantes restructured operations to further align operating expenses with macroeconomic conditions and revenue outlooks, and to improve operational efficiency, competitiveness and business profitability. In connection with formulating these restructuring plans, during the first quarter of 2013, Rousset and Nantes each confidentially negotiated and developed “social plans” in coordination and consultation with their respective local Works Councils. These social plans, which are subject to French law, set forth general parameters, terms and benefits for both voluntary and involuntary employee dismissals. The restructuring charges related to Rousset and Nantes were $26.6 million.

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Substantially all of the affected employees ceased active service as of June 30, 2014. There were no significant changes to the plan and no material modifications or changes were made after implementation began.

Heilbronn

In 2013, Heilbronn, and a related site in Ulm, Germany, restructured operations to further align operating expenses with macroeconomic conditions and revenue outlooks, and to improve operational efficiency, competitiveness and business profitability. In connection with formulating this restructuring plan, initial discussions with local Works Councils in Heilbronn and Ulm began in the first quarter of 2013. The restructuring charges related to Heilbronn were $15.8 million.

The Company anticipates all affected employees will cease active service on or before the end of the fourth quarter of 2014. The Company is not expecting significant changes to the plan or material modifications or changes after implementation.

The restructuring charges recorded in the first quarter of 2013 also included $0.9 million related to U.S. and other countries.

The restructuring accrual is expected to be substantially paid out by the end of 2014.

Note 14 SETTLEMENT CHARGES

In the three months ended March 31, 2013, the Company recorded settlement charges of $21.6 million related to legal settlements undertaken in connection with actual, contemplated or anticipated litigation, or activities undertaken in preparation for, or anticipation of, possible litigation related to intellectual property.

Note 15 NET INCOME (LOSS) PER SHARE

A reconciliation of the numerator and denominator of basic and diluted net income (loss) per share is as follows:



	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	(in thousands, except per share data)
Net income (loss)	$	19,236	$	12,976	$	21,402	$	(34,691	)
Weighted-average shares - basic	421,090		428,239		423,233		428,617
Dilutive effect of incremental shares and share equivalents	1,744		2,297		1,643		—
Weighted-average shares - diluted	422,834		430,536		424,876		428,617
Net income (loss) per share:
Basic
Net income (loss) per share - basic	$	0.05	$	0.03	$	0.05	$	(0.08	)
Diluted
Net income (loss) per share - diluted	$	0.05	$	0.03	$	0.05	$	(0.08	)

The following table summarizes securities that were not included in the “Weighted-average shares - diluted” used for calculation of diluted net income (loss) per share, as their effect would have been anti-dilutive:



	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
	(in thousands)
Employee stock options and restricted stock units outstanding	4,116	6,923	4,940	9,377

Note 16 SUBSEQUENT EVENTS

On July 29, 2014, the Company borrowed $90.0 million under the Facility to assist with the financing for the Newport Media, Inc. ("NMI") acquisition. Interest on the borrowed amounts equals the applicable periodic LIBOR rate, plus 1.25% per annum. The Facility matures on December 6, 2018.

On July 31, 2014, the Company completed the NMI acquisition. The purchase price was $140.0 million in cash, subject to working capital and other adjustments, plus an additional earn-out of up to $30.0 million to be paid subject to achievement of future revenue thresholds over two years. The acquisition is intended to enhance the Company’s portfolio of wireless products. The Company incurred approximately $2.5 million of investment banking, legal, consulting and other fees and expenses directly related

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to the acquisition which were recorded as acquisition-related charges on the Condensed Consolidated Statements of Operations. Atmel funded the transaction with cash on hand and borrowings under the existing Facility.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our Condensed Consolidated Financial Statements and the related Notes included in this Form 10-Q. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to review and consider carefully the various disclosures made by us in this Form 10-Q and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2013. Atmel’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports are available, free of charge, through the “Investors” section of www.atmel.com. We make these reports available as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The SEC also maintains a website located at www.sec.gov that contains Atmel’s reports filed with, or furnished to, the SEC. The information disclosed on our website is not incorporated herein and does not form a part of this Form 10-Q.

This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for fiscal 2014 and beyond. Such forward looking statements include, but are not limited to, statements about: the expansion of the market for microcontrollers, revenue for our maXTouch® products, expectations for our XSense® products, our gross margin expectations and trends, anticipated revenue by geographic area and the ongoing transition of our revenue base to Asia, expectations or trends involving our operating expenses, capital expenditures, cash flow and liquidity, our factory utilization rates, the effect and timing of new product introductions, our ability to access independent foundry capacity and the corresponding financial condition and operational performance of those foundry partners, including insolvencies of, and litigation related to European foundry suppliers, the effects of our strategic transactions and restructuring efforts, the estimates we use in respect of the amount and/or timing for expensing unearned share-based compensation and similar estimates related to our performance-based restricted stock units, our expectations regarding tax matters and related tax audits, the outcome of litigation (including intellectual property litigation in which we may be involved or in which our customers may be involved, especially in the mobile device sector) and the effects of exchange rates and our ongoing efforts to manage exposure to exchange rate fluctuation. Our actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion and in Item 1A - Risk Factors, and elsewhere in this Form 10-Q. Generally, the words “may,” “will,” “could,” “should,” “would,” “anticipate,” “expect,” “intend,” “believe,” “seek,” “estimate,” “plan,” “view,” “continue,” the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Form 10-Q is provided as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. We undertake no obligation to update any forward-looking statements in this Form 10-Q.

OVERVIEW

We are one of the world’s leading designers, developers and suppliers of microcontrollers, which are self-contained computers-on-a-chip. Microcontrollers are generally less expensive, consume less power and offer enhanced programming capabilities compared to traditional microprocessors. Our microcontrollers and related products are used in many of the world’s leading industrial and automotive electronics, mobile computing and communications devices, including smartphones, tablets, Ultrabooks and personal computers, and other electronics products in which they provide core, embedded functionalities for, among other things, touch and proximity sensing, sensor management, security and encryption, wireless connectivity, lighting and system controls and battery management. Our recently completed acquisition of Newport Media, Inc. allows us to add 802.11n Wi-Fi and Bluetooth technologies to our broad portfolio of wireless solutions. With our microcontroller, encryption and wireless technologies, and the systems and combinations we can offer with those capabilities, we believe that we have a compelling set of products for the so-called “Internet of Things,” where smart, connected devices and appliances must seamlessly and securely share data and information. These products are also well suited for the quickly evolving “wearables” sector, where our microcontrollers may be used to manage multiple accelerometers or sensors within a device, to communicate information from that device to a gateway, or to track or monitor other activities. We also continue to enable and enhance human computer interaction by leveraging our market leading capacitive touch products, our microcontroller know-how and our significant intellectual property ("IP") portfolio. In addition, we continuously seek new market opportunities that benefit from our corporate and technology strengths, as we did when we launched our XSense product, a proprietary metal mesh technology for touch sensors. To maintain a broad market reach, we also design and sell other semiconductor products that complement our microcontroller business, including nonvolatile memory, radio frequency and mixed-signal components and application specific integrated circuits. Our product portfolio allows us to address a broad range of high growth applications, including, for example, industrial, building and home electronics systems, smart meters used for utility monitoring and billing, commercial, residential and architectural LED-based lighting systems, touch panels used on household and industrial appliances, medical devices, aerospace and military products and systems, and a growing universe of electronic-based automotive systems like keyless ignition and access, engine control, air-bag deployment, and lighting and entertainment systems. We expect the market for microcontrollers to continue to expand over time as tactile, gesture and proximity-based user interfaces become increasingly prevalent, as additional intelligence is built into an ever-growing universe of everyday products for the “Internet of Things” or integrated within “wearable” devices, as industrial and automotive customers accelerate the replacement of mechanical or passive controls in their products with touch-based applications, and as power management,

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authentication, cryptographic, security and similar capabilities become increasingly critical to many industrial, automotive, consumer and medical products.

RESULTS OF OPERATIONS



	Three Months Ended										Six Months Ended
	June 30, 2014					June 30, 2013					June 30, 2014					June 30, 2013
	(in thousands, except for percentage of net revenue)
Net revenue	$	355,534		100	%	$	347,816		100	%	$	692,895		100	%	$	676,959		100	%
Gross margin	161,238			45	%	147,925			43	%	301,228			43	%	279,230			41	%
Research and development	70,082			20	%	67,362			19	%	139,834			20	%	135,670			20	%
Selling, general and administrative	64,783			18	%	58,912			17	%	128,862			19	%	122,489			18	%
Acquisition-related charges	1,497			—	%	1,759			1	%	3,125			—	%	4,014			1	%
Restructuring (credits) charges	(1,583		)	—	%	582			—	%	(1,807		)	—	%	43,396			6	%
Recovery of receivables from foundry supplier	—			—	%	(83		)	—	%	—			—	%	(522		)	—	%
Gain on sale of assets	—			—	%	—			—	%	—			—	%	(4,430		)	(1	)%
Settlement charges	—			—	%	—			—	%	—			—	%	21,600			3	%
Income (loss) from operations	$	26,459		7	%	$	19,393		6	%	$	31,214		5	%	$	(42,987	)	(6	)%

Net Revenue

Our net revenue totaled $355.5 million for the three months ended June 30, 2014, an increase of 2%, or $7.7 million, from $347.8 million in net revenue for the three months ended June 30, 2013. Our net revenue totaled $692.9 million for the six months ended June 30, 2014, an increase of 2%, or $15.9 million, from $677.0 million in net revenue for the six months ended June 30, 2013. Our revenue for the three and six months ended June 30, 2014 was higher than the three and six months ended June 30, 2013 primarily due to revenue growth in the microcontroller and nonvolatile memory segments.

Net Revenue — By Operating Segment

Our net revenue by operating segment is summarized as follows:



	Three Months Ended
	June 30, 2014		June 30, 2013		Change			% Change
	(in thousands, except for percentages)
Microcontroller	$	254,775	$	247,016	$	7,759		3	%
Nonvolatile Memory	40,180		36,351		3,829			11	%
Automotive	35,994		36,319		(325		)	(1	)%
Multi-Market and Other	24,585		28,130		(3,545		)	(13	)%
Total net revenue	$	355,534	$	347,816	$	7,718		2	%



	Six Months Ended
	June 30, 2014		June 30, 2013		Change			% Change
	(in thousands, except for percentages)
Microcontroller	$	489,915	$	475,381	$	14,534		3	%
Nonvolatile Memory	75,832		71,509		4,323			6	%
Automotive	76,965		75,798		1,167			2	%
Multi-Market and Other	50,183		54,271		(4,088		)	(8	)%
Total net revenue	$	692,895	$	676,959	$	15,936		2	%

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Microcontroller

Microcontroller segment net revenue increased 3% to $254.8 million for the three months ended June 30, 2014 compared to $247.0 million for the three months ended June 30, 2013. Microcontroller segment net revenue increased 3% to $489.9 million for the six months ended June 30, 2014 compared to $475.4 million for the six months ended June 30, 2013. Microcontroller net revenue represented 72% and 71% of total net revenue for the three and six months ended June 30, 2014, respectively. Microcontroller net revenue represented 71% and 70% of total net revenue for the three and six months ended June 30, 2013, respectively. Revenue increased primarily as a result of stronger demand from the industrial, consumer, automotive and communications end markets.

Nonvolatile Memory

Nonvolatile Memory segment net revenue increased 11% to $40.2 million for the three months ended June 30, 2014 compared to $36.4 million for the three months ended June 30, 2013. Nonvolatile Memory segment net revenue increased 6% to $75.8 million for the six months ended June 30, 2014 compared to $71.5 million for the six months ended June 30, 2013. The increase was mainly due to stronger demand for our EEPROM products and cryptographic memory products.

Automotive

Automotive segment net revenue was relatively flat at $36.0 million for the three months ended June 30, 2014 compared to the $36.3 million for the three months ended June 30, 2013. Automotive segment net revenue increased 2% to $77.0 million for the six months ended June 30, 2014 from $75.8 million for the six months ended June 30, 2013. This increase was primarily related to an increase in demand for our high-voltage and auto RF products, partially offset by a decline in legacy products that are approaching end-of-life.

Multi-Market and Other

Multi-Market and Other segment net revenue decreased to $24.6 million for the three months ended June 30, 2014 compared to $28.1 million for the three months ended June 30, 2013. Multi-Market and Other segment net revenue decreased to $50.2 million for the six months ended June 30, 2014 compared to $54.3 million for the six months ended June 30, 2013. The decrease resulted primarily from a decline in our Aerospace business related to an increased level of export restrictions that limited our ability to ship certain products.

Net Revenue by Geographic Area

Our net revenue by geographic area for the three and six months ended June 30, 2014, compared to the three and six months ended June 30, 2013, is summarized in the table below. Revenue is attributed to regions based on the location to which we ship. See Note 11 of Notes to Condensed Consolidated Financial Statements for further discussion.



	Three Months Ended
	June 30, 2014		June 30, 2013		Change			% Change
	(in thousands, except for percentages)
Asia	$	210,459	$	205,934	$	4,525		2	%
Europe	88,638		92,318		(3,680		)	(4	)%
United States	50,348		45,213		5,135			11	%
Other*	6,089		4,351		1,738			40	%
Total net revenue	$	355,534	$	347,816	$	7,718		2	%



	Six Months Ended
	June 30, 2014		June 30, 2013		Change			% Change
	(in thousands, except for percentages)
Asia	$	388,563	$	402,817	$	(14,254	)	(4	)%
Europe	189,331		175,366		13,965			8	%
United States	103,258		89,394		13,864			16	%
Other*	11,743		9,382		2,361			25	%
Total net revenue	$	692,895	$	676,959	$	15,936		2	%

_________________________________________

* Primarily includes South Africa, and Central and South America

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Net revenue outside the United States accounted for 86% and 85% of our net revenue for the three and six months ended June 30, 2014, respectively, and 87% of our net revenue for both the three and six months ended June 30, 2013.

Our net revenue in Asia increased $4.5 million, or 2%, for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. The increase resulted primarily from stronger demand in the industry, consumer and computing end markets in Asia. Net revenue in Asia decreased $14.3 million, or 4%, for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. The decrease was primarily due to weaker demand for the mobility end market. Net revenue for the Asia region was 59% and 56% of total net revenue for three and six months ended June 30, 2014, respectively, compared to 59% and 60% of total net revenue for the three and six months ended June 30, 2013, respectively.

Our net revenue in Europe decreased $3.7 million, or 4% for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. The decrease resulted primarily from lower demand in the industrial end market. Net revenue in Europe increased $14.0 million, or 8%, for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. The increase resulted primarily from stronger demand in the automotive end market. Net revenue for the Europe region was 25% and 27% of total net revenue for the three and six months ended June 30, 2014, respectively, compared to 27% and 26% of total net revenue for the three and six months ended June 30, 2013, respectively.

Our net revenue in the United States increased by $5.1 million, or 11%, for the three months ended June 30, 2014, compared to the three months ended June 30, 2013 and increased by $13.9 million, or 16%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013, primarily due to increased demand in the automotive, consumer and computing end markets. Net revenue for the U.S. region was 14% and 15% of total net revenue for the three and six months ended June 30, 2014, respectively, compared to 13% of total net revenue for both the three and six months ended June 30, 2013.

Revenue and Costs — Impact from Changes to Foreign Exchange Rates

Changes in foreign exchange rates have historically had an effect on our net revenue and operating costs. Net revenue denominated in foreign currencies were 20% and 21% of our total net revenue for the three months ended June 30, 2014 and 2013, and 22% and 23% of our total net revenue for the six months ended June 30, 2014 and 2013, respectively.

Costs denominated in foreign currencies were 19% and 18% of our total costs for the three months ended June 30, 2014 and 2013, respectively, and 19% and 18% of our total costs for the six months ended June 30, 2014 and 2013, respectively.

For the three months ended June 30, 2014, changes in foreign exchange rates had a favorable overall effect on our operating results. Our net revenue for the three months ended June 30, 2014 would have been approximately $4.1 million lower had the average exchange rate in the three months ended June 30, 2014 remained the same as the average rate in effect for the three months ended June 30, 2013. Our income from operations would have been approximately $1.9 million lower had the average exchange rate in the three months ended June 30, 2014 remained the same as the average exchange rate in the three months ended June 30, 2013.

For the six months ended June 30, 2014, changes in foreign exchange rates had a favorable overall effect on our operating results. Our net revenue for the six months ended June 30, 2014 would have been approximately $6.5 million lower had the average exchange rate in the six months ended June 30, 2014 remained the same as the average rate in effect for the six months ended June 30, 2013. Our income from operations would have been approximately $4.1 million lower had the average exchange rate in the six months ended June 30, 2014 remained the same as the average exchange rate in the six months ended June 30, 2013.

Gross Margin

Gross margin was 45.4% and 43.5% for the three and six months ended June 30, 2014, respectively, compared to 42.5% and 41.2% for the three and six months ended June 30, 2013, respectively, primarily due to manufacturing cost improvements and conclusion of our legacy “take-or-pay” wafer supply agreements. These improvements were partially offset by a $7.1 million loss related to the manufacturing facility damage and unplanned shutdown at our Colorado Springs plant that occurred in December 2013 and continued into early 2014. We expect to realize further gross margin benefit through the remainder of 2014 from ongoing cost reductions and improved utilization.

Inventory decreased to $245.0 million at June 30, 2014 from $275.0 million at December 31, 2013, primarily from a loss of manufacturing output resulting from an incident at our Colorado Springs facility in December 2013, a reduction in inventory build related to the conclusion of our legacy "take-or-pay" wafer supply agreements and improved alignment, throughout the first half of 2014, between customer demand and inventory on hand.

For the six months ended June 30, 2014, we manufactured approximately 56% of our products in our own wafer fabrication facility compared to 48% for the six months ended June 30, 2013.

Our cost of revenue includes the costs of wafer fabrication, assembly and test operations, inventory write-downs, royalty expense, freight costs and share-based compensation expense. Our gross margin as a percentage of net revenue fluctuates

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depending on product mix, manufacturing yields, utilization of manufacturing capacity, reserves for excess and obsolete inventory, and average selling prices, among other factors.

Research and Development

Research and development ("R&D") expenses increased 4%, or $2.7 million, to $70.1 million for the three months ended June 30, 2014 from $67.4 million for the three months ended June 30, 2013. R&D expenses increased 3%, or $4.1 million, to $139.8 million for the six months ended June 30, 2014 from $135.7 million for the six months ended June 30, 2013. R&D expenses increased, compared to the same period in 2013, as we did not meet our performance targets under our expired 2011 Long-Term Incentive Plan, which resulted in the reversal of share-based compensation expense allocated to R&D in the three and six month periods ended June 30, 2013. As a percentage of net revenue, R&D expenses totaled 20% for both the three and six months ended June 30, 2014, compared to 19% and 20% for the three and six months ended June 30, 2013, respectively. We believe that continued strategic investments in R&D, primarily related to new product and process development are essential for us to remain competitive in the markets we serve.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses increased 10%, or $5.9 million, to $64.8 million for the three months ended June 30, 2014 from $58.9 million for the three months ended June 30, 2013. SG&A expenses increased 5%, or $6.4 million, to $128.9 million for the six months ended June 30, 2014 from $122.5 million for the six months ended June 30, 2013. SG&A expenses increased, compared to the same period in 2013, as we did not meet our performance targets under our expired 2011 Long-Term Incentive Plan, which resulted in the reversal of share-based compensation expense allocated to SG&A in the three and six month periods ended June 30, 2013. As a percentage of net revenue, SG&A expenses totaled 18% and 19% of net revenue for the three and six months ended June 30, 2014, compared to 17% and 18% for the three and six months ended June 30, 2013.

Share-Based Compensation

We primarily issue restricted stock units to our employees as equity compensation. Employees may also participate in an Employee Stock Purchase Program ("ESPP") that offers the ability to purchase stock through payroll withholdings at a discount to the market price. We did not issue stock options to our employees as equity compensation during the three and six months ended June 30, 2014 and 2013. Share-based compensation expense for any stock options and ESPP shares is based on the fair value of the award at the measurement date (grant date). The compensation amount for those options is calculated using a Black-Scholes option valuation model.

For restricted stock unit awards, the compensation amount is determined based upon the market price of our common stock on the grant date. Share-based compensation for restricted stock units, other than performance-based units described below, is recognized as an expense over the applicable vesting term for each employee receiving restricted stock units.

The recognition as expense of the fair value of performance-related share-based awards is determined based upon management’s estimate of the probability and timing for achieving the associated performance criteria, utilizing the fair value of the

common stock on the grant date. Share-based compensation for performance-related awards is recognized over the estimated performance period, which may vary from period to period based upon management’s estimates of achievement and the timing to

achieve the related performance goals. These awards vest once the performance criteria are met.

The following table summarizes share-based compensation, net of the amount capitalized in inventory included in operating results:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Cost of revenue	$	1,971		$	1,609		$	3,287		$	3,453
Research and development	4,383			3,016			9,112			7,624
Selling, general and administrative	8,924			2,855			18,496			11,165
Total share-based compensation expense, before income taxes	15,278			7,480			30,895			22,242
Tax benefit	(3,320		)	(563		)	(6,244		)	(3,169		)
Total share-based compensation expense, net of income taxes	$	11,958		$	6,917		$	24,651		$	19,073

In December 2013, we adopted the Atmel 2014 Long-Term Performance-Based Incentive Plan (the “2014 Plan”), which provides for the grant of performance-based restricted stock units to Company participants. Performance metrics for the 2014 Plan are based principally on corporate level and business unit non-GAAP gross margin metrics, calculated at the end of each 2014 calendar quarter. Vesting of performance-based restricted stock units under the 2014 Plan is expected to commence, assuming

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achievement of the underlying performance metrics, in the first calendar quarter of 2015. We recorded total share-based compensation expense related to performance-based restricted stock units of $0.9 million and $2.0 million under the 2014 Plan in the three and six months ended June 30, 2014, respectively.

Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding.

Acquisition-Related Charges

We recorded total acquisition-related charges of $1.5 million and $3.1 million for the three and six months ended June 30, 2014, respectively, primarily related to amortization for acquisitions, compared to $1.8 million and $4.0 million for the three and six months ended June 30, 2013.

Included in those acquisition-related charges for the three months ended June 30, 2014 and 2013, is the amortization of intangible assets amounting to $1.3 million and $1.5 million, respectively, of which $0.7 million each pertained to developed technology. The amortization of intangible assets for the six months ended June 30, 2014 and 2013, is $2.6 million and $3.4 million, respectively, of which $1.4 million and $1.5 million pertained to developed technology, respectively. We estimate that charges related to amortization of intangible assets will be approximately $2.5 million for the remainder of 2014.

We also recorded other compensation related charges for these acquisitions of $0.2 million and $0.3 million for each of the three months ended June 30, 2014 and June 30, 2013, respectively, and $0.5 million and $0.6 million for each of the six months ended June 30, 2014 and June 30, 2013, respectively.

Gain on Sale of Assets

On September 28, 2012, we completed the sale of our Serial Flash product line. Under the terms of the sale agreement, we transferred assets to the buyer, which assumed certain liabilities, in return for cash consideration of $25.0 million. As part of the sale transaction, we granted the buyer an exclusive option to purchase our remaining $7.0 million of Serial Flash inventory, which the buyer fully exercised during the first quarter of 2013. As a result of the sale of that $7.0 million of remaining inventory, we recorded a gain of $4.4 million in the three months ended March 31, 2013 to reflect receipt of payment upon exercise of the related purchase option and the completion of the sale of the Serial Flash product line.

Restructuring Charges

See Note 13 of Notes to Condensed Consolidated Financial Statements for the summary of activity related to the accrual for restructuring charges detailed by event.

We record restructuring liabilities related to workforce reductions when the accounting recognition criteria are met and consistent with management's approval and commitment to the restructuring plans in each particular quarter. The restructuring plans identify the number of employees to be terminated, job classifications and functions, location and the date the plan is expected to be completed.

2013 Restructuring Charges

Restructuring charges in the first quarter of 2013 were primarily related to workforce reductions at our subsidiaries in Rousset, France ("Rousset"), Nantes, France (“Nantes”), and Heilbronn, Germany ("Heilbronn").

Rousset and Nantes

Heilbronn

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We anticipate all affected employees will cease active service on or before the end of the fourth quarter of 2014. We are not expecting significant changes to the plan or material modifications or changes after implementation.

The restructuring charges recorded in the first quarter of 2013 also included $0.9 million related to U.S. and other countries.

The restructuring accrual is expected to be substantially paid out by the end of 2014.

Based on the information available to us as of the date of this Form 10-Q, the dates on which employees affected by the restructuring are currently expected to cease their service with us, and assuming the absence of material labor discord, litigation or other unforeseen issues arising with respect to those matters, we believe that the estimated annual savings as a result of the restructuring actions will be approximately $42.5 million to $51.0 million, comprising approximately $17.0 million to $20.5 million from cost of sales, approximately $17.0 million to $20.0 million from research and development expense and approximately $8.5 million to $10.5 million from selling, general and administrative expense. Actual savings realized may, however, differ if our assumptions are incorrect or if other unanticipated events occur. Savings may also be offset, or additional expenses incurred, if, and when, we make additional investments in labor, materials or capital in our business in the future; savings achieved in connection with one series of restructuring activities may not necessarily be indicative of savings that may be realized in other restructuring activities nor may the timing of savings realized in connection with our restructuring actions be similar to, or consistent with, the timing of benefits realized in other restructuring activities that we may undertake at any time.

Settlement

In the three months ended March 31, 2013, we recorded settlement charges of $21.6 million related to legal settlements undertaken in connection with actual, contemplated or anticipated litigation, or activities undertaken in preparation for, or anticipation of, possible litigation related to intellectual property.

Interest and Other Expense, Net



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Interest and other (expense) income	$	(304	)	$	(187	)	$	90		$	540
Interest expense	(486		)	(585		)	(991		)	(1,280		)
Foreign exchange transaction (losses) gains	(412		)	34			(224		)	354
Total	$	(1,202	)	$	(738	)	$	(1,125	)	$	(386	)

Interest and other expense, net, resulted in expense of $1.2 million and $1.1 million for the three and six months ended June 30, 2014, respectively, compared to an expense of $0.7 million and $0.4 million for the three and six months ended June 30, 2013, respectively, primarily due to higher interest and other expense and lower foreign exchange gains. We continue to have balance sheet exposures in foreign currencies subject to exchange rate fluctuations and may incur further gains or losses in the future as a result of such foreign exchange exposures.

Provision for Income Taxes

For the three and six months ended June 30, 2014, we recorded an income tax provision of $6.0 million and $8.7 million, respectively. For the three and six months ended June 30, 2014, the significant components of the tax provision were from operations in jurisdiction with operating profits. Our Company’s effective tax rate for the six months ended June 30, 2014 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax jurisdictions.

For the three and six months ended June 30, 2013, we recorded an income tax provision of $5.7 million and an income tax benefit of $8.7 million, respectively. For the three months ended June 30, 2013, the significant components of the tax provision were from operations in jurisdictions with operating profits. For the six months ended June 30, 2013, the tax benefit included discrete benefits from restructuring cost incurred in various jurisdictions, settlement charges and the federal research and development tax credit which was reinstated on January 2, 2013 for two years, partially offset by a discrete charge from gain recognized on the sale of the serial flash product line. Our effective tax rate for the six months ended June 30, 2013 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax jurisdictions.

We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2003 through 2013 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2003 through 2013 tax years generally remain subject to examination by their respective tax authorities.

Currently, we have tax audits in progress in various foreign jurisdictions. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated

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statements of operations. While we believe that the resolution of these audits will not have a material adverse impact on our results of operations, the outcome is subject to uncertainty.

At June 30, 2014 and December 31, 2013, we had $88.7 million and $87.5 million of unrecognized tax benefits, respectively, which, if recognized, would affect the effective tax rate. The increase in unrecognized tax benefits during the six months ended June 30, 2014 was primarily due to the various foreign tax matters.

Increases or decreases in unrecognizable tax benefits could occur over the next 12 months due to tax law changes, unrecognized tax benefits established in the normal course of business, or the conclusion of ongoing tax audits in various jurisdictions around the world. We believe that before June 30, 2015, it is reasonably possible that either certain audits will conclude or the statutes of limitations relating to certain income tax examination periods will expire, or both. If we reach settlement with the tax authorities and/or such statutes of limitation expire, we expect to record a corresponding adjustment to the applicable unrecognized tax benefits. Given the uncertainty as to settlement terms, the timing of payments and the impact of such settlements on other uncertain tax positions, we estimate that the range of potential decreases in underlying uncertain tax positions may be between $0 and $5.0 million over the next 12 months, although those estimates are subject to various factors beyond our control. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. We regularly assess our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which we do business.

Liquidity and Capital Resources

At June 30, 2014, we had $264.0 million of cash, cash equivalents and short-term investments, compared to $279.1 million at December 31, 2013. The decrease in cash balances in the six months ended June 30, 2014 resulted primarily from acquisition of fixed assets, timing of vendor payables and customer receivables and common stock repurchases. Our current asset to liability ratio, calculated as total current assets divided by total current liabilities, was 2.94 at June 30, 2014 compared to 2.90 at December 31, 2013. Working capital, calculated as total current assets less total current liabilities, decreased to $531.3 million at June 30, 2014, compared to $559.1 million at December 31, 2013. Cash provided by operating activities was $98.7 million for the six months ended June 30, 2014 compared to cash used in operating activities of $3.3 million for the six months ended June 30, 2013, and capital expenditures totaled $25.9 million and $13.5 million for the six months ended June 30, 2014 and 2013, respectively.

As of June 30, 2014, of the $264.0 million aggregate cash and cash equivalents held by us, the amount of cash and cash equivalents held by our foreign subsidiaries was $175.5 million. If the funds held by our foreign subsidiaries were needed for our operations in the United States, the repatriation of some of these funds to the United States could require payment of additional U.S. taxes.

Senior Secured Revolving Credit Facility

Operating Activities

Net cash provided by operating activities was $98.7 million for the six months ended June 30, 2014, compared to cash used in operating activities of $3.3 million for the six months ended June 30, 2013. Net cash provided by operating activities for the six months ended June 30, 2014 was determined primarily by adjusting net income of $21.4 million, non-cash depreciation and amortization charges of $27.4 million and share-based compensation charges of $30.9 million.

Accounts receivable decreased by 4% or $7.8 million to $199.0 million at June 30, 2014, from $206.8 million at December 31, 2013. The average number of days of accounts receivable outstanding was 51 days for the three months ended June 30, 2014 compared to 53 days for the three months ended December 31, 2013.

Inventories decreased to $245.0 million at June 30, 2014 from $275.0 million at December 31, 2013. Inventories consist of raw wafers, purchased foundry wafers, work-in-progress and finished units. Our number of days of inventory decreased to 115 days for the three months ended June 30, 2014 from 124 days for the three months ended December 31, 2013.

Accrued and other liabilities decreased to $128.3 million at June 30, 2014 from $155.4 million at December 31, 2013. The decrease was primarily due to timing of bonus payments and cash payments related to restructuring plans.

Investing Activities

Net cash used in investing activities was $24.8 million and $37.0 million for the six months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014, we paid $25.9 million for acquisitions of fixed assets as compared to $13.5 million in the six months ended June 30, 2013. For the six months ended June 30, 2014, we sold marketable securities for total proceeds of $3.1 million. For the six months ended June 30, 2013, we paid $25.9 million for acquisitions of businesses, net of cash acquired and received $5.1 million representing proceeds from the sale of inventory in relation to the disposal of a business.

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We anticipate expenditures for capital purchases in 2014 to be higher than expenditures in 2013, and to be used principally to maintain existing manufacturing operations and improve our IT systems.

Financing Activities

Net cash used in financing activities was $86.2 million and $28.4 million for the six months ended June 30, 2014 and 2013, respectively. The cash used was primarily related to stock repurchases of $83.5 million in the six months ended June 30, 2014, compared to $29.2 million in the six months ended June 30, 2013 and tax payments related to shares withheld for vested restricted stock units of $10.8 million for the six months ended June 30, 2014, compared to $8.3 million for the six months ended June 30, 2013. During the six months ended June 30, 2014, we repurchased 10.5 million shares of our common stock in the open market and subsequently retired those shares under our existing stock repurchase program. As of June 30, 2014, $256.0 million remained available for repurchases under this program. Proceeds from the issuance of common stock related to exercises of stock options and our employee stock purchase plan totaled $7.1 million and $7.8 million for the six months ended June 30, 2014 and 2013, respectively.

We believe our existing balances of cash, cash equivalents and short-term investments, together with anticipated cash flow from operations, and borrowing availability under our credit facility will be sufficient to meet our liquidity and capital requirements over the next twelve months.

Since a substantial portion of our operations is conducted through our foreign subsidiaries, our cash flow, ability to service debt, and payments to vendors are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to us. Our foreign subsidiaries are separate and distinct legal entities and may be subject to local legal or tax requirements, or other restrictions that may limit their ability to transfer funds to other group entities including the U.S. parent entity, whether by dividends, distributions, loans or other payments.

During the next twelve months, we expect our operations to continue to generate positive cash flow. However, a portion of cash balances may be used to make capital expenditures, repurchase common stock, or make acquisitions. During 2014 and in future years, our ability to make necessary capital investments or strategic acquisitions will depend on our ability to continue to generate sufficient cash flow from operations and to obtain adequate financing if necessary.

Off-Balance Sheet Arrangements (Including Guarantees)

See the paragraph under the heading “Guarantees” in Note 8 of Notes to Condensed Consolidated Financial Statements for a discussion of off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the estimates, assumptions and judgments involved in provisions for revenue, excess and obsolete inventory, sales reserves and allowances, share-based compensation expense, allowances for doubtful accounts receivable, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, liabilities for uncertain tax positions, deferred tax asset valuation allowances and litigation have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results, although there can be no assurance that results will not differ in the future. The critical accounting estimates associated with these policies are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report on Form 10-K filed with the SEC on February 28, 2014.

Change in Accounting Estimate

During the first quarter of 2014, we revised our accounting estimate for the expected useful life of manufacturing equipment from five years to seven years. In reviewing the useful life of our remaining manufacturing equipment during the fourth quarter of 2013, we determined that the adoption of our manufacturing light strategy, the consolidation of our back-end subcontracting activities during the prior several years and the transition of our business to common test platforms had resulted in an extension of the economic life of those assets. We believe that this change better reflects the expected economic benefits from the use of our manufacturing equipment over time based on an analysis of historical experience and general industry practices. The revised useful

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life of the manufacturing equipment decreased depreciation by approximately $4.6 million and $9.2 million for the three and six months ended June 30, 2014, respectively. This change had the effect of increasing net income by $3.8 million and $4.4 million for the three and six months ended June 30, 2014, respectively. As the inventory turns, the quarterly benefit of the depreciation change will be recognized over the remainder of the year. The total estimated reduction in depreciation for the year 2014 is approximately $17.9 million. The savings from the change in depreciation decreases to zero by the end of 2015.

Recent Accounting Pronouncements

See Note 1 of Notes to Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We maintain investment portfolio holdings of various issuers, types and maturities whose values are dependent upon short-term interest rates. We generally classify these securities as available-for-sale, and consequently record them on the condensed consolidated balance sheets at fair value with unrealized gains and losses being recorded as a separate part of stockholders’ equity. We do not currently hedge these interest rate exposures. Given our current profile of interest rate exposures and the maturities of our investment holdings, we believe that an unfavorable change in interest rates would not have a significant negative impact on our investment portfolio or statements of operations through June 30, 2014.

Foreign Currency Risk

When we take an order denominated in a foreign currency we will receive fewer dollars, and lower revenue, than we initially anticipated if that local currency weakens against the dollar before we ship our product. Conversely, revenue will be positively impacted if the local currency strengthens against the dollar before we ship our product. Costs may also be affected by foreign currency fluctuation. For example, in Europe, where we have costs denominated in European currencies, costs will decrease if the local currency weakens. Conversely, all costs will increase if the local currency strengthens against the dollar. This impact is determined assuming that all foreign currency denominated transactions that occurred for the six months ended June 30, 2014 were recorded using the average foreign currency exchange rates in the six months ended June 30, 2013. We do not use derivative instruments to hedge our foreign currency risk.

Changes in foreign exchange rates have historically had an effect on our net revenue and operating costs. Net revenue denominated in foreign currencies was 20% and 21% of our total net revenue for the three months ended June 30, 2014 and 2013, respectively, and 22% and 23% of our total net revenue for the six months ended June 30, 2014 and 2013, respectively.

Similarly, we face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. Approximately 9% and 8% our accounts payable were denominated in foreign currencies at June 30, 2014 and December 31, 2013, respectively. All of our debt obligations were denominated in foreign currencies at June 30, 2014 and December 31, 2013. We have not historically sought to hedge our foreign currency exposure, although we may determine to do so in the future.

To provide an assessment of the foreign currency exchange risk associated with our foreign currency exposures within revenue, cost and operating expense, we performed a sensitivity analysis to determine the impact that an adverse change in exchange rates would have on our financial statements. A hypothetical weighted-average change of 10% in currency exchange rates would have changed our operating income before taxes by approximately $2.7 million for the six months ended June 30, 2014, assuming no offsetting hedge positions.

Liquidity and Valuation Risk

Approximately $1.1 million of our investment portfolio is invested in an auction-rate security at both June 30, 2014 and December 31, 2013.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

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As of the end of the period covered by this Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q to ensure that information we are required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Atmel have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to various legal proceedings. Our management currently believes, based on information and facts currently known, that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations and statement of cash flows. If an unfavorable ruling were to occur in any of the legal proceedings described in Note 8 of Notes to Condensed Consolidated Financial Statements, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. For more information regarding certain details of these proceedings, see Note 8 of Notes to Condensed Consolidated Financial Statements, which is incorporated by reference into this Item. We have accrued for losses related to litigation described in Note 8 of Notes to Condensed Consolidated Financial Statements that we consider probable and for which the loss can be reasonably estimated. We make a determination as to when a potential loss is reasonably probable based on relevant accounting literature and then include appropriate disclosure of the contingency. As we continue to monitor litigation matters, whether deemed material as of June 30, 2014 or not, our determination could change, and we may decide, at some future date, to establish an appropriate reserve.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Form 10-Q, we have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, or results of operations. Investors should carefully consider the risks described below before making an investment decision. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment. In addition, these risks and uncertainties may affect the “forward-looking” statements described elsewhere in this Form 10-Q and in the documents incorporated herein by reference. They could also affect our actual results of operations, causing them to differ materially from those expressed in “forward-looking” statements.

OUR REVENUE AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A VARIETY OF FACTORS.

Our future operating results are subject to quarterly variations based upon a variety of factors, many of which are not within our control. As further discussed in this “Risk Factors” section, factors that could affect our operating results include, without limitation:


•	uncertain global macroeconomic conditions, especially in Europe and Asia, and possible fiscal and budget uncertainties in the United States;


•	restrictions in our revolving credit facility that may limit our flexibility in operating our business;


•	the success of our customers’ end products, our ability to introduce new products into the market and to ramp production of new products, and our ability to improve and implement new manufacturing technologies, reduce manufacturing costs and achieve acceptable manufacturing yields;


•	the cyclical nature of the semiconductor industry;

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•	disruption to our business caused by our dependence on outside foundries, and the insolvency and liquidation proceedings, and associated litigation, of those foundries in some cases;


•	our dependence on selling through independent distributors and our ability to obtain accurate and timely sell-through information from these distributors;


•	the complexity of our revenue reporting and dependence on our management’s ability to make judgments and estimates regarding inventory write-downs, future claims for returns and other matters affecting our financial statements;


•	our reliance on non-binding customer forecasts and the effect of customer changes to forecasts and actual demand;


•	the increasing complexity and added costs, compliance and otherwise, associated with laws and regulations around the world that affect our businesses and activities, including, for example, trade, export control, foreign corrupt practices, and bribery regulations;


•	compliance with new regulations regarding the use of “conflict minerals” and the potential increased cost of certain metals used in manufacturing our products resulting therefrom;


•	the effect of fluctuations in currency exchange rates or continued political and monetary uncertainties within the European Union;


•	geopolitical instability in the European Union and Asia, including Russia’s recent intervention in the Ukraine and annexation of the Crimea region;


•	the capacity constraints of our independent assembly contractors;


•	restructuring activities, insolvencies, liquidations, and associated litigation, affecting our former manufacturing facilities;


•	the effect of intellectual property and other litigation on us and our customers, and our ability to protect our intellectual property rights;


•	the highly competitive nature of our markets and our ability to keep pace with technological change;


•	our dependence on international sales and operations and the added complexity and compliance costs associated therewith;


•	information technology system failures or network disruptions and disruptions caused by our system integration efforts;


•	business interruptions, natural disasters, terrorist acts or similar unforeseen events or circumstances;


•	our ability to maintain relationships with our key customers, the absence of long-term supply contracts with most of our customers, and product liability claims our customers may bring;


•	unanticipated changes to environmental, health and safety regulations or related compliance issues;


•	our dependence on certain key personnel;


•	uneven expense recognition related to our issuance of performance-based restricted stock units or expectations related to cash-based executive incentive plans;


•	the anti-takeover effects of provisions in our certificate of incorporation and bylaws;


•	the unfunded nature of our foreign pension plans;


•	the effect of acquisitions we may undertake, including our ability to effectively integrate acquisitions into our operations;


•	disruptions in the availability of raw materials used in our products;


•	the complexity of our global legal entity structure, the effect of intercompany loans within this structure, and the occurrence and outcome of income tax audits for these entities; and


•	our receipt of economic grants in various jurisdictions, which may require repayment if we are unable to comply with the terms of such grants.

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Any unfavorable changes in any of these or other factors could harm our operating results and may result in volatility or a decline in our stock price.

UNCERTAIN GLOBAL MACRO-ECONOMIC AND GEO-POLITICAL CONDITIONS MAY AFFECT OUR BUSINESS.

Slow, uneven economic growth throughout the world, continued uncertainty regarding macroeconomic conditions in Europe and Asia, fiscal and budgetary matters in the U.S., and other geo-political events, including those in the Middle East, Eastern Europe and other regions, that may destabilize the global economy could adversely affect demand for our products and our business prospects from time to time.

OUR REVOLVING CREDIT FACILITY IS SECURED BY SUBSTANTIALLY ALL OF OUR ASSETS AND MAY LIMIT OUR FLEXIBILITY IN OPERATING OUR BUSINESS. A DEFAULT UNDER THE CREDIT FACILITY COULD SIGNIFICANTLY HARM OUR BUSINESS AND FINANCIAL POSITION.

In December 2013, we entered into a five-year senior secured revolving credit facility for up to $300 million with a group of lenders. Our credit facility is secured by substantially all of our assets. It also imposes restrictions that may limit our ability to engage in certain business activities, including limitations on asset sales, mergers and acquisitions, the incurrence of indebtedness and liens, the making of restricted payments or investments and transactions with affiliates. In addition, the credit facility contains customary financial covenants, including a maximum total-leverage ratio, a maximum senior-secured-leverage ratio, and a minimum fixed-charge-coverage ratio. Our ability to comply with these financial covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control. If we breach any of the covenants under our credit facility and do not obtain appropriate waivers, then, subject to applicable cure periods, our outstanding indebtedness could be declared immediately due and payable, which could result in a foreclosure on the assets securing the credit facility, adversely affect our ability to operate our business or otherwise significantly harm our financial position.

WE DEPEND SUBSTANTIALLY ON THE SUCCESS OF OUR CUSTOMERS' END PRODUCTS, OUR INTRODUCTION OF NEW PRODUCTS INTO THE MARKET AND OUR ABILITY TO REDUCE MANUFACTURING COSTS OVER TIME.

We believe that our future sales will depend substantially on the success of our customers' end products, our ability to introduce new products into the market, and our ability to reduce the manufacturing costs of our products over time. Our new products are generally incorporated into our customers' products or systems at their design stage. However, design wins can precede volume sales by a year or more. In addition, we may not be successful in achieving design wins or design wins may not result in future revenue, which depends in large part on our customers' ability to sell their end products or systems within their respective markets.

Rapid innovation within the semiconductor industry also continually increases pricing pressure, especially on products containing older technologies. We experience continuous pricing pressure, just as many of our competitors do. Product life cycles in our industry are relatively short, and as a result, products tend to be replaced by more technologically advanced substitutes on a regular basis. In turn, demand for older technology falls, causing the price at which such products can be sold to drop, often quickly. As a result, the average selling price of each of our products usually declines as individual products mature and competitors enter the market. To offset average selling price decreases and to continue profitably supplying our products, we rely primarily on reducing costs to manufacture our products, improving our process technologies and production efficiency, increasing product sales to absorb fixed costs and introducing new, higher-priced products that incorporate advanced features or integrated technologies to address new or emerging markets. Our operating results could be harmed if such cost reductions, production improvements, increased product sales and new product introductions do not occur in a timely manner or do not result in new customer demand.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY CREATES FLUCTUATIONS IN OUR OPERATING RESULTS AND MAY ALSO AFFECT JUDGMENTS, ESTIMATES AND ASSUMPTIONS WE APPLY IN PREPARING OUR FINANCIAL STATEMENTS.

The semiconductor industry has historically been cyclical, characterized by annual seasonality and wide fluctuations in product supply and demand. The semiconductor industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions.

Our operating results have been adversely affected in the past by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and a related decline in gross margin. Our business may be harmed in the future by cyclical conditions in the semiconductor industry as a whole and by conditions within specific markets served by our products. These fluctuations in demand may also affect inventory write-downs we take or other items in our financial statements. Our inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Determining market value for our inventories involves numerous judgments, estimates and assumptions, including assessing average selling prices and sales volumes for each of our products in future periods. The competitiveness of each product, market conditions and product lifecycles often change over time, resulting in a change in the judgments, estimates and assumptions we apply to establish inventory write-downs. The judgments, estimates and assumptions we apply in evaluating our inventory write-downs, including, for example, shortening or extending the anticipated life of our products, may have a material effect on our financial statements. If we overestimate demand, we may experience excess inventory levels. Inventory adjustments, based on the judgments, estimates and assumptions we make,

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may affect our results of operations, including our gross margin, in a positive or negative manner, depending on the nature of the adjustment.

