Tower US Holdings Inc. - FORM 10-K

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Tower US Holdings Inc.	exhibit_31-2.htm
EX-31.1 - EXHIBIT 31.1 - Tower US Holdings Inc.	exhibit_31-1.htm
EX-23.1 - EXHIBIT 23.1 - Tower US Holdings Inc.	exhibit_23-1.htm
EX-10.21 - EXHIBIT 10.21 - Tower US Holdings Inc.	exhibit_10-21.htm
EX-10.22 - EXHIBIT 10.22 - Tower US Holdings Inc.	exhibit_10-22.htm
EX-10.23 - EXHIBIT 10.23 - Tower US Holdings Inc.	exhibit_10-23.htm
EX-10.29 - EXHIBIT 10.29 - Tower US Holdings Inc.	exhibit_10-29.htm
EX-10.30 - EXHIBIT 10.30 - Tower US Holdings Inc.	exhibit_10-30.htm
EX-10.52 - EXHIBIT 10.52 - Tower US Holdings Inc.	exhibit_10-52.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

		For the fiscal year ended December 31, 2010

Or

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

Commission file number: 001-32832

Jazz Technologies, Inc.*

(Exact name of registrant as specified in its charter)

Delaware	20-3320580
(State of incorporation)	(I.R.S. Employer Identification No.)

4321 Jamboree Road, Newport Beach, California	92660
(Address of principal executive offices)	(Zip Code)

(949) 435-8000

(Registrant’s telephone number, including area code)

_____________________

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes x No o

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o No x

Note: As a voluntary filer not subject to the filing requirements, the Registrant has filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.

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 o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K: Not Applicable

Indicate by check mark whether the registrant is 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. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company 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

Aggregate market value of the common equity held by non-affiliates of the Registrant: Not Applicable

The number of shares outstanding of the registrant’s common stock: Not Applicable

DOCUMENTS INCORPORATED BY REFERENCE:

None.

*	Jazz Technologies, Inc. meets the conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

JAZZ TECHNOLOGIES, INC.

FORM 10-K

Year Ended December 31, 2010

TABLE OF CONTENTS

		Page No.
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Financial Statements	22
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	53
Item 9A.	Controls and Procedures	53
Item 9B.	Other Information	53
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	54
Item 11.	Executive Compensation	54
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54
Item 13.	Certain Relationships and Related Transactions and Director Independence	54
Item 14.	Principal Accountant Fees and Services	54
PART IV
Item 15.	Exhibits and Financial Statement Schedules	55
SIGNATURES		61
EXHIBIT LIST		62

iii

FORWARD-LOOKING STATEMENTS

Some of the information contained or incorporated by reference in this current report constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because they:

discuss future expectations;

contain projections of future results of operations or financial condition; or

state other “forward-looking” information.

We believe it is important to communicate our expectations to our noteholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed or incorporated by reference in this current report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:

outcomes of government reviews, inquiries, investigations and related litigation;

continued compliance with government regulations;

legislation or regulatory environments, requirements or changes adversely affecting the business in which we are engaged;

fluctuations in customer demand;

management of rapid growth; and

general economic conditions.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this current report.

All forward-looking statements included or incorporated herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.

You should be aware that the occurrence of the events described in the “Risk Factors” portion of this annual report, the documents incorporated herein and our other SEC filings could have a material adverse effect on our business, prospects, financial condition and operating results.

Part I

Item 1. Business

Overview

Jazz Technologies, Inc., through its wholly owned subsidiaries, is an independent pure-play semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices. Typically, pure-play foundries do not offer products of their own, but focus on producing integrated circuits, or ICs, based on the design specifications of their customers. We manufacture semiconductors for our customers primarily based on third party designs and our own process technology and engineering support. We also provide design services and complementary technical services. ICs manufactured by us are incorporated into a wide range of products in diverse markets, including cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems.

As used in this annual report, “we,” “us,” “our,” “Jazz,” the “Company” and words of similar import refer to Jazz Technologies, Inc. and “Jazz Semiconductor” refers solely to Jazz Semiconductor, Inc. References to “the Company” for dates prior to September 19, 2008 mean the Predecessor which on September 19, 2008 was merged with a subsidiary of Tower Semiconductor Ltd., an Israeli company (“Tower”), and references to “the Company” for periods on or after September 19, 2008 are references to the Successor Tower subsidiary.

Organization

Jazz Technologies, Inc., formerly known as Acquicor Technology Inc. was incorporated in Delaware in August 2005 as a blank check company for the purpose of acquiring one or more domestic and/or foreign operating businesses in the technology, multimedia or networking sectors.

On February 16, 2007, we completed the acquisition of all of the outstanding capital stock of Jazz Semiconductor. Jazz Semiconductor’s business was originally created in March 2002 by the spin-off by Conexant Systems, Inc. of its Newport Beach, California semiconductor fabrication operations. The acquisition was accounted for under the purchase method of accounting in accordance with United States (U.S.) generally accepted accounting principles for accounting and financial reporting purposes with Jazz Semiconductor being treated as the acquired company. On September 19, 2008, we completed a merger under an Agreement and Plan of Merger and Reorganization (“Merger”) with Tower and its wholly-owned subsidiary under which such subsidiary merged with and into the Company, with the Company surviving the Merger as a wholly-owned subsidiary of Tower.

Under the terms of the Merger, Tower acquired all of our outstanding shares in a stock-for-stock transaction in which each share of the Company’s common stock not held by Tower or its subsidiary was automatically converted into 1.8 ordinary shares of Tower. As a result of the Merger, Tower became the sole holder of the Company’s common stock and a change in control occurred. The Merger was accounted for under the purchase method of accounting in accordance with U.S. generally accepted accounting principles, with Jazz being treated as the “acquired” company. In connection with this Merger, the Company adopted Tower’s fiscal year for reporting purposes.

As used in this annual report, “we,” “us,” “our,” “Jazz,” the “Company” and words of similar import refer to Jazz Technologies, Inc. and “Jazz Semiconductor” refers solely to Jazz Semiconductor, Inc., The term “Successor” refers to the Company following the Merger, and the term “Predecessor” refers to the Company prior to the Merger.

Jazz’s Solution

Jazz is an independent semiconductor foundry, providing specialty process technologies, design solutions and application knowledge for the manufacture of analog and mixed-signal semiconductors. Key elements of its solution are as follows:

Jazz offers an independent and focused source for the manufacture of semiconductors using specialty process technologies. Most other independent foundries focus on standard process technologies, rather than specialty process technologies. Some vertically integrated semiconductor companies who internally design, fabricate, package, test and market their own semiconductors, known as integrated device manufacturers, or IDMs, offer specialty process foundry services but also manufacture their own semiconductor products, which may be competitive with the products of their potential customers who seek these services. Jazz combines the benefits of independence with a focus on specialty process technologies.

Jazz offers a specialized design platform for analog and mixed-signal semiconductors. Jazz’s design engineering support team assists its customers with their advanced designs by leveraging Jazz’s application knowledge and experience to help guide their technology selection and design implementation. Jazz’s sophisticated design tools and services are specifically tailored to meet analog and mixed-signal design needs, and include specialized device modeling and characterization features that allow simulation of a variety of real world situations, including different temperatures, power levels and speeds.

Jazz offers a broad range of specialty process technologies. Jazz’s specialty process technology portfolio includes advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS and SiGe BiCMOS processes. In addition to these specialty process technologies, We have recently begun to offer BCD processes optimized for analog semiconductors such as power management, high efficiency audio amplification, and optical driver integrated circuits. The breadth of Jazz’s portfolio allows it to offer its customers a wide range of solutions to address their high-performance, high-density, low-power and low-noise requirements for analog and mixed-signal semiconductors.

Jazz is a leader in high-performance SiGe process technologies. Jazz offers high performance 200 GHz 0.18 micron SiGe BiCMOS technology, which Jazz believes is one of the most advanced SiGe process technologies in production today. Analog and mixed-signal semiconductors manufactured with SiGe BiCMOS process technologies can be smaller, require less power and provide higher performance than those manufactured with standard CMOS processes. Moreover, SiGe BiCMOS process technologies allow for higher levels of integration of analog and digital functions on the same mixed-signal semiconductor device.

Jazz’s Strategy

Key elements of Jazz’s strategy are as follows:

Further strengthen Jazz’s position in specialty process technologies for the manufacture of analog and mixed-signal semiconductors. Jazz is continuing to invest in its portfolio of specialty process technologies to address the key product attributes that make its customers’ products more competitive.

Target large, growing and diversified end markets. Jazz targets end markets characterized by high growth and high performance for which it believes its specialty process technologies have a high value proposition, including the wireless and high-speed wireline communications, consumer electronics, automotive and industrial markets. For example, Jazz believes that its specialty process technologies can provide performance and cost advantages over current CMOS solutions in the integration of power amplifiers with RF transceivers for wireless local area networking applications.

Continue to diversify Jazz’s customer base. Jazz intends to continue to grow and diversify its business by attracting new customers and expanding its customer base.

Maintain capital efficiency by leveraging its capacity and manufacturing model. Jazz seeks to maximize the utilization of its Newport Beach, California manufacturing facility to maintain cost-effective manufacturing. Jazz can typically increase its specialty process technology capacity and meet its customer performance requirements using adapted semiconductor process equipment sets that are typically one or two generations behind leading-edge digital CMOS process equipment. This typically allows Jazz to acquire lower-cost semiconductor process equipment to operate its Newport Beach, California fab.

Leverage potential synergies from the merger with Tower. Since the merger with Tower, we have sought to leverage potential synergies by utilizing our combined purchasing power to negotiate more favorable pricing terms for goods and services, consolidating personnel and sharing services in areas including sales, marketing, R&G, legal, human resources and utilization of key executives.

Jazz’s Specialty Process Technologies

Jazz refers to its digital CMOS and standard analog CMOS process technologies as standard process technologies, and offers these standard process technologies in 0.5 micron, 0.35 micron, 0.25 micron, 0.18 micron and 0.13 micron.

Jazz refers to its advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS, SiGe BiCMOS and BCD process technologies, as specialty process technologies. Most of Jazz’s specialty process technologies are based on CMOS processes with added features to enable improved size, performance and cost characteristics for analog and mixed-signal semiconductors. Products made with Jazz’s specialty process technologies are typically more complex to manufacture than products made using standard process technologies employing similar line widths. Generally, customers who use Jazz’s specialty process technologies cannot easily move designs to another foundry because the analog characteristics of the design are dependent upon its implementation of the applicable process technology. The relatively small engineering community with specialty process know-how has also limited the number of foundries capable of offering specialty process technologies. In addition, the specialty process design infrastructure is complex and includes design kits and device models that are specific to the foundry in which the process is implemented and to the process technology itself.

Jazz’s advanced analog CMOS process technologies have more features than standard analog CMOS process technologies and are well suited for higher performance or more highly integrated analog and mixed-signal semiconductors, such as high-speed analog-to-digital or digital-to-analog converters and mixed-signal semiconductors with integrated data converters. These process technologies generally incorporate higher density passive components, such as capacitors and resistors, as well as improved active components, such as native or low voltage devices, and improved isolation techniques, into standard analog CMOS process technologies. Jazz currently has advanced analog CMOS process technologies in 0.5 micron, 0.35 micron, 0.25 micron, 0.18 micron and 0.13 micron. These advanced analog CMOS processes form the baseline for Jazz’s other specialty process technologies.

Jazz’s RF CMOS process technologies have more features than advanced analog CMOS process technologies and are well suited for wireless semiconductors, such as highly integrated wireless transceivers, power amplifiers, and television tuners. These process technologies generally incorporate integrated inductors, high performance variable capacitors, or varactors, and RF laterally diffused metal oxide semiconductors into an advanced analog CMOS process technology. In addition to the process features, Jazz’s RF offering includes design kits with RF models, device simulation and physical layouts tailored specifically for RF performance. Jazz currently has RF CMOS process technologies in 0.25 micron, 0.18 micron and 0.13 micron. These RF CMOS process technologies form the baseline for some of Jazz’s other specialty process technologies.