A significant portion of our revenue comes from sales to customers supplying consumer markets and from international sales. As a result, our business may be subject to seasonally lower revenue in particular quarters of our fiscal year. The semiconductor industry has also been affected by significant shifts in consumer demand due to economic downturns or other factors, which can exacerbate the cyclicality within the industry and result in further diminished product demand and production over-capacity. We have, in the past, experienced substantial quarter-to-quarter fluctuations in revenue and operating results and expect in the future to continue to experience short-term period-to-period fluctuations in operating results due to general industry and economic conditions.

WE COULD EXPERIENCE DISRUPTION OF OUR BUSINESS DUE TO OUR DEPENDENCE ON OUTSIDE FOUNDRIES OR MANUFACTURING DISRUPTIONS AT OUR OWN WAFER FABRICATION FACILITY.

We rely substantially on independent third-party foundry manufacturing partners to manufacture products for us. As part of our fab-lite strategy, we have expanded and will continue to expand our foundry relationships by entering into new agreements with third-party foundries. If we cannot obtain sufficient capacity commitments, if our foundry partners suffer financial instability, liquidity issues, or insolvency proceedings affecting their ability to manufacture our products, or if our foundry partners experience production delays or quality issues for other reasons, the supply of our products could be disrupted, which could adversely affect our business.

Disruptions at our own wafer manufacturing facility in Colorado Springs, Colorado could also adversely affect our business. For the six months ended June 30, 2014, we manufactured approximately 56% of our products in our own wafer fabrication facility compared to 48% for the six months ended June 30, 2013. In December 2013, we experienced an incident in the nitrogen plant at that facility, which disrupted manufacturing for several weeks and affected our ability to fully meet demand in the first quarter of 2014. Because we rely on our Colorado facility for a significant percentage of our wafer supply, disruptions of the kind we experienced in December 2013, or others, could have an adverse effect on our business.

In addition, with respect to the use of external foundries, difficulties in production yields are more likely to occur when transitioning manufacturing processes to new third-party foundries or when qualifying new products at third-party foundries. If our foundry partners fail to deliver quality products and components on a timely basis, our business could be harmed.

We expect over time that an increasing portion of our wafer fabrication will be undertaken by third-party foundries.

Our fab-lite strategy exposes us to the following risks:


•	reduced control over delivery schedules and product costs;


•	financial instability, liquidity issues, or insolvency proceedings, and related litigation, affecting our foundry partners;


•	manufacturing disruptions at our Colorado Springs wafer fabrication facility or at those of our third-party foundries;


•	higher-than-anticipated manufacturing costs;


•	inability of our manufacturing subcontractors to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;


•	possible abandonment of key fabrication processes by our foundry subcontractors used in products that are strategically important to us;


•	reduced control over or decline in product quality and reliability;


•	inability to maintain continuing relationships with our foundries;


•	restricted ability to meet customer demand when faced with product shortages or order increases; and


•	increased opportunities for potential misappropriation of our intellectual property.

If any of the above risks occur, we could experience an interruption in our supply chain, an increase in costs or a reduction in our product quality and reliability, which could delay or decrease our revenue and adversely affect our reputation and our business.

We attempt to mitigate these risks with a strategy of qualifying multiple foundry subcontractors. However, there can be no guarantee that this or any other strategy will eliminate or significantly reduce these risks. Additionally, since most independent foundries are located in foreign countries, we are subject to risks generally associated with contracting with foreign manufacturers, including currency exchange fluctuations, political and economic instability, trade restrictions, changes in tariff and freight rates, and import and export regulations. Accordingly, we may experience problems maintaining expected timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

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We closely monitor the financial condition of our foundry partners. On April 25, 2013, we received notice that Telefunken Semiconductors GmbH & Co ("TSG"), one of our suppliers, had filed an insolvency proceeding in Germany. On December 4, 2013, we received notice that a third party had purchased the business and assets of TSG. We continue to conduct limited business activities with the new owner of TSG, which remains a tenant of our Heilbronn, Germany facility. On June 26, 2013, LFoundry Rousset S.A.S. ("LFR"), one of our suppliers, filed an insolvency declaration in France. We have filed claims against LFR under applicable French bankruptcy procedures in respect of pre-filing matters and are pursuing claims in respect of post-filing matters. We, and several of our subsidiaries, are engaged in litigation with LFR (through its judicially-appointed representative) arising out of the LFR insolvency. On December 26, 2013, we were informed that LFR had been placed in liquidation and had ceased operations. For a discussion of the issues involved in, and the risks associated with those litigations, see “We are, and may in the future be, engaged in litigation that is costly, time consuming to defend or prosecute and, if an adverse decision were to occur, could have a harmful effect on our business, results of operations, financial condition or liquidity depending on the outcome.” While we do not believe that the liquidation of LFR, the purchase of TSG’s business and assets, or any other material adverse financial event affecting the former TSG, LFR or other foundries from which we purchase products, would be likely, under current circumstances, to have a material adverse effect on our business, the financial instability of, or insolvency proceedings affecting, any foundry partner requires an investment of significant management time, may require additional changes in operational planning as conditions develop, may involve litigation, and could have other unexpected adverse effects on our business.

The terms on which we will be able to obtain wafer production for our products, and the timing and volume of such production will be substantially dependent on future agreements to be negotiated with independent foundries. We cannot be certain that the agreements we reach with such foundries will be on favorable terms. For example, any future agreements with independent foundries may be short-term in duration, may not be renewable, and may provide inadequate certainty regarding the future supply and pricing of wafers for our products.

If demand for our products increases significantly, we have no assurances that our third-party foundries will be able to increase their manufacturing capacity to a level that meets our requirements, potentially preventing us from meeting our customer demand and harming our business and customer relationships. Also, even if our independent foundries are able to meet our increased demand, those foundries may decide to charge significantly higher wafer prices to us, which could reduce our gross margin or require us to offset the increased prices by increasing prices to our customers, either of which could harm our business and operating results.

OUR REVENUE IS DEPENDENT TO A LARGE EXTENT ON SELLING TO END CUSTOMERS THROUGH INDEPENDENT DISTRIBUTORS. THESE DISTRIBUTORS MAY HAVE LIMITED FINANCIAL RESOURCES TO CONDUCT THEIR BUSINESS OR TO REPRESENT OUR INTERESTS EFFECTIVELY, THEY MAY RAISE CREDIT RISKS FOR US, AND THEY MAY TERMINATE OR MODIFY THEIR RELATIONSHIPS WITH US IN A MANNER THAT ADVERSELY AFFECTS OUR SALES.

Sales through distributors accounted for 59% of our net revenue for the six months ended June 30, 2014, and 49% of our net revenue for the six months ended June 30, 2013. We are dependent on our distributors to supplement our direct marketing and sales efforts. Our agreements with independent distributors can generally be terminated for convenience by either party upon relatively short notice. Generally, these agreements are non-exclusive and also permit our distributors to offer and promote our competitors’ products.

If any significant distributor or a substantial number of our distributors terminated their relationship with us, decided to market our competitors’ products in preference to our products, were unable or unwilling to sell our products, or were unable to pay us for products sold for any reason, our ability to bring our products to market could be adversely affected, we could have difficulty in collecting outstanding receivable balances, or we could incur other loss of revenue, charges or other adjustments, any of which could have a material adverse effect on our revenue and operating results. In some cases, certain of our distributors in Asia may also have more limited financial resources and constrained balance sheets than distributors in other geographic areas. If these distributors are unable effectively to finance their operations, or to represent our interests effectively because of financial limitations, our business could also be adversely affected.

OUR REVENUE REPORTING IS HIGHLY DEPENDENT ON RECEIVING ACCURATE AND TIMELY SELL-THROUGH INFORMATION FROM OUR DISTRIBUTORS. IF WE RECEIVE INACCURATE OR LATE INFORMATION FROM OUR DISTRIBUTORS, OUR FINANCIAL REPORTING COULD BE MISSTATED.

Our revenue reporting is highly dependent on receiving pertinent, accurate and timely data from our distributors. As our distributors resell products, they provide us with periodic data regarding the products sold, including prices, quantities, end customers, and the amount of our products they still have in stock. Because the data set is large and complex, and because there may be errors or delays in the reported data, we may use estimates and apply judgments to reconcile distributors’ reported inventories to their end customer sales transactions. Actual results could vary unfavorably from our estimates, which could affect our operating results and adversely affect our business.

OUR REVENUE REPORTING IS COMPLEX AND DEPENDENT, IN PART, ON OUR MANAGEMENT’S ABILITY TO MAKE JUDGMENTS AND ESTIMATES REGARDING FUTURE CLAIMS FOR RETURNS. IF OUR JUDGMENTS OR ESTIMATES

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ABOUT THESE MATTERS ARE INCORRECT OR INACCURATE, OUR REVENUE REPORTING COULD BE ADVERSELY AFFECTED.

Our revenue reporting is highly dependent on judgments and estimates that our management is required to make when preparing our financial statements. We currently recognize revenue for our distributors based in the U.S. and Europe in a different manner from the method we use for our distributors based in Asia (excluding Japan).

For sales to certain distributors (primarily based in the U.S. and Europe) with agreements allowing for price protection and product returns, we have not historically had the ability to estimate future claims at the point of shipment, and given that price is not fixed or determinable at that time, revenue is not recognized until the distributor sells the product to its end customer.

For sales to independent distributors in Asia, excluding Japan, we invoice these distributors at full list price upon shipment and issue a rebate, or “credit,” once product has been sold to the end customer and the distributor has met certain reporting requirements. After reviewing the pricing, rebate and quotation-related terms, we concluded that we could reliably estimate future claims; therefore, we recognize revenue at the point of shipment for these Asian distributors, assuming all of the other revenue recognition criteria are met, utilizing amounts invoiced, less estimated future claims. To the extent the percentage of our sales to Asia (excluding Japan) increases, a larger portion of our revenue reporting will be based on this methodology.

If our judgments or estimates are incorrect or inaccurate regarding future claims, our revenue reporting could be adversely affected. In addition, the fact that we recognize revenue differently in the U.S. and Europe than in Asia (excluding Japan) adds complexity to the preparation of our financial statements, making them potentially more susceptible to inaccuracies over time.

OUR STOCK PRICE MAY BE MORE VOLATILE AS WE INCREASE OUR EXPOSURE TO, AND DERIVE A GREATER PERCENTAGE OF OUR REVENUE FROM, THE MOBILE DEVICE AND CONSUMER MARKET SEGMENTS, WHICH TEND TO EXHIBIT MORE DYNAMIC CHANGE THAN INDUSTRIAL OR AUTOMOTIVE MARKETS, CHANGE.

Our exposure to, and the percentage of revenue we derive from, the mobile device and consumer market segments change over time. To the extent that these segments exhibit greater cyclicality, or change, than the industrial or automotive markets in which we also participate, our stock price may be more volatile. Product life cycles in the mobile device and consumer markets are typically shorter than product life cycles in industrial or automotive markets. Significant change continues to occur in the personal computer market as, for example, tablet devices gain additional market share. Mobile devices, as a further example, may undergo product refreshes on an annual basis or on even shorter time frames in some instances. As a result, our market share in those markets may increase or decrease more frequently than might be the case in other market segments in which we participate. The mobile device segment has also become dominated, to a large extent, by Apple and Samsung; other manufacturers have had difficulty retaining market share in recent years, with some well-known brands, including Nokia, Motorola, Blackberry and HTC, being sold or facing significant financial distress. Those market dynamics necessarily affect our business, and if our products are not used in models sold by the dominant device manufacturers, our financial results may be adversely affected or be subject to greater volatility.

If our market share decreases in the mobile and consumer market segments, our revenue may also decline for a period of time until new devices are launched, or a product refresh occurs, incorporating our products. For those reasons, and due to the shorter product-life cycles generally occurring in the mobile and consumer-oriented markets, our stock price may be more volatile than might be the case if we had less exposure to those sectors or if we focused our investments principally on industrial, automotive and similar markets that generally do not experience the same rapid product change.

WE BUILD SEMICONDUCTORS BASED, FOR THE MOST PART, ON NON-BINDING FORECASTS FROM OUR CUSTOMERS. AS A RESULT, CHANGES TO FORECASTS FROM ACTUAL DEMAND MAY RESULT IN EXCESS INVENTORY OR OUR INABILITY TO FILL CUSTOMER ORDERS ON A TIMELY BASIS, WHICH MAY HARM OUR BUSINESS.

We schedule production and build semiconductor devices based primarily on non-binding forecasts from customers and our own internal forecasts. Typically, customer orders, consistent with general industry practices, may be cancelled or rescheduled with short notice to us. In addition, our customers frequently place orders requesting product delivery in a much shorter period than our lead time to fully fabricate and test devices, requiring us to build a buffer stock of certain products. Because the markets we serve are volatile and subject to rapid technological, price and end-user demand changes, our forecasts of unit quantities to build may be significantly incorrect. Changes to forecasted demand from actual demand may result in us producing unit quantities in excess of orders from customers, which could result in additional expense for the write-down of excess inventory and negatively affect our gross margin and results of operations.

Our forecasting risks may increase as a result of our fab-lite strategy because we have less control over modifying production schedules with our independent third-party manufacturing partners to match changes in forecasted demand by our end customers. If we commit to order foundry wafers and cannot cancel or reschedule our commitment without significant costs or cancellation penalties, we may be forced to purchase inventory in excess of demand, which could result in a write-down of inventories and negatively affect our gross margin and results of operations.

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Conversely, failure to produce or obtain sufficient wafers for increased demand could cause us to miss revenue opportunities and could affect our customers’ ability to sell products or meet downstream commitments, which could adversely affect our customer relationships and reputation and thereby materially adversely affect our business, financial condition and results of operations.

OUR INTERNATIONAL SALES AND OPERATIONS ARE SUBJECT TO COMPLEX LAWS RELATING TO TRADE, EXPORT CONTROLS, FOREIGN CORRUPT PRACTICES AND BRIBERY, AMONG MANY OTHER SUBJECTS. ADDED COMPLIANCE COSTS, VIOLATIONS OF OR CHANGES IN, THESE LAWS AND REGULATIONS, COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

For hardware, software or technology exported from, or otherwise subject to the jurisdiction of, the U.S., we are subject to U.S. laws and regulations governing international trade and exports, including, but not limited to, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and U.S. economic and trade sanctions against embargoed countries and destinations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) and other regulatory agencies. Hardware, software and technology exported from, or otherwise subject to the jurisdiction of, other countries may also be subject to non-U.S. laws and regulations governing international trade and exports. Under these laws and regulations, we are responsible for obtaining all necessary licenses and approvals for exports of controlled hardware, software and technology, as well as the provision of technical assistance. In many cases, a determination of the applicable export-control laws and related licensing requirements depends on the design intent of a product, the source and origin of a specific technology, the specific technical contributions made by individuals to that technology, the destination of the product, and other matters of an intensely factual nature. We are also required to obtain all necessary export licenses prior to transferring controlled technology or technical data to non-U.S. persons. The U.S. and the European Union have recently imposed sanctions on Russia. The imposition of new sanctions, or changes in the nature of existing sanctions or other embargoes, may affect our ability to deliver products to specified countries from time to time, sometimes with little or no advance warning. In those events, if our products are implicated under newly imposed or modified sanctions, those regulatory or administrative actions could have an adverse effect on our business.

In addition, we are required to obtain necessary export licenses prior to the export or re-export of hardware, software or technology to any person or entity identified on government restricted-party lists, including the U.S. Department of Commerce's Denied Persons or Entity or Unverified Lists, the U.S. Department of the Treasury’s Specially Designated Nationals or Blocked Persons List, or the U.S. Department of State’s Debarred List, or on similar lists in jurisdictions outside the United States. Products for use in certain space, satellite, military, nuclear, chemical/biological weapons, rocket systems or unmanned air vehicle applications may also require export licenses and involve many of the same complexities and risks of non-compliance in the U.S. and elsewhere. Due to U.S. economic and trade sanctions, we do not pursue business activities, directly or indirectly, in countries designated by the U.S. as a state sponsor of terrorism or otherwise subject to a U.S. trade embargo, including, as of the date of this Form 10-Q, Cuba, Iran, North Korea, Sudan and Syria.

We continually seek to enhance our export-compliance program, including ongoing analysis of historical and current product shipments and technology transfers. We also work with, and assist, government officials, when requested, to ensure compliance with applicable export laws and regulations, and we continue to develop additional operational procedures to improve our compliance efforts. However, export laws and regulations are highly complex and vary from jurisdiction to jurisdiction; a determination by U.S. or other governments that we have failed to comply with any export-control laws or trade sanctions, including failure to properly restrict an export to the persons or entities set forth on government restricted-party lists, could result in significant civil or criminal penalties, including the imposition of significant fines, denial of export privileges, loss of revenue from certain customers or damages claims from any customers adversely affected by such penalties, and exclusion from participation in U.S. or foreign government contracts. As we review or audit our import and export practices, from time to time, we may discover previously unknown errors in our compliance practices that require corrective actions; these actions could include voluntary disclosures of those matters to appropriate government agencies, discontinuance or suspension of product sales pending a resolution of any reviews, or other adverse interim or final actions. Further, a change in these laws and regulations could restrict our ability to export to previously permitted countries, customers, distributors, foundries or other third parties. For example, in the past, one of our distributors was added to the U.S. Department of Commerce Entity List, resulting in the termination of our relationship with that distributor. Any one or more of these compliance errors, sanctions or a change in law or regulations could have a material adverse effect on our business, financial condition and results of operations. We monitor closely those types of proposed rules and potential changes as they progress through the regulatory process and seek to assess their likely effect on us.

We are also subject to complex laws that seek to regulate the payment of bribes or other forms of compensation to foreign officials or persons affiliated with companies or organizations in which foreign governments may own an interest or exercise control. The U.S. Foreign Corrupt Practices Act requires U.S. companies to comply with an extensive legal framework to prevent bribery of foreign officials. The laws are complex and require that we closely monitor local practices of our overseas offices and distributors. The United States Department of Justice has recently heightened enforcement of these laws. In addition, other countries continue to implement similar laws that may have extraterritorial effect. The United Kingdom, for example, where we have operations, has enacted the U.K. Bribery Act, which could impose significant oversight obligations on us and could be applicable to our operations outside of the United Kingdom. The costs for complying with these and similar laws may be substantial and could reasonably be expected to require significant management time and focus. Any violation of these or similar laws, intentional or unintentional, could have a material adverse effect on our business, financial condition or results of operations. See also “Compliance With New Regulations Regarding the Use of ‘Conflicts Minerals’ May Force Us to Incur Additional Expenses and Could Limit the Supply and Increase the Cost of Certain Metals Used in Manufacturing Our Products.”

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COMPLIANCE WITH NEW REGULATIONS REGARDING THE USE OF "CONFLICT MINERALS" REQUIRES US TO INCUR ADDITIONAL OVERSIGHT EXPENSE AND COULD LIMIT THE SUPPLY AND INCREASE THE COST OF CERTAIN METALS USED IN MANUFACTURING OUR PRODUCTS.

Conflict minerals are commonly found in metals used in the manufacture of semiconductors and other products we manufacture. In June , 2014, we filed our initial Report on Form SD to report that our products were “DRC Conflict Undeterminable” based on our diligence review. We expect to undertake further diligence of our supply chain in 2015 and beyond to evaluate the use of conflict minerals. Although the implementation of these new requirements did not materially affect our business in 2014, there can be no assurance that the costs associated with ongoing compliance will not increase or that the sourcing, availability and pricing of minerals required for use in our products do not increase as a result of these regulations or changes in the supply chain caused by these regulations. In addition, since our supply chain is complex, if we are not, in the future, able to sufficiently verify the origins of these minerals and metals used in our products, our customers could elect to disqualify us as a future supplier.

WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY AFFECT OUR FINANCIAL RESULTS AND CASH FLOWS, AND REVENUE AND COSTS DENOMINATED IN FOREIGN CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS AS A RESULT OF FOREIGN CURRENCY MOVES AGAINST THE DOLLAR.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse effect on our financial results and cash flows. Our primary foreign currency exposure relates to revenue and operating expenses in Europe, which are denominated in Euros.

When we take an order denominated in a foreign currency, we will receive fewer dollars, and lower revenue, than we initially anticipated if that local currency weakens against the dollar before we ship our product. Conversely, revenue will be positively affected if the local currency strengthens against the dollar before we ship our product. Costs may also be affected by foreign currency fluctuations. For example, in Europe, where we have costs denominated in European currencies, costs will decrease if the local currency weakens against the dollar. Conversely, costs will increase if the local currency strengthens against the dollar.

We also face the risk that our accounts receivable denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Similarly, we face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. We have not historically utilized hedging instruments to offset our foreign currency exposure, although we may determine to do so in the future.

WE DEPEND ON INDEPENDENT ASSEMBLY CONTRACTORS THAT MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS OR TO MEET OUR QUALITY AND DELIVERY REQUIREMENTS.

After wafer testing, we ship wafers to various independent assembly contractors, where the wafers are separated into die, packaged and, in some cases, further tested. Our reliance on independent contractors to assemble, package and test our products may expose us to significant risks, including the following:


•	reduced control over quality and delivery schedules;


•	the potential lack of adequate capacity of independent assembly contractors;


•	discontinuance or phase-out of our contractors’ assembly processes;


•	inability of our contractors to develop and maintain assembly and test methods and equipment that are appropriate for our products;


•	lack of long-term contracts and the potential inability to secure strategically important service contracts on favorable terms, if at all;


•	increased opportunities for potential misappropriation of our intellectual property; and


•	financial instability, or liquidity issues, affecting our subcontractors.

In addition, independent contractors could stop, suspend or delay the assembly, packaging or testing of our products for unforeseen reasons. Moreover, because most of our independent assembly contractors are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions, including export controls, and changes in tariff and freight rates. Accordingly, we may experience problems with the time, adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

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WE MAY FACE BUSINESS DISRUPTION RISKS, AS WELL AS THE RISK OF SIGNIFICANT UNANTICIPATED COSTS, AS WE CONSIDER, OR AS A RESULT OF, CHANGES IN OUR BUSINESS AND ASSET PORTFOLIO.

We are continually reviewing potential changes in our business and asset portfolio throughout our worldwide operations in order to enhance our overall competitiveness and viability. Disposal and restructuring activities that we have undertaken, and may undertake in the future, can divert significant time and resources, involve substantial costs and lead to production and product development delays and may fail to enhance our overall competitiveness and viability as intended, any of which can negatively impact our business. Our disposal activities have in the past and may, in the future, trigger restructuring, impairment and other accounting charges and/or result in a loss on sale of assets. Any of these charges or losses could cause the price of our common stock to decline.

We have in the past and may, in the future, experience labor union or workers’ council objections, or labor unrest actions (including possible strikes), when we seek to reduce our workforces in Europe and other regions. Many of our operations are located in countries and regions that have extensive employment regulations that we must comply with in order to reduce our workforce, and we may incur significant costs to complete such exercises. Any of those events could have an adverse effect on our business and operating results.

We continue to evaluate existing restructuring accruals related to restructuring plans previously implemented. As a result, there may be additional restructuring charges or reversals or recoveries of previous charges. We may incur additional restructuring and asset impairment charges in connection with additional restructuring plans adopted in the future. Any such restructuring or asset impairment charges recorded in the future could significantly harm our business and operating results. As of June 30, 2014, accrued restructuring charges amounted to $9.4 million, and we expect to substantially complete the cash severance payments in respect of those accruals within the next twelve months.

IF WE ARE UNABLE TO IMPLEMENT NEW MANUFACTURING TECHNOLOGIES OR FAIL TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, OUR BUSINESS WOULD BE HARMED.

Whether demand for semiconductors is rising or falling, we are constantly required by competitive pressures in the industry to implement new manufacturing technologies in order to reduce the geometries of our semiconductors, produce more integrated circuits per wafer and improve our production yields.

Fabrication of our integrated circuits is a highly complex and precise process, requiring production in a tightly-controlled, clean environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Whether through the use of our foundries or third-party manufacturers, we may experience problems in achieving acceptable yields in the manufacture of wafers, particularly during a transition in the manufacturing process technology for our existing products or with respect to the manufacture of new products.

We have previously experienced production delays and yield difficulties in connection with earlier expansions of our wafer fabrication capacity or transitions in manufacturing process technology. Production delays or difficulties in achieving acceptable yields at our fabrication facility or at the fabrication facilities of our third party manufacturers could materially and adversely affect our operating results. We may not be able to obtain the additional cash from operations or external financing necessary to fund the implementation of new manufacturing technologies.

WE MAY, DIRECTLY AND INDIRECTLY, FACE THIRD-PARTY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO DEFEND, DISTRACT OUR MANAGEMENT TEAM AND EMPLOYEES, AND RESULT IN LOSS OF SIGNIFICANT RIGHTS.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have on occasion resulted in significant and often protracted and expensive litigation. From time to time we receive communications from third parties asserting patent or other intellectual property rights covering our products or processes. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and make regular corresponding royalty payments, which may harm our cash position and operating results.

We have in the past been involved in intellectual property infringement lawsuits, which, because of the significant expense associated with the defense of those types of lawsuits, adversely affected our operating results, and we may continue to be subjected to similar suits in the future. In addition to patent infringement lawsuits in which we may be directly involved and named as a defendant, we also may assist our customers, in many cases at our own cost, in defending intellectual property lawsuits involving technologies that are combined with our technologies. See Note 8 of this Form 10-Q. The cost of defending against intellectual property lawsuits, responding to subpoenas, preparing our employees to testify, or assisting our customers in defending against such lawsuits, in terms of management time and attention, legal fees and product delays, can be substantial. If such infringement lawsuits are successful, we may be prohibited from using the technologies at issue in the lawsuits, and if we are unable to obtain a license on acceptable terms, license a substitute technology or design new technology to avoid infringement, our business and operating results may be significantly harmed.

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Many of our new and existing products and technologies are intended to address needs in specialized and emerging markets. Given the aggressive pursuit and defense of intellectual property rights that are typical in the semiconductor industry, we expect to see an increase in intellectual property litigation in many of the key markets that our products and technologies serve. An increase in infringement lawsuits within these markets generally, even if they do not involve us, may divert management’s attention and resources, which may seriously harm our business, results of operations and financial condition.

As is customary in the semiconductor industry, our standard contracts provide remedies to our customers, such as defense, settlement, or payment of judgments for intellectual property claims related to the use of our products. From time to time, we will indemnify customers against combinations of loss, expense, or liability related to the sale and the use of our products and services. Even if claims or litigation against us are not valid or successfully asserted, defending these claims could result in significant costs and diversion of the attention of management and other key employees.

IF WE ARE UNABLE TO PROTECT OR ASSERT OUR INTELLECTUAL PROPERTY RIGHTS, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE HARMED.

Our future success will depend, in part, upon our ability to protect and assert our intellectual property rights. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies. We also enter into confidentiality or license agreements with our employees, consultants and business partners, and control access to and distribution of our documentation and other proprietary information. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our proprietary technologies and processes, despite our efforts to protect them.

We hold numerous U.S. and foreign patents. We can provide no assurance, however, that these, or any of our future patents, will not be challenged, invalidated or circumvented in ways that detract from their value. Changes in laws may also result in us having less intellectual property protection than we may have experienced historically.

If our patents do not adequately protect our technology, competitors may more easily be able to offer products similar to our products. Our competitors may also be able to design around our patents, which would harm our business, financial position and results of operations.

SIGNIFICANT PATENT LITIGATION IN THE MOBILE-DEVICE SECTOR MAY ADVERSELY AFFECT SOME OF OUR CUSTOMERS. UNFAVORABLE OUTCOMES IN SUCH PATENT LITIGATION COULD AFFECT OUR CUSTOMERS’ ABILITY TO SELL THEIR PRODUCTS AND, AS A RESULT, COULD ULTIMATELY AFFECT THEIR ABILITY TO PURCHASE OUR PRODUCTS IF THEIR MOBILE DEVICE BUSINESS DECLINES.

There is significant ongoing patent litigation throughout the world involving many of our customers, especially in the mobile-device sector. The outcome of these disputes is uncertain. While we may not have a direct involvement in these matters, an adverse outcome that affects the ability of our customers to ship or sell their products could ultimately have an adverse effect on our business. That could happen if these customers reduce their business exposure in the mobile-device sector, are prevented from selling their products in certain markets, including in the U.S. through import bans imposed by the International Trade Commission, seek to reduce their cost structures to help fund the payment of unanticipated licensing fees, or are required to take other actions that slow or hinder their market penetration.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE DO NOT COMPETE EFFECTIVELY, WE MAY SUFFER PRICE REDUCTIONS, REDUCED REVENUE, REDUCED GROSS MARGIN AND LOSS OF MARKET SHARE.

We operate in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as Cypress, Freescale, Fujitsu, Hitachi, Infineon, Intel, Microchip, NXP Semiconductors, ON Semiconductor, Renesas, Samsung, Spansion, STMicroelectronics, Synaptics, and Texas Instruments. Many of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we introduce new products, we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. During the last several years, we have experienced significant price competition in several business segments, especially in our nonvolatile memory segment for EPROM and Serial EEPROM products, as well as in our commodity microcontrollers. Competitive pressures in the semiconductor market from existing competitors, new entrants, new technology and cyclical demand, among other factors, can result in declining average selling prices for our products. To the extent that such price declines affect our products, our revenue and gross margin could decline.

In addition to the factors described above, our ability to compete successfully depends on a number of factors, including the following:


•	our success in designing and manufacturing new products that implement new technologies and processes;

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•	our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies;


•	the rate at which customers incorporate our products into their systems;


•	product introductions by our competitors;


•	the number and nature of our competitors in a given market;


•	our ability to minimize production costs by outsourcing our manufacturing, assembly and testing functions;


•	our ability to improve our process technologies and production efficiency; and


•	general market and economic conditions.

Many of these factors are outside of our control, and may cause us to be unable to compete successfully in the future, which would materially harm our business.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

Our future success substantially depends on our ability to develop and introduce new products that compete effectively on the basis of price and performance and that address customer requirements. We are continually designing and commercializing new and improved products to maintain our competitive position. These new products typically are more technologically complex than their predecessors and have increased risk of deployment delays and quality and yield issues, among other risks.

The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. Our development of new products and our customers’ decisions to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or other technologies serving the markets addressed by our products. Our qualification process involves multiple cycles of testing and improving a product’s functionality to ensure that our products operate in accordance with design specifications. If we experience delays in the introduction of new products, our future operating results could be adversely affected.

In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our future growth will depend in part upon the successful development and market acceptance of these process technologies. Our integrated solution products require more technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with smaller feature sizes and increased functionality, the fabrication of which will be substantially more complex than fabrication of our current products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product development, process development or marketing and sales efforts may not be successful, our new products may not achieve market acceptance, and price expectations for our new products may not be achieved, any of which could significantly harm our business.

OUR OPERATING RESULTS ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO VARIOUS RISKS.

Our revenue outside the United States accounted for 86% and 87% of our net revenue for the three months ended June 30, 2014 and 2013, respectively, and 85% and 87% of our net revenue for the six months ended June 30, 2014 and 2013, respectively. We expect that revenue derived from international sales will continue to represent a significant portion of net revenue. International sales and operations are subject to a variety of risks, including:


•	greater difficulty in protecting intellectual property;


•	reduced flexibility and increased cost of effecting staffing adjustments;


•	foreign labor conditions and practices;


•	adverse changes in tax laws;


•	credit and collectibility risks on our trade receivables with customers in certain jurisdictions;


•	longer collection cycles;


•	legal and regulatory requirements, including antitrust laws, import and export regulations, trade barriers, tariffs and tax laws, and environmental and privacy regulations and changes to those laws and regulations;


•	negative effects from fluctuations in foreign currency exchange rates;


•	cash repatriation restrictions;

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•	impact of natural disasters on local infrastructures, including those of our distributors and end customers; and


•	general economic and political conditions in these foreign markets.

Some of our distributors, independent foundries, independent assembly, packaging and test contractors and other business partners also have international operations and are subject to the risks described above. Even if we are able to manage the risks of international operations successfully, our business may be adversely affected if our distributors, independent foundries and contractors, and other business partners are not able to manage these risks successfully.

WE MAY BE SUBJECT TO INFORMATION TECHNOLOGY SYSTEM FAILURES, NETWORK DISRUPTIONS OR OTHER SECURITY RISKS, INCLUDING CYBER-ATTACKS, THAT COULD DAMAGE OUR BUSINESS OPERATIONS, FINANCIAL CONDITION OR REPUTATION. MANAGING THESE RISKS MAY ALSO REQUIRE ADDITIONAL INVESTMENTS AND EXPENDITURES AND INCREASED OPERATING COSTS.

We rely on our information technology, or IT infrastructure and certain critical information systems for the effective operation of our business, including the reporting of our financial results. These IT systems may be subject to damage or interruption from a number of potential sources, including natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, cyber attacks, sabotage, vandalism, or similar events or disruptions. In addition, our IT infrastructure continues to evolve as we review and introduce new systems to share and store data and communicate internally and externally, including “cloud-based” systems and social networking technologies. While we believe that this type of IT evolution can enhance our operational and business efficiencies, we may not be able to adapt our business practices and internal security controls quickly enough to address all of the risks, known and unknown, that these changes create.

Technology companies such as ours also continue to face increased global security threats. Hackers may develop and deploy viruses, worms, and other malicious software programs that attack our products or seek to gain access to our networks and proprietary information. We may be required to allocate significant resources, financial and otherwise, to the oversight of these threats and the implementation of effective countermeasures, which could increase our operating expenses.

Our inability to use or access our IT systems at critical points in time could unfavorably affect our business. These disruptions, for example, could adversely affect our ability to access critical business applications, coordinate product development and testing, ship or distribute products, or timely report our financial results. Breaches of our IT system by unauthorized parties could also result in the theft or misuse of our intellectual property, the unauthorized release of customer or employee data, or a violation of privacy or other laws that may lead to significant reputation or other damage to our business.

SYSTEM INTEGRATION DISRUPTIONS COULD HARM OUR BUSINESS.

We periodically make enhancements to our integrated financial and supply chain management systems. The enhancement process is complex, time-consuming and expensive. Operational disruptions during the course of such processes or delays in the implementation of such enhancements could impact our operations. Our ability to forecast sales demand, ship products, manage our product inventory and record and report financial and management information on a timely and accurate basis could be impaired while we are making these enhancements.

OUR OPERATIONS AND FINANCIAL RESULTS COULD BE HARMED BY BUSINESS INTERRUPTIONS, NATURAL DISASTERS, TERRORIST ACTS OR OTHER EVENTS BEYOND OUR CONTROL.

Our operations are vulnerable to interruption by fire, earthquake, floods and other natural disasters, power loss, public health issues, geopolitical uncertainties, telecommunications failures, terrorist acts and other events beyond our control. Our headquarters, some of our manufacturing facilities, the manufacturing facilities of third-party foundries and some of our major suppliers’ and customers’ facilities are located near major earthquake faults and in potential terrorist target areas. We do not have a comprehensive disaster recovery plan.

In the event of a major earthquake, other natural or manmade disaster or terrorist act, we could experience loss of life of our employees, destruction of facilities or other business interruptions. The operations of our suppliers could also be affected by natural disasters and other disruptions, which could cause shortages and price increases in various essential materials. We use third-party freight firms for nearly all our shipments from vendors and our manufacturing facilities and for shipments to customers of our final product. We maintain property and business interruption insurance; however, there is no guarantee that such insurance will be available or adequate to protect against all costs associated with such disasters and disruptions.

In recent years, based on insurance market conditions, we have relied to a greater degree on self-insurance. If a major earthquake, other disaster, or a terrorist act affects us and insurance coverage is unavailable for any reason, we may need to spend significant amounts to repair or replace our facilities and equipment, we may suffer a temporary halt in our ability to manufacture and transport products, and we could suffer damages that could materially adversely harm our business, financial condition and results of operations.

WE MAY EXPERIENCE PROBLEMS WITH KEY CUSTOMERS THAT COULD HARM OUR BUSINESS.

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Our ability to maintain close, satisfactory relationships with large customers is important to our business. A reduction, delay, or cancellation of orders from our large customers would harm our business. Similarly, the loss of one or more of our key customers, reduced orders by any of our key customers, or significant variations in the timing of orders, could adversely affect our business and results of operations.

WE ARE NOT PROTECTED BY LONG-TERM SUPPLY CONTRACTS WITH OUR CUSTOMERS.

We do not typically enter into long-term supply contracts with our customers, and we cannot be certain as to future order levels from our customers. When we do enter into a long-term contract, the contract is generally terminable at the convenience of the customer. In the event of an early termination by one of our major customers, it is unlikely that we would be able to replace that revenue source rapidly, which would harm our financial results.

WE ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS, WHICH COULD IMPOSE UNANTICIPATED REQUIREMENTS ON OUR BUSINESS IN THE FUTURE. ANY FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS MAY SUBJECT US TO LIABILITY OR SUSPENSION OF OUR MANUFACTURING OPERATIONS.

We are subject to a variety of environmental laws and regulations in each of the jurisdictions in which we operate governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination, and employee health and safety. We could incur significant costs as a result of any failure by us to comply with, or any liability we may incur under, environmental, health, and safety laws and regulations, including the limitation or suspension of production, monetary fines or civil or criminal sanctions, clean-up costs or other future liabilities in excess of our reserves. We are also subject to laws and regulations governing the recycling of our products, the materials that may be included in our products, and our obligation to dispose of our products at the end of their useful lives. For example, the European Directive 2002/95/EC on restriction of hazardous substances (RoHS Directive) bans the placing on the European Union market of new electrical and electronic equipment containing more than specified levels of lead and other hazardous compounds. As more countries enact requirements like the RoHS Directive, and as exemptions are phased out, we could incur substantial additional costs to convert the remainder of our portfolio to comply with such requirements, conduct required research and development, alter manufacturing processes, or adjust supply-chain management. Such changes could also result in significant inventory obsolescence. In addition, compliance with environmental, health and safety requirements could restrict our ability to expand our facilities or require us to acquire costly pollution-control equipment, incur other significant expenses or modify our manufacturing processes. We also are subject to cleanup obligations at properties that we currently own or at facilities that we may have owned in the past or at which we conducted operations. In the event of the discovery of new or previously unknown contamination, additional requirements with respect to existing contamination, or the imposition of other cleanup obligations at these or other sites for which we are responsible, we may be required to take remedial or other measures that could have a material adverse effect on our business, financial condition and results of operations.

THE LOSS OF ANY KEY PERSONNEL ON WHOM WE DEPEND MAY SERIOUSLY HARM OUR BUSINESS.

Our future success depends in large part on the continued service of our key technical and management personnel and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and in the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could harm our business.

ACCOUNTING FOR OUR PERFORMANCE-BASED RESTRICTED STOCK UNITS IS SUBJECT TO JUDGMENTS AND ESTIMATES AND MAY LEAD TO UNPREDICTABLE SHARE-BASED EXPENSE RECOGNITION. THE IMPLEMENTATION PLANS UNDER WHICH OUR PERFORMANCE-BASED RESTRICTED STOCK UNITS ARE ISSUED MAY ALSO AFFECT THE DEDUCTIBILITY OF SOME COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS.

We have issued, and may in the future continue to issue, performance-based restricted stock units to eligible employees, entitling those employees to receive restricted stock if they, and we, meet designated performance criteria established by our compensation committee. We are required to reassess the probability of vesting at each reporting date under any performance-based incentive plan, and any change in our forecasts may result in an increase or decrease to the expense recognized. As a result and as described in this paragraph, the expense recognition for performance-based restricted stock units could change over time, requiring adjustments to our financial statements to reflect changes in our judgment regarding the probability of achieving the performance goals. We recognize the share-based compensation expense for performance-based restricted stock units when we believe it is probable that we will achieve the specified performance criteria. If the performance goals are not achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed. The fair value of each award is recognized over the service period and is reduced for estimated forfeitures.

The implementation of our performance-based incentive plans may also affect our ability to receive federal income tax deductions for compensation in excess of $1.0 million paid, during any fiscal year, to our named executive officers. To the extent that aspects of performance-based compensation plans such as the ones we have typically adopted are adjusted in the discretion of the compensation committee, the exercise of that discretion, notwithstanding that it is expressly permitted by the terms of a plan,

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may result in plan compensation awarded to named executive officers not being deductible. Our compensation committee has retained the discretion to implement our performance-based incentive plans, including our recently adopted 2014 Plan, notwithstanding any potential loss of deductibility, in the manner that it believes most effectively achieves the objectives of our compensation philosophies and the terms of these plans.

PROVISIONS IN OUR RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS MAY HAVE ANTI-TAKEOVER EFFECTS.

Certain provisions of our Restated Certificate of Incorporation, our Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Our Board of Directors has the authority to issue up to five million shares of preferred stock and to determine the price, voting rights, preferences and privileges, and restrictions of those shares without the approval of our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, by making it more difficult for a third party to acquire a majority of our stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders. We have no present plans to issue shares of preferred stock.

WE ARE, AND MAY IN THE FUTURE BE, ENGAGED IN LITIGATION THAT IS COSTLY, TIME CONSUMING TO DEFEND OR PROSECUTE AND, IF AN ADVERSE DECISION WERE TO OCCUR, COULD HAVE A HARMFUL EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION OR LIQUIDITY DEPENDING ON THE OUTCOME.

We are subject to legal proceedings and claims that arise in the ordinary course of business. See Note 8 of this Form 10-Q. Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, results of operations, financial condition and liquidity.

As discussed under Note 8 of Notes to Condensed Consolidated Financial Statements, we are currently engaged, directly and indirectly through our subsidiaries Atmel Rousset S.A.S. (“Atmel Rousset”) and Atmel B.V., in two pending litigations, one in France and one in the United States, related to the June 2013 insolvency of the owner of our former manufacturing facility in Rousset, France. Atmel Rousset sold that manufacturing facility, through an arms-length process, in June 2010. In one case, LFoundry Rousset S.A.S. (“LFR”) and its judicially-appointed receivers filed an action against the Company and Atmel B.V. (the “Paris Action”) seeking damages of approximately 135 million Euros in connection with that transaction, as described under “Legal Proceedings - French Insolvency-Related Litigation - LFoundry and Atmel Corporation, et al.” We understand that on July 17, 2014, LFR’s judicially-appointed liquidator signed a request that the Court dismiss LFR’s petition without prejudice. In a second case, filed in the United States District Court for the Southern District of New York (the “New York Action”), LFR and a putative class of LFR employees are seeking substantial damages, based upon the same underlying allegations. We believe the claims in the Paris Action or the New York Action are without merit, specious and defamatory, and have responded and will respond with counterclaims and requests for other appropriate relief. Nonetheless, if LFR and its judicially-appointed representative, or the LFR employee class, were successful in their attempt to recover substantial damages against us in the Paris Action and New York Action, payment of those damages, if payment were ever required or if any damages award were ever capable of enforcement, could have a material adverse effect on our results of operations, financial condition and liquidity.

OUR FOREIGN PENSION PLANS ARE UNFUNDED, AND ANY REQUIREMENT TO FUND THESE PLANS IN THE FUTURE COULD NEGATIVELY AFFECT OUR CASH POSITION AND OPERATING CAPITAL.

We sponsor defined benefit pension plans that cover substantially all of our French and German employees. Plan benefits are managed in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The projected benefit obligation totaled $40.3 million at June 30, 2014 and $38.9 million at December 31, 2013. The plans are unfunded, in compliance with local statutory regulations, and we have no immediate intention of funding these plans. Benefits are paid when amounts become due, commencing when participants retire. We expect to pay approximately $0.5 million in 2014 for benefits earned. Should legislative regulations require complete or partial funding of these plans in the future, it could negatively affect our cash position and operating capital.

FUTURE ACQUISITIONS MAY RESULT IN UNANTICIPATED ACCOUNTING CHARGES OR MAY OTHERWISE ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND RESULT IN DIFFICULTIES IN INTEGRATING THE OPERATIONS, PERSONNEL, TECHNOLOGIES, PRODUCTS AND INFORMATION SYSTEMS OF ACQUIRED COMPANIES OR BUSINESSES, OR BE DILUTIVE TO EXISTING STOCKHOLDERS.

A key element of our business strategy includes expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our skilled engineering workforce or enhance our technological capabilities. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the purchase or sale of assets, including tangible and intangible assets such as intellectual property.

Acquisitions may require significant capital infusions, typically entail many risks and could result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses.

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We have in the past experienced and may in the future experience delays in the timing and successful integration of an acquired company’s technologies, products and product development plans as a result of unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, difficulties ramping up volume production, or contractual, intellectual property or employment issues. In addition, key personnel of an acquired company may decide not to stay with us post-acquisition. The acquisition of another company or its products and technologies may also require us to enter into a geographic or business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and employees, harm our reputation and increase our expenses. These challenges are magnified as the size of the acquisition increases. Furthermore, these challenges would be even greater if we acquired a business or entered into a business combination transaction with a company that was larger and more difficult to integrate than the companies we have historically acquired.

Acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional share-based compensation expense and the recording and later amortization of amounts related to certain purchased intangible assets, any of which could adversely affect our results of operations. In addition, we may record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. Any of these charges could cause the price of our common stock to decline.

Acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. Any issuance of equity or convertible debt securities may be dilutive to our existing stockholders.

We cannot assure you that we will be able to consummate any pending or future acquisitions or that we will realize any anticipated benefits or synergies from any of our historic or future acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of our common stock may make it significantly more difficult and expensive to initiate or consummate additional acquisitions.

We are required under GAAP to test goodwill for possible impairment on an annual basis and at any other time that circumstances arise indicating the carrying value of our goodwill may not be recoverable. At June 30, 2014, we had $110.0 million of goodwill. We completed our annual test of goodwill impairment in the fourth quarter of 2013 and concluded that we did not have any impairment at that time. However, if we continue to see deterioration in the global economy and the current market conditions in the semiconductor industry worsen, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record a material impairment charge, which would have a negative impact on our results of operations.