Jazz’s high voltage CMOS and BCD process technologies have more features than advanced analog CMOS processes and are well suited for power and driver semiconductors such as voltage regulators, battery chargers, power management products and audio amplifiers. These process technologies generally incorporate higher voltage CMOS devices such as 5V, 8V, 12V and 40V devices, and, in the case of BCD, bipolar devices, into an advanced analog CMOS process. Jazz currently has high voltage CMOS offerings in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron, and BCD offerings in 0.5 micron. Jazz also offers high voltage options that include a 0.35 micron BCD process technology and 40V capabilities to enable higher levels of analog integration at voltage ranges that are suitable for automotive electronics and line power conditioning for consumer devices.

Jazz’s BiCMOS process technologies have more features than RF CMOS process technologies and are well suited for RF semiconductors such as wireless transceivers and television tuners. These process technologies generally incorporate high-speed bipolar transistors into an RF CMOS process. The equipment requirements for BiCMOS manufacturing are specialized and require enhanced tool capabilities to achieve high yield manufacturing. Jazz currently has BiCMOS process technologies in 0.35 micron.

Jazz’s SiGe BiCMOS process technologies have more features than BiCMOS processes and are well suited for more advanced RF semiconductors such as high-speed, low noise, highly integrated multi-band wireless transceivers, television tuners and power amplifiers. These process technologies generally incorporate a silicon germanium bipolar transistor, which is formed by the deposition of a thin layer of silicon germanium within a bipolar transistor. It is also possible to achieve higher speeds using SiGe BiCMOS process technologies equivalent to those demonstrated in standard CMOS processes that are two process generations smaller in line-width. For example, a 0.18 micron SiGe BiCMOS process is able to achieve speeds comparable to a 90 nanometer RF CMOS process. As a result, SiGe BiCMOS makes it possible to create analog products using a larger geometry process technology at a lower cost while achieving similar or superior performance to that achieved using a smaller geometry standard CMOS process technology. The equipment requirements for SiGe BiCMOS manufacturing are similar to the specialized equipment requirements for BiCMOS. We have developed enhanced tool capabilities in conjunction with large semiconductor tool suppliers to achieve high yield SiGe manufacturing. Jazz believes this equipment and related process expertise makes Jazz one of the few silicon manufacturers with demonstrated ability to deliver SiGe BiCMOS products. Jazz currently has SiGe BiCMOS process technologies at 0.35 micron and 0.18 micron and 0.13 micron SiGe BiCMOS process.

Jazz also has technologies that integrate micro-electro-mechanical-system (MEMS) devices with CMOS

Jazz continues to invest in technology that helps improve the performance and integration level and reduce the cost of analog and mixed-signal products. This includes improving the density of passive elements such as capacitors and inductors, improving the analog performance and voltage handling capability of active devices, and integrating advanced features in Jazz’s specialty CMOS processes that are currently not readily available. Examples of such features currently under development include adding silicon-on-insulator (SOI) substrates to enable increased integration of RF and analog functions on a single die and scaling the features Jazz offers today in 0.18 micron to the 0.13 micron process technology.

Manufacturing

We have placed significant emphasis on achieving and maintaining a high standard of manufacturing quality. Jazz seeks to enhance its production capacity for its high-demand specialty process technologies and to design and implement manufacturing processes that produce consistently high manufacturing yields. Jazz’s production capacity in each of its specialty process technologies enables Jazz to provide its customers with volume production, flexibility and quick-to-market manufacturing services. Jazz’s process research and development is performed in its manufacturing facility in Newport Beach, California and in a design center in Netanya, Israel.

General

Jazz currently has the capability in its Newport Beach, California fab to manufacture standard CMOS eight-inch wafers. We have the ability to rapidly change the mix of production processes in use in order to respond to changing customer needs and maximize utilization of the fab.

Raw Materials

Jazz’s manufacturing processes use highly specialized materials, including semiconductor wafers, chemicals, gases and photomasks. These raw materials are generally available from several suppliers. However, Jazz often selects one vendor to provide it with a particular type of material in order to obtain preferred pricing. In those cases, Jazz generally also seeks to identify, and in some cases qualify, alternative sources of supply.

We have agreements with several key material suppliers under which they hold certain levels of inventory at Jazz’s warehouse and fab. Jazz is not under any obligation under these agreements to purchase raw material inventory that is held by its vendors at its site until Jazz actually uses it, unless Jazz holds the inventory beyond specified time limits.

Jazz’s Services

Jazz primarily manufactures semiconductor wafers for its customers.

The processes required to take raw wafers and turn them into finished semiconductor devices are generally accomplished through circuit design, mask making, wafer fabrication, probe, assembly and test.

Sales Contracts

A few of Jazz’s major customers purchase services and products from it on a contract basis. Most other customers purchase from Jazz using purchase orders. Jazz prices its products for these customers on a per wafer or per die basis, taking into account the complexity of the technology, the prevailing market conditions, volume forecasts, the strength and history of its relationship with the customer and its current capacity utilization.

Most of its customers usually place their orders only two to four months before shipment; however a few of its major customers are obligated to provide Jazz with longer forecasts of their wafer needs.

Customers, Markets and Applications

Jazz’s customers use Jazz’s processes to design and market a broad range of digital, analog and mixed-signal semiconductors for diverse end markets including wireless and high-speed wireline communications, consumer electronics, automotive and industrial. Jazz manufactures products that are used for high-performance applications such as transceivers and power management for cellular phones; transceivers and power amplifiers for wireless local area networking products; power management, audio amplifiers and driver integrated circuits for consumer electronics; tuners for digital televisions and set-top boxes; modem chipsets for broadband access devices and gaming devices; serializer/deserializers, or SerDes, for fiber optic transceivers; focal plan arrays for imaging applications; and wireline interfaces for switches and routers.

Order Backlog

All of Jazz’s orders are subject to possible rescheduling by its customers. Rescheduling may relate to quantities or delivery dates, and sometimes relates to the specifications of the products it is shipping. Most customers do business with Jazz on a purchase order basis, and some of these orders may be cancelled by the customer without penalty. Jazz also may elect to permit cancellation of orders without penalty where management believes it is in its best interests to do so. Consequently, Jazz cannot be certain that orders on backlog will be shipped when expected or at all. For these reasons, as well as the cyclical nature of its industry, Jazz believes that its backlog at any given date is not a reliable indicator of its future revenues.

Competition

Jazz competes internationally and domestically with dedicated foundry service providers such as Taiwan Semiconductor Manufacturing Company, United Microelectronics Corporation, Semiconductor Manufacturing International Corporation and Chartered Semiconductor Manufacturing Ltd., which, in addition to providing leading edge CMOS process technologies, also have capacity for some specialty process technologies. Jazz also competes with integrated device manufacturers that have internal semiconductor manufacturing capacity or foundry operations, such as IBM. In addition, several new dedicated foundries have commenced operations and may compete directly with Jazz. Many of Jazz’s competitors have higher capacity, longer operating history, longer or more established relationships with their customers, superior research and development capability and greater financial and marketing resources than Jazz. As a result, these companies may be able to compete more aggressively over a longer period of time than Jazz.

IBM competes in both the standard CMOS segment and in specialty process technologies. In addition, there are a number of smaller participants in the specialty process arena. Jazz believes that most of the large dedicated foundry service providers compete primarily in the standard CMOS segment, but they also have capacity for specialty process technologies. Prior to Jazz’s separation from Conexant, Conexant entered into a long-term licensing agreement with Taiwan Semiconductor Manufacturing Company under which Taiwan Semiconductor Manufacturing Company licensed from Conexant the right to manufacture semiconductors using Conexant’s then existing 0.18 micron or greater SiGe BiCMOS process technologies. Taiwan Semiconductor Manufacturing Company publicly announced in 2001 that it planned to use the licensed technology to accelerate its own foundry processes for the networking and wireless communications markets. Since Jazz’s formation, We have continued to make improvements in its SiGe BiCMOS process technology. We have not licensed any of these improvements to Taiwan Semiconductor Manufacturing Company. In the event Taiwan Semiconductor Manufacturing Company determines to focus its business on the SiGe BiCMOS market, it may use and develop the technology licensed to it in 2001 to compete directly with Jazz in the specialty market, and such competition may harm Jazz’s business.

As Jazz’s competitors continue to increase their manufacturing capacity, there could be an increase in specialty semiconductor capacity during the next several years. As specialty capacity increases there may be more competition and pricing pressure on Jazz’s services, and underutilization of its capacity may result. Any significant increase in competition or pricing pressure may erode its profit margins, weaken Jazz’s earnings or increase its losses.

Additionally, some semiconductor companies have advanced their CMOS designs to 90 nanometers or smaller geometries. These smaller geometries may provide the customer with performance and integration features that may be comparable to, or exceed, features offered by Jazz’s specialty process technologies, and may be more cost-effective at higher production volumes for certain applications, such as when a large amount of digital content is required in a mixed-signal semiconductor and less analog content is required. Jazz’s specialty process technologies will therefore compete with these advanced CMOS processes for customers and some of its potential and existing customers could elect to design these advanced CMOS processes into their next generation products. Jazz is not currently capable, and does not currently plan to become capable, of providing CMOS processes at these smaller geometries. If Jazz’s existing customers or new customers choose to design their products using these CMOS processes, Jazz’s business may suffer.

The principal elements of competition in the semiconductor foundry industry include:

technical competence;

production speed and cycle time;

time-to-market;

research and development quality;

available capacity;

fab and manufacturing yields;

customer service;

price;

management expertise; and

strategic relationships.

There can be no assurance that Jazz will be able to compete effectively on the basis of all or any of these elements. Jazz’s ability to compete successfully may depend to some extent on factors outside of its control, including industry and general economic trends, import and export controls, exchange controls, exchange rate fluctuations, interest rate fluctuations and political developments. If Jazz cannot compete successfully in its industry, its business and results of operations will be harmed.

Research and Development

The semiconductor industry is characterized by rapid changes in technology. As a result, effective research and development is essential to Jazz’s success. Jazz plans to continue to invest significantly in research and development activities to develop advanced process technologies for new applications.

Jazz’s research and development activities seek to upgrade and integrate manufacturing technologies and processes. Jazz maintains a central research and development team primarily responsible for developing cost-effective technologies that can serve the manufacturing needs of its customers. A substantial portion of Jazz’s research and development activities are undertaken in cooperation with its customers and equipment vendors.

Intellectual Property

Jazz’s success depends in part on its ability to obtain patents, licenses and other intellectual property rights covering and relating to wafer manufacturing and production processes, semiconductor structures and other structures fabricated on wafers. To that end, We have acquired certain patents and patent licenses and intends to continue to seek patents. As of December 31, 2010, Jazz had 151 patents in force in the United States and 33 patents in force in foreign countries. Jazz also had 13 pending patent applications in the United States, 4 pending patent applications in foreign countries and no patent pending applications under the Patent Cooperation Treaty.

Jazz Semiconductor entered into a technology license agreement that grants to it worldwide perpetual license rights from PolarFab regarding certain process technologies that it intends to incorporate into its BCD process technologies for the manufacture of wafers by Jazz for its customers and customers of PolarFab. Jazz also entered into an associated technology transfer agreement for such processes. Jazz is able to adapt, prepare derivatives based on, or otherwise exploit the licensed technology; however, Jazz is restricted from using certain licensed BCD process technologies with respect to motor controllers for hard disk drives. Jazz is also able to sublicense the process technologies to HHNEC and any of its future manufacturing suppliers to manufacture for Jazz and its customers.