DISRUPTIONS TO THE AVAILABILITY OF RAW MATERIALS CAN AFFECT OUR ABILITY TO SUPPLY PRODUCTS TO OUR CUSTOMERS, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

The manufacture of semiconductor devices requires specialized raw materials, primarily certain types of silicon wafers. We generally utilize more than one source to acquire these wafers, but there are only a limited number of qualified suppliers capable of producing these wafers in the market. In addition, the raw materials, which include specialized chemicals and gases, and the equipment necessary for our business, could become more difficult to obtain as worldwide use of semiconductors in product applications increases. We have experienced supply shortages and price increases from time to time in the past, and on occasion our suppliers have told us they need more time than expected to fill our orders. Any significant interruption of the supply of raw materials or increase in cost of raw materials could harm our business.

WE COULD FACE PRODUCT LIABILITY CLAIMS THAT RESULT IN SIGNIFICANT COSTS AND DAMAGE TO OUR REPUTATION WITH CUSTOMERS, WHICH WOULD NEGATIVELY AFFECT OUR OPERATING RESULTS.

All of our products are sold with a limited warranty. However, we could incur costs not covered by our warranties, including additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting their defective products, costs for product recalls or other damages. These costs could be disproportionately higher than the revenue and profits we receive from the sales of our products.

Our products have previously experienced, and may in the future experience, manufacturing defects, software or firmware bugs, or other similar quality problems. If any of our products contain defects or bugs, or have reliability, quality or compatibility problems, our reputation may be damaged and customers may be reluctant to buy our products, which could materially and adversely affect our ability to retain existing customers and attract new customers. In addition, any defects, bugs or other quality problems could interrupt or delay sales or shipment of our products to our customers.

We have implemented significant quality control measures to mitigate these risks; however, it is possible that products shipped to our customers will contain defects, bugs or other quality problems. Such problems may divert our technical and other resources from other development efforts. If any of these problems are not found until after we have commenced commercial production of a new product, we may be required to incur significant additional costs or delay shipments, which would negatively affect our business, financial condition and results of operations.

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CHANGES IN OUR INCOME TAX POSITIONS OR ADVERSE OUTCOMES RESULTING FROM ONGOING OR FUTURE TAX AUDITS, IN THE U.S. OR FOREIGN JURISDICTIONS, COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

Income tax provisions are subject to significant judgment and estimates and may require material modification as new information is obtained regarding our tax positions, as our business performance changes, or as tax laws, regulations, treaties and interpretations in the U.S. or other jurisdictions change. Our provision for income taxes is subject to volatility and could be adversely affected by many factors including: earnings being lower than anticipated in countries where we operate that have lower tax rates and higher than anticipated in countries that have higher tax rates; changes in the valuation of our deferred tax assets and liabilities; expiration of or lapses in R&D tax credits or similar laws; expiration of or lapses in tax incentives; transfer pricing adjustments, including the effect of intercompany acquisitions under cost sharing arrangements; the legal structure of our foreign subsidiaries and changes to that structure; tax effects of nondeductible compensation; tax costs related to intercompany realignments; changes in accounting principles; or changes in tax laws and regulations, treaties, or interpretations, including possible changes to the taxation of earnings, or the deductibility of expenses (including expenses attributable to foreign income), of our foreign subsidiaries or foreign tax credit rules. If any of these circumstances were to arise, the initial judgments or estimates we use to prepare our financial statements may require adjustment, which could, if material, negatively affect our results of operations and financial condition. For example, the Organization for Economic Co-operation and Development, an international association of 34 countries including the United States, is contemplating changes to numerous long-standing tax principles. These contemplated changes, if finalized and adopted by countries in which we operate, will increase tax uncertainty and may adversely affect our provision for income taxes.

We are also subject to continued examination of our income tax returns by the Internal Revenue Service and other foreign and domestic tax authorities and typically have a number of open audits under way at any time. See "Note 9 - Income Taxes." We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. While we believe that the resolution of these audits will not have a material adverse effect on our results of operations, the outcome is subject to significant uncertainties. If we are unable to obtain agreements with the tax authority on the various proposed adjustments, there could be a material adverse effect on our results of operations, cash flows and financial position.

OUR LEGAL ENTITY ORGANIZATIONAL STRUCTURE IS COMPLEX, WHICH COULD RESULT IN UNFAVORABLE TAX OR OTHER CONSEQUENCES, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR NET INCOME AND FINANCIAL CONDITION.

We currently operate legal entities in countries where we conduct manufacturing, design, and sales operations around the world. In some countries, we maintain multiple entities for tax or other purposes. Changes in tax laws, regulations, and related interpretations in the countries in which we operate may adversely affect our results of operations.

We have many entities globally and unsettled intercompany balances between some of these entities that could result, if changes in law, regulations or related interpretations occur, in adverse tax or other consequences affecting our capital structure, intercompany interest rates and legal structure.

FROM TIME TO TIME WE RECEIVE GRANTS FROM GOVERNMENTS, AGENCIES AND RESEARCH ORGANIZATIONS. IF WE ARE UNABLE TO COMPLY WITH THE TERMS OF THOSE GRANTS, WE MAY NOT BE ABLE TO RECEIVE OR RECOGNIZE GRANT BENEFITS OR WE MAY BE REQUIRED TO REPAY GRANT BENEFITS PREVIOUSLY PAID TO US AND RECOGNIZE RELATED CHARGES, WHICH WOULD ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL POSITION.

From time to time, we receive economic incentive grants and allowances from European governments, agencies and research organizations targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditure and other covenants that must be met to receive and retain grant benefits and these programs can be subjected to periodic review by the relevant governments. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about the repurchase of our common stock during the three months ended June 30, 2014, pursuant to our Stock Repurchase Program.

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Period	Total Number of Shares Purchased	Average Price Paid per Share ($) (1)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)
April 1 - April 30	—	$—	—	$284,509,165
May 1 - May 31	2,473,275	$7.86	2,473,275	$265,060,599
June 1 - June 30	1,092,548	$8.32	1,092,548	$255,966,891

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(1)Represents the average price paid per share ($) exclusive of commissions.

(2)Represents shares purchased in open-market transactions under the stock repurchase plan approved by the Board of Directors.

(3)These amounts correspond to a plan announced in August 2010 whereby the Board of Directors authorized the repurchase of up to $200.0 million of our common stock. In May 2011, Atmel’s Board of Directors authorized an additional $300.0 million to our existing repurchase program. In April 2012, Atmel’s Board of Directors authorized an additional $200.0 million to our existing repurchase program. In October 2013, Atmel’s Board of Directors authorized an additional $300.0 million to our existing repurchase program. The repurchase program does not have an expiration date. Shares repurchased under the program may be retired or retained as treasury shares. Amounts remaining to be purchased are exclusive of commissions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following Exhibits have been filed with this Report:



3.1	Amended and Restated Bylaws of Atmel Corporation, effective May 23, 2014 (which is incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on May 29, 2014).
10.1	Amendment No. 3 to the Amended Employment Agreement between the Company and Steven Laub, dated April 8, 2014 (which is incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on April 11, 2014.
10.2	Agreement and Plan of Merger by and among Atmel Corporation, Marina MCU Acquisition Corporation, Newport Media, Inc. and Shareholder Representative Services LLC as representative, dated as of July 3, 2014.
10.3	Amendment No. 1 to Credit Agreement, dated as of June 27, 2014, to that certain Credit Agreement, dated as of December 6, 2013 among Atmel Corporation, the lenders from time to time party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent.
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.



	ATMEL CORPORATION (Registrant)

August 7, 2014	/s/ STEVEN LAUB
	Steven Laub
	President & Chief Executive Officer
	(Principal Executive Officer)

August 7, 2014	/s/ STEVE SKAGGS
	Steve Skaggs
	Senior Vice President & Chief Financial Officer
	(Principal Financial Officer)

August 7, 2014	/s/ HUGO DE LA TORRE
	Hugo De La Torre
	Vice President & Chief Accounting Officer
	(Principal Accounting Officer)

Table of Contents

EXHIBIT INDEX

The following Exhibits have been filed with, or incorporated by reference into, this Report:



3.1	Amended and Restated Bylaws of Atmel Corporation, effective May 23, 2014 (which is incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on May 29, 2014).
10.1	Amendment No. 3 to the Amended Employment Agreement between the Company and Steven Laub, dated April 8, 2014 (which is incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on April 11, 2014.
10.2	Agreement and Plan of Merger by and among Atmel Corporation, Marina MCU Acquisition Corporation, Newport Media, Inc. and Shareholder Representative Services LLC as representative, dated as of July 3, 2014.
10.3	Amendment No. 1 to Credit Agreement, dated as of June 27, 2014, to that certain Credit Agreement, dated as of December 6, 2013 among Atmel Corporation, the lenders from time to time party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent.
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

_________________________________________

EX 10.2 Marina-MergerAgreement-Execution

Exhibit 10.2

Execution Version

Confidential

AGREEMENT AND PLAN OF MERGER

by and among

ATMEL CORPORATION

MARINA MCU ACQUISITION CORPORATION

NEWPORT MEDIA, INC.

and

SHAREHOLDER REPRESENTATIVE SERVICES LLC

as Representative

dated as of July 3, 2014

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of July 3, 2014 (the “Execution Date”), by and among Atmel Corporation, a Delaware corporation (“Parent”), Marina MCU Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Sub”), Newport Media, Inc., a Delaware corporation (“NMI”), Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as Representative (as defined herein) and, for the limited purpose set forth on the signature page hereto, all of the Rights Holders. Parent and Sub are collectively referred to as “Buyer.”

RECITALS

A. The board of directors of each of Parent, Sub and NMI has determined that it is in the best interests of their respective stockholders for Sub to merge with and into NMI upon the terms and subject to the conditions set forth herein.

B. The NMI Board has duly adopted resolutions approving, among other things, this Agreement, the Merger and the other transactions contemplated hereby, and has agreed to recommend that NMI’s stockholders adopt this Agreement and the transactions contemplated hereby.

C. NMI, Parent and Sub desire to make certain representations, warranties, covenants and agreements in connection with this Agreement and to establish conditions to the effectiveness of the Merger.

D. As a further material inducement to the willingness of Parent and Sub to enter into this Agreement, holders of a number of issued and outstanding NMI Capital Stock sufficient to approve the Merger have indicated that they expect to deliver, following the approval and adoption of this Agreement by the NMI Board and promptly following the execution and delivery of this Agreement, their written consent to their irrevocable approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby pursuant to and in accordance with the applicable provisions of the Delaware Code and the certificate of incorporation and bylaws of NMI in the form attached hereto as Exhibit A (the “NMI Charter Documents”), and their intention to vote in favor of, and not to seek dissenter’s rights in respect of, the Merger (the “Stockholder Consent”).

E. Concurrently with the execution of this Agreement and as a further material inducement to the willingness of Parent and Sub to enter this Agreement, NMI is delivering to Parent and Sub stockholder joinder agreements substantially in the form attached hereto as Exhibit B-1 (the “Joinder Agreement”) executed by each stockholder listed on Exhibit B-2.

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

ARTICLE I
THE MERGER; PAYMENTS AND EARNOUT

1.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the relevant provisions of the General Corporation Law of Delaware, as amended (the “Delaware Code”), Sub shall be merged with and into NMI (the “Merger”) as soon as practicable following the satisfaction or waiver, if permissible, of the conditions set forth in ARTICLE VI hereof. NMI shall be the surviving

corporation in the Merger (the “Surviving Corporation”) under the name “Atmel Wireless MCU Technologies Corporation” and shall succeed to and assume all the rights, properties, liabilities and obligations of NMI in accordance with the laws of the State of Delaware. In connection with the Merger, the separate corporate existence of Sub shall cease.

1.2 Consummation of the Merger. Subject to the provisions of this Agreement, Sub and NMI shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware a duly executed and verified certificate of merger, as required by the Delaware Code, and shall take all such other and further actions as may be required by law to make the Merger effective. Prior to the filing referred to in this Section 1.2, a closing (the “Closing”) will be held at the offices of Atmel Corporation, 1600 Technology Drive, San Jose, CA 95110 (or such other place as the parties may agree) on the third Business Day after all of the conditions set forth in ARTICLE VI have been satisfied or waived, or on such other date as may be mutually agreed to by the parties (the “Closing Date”). The time the Merger becomes effective in accordance with Applicable Law is referred to as the “Effective Time.”

1.3 Effects of the Merger. The Merger shall have the effects set forth herein and in the applicable provisions of the Delaware Code.

1.4 Certificate of Incorporation and Bylaws.

(a) Certificate of Incorporation. The certificate of incorporation of the Surviving Corporation shall be as set forth in Exhibit C, until thereafter amended in accordance with the Delaware Code and as provided in such certificate of incorporation.

(b) Bylaws. Unless otherwise determined by Parent prior to the Effective Time, the bylaws of the Surviving Corporation shall be amended and restated immediately after the Effective Time to be identical to the bylaws of Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the Delaware Code and as provided in the certificate of incorporation of the Surviving Corporation and such bylaws.

1.5 Directors and Officers

(a) Directors. From and after the Effective Time, the directors of Sub serving immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation, death or removal or until their respective successors are duly elected and qualified, as the case may be.

(b) Officers. The officers of Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation immediately after the Effective Time, each to hold office in accordance with the bylaws of the Surviving Corporation until their successors are duly appointed and qualified.

1.6 Merger Consideration. The aggregate merger consideration to be allocated among, and paid to, the holders of NMI Capital Stock, the Vested Options, the Warrants and the Convertible Debt at the Effective Time and subject to and in accordance with the terms of this Agreement in connection with, and upon or following consummation of the Merger, shall be an amount equal to the:

(a) Base Consideration, plus

(b) Closing Aggregate Option and Warrant Exercise Price, plus

(d) aggregate amount of all Closing Debt, minus

(e) aggregate amount of all Transaction and Other Specified Expenses, plus

(f) Working Capital Excess, if any, minus

(g) Working Capital Shortfall, if any.

The aggregate amount determined by the calculation set forth in this Section 1.6(a) through (g) is referred to as the “Aggregate Merger Consideration.”

1.7 Effect of the Merger on Certain Securities of NMI and Sub. By virtue of the Merger and without any action on the part of Parent, and subject to the terms and conditions of this Agreement, the Aggregate Merger Consideration and the Earnout Payments, if any, shall be allocated among, and paid to, the holders of NMI Capital Stock, Vested Options, Warrants and Convertible Debt, as follows; provided, however, that an amount equal to the (i) Escrow Amount plus the (ii) Representative Expense Amount shall be deducted from the Aggregate Merger Consideration and, concurrent with the Closing, be delivered by Parent to, and held by, the Escrow Agent prior to any distributions referred to below:

(a) Series D Preferred. At the Effective Time, each share of Series D Preferred issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares which shall have only those rights specified in Section 1.8 and shares owned by NMI) shall be automatically converted into the right to receive, subject to and in accordance with Section 4.4 and this Agreement, an amount of cash (without interest) equal to (1) the Per Share Series D Closing Consideration, plus (2) the Per Share Series D Escrow Amount, plus (3) the Per Share Series D Representative Expense Amount. The amount of cash each holder of NMI Capital Stock is entitled to receive for the shares of Series D Preferred held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all shares of Series D Preferred held by such holder. Notwithstanding anything herein to the contrary, for purposes of the Merger, and this Agreement, (i) the parties intend, to the extent that holders of Series D Preferred elect in writing to convert their shares of Series D Preferred into shares of NMI Common Stock on or prior to the Closing, that such Series D Preferred shall be characterized and treated as NMI Common Stock, and that the Aggregate Merger Consideration and Earnout Payments, if any, payable in respect of such NMI Common Stock shall be determined in accordance with, and subject to, Section 1.7(f), and such Series D Preferred shall not be entitled to the Series D Liquidation Preference, and (ii) in the event that the Series D Preferred accept, or are otherwise paid, the Series D Liquidation Preference, and do not elect in writing to convert their shares of Series D Preferred into shares of NMI Common Stock on or prior to the Closing, as contemplated by clause (i), then the Series D Preferred shall not be entitled to receive, or to participate in, any of the Earnout Payments or any other payment or consideration in respect of the Merger or the transactions contemplated hereby.

(b) Series C Preferred. At the Effective Time, each share of Series C Preferred issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares which shall have only those rights specified in Section 1.8 and shares owned by NMI) shall be automatically converted into the right to receive, subject to and in accordance with Section 4.4 and this Agreement, an amount of cash (without interest) equal to (1) the Per Share Series C Closing Consideration, plus (2) the Per Share Series C Escrow Amount, plus (3) the Per Share Series C Representative Expense Amount. The amount of cash each holder of NMI Capital Stock is entitled to receive for the shares of Series C Preferred held by

such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all shares of Series C Preferred held by such holder. Notwithstanding anything herein to the contrary, for purposes of the Merger, and this Agreement, (i) the parties intend, to the extent that holders of Series C Preferred elect in writing to convert their shares of Series C Preferred into shares of NMI Common Stock on or prior to the Closing, that such Series C Preferred shall be characterized and treated as NMI Common Stock, and that the Aggregate Merger Consideration and Earnout Payments, if any, payable in respect of such NMI Common Stock shall be determined in accordance with, and subject to, Section 1.7(f), and such Series C Preferred shall not be entitled to the Series C Liquidation Preference, and (ii) in the event that the Series C Preferred accept, or are otherwise paid, the Series C Liquidation Preference , and do not elect in writing to convert their shares of Series C Preferred into shares of NMI Common Stock on or prior to the Closing, as contemplated by clause (i), then the Series C Preferred shall not be entitled to receive, or to participate in, any of the Earnout Payments or any other payment or consideration in respect of the Merger or the transactions contemplated hereby.

(c) Series B Preferred. At the Effective Time, each share of Series B Preferred issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares which shall have only those rights specified in Section 1.8 and shares owned by NMI) shall be automatically converted into the right to receive, subject to and in accordance with Section 4.4 and this Agreement, an amount of cash (without interest) equal to (1) the Per Share Series B Closing Consideration, plus (2) the Per Share Series B Escrow Amount, plus (3) the Per Share Series B Representative Expense Amount. The amount of cash each holder of NMI Capital Stock is entitled to receive for the shares of Series B Preferred held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all shares of Series B Preferred held by such holder. Notwithstanding anything herein to the contrary, for purposes of the Merger, and this Agreement, (i) the parties intend, to the extent that holders of Series B Preferred elect in writing to convert their shares of Series B Preferred into shares of NMI Common Stock on or prior to the Closing, that such Series B Preferred shall be characterized and treated as NMI Common Stock, and that the Aggregate Merger Consideration and Earnout Payments, if any, payable in respect of such NMI Common Stock shall be determined in accordance with, and subject to, Section 1.7(f), and such Series B Preferred shall not be entitled to the Series B Liquidation Preference, and (ii) in the event that the Series B Preferred accept, or are otherwise paid, the Series B Liquidation Preference , and do not elect in writing to convert their shares of Series B Preferred into shares of NMI Common Stock on or prior to the Closing, as contemplated by clause (i), then the Series B Preferred shall not be entitled to receive, or to participate in, any of the Earnout Payments or any other payment or consideration in respect of the Merger or the transactions contemplated hereby.

(d) Series A Preferred. At the Effective Time, each share of Series A Preferred issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares which shall have only those rights specified in Section 1.8 and shares owned by NMI) shall be automatically converted into the right to receive, subject to and in accordance with Section 4.4 and this Agreement, an amount of cash (without interest) equal to (1) the Per Share Series A Closing Consideration, plus (2) the Per Share Series A Escrow Amount, plus (3) the Per Share Series A Representative Expense Amount. The amount of cash each holder of NMI Capital Stock is entitled to receive for the shares of Series Preferred held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all shares of Series A Preferred held by such holder. Notwithstanding anything herein to the contrary, for purposes of the Merger, and this Agreement, (i) the parties intend, to the extent that holders

of Series A Preferred elect in writing to convert their shares of Series A Preferred into shares of NMI Common Stock on or prior to the Closing, that such Series A Preferred shall be characterized and treated as NMI Common Stock, and that the Aggregate Merger Consideration and Earnout Payments, if any, payable in respect of such NMI Common Stock shall be determined in accordance with, and subject to, Section 1.7(f), and such Series A Preferred shall not be entitled to the Series A Liquidation Preference, and (ii) in the event that the Series A Preferred accept, or are otherwise paid, the Series A Liquidation Preference , and do not elect in writing to convert their shares of Series A Preferred into shares of NMI Common Stock on or prior to the Closing, as contemplated by clause (i), then the Series A Preferred shall not be entitled to receive, or to participate in, any of the Earnout Payments or any other payment or consideration in respect of the Merger or the transactions contemplated hereby.

(e) Series 1 Preferred. At the Effective Time, each share of Series 1 Preferred issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares which shall have only those rights specified in Section 1.8 and shares owned by NMI) shall be automatically converted into the right to receive, subject to and in accordance with Section 4.4 and this Agreement, an amount of cash (without interest) equal to (1) the Per Share Series 1 Closing Consideration, plus (2) the Per Share Series 1 Escrow Amount, plus (3) the Per Share Series 1 Representative Expense Amount, plus (4) the Per Share Earnout Payments, if any. The amount of cash each holder of NMI Capital Stock is entitled to receive for the shares of Series 1 Preferred held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all shares of Series 1 Preferred held by such holder.

(f) NMI Common Stock. At the Effective Time, each share of NMI Common Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares which shall have only those rights specified in Section 1.8 and shares owned by NMI) shall be automatically converted into the right to receive, subject to and in accordance with Section 4.4 and this Agreement, an amount of cash (without interest) equal to (1) the Per Share Common Closing Consideration, plus (2) the Per Share Common Escrow Amount, plus (3) the Per Share Common Representative Expense Amount, plus (4) the Per Share Earnout Payments, if any. The amount of cash each holder of NMI Common Stock is entitled to receive for the shares of NMI Common Stock held by such holder shall be rounded to the nearest cent and computed after aggregating cash amounts payable for all NMI Common Stock held by such holder.

(g) Treasury Shares and Shares Held by Parent or Sub. Each share of NMI Capital Stock held (i) in the treasury of NMI immediately prior to the Effective Time, or (ii) by Parent, Sub or any Subsidiary thereof immediately prior to the Effective Time, shall be canceled and extinguished without any conversion thereof and no payment or distribution shall be made with respect thereto.

(h) Capital Stock of Sub. Each share of common stock, par value $0.001 per share, of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and non-assessable share of common stock, par value $0.001 per share, of the Surviving Corporation.

(i) Warrants. Prior to the Closing, NMI shall have taken all actions necessary and appropriate to provide that each unexpired and unexercised Warrant shall terminate effective as of the Effective Time, and, in exchange therefor, each holder of any such terminated Warrant shall, to the extent contemplated in clauses (i), (ii) and (iii) below, be entitled to receive from Parent, in consideration of the

termination of such Warrant and in settlement therefore and in exchange for a release from the holder of the Warrant of any and all claims under, or in connection with the purchase and holding of the Warrant, subject to and in accordance with Section 4.4 of this Agreement, an amount in cash (without interest), if applicable, as set forth below:

(i) NMI Series D Warrants. With respect to Warrants exercisable for shares of Series D Preferred, an amount equal to the sum of (1) (A) the product of (X) the total number of shares of Series D Preferred that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (Y) the excess, if any, of the Per Share Series D Aggregate Consideration over the exercise or warrant price per share of Series D Preferred subject to such Warrant (the product determined pursuant to this clause (1)(A) for each Warrant being referred to as the “Series D Warrant Net Aggregate Consideration”), minus (B) Series D Warrant Escrow Amount, minus (C) Series D Warrant Representative Expense Amount, plus (2) the product of (A) the total number of shares of Series D Preferred that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the excess, if any, of the Per Share Series D Aggregate Consideration over the exercise or warrant price per share of Series D Preferred subject to such Warrant, multiplied by (C) the Escrow Contribution Percentage (the product determined pursuant to this clause (2) for each Warrant being referred to as the “Series D Warrant Escrow Amount”), plus (3) the product of (A) the total number of shares of Series D Preferred that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the excess, if any, of the Per Share Series D Aggregate Consideration over the exercise or warrant price per share of Series D Preferred subject to such Warrant, multiplied by (C) the Representative Expense Percentage (the product determined pursuant to this clause (3) for each Warrant being referred to as the “Series D Warrant Representative Expense Amount”). At the Effective Time, any Warrant exercisable for shares of Series D Preferred in respect of which the exercise price is greater than or equal to the Warrant Cancellation Price shall be automatically cancelled and shall not be entitled to any payments hereunder. The amount of cash each holder of Warrants exercisable for shares of Series D Preferred is entitled to receive for the Warrants exercisable for shares of Series D Preferred held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all Warrants exercisable for shares of Series D Preferred held by such holder.

(ii) NMI Series A Warrants. With respect to Warrants exercisable for shares of Series A Preferred, an amount equal to the sum of (1) (A) the product of (X) the total number of shares of Series A Preferred that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (Y) the excess, if any, of the Per Share Series A Aggregate Consideration over the exercise or warrant price per share of Series A Preferred subject to such Warrant (the product determined pursuant to this clause (1)(A) for each Warrant being referred to as the “Series A Warrant Net Aggregate Consideration”), minus (B) the Series A Warrant Escrow Amount, minus (C) the Series A Warrant Representative Expense Amount, plus (2) the product of (A) the total number of shares of Series A Preferred that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the excess, if any, of the Per Share Series A Aggregate Consideration over the exercise or warrant price per share of Series A Preferred subject to such Warrant, multiplied by (C) the Escrow Contribution Percentage (the product determined pursuant to this clause (2) for each Warrant being

referred to as the “Series A Warrant Escrow Amount”), plus (3) the product of (A) the total number of shares of Series A Preferred that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the excess, if any, of the Per Share Series A Aggregate Consideration over the exercise or warrant price per share of Series A Preferred subject to such Warrant, multiplied by (C) Representative Expense Percentage (the product determined pursuant to this clause (3) for each Warrant being referred to as the “Series A Warrant Representative Expense Amount”). At the Effective Time, any Warrant exercisable for shares of Series A Preferred in respect of which the exercise price is greater than or equal to the Warrant Cancellation Price shall be automatically cancelled and shall not be entitled to any payments hereunder. The amount of cash each holder of Warrants exercisable for shares of Series A Preferred is entitled to receive for the Warrants exercisable for shares of Series A Preferred held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all Warrants exercisable for shares of Series A Preferred held by such holder.

(iii) NMI Common Warrants. With respect to Warrants exercisable for shares of NMI Common Stock, an amount equal to the sum of (1) (A) the product of (X) the total number of shares of NMI Common Stock that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (Y) the excess, if any, of the Per Share Common Aggregate Consideration over the exercise or warrant price per share of NMI Common Stock subject to such Warrant (the product determined pursuant to this clause (1)(A) for each Warrant being referred to as the “Common Warrant Net Aggregate Consideration”), minus (B) the Common Warrant Escrow Amount, minus (C) the Common Warrant Representative Expense Amount, plus (2) the value attributable to a right to receive upon release from escrow the product of (A) the total number of shares of NMI Common Stock that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the excess, if any, of the Per Share Common Aggregate Consideration over the exercise or warrant price per share of NMI Common Stock subject to such Warrant, multiplied by (C) the Escrow Contribution Percentage (the product determined pursuant to this clause (2) for each Warrant being referred to as the “Common Warrant Escrow Amount”), plus (3) the value attributable to a right to receive upon release from escrow the product of (A) the total number of shares of NMI Common Stock that would otherwise have been issuable upon exercise of such Warrant, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the excess, if any, of the Per Share Common Aggregate Consideration over the exercise or warrant price per share of NMI Common Stock subject to such Warrant, multiplied by (C) the Representative Expense Percentage (the product determined pursuant to this clause (3) for each Warrant being referred to as the “Common Warrant Representative Expense Amount”), plus (4) the Per Share Earnout Payments, if any, payable on each share of NMI Common Stock underlying such Warrant. At the Effective Time, any Warrant exercisable for shares of NMI Common Stock in respect of which the exercise price is greater than or equal to the Warrant Cancellation Price shall be automatically cancelled and shall not be entitled to any payments hereunder. The amount of cash each holder of Warrants exercisable for shares of NMI Common Stock is entitled to receive for the Warrants exercisable for shares of NMI Common Stock held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all Warrants exercisable for shares of NMI Common Stock held by such holder.

(j) Convertible Debt. At the Effective Time, with respect to any amount of outstanding and unpaid Indebtedness of NMI convertible into shares of NMI Common Stock for which the holder has exercised its conversion rights prior to the Effective Time (“Convertible Debt”), each holder of any such Convertible Debt shall be entitled to receive from Parent, in consideration of the termination of the outstanding and unpaid amount of Indebtedness underlying such Convertible Debt and in settlement therefore and in exchange for a release from the holder of such Convertible Debt of any and all claims under, or in connection with the conversion and holding of the Convertible Debt, subject to and in accordance with Section 4.4 of this Agreement, an amount in cash (without interest) equal to the sum of (1) the product of (A) the total number of shares of NMI Common Stock that would otherwise have been issuable upon the conversion of such Convertible Debt, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the Per Share Common Closing Consideration, plus (2) the value attributable to a right to receive upon release from escrow the product of (A) the total number of shares of NMI Common Stock that would otherwise have been issuable upon conversion of such Convertible Debt, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the Per Share Common Escrow Amount, plus (3) the value attributable to a right to receive upon release from escrow the product of (A) the total number of shares of NMI Common Stock that would otherwise have been issuable upon conversion of such Convertible Debt, excluding anti-dilution adjustments, if any, on or after the Execution Date, multiplied by (B) the Per Share Common Representative Expense Amount, plus (4) the Per Share Earnout Payments, if any, payable on each share of NMI Common Stock underlying such Convertible Debt. The amount of cash each holder of Convertible Debt is entitled to receive for shares of NMI Common Stock into which the Convertible Debt has been converted at or prior to Closing shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all shares of NMI Common Stock in which the Convertible Debt has been converted by such holder. Notwithstanding anything herein to the contrary, for purposes of the Merger, and this Agreement, the parties intend, to the extent that payment of any exercise or conversion price is required in connection with the conversion of any Convertible Debt into shares of NMI Common Stock, that the portion of such Convertible Debt that may be so converted, be characterized and treated as a Warrant to purchase NMI Common Stock and that the Aggregate Merger Consideration and Earnout Payments, if any, payable in respect of such Convertible Debt be determined in accordance with, and subject to, Section 1.7(i)(iii).

(k) Retention RSUs. Each Retention RSU outstanding immediately prior to the Effective Time shall be assumed by Parent under the NMI Stock Plan and converted into restricted stock units covering Parent Common Stock at the Parent Share Conversion Rate, without any further action required. Each assumed Retention RSU shall be subject to the same terms, including vesting arrangements, that were applicable to such Retention RSUs immediately prior to or at the Effective Time, and no vesting acceleration of the Retention RSUs shall occur solely by reason of the Merger. Such Retention RSU shall cover that number of whole shares of Parent Common Stock equal to the product (rounded down to the next whole number of shares of Parent Common Stock, with no cash being payable for any fractional share eliminated by such rounding) of (i) the number of shares of NMI Common Stock that were issuable upon settlement of such Retention RSU immediately prior to the Effective Time multiplied by the (ii) Parent Share Conversion Rate. The assumption and conversion of Retention RSUs by Parent will satisfy the requirements of Treasury Regulations Section 1.409A-1(b)(5)(v)(D). Notwithstanding anything herein to the contrary, no Retention RSU shall be entitled to participate in,

receive proceeds from, or otherwise have any entitlement to, any Earnout Payments or to receive any other payments or consideration in respect of the Merger or the transactions contemplated hereby. Within sixty (60) calendar days following the Closing, Parent shall file with the Securities and Exchange Commission a registration statement on Form S-8 that will register the shares of Parent Common Stock subject to the Retention RSUs that are assumed by Parent pursuant to this Section 1.7(k) to the extent permitted by Federal securities laws and shall use its commercially reasonable efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses delivered with respect to such shares) for so long as such awards remain outstanding.

(l) Unvested Options. Each Unvested Option outstanding immediately prior to the Effective Time shall, without any further action required by any holder thereof, be cancelled prior to the Effective Time in accordance with, and as expressly permitted by, the NMI Stock Plan, and the holder thereof shall not be entitled to receive any consideration therefor under this Agreement or otherwise, whether from NMI, Parent or any other Person.

(m) Vested Options. At the Effective Time, each Vested Option (including any NMI Stock Options that by their terms automatically vest by virtue of the Merger) outstanding and unexercised immediately prior to the Effective Time shall be immediately canceled and, as consideration for such cancellation, the holder thereof shall be entitled to receive (without interest), subject to and in accordance with Section 4.4 and this Agreement, with respect to each share of NMI Common Stock that would otherwise have been issuable upon exercise of such Vested Option an amount of cash equal to the sum of (1) the sum of (A) the excess, if any, of the Per Share Common Aggregate Consideration over the per share exercise price with respect to such Vested Option (the excess amount, if any, determined pursuant to this clause (1)(A) for each Vested Option being referred to as the “Per Share Vested Option Net Aggregate Consideration”), minus (B) the Per Share Vested Option Escrow Amount, minus (C) the Per Share Vested Option Representative Expense Amount, plus (2) a right to receive upon release from escrow the product of (A) the excess, if any, of the Per Share Common Aggregate Consideration over the per share exercise price with respect to such Vested Option, multiplied by (B) the Escrow Contribution Percentage (the product determined pursuant to this clause (2) for each Vested Option being referred to as the “Per Share Vested Option Escrow Amount”), plus (3) a right to receive upon release from escrow the product of (A) the excess, if any, of the Per Share Common Aggregate Consideration over the per share exercise price with respect to such Vested Option, multiplied by (B) the Representative Expense Percentage (the product determined pursuant to this clause (3) for each Vested Option being referred to as the “Per Share Vested Option Representative Expense Amount”), plus (4) the Per Share Earnout Payments, if any, payable in respect of each share of NMI Common Stock underlying the Vested Option. The amount of cash each holder of Vested Options exercisable for shares of NMI Common Stock is entitled to receive for the Vested Options exercisable for shares of NMI Common Stock held by such holder shall be rounded down to the nearest cent and computed after aggregating cash amounts payable for all Vested Options exercisable for shares of NMI Common Stock held by such holder.

(n) NMI Preferred Stock. In the event the Aggregate Merger Consideration (exclusive of any adjustment required under Section 1.15(e)) is less than the aggregate of the Original Series A Issue Price, Original Series B Issue Price, Original Series C Issue Price and Original Series D Issue Price in respect of all shares of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred (including shares of NMI Preferred Stock underlying any Warrant to the extent exercised by

the holder thereof on or prior to the Closing) and the holders of which do not elect in writing to convert their NMI Preferred Stock into shares of NMI Common Stock on or prior to the Closing, then, in such event, notwithstanding anything to the contrary contained herein, the Aggregate Merger Consideration (exclusive of any adjustment required under Section 1.15(e)) shall be allocated ratably among the shares of Series A Preferred, Series B Preferred, Series C Preferred, and Series D Preferred in proportion to the Original Series A Issue Price, Original Series B Issue Price, Original Series C Issue Price and Original Series D Issue Price in accordance with the NMI Charter Documents, and the Per Share Series A Aggregate Consideration, Per Share Series B Aggregate Consideration, Per Share Series C Aggregate Consideration and Per Share Series D Aggregate Consideration shall each, for all purposes of this Agreement, be deemed to equal the amount allocated hereby in accordance with this Section 1.7(n) to each share of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred, respectively. Upon receipt of the consideration contemplated by the foregoing sentence, the holders of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred (including shares of NMI Preferred Stock underlying any Warrant to the extent exercised by the holder thereof on or prior to the Closing) shall not be entitled to receive, or to participate in, any further distributions hereunder, except that such holders shall be (a) entitled to receive distributions (if any) from the Escrow Account in accordance with the Escrow Agreement, and (b) deemed to have received the requisite Series A Liquidation Preference, Series B Liquidation Preference, Series C Liquidation Preference and Series D Liquidation Preference, as applicable, payable to such holders in accordance with the NMI Charter Documents.

1.8 Dissenting Shares.

(a) Notwithstanding anything in this Agreement to the contrary, NMI Capital Stock which is held by stockholders who have the right to dissent with respect to the Merger pursuant to Section 262 of the Delaware Code (the “Dissenting Shares”), shall not be cancelled and extinguished and converted into or be exchangeable for the right to receive the applicable merger consideration as set forth in Section 1.7 and the holders of the Dissenting Shares shall be entitled to receive payment of the fair value of the Dissenting Shares in accordance with the provisions of the Delaware Code (“Dissenting Share Payment”), unless and until such holders shall have failed to perfect or shall have effectively withdrawn or lost such right under the Delaware Code. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right, such holder’s Dissenting Shares shall thereupon be cancelled and extinguished and converted into or be exchangeable for the right to receive, as of the Effective Time, the applicable merger consideration as set forth in Section 1.7 without any interest thereon.

(b) Notwithstanding anything to the contrary in this Agreement, any Dissenting Share Payment in excess of the amount otherwise expressly payable to holders of Dissenting Shares pursuant to this Agreement made by Parent shall be deemed a “Loss” subject to the indemnification provisions of ARTICLE IV.

1.9 Rights Not Transferable. The rights of each Rights Holder as of immediately prior to the Effective Time are personal to each such Rights Holder and shall not be transferable for any reason otherwise than by operation of law, will or the laws of descent and distribution. Any attempted transfer of such right by any holder thereof (otherwise than as permitted by the immediately preceding sentence) shall be null and void.

1.10 Spreadsheet. NMI will cause to be prepared and delivered to Buyer, five (5) Business Days before the Closing, a spreadsheet, in the form set forth on Exhibit D, dated and setting forth as of the Closing, the following factual information relating to holders of NMI Capital Stock and securities convertible into or exchangeable for NMI Capital Stock: (a) the names and addresses of all the Rights Holders and holders of Unvested Options; (b) the number of shares of NMI Capital Stock held by, the number and series of each share of NMI Preferred Stock held by, the number of shares of NMI Capital Stock subject to the NMI Stock Options (and whether such NMI Stock Options are Vested Options or Unvested Options) held by, the number of shares of NMI Capital Stock subject to Warrants held by, and the number of shares of NMI Capital Stock subject to Convertible Debt held by, such Persons and, in the case of outstanding shares, the respective certificate numbers; (c) the exercise, warrant or conversion price per share in effect for each Stock Option, Warrant and Convertible Debt; (d) the Per Share Common Aggregate Consideration, Per Share Series A Aggregate Consideration, Per Share Series B Aggregate Consideration, Per Share Series C Aggregate Consideration, Per Share Series D Aggregate Consideration, Per Share Series 1 Aggregate Consideration, Per Share Vested Option Net Aggregate Consideration, Common Warrant Net Aggregate Consideration, Series D Warrant Net Aggregate Consideration, and Series A Warrant Net Aggregate Consideration; (e) the Per Share Common Closing Consideration, Per Share Series A Closing Consideration, Per Share Series B Closing Consideration, Per Share Series C Closing Consideration, Per Share Series D Closing Consideration, and Per Share Series 1 Closing Consideration; (f) the Per Share Common Escrow Amount, Per Share Series A Escrow Amount, Per Share Series B Escrow Amount, Per Share Series C Escrow Amount, Per Share Series D Escrow Amount, Per Share Series 1 Escrow Amount, Per Share Vested Option Escrow Amount, Common Warrant Escrow Amount, Series D Warrant Escrow Amount, and Series A Warrant Escrow Amount; (g) the Per Share Common Representative Expense Amount, Per Share Series A Representative Expense Amount, Per Share Series B Representative Expense Amount, Per Share Series C Representative Expense Amount, Per Share Series D Representative Expense Amount, Per Share Series 1 Representative Expense Amount, Per Share Vested Option Representative Expense Amount, Common Warrant Representative Expense Amount, Series D Warrant Representative Expense Amount, and Series A Warrant Representative Expense Amount; (h) the number of Fully-Diluted Shares; (i) the aggregate portion of the Aggregate Merger Consideration issuable to each Rights Holder in exchange for the NMI Capital Stock, Vested Options, Warrants and Convertible Debt held by such Persons; (j) the portion of the Aggregate Merger Consideration payable in cash at the Closing to each Rights Holder in exchange for the NMI Capital Stock, Vested Options, Warrants and Convertible Debt held by such Persons; (k) the portion of the Escrow Amount and the Representative Expense Amount for which Rights Holder is responsible; (l) each Rights Holder’s Pro Rata Share (calculated as of the Closing Date); (m) the calculation of the First Earnout Per Share Payment and Second Earnout Per Share Payment payable to participating Rights Holders, assuming the earnout is earned in full; (n) the number or fraction of shares of NMI Common Stock into which a share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series 1 Preferred can be converted; and (o) the withholding Tax, if any, applicable to the payment to each Rights Holder of their respective portion of (i) the Aggregate Merger Consideration payable at Closing, (ii) the Escrow Amount, and (iii) the Representative Expense Amount in exchange for the NMI Capital Stock, Vested Options, Warrants and Convertible Debt held by such Persons (the “Spreadsheet”). Buyer shall be fully and unconditionally entitled to rely upon, without further investigation or inquiry, and shall only make payments under this Agreement in accordance with, and shall have no liability for, any inaccuracies or misstatements contained in, the Spreadsheet. Each Rights Holder expressly and forever hereby waives

and releases Buyer from any such liability, whether arising in contract, tort or otherwise, related to or arising from the calculations and determinations set forth in the Spreadsheet to the extent that Buyer makes payments thereunder consistent with the Spreadsheet.

1.11 Withholding Taxes. Notwithstanding any other provision of this Agreement, NMI and, on its behalf, Parent, the Surviving Corporation and the Escrow Agent shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement, such amounts as are required to be deducted or withheld therefrom under any provision of U.S. Federal, state, local or non-U.S. Tax law or under any applicable legal requirement and to request any necessary Tax forms, including Form W-9 or the appropriate series of Form W-8, as applicable, or any similar information. The Surviving Corporation shall cause any amounts so deducted or withheld to be timely paid over to the appropriate authorities; provided that the Surviving Corporation is provided with all necessary documentation to support such payments. To the extent such amounts are so deducted or withheld and paid over to the appropriate authorities, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

1.12 Repayment of Closing Debt. NMI shall provide Parent with a statement of Closing Debt (the “Statement of Closing Debt”) showing details of all unpaid Closing Debt owing, or expected to be owed, by NMI not later than 12:00 p.m. Pacific Time on the date that is two (2) Business Days prior to the Closing Date in a form reasonably satisfactory to Parent. Simultaneously with, or prior to, the Closing, (a) Buyer shall make payments in the amounts and to the Persons set forth on the Statement of Closing Debt, and (b) the Persons set forth on the Statement of Closing Debt shall deliver to Parent executed payoff letters in a form reasonably satisfactory to Parent (the “Payoff Letters”).

1.13 Payment of Transaction and Other Specified Expenses. NMI shall provide Parent with a statement of Transaction and Other Specified Expenses (the “Statement of Transaction and Other Specified Expenses”) showing details of the Transaction and Other Specified Expenses owed, or expected to be owed, by NMI not later than 12:00 p.m. Pacific Time on the date that is two (2) Business Days prior to the Closing Date in a form reasonably satisfactory to Parent. Simultaneously with, or prior to, Closing, (a) Buyer shall pay the Transaction and Other Specified Expenses in the amounts and to the Persons set forth on the Statement of Transaction and Other Specified Expenses, and (b) the Persons set forth on the Statement of Transaction and Other Specified Expenses shall deliver to Parent executed satisfaction letters in a form reasonably satisfactory to Parent (the “Satisfaction Letters”).

1.14 Payment of Closing Merger Consideration.

(a) Paying Agent. Citibank N.A. shall act as paying agent (the “Paying Agent”) for the payments to each Rights Holder upon surrender of certificates representing shares of NMI Capital Stock (and Warrants and Convertible Debt that immediately prior to the Effective Time represented outstanding shares of NMI Capital Stock whose shares were converted into the right to receive a portion of the Aggregate Merger Consideration) (the “Certificates”) or any other payments required by Section 1.7. Parent shall pay, or cause to be paid, to each holder of Vested Options the portion of the Aggregate Merger Consideration to which such holder is entitled pursuant to Section 1.7(m) less any applicable Tax withholding.

(b) Exchange Procedure. Within two (2) Business Days after the Effective Time, Buyer or the Paying Agent shall mail or deliver to each holder of record of Certificates: (i) a letter of transmittal in the form attached hereto as Exhibit K (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to Parent, and shall include a full release of all claims (except claims arising under this Agreement) in favor of Buyer and, effective upon the Merger, the Surviving Corporation)(the “Letter of Transmittal”), and (ii) instructions for effecting the surrender of the Certificates in exchange for payment. Upon surrender of a Certificate for cancellation to Parent, the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such Letter of Transmittal, duly executed, and such other documents as may reasonably be required by Parent, the holder of such Certificate shall be entitled to receive in exchange therefor payment on the terms and subject to the conditions otherwise set forth herein, and the Certificate so surrendered shall forthwith be canceled. Parent may effect any payment required under this Agreement through the Paying Agent or such other agent or agents as may be appointed by Parent. In the event of a transfer of ownership of shares of NMI Capital Stock that is not registered in the transfer records of NMI, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer, and the person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. Until surrendered as contemplated by this Section 1.14, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the shares of NMI Capital Stock theretofore represented by such Certificate have been converted pursuant to Section 1.7. No interest shall be paid or accrue on the cash payable upon surrender of any Certificate.

(c) No Further Ownership Rights in Shares of NMI Capital Stock. The portion of the Aggregate Merger Consideration paid in accordance with the terms of this Section 1.14 upon conversion of any shares of NMI Capital Stock shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of NMI Capital Stock, and after the Effective Time there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of shares of NMI Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any Certificates formerly representing shares of NMI Capital Stock are presented to the Surviving Corporation or the Parent for any reason, they shall be canceled and exchanged as provided in this Section 1.14.

(d) No Liability. None of Parent, Sub, NMI, or Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar Applicable Law. If any Certificate has not been surrendered prior to five (5) years after the Effective Time (or immediately prior to such earlier date on which the payment in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity), then any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by Applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto.

1.15 Working Capital Adjustment

(a) The Aggregate Merger Consideration, as contemplated by Section 1.6, will be adjusted upward or downward as provided by this Section 1.15. Schedule 1.15(a) sets forth an example calculation of Working Capital as of March 31, 2014 including the components thereof, assuming the Closing occurred on such date and assuming the unaudited consolidated financial statements of NMI as of such date delivered to Buyer before the Execution Date have been prepared in accordance with GAAP and are accurate and complete in all respects. At least three Business Days prior to the Closing, NMI will deliver to Buyer (i) a certificate, signed by each of the Chief Executive Officer and the Chief Financial Officer of NMI (the “Working Capital Certificate”), setting forth a good faith estimate of the Working Capital, including the components thereof, as of immediately prior to the Closing, each calculated on a basis consistent with GAAP (as expressly modified and adjusted by this Agreement as described in Schedule 1.15(a)) and Schedule 1.15(a) (the “Estimated Working Capital”), and (ii) the work papers used to prepare such balance sheet and estimate.

(b) Any amount by which the Estimated Working Capital:


▪	exceeds $1,250,000 (such positive difference being referred to as the “Working Capital Excess”) will increase the Aggregate Merger Consideration as set forth in Section 1.6(a) on a dollar-for-dollar basis, or


▪	is less than $750,000 (such positive difference being referred to as the “Working Capital Shortfall”) will decrease the Aggregate Merger Consideration in accordance with Section 1.6(a) on a dollar-for-dollar basis.

Subject to Section 1.15(e), if the Estimated Working Capital falls within the range of $750,000 and $1,250,000 (the “Working Capital Collar”), then no adjustment to the Aggregate Merger Consideration shall be made.

(c) Within one hundred twenty (120) days after the Closing Date, Buyer shall prepare and deliver to the Representative (i) an unaudited balance sheet of NMI as of immediately prior to the Closing (the “Closing Balance Sheet”) and (ii) a statement setting forth the amount of, and the calculation of, NMI’s Working Capital as of immediately prior to the Closing, including the components thereof, as calculated from the Closing Balance Sheet and in accordance with the sample calculation set forth in Schedule 1.15(a) (the “Closing Date Working Capital”). The Closing Balance Sheet will be prepared in accordance with GAAP (as expressly modified and adjusted by this Agreement as described in Schedule 1.15(a)) and Schedule 1.15(a) and will fairly present the financial position of NMI as of the Closing Date, subject to the modifications and adjustments required by this Agreement. Immediately following the delivery of the Closing Balance Sheet and the statement of the Closing Date Working Capital, Buyer will provide the Representative and its professional advisors reasonable access to the books and records and employees of the Surviving Corporation as may be reasonably required by the Representative to determine the accuracy of the Closing Balance Sheet and the statement of Closing Date Working Capital and will cause the employees of the Surviving Corporation and Buyer to reasonably cooperate with the Representative and its professional advisors as may be reasonably required in connection with their determination of the accuracy of the Closing Balance Sheet and the statement of Closing Date Working Capital. If Buyer fails to deliver the Closing Balance Sheet and Closing Date

Working Capital within one hundred twenty (120) days after the Closing Date, there shall be no adjustment to the Aggregate Merger Consideration pursuant to this Section 1.15.

(d) The Representative will notify Buyer in writing of any objections to the Closing Date Working Capital or Closing Balance Sheet within twenty (20) Business Days after the Representative receives the Closing Date Working Capital and the Closing Balance Sheet; provided that the only basis on which the Representative shall be permitted to object is that either the Closing Date Working Capital or Closing Balance Sheet was not prepared in accordance with the terms of this Agreement, GAAP, or contains a mathematical error or errors. If the Representative does not notify Buyer of any such objections by the end of such twenty (20) Business Day period or specifies objections other than those expressly permitted by the immediately prior sentence, then the Closing Date Working Capital and the Closing Balance Sheet will each be considered final at the end of such twenty (20) Business Day period. If the Representative does notify Buyer of any such objections by the end of such twenty (20) Business Day period and the Representative and Buyer are unable to resolve their differences within ten (10) Business Days thereafter, then the remaining disputed items and the value attributable to them by each of the Representative and Buyer will be submitted promptly to the Neutral Accounting Firm for resolution, and the Neutral Accounting Firm will be instructed to determine the final Closing Date Working Capital and Closing Balance Sheet and deliver such findings to the Representative and Buyer within the time period set forth in this Section 1.15(d). The Neutral Accounting Firm will consider only those items and amounts in the Representative’s and Buyer’s respective calculations of the Closing Date Working Capital that are identified as being items and amounts with respect to which the Representative and Buyer have been unable to agree and all other items included within the Closing Date Working Capital or Closing Balance Sheet shall be deemed final, conclusive and binding on the parties (and not subject to further review in any forum). In resolving any disputed item (and only such disputed items), the Neutral Accounting Firm may not assign a value to any item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party. The Neutral Accounting Firm’s determination of the Closing Date Working Capital will be based solely on written materials submitted by the Representative and Buyer (i.e., not an independent or de novo review) and on the definition of Working Capital included herein. The Neutral Accounting Firm shall provide its determination within twenty (20) Business Days from the date the parties have submitted all of their supporting documents. The decision of the Neutral Accounting Firm will be final, conclusive and binding upon the parties hereto (and not subject to further review in any forum). Neither Buyer nor Representative will have any right to, and will not, institute any action challenging such determination or any of the matters that are the subject of this Section 1.15, except that the foregoing will not preclude an action to enforce such determination. If the Neutral Accounting Firm’s determination of Closing Date Working Capital is closer to the value initially asserted by Buyer to the Neutral Accounting Firm, then the Representative will pay the costs and expenses of the Neutral Accounting Firm. If the Neutral Accounting Firm’s determination of Closing Date Working Capital is closer to the value initially asserted by the Representative to the Neutral Accounting Firm, then Buyer will pay the costs and expenses of the Neutral Accounting Firm. Each of Buyer and the Representative will cooperate with and assist the Neutral Accounting Firm to determine the final Closing Date Working Capital and Closing Balance Sheet, including by making available and granting reasonable access to records and employees.

(e) Within five (5) Business Days of the final determination of the Closing Date Working Capital in accordance with this Section 1.15:

(i) if the Estimated Working Capital and the Closing Date Working Capital are both within the Working Capital Collar, then no adjustment to the Aggregate Merger Consideration shall be made;

(ii) if the Estimated Working Capital is within the Working Capital Collar and the Closing Date Working Capital is greater than $1,250,000, then Buyer shall pay to each Rights Holder that has complied with the exchange requirements set forth in Section 1.14 an amount equal to such Rights Holder’s Pro Rata Share of (1) the Closing Date Working Capital minus (2) $1,250,000 in accordance with the payment instructions set forth on the Spreadsheet;

(iii) if the Estimated Working Capital is within the Working Capital Collar and the Closing Date Working Capital is less than $750,000, then Buyer shall be entitled to recover an amount equal to (1) $750,000 minus (2) the Closing Date Working Capital from the Escrow Amount (without any amount subject to, or counted toward, the Threshold Amount), and the Escrow Agent shall distribute such amount to Buyer in accordance with the terms of the Escrow Agreement;

(iv) if the Estimated Working Capital is greater than $1,250,000 and the Closing Date Working Capital is within the Working Capital Collar, then Buyer shall be entitled to recover an amount equal to (1) the Estimated Working Capital minus (2) $1,250,000 from the Escrow Amount (without any amount subject to, or counted toward, the Threshold Amount), and the Escrow Agent shall distribute such amount to Buyer in accordance with the terms of the Escrow Agreement;

(v) if the Estimated Working Capital and the Closing Date Working Capital are both greater than $1,250,000 and the Closing Date Working Capital is less than the Estimated Working Capital, then Buyer shall be entitled to recover an amount equal to (1) the Estimated Working Capital minus (2) the Closing Date Working Capital from the Escrow Amount (without any amount subject to, or counted toward, the Threshold Amount), and the Escrow Agent shall distribute such amount to Buyer in accordance with the terms of the Escrow Agreement;

(vi) if the Estimated Working Capital and the Closing Date Working Capital are both greater than $1,250,000 and the Closing Date Working Capital is greater than the Estimated Working Capital, then Buyer shall pay to each Rights Holder that has complied with the exchange requirements set forth in Section 1.14 an amount equal to such Rights Holder’s Pro Rata Share of (1) the Closing Date Working Capital minus (2) the Estimated Working Capital in accordance with the payment instructions set forth on the Spreadsheet;

(vii) if the Estimated Working Capital is greater than $1,250,000 and the Closing Date Working Capital is less than $750,000, then Buyer shall be entitled to recover an amount equal to (1) the Estimated Working Capital, minus (2) the Closing Date Working Capital, minus (3) $500,000 from the Escrow Amount (without any amount subject to, or counted toward, the Threshold Amount), and the Escrow Agent shall distribute such amount to Buyer in accordance with the terms of the Escrow Agreement;

(viii) if the Estimated Working Capital is less than $750,000 and the Closing Date Working Capital is within the Working Capital Collar, then Buyer shall pay to each Rights Holder that has complied with the exchange requirements set forth in Section 1.14 an amount equal to such Rights Holder’s Pro Rata Share of (1) $750,000 minus (2) the Estimated Working Capital in accordance with the payment instructions set forth on the Spreadsheet;

(ix) if the Estimated Working Capital is less than $750,000 and the Closing Date Working Capital is greater than $1,250,000, then Buyer shall pay to each Rights Holder that has complied with the exchange requirements set forth in Section 1.14 an amount equal to such Rights Holder’s Pro Rata Share of (1) the Closing Date Working Capital, minus (2) the Estimated Working Capital, minus (3) $500,000 in accordance with the payment instructions set forth on the Spreadsheet;

(x) if the Estimated Working Capital and the Closing Date Working Capital are both less than $750,000 and the Closing Date Working Capital is less than the Estimated Working Capital, then Buyer shall be entitled to recover an amount equal to (1) the Estimated Working Capital minus (2) the Closing Date Working Capital from the Escrow Amount (without any amount subject to, or counted toward, the Threshold Amount), and the Escrow Agent shall distribute such amount to Buyer in accordance with the terms of the Escrow Agreement; and

(xi) if the Estimated Working Capital and the Closing Date Working Capital are both less than $750,000 and the Closing Date Working Capital is greater than the Estimated Working Capital, then Buyer shall pay to each Rights Holder that has complied with the exchange requirements set forth in Section 1.14 an amount equal to such Rights Holder’s Pro Rata Share of (1) the Closing Date Working Capital minus (2) the Estimated Working Capital in accordance with the payment instructions set forth on the Spreadsheet.

1.16 Earnout

(a) 2015 Revenue Earnout. Subject to the last sentence in Section 4.5, with respect to the First Earnout Period, Parent shall pay or cause to be paid (without interest thereon) no later than September 15, 2015, to each Rights Holder entitled to participate in the Earnout Payments who has surrendered their Certificates, if any, to the Paying Agent in accordance with Section 1.14, an amount equal to the First Earnout Per Share Payment, if any, payable on such Rights Holder’s shares of NMI Capital Stock, Vested Options, Warrants or Convertible Debt. The amount of cash each Rights Holder is entitled to receive pursuant to this Section 1.16(a) shall, on each payment date, be rounded down to the nearest cent and computed after aggregating all cash amounts payable hereunder.

(b) 2016 Revenue Earnout. Subject to the last sentence in Section 4.5, with respect to the First Earnout Period, Parent shall pay or cause to be paid (without interest thereon) no later than September 15, 2016, to each Rights Holder entitled to participate in the Earnout Payments who has surrendered their Certificates, if any, to the Paying Agent in accordance with Section 1.14, an amount equal to the Second Earnout Per Share Payment, if any, payable on such Rights Holder’s shares of NMI Capital Stock, Vested Options, Warrants or Convertible Debt. The amount of cash each Rights Holder is entitled to receive pursuant to this Section 1.16(b) shall, on each payment date, be rounded down to the nearest cent and computed after aggregating all cash amounts payable hereunder.

(i) The parties acknowledge and agree that after the Effective Time, except as set forth in this Section 1.16(c), Parent has the right to operate, fund and manage the business of the Surviving Corporation in any way that Parent deems commercially reasonable in the exercise of its business judgment, and, subject to the foregoing, Parent and its Affiliates have no obligation, express, implied or otherwise, to operate, fund or manage the Surviving Corporation or any of the NMI business in order to achieve any Earnout Payments (and no statements made, or any discussions undertaken, at any

time prior to the Closing Date, with any Persons affiliated with NMI or any of its Affiliates, regarding future product roadmaps, technology development, resource allocations, reporting lines or employee responsibilities, by any Person, whether employed by Parent or any of its Affiliates or engaged as an advisor or representative of Parent or any of its Affiliates, shall be binding in any respect, or limit, restrict or otherwise affect the terms or intent of this Section 1.16(c)); provided, however, that Parent shall, and shall cause its Affiliates (including the Surviving Corporation) to, (A) act at all times with respect to the Surviving Corporation and its business in good faith, (B) not take any intentional action in bad faith that could reasonably be expected to adversely affect any Earnout Payments, and (C) not take any intentional action without reasonable basis which is intended to, or the primary effect of which is to, delay or prevent any Earnout Payments from being achieved. The parties further acknowledge and agree that (1) the amounts of the Earnout Payments are speculative and subject to numerous factors outside the control of Parent and its Affiliates and each Rights Holder acknowledges and confirms, by his, her or its delivery of securities or a Letter of Transmittal to Parent, or its agent, under this Agreement, that it has not relied on, and has not been induced to enter into this Agreement on the basis of, any representation, statement or other communication, whether written or oral, by Parent or any of its Affiliates, NMI or any representatives of either, including any investment banking professionals engaged by Parent or NMI, that it has any entitlement to, or assurance of, receiving all or any portion of the Earnout Payment, and (2) there is no assurance that the Rights Holders will receive any Earnout Payment and neither Parent nor any of its Affiliates has not promised or projected any Earnout Payments.

(ii) Parent shall, and shall cause its Affiliates (including the Surviving Corporation) to, keep books and records sufficient to calculate any Earnout Payments.

(iii) All calculations with respect to IoT Revenue and Broadcast Revenue shall be calculated by Parent in accordance with Generally Accepted Accounting Principles, as applied by Parent in its financial statements.

(iv) On or before the date any Earnout Payment is due, Parent shall prepare and deliver to the Representative a statement setting forth in reasonable detail the IoT Revenue and the Broadcast Revenue for the applicable Earnout Period and a calculation of the Earnout Payment, if any, owing for such period (each such statement, an “Earnout Statement”) and provide Representative with (1) reasonable access to relevant books, records, documents, schedules and workpapers of Parent and the Surviving Corporation and its Subsidiaries to the extent reasonably necessary to enable the Representative to verify the accuracy of the Earnout Statement, and (2) reasonable access to the employees and representatives of the Parent and the Surviving Corporation and its Subsidiaries to respond to relevant questions from the Representative.

(v) On the Closing Date, NMI shall prepare and deliver to Parent a statement (the “First Earnout Period Pre-Closing Revenue Statement”) setting forth in reasonable detail (a) IoT Revenue for the period from July 1, 2014 through the Closing Date, calculated in accordance with GAAP and subject to adjustment (if any) as a result of the dispute resolution mechanism outlined in the immediately following sentence (the “First Earnout Period Pre-Closing IoT Revenue”), and (b) Broadcast Revenue for the period from July 1, 2014 through the Closing Date, calculated in accordance with GAAP and subject to adjustment (if any) as a result of the dispute resolution mechanism outlined in the immediately following sentence (the “First Earnout Period Pre-Closing Broadcast Revenue”). In the event Parent disagrees with NMI’s determination of the revenue amounts set forth in the First Earnout

Period Pre-Closing Revenue Statement, Parent shall be entitled to use, and NMI shall be obligated to accept and use, the dispute resolution mechanism set forth for Earnout Payments below in Section 1.16(d) to resolve such dispute.

(d) Earnout Dispute Resolution.

(i) If the Representative disagrees with Parent’s determination of the Earnout Payment amount as set forth in the Earnout Statement for any Earnout Period, the Representative shall notify Parent in writing of such disagreement within twenty (20) Business Days after delivery of the Earnout Statement (failure to deliver a notice of disagreement with such twenty (20) Business Day period shall constitute final acceptance by all Rights Holders and the Representative of Parent’s determination and calculation of the Earnout Payment and Earnout Statement), which notice shall describe the nature of any such disagreement in reasonable detail. During the twenty (20) calendar day period following any notice of disagreement delivered pursuant to the preceding sentence, Parent and the Representative shall negotiate in good faith in order to attempt to resolve any such disagreement. If Parent and the Representative are unable to resolve such disagreement within such twenty (20) calendar day negotiation period, at the election of either Parent or the Representative, they shall each submit their respective proposed Earnout Payment amount to the Neutral Accounting Firm, which shall, prior to undertaking its review, execute a non-disclosure agreement acceptable to Parent, and Parent shall provide the Neutral Accounting Firm, which shall be jointly retained by the Representative and Parent, with reasonable access to relevant books, records, documents, schedules and workpapers of Parent to the extent reasonably necessary to enable the Neutral Accounting Firm to verify Parent’s determination of the Earnout Payment amount for the Earnout Period covered by such Earnout Statement; provided that access shall be provided at reasonable times upon reasonable prior notice to Parent and under reasonable circumstances and shall not unreasonably interfere with the business operations of Parent. If the Representative fails to deliver such a notice of disagreement in such twenty (20) Business Day period, the Representative on behalf of all Rights Holders shall have irrevocably and unconditionally waived its right to contest, and shall be deemed to have agreed to, the Earnout Statement at issue and the Earnout Payment amount shown thereon.

(ii) The Neutral Accounting Firm will only consider those specific issues and matters as to which Parent and the Representative have disagreed, this Agreement and the books, records, documents, schedules and workpapers that each of Parent and the Representative may submit to the Neutral Accounting Firm, which may include all of such party’s calculations with respect to the subject matter of the disagreement and all of its information, arguments and support for its position. The Neutral Accounting Firm shall not consider, or be entitled to reference or otherwise include in its review or deliberations, any materials other than those referred to in the preceding sentence. Parent and the Representative shall direct the Neutral Accounting Firm to deliver to Parent and the Representative, as promptly as practicable and in any event within twenty (20) Business Days after its appointment, a written report setting forth the resolution of any such disagreement. The determination of the Neutral Accounting Firm shall be final, binding and conclusive upon Parent and the Representative. Judgment may be entered upon the determination of the Neutral Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The fees, expenses and costs of the Neutral Accounting Firm shall be borne by the party which submits the proposed Earnout Payment amount to the Neutral Accounting Firm that varies the greatest amount from the final Earnout Payment amount determined by the Neutral Accounting Firm hereunder, and if such party is the Representative,

then such fees, costs and expenses shall be borne by the Representative solely on behalf of the Rights Holders. Parent shall make or cause to be made the final Earnout Payment, if any, in the amount as determined by the Neutral Accounting Firm promptly after such final determination, but in no event more than five (5) Business Days thereafter, in the manner set forth in Section 1.16(a) or Section 1.16(b), as applicable. Any such final Earnout Payment shall be made without any interest or penalty.

(iii) Notwithstanding anything to the contrary in this Agreement, any dispute, controversy or claim arising solely out of or relating solely to the calculation of any Earnout Payment amount (including the determination of whether any IoT Revenue and Broadcast Revenue derives from Products) shall be settled pursuant to the dispute resolution mechanism set forth in this Section 1.16(d) and any dispute, controversy or claim that is not arising solely out of, or relating solely to, the calculation of any Earnout Payment shall be settled pursuant to the dispute resolution mechanism set forth in Section 4.4(e) and (f).

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF NMI

Subject to the disclosures and other responses set forth in the Disclosure Schedule (which exceptions and responses in order to be effective will specify the section or subsection to which they apply but will also qualify other sections or subsections in this ARTICLE II to the extent that it is reasonably apparent on the face of an exception or response to an objective observer that such exception or response is directly applicable to such other section or subsection), NMI hereby represents and warrants to Buyer as of the Execution Date (except for representations and warranties which address matters only as to a specified date, which NMI hereby represents and warrants as of such specified date) as follows:

2.1 Organization and Qualification.

(a) NMI and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority to carry on its business as presently conducted and to own, operate and lease its assets. NMI and each of its Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not reasonably expected to have a Material Adverse Effect.

(b) NMI has made available to Parent through the Data Room true, complete and accurate copies of the Organizational Documents of NMI and each of its Subsidiaries.

(c) NMI has made available to Parent through the Data Room the minute books containing all records of all proceedings, consents, actions and meetings of the board of directors or any other governing body of (including any committees thereof), and the stockholders, members or other equity holders or owners of, NMI and each of its Subsidiaries (the “Corporate Records”). The Corporate Records contain a complete and accurate summary of all proceedings, consents, actions and meetings of board of directors or any other governing body of (including any committees thereof), and the stockholders, members or other equity holders or owners of, NMI and each of its Subsidiaries that have occurred since inception of each such Person. All actions that require approval of the board of directors or any other governing body of (including any committees thereof), and the stockholders, members or other

equity holders or owners of, NMI and each of its Subsidiaries have been duly approved in accordance with Applicable Law.

2.2 Subsidiaries.

(a) NMI does not have any Subsidiaries other than the Subsidiaries listed on Section 2.2 of the Disclosure Schedule. NMI owns directly or indirectly all of the outstanding shares of capital stock or other equity interest of each of its Subsidiaries. Except as set forth on Section 2.2 of the Disclosure Schedule, neither NMI nor any of its Subsidiaries owns, directly or indirectly, any capital stock, equity or other ownership interest in any other Person (including any representative office or branch office under the laws of any jurisdiction outside of the United States).

(b) Except as set forth in Section 2.1(b)(i) of the Disclosure Schedule, no jurisdiction in which any NMI Subsidiary operates or conducts business requires the appointment or designation of any director or similar governing body member that is domiciled in, or holding citizenship in, such jurisdiction. Except as set forth in Section 2.1(b)(ii) of the Disclosure Schedule, no NMI Subsidiary has any director or similar governing body member that is not a U.S. citizen.

2.3 Capital Structure.

(a) The authorized capital stock of NMI consists of (i) 65,000,000 shares of NMI Common Stock, of which 7,060,591 shares are issued and outstanding; and (ii) 40,100,000 shares of NMI Preferred Stock, of which 37,699,470 shares are issued and outstanding, comprising (A) 11,500,000 shares of Series A Preferred Stock (the “Series A Preferred”), of which 11,199,998 shares are issued and outstanding; (B) 8,500,000 shares of Series B Preferred Stock (the “Series B Preferred”), of which 8,474,574 shares are issued and outstanding; (C) 9,800,000 shares of Series C Preferred Stock (the “Series C Preferred”), of which 9,569,021 shares are issued and outstanding; (D) 8,575,000 shares of Series D Preferred Stock (the “Series D Preferred”), of which 6,741,573 shares are issued and outstanding; and (E) 1,725,000 shares of Series 1 Preferred Stock (the “Series 1 Preferred”), of which 1,714,304 shares are issued and outstanding. No shares of NMI Common Stock or NMI Preferred Stock are held in the treasury of NMI.

(b) NMI has issued and outstanding warrants to purchase (1) 135,000 shares of Series A Preferred, (2) 1,822,470 shares of Series D Preferred, and (3) 748,298 shares of NMI Common Stock, and (4) debt convertible into 3,367,347 shares of NMI Common Stock. The Convertible Debt is convertible into 3,367,347 shares of NMI Common Stock.

(c) NMI has reserved an aggregate of 15,100,000 shares of NMI Common Stock for issuance to employees and consultants pursuant to the NMI Stock Plan, which reservation has been duly adopted by the board of directors and approved by the stockholders of NMI, under which 11,608,518 shares have been issued, and, exclusive of shares issuable upon exercise of Vested Options and Unvested Options, 1,430,891 shares remain issuable under the NMI Stock Plan.

(d) Each share of NMI Series A Preferred Stock is convertible into one (1) share of NMI Common Stock; each share of NMI Series B Preferred Stock is convertible into 1.035088 shares of NMI Common Stock; each share of NMI Series C Preferred Stock is convertible into 1.084746 shares of NMI Common Stock; each share of NMI Series D Preferred Stock is convertible into one (1) share of NMI Common Stock; and each share of NMI Series 1 Preferred Stock is convertible into 1.084746 shares of NMI Common Stock. There are no declared or accrued but unpaid dividends relating to any NMI

Capital Stock. All of the issued and outstanding shares of NMI Capital Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the certificate of incorporation or bylaws of NMI, or any agreement to which NMI is a party or by which it is bound that has not been validly waived and terminated.

(e) The Spreadsheet, to be delivered in accordance with Section 1.10, shall set forth, as of immediately prior to the Effective Time, a true, complete and accurate list of (i) each holder of NMI Common Stock and NMI Preferred Stock (legal and beneficial), the amount of such Person’s holdings, such Person’s address and, if applicable, the number of shares of NMI Common Stock into which such Person’s holdings of NMI Preferred Stock may be converted; (ii) each holder of Stock Options, the amount of such Person’s holdings, such Person’s address, and the exercise price applicable to each Stock Option such Person holds; and (iii) each holder of Warrants or Convertible Debt, the amount of such Person’s holdings, such Person’s address, the exercise price (if applicable) for such Warrants or Convertible Debt, and the number of shares of NMI Common Stock or NMI Preferred Stock into which such Warrants or Convertible Debt may be converted. The shares of NMI Common Stock and NMI Preferred Stock set forth on the Spreadsheet constitute all of the issued and outstanding NMI Capital Stock, and, except for (i) the Stock Options, Warrants and Convertible Debt set forth in the Spreadsheet and (ii) the Retention RSUs, there are no other existing shareholdings or interests of any kind of any third party in NMI, including options, warrants, convertible debt, restricted stock units, purchase rights, pre-emptive rights, co-sale rights, bring-along rights, rights of first refusal or other Contracts or commitments that could require NMI to sell, transfer, create, issue or otherwise dispose of any share of NMI Capital Stock or any other form of capital in NMI. Except as set forth in this Section 2.3, NMI has no other capital stock authorized, issued or outstanding.

(f) All outstanding shares of NMI Capital Stock, Vested Options, Unvested Options, Warrants and Convertible Debt have been issued in compliance with all Applicable Laws, including federal, state, local or foreign statutes, laws, rules or regulations, federal and foreign securities laws, state securities or “blue sky” laws and similar laws in foreign jurisdictions and other similar securities laws in any jurisdiction. Except as set forth in Section 2.3(f) of the Disclosure Schedule, Vested Options, Unvested Options, Warrants and Convertible Debt granted to employees or other Persons in China, Egypt, Japan, Korea, India and Taiwan, or any other jurisdiction, by NMI or any of its Subsidiaries have been granted in compliance with all Applicable Laws and none of the holders of such Vested Options, Unvested Options, Warrants and Convertible Debt has any rights of rescission, rights to contest, dissent or otherwise object to the proposed Merger, any of the transactions contemplated by this Agreement, any other entitlements in respect of their interest, or purported interest, in NMI, or to otherwise seek forms or amounts of consideration in respect of their equity, or equity related securities, other than as expressly contemplated and provided by this Agreement.

(g) All equity securities of each Subsidiary of NMI are legally and beneficially owned by NMI and there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal) or agreements of any kind for the purchase or acquisition from any of NMI’s Subsidiaries of any of its securities or any other form of ownership interests.

(h) NMI has not issued or granted any Stock Options or other rights to acquire NMI Capital Stock or other equity of NMI (including any right to acquire equity other than that of NMI that

has been converted into a right to acquire equity of NMI) that have an exercise price that is less than the fair market value of the underlying equity as of the date such option or right was granted.

(i) Section 2.3(i) of the Disclosure Schedule sets forth true, complete and accurate copies of the stock ledger, journal and other records of NMI and each of its Subsidiaries reflecting all issuances, transfers and cancellations of equity of (including any options, warrants, equity based awards or other securities exercisable for, or convertible into, equity of) NMI and each of its Subsidiaries, other than the Retention RSUs.

(j) Except for the NMI Stock Plan, neither NMI nor any of its Subsidiaries currently maintains, or has maintained at any point prior to the Execution Date, any plan providing for the issuance of NMI Capital Stock, Stock Options, Warrants or any other equity, securities or other ownership interests of NMI or any of its Subsidiaries to any of the employees, officers, directors, contractors or consultants of NMI or any of its Subsidiaries. Except as set forth in Section 2.3(j) of the Disclosure Schedule, the NMI Stock Plan does not provide for, and NMI and its Subsidiaries have not issued or granted any Stock Options, Warrants or any other equity, securities or other ownership interests that provide for, “single trigger” acceleration, and NMI and its Subsidiaries have not issued or granted any Stock Options, Warrants or any other equity, securities or other ownership interests that will otherwise accelerate or vest in connection with the Merger or any of the transactions contemplated by this Agreement.

(k) The First Earnout Pre-Closing Revenue Statement, to be delivered in accordance with Section 1.16(c)(v) shall set forth, as of immediately prior to the Effective Time, the true, complete and correct amount of each of the First Earnout Pre-Closing IoT Revenue and the First Earnout Pre-Closing Broadcast Revenue.

(l) Except for holders of (i) NMI Preferred Stock who elect in writing to convert their shares of NMI Preferred Stock into shares of NMI Common Stock on or prior to the Closing and (ii) Series 1 Preferred, no holder of NMI Preferred Stock is entitled to receive any Earnout Payments or to participate in any payments made in accordance with Section 1.15(e). Upon payment of their allocable portion of the Aggregate Merger Consideration at the Closing in accordance with the terms of this Agreement, each holder of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred who does not elect in writing to convert their shares into shares of NMI Common Stock on or prior to the Closing will have received the respective Series A Liquidation Preference, Series B Liquidation Preference, Series C Liquidation Preference and Series D Liquidation Preference payable to such holder in accordance with the NMI Charter Documents.

2.4 Validity of Contemplated Transactions. NMI has the corporate power, authority and right to execute, deliver and perform this Agreement and the Ancillary Agreements. This Agreement, the Ancillary Agreements, and all other agreements, documents and instruments executed and delivered in connection herewith have been duly executed and delivered on behalf of NMI, and this Agreement, the Ancillary Agreements and such other agreements, documents and instruments constitute the legal, valid and binding obligations of NMI, enforceable against NMI in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights or by principles of equity.

2.5 No Conflicts. The execution and delivery by NMI of this Agreement and the Ancillary Agreements does not, and the consummation of the Merger and the other transactions contemplated hereby and compliance by NMI with the terms hereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of amendment, impairment, modification, suspension, revocation, acceleration, termination, or cancellation of any obligation under, or result in the loss of any right or benefit under, or impose any additional obligations or create any additional rights under, or result in the creation of any Lien (other than Permitted Liens) upon any of the properties or assets of NMI or any of its Subsidiaries under, any provision of (a) any Contract, Applicable Law or Permit to which NMI or any of its Subsidiaries is a party or legally subject or by which any of their respective properties or assets is bound or legally subject, (b) the Organizational Documents of NMI or any of its Subsidiaries or any securities issued by NMI or any of its Subsidiaries or (c) assuming expiration or termination of any required waiting period under the HSR Act or any Other Anti-Trust Law and the receipt of any required Authorizations as described in Section 2.6, any judgment or law applicable to NMI or any of its Subsidiaries or its properties or assets, other than any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

2.6 Consents. No Authorizations of, Orders of, consent of, waiting period expirations or terminations, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to NMI or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement or the consummation of the Merger or the other transactions contemplated hereby, other than those required solely by reason of Buyer’s (as opposed to any other third party’s) participation in the Merger and the other transactions contemplated hereby, except for such Authorizations, Orders, consents, registrations, declarations, waiting period expirations or terminations, filings and notices as may be required under the HSR Act. The affirmative votes of (a) the holders of a majority of the outstanding shares of NMI Common Stock and NMI Preferred Stock (voting together as a single voting class on an as-converted to NMI Common Stock basis), (b) the holders of a majority of the outstanding shares of NMI Common Stock (voting as a separate voting class), (c) the holders of a majority of the outstanding shares of each series of NMI Preferred Stock (other than the Series 1 Preferred, with each such series voting as a single voting class on an as-converted to NMI Common Stock basis), and (d) the holders of a majority of the outstanding shares of NMI Preferred Stock (voting together as a separate class) are the only votes of the holders of the NMI Capital Stock, and the only class or series votes, necessary to adopt this Agreement and approve the Merger (the affirmative votes described in foregoing clauses (a) through (d), and otherwise necessary to adopt the Agreement and approve the Merger, are collectively referred to as the “Minimum Stockholder Approval”).

2.7 Financial Statements.

(a) NMI has delivered to Buyer true and complete copies of (a) the audited financial statements of NMI consisting of the consolidated balance sheet dated December 31, 2012 and the related statements of income, retained earnings and cash flows for the periods then ended (the “Audited Financial Statements”), and (b) the unaudited financial statements of NMI consisting of the consolidated balance sheet dated March 31, 2014, and the related statements of income, retained earnings and cash flows for the three month period then ended (the “Unaudited Financial Statements” and, together with the Audited Financial Statements, the “Financial Statements”). A full, true and complete copy of the Unaudited Financial Statements is set forth in Section 2.7(a)(i) to the Disclosure Schedule. The Financial Statements

are true and correct in all material respects and have been prepared in accordance with GAAP throughout the periods indicated (except that the Unaudited Financial Statements do not contain notes and are subject to normal recurring year-end adjustments). The Financial Statements, including the related notes, fairly present in all material respects the financial position, assets and liabilities (whether accrued, absolute, contingent or otherwise) of NMI at the dates indicated and such statements of income, retained earnings and cash flows fairly present in all material respects the results of operations, changes in retained earnings and cash flows of NMI for the periods indicated. There has been no change in NMI’s accounting policies, methods or estimates, or the application of GAAP, by NMI in connection with the preparation of its Financial Statements, since December 31, 2012 (the “Balance Sheet Date”) and as used in the preparation of the Audited Financial Statements, except as set forth, and expressly described, in Section 2.7(a)(ii) of the Disclosure Schedule.

(b) The aggregate amount of Indebtedness of NMI and each of its Subsidiaries within five (5) Business Days of the Execution Date is set forth in Section 2.7(b)(i) of the Disclosure Schedule. Other than the Closing Debt as set forth in Section 2.7(b)(i) of the Disclosure Schedule, which will be fully paid off as reflected in the Payoff Letters, neither NMI nor any Subsidiary will, as of the Closing Date, have any outstanding Indebtedness, except for intercompany Indebtedness owed by, or to, NMI or another Subsidiary of NMI, which intercompany Indebtedness is set forth in Section 2.7(b)(ii) of the Disclosure Schedule.

(c) None of NMI, its Subsidiaries, or any of their respective officers or independent auditors has identified or been made aware of any complaint, allegation, deficiency, assertion or claim, whether written or oral, regarding (i) the Financial Statements, or the reliability of the systems and processes used to generate the Financial Statements, that has not been resolved , or (ii) the ability of NMI, and its Subsidiaries, to, in a timely manner, accumulate and communicate to NMI’s chief executive officer and chief financial officer the type of information that is required to be disclosed in the Financial Statements. To the knowledge of NMI, there have been no instances of fraud by any officer or employee of NMI or any of its Subsidiaries, whether or not material, that occurred during any period covered by the Financial Statements.

2.8 Absence of Certain Changes or Events.

(a) Except as expressly permitted by this Agreement, since the Balance Sheet Date, NMI and each of its Subsidiaries has conducted its operations according to its ordinary and usual course of business consistent with past practice, and NMI and each of its Subsidiaries has used its commercially reasonable efforts to preserve intact its business, to keep available the services of its current officers and employees and to preserve the goodwill of and maintain satisfactory relationships with those Persons having business relationships with NMI and each of its Subsidiaries.

(b) Except as expressly permitted by this Agreement or as set forth in Section 2.8(b) of the Disclosure Schedule, since the Balance Sheet Date, neither NMI nor any of its Subsidiaries has:

(i) suffered any Material Adverse Effect or any change, condition, event or development that reasonably would be expected to have a Material Adverse Effect;

(ii) issued, sold, granted options or rights to purchase, pledged or authorized the issuance, sale, grant of options or rights to purchase, or pledged or exchanged any NMI Capital Stock or Stock Options (or, in the case of an NMI Subsidiary, any of the securities of such Subsidiary) or any

other securities in respect of, in lieu of or in substitution for shares of NMI Capital Stock (or, in the case of an NMI Subsidiary, any of the securities of such Subsidiary) outstanding on the Execution Date;

(iii) otherwise acquired or redeemed, directly or indirectly, or amended the terms of any NMI Capital Stock or Stock Options (or, in the case of an NMI Subsidiary, any of the securities of such Subsidiary);

(iv) split, combined or reclassified any NMI Capital Stock (or, in the case of an NMI Subsidiary, any of the securities of such Subsidiary) or declared, set aside, made or paid any dividend or distribution (whether in cash, stock or property) on any NMI Capital Stock (or, in the case of an NMI Subsidiary, any of the securities of such Subsidiary);

(v) made or offered to make any acquisition, by means of a merger or otherwise, of assets or securities, or any sale, lease, encumbrance or other disposition of assets or securities, involving the payment or receipt of consideration of, in the aggregate, Ten Thousand Dollars ($10,000) or more, except for purchases of materials or licenses of non-essential Intellectual Property made in the ordinary course of business and consistent with past practice;

(vi) entered into a Material Contract or amended any Material Contract in either case outside of the ordinary course of business (provided that any such Material Contract or amendment is specifically identified in Schedule 2.10(a) of the Disclosure Schedule), or granted any release or relinquishment of any rights under any Material Contract;

(vii) incurred or assumed any Indebtedness, or incurred or assumed any Liens, pledges, security interests or other encumbrances, other than the Permitted Liens;

(viii) assumed, guaranteed, endorsed or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person;

(ix) made any loans, advances or capital contributions to, or investments in, any other Person;

(x) changed any of the accounting principles or practices used by it;

(xi) made any Tax election or settled or compromised any material federal, state or local income tax liability;

(xii) proposed or adopted any amendments to its Organizational Documents;

(xiii) granted any stock-related, performance or similar awards or bonuses;

(xiv) forgiven any loans to employees, officers or directors or any of their respective affiliates or associates;

(xv) except in connection with filling employment vacancies in a manner, and on economic terms, consistent with prior practices, entered into any new, or amended any existing, employment, severance, consulting or salary continuation Contracts with any officers, directors, employees or contractors, or granted any increases in the compensation or benefits to officers, directors, employees and contractors (other than increases to persons who are not officers or directors in the ordinary course of business consistent with past practice and that, in the aggregate, do not result in a material increase in benefits or compensation expense of NMI and its Subsidiaries taken as a whole);

(xvi) entered into, amended, or extended any collective bargaining or other labor Contract;

(xvii) adopted, amended or terminated any of the NMI Benefit Plans, the NMI Stock Plan or other employee benefit plan or arrangement, except as required to permit the grant of the Retention RSUs pursuant to the NMI Stock Plan;

(xviii) settled or agreed to settle any suit, action, claim, proceeding or investigation (including any suit, action, claim, proceeding or investigation relating to this Agreement or the transactions contemplated hereby) or paid, discharged or satisfied or agreed to pay, discharge or satisfy any claim, liability or obligation (absolute accrued, asserted or unasserted, contingent or otherwise) other than the payment, discharge or satisfaction of liabilities reflected or reserved against in full in the Financial Statements as of the Balance Sheet Date;

(xix) incorporated, formed or otherwise established or created any Subsidiary;

(xx) entered into any transaction or series of related transactions (including the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any affiliate, except transactions necessary or desirable for the prudent operation of its business consistent with past practice and on terms no less favorable to it than would be obtainable in a comparable arm’s length transaction with a person that is not an affiliate thereof; or

(xxi) agreed to take any of the foregoing actions.

2.9 No Undisclosed Liabilities. Neither NMI nor any of its Subsidiaries has any Liabilities (whether or not required to be reflected in the Financial Statements in accordance with GAAP), except for those (a) reflected in, reserved against or shown on the balance sheet included in the Financial Statements as of March 31, 2014 (the “Interim Balance Sheet”) or (b) that have arisen or were incurred after the date of the Interim Balance Sheet (the “Interim Balance Sheet Date”) in the ordinary course of business and (i) none of which is material to the conduct of the business of NMI or is a liability resulting from, arising out of, relating to, in the nature of, or caused by any breach of contract, breach of warranty, tort, infringement, violation of law, environmental matter, claim or lawsuit and (ii) each of which will be set forth in the Working Capital Certificate as Liabilities of NMI and its Subsidiaries on a consolidated basis.

2.10 Material Contracts.

(a) Except for this Agreement and the Contracts specifically identified in Section 2.10(a) of the Disclosure Schedule (with each of such Contracts specifically identified under subsection(s) of such Section 2.10(a) that correspond to the subsection or subsections of this Section 2.10(a) applicable to such Contract), neither NMI nor any of its Subsidiaries is a party to or bound by any of the following Contracts (each a “Material Contract”):

(i) any advertising, agency, original equipment manufacturer, sales representative, reseller, distribution, joint marketing, joint development or joint venture Contract;

(ii) any Contract between NMI or any of its Subsidiaries and any Significant Customer or Significant Supplier;

(iii) (1) any Contract for the manufacture, testing, assembly or packaging of NMI’s or any of its Subsidiaries’ products and (2) any other Contract for the purchase of materials,

supplies, equipment or services that involves the payment by NMI or any of its Subsidiaries of more than $50,000 over the life of the Contract;

(iv) any Contract that involves the payment by NMI or any of its Subsidiaries of more than $50,000 over the life of the Contract or that expires (or may be renewed at the option of any Person other than the Company or any of its Subsidiaries so as to expire) more than six months after the Execution Date;

(v) any trust indenture, mortgage, promissory note, loan agreement or other Contract for the borrowing of money, or any leasing transaction of the type required to be capitalized;

(vi) any Contract under which NMI or any of its Subsidiaries has agreed to, or assumed, any obligation or duty to indemnify, reimburse, hold harmless, guarantee or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by NMI or any of its Subsidiaries or any other Person of the Intellectual Property Rights of any Person;

(vii) any Contract providing for a capital expenditure in excess of $50,000;

(viii) any Contract in accordance with which NMI or any of its Subsidiaries is a lessor or lessee of any machinery, equipment, motor vehicles, office furniture, fixtures or other tangible personal property and involving in the case of any such Contract more than $50,000 over the life of the Contract;

(ix) any Contract in accordance with which NMI or any of its Subsidiaries is a lessor or lessee of any real property;

(x) any Contract providing rights to any Owned Intellectual Property to any third party Person;

(xi) any Contract providing for the development of any Software, content, technology or Intellectual Property for NMI or any of its Subsidiaries, or providing for the purchase by or license to (or for the benefit or use of) NMI or any of its Subsidiaries of any Software, content, technology or Intellectual Property, which Software, content, technology or Intellectual Property is used or incorporated in connection with any aspect or element of any product, service or technology of NMI or any of its Subsidiaries or sold by NMI or any of its Subsidiaries, in each case excluding Generally Available Software;

(xii) any Contract with an Affiliate of NMI;

(xiii) any Contract relating to (a) the disposition or acquisition of assets, except for the sale of products or services in the ordinary course of business, (b) the acquisition of any ownership interest in any Person, or (c) an earnout or similar payment or arrangement based on the future earnings or revenue of NMI or any of its Subsidiaries;

(xiv) any Contract, including grant agreements, with any Governmental Entity;

(xv) any Contract under which NMI’s entering into this Agreement or the consummation of the Merger would give rise to, or trigger the application of, any rights of any Person or any obligations of NMI or any of its Subsidiaries that would come into effect upon the

consummation of the Merger (that would not otherwise arise, be triggered or come into effect absent the consummation of the Merger);

(xvi) any Contract relating to the settlement or release of any material Action;

(xvii) any Contract that results in any Person holding a power of attorney from NMI or any of its Subsidiaries;

(xviii) any hedging, futures, options or other derivative capital markets Contract;

(xix) any Contract that would, or that purports to affect or bind Parent or Sub, or any of Parent’s affiliates, after the Merger as a result of Parent becoming an “affiliate” of NMI or any of its Subsidiaries through the Merger; or

(xx) any Contract with any investment banker, broker, advisor or similar Person, or any accountant, legal counsel or other person retained by NMI or any of its Subsidiaries, in connection with this Agreement and the Merger.

(b) A true, complete and accurate copy of each Material Contract (including all amendments, modifications, extensions, supplements, interpretative letters and renewals thereof and related waivers, notices and agreements related thereto) has been provided to the Buyer in the Data Room. All Material Contracts are in executed written form, and NMI and each of its Subsidiaries has performed all of the material obligations required to be performed by it and is entitled to all benefits under, and neither NMI nor any of its Subsidiaries is in default of any material provision in respect of, any Material Contract. Each of the Material Contracts is a valid and binding agreement of NMI or its Subsidiaries and, to the Knowledge of NMI, the other parties thereto, is in full force and effect and valid and enforceable in accordance with its terms (except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights, and general principles of equity that restrict the availability of equitable remedies), and there exists no default or event of default or event, occurrence, condition or act that could reasonably be expected to result in NMI or its Subsidiaries not enjoying all economic benefits that NMI or its Subsidiaries enjoyed before the Closing and to which it is entitled post-Closing under any Material Contract.

(c) The effectiveness of the Merger contemplated by this Agreement will not require any of NMI or any of its Subsidiaries to make any payments of any nature or kind under any Material Contracts except as set forth in Schedule 2.10(c) of the Disclosure Schedule, and none of the payments set forth on Schedule 2.10(c) of the Disclosure Schedule reflects any payments that would have been required absent the effectiveness of the Merger. None of the payments reflected on Schedule 2.10(c) of the Disclosure Schedule will be increased, accelerated or otherwise triggered by the Merger. None of the rights or benefits to which NMI or any Subsidiary was entitled under any Material Contract prior to the effectiveness of the Merger will be modified, or materially affected in any manner, as a result of the consummation of the Merger.