During 2004, Jazz Semiconductor entered into a cross license and release agreement with an unrelated third party. The license includes technology developed by the third party related to Jazz’s manufacturing process. In exchange for the license and release, Jazz agreed to make certain payments through 2007. Jazz may choose to obtain additional patent licenses or enter into additional patent cross-licenses in the future. However, there can be no assurance as to whether future agreements will be reached or as to the terms of any agreement that is consummated.

In connection with Jazz Semiconductor’s separation from Conexant, Conexant contributed to Jazz Semiconductor a substantial portion of its intellectual property, including software licenses, patents and intellectual property rights in know-how related to its business. Jazz Semiconductor agreed to license intellectual property rights relating to the intellectual property contributed to Jazz Semiconductor by Conexant back to Conexant and its affiliates. Conexant may use this license to have Conexant products produced by third-party manufacturers and to sell such products, but must obtain Jazz Semiconductor’s prior consent to sublicense these rights.

Jazz’s ability to compete depends on its ability to operate without infringing the proprietary rights of others. The semiconductor industry is generally characterized by frequent litigation regarding patent and other intellectual property rights. As is the case with many companies in the semiconductor industry, We have from time to time received communications from third parties asserting that their patents cover certain of Jazz’s technologies or alleging infringement of their other intellectual property rights. Jazz expects that it will receive similar communications in the future. Irrespective of the validity or the successful assertion of such claims, Jazz could incur significant costs and devote significant management resources to the defense of these claims, which could seriously harm the Company.

Environmental Matters

Semiconductor manufacturing processes generate solid, gaseous, liquid and other industrial wastes in various stages of the manufacturing process. We have installed various types of pollution control equipment in its fab to reduce, treat and, where feasible, recycle the wastes generated in its manufacturing process. Jazz’s operations are subject to strict regulation and periodic monitoring by the United States Environmental Protection Agency along with several state and local environmental agencies.

We have implemented an environmental management system that assists Jazz in identifying applicable environmental regulations, evaluating compliance status and establishing timely waste preventive measures. We have also obtained certification for implementing the standard requirements of ISO 14001:2004. ISO 14001 consists of a set of standards that provide guidance to the management of organizations to achieve an effective environmental management system.

Jazz believes that it has adopted pollution measures for the effective maintenance of environmental protection standards substantially consistent with U.S. federal, state and local environmental regulations. Jazz also believes that it is currently in material compliance with applicable environmental laws and regulations.

Risk Management and Insurance

As part of its risk management program, Jazz surveyed its buildings and fab for resistance to potential earthquake damage. As a result of this survey, Jazz implemented additional measures to minimize its fab’s exposure to potential damage caused by future earthquakes and seismically qualified its fab for a high magnitude earthquake.

Jazz maintains industrial special risk insurance for its facilities, equipment and inventories that covers physical damage and consequential losses from natural disasters and certain other risks up to the policy limits and except for exclusions as defined in the policies. Jazz also maintains public liability insurance for losses to others arising from its business operations and carries insurance for business interruption resulting from such events and if its suppliers are unable to provide Jazz with supplies. While Jazz believes that its insurance coverage is adequate and consistent with industry practice, significant damage to any of its or its manufacturing suppliers’ production facilities, whether as a result of fire or other causes, could seriously harm its business and results of operations.

Properties

Our headquarters and manufacturing facilities are located in Newport Beach, California. Since 2002, the Company has leased its fabrication facilities, land and headquarters from Conexant. In December 2010, Conexant sold the Company’s fabrication facilities, land and headquarters to Uptown Newport LP (“Uptown”), a joint venture consisting of a fund controlled by New York-based DRA Advisors LLC and an affiliate of the Shopoff Group, a real estate investment firm based in Irvine, California. The leases are non-cancelable operating leases that expire March 12, 2017, and we have the unilateral option to extend the terms of each of these leases for two consecutive five-year periods. Under our amended leases with Uptown, the landlord may terminate the lease for the Company’s headquarters building, but not the Company’s fabrication facility, no earlier than January 2014. If Uptown terminates the lease for the Company’s headquarters building, it is obligated to pay the Company a lease termination fee equal to $3,000,000 if the lease is terminated in January 2014, with the lease termination fee declining by $22,000 per month if Uptown terminates the headquarters building lease after January 2014.

Item 1A. Risk factors

We have a large amount of debt which may have significant negative consequences, and there is no assurance that we will be able to obtain sufficient funding sources in a timely manner to allow us to fully or partially repay our debt obligations and other liabilities.

Our indebtedness as of December 31, 2010 is approximately $159.3 million, comprised of approximately $137.3 million par value of notes and $22 million borrowing under the Wachovia line of credit. Said indebtedness could have significant negative consequences, including:

requiring the dedication of a substantial portion of our expected cash flow from operations to service its indebtedness;

increasing our vulnerability to general adverse economic and industry conditions;

limiting our ability to obtain additional financing;

limiting our flexibility in planning for, or reacting to, changes in its business and the industry in which it competes;

placing us at a competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources;

affecting our ability to make interest payments and other required debt service on its indebtedness;

enforcement by the lenders under the Wachovia line of credit of their liens against our assets in the event of default; and/or

limiting our ability to fulfill our debt obligations and other liabilities

To service our indebtedness and meet our other cash needs, we will require a significant amount of cash, which may not be available to us. We will need to repay $43.7 million outstanding under our convertible notes on December 31, 2011, $93.6 million outstanding under our non-convertible notes on June 30, 2015 and $22 million borrowing under the Wachovia line of credit by September 2014. Our ability to make payments on, or repay or refinance, our indebtedness and to fund capital expenditures, working capital and other cash needs will depend largely upon our future operating performance, our ability to drawdown additional funds, if required, from Wachovia and our ability to sell assets (such as our holdings in HHNEC) . Our future operating performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that future borrowings will be available to us under the credit facilities or from other sources in an amount and on terms and conditions sufficient to enable us to make payments on our indebtedness or to fund our other liquidity needs. In order to finance our short and long-term debt and other liabilities and obligations, we continue to explore measures to obtain funds from sources in addition to cash on hand and expected cash flow from our ongoing operations, including sales of assets, including our holdings in HHNEC; issuance of new securities; intellectual property licensing and/or sales; strategic acquisitions, investments and alliances; improving operational efficiencies and sales; and exploring other alternatives to reduce our debt, including debt refinancing or restructuring. The Wachovia line of credit imposes certain limitations on our ability to repay the convertible and non-convertible notes and/or to incur additional indebtedness without Wachovia’s consent. If we default on payment of the convertible or non-convertible notes at maturity, such default would trigger a cross default under the Wachovia line of credit, which would permit the lenders to accelerate the obligations thereunder, potentially requiring us to repay or refinance the Wachovia credit line. There is no assurance that we will be able to obtain sufficient funding from the financing sources detailed above or other sources in a timely manner to allow us to fully or partially repay our indebtedness.

A default by us on any of our indebtedness could have a material adverse effect on our operations and the interests of our creditors, and may affect our ability to fulfill our debt obligations and other liabilities.

If we are unable to manage fluctuations in cash flow, our business, operating results and financial condition may be materially adversely affected.

Our working capital requirements and cash flows are subject to quarterly and yearly fluctuations, depending on a number of factors. If we are unable to manage fluctuations in cash flow, our business, operating results and financial condition may be materially adversely affected. Factors which could lead us to suffer cash flow fluctuations include:

the level of revenues from our operating activities;

the collection of receivables;

the timing and size of capital expenditures; and

the debt service obligations under our short-term and long-term liabilities.

In addition, we may need to devote a significant portion of our operating cash flow to pay principal and interest on our indebtedness. The use of cash to finance our indebtedness could leave us with insufficient funds to adequately finance our operating activities and capital expenditures, which could adversely affect our business.

The cyclical nature of the semiconductor industry and resulting periodic overcapacity may lead to erosion of sale prices; downward price pressure may seriously harm our business.

The semiconductor industry has historically been highly cyclical. Historically, companies in the semiconductor industry have expanded aggressively during periods of increased demand. This expansion has frequently resulted in overcapacity and excess inventories when demand decreases during a downturn, leading to rapid erosion of average sale prices. We expect this pattern to repeat itself in the future. The overcapacity and downward price pressure characteristic of a prolonged downturn in the semiconductor market may not allow us to operate at a profit, even at full utilization, and could seriously harm our financial results and business.

The lack of a significant backlog resulting from our customers not placing purchase orders far in advance makes it difficult for us to forecast our revenues in future periods.

Our customers generally do not place purchase orders far in advance, partly due to the cyclical nature of the semiconductor industry. As a result, we do not typically operate with any significant backlog. The lack of a significant backlog makes it difficult for us to forecast our revenues in future periods. Moreover, since our expense levels are based in part on our expectations of future revenues, we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. We expect that in the future our revenues in any quarter will continue to be substantially dependent upon purchase orders received in that quarter and in the immediately preceding quarter. We cannot assure you that any of our customers will continue to place orders with us in the future at the same levels as in prior periods. If orders received from our customers differ adversely from our expectations with respect to the product, volume, price or other items, our operating results and financial condition may be adversely affected.

We occasionally manufacture wafers based on forecasted demand, rather than actual orders from customers. If our forecasted demand exceeds actual demand, we may have obsolete inventory, which could have a negative impact on our results of operations.

We generally do not manufacture wafers unless we receive a customer purchase order. On occasion, we may produce wafers in excess of customer orders based on forecasted customer demand, because we may forecast future excess demand or because of future capacity constraints. If we manufacture more wafers than are actually ordered by customers, we may be left with excess inventory that may ultimately become obsolete and must be scrapped when it cannot be sold. Significant amounts of obsolete inventory could have a negative impact on our results of operations.

We have a history of operating losses and may not be able to achieve or maintain profitability on a consistent basis

While we have achieved net income for some quarters, including some recent quarters, we have predominantly incurred net losses in our reported results of operations and may continue to do so in the future. We cannot assure you that we will be profitable on a quarterly or annual basis in the future.

Our sales cycles are typically long and orders received may not meet our expectations, which may adversely affect our operating results.

Our sales cycles, which we measure from first contact with a customer to first shipment of a product ordered by the customer, vary substantially and may last as long as two years or more, particularly for new technologies. In addition, even after we make initial shipments of prototype products, it may take several more months to reach full production of the product. As a result of these long sales cycles, we may be required to invest substantial time and incur significant expenses in advance of the receipt of any product order and related revenue. If orders ultimately received differ from our expectations with respect to the product, volume, price or other items, our operating results and financial condition may be adversely affected.

Demand for our foundry services is dependent on the demand in our customers’ end markets.

In order for demand for our wafer fabrication services to increase, the markets for the end products using these services must develop and expand. Because our services may be used in many new applications, it is difficult to forecast demand. If demand is lower than expected, we may have excess capacity, which may adversely affect our financial results. If demand is higher than expected, we may be unable to fill all of the orders we receive, which may result in the loss of customers and revenue.

If we do not maintain our current customers and attract additional customers, our business may be adversely affected.

Collectively, our top three customers accounted for 49% of our revenues in 2010. We expect to continue to receive a significant portion of our revenue from a limited number of customers for the foreseeable future. Loss or cancellation of business from, or decreases in the sales volume or sales prices to, our significant customers, or our failure to replace them with other customers, could seriously harm our financial results, revenue and business. Since the sales cycle for our services typically exceeds one year, if our customers order significantly fewer wafers than forecasted, we will have excess capacity that we may not be able to fill within a short period of time, resulting in lower utilization of our facilities. We may have to reduce prices in order to try to sell more wafers in order to utilize the excess capacity. In addition to the revenue loss that could result from unused capacity or lower sales prices, we might have difficulty adjusting our costs to reflect the lower revenue in a timely manner, which could harm our financial results.

If we do not maintain and develop our technology processes and services, we will lose customers and may be unable to attract new ones.