2.11 Intellectual Property.

(a) Section 2.11(a) of the Disclosure Schedule sets forth a complete and accurate list of the following categories of Intellectual Property owned in whole or in part by NMI or any of its Subsidiaries (excluding Trade Secrets and unregistered Copyrights), including all (i) registered

Trademarks; (ii) registered domain names; (iii) Patents; (iv) registered Copyrights; (v) mask works registered in the U.S. and topographies of micro-electronic semiconductor products registered in countries other than the U.S.; (vi) Software, which is either (1) currently distributed by, or planned to be distributed by, NMI or any of its Subsidiaries as Products or incorporated in Products or (2) used internally by NMI or any of its Subsidiaries and, in each case, which is material for NMI’s business as currently conducted or as planned to be conducted, in each case excluding commercially available standard software; and (vii) Trade Secrets that NMI has specifically identified as material for NMI’s business as currently conducted, and, in the case of each of the foregoing clauses (i) through (vii), specifying, as applicable: (A) the category of such Intellectual Property, (B) the record owner(s) (and the beneficial owner(s), if different) of such Intellectual Property, (C) if applicable, the jurisdictions in which such Intellectual Property has been registered, or in which an application for such issuance or registration has been filed, and (D) the registration or application numbers, if applicable. Except as provided in Section 2.11(a) of the Disclosure Schedule, NMI is the sole and exclusive legal and beneficial owner of all right, title and interest in and to the Intellectual Property listed in Section 2.11(a) of the Disclosure Schedule. If and to the extent that NMI is the co-owner of any Intellectual Property listed in Section 2.11(a) of the Disclosure Schedule, or any designs, specifications, application programming interfaces, documentation, datasheets or application notes (to the extent they are Intellectual Property) relating to products currently distributed or sold by NMI or any of its Subsidiaries, such co-ownership is expressly indicated in Section 2.11(a) of the Disclosure Schedule, and specifies (x) the name of all of NMI’s or its Subsidiaries’ co-owner(s), and (y) any agreements (if any) between NMI or any of its Subsidiaries and the respective co-owner(s) relating to the terms and conditions of the joint ownership. All of the Owned Intellectual Property is subsisting, and, except for applications or filings, to NMI’s Knowledge, valid and enforceable. For such Intellectual Property listed in Section 2.11(a) of the Disclosure Schedule as is subject to any issuance, registration, application or filing by, to or with any governmental authority or authorized private registrar (“IP Registrations”), all required filings and fees have been timely filed with and paid to the relevant Governmental Entities and authorized registrars, and all IP Registrations are in good standing. None of the Patents in the Owned Intellectual Property is subject to a terminal disclaimer with respect to a Patent that is not in the Owned Intellectual Property.

(b) The Intellectual Property listed in Section 2.11(a) of the Disclosure Schedule, and all material unregistered Copyrights, Trade Secrets and Know-How that are owned by NMI or any of its Subsidiaries and comprised within NMI’s or its Subsidiaries’ Intellectual Property (“Owned Intellectual Property”), each are, except as set forth in Section 2.11(b) of the Disclosure Schedule, free and clear of any mortgages, Liens, pledges, security interests, charges, claims, restrictions and other encumbrances (excluding the Permitted Liens) and, subject to the Contracts listed in Section 2.11(c)(i) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries has entered into any Contract with any third party resulting in any other condition or restriction (other than Permitted Liens) limiting the use of the Owned Intellectual Property.

(c) Section 2.11(c)(i) of the Disclosure Schedule sets forth a complete and accurate list of all (i) Contracts under which NMI or any of its Subsidiaries uses or is permitted to use any Intellectual Property other than Owned Intellectual Property and other than Generally Available Software, and (ii) Contracts under which NMI, any of its Subsidiaries or any of their respective Affiliates have granted to others the right to use or has granted others a covenant not to assert or not to sue for use of, any of its Owned Intellectual Property (other than non-exclusive technology licenses to Owned Intellectual

Property granted in the ordinary course of business in connection with the sale and distribution of Products, none of which contains or includes any form of covenant not to assert or not to sue in respect of any Patents). To NMI’s Knowledge, there are no outstanding or threatened disputes or disagreements with respect to the Contracts listed in Section 2.11(c)(i) of the Disclosure Schedule. All Contracts listed in Section 2.11(c)(i) of the Disclosure Schedule accurately reflect all obligations of NMI and each of its Subsidiaries to pay any License Fees or other consideration in respect of the rights granted to NMI or its Subsidiaries thereunder. Other than the License Fees payable (1) to the persons, and (2) under the Contracts listed in Section 2.11(c)(i) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries has any obligation to pay license fees, royalties or similar contractual payment obligations for the use of Intellectual Property (“License Fees”) to any person as of the Execution Date, with the exception of License Fees payable for the use of any commercially available standard Software. The manufacture or sale of NMI Products does not require a license under any patent pool (including patent pools related to 802.11 or any other wireless standards) or from any industry standards body, trade associations or other organizations (including MPEG-LA and Via Licensing) pursuant to the rules of which any of those bodies, associations or organizations, or any members thereof, are obligated or undertakes to license Intellectual Property to third parties. Except for Standard Essential Patents that are licensed to NMI or its Subsidiaries pursuant to contracts disclosed under Section 2.11(c)(i) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries requires any Standard Essential Patents to practice any of the technologies incorporated in its products. Except as described in Section 2.11(c)(ii) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries is a member of, or party to, any patent pool, industry standards body, trade association or other organization pursuant to the rules of which it is obligated to license, or otherwise provide any access to, any Owned Intellectual Property to any third party. None of the licenses granted by NMI or any of its Subsidiaries, or to which NMI or any of its Subsidiaries is a party, will, by their terms, apply to Parent and Parent’s other affiliates solely in Parent’s capacity as an “affiliate” of NMI or any of its Subsidiaries, assuming that the Merger is consummated.

(d) Neither NMI nor any of its Subsidiaries requires the use of any Intellectual Property other than (i) Owned Intellectual Property or Intellectual Property licensed, under effective and fully paid up licenses listed in Section 2.11(c)(i) of the Disclosure Schedule, (ii) licenses to Generally Available Software, or (iii) licenses to open source software listed in Section 2.11(d) of the Disclosure Schedule, to conduct its business as currently conducted, and no licenses to any such Intellectual Property will cease to be binding and in full force and effect due to consummation of the Merger.

(e) None of the material portions of any Software source code that is part of the Owned Intellectual Property and (i) incorporated and contained in or (ii) used in the development of the Products or Software currently distributed by NMI or any of its Subsidiaries (the “NMI Source Code”) have been made available by NMI or any of its Subsidiaries to any third parties without imposing reasonable confidentiality obligations on such third parties, and NMI and each of its Subsidiaries has taken reasonable measures to safeguard any NMI Source Code. To the Knowledge of NMI, all Products consisting of Software were, at the time of delivery to the applicable end user, free of viruses, worms, Trojan Horses or other similar malicious code. Neither NMI nor any of its Subsidiaries has incorporated into any Product or Software currently distributed or under development by NMI or any of its Subsidiaries any open source software that is subject to any “copyleft” or other obligation or condition that, when used and distributed in the manner currently used and distributed by NMI (i) requires or conditions the use or distribution of the applicable Product or Software on the disclosure, licensing or

distribution of any NMI Source Code, or (ii) otherwise imposes any limitation, restriction or condition (x) requiring the distribution or licensing of NMI Source Code, or (y) on the right or ability of NMI or any of its Subsidiaries to use or distribute the applicable Product or Software.

(f) Unless otherwise set out in Section 2.11(f)(i) of the Disclosure Schedule, NMI and each of its Subsidiaries has paid all due and necessary registration and renewal fees for and has taken reasonable steps to protect and validly maintain the Owned Intellectual Property. Unless otherwise set forth in Section 2.11(f)(ii) of the Disclosure Schedule, (i) there is currently no pending litigation or other proceeding, and (ii) to the Knowledge of NMI, there is no threatened litigation or other proceeding that involves NMI or any of its Subsidiaries with respect to Intellectual Property, or that challenges the validity or enforceability of, or contests NMI’s or any of its Subsidiaries’ rights with respect to, any Owned Intellectual Property (other than normal patent and trademark prosecution proceedings). Neither NMI nor any of its Subsidiaries has received from any third party any written assertion or claim challenging the validity or enforceability of, or contesting NMI’s or any of its Subsidiaries’ rights with respect to, any Owned Intellectual Property or any Contract listed in Section 2.11(c)(i) of the Disclosure Schedule relating to such Owned Intellectual Property.

(g) With regard to all members of the staff of NMI and each of its Subsidiaries, and their respective independent contractors, agents, representatives, consultants or other third parties named as inventors in the Patents listed in Section 2.11(a) of the Disclosure Schedule and all other members of staff of NMI and each of its Subsidiaries who have developed or may reasonably be expected to develop Intellectual Property related to the business of NMI and its Subsidiaries and all independent contractors, agents, consultants or other third parties that currently work for NMI or any of its Subsidiaries with the intention to develop Intellectual Property related to the business of NMI and its Subsidiaries, in each case, in the course of performing their duties to NMI or a Subsidiary (the “NMI Development Person”) to the extent permitted by applicable law, NMI and each of its Subsidiaries has undertaken the necessary steps to either (i) become, and has become, the sole and exclusive owner of the NMI Development Person’s interest in such Intellectual Property and all Patents with respect thereto, or (ii) acquire, and has acquired, from such NMI Development Person the exclusive right to exercise all economic rights in such Intellectual Property and all Patents with respect thereto. Except for the persons set forth in Section 2.11(g) of the Disclosure Schedule there are no further Persons (including all NMI Development Persons) who have contributed to the inventions covered by Patents listed in Section 2.11(a) of the Disclosure Schedule. To the extent any Software listed in Section 2.11(a) of the Disclosure Schedule or other Owned Intellectual Property has been developed by any NMI Development Person in the execution of his or her respective duties to NMI or a Subsidiary, to the extent permitted by Applicable Laws, NMI or such Subsidiary has secured valid assignments of ownership (and other legal rights), and has acquired the exclusive right to exercise all their economic rights, in such Software or Owned Intellectual Property. As far as Software listed in Section 2.11(a) of the Disclosure Schedule or other Owned Intellectual Property was created by independent contractors, agents, consultants or other third parties for NMI or any of its Subsidiaries, NMI or such Subsidiary has secured therefrom valid assignments of ownership (and other legal rights), or otherwise acquired the exclusive right to exercise all their economic rights in such Software or other Owned Intellectual Property.

(h) Except as provided in Section 2.11(h) of the Disclosure Schedule, no NMI Development Person has asserted any payment claims in respect of any Intellectual Property in addition

to the remuneration expressly agreed in the applicable employment or service Contract and, as of the Execution Date, no NMI Development Person is entitled to any such additional payment claim.

(i) Except as disclosed in Section 2.11(i) of the Disclosure Schedule, (i) neither the conduct and operations of the business in the manner currently conducted by NMI and its Subsidiaries, nor as previously conducted by NMI and its Subsidiaries, infringes upon, misappropriates, dilutes, violates or otherwise conflicts, or has infringed upon, misappropriated, diluted, violated or otherwise conflicted in any way any Intellectual Property of any third party, and (ii) no person has infringed, misappropriated, diluted or otherwise violated, or is currently infringing, misappropriating, diluting or otherwise violating, any Owned Intellectual Property. Notwithstanding anything else, (a) with respect to third party Patents and Trademarks, the foregoing representations are made only to NMI’s Knowledge and (b) no other provision of this Agreement will be deemed to be a representation or warranty regarding non-infringement of third party Intellectual Property.

(j) There are no Actions, assertions or other claims of any kind (including patent office proceedings such as oppositions, interferences, or re-examinations, but excluding normal patent prosecution proceedings) settled, pending, threatened in writing or, to the Knowledge of NMI, otherwise threatened (including in the form of offers to grant a license): (i) alleging any infringement, misappropriation, dilution, violation or other conflict with any Intellectual Property of any Person by NMI or any of its Subsidiaries; (ii) challenging the validity, enforceability, registrability, or ownership of any Owned Intellectual Property or NMI’s or any of its Subsidiaries’ rights with respect to any Owned Intellectual Property; or (iii) by NMI or any of its Subsidiaries or any other Person alleging any infringement, misappropriation, dilution, violation or other conflict by any Person of the Owned Intellectual Property, nor, to NMI’s Knowledge, is there any Basis for such Action, assertion or claim. Except as provided in Section 2.11(j) of the Disclosure Schedule there are, to NMI’s Knowledge, no infringements by any Person of any Owned Intellectual Property or, to NMI’s Knowledge, any breaches by any Person of any licenses or other Contracts involving any Owned Intellectual Property, and neither NMI nor any of its Subsidiaries has made any claims alleging any of the forgoing. Neither NMI nor any of its Subsidiaries are subject to any outstanding or prospective Orders (including any motion or petition therefor) that does or would restrict or impair the use of any Owned Intellectual Property.

(k) Except as set forth on Schedule 2.11(k) to the Disclosure Schedule, neither NMI nor any of its Subsidiaries has given or received any written notice of, or, to the Knowledge of NMI, any other notice of, any default or of any event that with the lapse of time would constitute a default under any Material Contract relating to the Owned Intellectual Property. Neither NMI nor any of its Subsidiaries is in default with regard to any Material Contract relating to the Owned Intellectual Property, nor, to NMI’s Knowledge, is any other person in default with respect to any such Material Contract.

(l) NMI and each of its Subsidiaries has taken reasonable measures to protect the confidentiality of its material Trade Secrets and Trade Secrets of third parties subject to confidentiality obligations, including obtaining appropriate written confidentiality obligations in Contracts under which NMI or any of its Subsidiaries licenses out or otherwise discloses any of such material Trade Secrets to third parties. Neither NMI nor any of its Subsidiaries is required under any license agreements, cooperation agreements, sale or transfer agreements or any other agreements, including oral agreements, to (i) enforce any statutory or common law rights it may have against the misappropriation or misuse of its material Trade Secrets by any third party, (ii) license or transfer its material Trade Secrets to third

parties, or (iii) otherwise use any of its material Trade Secrets. Except as set forth in Section 2.11(l) of the Disclosure Schedule, and except for non-disclosure agreements entered into in the ordinary course of business (which non-disclosure agreements do not themselves contain a right of license to, or any restrictions, limitations or covenants affecting, Owned Intellectual Property), there are no Contracts in which NMI or any of its Subsidiaries licenses in or out any material Trade Secrets. To NMI’s Knowledge, no third party is misappropriating or misusing any material Trade Secrets of NMI or any of its Subsidiaries, or violating any confidentiality obligation it may have with regard to any material Trade Secrets of NMI or any of its Subsidiaries.

(m) Except as set forth in Section 2.11(m) of the Disclosure Schedule, (i) there are no warranty claims with respect to Products, embedded firmware or application Software in excess of the reserves set forth in the Financial Statements, and (ii) firmware, application Software, user and publicly distributed technical documentation and written materials that, in each case, constitute Products or describe Products for actual and potential users, are in machine-readable form and contain all current revisions. NMI has delivered to Buyer in the Data Room complete and correct copies of all existing end user and technical documentation related to its integrated circuit and module designs, silicon and module products, embedded firmware and application software in its possession.

(n) Except as set forth in Section 2.11(n) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries has granted exclusive rights to use, sell or distribute any Product to any third party.

(o) NMI is a member in good standing of (and has paid all fees, if any, required by) the Wi-Fi Alliance and, for the products set forth on Section 2.11(o) of the Disclosure Schedule, has achieved Wi-Fi Alliance certification with respect to IEEE802.11a/b/g/n and Wi-Fi Direct. None of the claims of any Patent in the Owned Intellectual Property is a Necessary Claim as defined in the Wi-Fi Alliance Intellectual Property Rights Policy.

(p) Neither NMI nor any of its Subsidiaries has entered into any Contract with, and neither NMI nor any of its Subsidiaries is currently engaged in any discussions or negotiations with respect to any Contract or to any other type of transaction that relates to, or restricts or encumbers in any way, any Owned Intellectual Property, with any of the Persons listed on Schedule 2.11(p) to the Disclosure Schedule (each, a “Restricted Entity”).

(q) Section 2.11(q) of the Disclosure Schedule sets forth a list of all third party Intellectual Property (other than Generally Available Software) licensed for, used in, incorporated into, or presently intended to be incorporated into, any product, service or technology of NMI or any of its Subsidiaries, or otherwise anticipated to be included within any products set forth on the “roadmap” attached to Section 2.11(q) of the Disclosure Schedule.

(r) Section 2.11(r)(i) of the Disclosure Schedule sets forth (i) a list of all CAD and EDA tools currently used by NMI or any of its Subsidiaries that are necessary for the conduct of the business of NMI or any of its Subsidiaries (the “CAD Tool Providers”), including the countries in which such CAD and EDA tools are currently used and the number of individuals using such CAD and EDA tools in such countries, and (ii) a complete and accurate list of all Contracts and all other commitments, obligations, price quotes and purchase orders between NMI or any of its Subsidiaries and the CAD Tool Providers. Except as set forth on Section 2.11(r)(ii) of the Disclosure Schedule, all amounts owed by

NMI or any of its Affiliates to CAD Tool Providers will, as of the Closing Date, be fully paid or properly and fully accrued by NMI for all periods through, and including, the Closing Date. NMI and each of its Subsidiaries has all requisite Authorizations (including country licenses) from the CAD Tool Providers necessary to conduct their business as currently conducted and to use the CAD and EDA tools currently used by it, and all of the services performed by any of NMI China, NMI Egypt or NMI Korea for NMI or any other Person have been performed and conducted under duly obtained Authorizations for which all required licensing, maintenance and related fees were timely and properly paid to the applicable CAD Tool Provider.

(s) NMI and each of its Subsidiaries has complied with all Applicable Laws regarding “inventor compensation” or “invention promotion” in connection with inventions made by their respective directors, officers, employees and consultants (“Service Inventions”), including by, at all times, maintaining and following internal procedures, consistent with Applicable Laws, relating to (i) the disclosure of Service Inventions to NMI or the relevant Subsidiary, (ii) obtaining, for NMI or the relevant Subsidiary, ownership and/or license rights in all Service Inventions, (iii) providing all requisite invention notifications to the inventors of Service Inventions, and (iv) reasonably compensating, consistent with Applicable Laws, each inventor who contributed to or developed any Service Invention.

(t) None of the Products requires any accreditation or certification under the WLAN Authentication and Privacy Infrastructure (WAPI) standard in connection with the design, use or sale of such Products within China. Neither NMI nor any of its Subsidiaries requires a license to the WAPI standard from IWNCOMM or any of its Affiliates in connection with the design, use or sale of such Products within China.

(u) Except as provided in Section 2.11(u) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries is a party to a Contract containing a covenant or other agreement that restricts the right of NMI or any of its Subsidiaries to bring any Action against, or otherwise to sue, any Person as a result of the infringement or misappropriation of, or otherwise on the basis of, Owned Intellectual Property.

(v) There has been no involvement by, and no funding, grants or other subsidies received from, any Governmental Entity, academic or research entity or organization, or other third-party Person in the development of, any of the Owned Intellectual Property such that, as a result of such involvement, funding, grants or subsidies (i) any such Governmental Entity, academic or research entity or organization, or other third-party Person, has any rights in any Owned Intellectual Property, or (ii) there any condition or restriction (other than Permitted Liens) limiting any of the rights of NMI or any of its Subsidiaries in any Owned Intellectual Property.

2.12 Compliance with Law; Authorizations.

(a) NMI and each of its Subsidiaries is and has at all times been in compliance with all laws, ordinances, governmental or regulatory rules or regulations to which its business or assets are subject (“Regulations”), except where such failure to comply would not have, or would not reasonably be expected to have, a Material Adverse Effect.

(b) None of NMI, any NMI Subsidiary or any of their respective directors, officers, employees or, to NMI’s Knowledge, agents or any other Person acting on behalf of any such Person has, with respect to the business of NMI and its Subsidiaries, (i) used any funds for unlawful contributions,

gifts, entertainment or other unlawful payments relating to any political activity, or (ii) made any unlawful payment to any government official, employee, or political party or campaign, or violated any provision of the U.S. Foreign Corrupt Practices Act of 1977, the UK Bribery Act, the OECD Convention on Combating Bribery of Foreign Public Officials in Business Transactions, or any other Applicable Law relating to the conduct of business with Governmental Entities (the “Bribery Laws”).

(c) Neither NMI nor any of its Subsidiaries has any product, software or technology that is subject to the International Traffic in Arms Regulations (“ITAR”) or is involved in ITAR-regulated activities.

(d) NMI and each of its Subsidiaries owns, holds, possesses or lawfully uses all Authorizations that are material to the conduct of the business of NMI and its Subsidiaries as now or previously conducted, or that are otherwise required to be owned, held or possessed as a result of any Regulations (“NMI Authorizations”), except where the failure to have such Authorizations would not reasonably be expected to have a Material Adverse Effect. All NMI Authorizations are set forth on Section 2.12(d) of the Disclosure Schedule and are valid and in full force and effect.

(e) All of NMI’s and its Subsidiaries’ products, services, technology, Software and Owned Intellectual Property that require an import license, export license or re-export license (an “Export License”) from any Governmental Entity in connection with the business of NMI and its Subsidiaries, as now or previously conducted (the “Export Controlled Products”), are set forth on Section 2.12(e) of the Disclosure Schedule. NMI and each of its Subsidiaries has obtained, and currently maintains in full force and effect, all Export Licenses required for its Export Controlled Products.

(f) No event has occurred and no circumstances exist that (with or without the passage of time or the giving of notice) may result in a violation of, conflict with, failure on the part of NMI or any of its Subsidiaries to comply with the terms of, or the revocation, withdrawal, termination, cancellation, suspension or adverse modification of any NMI Authorization or Export License. Neither NMI nor any of its Subsidiaries has received written notice, or to the Knowledge of NMI any other notice, regarding any violation of, conflict with, failure to comply with the terms of, or any revocation, withdrawal, termination, cancellation, suspension or adverse modification of, any NMI Authorization or Export License. Neither NMI nor any of its Subsidiaries is in default, nor has it received written notice, or to the Knowledge of NMI any other notice, of any claim of default, with respect to any NMI Authorization or Export License.

(g) NMI and each of its Subsidiaries has at all times conducted its export transactions in accordance with all Applicable Laws and in compliance, regarding each transaction, with all other applicable import, export and re-export controls in countries in which NMI and each of its Subsidiaries has conducted its export transactions, including the United States Export Administration Act, as amended, the Export Administration Regulations and sanctions administered by the Office of Foreign Assets Control, and similar Applicable Laws in the United States of America, Egypt, Korea, China, Japan, India, Taiwan and other countries. Except as specifically authorized by U.S. Government regulation or specific Export License, NMI and each of its Subsidiaries has not exported, reexported, transferred or diverted any of the Products to (i) any country that is subject to an embargo or trade sanction by the U.S. Government; (ii) any activity related to the design, development, production, stockpiling or use of nuclear, chemical or biological weapons or the design, development or use of certain rocket systems or unmanned air vehicles; or (iii) any person or entity listed as a prohibited or restricted party by the U.S.

Government (e.g., Denied Party, Specially Designated National). NMI and each of its Subsidiaries has at all times maintained all required, and there are no pending, or, to NMI’s Knowledge, threatened claims against NMI or any of its Subsidiaries with respect to any, Export Licenses, license exceptions and other consents, notices, waivers, approvals, Orders, Authorizations, registrations, declarations, classifications and filings with any Governmental Entity required for (i) the import, export and re-export of products, services, software and technologies, including without limitation for any Export Controlled Products or any other deliverables, such as demonstrator boards and the like, shipped by NMI or any of its Subsidiaries, and (B) the release of technology and software to foreign nationals located in the United States of America and abroad.

2.13 Litigation.

(a) No litigation, including any arbitration, investigation or other proceeding of or before any court, arbitrator or governmental or regulatory official, body or authority is pending or to NMI’s Knowledge, threatened against NMI, any of its Subsidiaries or any of their respective officers or directors, or otherwise relates to NMI’s or any of its Subsidiaries’ assets, the business of NMI or any of its Subsidiaries, or the Merger. To NMI’s Knowledge, none of NMI, any of its Subsidiaries or any of their respective officers or directors is a party to or subject to the provisions of any investigation, judgment, Order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority that may adversely affect NMI, its Subsidiaries, or any of their respective assets, the business of NMI or any of its Subsidiaries or the Merger.

(b) There is no litigation pending or, to the Knowledge of NMI, threatened by any current or former director, officer, employee or consultant of NMI or any of its Subsidiaries related to their employment, engagement or involvement with NMI or any of its Subsidiaries, or any of the terms thereof.

2.14 Employee Benefits.

(a) Section 2.14(a) of the Disclosure Schedule sets forth a complete and accurate list of all (a) severance pay, salary continuation, bonus, incentive, stock option, retirement, pension, profit sharing or deferred compensation plans, Contracts, programs, funds or arrangements of any kind, and (b) all other employee benefit plans, Contracts, programs, funds or arrangements (whether written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, currently effective or terminated) and any trust, escrow or similar agreement related thereto, whether or not funded, in each case in respect of any current or former employees, directors, officers, stockholders, consultants, or independent contractors of NMI or any of its Subsidiaries (whether foreign or domestic) that are sponsored or maintained by NMI or any of its Subsidiaries or with respect to which NMI or any of its Subsidiaries has made or is required to make payments, transfers, or contributions (collectively, “NMI Benefit Plans”).

(b) A current, accurate and complete copy of each NMI Benefit Plan has been provided to Buyer in the Data Room, including in each case, as applicable, the following materials: (i) the current plan document or, in the case of an unwritten NMI Benefit Plan, a written description thereof, (ii) the current summary plan description and all summaries of material modifications thereto, (iii) the current trust agreements, service agreements, insurance contracts and other documents relating to the funding or payment of benefits under such NMI Benefit Plan, and (iv) documents relating to participation in any provident funds or employee benefit pools.

(c) Except as contemplated by this Agreement, neither NMI nor any of its Subsidiaries has made any commitment to create an additional Benefit Plan or to amend any NMI Benefit Plan.

(d) The NMI Benefit Plans have been operated in accordance with, and are in compliance in all material respects with, all Applicable Laws and their respective terms. There are no unfunded liabilities under or in respect of the NMI Benefit Plans, and all contributions or other payments required to be made to or in respect of the NMI Benefit Plans prior to the Closing Date have been made or will be made prior to the Closing Date.

(e) (i) Neither NMI nor any of its Subsidiaries is in default in performing any of its contractual obligations under any NMI Benefit Plan, (ii) there are no outstanding material Liabilities under any NMI Benefit Plan other than Liabilities for benefits to be paid to participants in an NMI Benefit Plan or their beneficiaries in accordance with the terms of such NMI Benefit Plan, and (iii) no NMI Benefit Plan provides benefits to any employee of NMI or any of its Subsidiaries after termination of employment, except as required under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar Applicable Law.

(f) No NMI Benefit Plan provides benefits to any individual who is not either a current or former employee of NMI or any of its Subsidiaries, or the dependents or other beneficiaries of any such current or former employee.

(g) Except as set forth in Section 2.14(g) of the Disclosure Schedule, the consummation of the Merger and/or any of the transactions contemplated by the Agreement or the Ancillary Agreements, either by itself or in connection with the termination of the employment, on or after the Execution Date, of any Person who is, as of the Execution Date, an employee, director, officer or consultant to, or of, NMI or any of its Subsidiaries, does not and, will not (i) entitle any such employee, director, officer or consultant to severance pay, retirement pay, notice pay, unemployment compensation, golden parachute or any other compensation of any kind, (ii) accelerate the time of payment or vesting, or increase the amount of, compensation or other benefits due to any such employee of NMI or any of its Subsidiaries, or (iii) result in the payment of any other benefits to any such employee of NMI or any of its Subsidiaries or the forgiveness of any Indebtedness of any current or former employee of NMI or any of its Subsidiaries, in each case, except as contemplated by this Agreement. No former employee, director, officer or consultant to, or of, NMI or any of its Subsidiaries is entitled to receive any of the payments, benefits or other compensation referred to in the preceding sentence as a result of the consummation of the Merger and/or any of the transactions contemplated by the Agreement or the Ancillary Agreements.

(h) Each NMI Benefit Plan that is intended to be qualified within the meaning of Section 401 of the Code has received a favorable determination letter as to its qualification or has been established under a standard prototype plan for which an Internal Revenue Service opinion letter has been obtained, and nothing has occurred that could reasonably be expected to adversely affect such qualification. No matching contributions to any 401(k) plan, or similar commitments in respect of NMI Benefit Plans relating to employee pension, severance or retirement, have been made by NMI or any of its Subsidiaries on behalf of their respective employees.

(i) There are no pending investigations by any Governmental Entity, termination Proceedings or other claims (except routine claims for benefits payable under the NMI Benefit Plans) or

Actions or Orders against or involving any NMI Benefit Plan that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(j) All contributions, transfers and payments in respect of any NMI Benefit Plan maintained in the United States or otherwise subject to the Code, other than transfers incident to an incentive stock option plan within the meaning of Section 422 of the Code, have been or are fully deductible under the Code. All Stock Options identified as “incentive stock options” are intended to qualify as incentive stock options under Section 422 of the Code.

(k) All (i) insurance premiums required to be paid by NMI or any of its Subsidiaries with respect to, (ii) benefits, expenses, and other amounts due and payable under, and (iii) contributions, transfers, or payments required to be made pursuant to, any NMI Benefit Plan prior to the Closing Date will have been paid, made or accrued on or before the Closing Date.

2.15 Employee Compensation and Labor Matters.

(a) Section 2.15(a) of the Disclosure Schedule sets forth a list of all current employees, officers and directors (regular, temporary, part-time or otherwise) of NMI or any of its Subsidiaries, broken out by Subsidiary, and including (i) name, employee number, title and position, (ii) status as exempt or non-exempt (to the extent such status is provided for, or required, under Applicable Law), (iii) base compensation, (iv) bonuses, salary-in-kind, insurance and other benefits received in addition to base compensation, and (v) the length or time period of employment for such employee, officer and director.

(b) No current employee of NMI or any of its Subsidiaries has given notice to NMI or any of its Subsidiaries of such employee’s intention to terminate such employee’s employment with NMI or any of its Subsidiaries. To NMI’s Knowledge, no employee intends to terminate his or her employment with NMI or any of its Subsidiaries. Neither NMI nor any of its Subsidiaries has any obligation to provide any particular form or period of notice before terminating the employment of any of their respective employees, except as may be required under Applicable Law. There are no consultants or independent contractors that could claim to be, or to have been, employees of NMI or any of its Subsidiaries.

(c) Neither NMI nor any of its Subsidiaries has any material Liabilities for breach of employment Contracts, wrongful termination, or consulting Contracts to which NMI or any of its Subsidiaries is a party.

(d) No current, or to NMI’s Knowledge former, employee, director or officer (regular, temporary, part-time or otherwise) of NMI or any of its Subsidiaries is in any material respect in violation of any term of any employment contract, non-disclosure agreement, confidentiality agreement, or consulting agreement with NMI or any of its Subsidiaries, nor to NMI’s Knowledge, any non-competition agreement, non-solicitation agreement or any restrictive covenant with a former employer relating to the right of any such Person to be employed by or provide services to NMI or any of its Subsidiaries because of the nature of the business conducted or currently proposed to be conducted by it or to the use of trade secrets or proprietary information of any Person.

(e) Neither NMI, any of its Subsidiaries, nor any of their respective current employees is a party to, or subject to, any labor union or Collective Bargaining Agreement. To the Knowledge of NMI, there are no organizational efforts presently being made or threatened by or on behalf

of any labor union with respect to any employees of NMI or any of its Subsidiaries. There have not been, and there are not pending or, to NMI’s Knowledge, threatened, any labor disputes, work stoppages, requests for representation, pickets, work slow-downs due to labor disagreements or any actions or arbitrations that involve any employees of NMI or any of its Subsidiaries. With respect to the employees of NMI and its Subsidiaries, there is no unfair labor practice, charge or complaint or Action pending, unresolved or, to NMI’s Knowledge, threatened before any Governmental Entity, nor have any employees of NMI or any of its Subsidiaries threatened to sue, or bring any Action against, NMI or any of its Subsidiaries for matters related to their employment status or terms of employment. To NMI’s Knowledge, no event has occurred or circumstance exists that may provide the basis of any work stoppage or other labor dispute.

(f) There are, and have been, no material violations of, and to the Knowledge of NMI no allegations or claims of any violation of, any Applicable Law respecting the hiring, hours, wages, occupational health and safety, employment, promotion, termination or benefits of any employee, contractor or consultant of NMI or any of its Subsidiaries. NMI has filed all material reports, information and notices required under any Applicable Law respecting the hiring, hours, wages, occupational health and safety, employment, promotion, termination or benefits of any employee, contractor or consultant of NMI or any of its Subsidiaries.

(g) Neither NMI nor any of its Subsidiaries is liable for any payment to any trust or other fund or to any Governmental Entity with respect to unemployment compensation benefits, workers compensation, social security or other benefits or obligations for current or former employees of NMI or any of its Subsidiaries (other than in accordance with Applicable Law or routine payments to be made in the ordinary course of business). There are no claims pending against NMI or any of its Subsidiaries under any workers’ compensation plan or policy, for unemployment compensation benefits or for long term disability. No current or former employee, contractor or consultant of NMI or any of its Subsidiaries has been involved in an accident in the course of such employment, contracting or consulting that would have caused other than minor injury nor has any such person been exposed to occupational health hazards in the service of NMI or any of its Subsidiaries. There have been no claims (settled or unsettled) for injury or occupational health hazard against NMI or any of its Subsidiaries by any employee, contractor or consultant, nor is there any Basis for such a claim to NMI’s Knowledge.

(h) True, accurate and complete copies of all material written or unwritten personnel manuals, handbooks, policies, rules or procedures currently in effect applicable to any employee of NMI or any of its Subsidiaries, or otherwise implied by the course of dealing of NMI or any of its Subsidiaries with its respective employees, have heretofore been provided to Buyer in the Data Room.

(i) NMI and each of its Subsidiaries has paid or properly accrued all wages and compensation due to its respective employees, including all vacations or vacation pay, holidays or holiday pay, sick days or sick pay, and bonuses. Neither NMI nor any of its Subsidiaries has, and, at Closing, neither NMI nor any of its Subsidiaries will have, any accrued unpaid liabilities relating to its employees, directors or officers (regular, temporary, part-time or otherwise) other than for (i) unpaid salaries and fringe benefits since the last payroll period, (ii) holiday, sick-leave or vacation entitlements, whether accrued or unaccrued, for any service provided on or at any time prior to the Closing Date (all such accrued and unaccrued payments being collectively referred to as the “Unpaid Employee Vacation Amounts”), which Unpaid Employee Vacation Amounts shall be fully paid by NMI at or prior to Closing

and are set forth in Section 2.15(i)(1) of the Disclosure Schedule, and (iii) employee (including directors and Persons employed on a regular, part-time, temporary or other basis) bonuses or similar incentive or performance payments for any service provided on or at any time prior to the Closing Date, whether accrued or unaccrued (all such accrued and unaccrued bonus or incentive payments being collectively referred as the “Unpaid Employee Bonuses”), which Unpaid Employee Bonuses shall be fully paid by NMI at or prior to the Closing and are set forth in Section 2.15(i)(2) of the Disclosure Schedule. At Closing, NMI will not have any accrual for, or obligation to make any payment in respect of, any Transaction Bonuses, Unpaid Employee Bonuses or Unpaid Employee Vacation Amounts, all of which shall be fully paid as of, or prior to, the Closing Date. Except for payment of the Transaction Bonuses, neither NMI nor any of its Subsidiaries has any obligation to make any severance, transaction or similar payments to any Person as a result of the Merger, except for statutory severance that may be required under applicable non-U.S. laws, and neither NMI nor any of its Subsidiaries has accelerated, or agreed to accelerate, any vesting or other compensation for any Person as a result of the transactions contemplated by this Agreement.

(j) There are no Actions, charges, investigations, administrative proceedings or formal complaints of discrimination (including discrimination based upon sex, age, marital status, race, national origin, sexual orientation, gender identity, religion, disability or veteran status) pending or, to NMI’s Knowledge, threatened before any Governmental Entity against NMI or any of its Subsidiaries pertaining to any current or former employee, nor to NMI’s Knowledge is there any Basis for such a claim.

(k) NMI and each of its Subsidiaries has duly paid in full and in a timely manner (i) all social security contributions, social provision contributions and any other kind of costs or expenses to be paid in accordance with applicable social security regulations and is up to date in their social security payment obligations and has filed all relevant due statements, notices and forms, and (ii) all employee, payroll, withholding and other similar Taxes required to be paid in connection with the employment of each of the current and former employees of NMI or any of its Subsidiaries and has filed all relevant due statements, notices and forms.

(l) To NMI’s Knowledge, each employee, director or officer (regular, temporary, part-time or otherwise) of NMI or any of its Subsidiaries is in compliance with all applicable visa and work permit requirements. No visa or work permit held by any such individual will expire during the six-month period beginning on the Execution Date.

(m) NMI and each of its Subsidiaries is in compliance with any Applicable Laws regarding redundancies, reductions in force, mass layoffs, collective dismissals, collective relocations, collective modification of employment conditions, temporary reduction of working time and plant closings, including all obligations to promptly and correctly furnish all notices required to be given thereunder in connection with any redundancy, reduction in force, mass layoff, or plant closing to affected employees, representatives, any state dislocated worker unit and local government officials, or any other governmental authority. Neither NMI nor any of its Subsidiaries has at any time taken any action that would trigger notice requirements or liability for any such redundancies, reductions in force, mass layoffs, collective dismissals, collective relocations, collective modification of employment conditions, temporary reduction of working time or plant closings. Neither NMI nor any of its Subsidiaries has at any time

taken any action that resulted in (or will result in) the termination of employment of ten (10) or more employees in any country outside of the United States of America during any ninety (90) day period.

(n) No employee of NMI or any of its Subsidiaries has worked for NMI or any of its Subsidiaries for more than 21 calendar days in any given calendar year in any country other than the country where their respective NMI employer is located.

(o) Except as set forth in Section 2.15(o) of the Seller Disclosure Schedule, neither NMI nor any of its Subsidiaries has entered into any commitment or Contract with any of its directors, officers, employees or consultants regarding any increase in salary, bonus or any other compensation since December 31, 2013.

(p) Section 2.15(p) of the Disclosure Schedule sets forth a list of all Persons terminated, whether voluntarily or involuntarily, from NMI or any of its Subsidiaries since January 1, 2014, including position, length of service prior to termination, severance or other compensation paid in connection with termination, and such Person’s current employer (if known). Current, accurate and complete copies of any Contracts or other documents relating to any involuntary terminations at NMI or any of its Subsidiaries have been provided to Buyer in the Data Room.

(q) NMI and its Subsidiaries are in compliance in all material respects with all Applicable Laws regarding affirmative action, employment equity, employment reservation, positive discrimination or similar employment quotas.

2.16 Customers, Suppliers and Contractors

(a) Section 2.16(a) of the Disclosure Schedule sets forth (i) the names and addresses of each customer of the business of NMI or any of its Subsidiaries that have ordered and paid for NMI Products or services (including non-recurring engineering services and support, maintenance and other professional services) since January 1, 2012 that has contributed, or is expected to contribute in calendar year 2014, in excess of five percent (5%) of the revenues of NMI’s or such Subsidiaries’ business since December 31, 2011 (each, a “Significant Customer”), listed by revenue, and (ii) the amount for which each Significant Customer was invoiced during such period. Neither NMI nor any of its Subsidiaries has received any written notice, and neither NMI nor any of its Subsidiaries has any reason to believe, that any Significant Customer (1) has ceased, or will cease, to use Products or services, (2) has substantially reduced, or will substantially reduce, the use of NMI Products or services in the immediate future, or (3) intends to terminate or materially modify any of its Contracts with NMI or any of its Subsidiaries. Neither NMI nor any of its Subsidiaries is a party to any Contract with any current or former customer, distributor, sales rep or other Significant Customer that subjects NMI or such Subsidiary to any financial commitment or obligation that is not fully and accurately reflected in the Financial Statements.

(b) Section 2.16(b) of the Disclosure Schedule sets forth the names of each supplier from which NMI or any of its Subsidiaries ordered any raw materials, supplies, merchandise or other goods or services since January 1, 2012 that exceeded, or are expected to exceed in calendar year 2014, $50,000 in the aggregate since December 31, 2011 (each, a “Significant Supplier”), and the amount for which each Significant Supplier was invoiced by NMI or any of its Subsidiaries during such period. Neither NMI nor any of its Subsidiaries has received any written notice, and neither NMI nor any of its Subsidiaries have any reason to believe, that any Significant Supplier (i) will not sell raw materials, supplies, merchandise and other goods or provide services to Buyer after the Closing Date on terms and

conditions similar to those imposed on current sales to NMI or any of its Subsidiaries, or (ii) intends to terminate or materially modify any of its Contracts with NMI or any of its Subsidiaries. Neither NMI nor any of its Subsidiaries is a party to any Contract with any current or former supplier, manufacturer, assembler, tester, prober or other Significant Supplier that subjects NMI or such Subsidiary to any financial commitment or obligation that is not fully and accurately reflected in the Financial Statements.

(c) Section 2.16(c) of the Disclosure Schedule sets forth the names of each independent consultant, software developer or contractor from which NMI or any of its Subsidiaries ordered any services since January 1, 2012 from whom purchases exceeded, or are expected to exceed in calendar year 2014, $50,000 in the aggregate since December 31, 2011 (each, a “Service Provider”), and the amount for which each Service Provider invoiced NMI or any of its Subsidiaries during such periods. Neither NMI nor any of its Subsidiaries has received any written notice, and neither NMI nor any of its Subsidiaries have any reason to believe, that any Service Provider (i) will not provide services to Buyer after the Closing Date on terms and conditions similar to those imposed on current sales to NMI or any of its Subsidiaries, or (ii) intends to terminate or materially modify any of its Contracts with NMI or any of its Subsidiaries. Neither NMI nor any of its Subsidiaries is a party to any Contract with any current or former independent consultant, software developer or contractor or other Service Provider that subjects NMI or such Subsidiary to any financial commitment or obligation that is not fully and accurately reflected in the Financial Statements.

(d) Except as set forth on Section 2.16(d)(i) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries have any commitments or obligations to provide any maintenance, support or any other professional services to any Significant Customer. All Contracts related to the provision of any engineering services to Samsung are listed in Section 2.16(d)(ii) of the Disclosure Schedule.

(e) To NMI’s Knowledge, neither NMI nor any of its Subsidiaries uses or incorporates into any of its Products any “conflict minerals” as that term is defined in the Dodd-Frank Wall Street Reform and Consumer Protection Act, including columbite-tantalite (coltan), cassiterite, gold, wolframite or their derivatives, or any other mineral or its derivatives determined by the US Secretary of State to be financing conflict in the Democratic Republic of the Congo.

(f) Except as set forth on Section 2.16(f) of the Disclosure Schedule, NMI and its Subsidiaries have no unwritten Contracts or any commitments or obligations not set forth in a Material Contract with any Significant Customers, Significant Suppliers or Service Providers.

(g) Except as set forth on Section 2.16(g) of the Disclosure Schedule, no customer, distributor, sales representative or other Person has notified NMI or any of its Subsidiaries in writing that it intends to seek indemnification from NMI or any of its Subsidiaries.

(h) Except as set forth on Section 2.16(h) of the Disclosure Schedule, neither NMI nor any of its Subsidiaries has any obligation to provide, or otherwise make, any form of in-kind payment or other non-cash commission, disbursement, expense reimbursement or compensation to any Significant Customer or to any distributor, sales representative or other Person that resells Products.

(i) Except as set forth on Section 2.16(i) of the Disclosure Schedule, since January 1, 2014, (i) neither NMI nor any of its Subsidiaries has sold or transferred Product to any of its distributors, sales representatives or other customers substantially in excess of the historic levels of inventory held by any such Persons and their respective Affiliates, and (ii) no distributor, sales

representative or other customer of NMI or any of its Subsidiaries holds or controls more than six weeks of inventory, based on historical sales patterns, of any Product.

2.17 Privacy.

(a) NMI has provided Buyer in the Data Room with current, accurate and complete copies of any agreements or policies of NMI or any of its Subsidiaries relating to data privacy and the processing of personal data, as those terms are used in the Applicable Law in the countries where NMI and its Subsidiaries operate, including data transfer agreements, data processing agreements, and other agreements governing the transfer of personal data between jurisdictions or to Governmental Entities or other Persons.

(b) NMI and each of its Subsidiaries has (a) complied in all material respects with its published privacy policies and internal privacy policies and guidelines and, to the Knowledge of NMI, all Applicable Laws relating to data privacy, data protection and data security, including with respect to the collection, storage, transmission, transfer (including cross-border transfers), disclosure and use of personally identifiable information (including personally identifiable information of employees, contractors, and third parties who have provided information to NMI or any of its Subsidiaries) and (b) taken commercially reasonable measures to ensure that personally identifiable information is protected against loss, damage, and unauthorized access, use, modification, or other misuse. There has been no loss, damage, or unauthorized access, use, modification, or other misuse of any such information by NMI or any of its Subsidiaries or any of their respective employees or contractors. No Person (including any Governmental Entity) has made any written claim (or, to the Knowledge of NMI, any other claim) or commenced any action with respect to loss, damage, or unauthorized access, use, modification, or other misuse of any such personally identifiable information by NMI or any of its Subsidiaries or any of their respective employees or contractors and, to the knowledge of NMI, there is no reasonable basis for any such claim or action. The execution, delivery and performance of this Agreement and the consummation of the Closing complies (and the disclosure to and use (in accordance with the privacy policies referenced above) by NMI or any of its Subsidiaries and Buyer and its Affiliates of such information after the Closing will comply) with all applicable privacy policies of NMI and its Subsidiaries and with all Applicable Laws relating to privacy and data security (including any such Applicable Laws in the jurisdictions where the applicable information is collected). NMI and each of its Subsidiaries has at all times made all disclosures to, and obtained any necessary consents from, users, customers, employees, contractors and other applicable Persons required by Applicable Laws related to privacy and data security and has filed any required registrations with the applicable data protection authority.