The semiconductor market is characterized by rapid change, including the following:

rapid technological developments;

evolving industry standards;

changes in customer and product end user requirements;

frequent new product introductions and enhancements; and

short product life cycles with declining prices as products mature.

Our ability to maintain our current customer base and attract new customers is dependent in part on our ability to continuously develop and introduce to production advanced specialized manufacturing process technologies and purchase the appropriate equipment. If we are unable to successfully develop and introduce these processes to production in a timely manner or at all, or if we are unable to purchase the appropriate equipment required for such processes, we may be unable to maintain our current customer base and may be unable to attract new customers.

The semiconductor foundry business is highly competitive; our competitors may have competitive advantages over us.

The semiconductor foundry industry is highly competitive. We compete with more than ten independent dedicated foundries, the majority of which are located in Asia-Pacific, including foundries based in Taiwan, China, Korea and Malaysia, and with over 20 integrated semiconductor and end-product manufacturers that allocate a portion of their manufacturing capacity to foundry operations. The foundries with which we compete benefit from their close proximity to other companies involved in the design and manufacture of integrated circuits, or ICs.

As our competitors continue to increase their manufacturing capacity, there could be an increase in specialty semiconductor capacity during the next several years. As specialty capacity increases there may be more competition and pricing pressure on our services, and underutilization of our capacity may result. Any significant increase in competition or pricing pressure may erode our profit margins, weaken its earnings or increase our losses.

In addition, some semiconductor companies have advanced their CMOS designs to 90 nanometer, 65 nanometer or smaller geometries. These smaller geometries may provide the customer with performance and integration features that may be comparable to, or exceed, features offered by our specialty process technologies, and may be more cost-effective at higher production volumes for certain applications, such as when a large amount of digital content is required in a mixed-signal semiconductor and less analog content is required. Our specialty processes will therefore compete with these processes for customers and some of our potential and existing customers could elect to design these advanced CMOS processes into their next generation products. We are not currently capable, and do not currently plan to become capable, of providing CMOS processes at these smaller geometries. If our potential or existing customers choose to design their products using these advanced CMOS processes, our business may suffer.

In addition, many of our competitors may have one or more of the following competitive advantages over us:

greater manufacturing capacity;

multiple and more advanced manufacturing facilities;

more advanced technological capabilities;

a more diverse and established customer base;

greater financial, marketing, distribution and other resources;

a better cost structure; and/or

better operational performance in cycle time and yields.

If we do not compete effectively, our business and results of operations may be adversely affected.

If we experience difficulty in achieving acceptable device yields, product performance and delivery times as a result of manufacturing problems, our business could be seriously harmed.

The process technology for the manufacture of semiconductor wafers is highly complex, requires advanced and costly equipment and is constantly being modified in an effort to improve device yields, product performance and delivery times. Microscopic impurities such as dust and other contaminants, difficulties in the production process, defects in the key materials and tools used to manufacture a wafer and other factors can cause wafers to be rejected or individual semiconductors on specific wafers to be non-functional. We may experience difficulty achieving acceptable device yields, product performance and product delivery times in the future as a result of manufacturing problems. Any of these problems could seriously harm our operating results, financial condition and ability to maintain our operations.

If we are unable to purchase equipment and raw materials, we may not be able to manufacture our products in a timely fashion, which may result in a loss of existing and potential new customers.

To increase the production capability of our facility and to maintain the quality of production in our facility, we must procure additional equipment. In periods of high market demand, the lead times from order to delivery of manufacturing equipment could be as long as 12 to 18 months. In addition, our manufacturing processes use many raw materials, including silicon wafers, chemicals, gases and various metals, and require large amounts of fresh water and electricity. Manufacturing equipment and raw materials generally are available from several suppliers. In many instances, however, we purchase equipment and raw materials from a single source. Shortages in supplies of manufacturing equipment and raw materials could occur due to an interruption of supply or increased industry demand. Any such shortages could result in production delays that could result in a loss of existing and potential new customers. This may have a material adverse effect on our business and financial condition.

We depend on intellectual property rights of third parties and failure to maintain or acquire licenses could harm our business.

We depend on third party intellectual property in order for us to provide certain foundry and design services to our clients. If problems or delays arise with respect to the timely development, quality and provision of such intellectual property to us, the design and production of our customers’ products could be delayed, resulting in underutilization of our capacity. If any of our third party intellectual property vendors goes out of business, liquidates, merges with, or is acquired by, another company that discontinues the vendor’s previous line of business, or if we fail to maintain or acquire licenses to such intellectual property for any other reason, our business may be adversely affected. In addition, license fees and royalties payable under these agreements may impact our margins and operating results.

Failure to comply with the intellectual property rights of third parties or to defend our intellectual property rights could harm our business.

Our ability to compete successfully depends on our ability to operate without infringing on the proprietary rights of others and defending our intellectual property rights. Because of the complexity of the technologies used and the multitude of patents, copyrights and other overlapping intellectual property rights, it is often difficult for semiconductor companies to determine infringement. Therefore, the semiconductor industry is characterized by frequent litigation regarding patents, trade secrets and other intellectual property rights. We have been subject to intellectual property claims from time to time, some of which have been resolved through license agreements, the terms of which have not had a material effect on our business.

Because of the nature of the industry, we may continue to be a party to infringement claims in the future. In the event any third party were to assert infringement claims against us or our customers, we may have to consider alternatives including, but not limited to:

negotiating cross-license agreements;

seeking to acquire licenses to the allegedly infringed patents, which may not be available on commercially reasonable terms, if at all;

discontinuing use of certain process technologies, architectures, or designs, which could cause us to stop manufacturing certain integrated circuits if we were unable to design around the allegedly infringed patents;

fighting the matter in court and paying substantial monetary damages in the event we lose; or

seeking to develop non-infringing technologies, which may not be feasible.