2.18 Bank Accounts. Section 2.18 of the Disclosure Schedule sets forth a complete and correct list showing all banks or similar institutions in which NMI or any of its Subsidiaries maintains a bank, checking, financing or similar account or safe deposit box (collectively, “Bank Accounts”), together with, as to each such Bank Account, the account number, the names of all signatories thereof and the authorized powers of each such signatory and, with respect to each such safe deposit box, the number thereof and the names of all persons having access thereto.

2.19 Insurance. The insurance policies and self insurance programs maintained with respect to NMI or any of its Subsidiaries and their respective assets and properties are set forth in Section 2.19 of the Disclosure Schedule. All such policies are in full force and effect, all premiums due and payable thereon have been paid, and no notice of cancellation or termination has been received with respect to any

such policy which has not been replaced on substantially similar terms prior to the date of such cancellation. No claim has been settled or is pending under any of the insurance policies of NMI or any of its Subsidiaries, and, to NMI’s Knowledge, there is no Basis for any such claim.

2.20 Real Property. Section 2.20 of the Disclosure Schedule sets forth a complete list of all real property owned or leased by NMI or any of its Subsidiaries. NMI or any of its Subsidiaries has good and insurable fee title to all owned real property and good and valid title to the leasehold estates in all leased real property pursuant to a written lease (a “Real Property Lease”), in each case free and clear of all Liens, other than the Permitted Liens. Each Real Property Lease (a) constitutes a valid and binding obligation of NMI, and (b) is in full force and effect, entitling NMI, or its Subsidiary, to undisturbed occupancy of the premises in accordance with the lease terms. Except as set forth in Section 2.20 of the Disclosure Schedule, (i) neither NMI nor any of its Subsidiaries is in default under any Real Property Lease, except for any such event of default as to which requisite waivers have been obtained, (ii) no lessor under any Real Property Lease has the unilateral right to terminate such Real Property Lease without cause on or before December 31, 2014, and (iii) no lessor under any Real Property Lease has the unilateral right to increase any rent or other payment owing under such Real Property Lease without the prior written consent of NMI or its Subsidiaries.

2.21 Accounts Receivable. The accounts and notes receivable of NMI and each of its Subsidiaries as of March 31, 2014 are summarized in Section 2.21 of the Disclosure Schedule, and (a) arose from bona fide sales transactions in the ordinary course of business, consistent with past practice, and are payable to NMI or its Subsidiaries on ordinary trade terms, (b) are valid and binding obligations of the respective debtors, (c) are not subject to any valid set-off, defense or counterclaim and are fully collectable in the ordinary course of business, assuming the use of collection efforts consistent with NMI’s past practices; except to the extent reserved for on the Interim Balance Sheet or as otherwise described in Section 2.21 of the Disclosure Schedule, and (d) do not represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement.

2.22 Transactions with Officers, Directors and Affiliates. Except as set forth in Section 2.22 of the Disclosure Schedule, there are no Contracts between NMI or any of its Subsidiaries, on the one hand, and any officer or director of NMI or any of its Subsidiaries or the Rights Holders or any of their Affiliates, on the other hand, except for this Agreement or other agreements that will be terminated prior to Closing without (a) penalty to NMI or any of its Subsidiaries or (b) any post-termination obligations being imposed on NMI or any of its Subsidiaries.

2.23 Taxation.

(a) NMI and each of its Subsidiaries has timely filed (taking into account all available extensions) all Tax Returns concerning Taxes (or such Tax Returns have been filed on their behalf) required to be filed and has paid in full (or set up reserves in accordance with GAAP for) all amounts due in respect of Taxes due (whether or not actually shown on such Tax Returns), including all Taxes that NMI or any of its Subsidiaries is obligated to withhold from amounts paid or payable to or benefits conferred upon employees, creditors and third parties; all such Tax Returns are true, correct and complete in all material respects and accurately set forth all material items to the extent required to be reflected or included in such Tax Returns by applicable federal, state, local or foreign Tax laws, regulations or rules.

(b) Neither NMI nor any of its Subsidiaries has been granted any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any material Taxes or Tax Returns; and no Tax authority or Governmental Entity has extended or waived the period granted under Applicable Law to such Tax authority or Governmental Entity for the review and assessment of NMI’s Taxes or Tax Returns.

(c) No claim has ever been made by any Tax authority or Governmental Entity in a jurisdiction where NMI or any of its Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. NMI is not subject to taxation in Egypt as a result of the establishment or operation of NMI Egypt.

(d) There are no Liens upon any of the assets and properties of NMI or any of its Subsidiaries resulting from the failure timely to pay Taxes, other than Liens with respect to Taxes not yet due and payable for which NMI or any of its Subsidiaries has not received any notice.

(e) Neither NMI nor any of its Subsidiaries has received written notice of, or, to NMI’s Knowledge, any other notice of, any pending deficiency of NMI or any of its Subsidiaries proposed by any Tax authority or Governmental Entity.

(f) Adequate provisions have been made in the Financial Statements for the payment of all Taxes for which NMI or any of its Subsidiaries may be liable for the periods covered thereby that were not yet due and payable as of the dates thereof, regardless of whether the liability for such Taxes is disputed.

(g) The transactions contemplated by this Agreement will not result in the payment by NMI or any of its Subsidiaries to any person of an “excess parachute payment” within the meaning of Section 280G of the Code.

(h) There is no Contract or intercompany account system in existence under which NMI or any of its Subsidiaries has, or may at any time in the future have, an obligation to contribute to the payment of any portion of a Tax (or pay any amount calculated with reference to any portion of a Tax) of any group of corporations of which NMI or any of its Subsidiaries is or was a part (other than a group of which NMI is the ultimate parent corporation).

(i) Set forth in Section 2.23(i) of the Disclosure Schedule sets forth a complete and accurate list of income and other material Tax Returns filed by NMI or any of its Subsidiaries pursuant to the laws or regulations of any federal, state, local or foreign Tax authority or Governmental Entity that have been audited or, to the Knowledge of NMI, examined by any Tax authority or Governmental Entity since January 1, 2011, and a list of all adjustments resulting from each such examination or audit. Except as set forth in Section 2.23(i) of the Disclosure Schedule, no such examination or audit of NMI or any of its Subsidiaries is in progress and, to the Knowledge of NMI, no reasonable Basis for any such examination or audit exists. All deficiencies proposed as a result of such examinations or audits have been paid or finally settled.

(j) Neither NMI nor any of its Subsidiaries has executed any closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof, or any similar provision of state or local law.

(k) NMI and each of its Subsidiaries, to the extent required by Applicable Law, has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code section 6662.

(l) NMI has made available to Buyer in the Data Room complete and accurate copies all of the income and franchise Tax Returns, and any similar Tax Returns, of NMI or any of its Subsidiaries, and any amendments thereto, filed for the taxable years ending December 31, 2011, December 31, 2012, and December 31, 2013.

(m) Neither NMI nor any of its Subsidiaries has engaged in a “reportable transaction,” as defined in Treasury Regulation § 1.6011-4(b).

(n) Neither NMI nor any of its Subsidiaries is a party to any intercompany Contract with any other NMI Affiliate other than the intercompany Contracts set forth in Section 2.23(n) of the Disclosure Schedule, which have been entered into on arms-length terms, consistent with Applicable Laws and industry practices regarding transfer pricing and profit and expense allocation among Affiliated Persons. There are no claims pending or, to the Knowledge of NMI, threatened by any Tax authority or Governmental Entity against NMI or any of its Subsidiaries, with respect to transfer pricing, permanent establishment or withholding Taxes, nor, to the Knowledge of NMI, is there any reasonable Basis for such a claim.

(o) To NMI’s Knowledge, neither NMI nor any of its Subsidiaries has any Liabilities to any Tax authority or Governmental Entity outside of the United States, and no reasonable Basis for any such Liabilities exists, relating to or arising from the transfer or deemed transfer of any Owned Intellectual Property outside of such jurisdiction; except for payments, charges and assessments that have been fully and timely paid or adequately reserved against in the Interim Balance Sheet by NMI or its Subsidiaries.

2.24 Brokers or Finders; Transaction and Other Specified Expenses.

(a) No agent, broker, investment banker or other firm or Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee payable by NMI or any of its Subsidiaries in connection with any of the transactions contemplated by this Agreement, except for Deutsche Bank AG, whose fees and expenses will be paid as part of the Transaction and Other Specified Expenses.

(b) The Statement of Transaction and Other Specified Expenses sets forth a true and complete list of all Transaction and Other Specified Expenses owed by, or expected to be owed by, NMI or any of its Subsidiaries, at or prior to Closing. Other than the Transaction and Other Specified Expenses, as set forth in, and paid in accordance with, the Satisfaction Letters, on the Closing Date neither NMI nor any Subsidiary will have any outstanding obligation to pay any Transaction and Other Specified Expenses to any Person.

2.25 Tangible Assets.

(a) Section 2.25 of the Disclosure Schedule sets forth a complete and accurate list of all tangible properties and assets of NMI and each of its Subsidiaries with a current fair market value in excess of $50,000 (the “Tangible Assets”), specifying which NMI Subsidiary owns or leases such

Tangible Assets, in which country such Tangible Assets are located, and, in the case of leased Tangible Assets, indicating the parties to, execution dates of and annual payments under, the lease.

(b) NMI has good, valid and transferable title to all of the Tangible Assets, free and clear of all Liens, except for Permitted Liens.

(c) All leases under which Tangible Assets are leased are in full force and effect and constitute valid and binding obligations of the other party(ies) thereto, and neither NMI nor any of its Subsidiaries, nor, to NMI’s Knowledge, any other party thereto, is in breach of any of the terms of any such lease.

(d) All Tangible Assets has been maintained in accordance with the regular business practices of NMI and its Subsidiaries and, to NMI’s Knowledge, there are no known defects or circumstances, other than ordinary wear and tear, that could reasonably be expected to prevent the continued use of such Tangible Assets in a manner consistent with the conduct of the Business as currently conducted.

2.26 Product Warranty.

(a) There are no warranties (express or implied) outstanding with respect to any Products, or any services rendered by NMI or any of its Subsidiaries, beyond those set forth in (i) the standard conditions of sale or service, copies of which are included in Section 2.26(a) of the Disclosure Schedule (the “Standard Warranty”) or (ii) the Material Contracts.

(b) To NMI’s Knowledge, each Product sold by NMI or any of its Subsidiaries prior to the Closing Date performed in all material respects in conformity with applicable warranties and specifications provided by NMI or any of its Subsidiaries to any customer that purchased such Products from NMI or any of its Subsidiaries (except that it shall not be deemed a breach of the foregoing representation if a Loss results from a breach of product warranty for which an adequate product warranty reserve has been established or reflected in the Financial Statements). There are no material design, manufacturing or other defects, latent or otherwise, with respect to any of the Products. Each Product that has been manufactured, sold, distributed, shipped or licensed prior to the Closing contains all warnings required by Applicable Law, and such warnings are in accordance with reasonable industry practice.

2.27 Environmental Matters.

(a) Except as set forth in Section 2.27 of the Disclosure Schedule, neither NMI nor any of its Subsidiaries has violated in any material respect any Applicable Law relating to the environment, and, no material expenditures are or will be required in order to comply with any such existing Applicable Law. NMI and each of its Subsidiaries owns or possesses, and all of the premises where they carry out their respective activities hold, all Permits that are necessary to conduct the business of NMI and its Subsidiaries in compliance with any Applicable Law relating to the environment, and all such Permits are valid and in full force and effect.

(b) To NMI’s Knowledge, no amount of any substance that has been designated by any Governmental Entity or by Applicable Law to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment, including PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste

pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws or in any other similar Applicable Law in other countries in which NMI or any of its Subsidiaries conducts business, is present in, on or under any property, including the land and the improvements, ground water and surface water thereof, which NMI or any of its Subsidiaries has at any time operated, occupied or leased (excluding office and janitorial supplies properly and safely maintained).

2.28 Foreign Operations. Representations and warranties made with respect to specified foreign operations matters have been set forth on Schedule 2.28 to this Agreement.

2.29 Offer Letters and Non-Competition Agreements. Each member of the Key Management Team has executed an offer letter substantially in the form of Exhibit G (an “Offer Letter”) and each Person listed in Schedule 9.1(a) has executed a non-competition agreement substantially in the form of Exhibit H (a “Non-Competition Agreement”).

2.30 Survival of Representations and Warranties. All representations and warranties made by NMI herein or in any certificate, schedule, exhibit, statement, document or instrument furnished hereunder shall survive the Closing until the date that is fifteen (15) months after the date of the Closing (subject to the extension of that time period as permitted by Article IV in respect of specified Claims), except that NMI’s representations and warranties regarding (i) Section 2.23 (Taxation) or Section 2.27 (Environmental Matters) shall survive the Closing until the expiration of the applicable statute of limitations; and (iii) Section 2.2 (Subsidiaries), Section 2.3 (Capital Structure), Section 2.4 (Validity of Contemplated Transactions), Section 2.7(b) (Indebtedness), and Section 2.24(b) (Transaction and Other Specified Expenses), or any claim for fraud, willful misconduct or intentional misrepresentation shall survive indefinitely.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to NMI as of the Execution Date as follows:

3.1 Corporate Existence. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation.

3.2 Corporate Power; Authorization; Enforceable Obligations. Each of Parent and Sub has the corporate power, authority and legal right to execute, deliver and perform this Agreement and the Ancillary Agreements. The execution, delivery and performance of this Agreement and the Ancillary Agreements by Parent and Sub has been duly authorized by all necessary corporate action and will not result in breach by such party of any obligation under any Applicable Law, the Organizational Documents or any Contract that such party is subject to. This Agreement, the Ancillary Agreements and the other agreements, documents and instruments executed and delivered by Sub and Parent in connection herewith have been duly executed and delivered by duly authorized officers of Parent and Sub, and this Agreement, the Ancillary Agreements and such other documents constitute the legal, valid and binding obligations of such party enforceable against such party in accordance with their respective terms. No authorization, approval or consent of, waiting period terminations or expirations, and no registration or filing with, any governmental or regulatory official, body or authority is required in connection with the execution, delivery or performance of this Agreement or the Ancillary Agreements by either Parent or Sub, except for that required under the HSR Act.

3.3 Litigation. There are no legal proceedings pending or, to the knowledge of Parent or Sub, threatened that are reasonably likely to prohibit, restrain or delay the ability of Parent or Sub to enter into this Agreement or the Ancillary Agreements, or to consummate the Merger or any of the transactions contemplated hereby.

3.4 Financing. Parent and Sub have sufficient funds to consummate the Merger and the transactions contemplated hereby, including to pay the consideration required pursuant to this Agreement and all outstanding fees and expenses in connection with the Merger.

ARTICLE IV
INDEMNIFICATION; ESCROW

4.1 Indemnification. After the Effective Time, each Rights Holder agrees, severally and not jointly, to indemnify and hold harmless Buyer, the Surviving Corporation and all Subsidiaries of Parent and their respective officers, directors, employees, agents, successors and assigns (“Indemnified Parties”) from any and all losses, damages, liabilities, deficiencies, claims, interest, awards, judgments, penalties, costs and expenses (including reasonable attorneys’ fees, costs and other reasonable out-of-pocket expenses incurred in investigating, preparing or defending the foregoing) (collectively, “Losses”) suffered or incurred by any of the Indemnified Parties (“Indemnified Loss”), arising out of or resulting from (i) the breach of any representation, warranty, covenant or agreement by NMI contained herein or in any schedule, exhibit or certificate delivered under this Agreement, (ii) any inaccuracies in the Spreadsheet; or (iii) any Special Indemnity Matters.

4.2 Limits on Indemnification. Notwithstanding anything to the contrary contained in this Agreement:

(a) The Indemnified Party’s sole and exclusive remedy with respect to any and all Losses shall be limited to, and shall not exceed, the Escrow Amount; except as provided in Section 4.5 below. No indemnification pursuant to this ARTICLE IV shall be made unless the aggregate amount of Indemnified Losses incurred by the Indemnified Parties hereunder exceeds Seven Hundred Fifty Thousand Dollars ($750,000) (the “Threshold Amount”), in which case, subject to Section 4.4, the entire amount of all Indemnified Losses suffered by the Indemnified Parties (from the first dollar of Loss without reference to the Threshold Amount) shall be recoverable by the Indemnified Parties; provided, however, that indemnification claims with respect to any Special Losses shall be (i) recoverable from the first dollar of Loss without any reference to, or any requirement to exceed, the Threshold Amount, and (ii) included, notwithstanding the preceding clause (i), as Indemnified Losses for the purposes of determining whether the Threshold Amount has been realized or exceeded.

(b) No Indemnified Party may make a claim for indemnification under Section 4.2 for breach by the Indemnifying Party of a particular representation, warranty, covenant or agreement by NMI contained herein, in any schedule, exhibit or certificate delivered under this Agreement or in respect of any Loss, including any Special Losses, after the expiration of the applicable survival period set forth in Section 2.30; provided that any (i) claim arising in connection with a Claim Notice delivered on or prior to the expiration of the applicable survival period shall survive (and shall be fully “tolled” for all purposes of this Agreement) for the benefit of all Indemnified Parties beyond the expiration of the applicable survival period until such claim is finally resolved, and (ii) any Special Retention Claim Notice

may be delivered at any time on or prior to the second anniversary of the Effective Time irrespective of any applicable survival periods that may apply to any other Claim Notices.

(c) Notwithstanding anything to the contrary herein, the rights and remedies of the Indemnified Parties after the Closing shall not be limited by the fact that any Indemnified Party had knowledge of any breach, event or circumstance prior to the Closing.

(d) Notwithstanding anything to the contrary herein, no Rights Holder shall have any obligation to indemnify any Indemnified Party for any Losses that are actually recovered by the Indemnified Party under any insurance policies (net of any increases in premiums and costs of recovery), and the Indemnified Party shall reimburse the Rights Holders in the event of recovery (net of any increases in premiums and costs of recovery) subsequent to any indemnification payment hereunder being made; provided that nothing in this Section 4.2(d) shall be interpreted to require any Indemnified Party to obtain or maintain insurance of any kind or at any level of coverage.

(e) Notwithstanding anything to the contrary herein, each Indemnified Party shall take commercially reasonable action to mitigate any Losses for which such Indemnified Party seeks indemnification under this Agreement, including enforcing any rights or remedies that may be available to such Indemnified Party against third parties (including insurance providers and similar arrangements), promptly upon becoming aware of any event that would reasonably be expected to give rise to any Losses; provided that no Indemnified Party shall be required under this Section 4.2(e) (i) to incur any material cost or expense in taking such action, (ii) to take any action that would materially prejudice such Indemnified Party’s ability to recover any and all Losses for which such Indemnified Party seeks indemnification under this Agreement, (iii) to take any action that would harm or adversely affect in any manner, in the reasonable judgment of the Indemnified Party, such Indemnified Party’s business or its relationships with customers or suppliers, or (iv) in respect of any matters related to a Special Retention Claim Notice, take any action, or incur any cost or otherwise modify any of its business practices in any manner, that would, in the sole discretion of Parent, adversely affect Parent’s ability to receive the intended benefits of the funds allocated to the Special Retention Set Aside.

4.3 Materiality Determination. For the purpose of determining the amount of Losses resulting from a breach or inaccuracy of a representation, warranty, covenant or agreement by NMI contained herein or in any schedule, exhibit or certificate delivered under this Agreement for purposes of this ARTICLE IV, any “Knowledge” “materiality” or “Material Adverse Effect” qualifiers or words of similar import contained in such representation or warranty shall in each case be disregarded and without effect (as if such standard or qualification were deleted from such representation or warranty); provided, however, that such standard or qualification shall not be disregarded for the purposes of the initial determination of whether there was a breach or inaccuracy of a representation or warranty of NMI.

4.4 Escrow Fund.

(a) In order to support the Rights Holders’ obligations under Section 4.1, the Escrow Amount shall be delivered by Parent to the Escrow Agent in accordance with the Escrow Agreement and held in escrow (the “Escrow Account”) for a period of fifteen (15) months from the Effective Time, except that the Special Retention Set Aside shall, to the extent not earlier released to Parent, be retained by the Escrow Agent until the second anniversary of the Effective Time (the “Escrow Period”). The total amount of funds held in escrow at any time, including any interest earned thereon and reduced by any

amounts paid out pursuant to this Article IV, is collectively referred to as the “Escrow Amount.” The Escrow Account and the Escrow Amount shall be subject to the escrow agreement attached hereto as Exhibit E (the “Escrow Agreement”), by and among the parties hereto and Citibank N.A. (the “Escrow Agent”).

(b) The parties acknowledge and agree that (i) the portion of the consideration that is included in the Escrow Amount with respect to the Vested Options described in Section 1.7(m) of this Agreement is subject to substantial limitations or restrictions such that such portion of the consideration is not constructively received by the holders for Tax purposes at the time of Closing and is not intended to be compensation or wages, or subject to withholding as such, until the distribution of such portion of the Escrow Amount (if any) is determined, and (ii) the portion of the consideration that is included in the Escrow Amount other than that portion described in clause (i) above is intended to be treated as an installment obligation for purposes of Section 453 of the Code, and no party shall take any action or filing position inconsistent with such characterizations except to the extent required pursuant to a “determination” as defined in Section 1313(a) of the Code.

(c) The parties further acknowledge and agree that, consistent with Proposed Treasury Regulation Section 1.468B-8, for Tax reporting purposes, all interest or other income earned from the investment of the Escrow Amount, or any portion thereof, in any taxable year shall be reported as allocated to Parent until the distribution of the Escrow Amount (or portions thereof) is determined and thereafter to Parent and the Rights Holders in accordance with their respective interests in the Escrow Amount consistent with Proposed Treasury Regulation Section 1.468B-8. Any portion of any payments or distributions to the Rights Holders that is treated as interest under Section 483 of Code or otherwise shall be treated as portfolio interest under Section 871(h) of the Code. To the extent permitted under applicable Law, this Agreement and the Escrow Agreement are each intended by the parties to be a book entry system maintained by Parent in accordance with Section 163(f) of the Code for purposes of qualifying the Escrow Amount as an obligation in registered form of Parent under Section 871(h) of the Code. No Rights Holder shall assign its interest in the Escrow Amount to any person permitted by the Escrow Agreement without first notifying Parent and the Representative in writing of such transfer.

(d) In order to establish an expense account for use by the Representative for the sole purpose of performing the Representative’s duties under this Agreement and the Escrow Agreement, the Representative Expense Amount shall be delivered by Parent to the Escrow Agent at the Closing in accordance with the Escrow Agreement. The total amount of funds held in the expense account, including any interest earned thereon, is collectively referred to as the “Representative Expense Amount.” Any amounts in the Representative Expense Amount not used solely in connection with bona fide expenses performing the Representative’s duties under this Agreement and the Escrow Agreement shall be distributed to the Rights Holders on such date as the Representative directs; provided, however, that the Representative shall be entitled, in its sole discretion, to continue to have all or any portion of the Representative Expense Amount continue in escrow if there is pending on such date a dispute relating to any indemnification claim or any Earnout Payment.

(e) If at any time and from time to time prior to expiration of the Escrow Period, an Indemnified Party makes a Claim, Parent shall deliver to the Representative notification in writing (a “Claim Notice”), setting forth in reasonable detail (i) the facts giving rise to such Claim, (ii) the reasonably estimated amount of the Indemnified Loss and any associated expenses and costs such as

reasonable attorney fees, if known, and (iii) the provisions of this Agreement upon which such Claim is based. In the event the Representative does not dispute the Claim as set forth in the Claim Notice in a timely manner as set forth in Section 4.4(d), or only disputes a portion thereof, then the amount of the Claim described in the Claim Notice or the portion thereof not disputed shall be deemed to be admitted (the “Admitted Liability”) and Parent shall be entitled to permanently reduce the Escrow Amount by, and receive from escrow, the amount of the Admitted Liability with respect to such claim. The full amount set forth in any Special Retention Claim Notice shall be deemed an Admitted Liability and a Special Loss in an amount equal to (A) the Special Retention Set Aside minus (B) the amount of all Special Retention Payments released to Parent by the Escrow Agent, and shall not be subject to challenge, dispute or objection by the Representative or the Rights Holders.

(f) In the event the Representative shall dispute the validity of all or any amount of a Claim as set forth in the Claim Notice, the Representative shall, within thirty (30) days of his receipt of the Claim Notice, execute and deliver to Parent a notice setting forth with reasonable particularity the grounds and the basis upon which the Claim or portion thereof is disputed (the “Dispute Statement”); provided that, notwithstanding the foregoing, the Representative and the Rights Holders may not challenge, dispute or object to, and Parent and the Escrow Agent shall not accept any Dispute Statement relating to, any Special Retention Claim Notice, or any Claim for a Special Retention Payment, to the extent that (i) sufficient funds remain available in the Escrow Account at the time the Special Retention Claim Notice is received by the Escrow Agent to pay all or a portion of the amounts set forth in the Special Retention Claim Notice, and (ii) the amounts requested in any Special Retention Claim Notice do not exceed (A) the Special Retention Set Aside minus (B) the amount of all Special Retention Payments released to Parent by the Escrow Agent through the date on which the Special Retention Claim Notice is received by the Escrow Agent. If the Representative delivers to Parent a Dispute Statement applicable to all or any portion of a Claim within the period for delivery of the same set forth above, then the amount of the Escrow Amount disputed by the Representative in such Dispute Statement shall not be payable to Parent until either (i) Parent and the Representative agree in writing to the resolution of the amount of the Escrow Amount disputed by the Representative in such Dispute Statement, or (ii) a court of competent jurisdiction enters a final order that determines such Claim is not valid or directing the payment to the Representative (on behalf of the Rights Holders) of the amount of the Escrow Amount disputed by the Representative in such Dispute Statement. Upon such written agreement or final order (a “Resolved Claim”), as the case may be, Parent shall be entitled to permanently reduce the Escrow Amount by, and receive from escrow, the amount of the Resolved Claim if and to the extent that matters covered thereby have been resolved in favor of Parent.

(g) Third Party Claims

(i) In order for an Indemnified Party to be entitled to any indemnification provided for under this Agreement in respect of, arising out of or involving a Loss or a claim, suit, demand or proceeding with any third party against the Indemnified Party (a “Third Party Claim”), such Indemnified Party shall deliver notice thereof to the Representative, on behalf of the Rights Holders (the “Indemnifying Party”); provided, however, that no delay or failure on the part of an Indemnified Party in notifying the Representative shall relieve an Indemnifying Party from its obligations hereunder unless the Indemnifying Party is thereby actually and materially prejudiced (and then solely to the extent of such prejudice).

(ii) The Representative shall have the right, upon written notice to the Indemnified Party within ten (10) days of receipt of notice from the Indemnified Party of the commencement of such Third Party Claim, to assume the defense thereof with counsel selected by the

Representative and reasonably satisfactory to the Indemnified Party; provided, however, that the Representative shall not have the right to assume such defense of such Third Party Claim (1) to the extent that such Third Party Claim involves potential criminal liability or equitable relief is sought, (2) if the amount of Losses reasonably estimated to be incurred pursuant to such Third Party Claim (when combined with all other outstanding claims for indemnification under this ARTICLE IV) is greater than the Losses for which the Indemnifying Party is liable under this ARTICLE IV, (3) if there exists any legal conflict between the interests of Parent and those of the Rights Holders or different defenses would be available if Parent controlled the defense, (4) if such Third Party Claim relates to Intellectual Property or (5) if any counterparty in such Third Party Claim is a customer of Parent or any Subsidiary of Parent. If the Representative does not expressly elect to assume the defense of such Third Party Claim within the time period set forth in this Section 4.4(e)(ii), is not eligible to assume the defense under the terms hereof or fails to prosecute or withdraws from such defense, the Indemnified Party shall have the sole right to assume the defense of such Third Party Claim. If the Representative assumes the defense of any Third Party Claim, the Indemnified Party shall reasonably cooperate with the Representative in such defense and make available to the Representative all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Representative. If the Representative assumes the defense of any Third Party Claim, the Representative shall not, without the prior written consent of the Indemnified Party (not to be unreasonably withheld, conditioned or delayed), enter into any settlement or compromise or consent to the entry of any judgment with respect to such Third Party Claim. Notwithstanding the foregoing, if such settlement, compromise or judgment (w) involves a finding or admission of wrongdoing, (x) does not include an unconditional written release by the claimant or plaintiff of the Indemnified Party from all liability in respect of such Third Party Claim, (y) involves a license or grant of any Intellectual Property or (z) involves the payment of any amount, including any obligation to pay any amount in the future, by Parent or the Surviving Corporation that would not be fully paid by the Representative pursuant to the terms hereof, then the Representative shall not enter into any such settlement or compromise or consent to the entry of any such judgment without the prior written consent of the applicable Indemnified Party, which consent may be granted in such Indemnified Party’s sole and absolute discretion.

(iii) The Person controlling the defense of any Third Party Claim pursuant to clause (ii) above shall consult with Parent (in the case the Representative is the controlling party) or the Representative (in the event any other Person is the controlling party) for the purpose of allowing such non-controlling party to participate in such defense at such non-controlling party’s expense.

(iv) No Indemnified Party shall settle, discharge or otherwise resolve (whether or not in connection with a court, arbitration or other similar dispute resolution mechanism) with any third party a dispute that is the basis for a Claim for which indemnification may be sought pursuant to this ARTICLE IV without the consent of the Representative, which consent may not be unreasonably withheld, conditioned or delayed.

(h) Distribution of Escrow Amount. Subject to the requirements set forth in this Section 4.4(h), the Escrow Account shall terminate at 5:00 p.m. (Pacific time) at the conclusion of the Escrow Period; provided, however, that on the first Business Day following the fifteen (15) month anniversary of the Effective Time, the Escrow Agent shall deliver any funds then remaining in the Escrow Amount to the Rights Holders, less (and the Escrow Agent shall retain in the Escrow Account until the end of the Escrow Period): (i) any amounts that Parent has informed the Escrow Agent in writing, prior to

that fifteen (15) month anniversary, is necessary, in the reasonable judgment of Parent, to satisfy any unsatisfied claims specified in a Claim Notice (such claims being referred to as the “Unsatisfied Claims”), and (ii) the amount determined as the difference between (A) the Special Retention Set Aside minus (B) the amount, if any, of all Special Retention Payments released to Parent by the Escrow Agent. Immediately following the termination of the Escrow Period, the parties shall direct the Escrow Agent to pay any funds remaining in the Escrow Account to the Rights Holders that are not, as of the conclusion of the Escrow Period, then subject to any Unsatisfied Claim or Special Retention Claims Notice.

(i) Special Retention Payments. The Escrow Agent shall promptly distribute to Parent, upon delivery of a Special Retention Claim Notice, the amount set forth in that Special Retention Claim Notice to the extent that (i) sufficient funds remain available in the Escrow Account at the time that the Special Retention Claim Notice is received by the Escrow Agent and are not otherwise subject to an Unsatisfied Claim, and (ii) the amount requested in the Special Retention Claim Notice does not exceed (A) the Special Retention Set Aside minus (B) the amount, if any, of all Special Retention Payments released to Parent by the Escrow Agent. Notwithstanding anything herein to the contrary, amounts set forth in Claims Notices that are not Special Retention Claims Notices shall not reduce the amount of the Special Retention Set Aside available to Parent hereunder for Special Retention Payments and there shall not be any limitation on the number, or frequency, of Special Retention Claim Notices that may be submitted by Parent, except that the amount released from the Escrow Account shall not exceed (A) the Special Retention Set Aside minus (B) the amount, if any, of all Special Retention Payments released to Parent by the Escrow Agent.

4.5 Maximum Recovery. The maximum amount that the Indemnified Parties may recover severally from the Rights Holders under this ARTICLE IV shall be limited to the Escrow Amount, except as otherwise expressly set forth in the following proviso and in the last sentence of this Section 4.5, provided, however, that Claims arising out of, or relating to (a) the Special Representations shall be limited to the amount of the Aggregate Merger Consideration, plus the Earnout Payments actually paid or due and payable to the Rights Holders, if any, (b) Section 2.11 (Intellectual Property) shall be limited to an aggregate amount equal to twenty-five percent (25%) of the Aggregate Merger Consideration, which amount is inclusive of the Escrow Amount, plus the Earnout Payments actually paid or due and payable to the Rights Holders, if any, and (c) any Working Capital Shortfall, fraud, willful misconduct or intentional misrepresentation shall not be subject to, and shall not be considered in determining, any limitation of liability. Notwithstanding the foregoing, (i) no Rights Holder shall be liable for any amount of a Loss that may be recovered by an Indemnified Party pursuant to ARTICLE IV in excess of such Rights Holder’s Pro Rata Share (including the amount of any Earnout Payments actually paid or due and payable to such Rights Holder) of such Loss, except as contemplated by clause (ii) hereafter, (ii) the limitations of liability set forth in this ARTICLE IV will not apply to Claims of fraud, willful misconduct or intentional misrepresentation with respect to a Rights Holder that committed the fraud, willful misconduct or intentional misrepresentation, and (iii) the Indemnified Parties shall be required to first exhaust the Escrow Amount prior to seeking further indemnification recourse directly against any Rights Holders, other than with respect to claims for fraud, willful misconduct or intentional misrepresentation made directly against a Rights Holder who committed the fraud, willful misconduct or intentional misrepresentation. Parent shall have the right to set off against any Earnout Payment actually due and payable to the Rights Holders any amounts for which an Indemnified Party is entitled to be indemnified in excess of the Escrow Amount (if, and to the extent that, the Escrow Amount is insufficient to provide any

required indemnification payment) as expressly permitted by (1) clauses (a) and (b) of the proviso included in the first sentence of this Section 4.5 or (2) the immediately preceding sentence. Notwithstanding anything herein to the contrary, Losses recovered from the Escrow Account shall be allocated pro rata among Rights Holders that have contributed to the Escrow Account.

4.6 Representative.

(a) At the Closing, Shareholder Representative Services LLC shall be constituted and appointed as the representative of the Rights Holders (the “Representative”), and the Representative hereby accepts such appointment. Each Rights Holder, by virtue of its execution and delivery of the Stockholder Consent and/or a Joinder Agreement, and/or the surrender of Certificates, Vested Options and/or Warrants in exchange for the applicable portion of the Aggregate Merger Consideration pursuant to this Agreement, as applicable, or by virtue of the conversion of its shares into the right to receive the applicable portion of the Aggregate Merger Consideration as a result of the Merger shall be deemed to have appointed and constituted the Representative as its agent and true and lawful attorney-in-fact with the powers and authority as set forth in this Agreement, with full power of substitution and shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Rights Holder. The Representative shall be the exclusive agent for and on behalf of the Rights Holders to (i) give and receive notices and communications to or from Buyer or the Escrow Agent (on behalf of itself or any other Indemnified Person) relating to this Agreement, the Escrow Agreement or the Merger, including the Earn-Out Payments; (ii) authorize deliveries of any Indemnified Losses and legally bind each Rights Holder to pay cash directly to Buyer in satisfaction of claims asserted by Buyer (on behalf of itself or any other Indemnified Party, including by not objecting to such claims); (iii) object to such claims in accordance with Section 4.4(f); (iv) consent or agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders with respect to, such claims; (v) take all actions necessary or appropriate in the judgment of the Representative for the accomplishment of the foregoing, in each case without having to seek or obtain the consent of any Person under any circumstance; (vi) execute for and on behalf of each Rights Holder any amendment to this Agreement, the Escrow Agreement, or any exhibit, certificate, waiver, annex or schedule hereto or thereto or any termination of this Agreement pursuant to Section 7.1; and (vii) enter into the Escrow Agreement. The Representative shall be the sole and exclusive means of asserting or addressing any of the above, and no Rights Holder shall have any right to act on its own behalf with respect to any such matters, other than with respect to any claim or dispute against the Representative. This appointment of agency and this power of attorney is coupled with an interest and will be irrevocable and will not be terminated by any Rights Holder or by operation of Law, whether by the death or incapacity of any Rights Holder or the occurrence of any other event, and any action taken by the Representative will be as valid as if such death, incapacity or other event had not occurred, regardless of whether or not any Rights Holder or the Representative will have received any notice thereof. If the Representative resigns, refuses or is no longer capable of serving as the Representative hereunder, then the Rights Holders will promptly appoint a successor Representative who will thereafter be a successor Representative hereunder; provided that, in the case of resignation or refusal, except in the event that Representative is required by Applicable Law or an Order, or is otherwise incapable of serving, the Representative will serve until such successor is duly appointed and qualified to act hereunder. If there is not a Representative at any time, any obligation to provide notice to the Representative will be deemed satisfied if such notice is delivered to each of the Rights Holders at their addresses last known to Buyer. All expenses, if any, incurred by the

Representative in connection with the performance of its duties as the Representative will be borne and paid by the Rights Holders. No bond will be required of the Representative, and the Representative will not receive any compensation for its services other than pursuant to that certain engagement letter to be entered by and among the Representative, NMI and certain Rights Holders. Notices or communications to or from the Representative shall constitute notice to or from each of the Rights Holders.

(b) The Representative shall not be liable to any Rights Holder for any act done or omitted hereunder as the Representative while acting in good faith and any act done or omitted in accordance with the advice of counsel or other expert shall be conclusive evidence of such good faith. The Rights Holders shall severally in accordance with each Rights Holder’s Pro Rata Share, and not jointly, indemnify the Representative, defend and hold it harmless against any and all losses, liabilities, damages, claims, penalties, fines, forfeitures, actions, fees, costs and expenses (including the fees and expenses of counsel and experts and their staffs and all expense of document location, duplication and shipment) (collectively, “Representative Losses”) arising out of or in connection with the acceptance or administration of its duties hereunder and under the Escrow Agreement, in each case as such Representative Loss is suffered or incurred; provided that in the event that any such Representative Loss is finally adjudicated to have been directly caused by the gross negligence or willful misconduct of the Representative, the Representative will reimburse the Rights Holders the amount of such indemnified Representative Loss to the extent attributable to such gross negligence or willful misconduct. If not paid directly to the Representative by the Rights Holders, any such Representative Losses may be recovered by the Representative from (i) the funds in the Representative Expense Amount, and (ii) the amounts in the Escrow Amount at such time as remaining amounts would otherwise be distributable to the Rights Holders; provided that while this section allows the Representative to be paid from the Representative Expense Amount and the Escrow Amount, this does not relieve the Rights Holders from their obligation to promptly pay such Representative Losses as they are suffered or incurred, nor does it prevent the Representative from seeking any remedies available to it at law or otherwise. In no event will the Representative be required to advance its own funds on behalf of the Rights Holders or otherwise. The Rights Holders acknowledge and agree that the foregoing indemnities will survive the resignation or removal of the Representative or the termination of this Agreement.

(c) The Representative shall treat confidentially and not disclose any nonpublic information from or about Buyer, NMI, or any Indemnified Person to anyone (except as required by law and to the Rights Holders or the Representative’s employees, attorneys, accountants, financial advisors or authorized representatives on a need to know basis, in each case who agree to treat such information confidentially).

(d) By its signature to this Agreement, the initial Representative hereby accepts the appointment contained in this Agreement, as confirmed and extended by this Agreement, and agrees to act as the Representative and to discharge the duties and responsibilities of the Representative pursuant to the terms of this Agreement.

ARTICLE V
COVENANTS

5.1 Conduct of Business. During the period from the Execution Date and continuing until the earlier of the termination of this Agreement or the Closing Date, except with the prior written consent

of Buyer (which shall not be unreasonably delayed or withheld), NMI shall, and shall cause each of its Subsidiaries to:

(a) conduct its business in the usual, regular and ordinary course in a manner substantially consistent with past practice and in accordance with the provisions of this Agreement and in compliance with all Applicable Laws;

(b) (i) pay or perform the obligations of its business when due, (ii) pay all of its debts and Taxes when due, except to the extent such debts or Taxes are being contested in good faith by appropriate proceedings and for which adequate reserves according to GAAP have been established, (iii) use its reasonable best efforts to pay all accounts payable prior to Closing, (iv) use commercially reasonable efforts consistent with past practice and policies to collect accounts receivable when due and not extend credit outside of the ordinary course of business, (v) sell products and services consistent with past practices as to license, service and maintenance terms and incentive programs, (vi) recognize revenue consistent with past practice and policies and in accordance with GAAP, and (vii) pay any accrued bonuses or commissions payable after the Execution Date and before the Closing Date in the ordinary course of business;

(c) use its commercially reasonable efforts consistent with past practices and policies to (i) preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having dealings with its business, to the end that its goodwill and ongoing businesses will be unimpaired at the Closing Date, and (ii) keep available the services of the Retained Employees and the Transitional Contractors, and if NMI receives written notice or otherwise obtains Knowledge of a material deterioration in the relationship with any of its customers, suppliers, and other Persons with which it has material business dealings, or with any of the Retained Employees and the Transitional Contractors, NMI shall promptly bring such information to Buyer’s attention in writing and, if requested by Buyer and to the extent permissible under Applicable Law, shall exert commercially reasonable efforts to promptly restore the relationship;

(d) preserve and maintain its Product inventories at levels consistent with NMI’s past practices; and

(e) maintain its corporate books and records in accordance with past practice, and use its commercially reasonable efforts to maintain in full force and effect all material company policies and procedures.

5.2 Restrictions on Conduct of Business. From the Execution Date until the earlier of the termination of this Agreement and the Closing, NMI will not, and NMI will cause each of its Subsidiaries not to, cause or permit any of the following (except as set forth on Schedule 5.2 of the Disclosure Schedule or as expressly consented to in writing by Buyer, which consent shall not be unreasonably delayed or withheld):

(a) cause or permit any amendments to its Organizational Documents;

(b) declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its issued capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock (other than the issuance of the Retention RSUs), or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock, other than the

repurchase in connection with a termination of service of unvested shares acquired upon exercise of a Stock Option in an aggregate amount not to exceed $50,000;

(c) accelerate, amend or change the period of exercisability or vesting of Stock Options or rights granted under the NMI Stock Plan or the vesting of the securities purchased or purchasable under such options or rights, amend or change any other terms, including the exercise price or base value, of such options or rights or authorize cash payments in exchange for any such options or rights or the securities purchased or purchasable under those options or rights or waive or amend the right of repurchase applicable to any NMI Capital Stock;

(d) Except as specifically contemplated by this Agreement, enter into any Material Contract or violate, amend, terminate or otherwise modify or waive any of the material terms of any Material Contract; or change in any material respect the course of performance or payments thereunder;

(e) Terminate any Contract with any reseller, distributor or agent, where such termination (i) would reasonably be expected to trigger any payment by NMI to such reseller, distributor or agent pursuant to the express terms of such contract, or (ii) could trigger any payment by NMI to such reseller, distributor, original equipment manufacturer or agent pursuant to such contract or under Applicable Law;

(f) Issue or grant any securities, including without limitation any NMI Capital Stock, or agree to issue or grant any securities, including without limitation any NMI Capital Stock (other than the Retention RSUs in the amounts and to the individuals as mutually agreed prior to Closing), other than the issuance of shares of NMI Common Stock upon the exercise of then-outstanding Stock Options or Warrants or conversion of any shares of NMI Preferred Stock;

(g) Hire (except in connection with filling employment vacancies in a manner, and on economic terms, consistent with prior practices) any employees, consultants or independent contractors; terminate the employment of any employee, officer or director having a title of vice president or above; enter into, or extend the term of, any employment or consulting contract with any Person; or increase the salaries, wage rates or fees of any employees, consultants or independent contractors, except for (i) any increase planned as of the Execution Date that does not exceed five percent (5%) of the base salary of any individual and (ii) the payment of performance-based cash bonuses in the amounts and to the individuals as mutually agreed prior to Closing;

(h) Make any loans or advances to, or any investments in or capital contributions to, any Person, or forgive or discharge in whole or in part any outstanding loans or advances, other than advances to employees and consultants for travel and other expenses in the ordinary course of business;

(i) Transfer or license to any Person (including through a reseller agreement), or permit any Person to transfer or license to any other Person (including through a reseller agreement), any rights to any Owned Intellectual Property, except for non-material, non-exclusive licensing transactions, terminable for convenience by NMI on no more than ninety (90) days notice, undertaken in the ordinary course of business consistent with prior practices;

(j) Enter into, participate in, establish or join any new standards-setting organization, collaborative effort with a university, research institution, industry body or consortium, or other multi-party special interest group or activity;

(k) Enter into or amend any Contract (including any original equipment manufacturing or reseller contract) in accordance with which any third party is granted marketing, resale or distribution rights of any type or scope with respect to any Product or Owned Intellectual Property;

(l) Sell, lease, license or otherwise dispose of or create, extend, grant or issue any Lien over any of its properties or assets (other than Permitted Liens);

(m) Except for borrowings under NMI’s existing credit facility with Bridge Bank, N.A (that will be terminated at the Closing) in an aggregate amount not to exceed the difference between the amount outstanding under such credit facility at the Closing and the maximum amount available under such credit facility, as determined immediately prior to the Effective Time, incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others;

(n) Enter into any operating lease or lease, sublease or license of real property;

(o) Pay, discharge or satisfy, in an amount in excess of Fifty Thousand Dollars ($50,000) in any one case or One Hundred Thousand Dollars ($100,000) in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise arising otherwise than in the ordinary course of business and not in violation of this Agreement), other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the Financial Statements and payment of Closing Debt as contemplated herein;

(p) Make any capital expenditures or commitments, capital additions or capital improvements or enter into any capital leases in excess of Fifty Thousand Dollars ($50,000) in any one case or One Hundred Thousand Dollars ($100,000) in the aggregate;

(q) Reduce the amount of any insurance coverage provided by existing insurance policies;

(r) Terminate or waive any right or claim of substantial value;

(s) Except as permitted by this Agreement, adopt or amend any NMI Benefit Plan, including the NMI Stock Plan or any other share purchase, share issuance or stock option plan, or amend any compensation, benefit, entitlement, grant or award provided or made under any such plan, except in each case as required by Applicable Law or in connection with the issuance of the Retention RSUs, (including, for the avoidance of doubt, the amendment to the NMI Stock Plan to authorize the issuance of the Retention RSUs), or pay any special bonus or special remuneration to any employee or non-employee director (other than payments that are triggered by the Merger and that are disclosed in the Disclosure Schedule) or increase the salaries or wage rates of its employees, or add any new non-employee members to the board of directors NMI or any of its Subsidiaries;

(t) Grant any severance or termination pay to any Person or amend or modify any existing severance or termination agreement with any Person, except for the payment of performance-based cash bonuses in the amounts and to the individuals as mutually agreed prior to Closing;

(u) Commence an action other than (i) for the routine collection of bills, or (ii) in such cases where it in good faith determines that failure to commence an Action would result in the material impairment of a valuable aspect of its business; provided that it consults with Buyer before the filing of such Action;

(v) Acquire or agree to acquire by merging or consolidating with, or by purchasing the assets of, or by any other manner, any business or any company, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to its business;

(w) Make any change in accounting or Tax principles, practices or policies from those utilized in the preparation of the Financial Statements, make any write-off or write-down of or made any determination to write-off or write-down any of its assets and properties, or make any material change in its general pricing practices or policies or any material change in its credit or allowance practices or policies;

(x) Make or change any election in respect of Taxes, file any amendment to a Tax Return, enter into any closing agreement in respect of Taxes, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;

(y) Seek, apply for or accept any subsidies or loans from any Governmental Entity or other Person or enter into, participate in, establish or join any collaborative effort, research effort, or consortium, or other multi-party special interest group or activity that does, or is intended to, seek, apply for or accept any subsidies or loans from any Governmental Entity or other Person;

(z) Form, create or initiate the formation or creation of, any company, partnership, association or other business organization, including without limitation by forming, creating or initiating the formation or creation of, any division or branch office of NMI or any of its Subsidiaries;

(aa) Sell or transfer any Product to any distributor, sales representative or other customer of NMI or any of its Subsidiaries if, as a result of such sale or transfer, the Product inventory held by such Person (along with their Affiliates) would exceed an aggregate of six weeks of inventory for such Product or otherwise accelerate product sales or materially modify sales activity in a manner inconsistent with prior practices; or

(bb) Take or agree to take, any of the actions described in the foregoing clauses of this Section 5.2, or any action which could reasonably be expected to make any of NMI’s representations or warranties contained in this Agreement untrue or incorrect in any material respect or prevent NMI from performing in all material respects or cause NMI not to perform in any material respect one or more covenants required hereunder to be performed by it.

Parent acknowledges and agrees that: (i) nothing contained in this Agreement shall give Parent, directly or indirectly, the right to control or direct NMI’s or NMI’s Subsidiaries’ operations prior to the Closing; (ii) prior to the Closing, NMI shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ operations; and (iii) notwithstanding anything to the contrary set forth in this Agreement, no consent of Parent shall be required with respect to any action set forth in Section 5.2 to the extent that, NMI’s outside counsel and Parent’s outside counsel mutually agree that the requirement of such consent would violate the HSR Act or an Other Antitrust Law.

5.3 Regulatory Approvals.

(a) Buyer and NMI shall each promptly apply for, and take all reasonably necessary actions to obtain or make, as applicable, all Orders and Authorizations of, and all filings with, any

Governmental Entity or other Person required to be obtained or made by it for the consummation of the transactions contemplated by this Agreement. Each party shall cooperate with and promptly furnish information to the other party necessary in connection with any requirements imposed upon such other party in connection with the consummation of the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Buyer and NMI shall, as promptly as practicable and before the expiration of any relevant legal deadline, but in no event later than 10 Business Days following the execution of this Agreement, file with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (“DOJ”), the notification and report form required for the transactions contemplated hereby and shall as promptly as practicable file any supplemental information requested in connection therewith pursuant to the HSR Act, which forms shall specifically request early termination of the waiting period prescribed by the HSR Act. In addition, Buyer and NMI shall as promptly as practicable and before the expiration of any relevant legal deadline, but in no event later than 10 Business Days following the Execution Date, file with any other Governmental Entity, any other filings, reports, information and documentation required for the transactions contemplated hereby pursuant to any Other Antitrust Laws. Each of Buyer and NMI shall furnish to each other’s counsel such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission that is necessary under the HSR Act and any Other Antitrust Laws. Buyer shall be responsible for all filing and other similar fees payable in connection with such filings and for any local counsel fees.

(b) Each of Buyer and NMI shall use its commercially reasonable efforts to promptly obtain any clearance required under the HSR Act and any Other Antitrust Laws for the consummation of the transactions contemplated by this Agreement before or by the Termination Date. Each of Buyer and NMI shall keep the other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and other Governmental Entities and shall comply promptly with any such inquiry or request. Buyer and NMI may, as they deem advisable and necessary, designate any competitively sensitive materials provided to the other under this Section 5.3 or Section 5.4 as "outside counsel only." Such materials and the information contained therein shall be given only to outside counsel of the recipient and will not be disclosed by such outside counsel to employees, officers, or directors of the recipient without the advance written consent of the party providing such materials. Subject to Applicable Law, Buyer and NMI will consult and cooperate with each other in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, and proposals made or submitted to any Governmental Entity regarding the transactions contemplated by this Agreement. Notwithstanding the foregoing, Buyer shall not be required to (1) consent to the divestiture, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any of its or its Affiliates’ assets or any of NMI’s, or its Subsidiaries, assets, or (2) consent to any other structural or conduct remedy or enter into any settlement or agree to any order regarding antitrust matters respecting the transactions contemplated by this Agreement; provided that each of Buyer and NMI shall both promptly respond to the DOJ or the FTC to any request for additional information.

5.4 Further Assurances. Each of the parties hereto shall use commercially reasonable efforts to take, or cause to be taken, all action, or to do, or cause to be done, all things necessary, proper or advisable to complete and make effective the transactions contemplated by this Agreement and to cause the conditions to the obligations of the other party hereto to complete the transactions contemplated hereby to be satisfied at the Closing and as of the Effective Time as provided herein, including satisfying

all legal requirements and obtaining all consents and approvals of all Governmental Entities and removing any injunctions or other Encumbrances on any assets of NMI, the obtaining or removal of which are necessary to the completion of the transactions contemplated by this Agreement. The parties hereto shall reasonably cooperate with each other in connection with the taking of all actions referenced in the preceding sentence, including providing (i) such reasonable assistance as the other party may reasonably request in connection with its preparation of any required filings or submissions and (ii) copies of all such filings and submissions to the non-filing party and its advisors prior to filing or submission and, if requested, to accept all reasonable additions, deletions or changes suggested in connection therewith. NMI and Parent shall have the right to review in advance, and, to the extent practicable, each shall consult the other on, all the information relating to NMI or Parent, as the case may be, that appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement (including any filing contemplated by this Section 5.4).

5.5 Notification of Certain Matters.

(a) Prior to the Closing Date, NMI will (i) notify Parent in writing promptly after learning of any proceeding by or before any Governmental Entity or arbitrator initiated by or against it, or known by NMI to be threatened against it or any of the directors, officers, employees or stockholders of NMI or any of its Subsidiaries, in their capacity as such (a “New Litigation Claim”), (ii) notify Parent of ongoing material developments in any New Litigation Claim, and (iii) consult in good faith with Parent regarding the conduct of the defense of any New Litigation Claim.

(b) Prior to the Effective Time, NMI will notify Parent in writing promptly after it becomes aware of any breach of any representation or warranty by it, or of any matter that may cause the closing conditions set forth in ARTICLE VI not to be satisfied.

(c) Prior to the Closing, Rights Holder shall give Buyer prompt written notice of any event, change, violation, inaccuracy, circumstance or effect that has or would reasonably expected to have a Material Adverse Effect.

5.6 No Solicitation. Prior to the Effective Time, NMI shall not, and shall not permit, assist or otherwise encourage any of its employees, directors, representatives or holders of NMI Capital Stock, including any of its or their members, advisors or Affiliates, to, directly or indirectly, without the prior written consent of Buyer:

(a) Solicit, initiate, encourage or induce the making of any offer or proposal (other than an offer or proposal by Buyer) contemplating or otherwise relating to (i) any sale, lease, exchange, transfer or other disposition or licensing of the assets or technologies of NMI (except in the ordinary course of business consistent with prior practice and shall not permit a transaction otherwise prohibited by Section 5.2(i) above), or any of its Subsidiaries, or any sale of any interests (including any equity or equity-linked interests) in NMI ,or any of its Subsidiaries, other than to Buyer; or (ii) any merger, consolidation, business combination, share exchange, reorganization or similar transaction or series of related transactions involving NMI, or any of its Subsidiaries, or holders of NMI’s, or any of its Subsidiaries’, Capital Stock or any assets of NMI, or any of its Subsidiaries, which are the subject of this Agreement or which would otherwise result in a change of control of NMI, or any of its Subsidiaries, or a material change in any board of directors or similar governing body of NMI, or any of its Subsidiaries, as

constituted on the Execution Date (any such transaction being referred to as a “Restricted Transaction” and any offer or proposal contemplating or otherwise relating thereto being hereinafter referred to as a “Proposal”);

(b) Furnish non-public information regarding NMI or any of its Subsidiaries, or any of their respective assets, to any Person, group, or entity in connection with or in respect of any Proposal; or

(c) Enter into any letter of intent, term sheet or similar document or any Contract, commitment or other obligation of any kind contemplating or otherwise relating to any Restricted Transaction or Proposal (other than with Buyer).

5.7 Access to Information.

(a) Until the earlier of the termination of this Agreement and the Closing, (i) NMI will afford Buyer and its accountants, counsel and other representatives reasonable access during normal business hours to (1) all of the properties, books, contracts, commitments and records of NMI and its Subsidiaries, and (2) all other information concerning the business, Intellectual Property, properties and personnel of NMI and its Subsidiaries as Buyer may reasonably request, and (ii) NMI will provide to Buyer and its accountants, counsel and other representatives true, correct and complete copies of internal financial statements promptly upon request. At or before Closing, NMI will deliver a copy of all documents in the electronically accessible data room provided in connection with the Merger (the “Data Room”) to Buyer on compact disc, DVD or other permanent electronic medium acceptable to Buyer. Notwithstanding the foregoing, NMI shall not be required to provide any information to the extent such provision would (i) violate any Applicable Laws, (ii) violate a contractual commitment to a third party (provided that NMI shall use commercially reasonable efforts to obtain the consent of such third party to the provision of such information to Buyer) or (iii) would cause NMI to lose a legal privilege (except to the extent that common legal privilege is available).

(b) All information obtained by NMI or Buyer pursuant to this Section 5.7 shall be treated as confidential information in accordance with the non-disclosure agreement between NMI and Buyer, dated January 22, 2014.

(c) Until the earlier of the termination of this Agreement and the Closing, NMI will cause its officers, counsel or other representatives to promptly notify Buyer of, and to confer from time to time as requested by Buyer with one or more representatives of Buyer during ordinary business hours to discuss, any material changes or developments in the operational matters of NMI and its Subsidiaries and the general status of the ongoing business and operations of NMI and its Subsidiaries.

(d) No information or knowledge obtained in any investigation in accordance with this Section 5.7 will affect or be deemed to modify any representation or warranty contained herein, the conditions to the obligations of the parties hereto to consummate the Merger or any party’s rights hereunder.

5.8 Public Announcements. Prior to the Closing, the parties hereto shall keep each other informed regarding the form and timing of public disclosures with respect to the subject matter of this Agreement, and no party will issue or make any press release or public statement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed, except as may be required by

disclosure obligations under any applicable Law, in which case the party proposing to issue any press release or public statement in compliance with any such disclosure obligations under any Applicable Law shall use commercially reasonable efforts to consult in good faith with the other party before doing so.

5.9 Taxes.

(a) The Representative, Parent and NMI shall (i) each provide the other with such information and assistance as may reasonably be requested by any of them in connection with the preparation of any Tax Return, and with any audit or other examination by any taxing authority or judicial or administrative proceedings or determinations relating to liability for Taxes in respect of NMI or any of its Subsidiaries, (ii) each retain and provide the other with any reasonably requested records or other information that may be relevant to such Tax Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding, or determination. Each party shall bear its own expenses in complying with the foregoing provisions.

(b) In the case of any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes based on or measured by income, receipts, or payroll of the Surviving Company and its Subsidiaries for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date and the amount of other Taxes of NMI and its Subsidiaries for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

(c) All Tax allocation, sharing or similar agreements with respect to or involving NMI and its Subsidiaries shall be terminated as of the Closing Date and, after the Closing Date, neither NMI nor its Subsidiaries shall be bound thereby or have any liability thereunder.

5.10 280G Stockholder Approval. Promptly following the Execution Date, NMI shall submit to the holders of NMI Capital Stock for approval (in a manner reasonably satisfactory to Parent) by such number of holders of NMI Capital Stock as is required by the terms of Section 280G(b)(5)(B) of the Code, any payments or benefits that may separately or in the aggregate, constitute “parachute payments” pursuant to Section 280G of the Code (“Section 280G Payments”) (which determination shall be made by NMI and shall be subject to review and approval by Parent, which shall not be unreasonably withheld), such that such payments and benefits shall not be deemed to be Section 280G Payments (the “Section 280G Stockholder Approval”).

5.11 Employee Benefits Covenants.

(a) Prior to the Closing Date and subject to Section 5.11(c), Parent and will NMI mutually determine which full-time employees of NMI or any of its Subsidiaries will receive either offers of continued employment from Parent or its Affiliates (the “Retained Employees”) or transitional offers to work as “independent contractors” for a limited period of time post-Closing (the “Transitional Contractors”), in each case so long as such employees are employed by NMI or any of its Subsidiaries immediately prior to Closing.

(b) Parent or its Affiliates will, effective upon Closing, offer employment to the Retained Employees on an at-will basis (to the extent permitted by Applicable Law) and will review the cash compensation of Retained Employees on or before the Closing in order to adjust such compensation

to a level comparable to Parent employees with similar positions, experience, responsibilities and qualifications; provided that the total cash compensation (including wages, salaries, commissions and bonuses) of Retained Employees will not be less favorable than the cash compensation provided by NMI or its Subsidiaries as of immediately prior to the Closing.

(c) Parent or its Affiliates will provide service credit to full-time employees of NMI or any of its Subsidiaries who become full-time employees of Parent or any Affiliate of Parent as of the Closing Date (“Continuing Employees”) under applicable Parent or Parent Affiliate employee benefit plans, consistent with Parent’s standard benefit plans and programs for similarly situated employees and based on geographic locations (except to the extent such service credit will result in the duplication of benefits); provided, however, that: (i) specific terms of employment, or credit in respect of, any individual employee as set forth in any offer letter or employment agreement shall control and prevail in the event of any conflict with the terms of this Section 5.11; (ii) prior service shall not be recognized or credited with respect to eligibility or entitlement related to incentive or performance bonuses, vacation, holiday or sick-leave entitlements or accruals, or overtime payments; (iii) except to the extent expressly specified in the offer letter received by an employee from Parent or its Affiliate, prior service shall not be recognized or credited for the purpose of eligibility for, entitlement to or participation in, any equity or quasi-equity compensation plan offered by Parent or any of its Affiliates, including customary Parent “rank and file” annual equity grant award reviews, other special equity incentive programs made available to rank and file employees; (iv) such prior service shall not be recognized or credited with respect to eligibility or entitlement to any annual or special salary adjustments or salary increases that may otherwise apply to Parent “rank-and-file” employees, unless Parent otherwise determines; (v) all Continuing Employees of each of NMI China and NMI Egypt shall, at Closing, have their employment status consensually modified so that each such Continuing Employee is deemed to have commenced his first fixed-term employment contract at the Effective Time (or, in the case of employees of NMI Egypt, after the expiration of their current fixed-term contract); and (vi) to the maximum extent permitted by Applicable Laws, for all purposes related to any of the benefits described in the foregoing sub clauses (i) through (v), the first Business Day following the Effective Time (or, in the case of employees of NMI Egypt, the first Business Day after the expiration of their current fixed-term contract) shall be deemed to be the “date of hire” for such employees by Parent or its applicable Affiliate. Subject to the consent of any third-party insurer and Applicable Law, no exclusion of conditions that are pre-existing as of the commencement of the Continuing Employee’s employment with Parent or any Affiliate of Parent will be imposed under Parent’s employee benefit plans and programs except to the extent applicable as of that date under the comparable plan or program of NMI. Nothing in this Section 5.11(c) is intended to prevent Parent from terminating any of its employee benefit plans from time to time, or changing the form of benefits provided to the Continuing Employees after the Closing Date, nor is anything contained in this Agreement intended to modify or affect the at-will employment, where applicable, of any employee who accepts employment with Parent or any Affiliate of Parent. No Person is an intended third party beneficiary of this Section 5.11(c).

(d) NMI will fully pay all Unpaid Employee Bonuses at or prior to Closing, and Parent and its Affiliates shall assume no obligation for, or have any Liability in respect of, any Unpaid Employee Bonuses relating to, or arising from, any time at or prior to Closing.

(e) NMI will fully pay all Unpaid Employee Vacation Amounts at or prior to Closing, and Parent and its Affiliates shall assume no obligation for, or have any Liability in respect of, any Unpaid Employee Vacation Amounts relating to, or arising from, any time at or prior to Closing.

5.12 Third-Party Consents; Notice. NMI shall use commercially reasonable efforts to obtain prior to the Closing, and deliver to Parent at or prior to the Closing, the consents, waivers and approvals listed in Schedule 5.12.

5.13 Termination of Liens. NMI shall cause all Liens (other than Permitted Liens) on the assets of NMI and any of its Subsidiaries, including without limitation any Owned Intellectual Property and the Liens listed in Schedule 5.13, to be released prior to or simultaneously with the Closing, and will deliver evidence of each such release in a form acceptable to Parent in its sole discretion at or prior to the Closing, and effective upon the Merger, there shall be no Liens (other than Permitted Liens) on any of the assets of NMI or any of its Subsidiaries.

5.14 Termination of Contracts. NMI shall cause the Contracts listed in Schedule 5.14 to be terminated and be of no further effect as of the Closing Date, and will deliver evidence of each such termination in a form acceptable to Parent in its sole discretion at or prior to the Closing.

5.15 Payoff Letters; Satisfaction Letters. NMI shall obtain prior to the Closing, and deliver to Parent at or prior to the Closing, the Payoff Letters and the Satisfaction Letters. The Payoff Letters and the Satisfaction Letters shall be in a form acceptable to Parent in its sole discretion.

5.16 Other Pre-Closing Actions. NMI shall take, or cause to be taken, prior to the Closing, and deliver to Parent at or prior to the Closing evidence of such action having been taken in a form acceptable to Parent in its sole discretion, all of the actions specified in Schedule 5.16.

5.17 D&O Indemnification and Insurance.

(a) The Surviving Corporation will be bound by and Parent will cause the Surviving Corporation to continue to satisfy the rights of exculpation, indemnification and advancement of expenses to which NMI’s present and former directors and officers (each, an “Indemnified D&O”) are entitled with respect to any act or omission occurring prior to the Effective Time under NMI’s certificate of incorporation and bylaws, or by contract or agreement, in accordance with the terms and conditions of any such exculpation and indemnification provisions as in effect on the Execution Date and previously provided to Parent. Until the sixth anniversary of the Closing Date, the certificate of formation and bylaws (or equivalent organizational or governing documents) of the Surviving Corporation shall, with respect to matters occurring prior to the Closing, contain provisions no less favorable in the aggregate with respect to exculpation, indemnification and advancement of expenses of each Indemnified D&O than are set forth in NMI’s certificate of incorporation and bylaws in effect as of the Execution Date, and such provisions shall not be amended, repealed or otherwise modified prior to the sixth anniversary of the Closing Date in any manner that would materially and adversely affect the rights thereunder of any Indemnified D&O with respect to matters occurring prior to the Effective Time. The rights of each Indemnified D&O to indemnification or advancement of expenses under any indemnification agreement are listed in Schedule 5.17 to the Disclosure Schedule, and Parent and NMI further agree that all such rights, in addition to rights under NMI’s certificate of incorporation, bylaws and Applicable Law, shall survive the Merger and continue in full force and effect in accordance with the terms of such agreement or law or, if earlier, until the sixth anniversary of the Closing Date.

(b) Prior to the Effective Time, NMI shall obtain, solely at its own cost and expenses, a fully prepaid tail insurance policy, which policy may provide Indemnified D&Os with directors’ and officers’ liability insurance at the current level and scope of directors’ and officers’ liability insurance coverage as set forth in NMI’s current directors’ and officers’ liability insurance policy in effect as of the date of this Agreement (the “Tail D&O Insurance”), which Tail D&O Insurance shall provide coverage for a period ending no earlier than the sixth anniversary of the Effective Time. From the Effective Time through the sixth anniversary of the Effective Time, Buyer shall not take any action intended to cancel or terminate the Tail D&O Insurance, but in no event shall Buyer be required to expend any money in connection with the maintenance of the Tail D&O Insurance.

5.18 IoT and Broadcast Revenues. NMI shall prepare, in a manner consistent with GAAP, and deliver to Parent, at Closing, the First Earnout Period Pre-Closing Revenue Statement, which shall set forth a true and correct schedule setting forth, in reasonable detail, by product, the First Earnout Period Pre-Closing IoT Revenue and the First Earnout Period Pre-Closing Broadcast Revenue.

ARTIClE VI
CONDITIONS TO CLOSING

6.1 Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of each party to effect the Merger are subject to the satisfaction or waiver, prior to the Closing Date, of the following conditions:

(a) the Stockholder Consent shall have been obtained;

(b) the waiting period applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act and any applicable waiting periods under any applicable Other Antitrust Laws shall have expired or been terminated and all other Authorizations and Orders of, declarations and filings with, and notices to any Governmental Entity, required to permit the consummation of the transactions contemplated by this Agreement shall have been obtained or made and shall be in full force and effect; and

(c) no statute, rule, regulation, executive order, judgment, decree or injunction shall have been enacted, entered, issued, promulgated or enforced by any court or Governmental Entity against Parent, Sub or NMI and be in effect that prohibits or restricts the consummation of the Merger or makes such consummation illegal (each party agreeing to use its commercially reasonable best efforts to have such prohibition lifted).

6.2 Conditions to the Obligations of Parent and Sub to Effect the Merger. The obligations of Parent and Sub to effect the Merger are further subject to the satisfaction or waiver, on or prior to the Closing Date, of the following conditions:

(a) NMI shall have performed and complied in all material respects with all agreements and obligations and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date and the representations and warranties of NMI which are qualified as to materiality, shall be true and correct, and the representations and warranties of NMI that are not so qualified, shall be true and correct in all material respects, on the Execution Date and at and on the Closing Date as though such representations and warranties were made on and as of such date (or, if given as of a specific date, at and as of such date);

(b) NMI shall have furnished certificates of its officers to evidence compliance with the conditions set forth in Section 6.2(a) hereof, each substantially in the form attached as Exhibit F;

(c) All consents, approvals, orders and authorizations of, and all registrations, declarations and filings with, any Governmental Entity required to have been obtained or made prior to the Closing shall have been obtained or made;

(d) No Action shall be pending or threatened in writing before any court or other Governmental Entity or before any other Person wherein an unfavorable order would (i) prevent consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements, or (ii) cause any of the transactions contemplated by this Agreement or the Ancillary Agreements to be rescinded following consummation

(e) No Action shall be pending or threatened in writing before any court or other Governmental Entity or before any other Person arising out of, or relating to, any of the Owned Intellectual Property; except for Actions that would not have a Material Adverse Effect;

(f) Each Offer Letter and each Non-Competition Agreement executed by any Person listed in Schedule 9.1(a) shall be duly and validly executed and shall continue to be in full force and effect and will not have been revoked by the Persons executing the same;

(g) at least eighty percent (80%) of the Retained Employees and Transitional Contractors (i) shall be employed by NMI or one of its Subsidiaries immediately prior to the Closing Date, (ii) shall have accepted an offer letter from Parent, NMI or a NMI Subsidiary agreeing to continued employment after the Closing, and (iii) shall not have notified (whether formally or informally) Buyers, NMI, any NMI Subsidiary of his or her intention to leave the employ of Buyer, any of its Affiliates, or NMI, or any of its Subsidiaries, following the Closing Date;

(h) Rights Holders representing ninety-five percent (95%) of the issued and outstanding NMI Capital Stock on an as-converted basis shall have executed a Stockholder Consent and approved the Merger and irrevocably waived their appraisal rights pursuant to Section 262 of the Delaware Code or other Applicable Law;

(i) Holders of no more than five percent (5%) of the NMI Capital Stock shall have validly exercised their appraisal rights pursuant to Section 262 of the Delaware Code or shall have provided any notice that they intend to exercise such rights;

(j) NMI shall have no Indebtedness at Closing and there shall be no Liens (other than Permitted Liens) after payment of the amounts set forth in the Payoff Letters, and UCC termination statements shall have been filed, or provided for filing, in respect of all Liens (other than Permitted Liens);

(k) Any and all rights of first offer, rights of first refusal, co-sale and similar rights that would be available as a result of the Merger shall have been validly waived by all Rights Holders, the Series D Financing Agreements and any similar financing agreements shall have been terminated, and such waivers and terminations will continue to be effective and will not have been revoked or challenged by the Persons executing the same;

(l) Each of (1) the waivers and approvals listed in Schedule 5.12 shall have been obtained; (2) the termination and release of the Liens listed in Schedule 5.13 shall have been obtained; (3)

the termination of each of the Contracts listed in Schedule 5.14 shall have occurred; (4) the Payoff Letters and Satisfaction Letters shall have been delivered; and (5) the actions required to have been taken and documents required to have been delivered at or before the Closing as listed in Schedule 5.16 shall have been taken or delivered, and all such agreements, instruments and other documents will continue to be effective and will not have been revoked by the Persons executing the same;

(m) A true and correct copy of the Section 280G Stockholder Approval shall have been made available to Parent;

(n) NMI shall have delivered to Parent, as required by Section 5.18, the First Earnout Period Pre-Closing Revenue Statement, signed by the Chief Executive Officer and Chief Financial Officer, certifying the First Earnout Period Pre-Closing IoT Revenue and the First Earnout Period Pre-Closing Broadcast Revenue, and Parent shall have determined that the revenue amounts set forth in that certificate are reasonable and consistent with GAAP and NMI’s historical sales patterns and practices;

(o) NMI shall have obtained the Minimum Stockholder Approval, which shall continue to be effective and shall not have been revoked or rescinded by the stockholders executing the same, and NMI shall have delivered a true and correct copy of the of the same to Parent; and

(p) NMI shall not have suffered any Material Adverse Effect or any change, condition, event or development that reasonably would be expected to have a Material Adverse Effect.

6.3 Conditions to the Obligations of NMI to Effect the Merger. The obligations of NMI to effect the Merger are further subject to the satisfaction or waiver, on or prior to the Closing Date, of the following conditions:

(a) Parent and Sub shall have performed and complied in all material respects with all agreements and obligations required by this Agreement to be performed or complied with by them on or prior to the Closing Date and the representations and warranties of Parent and Sub which are qualified as to materiality, shall be true and correct, and the representations and warranties of Parent and Sub that are not so qualified, shall be true and correct in all material respects, on the Execution Date and at and on the Closing Date as though such representations and warranties were made on and as of such date; and

(b) Parent and Sub shall have furnished certificates of their respective officers to evidence compliance with the conditions set forth in Section 6.3(a) hereof, each substantially in the form attached hereto as Exhibits I-1 and I-2 respectively.

ARTICLE VII
TERMINATION

7.1 Termination. At any time prior to the Closing, this Agreement may be terminated and the Merger abandoned by authorized action taken by the terminating party, whether before or after the Stockholder Consent:

(a) by mutual written consent by NMI and Parent;

(b) by either Parent or NMI, if the Closing shall not have occurred on or before December 31, 2014, or such other date that Parent and NMI may agree upon in writing (the "Termination Date"); provided, however, that the right to terminate this Agreement under this clause (b) of Section7.1

shall not be available to any party whose breach of this Agreement has resulted in the failure of the Closing to occur on or before the Termination Date;

(c) by either Parent or NMI, if any permanent injunction or other order of a Governmental Entity of competent authority preventing the completion of the Merger shall have become final and nonappealable; provided, however, that the right to terminate this Agreement under this clause (c) of Section 7.1 shall not be available to any party who did not contest the entry of such injunction or order;

(d) by Parent, if NMI shall have materially breached any representation, warranty, covenant or agreement contained herein and (1) such breach shall not have been cured within ten (10) Business Days after receipt by NMI from Parent of written notice of such breach; provided, however, that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured and (2) if not cured at or before the Closing, such breach would result in the failure of any of the conditions set forth in Sections 6.1 or 6.2 to be satisfied (provided, however, that the termination right under this Section 7.1(d) will not be available to Parent if Parent is at that time in material breach of this Agreement);

(e) by NMI, if Parent or Sub shall have materially breached any representation, warranty, covenant or agreement contained herein and (1) such breach shall not have been cured within ten (10) days after receipt by Parent from NMI of written notice of such breach; provided, however, that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured and (2) if not cured at or before the Closing, such breach would result in the failure of any of the conditions set forth in Sections 6.1 or 6.3 to be satisfied (provided, however, that the termination right under this Section 7.1(e) will not be available to NMI if NMI is at that time in material breach of this Agreement).

7.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Sub, NMI or their respective officers, directors, stockholders or affiliates; provided, however, that (a) the provisions of this Section 7.2, ARTICLE VIII, and ARTICLE IX shall remain in full force and effect and survive any termination of this Agreement and (b) nothing herein shall relieve any party hereto from liability in connection with any breach of such party's representations, warranties, covenants or agreements contained herein.

ARTICLE VIII
MISCELLANEOUS

8.1 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given (a) on the date established by the sender as having been delivered personally, (b) on the date delivered by a private courier as established by the sender by evidence obtained from the courier, (c) on the date sent by facsimile, with confirmation of transmission, if sent during normal business hours of the recipient, if not, then on the next Business Day, or (d) on the fifth day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications, to be valid, must be addressed as follows:


If to Buyer or Sub, to:	Atmel Corporation 1600 Technology Drive San Jose, CA 95110

Attn: Legal Department
Facsimile: (408) 436 4111

If to NMI, to:

Newport Media, Inc.
1 Spectrum Pointe Dr., Suite 225
Lake Forest, CA 92630

Attn: Chief Executive Officer
Facsimile: (949) 707-4027

If to Representative, to:

Shareholder Representative Services LLC
1614 15th Street, Suite 200
Denver, CO 80202
Attention: Managing Director
Email: deals@srsacquiom.com
Facsimile No.: (303) 623-0294
Telephone No.: (303) 648-4085

or to such other address or to the attention of such Person or Persons as the recipient party has specified by prior written notice to the sending party (or in the case of counsel, to such other readily ascertainable business address as such counsel may hereafter maintain). If more than one method for sending notice as set forth above is used, the earliest notice date established as set forth above shall control.

8.2 Amendments and Waivers.

(a) This Agreement shall not, at any time prior to the Closing, be amended, modified or supplemented except in a writing signed by NMI and Parent, unless the approval of a majority of the holders of NMI Capital Stock is also required by the Delaware Code. After the Closing this Agreement shall not be amended, modified or supplemented except in a writing signed by Parent and the Representative.

(b) No failure or delay by any party in exercising any right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(c) To the maximum extent permitted by Applicable Law, (i) no waiver that may be given by a party shall be applicable except in the specific instance for which it was given and (ii) no notice to or demand on one party shall be deemed to be a waiver of any obligation of such party or the right of the party giving such notice or demand to take further action without notice or demand.

8.3 Expenses. Each party shall bear its own costs and expenses in connection with this Agreement and the transactions contemplated hereby unless otherwise expressly provided by this Agreement, including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties, whether or not the Merger is consummated.

8.4 Privileged Information; Conflicts. Parent, for itself, the Surviving Corporation and each of their respective successors and assigns, hereby irrevocably acknowledges and agrees that all attorney-client privileged communications concerning specifically the negotiation, preparation, execution and delivery of this Agreement, and the transactions contemplated hereby, between the Rights Holders, NMI, and their respective counsel, including Gunderson, Dettmer Stough Villeneuve Franklin & Hachigian, LLP and Hogan Lovells US LLP, shall continue after the Closing to maintain their status as attorney-client privileged communications. In the event of any actual or potential dispute, including any litigation, arbitration or other adversarial proceeding (a “Dispute”) between Parent on the one hand, and the Rights Holders or the Representative, on the other hand, none of Parent, Sub, the Surviving Corporation or any Person purporting to act on behalf of or through Parent, Sub or the Surviving Corporation may claim that such attorney-client communications are discoverable or subject to any waiver of the privilege solely as a consequence of Parent’s acquisition of NMI. The Rights Holders or the Representative may, however, choose to waive the privilege in their sole discretion. Other than as explicitly set forth in this Section 8.4, the parties acknowledge that any attorney-client privilege belonging to NMI prior to the Closing shall survive and continue, after the Closing, to be a privilege of NMI, and not the Rights Holders or the Representative.

8.5 Successors and Assigns. This Agreement may not be assigned prior to the Closing by any party hereto without the prior written consent of the other parties; provided that, without such consent, Buyer may transfer or assign this Agreement, to (a) one or more of its Affiliates, (b) by operation of law, or (c) in connection with any merger, consolidation or sale of all or substantially all of its assets or in connection with any similar transaction, but no such transfer or assignment will relieve Buyer of its obligations hereunder. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of NMI and Buyer, provided that the parties hereto shall continue to be obligated in accordance with the terms of this Agreement.

8.6 Governing Law. This Agreement and the Ancillary Agreements and Schedules hereto and thereto shall be governed by and interpreted and enforced in accordance with the laws of the State of California, without giving effect to any choice of law or conflict of laws rules or provisions (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.

8.7 Consent to Jurisdiction. Each party irrevocably submits to the exclusive jurisdiction of (a) the State of California, County of Santa Clara, and (b) the United States District Court for the Northern District of California, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each party agrees to commence any such action, suit or proceeding either in the United States district Court for the Northern District of California, or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the courts of the State of California located in the County of Santa Clara. Each party further agrees that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set

forth above shall be effective service of process for any action, suit or proceeding in the courts of the State of California located in the County of Santa Clara with respect to any matters to which it has submitted to jurisdiction in this Section 8.7. Each party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the courts of the State of California, County of Santa Clara, or (ii) the United States District Court for the Northern District of California, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF AND THEREOF.

8.8 Counterparts. This Agreement may be executed in any number of counterparts, and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto.

8.9 Third Party Beneficiaries. No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder; except that in the case of ARTICLE VIII hereof, the other Indemnitees and their respective heirs, executors, administrators, legal representatives, successors and assigns, are intended third-party beneficiaries of such sections and shall have the right to enforce such sections in their own names.

8.10 Entire Agreement. This Agreement, the Schedules and the other documents, instruments and agreements specifically referred to herein or therein or delivered pursuant hereto or thereto set forth the entire understanding of the parties hereto with respect to the Merger. All Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. Any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement.

8.11 Captions. All captions contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

8.12 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

8.13 Electronic Signature. This Agreement may be executed by facsimile signature or other electronic transmission (including pdf or similar file format) and a facsimile signature or other electronic transmission shall constitute an original for all purposes.

8.14 No Presumption Against Drafting Party. Each of Parent, Sub, the Representative and NMI acknowledges that each party to this Agreement has been represented by counsel in connection with

this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived.

8.15 Specific Performance. Parent, Sub, the Representative and NMI each agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with the terms hereof and that each party shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity.

ARTICLE IX
CERTAIN DEFINITIONS

9.1 Definitions. The following terms used in this Agreement shall have the meanings set forth in this Section 9.1:

“$” means United States Dollars.

“Action” means any criminal, civil, judicial, administrative or arbitral action, audit, charge, claim, complaint, demand, grievance, hearing, inquiry, investigation, litigation, mediation, proceeding, subpoena or suit, whether civil, criminal, administrative, judicial or investigative, whether formal or informal, whether public or private, commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Entity or private arbitrator or mediator.

“Admitted Liability” has the meaning set forth in Section 4.4(e).

“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.

“Aggregate Liquidation Preference Payable” means the sum of (A) the Series D Liquidation Preference actually payable on shares of Series D Preferred pursuant to this Agreement (including Series D Preferred issued upon exercise of Warrants to purchase Series D Preferred outstanding as of the Effective Time), plus (B) the Series C Liquidation Preference actually payable on shares of Series C Preferred pursuant to this Agreement, plus (C) the Series B Liquidation Preference actually payable on shares of Series B Preferred pursuant to this Agreement, plus (D) the Series A Liquidation Preference actually payable on shares of Series A Preferred pursuant to this Agreement (including Series A Preferred issued upon exercise of Warrants to purchase Series A Preferred outstanding as of the Effective Time). Notwithstanding the foregoing, in no event shall the Aggregate Liquidation Preference Payable include amounts paid in respect of NMI Preferred Stock that converts to NMI Common Stock prior to or in connection with the Closing.

“Aggregate Merger Consideration” has the meaning set forth in Section 1.6.

“Aggregate Participation Amount” means the Aggregate Merger Consideration less the Aggregate Liquidation Preference Payable.

“Agreement” has the meaning set forth in the Preamble.

“Ancillary Agreements” means the Escrow Agreement, the Non-Competition Agreements, the Offer Letters, and the Joinder Agreements.

“Applicable Law” means any foreign, federal, state or local law, statute, ordinance, code, order, rule or regulation.

“Audited Financial Statements” has the meaning set forth in Section 2.7(a).

“Authorization” means any authorization, approval, consent, certificate, license, permit or franchise of or from any Governmental Entity or pursuant to any Law.

“Balance Sheet Date” has the meaning set forth in Section 2.7(a).

“Bank Account” has the meaning set forth in Section 2.18.

“Base Consideration” means One Hundred Forty Million Dollars ($140,000,000).

“Basis” means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction that could form the basis for any specific consequence.

“Bribery Laws” has the meaning set forth in Section 2.12(b).

“Broadcast Revenue” means all revenue generated from the sale of any of the Products set forth on Schedule 9.1(g) and any successor product or derivative of the Products set forth on Schedule 9.1(f) that is based on, uses or incorporates NMI Intellectual Property (excluding, in any case, standalone microcontrollers, reference designs, or any other Parent or Parent Affiliate products that incorporate, include, or otherwise integrate NMI firmware or other software).

“Business Day” means any day other than a Saturday or Sunday or a day on which banks are authorized or obligated by law to be closed in San Francisco, California.

“Buyer” has the meaning set forth in the Preamble.

“CAD Tool Provider” has the meaning set forth in Section 2.11(r).

“Certificates” has the meaning set forth in Section 1.14(a).

“China” means The People’s Republic of China.

“Claim” means a claim for indemnification under this Agreement.

“Claim Notice” has the meaning set forth in Section 4.4(e).

“Closing” has the meaning set forth in Section 1.2.

“Closing Aggregate Option and Warrant Exercise Price” equals the sum of:


(A)	the aggregate exercise price for all Vested Options that have an exercise price per share less than the Per Share Common Aggregate Consideration at the Closing, plus


(B)	the aggregate exercise price for all Warrants that have an exercise price per share less than the per share aggregate consideration payable hereunder for the class of NMI Capital Stock into which such Warrants are exercisable at the Closing.

“Closing Balance Sheet” has the meaning set forth Section 1.15(c).

“Closing Cash” means all cash and cash equivalents of NMI as of the Closing, other than cash attributable (or that would be attributable) to the Closing Aggregate Option and Warrant Exercise Price.

“Closing Date” has the meaning set forth in Section 1.2.

“Closing Date Working Capital” has the meaning set forth Section 1.15(c).

“Closing Debt” means all Indebtedness outstanding at the Closing Date.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collective Bargaining Agreements” mean any and all Contracts, letters, side letters, memoranda of understanding and contractual obligations of any kind, nature and description, oral or written, that have been entered into between or are otherwise binding on NMI or any of its Subsidiaries and any labor organization, union, employee association, agency or employee committee or plan that is lawfully entitled to represents employees of NMI or any of its Subsidiaries.

“Common Warrant Escrow Amount” has the meaning set forth in Section 1.7(i)(iii).

“Common Warrant Net Aggregate Consideration” has the meaning set forth in Section 1.7(i)(iii).

“Common Warrant Representative Expense Amount” has the meaning set forth in Section 1.7(i)(iii).

“Continuing Employees” has the meaning set forth in Section 5.11(c).

“Contract” means any contract, agreement, arrangement or understanding, whether written or oral.

“Control,” including the terms “Controlled by” and “under common Control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, as general partner or managing member, by having established a branch, representative or similar office in any jurisdiction, by Contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

“Convertible Debt” has the meaning set forth in Section 1.7(j).

“Copyrights” has the meaning set forth in the definition of “Intellectual Property” set forth in this Section 9.1.

“Corporate Records” has the meaning set forth in Section 2.1(c).

“Current Assets” means, without duplication and on a consolidated basis in accordance with GAAP, NMI’s (a) accounts receivable, net of allowances for doubtful accounts, (b) inventory, net of allowances for obsolete, unsalable or otherwise impaired goods, (c) prepaid expenses, (d) other current assets, (e) deferred cost of goods sold, and (f) the amount of any Severance Payments actually paid to Excluded Employees (in an aggregate amount not to exceed $50,000 for all Severance Payments); provided, however, that cash and cash equivalents, deferred Tax assets, and any deferred financing costs shall not be included in Current Assets; and provided further that the exercise price of any Stock Options, Warrants or Convertible Debt that are exercised after the Execution Date shall not be included in Current Assets.

“Current Liabilities” means, without duplication and on a consolidated basis in accordance with GAAP, any and all current liabilities of NMI, including (a) accounts payable, (b) accrued expenses, (c) deferred revenue, (d) accrued overtime, and (e) product warranty and other reserves for Product failures or defects; provided, however, that each of the following expenses or liabilities, as set forth in clauses (i), (ii), (iii) and (iv) of this proviso, may be excluded from the definition of Current Liabilities to the extent that any such expense or liability has been fully and unconditionally paid by NMI at or prior to Closing (but shall be fully included to the extent of any shortfall, underpayment, conditional payment or other event that causes Parent to assume a liability or payment obligation in respect thereof after the Closing Date): (i) Transaction and Other Specified Expenses fully and unconditionally paid off pursuant to a Satisfaction Letter at Closing, (ii) Closing Debt fully and unconditionally paid off pursuant to a Payoff Letter at or prior to the Closing, (iii) Unpaid Employee Bonuses and Unpaid Employee Vacation Amounts fully and unconditionally paid off at Closing, and (iv) the amount of Severance Payments accrued for Excluded Employees (in an aggregate amount not to exceed $50,000 for all Severance Payments).

“Data Room” has the meaning set forth in Section 5.7(a).

“Delaware Code” has the meaning set forth in Section 1.1.

“Disclosure Schedule” means the disclosure schedule dated as of the Execution Date and delivered by NMI to Buyer pursuant to this Agreement.

“Dispute” has the meaning set forth in Section 8.4.

“Dispute Statement” has the meaning set forth in Section 4.4(f).

“Dissenting Share Payment” has the meaning set forth in Section 1.8.

“Dissenting Shares” has the meaning set forth in Section 1.8.

“DOJ” has the meaning set forth in Section 5.3.

“Earnout Payments” means the aggregate payments, if any, made to the holders of NMI Common Stock, Vested Options, Warrants and Convertible Debt in respect of the First Earnout Period and/or the Second Earnout Period, as applicable. Holders of Retention RSUs and holders of NMI Preferred Stock (other than (i) shares converted into shares of NMI Common Stock at or prior to Closing and (ii) shares of Series 1 Preferred) are not, and shall not be, entitled to receive, or participate in, any of the Earnout Payments.

“Earnout Period” refers to the First Earnout Period or the Second Earnout Period, as applicable.

“Earnout Statement” has the meaning set forth in Section 1.16(c)(iv).

“Effective Time” has the meaning set forth in Section 1.2.

“Egypt” means The Arab Republic of Egypt.

“Egypt Employee” means any employee or contractor of NMI of any of its Subsidiaries who works or resides in, or conducts business activities for NMI within, Egypt, including employees or contractors of NMI, NMI California, NMI Egypt or any other Subsidiary of NMI.

“Egypt Service Contract” has the meaning set forth in Section 2.28(a)(vi).

“Escrow Account” has the meaning set forth in Section 4.4(a).

“Escrow Agent” has the meaning set forth in Section 4.4(a).

“Escrow Agreement” has the meaning set forth in Section 4.4(a).

“Escrow Amount” means Seventeen Million Five Hundred Thousand Dollars ($17,500,000).

“Escrow Contribution Percentage” means the quotient obtained by dividing: (A) the Escrow Amount by (B) the difference of (1) the Aggregate Merger Consideration minus (2) the Closing Aggregate Option and Warrant Exercise Price.

“Escrow Period” has the meaning set forth in Section 4.4(a).

“Estimated Working Capital” has the meaning set forth in Section 1.15(a).

“Excluded Employees” means any employee of NMI or any of its Subsidiaries who (a) is not offered a position as a Retained Employee or Transitional Contractor by the parties, (b) terminates their employment with NMI or such Subsidiary after the Execution Date but on or prior to the Closing as a result of not being selected as a Retained Employee or Transitional Contractor, and (c) executes a binding release in favor of NMI and each of its Subsidiaries releasing all claims such employee may have against NMI or any of its Subsidiaries in a form reasonably acceptable to Parent on or prior to the Closing.

“Execution Date” has the meaning set forth in the preamble.

“Export Controlled Products” has the meaning set forth in Section 2.12(e).

“Export Licenses” has the meaning set forth in Section 2.12(e).

“Financial Statements” has the meaning set forth in Section 2.7(a).

“First Earnout Adjusted Merger Consideration Amount” equals the sum of (A) the Base Consideration, plus (B) the First Earnout Payment Amount, plus (C) the First Earnout Aggregate Option and Warrant Exercise Price, plus (D) the Fixed Earnout Merger Consideration Amount.

“First Earnout Aggregate Option and Warrant Exercise Price” shall equal the sum of:


(A)	the aggregate exercise price for all Vested Options that have an exercise price per share that is less than the Per Share Common Aggregate Consideration, calculated as if based on the First Earnout Adjusted Merger Consideration Amount instead of the Aggregate Merger Consideration, plus


(B)	the aggregate exercise price for all Warrants that have an exercise price per share that is less than the per share aggregate consideration payable hereunder for the class of NMI Capital Stock into which such Warrants are exercisable, calculated as if based on the First Earnout Adjusted Merger Consideration Amount instead of the Aggregate Merger Consideration.

“First Earnout Broadcast Credit Amount” means an amount, rounded down to the nearest thousandth of a cent, equal to:


(A)	$5,000,000, divided by


(B)	$39,591,200, minus


(1)	the First Earnout Period Pre-Closing Broadcast Revenue, minus


(2)	the First Earnout Broadcast Revenue Target.

“First Earnout Broadcast Revenue Target” equals:


(A)	0.80 multiplied by


(B)	$39,591,200, minus the First Earnout Period Pre-Closing Broadcast Revenue.

“First Earnout IoT Credit Amount” means an amount, rounded to the nearest thousandth of a cent, equal to:


(A)	$10,000,000, divided by


(B)	$8,945,819, minus


(1)	the First Earnout Period Pre-Closing IoT Revenue, minus


(2)	the First Earnout IoT Revenue Target.

“First Earnout IoT Revenue Target” equals:


(A)	0.80 multiplied by


(B)	$8,945,819 minus the First Earnout Period Pre-Closing IoT Revenue.

“First Earnout Payment Amount,” if any, equals the sum:


(A)	with respect to IoT Revenue in the First Earnout Period, of the product of (1) the First Earnout IoT Credit Amount, multiplied by (2) the IoT Revenue realized in excess of the First Earnout IoT Revenue Target;

provided, however, that in no event shall the aggregate amount payable in respect of the First Earnout Payment based on IoT Revenue exceed $10,000,000, plus


(B)	with respect to Broadcast Revenue in the First Earnout Period, of the product of (1) the First Earnout Broadcast Credit Amount, multiplied by (2) the Broadcast Revenue realized in excess of the First Earnout Broadcast Revenue Target;

provided, however, that in no event shall the aggregate amount payable in respect of the First Earnout Payment based on Broadcast Revenue exceed $5,000,000.

“First Earnout Per Share Payment” means, with respect to each share of Series 1 Preferred, each share of NMI Common Stock and each share of NMI Common Stock underlying any Vested Options, Warrants or Convertible Debt, the positive number, if any, equal to:

(A)

the Per Share Closing Aggregate Amount that would have been payable, at the Closing, in respect of each share of Series 1 Preferred, each share of NMI Common Stock and each share of NMI Common Stock underlying any Vested Options, Warrants or Convertible Debt, calculated assuming that, and as if, the amount of the Aggregate Merger Consideration payable at the Closing was equal to the First Earnout Adjusted Aggregate Merger Consideration Amount (including corresponding changes to Fully-Diluted Shares and Closing Aggregate Option and Warrant Exercise Price in such calculation), minus


(B)	the Per Share Closing Aggregate Amount actually paid, at the Closing, in respect of each share of Series 1 Preferred, each share of NMI Common Stock and each share of NMI Capital Stock underlying any Vested Options, Warrants or Convertible Debt (inclusive of any amount allocated to the Escrow Amount or the Representative Expense Amount at the Closing);

provided, however, that to the extent that a holder of any NMI Preferred Stock (other than the Series 1 Preferred) did not elect in writing to convert their shares of NMI Preferred Stock into shares of NMI Common Stock on or prior to the Closing in accordance with the NMI Charter Documents, such shares of NMI Preferred Stock (other than the Series 1 Preferred) shall not be entitled to participate in, or receive, any Earnout Payments.

“First Earnout Period” means the period from the Closing Date through June 30, 2015.

“First Earnout Period Pre-Closing Broadcast Revenue” has the meaning set forth in Section 1.16(c)(v).

“First Earnout Period Pre-Closing IoT Revenue” has the meaning set forth in Section 1.16(c)(v).

“First Earnout Period Pre-Closing Revenue Statement” has the meaning set forth in Section 1.16(c)(v).

“Fixed Earnout Merger Consideration Amount” means the positive or negative number equal to the sum of (A) Closing Cash, minus (B) Closing Debt, minus (C) Transaction and Other Specified Expenses, plus (D) Working Capital Excess (if any), minus (E) Working Capital Shortfall (if any), each such amount set forth in (A) through (E) as originally calculated for purposes of, and as used to determine payments made at, the Closing.

“FTC” has the meaning set forth in Section 5.3.

“Fully-Diluted Shares” means, subject to the last two sentences of this definition, the sum of (a) the number of shares of NMI Common Stock issued and outstanding immediately prior to the Effective Time, plus (b) the number of shares of NMI Common Stock issuable upon conversion of all shares of NMI Preferred Stock issued and outstanding immediately prior to the Effective Time (other than shares of NMI Preferred Stock that have a liquidation preference per share that exceeds the Per Share Common Aggregate Consideration), plus (c) the number of shares of NMI Common Stock issuable upon exercise of all Vested Options and Warrants outstanding immediately prior to the Effective Time that have per share exercise prices less than the Per Share Common Aggregate Consideration, plus (d) the number of shares of NMI Common Stock issuable upon conversion of the NMI Capital Stock that may be purchased pursuant to the Convertible Debt as of immediately prior to the Effective Time, all of which shall be as set forth in the Spreadsheet. No Retention RSUs shall be included within the definition of Fully-Diluted Shares notwithstanding the specific terms or participatory rights any such Retention RSUs may otherwise expressly or impliedly provide. Solely for purposes of calculating the First Earnout Per Share Payment and the Second Earnout Per Share Payment, the number of Fully-Diluted Shares shall exclude the number of shares of NMI Common Stock issuable upon conversion of shares of NMI Preferred Stock (other than Series 1 Preferred), except to the extent that a holder of any NMI Preferred Stock elected in writing to convert their shares of NMI Preferred Stock into shares of NMI Common Stock on or prior to the Closing in accordance with the NMI Charter Documents and, in which case, those share of capital stock will be included as NMI Common Stock.

“GAAP” means United States generally accepted accounting principles as applied by NMI in its Audited Financial Statements.

“Generally Available Software” means either (i) non-material, commercially standard “shrink-wrap,” off-the-shelf and commonly available software or (ii) non-material open source software generally available to third parties at no cost and without any restrictions.

“Governmental Entity" means any supranational, national, state, municipal, local or foreign government, any court, tribunal, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign, any stock exchange or similar self-regulatory organization or any quasi-governmental or private body exercising any regulatory, Taxing or other governmental or quasi-governmental authority.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and the rules and regulations promulgated thereunder.

“including” shall be deemed to be followed by the phrase “without limitation.”

“Indebtedness” of any Person means, as of any specified date, the amount equal to the sum of the following monetary or payment obligations (whether or not then due and payable), to the extent they are obligations of such Person on a consolidated basis, including all obligations of its Subsidiaries or otherwise guaranteed by such Person or any of its Subsidiaries (whether through the grant of a security interest upon any assets of such Person or otherwise): (a) all outstanding indebtedness for borrowed money owed to third parties, (b) accrued interest payable with respect to Indebtedness referred to in clause (a), (c) all obligations evidenced by notes, bonds, debentures or other similar instruments (whether or not convertible) or arising under indentures, (d) all obligations arising out of any financial hedging, swap or similar arrangements, (e) all obligations as lessee that would be required to be capitalized in accordance with GAAP, (f) all obligations in connection with any banker’s acceptance, guarantee, surety, performance or appeal bond, or similar credit transaction, (g) any obligation outstanding under any credit facility or credit line, including the accounts receivable based credit line with Bridge Bank, N.A., and (h) the aggregate amount of all prepayment premiums, penalties, breakage costs, “make whole amounts,” costs, expenses and other payment obligations of such entity that would arise (whether or not then due and payable) if all such items under clauses (a) through (g) were prepaid, extinguished, unwound and settled in full as of such specified date.

“Indemnified Loss” has the meaning set forth in Section 4.1.

“Indemnified Parties” has the meaning set forth in Section 4.1.

“Indemnifying Party” has the meaning set forth in Section 4.4(g)(i).

“India” means The Republic of India.

“Intellectual Property” means all intellectual property rights and industrial property rights in any jurisdiction, if and to the extent legally protected as intellectual property or industrial property in such jurisdiction, whether registered or unregistered, including such rights in and to: (a) trademarks, trade dress, service marks, certification marks, logos, trade names and corporate names, and all applications therefor (collectively, “Trademarks”); (b) patents (including any and all divisionals, continuations, continuations-in-part, reissues, reexaminations, and extensions thereof), any counterparts claiming priority therefrom, as well as utility models, certificates of invention and certificates of registration, and

all applications therefor (collectively, “Patents”); (c) writings and other works of authorship, expressions, and designs, whether or not copyrightable, including copyrights, author, performer, and neighboring rights, and all registrations, applications for registration, and renewals thereof (collectively, “Copyrights”); (d) inventions, discoveries, trade secrets, business and technical information know-how, databases, data collections that are not publicly available and that are treated as confidential and proprietary, and other non-public confidential and proprietary information and all rights therein (collectively, “Trade Secrets”) (e) software and firmware (including source code, object code, application programming interfaces, data files, databases and software-related specifications and documentation) (collectively, “Software”); (f) domain names; (g) mask works; (h) topographies of micro-electronic semiconductor products; and (i) moral rights such as droit moral; in each case, including any registrations of applications to register, and renewals and extensions of any of the foregoing with or by any Governmental Entity in any jurisdiction.

“Interim Balance Sheet” has the meaning set forth in Section 2.9.

“Interim Balance Sheet Date” has the meaning set forth in Section 2.9.

“IoT Revenue” means all revenue generated from the sale of (a) any of the Products set forth on Schedule 9.1(f), and designed and manufactured for, or otherwise used in, the “Internet of Things”, plus (b) multi-chip modules (“MCM”) or system-in-packages (“SiP”) that contain NMI’s Wi-Fi or Bluetooth Intellectual Property and are designed and manufactured for use in the “Internet of Things,” and, in the case of each of clauses (a) and (b), any successor products or derivatives thereof that are based on, use or incorporate NMI Intellectual Property. Notwithstanding the foregoing, IoT Revenue will not include (i) any revenue realized from the sale of (x) standalone microcontrollers, reference designs, or any other Parent or Parent Affiliate products that incorporate, include, or otherwise integrate NMI firmware or other software, or (y) any MCM or SiP containing Wi-Fi or Bluetooth technology and/or products that are not based on, use or incorporate NMI Intellectual Property; (ii) any revenue realized from the sale of products for use in handset or tablet devices, “mobility” products or other products or technologies of a similar nature; or (iii) revenue realized from the sale of Parent and Parent Affiliate products that are not specifically marketed for, or intended specifically for use in, the “Internet of Things.”

“IP Registrations” has the meaning set forth in Section 2.11(a).

“ITAR” has the meaning set forth in Section 2.12(c).

“Joinder Agreement” has the meaning set forth in the Recitals.

“Key Management Team” means each of the Persons specified in Schedule 9.1(a).

“Know-How” has the meaning set forth in the definition of “Intellectual Property” set forth in this Section 9.1.

“Knowledge” or “NMI’s Knowledge” or similar expression, means the knowledge of the Persons specified in Schedule 9.1(b), in each case after his or her reasonable inquiry of the employees and/or consultants of NMI materially involved with respect to the matter in question.

“Korea” means Republic of Korea.

“Letter of Transmittal” has the meaning set forth in Section 1.14(b).

“Liabilities” means any and all debts, liabilities and obligations of any kind, whether accrued or fixed, absolute or contingent, reserved or unreserved, matured or unmatured, determined or undeterminable, on- or off-balance sheet, including those arising under any Applicable Law, Action or Order and those arising under any Contract or otherwise.

“License Fees” has the meaning set forth in Section 2.11(c).

“Liens” means any pledge, hypothecation, charge, mortgage, security interest, encumbrance, equity, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, infringement, interference, order, proxy, option, right of first refusal, preemptive right, community property interest, legend, defect, impediment, exception, reservation, limitation, impairment, imperfection of title, condition or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

“Losses” has the meaning set forth in Section 4.1.

“Material Adverse Effect” means any change, condition, event or development in the business, condition (financial or otherwise), assets, liabilities or results of operations of NMI that is material and adverse to NMI taken as a whole; provided, however, that none of the following constitute, or will be considered in determining whether there has occurred, a Material Adverse Effect: (i) changes in circumstances affecting the semiconductor industry as a whole (ii) changes in global macroeconomic conditions, (iii) changes to the extent attributable to the transactions contemplated by the Agreement or the announcement or pendency thereof, (iv) any action taken by NMI that it is expressly required to take pursuant to this Agreement, and (v) any action taken at the request, or with the prior written consent, of Parent.

“Material Contract” has the meaning set forth in Section 2.10(a).

“Merger” has the meaning set forth in Section 1.1.

“Minimum Stockholder Approval” has the meaning set forth in Section 2.6.

“Neutral Accounting Firm” means Grant Thornton or, if such firm shall decline or is unable to accept the assignment, such other nationally recognized independent accounting firm selected by mutual agreement of Buyer and the Representative. If Buyer and the Representative fail to agree on a Neutral Accounting Firm within thirty (30) days after either party notifies the other that it desires to engage the Neutral Accounting Firm, then either party may request that a court specified in Section 9.6 select a nationally recognized independent accounting firm to serve as the Neutral Accounting Firm.

“New Litigation Claim” has the meaning set forth in Section 5.5(a).

“NMI” has the meaning set forth in the Preamble.

“NMI Authorizations” has the meaning set forth in Section 2.12(d).

“NMI Benefit Plans” has the meaning set forth in Section 2.14(a).

“NMI Board” means the board of directors of NMI.

“NMI California” means Newport Media, Inc., a California corporation.

“NMI Capital Stock” means the NMI Common Stock, NMI Preferred Stock and all other shares of all series and classes of capital stock of NMI, taken together.

“NMI Charter Documents” has the meaning set forth in the Recitals.

“NMI China” means any Subsidiary of NMI or any of its Affiliates organized in the People’s Republic of China, including United Xinshi Information Technology (Shanghai) Co. Ltd.

“NMI Common Stock” means shares of Common Stock, par value $0.001 per share, of NMI.

“NMI Development Person” has the meaning set forth in Section 2.11(g).

“NMI Egypt” means any Subsidiary of NMI or any of its Affiliates organized in the Arab Republic of Egypt, including the branch or representative office of NMI California known as NMI’s “Egyptian Design Center” or “EDC”.

“NMI Korea” means any Subsidiary of NMI or any of its Affiliates organized in the Republic of Korea, including Wireless Republic Group, Inc.

“NMI Preferred Stock” means, collectively, the Series A Preferred, par value $0.001 per share, the Series B Preferred, par value $0.001 per share, the Series C Preferred, par value $0.001 per share, the Series D Preferred, par value $0.001 per share, and the Series 1 Preferred, par value $0.001 per share.

“NMI Source Code” has the meaning set forth in Section 2.11(e).

“NMI Stock Plan” means the Newport Media, Inc. 2005 Stock Incentive Plan, as amended and restated.

“Non-Competition Agreement” has the meaning set forth in Section 2.29.

“Offer Letter” has the meaning set forth in Section 2.29.

“Order” means any award, injunction, judgment, decree, order, ruling, subpoena or verdict or other decision issued, promulgated or entered by or with any Governmental Entity of competent jurisdiction.

“Organizational Documents” means, with respect to any entity, the certificate of incorporation or formation, the articles of incorporation, by-laws, articles of organization, partnership agreement, limited liability company agreement, formation agreement, joint venture agreement or other similar organizational documents of such entity (in each case, as amended).

“Original Series A Issue Price” means $1.00.

“Original Series B Issue Price” means $2.95.

“Original Series C Issue Price” means $5.12.

“Original Series D Issue Price” means $2.225.

“Other Antitrust Laws” means the antitrust and competition Laws of all jurisdictions other than those of the United States.

“Other Liabilities” means, without duplication and on a consolidated basis, any and all Liabilities of NMI arising out of or resulting from (a) any Tax reserve of NMI or any of its Subsidiaries, as determined in accordance with GAAP, including any Tax reserve for NMI Egypt, and (b) any other Tax

obligation of NMI or any of its Subsidiaries attributable to any Pre-Closing Tax Period, including, any permanent establishment Tax Liability.

“Owned Intellectual Property” has the meaning set forth in Section 2.11(b).

“Parent” has the meaning set forth in the Preamble.

“Parent Common Stock” means a share of common stock, par value $0.001 per share, of Parent.

“Parent Share Conversion Rate” means the quotient obtained by dividing (A) the Per Share Common Aggregate Consideration, by (B) the Parent Stock Price.

“Parent Stock Price” means the average of the closing sale prices of Parent Common Stock as quoted on the NASDAQ Global Select Market for the thirty (30) consecutive trading days ending with (and including) the trading day that is three trading days prior to the Closing Date.

“Patents” has the meaning set forth in the definition of “Intellectual Property” set forth in this Section 9.1.

“Paying Agent” has the meaning set forth in Section 1.14(a).

“Payoff Letters” has the meaning set forth in Section 1.12.

“Per Share Closing Aggregate Amount” means:


(a)	with respect to each share of NMI Common Stock, the Per Share Common Aggregate Consideration payable to the holder of that share of NMI Common Stock at the Closing;


(b)	with respect to each share of Series 1 Preferred, the Per Share Series 1 Aggregate Consideration payable to the holder of that share of Series 1 Preferred at the Closing;


(c)	with respect to each share of Series A Preferred, the Per Share Series A Aggregate Consideration payable to the holder of that share of Series A Preferred at the Closing;


(d)	with respect to each share of Series B Preferred, the Per Share Series B Aggregate Consideration payable to the holder of that share of Series B Preferred at the Closing;


(e)	with respect to each share of Series C Preferred, the Per Share Series C Aggregate Consideration payable to the holder of that share of Series C Preferred at the Closing;


(f)	with respect to each share of Series D Preferred, the Per Share Series D Aggregate Consideration payable to the holder of that share of Series D Preferred at the Closing,


(g)	with respect to each share underlying any Warrant to purchase shares of Series A Preferred, the Per Share Series A Warrant Net Aggregate Consideration payable to the holder of that Warrant for such underlying share;


(h)	with respect to each share underlying any Warrant to purchase shares of Series D Preferred, the Per Share Series D Warrant Net Aggregate Consideration payable to the holder of that Warrant for such underlying share;


(i)	with respect to each share underlying any Warrant to purchase shares of NMI Common Stock, the Per Share Common Warrant Net Aggregate Consideration payable to the holder of that Warrant for such underlying share;


(j)	with respect to each share underlying any Vested Options, the Per Share Vested Option Net Aggregate Consideration payable to the holder of that Vested Options for such underlying share; and


(k)	with respect to each share underlying any Convertible Debt, the Per Share Convertible Debt Aggregate Consideration payable to the holder of that Convertible Debt for such underlying share.

“Per Share Common Aggregate Consideration” means the quotient obtained by dividing (A) the Aggregate Participation Amount, by (B) the Fully-Diluted Shares.

“Per Share Common Closing Consideration” means the difference resulting from (A) the Per Share Common Aggregate Consideration minus (B) the Per Share Common Escrow Amount minus (C) the Per Share Common Representative Expense Amount.

“Per Share Common Escrow Amount” means the product of (A) the Per Share Common Aggregate Consideration multiplied by (B) the Escrow Contribution Percentage.

“Per Share Common Representative Expense Amount” means the product of (A) the Per Share Common Aggregate Consideration multiplied by (B) the Representative Expense Percentage.

“Per Share Common Warrant Net Aggregate Consideration” means, with respect to each share of NMI Common Stock underlying any Warrant to purchase shares of NMI Common Stock, the quotient obtained by dividing: (A) the Common Warrant Net Aggregate Consideration for such Warrant by (B) the number of shares of NMI Common Stock underlying such Warrant.

“Per Share Convertible Debt Aggregate Consideration” means, with respect to each share of NMI Common Stock underlying any Convertible Debt outstanding and unpaid at the Effective Time (other than Convertible Debt that is treated as a Warrant to purchase NMI Common Stock in accordance with the last sentence of Section 1.7(j)), the quotient obtained by dividing: (A) the aggregate consideration payable to such Convertible Debt at the Closing, as calculated in accordance with Section 1.7(j)(1) – (3), by (B) the number of shares of NMI Common Stock underlying such Convertible Debt.

“Per Share Earnout Payments” means, collectively, the First Earnout Per Share Payment and the Second Earnout Per Share Payment.

“Per Share Series 1 Aggregate Consideration” means the Per Share Common Aggregate Consideration multiplied by the quotient of (A) 5.12, divided by (B) 4.72.

“Per Share Series 1 Closing Consideration” means the difference resulting from (A) the Per Share Common Aggregate Consideration minus (B) the Per Share Series 1 Escrow Amount minus (C) the Per Share Series 1 Representative Expense Amount.

“Per Share Series 1 Escrow Amount” means the product of (A) the Per Share Common Aggregate Consideration multiplied by (B) the Escrow Contribution Percentage.

“Per Share Series 1 Representative Expense Amount” means the product of (A) the Per Share Common Aggregate Consideration multiplied by (B) the Representative Expense Percentage.

“Per Share Series A Aggregate Consideration” means the Series A Liquidation Preference for each share of Series A Preferred.

“Per Share Series A Closing Consideration” means the difference resulting from (A) the Per Share Series A Aggregate Consideration minus (B) the Per Share Series A Escrow Amount minus (C) the Per Share Series A Representative Expense Amount.

“Per Share Series A Escrow Amount” means the product of (A) the Per Share Series A Aggregate Consideration multiplied by (B) the Escrow Contribution Percentage.

“Per Share Series A Representative Expense Amount” means the product of (A) the Per Share Series A Aggregate Consideration multiplied by (B) the Representative Expense Percentage.

“Per Share Series A Warrant Net Aggregate Consideration” means, with respect to each share of Series A Preferred underlying any Warrant to purchase shares of Series A Preferred, the quotient obtained by dividing: (A) the Series A Warrant Net Aggregate Consideration for such Warrant by (B) the number of shares of Series A Preferred underlying such Warrant.

“Per Share Series B Aggregate Consideration” means the Series B Liquidation Preference for each share of Series B Preferred.

“Per Share Series B Closing Consideration” means the difference resulting from (A) the Per Share Series B Aggregate Consideration minus (B) the Per Share Series B Escrow Amount minus (C) the Per Share Series B Representative Expense Amount.

“Per Share Series B Escrow Amount” means the product of (A) the Per Share Series B Aggregate Consideration multiplied by (B) the Escrow Contribution Percentage.

“Per Share Series B Representative Expense Amount” means the product of (A) the Per Share Series B Aggregate Consideration multiplied by (B) the Representative Expense Percentage.

“Per Share Series C Aggregate Consideration” means the Series C Liquidation Preference for each share of Series C Preferred.

“Per Share Series C Closing Consideration” means the difference resulting from (A) the Per Share Series C Aggregate Consideration minus (B) the Per Share Series C Escrow Amount minus (C) the Per Share Series C Representative Expense Amount.

“Per Share Series C Escrow Amount” means the product of (A) the Per Share Series C Aggregate Consideration multiplied by (B) the Escrow Contribution Percentage.

“Per Share Series C Representative Expense Amount” means the product of (A) the Per Share Series C Aggregate Consideration multiplied by (B) the Representative Expense Percentage.

“Per Share Series D Aggregate Consideration” means the Series D Liquidation Preference for each share of Series D Preferred.

“Per Share Series D Closing Consideration” means the difference resulting from (A) the Per Share Series D Aggregate Consideration minus (B) the Per Share Series D Escrow Amount minus (C) the Per Share Series D Representative Expense Amount.

“Per Share Series D Escrow Amount” means the product of (A) the Per Share Series D Aggregate Consideration multiplied by (B) the Escrow Contribution Percentage.

“Per Share Series D Representative Expense Amount” means the product of (A) the Per Share Series D Aggregate Consideration multiplied by (B) the Representative Expense Percentage.

“Per Share Series D Warrant Net Aggregate Consideration” means, with respect to each share of Series D Preferred underlying any Warrant to purchase shares of Series D Preferred, the quotient obtained by dividing: (A) the Series D Warrant Net Aggregate Consideration for such Warrant by (B) the number of shares of Series D Preferred underlying such Warrant.

“Per Share Vested Option Escrow Amount” has the meaning set forth in Section 1.7(m).

“Per Share Vested Option Net Aggregate Consideration” has the meaning set forth in Section 1.7(m).

“Per Share Vested Option Representative Expense Amount” has the meaning set forth in Section 1.7(m).

“Permit” means any authorization, approval, consent, license or permit or any waiver of any of the foregoing, of or from, or to be filed with or delivered to, any Governmental Entity.

“Permitted Liens” means (a) liens for current real or personal property taxes not yet due and payable and with respect to which NMI maintains adequate reserves and reflected as such in its Current Liabilities, (b) workers’, carriers’ and mechanics’ or other like liens incurred in the ordinary course of business with respect to which payment is not due and that do not impair the present use of the affected property, and (c) liens that are immaterial in character, amount, and extent and which do not detract from the value or interfere with the present or proposed use of the properties they affect.

“Person” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, person, trust, association, organization or other entity, including any Governmental Entity, and including any successor, by merger or otherwise, of any of the foregoing.

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date and the portion of any Straddle Period that is prior to and includes the Closing Date.

“Pro Rata Share” means a fraction, (A) the numerator of which is the amount of cash each Rights Holder is entitled to receive pursuant to Section 1.7 with respect to its NMI Capital Stock, Vested Options, Warrants and Convertible Debt, and (B) the denominator of which is the amount of cash all such Rights Holders are entitled to receive pursuant to Section 1.7 with respect to their NMI Capital Stock, Vested Options, Warrants and Convertible Debt (without taking into account, for clauses (A) and (B) above, any applicable tax withholding, the deduction of any Escrow Amount or any Representative Expense Amount, or any deduction of the exercise or warrant price payable for the exercise of any Stock Option or Warrant).

“Products” means the products of NMI set forth on Exhibit J, and any other current product of NMI comprised in all material respects of Owned Intellectual Property.

“Proposal” has the meaning set forth in Section 5.6(a).

“Real Property Lease” has the meaning set forth in Section 2.20.

“Regulations” has the meaning set forth in Section 2.12(a).

“Restricted Transaction” has the meaning set forth in Section 5.6(a).

“Representative” has the meaning set forth in Section 4.6(a).

“Representative Expense Amount” means $250,000.

“Representative Expense Percentage” means the quotient obtained by dividing: (A) the Representative Expense Amount by (B) the difference of (1) the Aggregate Merger Consideration minus (2) the Closing Aggregate Option and Warrant Exercise Price.

“Representative Losses” has the meaning set forth in Section 4.6(b).

“Resolved Claim” has the meaning set forth in Section 4.4(f).

“Restricted Entity” has the meaning set forth in Section 2.11(p).

“Retained Employees” has the meaning set forth in Section 5.11(a).

“Retention RSU” means restricted stock units granted by NMI pursuant to the NMI Stock Plan, consistent with the terms of this Agreement, to the individuals as mutually agreed prior to Closing.

“Rights Holders” means the holders of rights to receive any portion of the Aggregate Merger Consideration in respect of shares of NMI Capital Stock, Vested Options, Warrants and Convertible Debt held by such holder, or any portion of any Earnout Payments in respect of shares of NMI Common Stock, Series 1 Preferred, Vested Options, Warrants and Convertible Debt held by such holder, as set forth in this Agreement (except that for the purposes of Section 1.15(e), “Rights Holders” shall not include holders of NMI Preferred Stock).

“Samsung” means Samsung Electronics Co., Ltd. and each of its Affiliates.

“Samsung Contracts” has the meaning set forth in Section 2.28(b)(iii).

“Satisfaction Letters” has the meaning set forth in Section 1.13.

“Second Earnout Adjusted Merger Consideration Amount” equals the sum of (A) the Base Consideration, plus (B) the First Earnout Payment Amount, plus (C) the Second Earnout Payment Amount, plus (D) the Second Earnout Aggregate Option and Warrant Exercise Price, plus (E) the Fixed Earnout Merger Consideration Amount.

“Second Earnout Aggregate Option and Warrant Exercise Price” shall equal the sum of:


(A)	the aggregate exercise price for all Vested Options that have an exercise price per share that is less than the Per Share Common Aggregate Consideration, calculated as if based on the Second Earnout Adjusted Merger Consideration Amount instead of the Aggregate Merger Consideration, plus


(B)	the aggregate exercise price for all Warrants that have an exercise price per share that is less than the per share aggregate consideration payable hereunder for the class of NMI Capital Stock into which such Warrants are exercisable, calculated

as if based on the Second Earnout Adjusted Merger Consideration Amount instead of the Aggregate Merger Consideration.

“Second Earnout Per Share Payment” means, with respect to each share of Series 1 Preferred, each share of NMI Common Stock and each share of NMI Common Stock underlying any Vested Options, Warrants or Convertible Debt, the positive number, if any, equal to:

(A)

the Per Share Closing Aggregate Amount payable in respect of such share at the Closing, as calculated assuming that the amount of the Aggregate Merger Consideration payable at the Closing was equal to the Second Earnout Adjusted Aggregate Merger Consideration Amount (including corresponding changes to Fully-Diluted Shares and First Earnout Aggregate Option and Warrant Exercise Price in such calculation), minus


(B)	the Per Share Closing Aggregate Amount and First Earnout Per Share Payment actually paid in respect of such share (inclusive of any amount allocated to the Escrow Amount or the Representative Expense Amount at the Closing);

“Second Earnout Period” means the period from July 1, 2015 through June 30, 2016.

“Second Earnout Payment Amount” shall equal the sum of:


(A)	$2.009 (or portion thereof) for every $1.00 (or portion thereof) of IoT Revenue in excess of $19,912,367 for the Second Earnout Period;

provided, however, that under no circumstances shall the amount payable under the foregoing clause (A) exceed $10,000,000, plus


(B)	$0.681(or portion thereof) for every $1.00 (or portion thereof) of Broadcast Revenue in excess of $29,376,000 for the Second Earnout Period;

provided, however, that under no circumstances shall the amount payable under the foregoing clause (B) exceed $5,000,000.

“Section 280G Payments” has the meaning set forth in Section 5.10.

“Section 280G Stockholder Approval” has the meaning set forth in Section 5.10.

“Series D Financing Documents” means the Series D Preferred Stock Purchase Agreement, dated February 2, 2010, between NMI and the investors thereto, the Amended and Restated Investors’ Rights Agreement, dated February 2, 2010, between NMI and the investors thereto, the Amended and Restated Right of First Refusal and Co-Sale Agreement dated February 2, 2010, between NMI and the parties thereto, and the Amended and Restated Voting Agreement, dated February 2, 2010, between NMI and the parties thereto.

“Series 1 Preferred” has the meaning set forth in Section 2.3(a).

“Series A Liquidation Preference” means, for each share of Series A Preferred, the Original Series A Issue Price for that share of Series A Preferred, or such other amount payable to the holder of that Series A Preferred in accordance with Section C.2(c) of Article IV of the certificate of incorporation of NMI.

“Series A Preferred” has the meaning set forth in Section 2.3(a).

“Series A Warrant Escrow Amount” has the meaning set forth in Section 1.7(i)(ii).

“Series A Warrant Net Aggregate Consideration” has the meaning set forth in Section 1.7(i)(ii).

“Series A Warrant Representative Expense Amount” has the meaning set forth in Section 1.7(i)(ii).

“Series B Liquidation Preference” ” means, for each share of Series B Preferred, the Original Series B Issue Price for that share of Series B Preferred, or such other amount payable to the holder of that Series B Preferred in accordance with Section C.2(c) of Article IV of the certificate of incorporation of NMI.

“Series B Preferred” has the meaning set forth in Section 2.3(a).

“Series C Liquidation Preference” ” means, for each share of Series C Preferred, the Original Series C Issue Price for that share of Series C Preferred, or such other amount payable to the holder of that Series C Preferred in accordance with Section C.2(c) of Article IV of the certificate of incorporation of NMI.

“Series C Preferred” has the meaning set forth in Section 2.3(a).

“Series D Liquidation Preference” ” means, for each share of Series D Preferred, the Original Series D Issue Price for that share of Series D Preferred, or such other amount payable to the holder of that Series D Preferred in accordance with Section C.2(c) of Article IV of the certificate of incorporation of NMI.

“Series D Preferred” has the meaning set forth in Section 2.3(a).

“Series D Warrant Escrow Amount” has the meaning set forth in Section 1.7(i)(i).

“Series D Warrant Net Aggregate Consideration” has the meaning set forth in Section 1.7(i)(i).

“Series D Warrant Representative Expense Amount” has the meaning set forth in Section 1.7(i)(i).

“Service Provider” has the meaning set forth in Section 2.16(c).

“Severance Payments” means any statutory severance or retirement or pension payments that are required to be made by NMI or any of its Subsidiaries to an Excluded Employee pursuant to Applicable Law solely as a result of Parent making a determination, specifically communicated by Parent to NMI or any of its Subsidiaries at or prior to Closing, that Parent does not intend to include the Excluded Employee as a Retained Employee or to offer the Excluded Employee the opportunity to act as a Transitional Contractor, but, in all cases, excluding (a) any consensual severance payments in excess of statutory requirements intended to be made by NMI or any of its Subsidiaries, (b) all accrued vacation, sick pay, unreimbursed expenses and unpaid salary or bonus for all Excluded Employees through the Closing Dates and (c) any other, known or unknown, contingent or otherwise, liabilities (including, for

example, claims related to discrimination, wrongful termination, exempt or non-exempt status or other matters arising as a result of the status or service of an Excluded Employee as an employee of NMI or any of its Subsidiaries prior to closing) that may be related to NMI’s or any of its Subsidiary’s employment of any Excluded Employee at any time prior to Closing.

“Service Inventions” has the meaning set forth in Section 2.11(s).

“Significant Customer” has the meaning set forth in Section 2.16(a).

“Significant Supplier” has the meaning set forth in Section 2.16(b).

“Software” has the meaning set forth in the definition of “Intellectual Property” set forth in this Section 9.1.

“Special Indemnity Matters” means any one of the matters set forth on Schedule 9.1(d).

“Special Losses” means any and all Losses arising from, or related to, any (a) breach of any of the Special Representations or Section 2.28 (Foreign Operations), (b) Dissenting Share Payment, (c) intentional breach of any covenant or agreement made by NMI under this Agreement, (d) Working Capital Shortfall, (e) failure to pay in full all Transaction and Other Specified Expenses and all Closing Debt at or prior to the Closing Date, (f) inaccuracies in the Spreadsheet, (g) Special Indemnity Matters, or (h) fraud, willful misconduct or intentional misrepresentation.

“Special Representations” means the representations and warranties of NMI relating to Section 2.2 (Subsidiaries), Section 2.3 (Capital Structure), Section 2.4 (Validity of Contemplated Transactions), Section 2.7(b) (Indebtedness), Section 2.23 (Taxation), Section 2.24(b) (Transaction and Other Specified Expenses), Section 2.27 (Environmental Matters).

“Special Retention Claim Notice” means a Claim Notice for a Special Retention Payment.

“Special Retention Payments” has the meaning set forth in Schedule 9.1(e).

“Special Retention Set Aside” means Three Million Dollars ($3,000,000).

“Spreadsheet” has the meaning set forth in Section 1.10.

“Standard Essential Patents” means a patent that claims an invention that must be used to comply with a technical standard.

“Standard Warranty” has the meaning set forth in Section 2.26(a).

“Statement of Closing Debt” has the meaning set forth in Section 1.12.

“Statement of Transaction and Other Specified Expenses” has the meaning set forth in Section 1.13.

“Stock Options” means all issued and outstanding options (including commitments to grant options) to purchase or otherwise acquire shares of NMI Common Stock (whether or not vested) held by any Person.

“Stockholder Consent” has the meaning set forth in the Recitals.

“Straddle Period” has the meaning set forth in Section 5.9(b).

“Sub” has the meaning set forth in the Preamble.

“Subsidiary” means, with respect to any party, any corporation or other organization, individual or entity, whether incorporated or unincorporated, including any branch office, representative office or similar entity in any jurisdiction, of which (a) such party or any other subsidiary of such party is a general partner (excluding such partnerships where such party or any of its subsidiaries of such party does not have at least a majority of the voting interest in such partnership), (b) at least a majority of the securities or other interests having by their terms ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries or affiliates, or (c) such party is Controlled by or under common Control with such corporation or other organization. Without limiting the foregoing, all branch or representative offices of NMI or any direct or indirect Subsidiary, including NMI Egypt, in any jurisdiction outside of the U.S. shall for all purposes hereunder be deemed a Subsidiary of NMI.

“Surviving Corporation” has the meaning set forth in Section 1.1.

“Taiwan” means The Republic of China.

“Tangible Asset” has the meaning set forth in Section 2.25(a).

“Tax” means all taxes, charges, fees, levies, imposts, duties, and other assessments, including any income, alternative minimum or add-on tax, estimated, gross income, gross receipts, sales, use, transfer, transactions, intangibles, ad valorem, value-added, franchise, registration, title, license, capital, paid-up capital, profits, withholding, employee withholding, payroll, worker’s compensation, unemployment insurance, social security, employment, excise (including the federal communications excise tax under Section 4251 of the Code), severance, stamp, occupation, premium, recording, real property, personal property, federal highway use, commercial rent, environmental (including taxes under Section 59A of the Code) or windfall profit tax, custom, duty or other tax, fee or other like assessment or charge of any kind whatsoever, together with any interest, penalties, related liabilities, fines or additions to tax imposed by any country, any state, county, provincial or local government or subdivision or agency thereof.

“Tax Return” means a report, return or other information (including any amendments) required to be supplied to a governmental entity with respect to Taxes of NMI or any of its Subsidiaries (including, where permitted or required, combined or consolidated returns for any group of entities that includes NMI or any of its Subsidiaries).

“Termination Date” has the meaning set forth in Section 7.1(b).

“Third Party Claim” has the meaning set forth in Section 4.4(g)(i).

“Threshold Amount” has the meaning set forth in Section 4.2(a).

“Trade Secrets” has the meaning set forth in the definition of “Intellectual Property” set forth in this Section 9.1.

“Trademarks” has the meaning set forth in the definition of “Intellectual Property” set forth in this Section 9.1.

“Transaction Bonuses” means any and all success bonuses and similar fees, payments and benefits payable to current or former directors, officers, employees or consultants of NMI or any of its Subsidiaries as a result of the completion of the Merger.

“Transaction and Other Specified Expenses” means all out of pocket fees and expenses of NMI incurred in connection with the Merger and this Agreement and the transactions contemplated hereby to the extent not paid prior to the Closing, including any fees and expenses of legal counsel, fees and expenses payable to financial advisors, investment bankers and brokers of NMI, and the fees and expenses identified on Schedule 9.1(c); provided that Severance Payments shall not be included in Transaction and Other Specified Expenses.

“Transitional Contractors” has the meaning set forth in Section 5.11(a).

“Treasury Regulations” means the United States Federal Tax Regulations set forth in 26 C.F.R.

“Trojan Horses” means a computer program containing a hidden function that causes damage to other programs while appearing to perform a valid function.

“Unaudited Financial Statements” has the meaning set forth in Section 2.7(a).

“Unpaid Employee Bonuses” has the meaning set forth in Section 2.15(i).

“Unpaid Employee Vacation” has the meaning set forth in Section 2.15(i).

“Unsatisfied Claims” has the meaning set forth in Section 4.4(h).

“Unvested Options” means all Stock Options other than Vested Options.

“Vested Options” means, as of immediately prior to the Effective Time, all vested Stock Options, after giving effect to vesting acceleration provisions contained in the NMI Stock Plan or any other similar plan or agreement covering of affecting any Stock Options, and assuming the consummation of the Merger.

“Warrant Cancellation Price” means, with respect to any Warrant, (a) exercisable for shares of Series D Preferred, an amount per share equal to the Per Share Series D Aggregate Consideration on each share subject to such Warrant, (b) exercisable for shares of Series A Preferred, an amount per share equal to the Per Share Series A Aggregate Consideration on each share subject to such Warrant, and (c) exercisable for shares of NMI Common Stock, an amount per share equal to the Per Share Common Aggregate Consideration plus the maximum potential Per Share Earnout Payment payable in accordance with Section 1.16 (if at all) on such Warrant.

“Warrants” means warrants to purchase shares of NMI Capital Stock and, to the extent that Convertible Debt is repaid at Closing and the holder thereof holds an option to purchase shares of NMI Capital Stock as a result, that option to purchase shares of NMI Capital Stock.

“Working Capital” means (A) Current Assets of NMI minus (B) Current Liabilities of NMI minus (C) without duplication, Other Liabilities. In computing Working Capital, all accounting entries will be taken into account regardless of their amount, all known errors and omissions will be corrected and all known proper adjustments will be made in accordance with GAAP (as expressly modified and adjusted by this Agreement as described in Schedule 1.15(a)).

“Working Capital Certificate” has the meaning set forth in Section 1.15(a).

“Working Capital Collar” has the meaning set forth in Section 1.15(b).

“Working Capital Excess” has the meaning set forth in Section 1.15(b).

“Working Capital Shortfall” has the meaning set forth in Section 1.15(b).

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.



	PARENT:
	ATMEL CORPORATION

By:	/s/ Steven Laub
Name:	Steven Laub
Title:	President & Chief Executive Officer


	SUB:
	MARINA MCU ACQUISITION CORPORATION

By:	/s/ Scott Wornow
Name:	Scott Wornow
Title:	Director


	NMI:
	NEWPORT MEDIA, INC.

By:	/s/ Mohy F. Abdelgany
Name:	Mohy F. Abdelgany
Title:	CEO


	REPRESENTATIVE:
	SHAREHOLDER REPRESENTATIVE SERVICES
	LLC, solely in its capacity as the Representative

By:	/s/ Mark B. Vogel
Name:	Mark B. Vogel
Title:	Managing Director

[Signature Page to Agreement and Plan of Merger]

EX 10.3 Credit agreement amendment

Exhibit 10.3

Execution Version

AMENDMENT No. 1 TO CREDIT AGREEMENT

AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Agreement”), dated as of June 27,

2014, to that certain Credit Agreement, dated as of December 6, 2013 (as amended, supplemented or

otherwise modified prior to the date hereof, the “Credit Agreement”) among ATMEL CORPORATION,

a Delaware corporation (the “Borrower”), the lenders from time to time party thereto and MORGAN

STANLEY SENIOR FUNDING, INC., as administrative agent (in such capacity, the “Administrative

Agent”).

RECITALS:

WHEREAS, Section 9.02 of the Credit Agreement permits the Credit Agreement to be

amended from time to time by the Borrower and the Lenders directly affected thereby

(the “Affected Lenders”); and

WHEREAS, the Borrower, the Administrative Agent and the Lenders identified on the

signature pages hereto which collectively constitute the Affected Lenders have agreed to amend

certain provisions of the Credit Agreement, subject to the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

Section 1. Defined Terms. Unless otherwise specifically defined herein, each term used herein

(including in the recitals above) that is defined in the Credit Agreement has the meaning assigned to

such term in the Credit Agreement.

Section 2. Amendment to Credit Agreement.

(a) The definition of “Applicable Rate” in Section 1.01 of the Credit Agreement is hereby

amended by replacing the phrase “first fiscal quarter ending at least three months after the Effective Date”

at the end of clause (iii) thereof with the following phrase “fiscal year ending on December 31, 2013”.

Section 3. Conditions. This Agreement shall become effective as of the first date (the “Effective

Date”) when the Administrative Agent shall have received from the Borrower, each Affected Lender and

the Administrative Agent an executed counterpart hereof or other written confirmation (in form

satisfactory to the Administrative Agent) that such party has signed a counterpart hereof.

Section 4. Representations of the Borrower. The Borrower represents and warrants that:

(a) each of the representations and warranties made by any Loan Party in or pursuant to the Loan

Documents is true and correct in all material respects on and as of the Effective Date (except that (x) such

materiality qualifier shall not be applicable to any representations and warranties that already are qualified

or modified by materiality in the text thereof and (y) to the extent such representations and warranties are

specifically made as of an earlier date, in which case such representations and warranties were true and

correct in all material respects as of such date); and

(b) no Default or Event of Default has occurred and is continuing on and as of the Effective Date.

#85931421v5

Section 5. Governing Law. This Agreement shall be governed by and construed in accordance

with the laws of the State of New York.

Section 6. Effect of This Agreement. Except as expressly set forth herein, this Agreement shall not

by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and

remedies of any Lender or Administrative Agent under the Credit Agreement or any other Loan

Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions,

obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all

of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein

shall be deemed to entitle any Loan Party to a consent to, or a waiver, amendment, modification or other

change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit

Agreement or any other Loan Document in similar or different circumstances.

Section 7. Counterparts. This Agreement may be signed in any number of counterparts, each of

which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same

instrument.

Section 8. Miscellaneous. This Agreement shall constitute a Loan Document for all purposes of

the Credit Agreement. In accordance with Section 9.03 of the Credit Agreement, the Borrower agrees to

reimburse the Administrative Agent for its reasonable and documented out-of-pocket expenses in

connection with this Agreement, including the reasonable and documented fees, charges and

disbursements of counsel for the Administrative Agent.

[remainder of page intentionally left blank]

#85931421v5

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.



ATMEL CORPORATION, as the Borrower

	By:	/s/ Rick Monson
	Name:	Rick Monson
	Title:	VP, Tax, Treasury and Procurement