Any one or several of these alternatives could place substantial financial and administrative burdens on us and hinder our business. Litigation, which could result in substantial costs to us and diversion of our resources, may also be necessary to enforce our patents or other intellectual property rights or to defend us or our customers against claimed infringement of the rights of others. If we fail to obtain certain licenses or if litigation relating to alleged patent infringement or other intellectual property matters occurs, it could prevent us from manufacturing particular products or applying particular technologies, which could reduce our opportunities to generate revenues.

As of December 31, 2010, we had 151 patents in force in the United States and 33 patents in force in foreign countries. We also had 13 pending patent applications in the United States, 4 pending patent applications in foreign countries and no patent pending applications under the Patent Cooperation Treaty. We intend to continue to file patent applications when appropriate. The process of seeking patent protection may take a long time and be expensive. We cannot assure you that patents will be issued from pending or future applications or that, if patents are issued, they will not be challenged, invalidated or circumvented or that the rights granted under the patents will provide us with meaningful protection or any commercial advantage. In addition, we cannot assure you that other countries in which we market our services and products will protect our intellectual property rights to the same extent as the United States. Further, we cannot assure you that we will at all times enforce our patents or other intellectual property rights or that courts will uphold our intellectual property rights, or enforce the contractual arrangements that we have entered into to protect our proprietary technology, which could reduce our opportunities to generate revenues.

Effective intellectual property enforcement may be unavailable or limited in some foreign countries. It may be difficult for us to protect its intellectual property from misuse or infringement by other companies in these countries. Our inability to enforce our intellectual property rights in some countries may harm our business and results of operations.

We could be seriously harmed by failure to comply with environmental regulations.

Our business is subject to a variety of federal, state and local laws and governmental regulations relating to the use, discharge and disposal of toxic or otherwise hazardous materials used in our production processes. If we fail to use, discharge or dispose of hazardous materials appropriately, or if applicable environmental laws or regulations change in the future, we could be subject to substantial liability or could be required to suspend or adversely modify our manufacturing operations.

We are subject to the risk of loss due to fire because the materials we use in our manufacturing processes are highly flammable.

We use highly flammable materials such as silane and hydrogen in our manufacturing processes and are therefore subject to the risk of loss arising from fires. The risk of fire associated with these materials cannot be completely eliminated. We maintain insurance policies to reduce potential losses that may be caused by fire, including business interruption insurance. If any of our fabs were to be damaged or cease operations as a result of a fire, and if our insurance proves to be inadequate, it may reduce our manufacturing capacity and revenues.

Possible product returns could harm our business.

Products manufactured by us may be returned within specified periods if they are defective or otherwise fail to meet customers’ prior agreed upon specifications. Product returns in excess of established provisions, if any, may have an adverse effect on our business and financial condition.

We are subject to risks related to our international operations.

We have made substantial revenue from customers located in Asia-Pacific and in Europe. Because of our international operations, we are vulnerable to the following risks:

we price our products primarily in US dollars; if the Euro, Yen or other currencies weaken relative to the US dollar, our products may be relatively more expensive in these regions, which could result in a decrease in our revenue;

the burdens and costs of compliance with foreign government regulation, as well as compliance with a variety of foreign laws;

general geopolitical risks such as political and economic instability, international terrorism, potential hostilities and changes in diplomatic and trade relationships;

natural disasters affecting the countries in which we conduct our business;

imposition of regulatory requirements, tariffs, import and export restrictions and other trade barriers and restrictions including the timing and availability of export licenses and permits;

adverse tax rules and regulations;

weak protection of our intellectual property rights;

delays in product shipments due to local customs restrictions;

laws and business practices favoring local companies;

difficulties in collecting accounts receivable; and

difficulties and costs of staffing and managing foreign operations.

In addition, the United States and foreign countries may implement quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products, leading to a reduction in sales and profitability in that country. The geographical distance between the United States, Asia and Europe also creates a number of logistical and communication challenges. We cannot assure you that we will not experience any serious harm in connection with our international operations.

Our business could suffer if we are unable to retain and recruit qualified personnel.

We depend on the continued services of our executive officers, senior managers and skilled technical and other personnel. Our business could suffer if we lose the services of some of these personnel because we may not be able to find and adequately integrate replacement personnel into our operations in a timely manner. We seek to recruit highly qualified personnel and there is intense competition for the services of these personnel in the semiconductor industry. Competition for personnel may increase significantly in the future as new fabless semiconductor companies as well as new semiconductor manufacturing facilities are established. Our ability to retain existing personnel and attract new personnel is in part dependent on the compensation packages we offer. As demand for qualified personnel increases, we may be forced to increase the compensation levels and to adjust the cash, equity and other components of compensation we offer our personnel.

Economic conditions may adversely affect our results.

The global economic downturn that commenced in 2008 and its effect on the semiconductor industry resulted in global decreased demand, downward price pressure, excess inventory and unutilized capacity worldwide which, in turn, impacted consumer and customer demand for our products and our customers’ products, as well as our commercial relationships with our customers, suppliers, and creditors, including our lenders. Although during the past quarters, we experienced business, financial and economic improvement, as reflected by the improvement in the Company’s revenue, gross profit, operating profit, net profit/ loss and cash flow from operating activities as compared to the period prior to mid 2009, market analysts are currently cautious in regards to the global economic conditions forecasted for 2011 and beyond, and there can be no assurance that the improvement in the Company’s business and financial position will continue and there is no assurance that another downturn in the semiconductor industry and/or in the global economy will not occur. The effects of another downturn in the semiconductor industry and/or in the global economy, may affect our future financial results and position, including our ability to fulfill our debt obligations and other liabilities, comprised mainly of bank loans and debentures. We are working in various ways to fulfill our debt obligations and other liabilities, including, among others, sales of assets, liquidating our holdings in HHNEC; intellectual property licensing or sales; and improving operational efficiencies and sales. There is no assurance that we will be able to obtain sufficient funding from these or other sources to allow us to have sufficient cash to fulfill our debt obligations and other liabilities.

Ours business plan is premised on the increasing use of outsourced foundry services by both fabless semiconductor companies and integrated device manufacturers for the production of semiconductors using specialty process technologies. Our business may not be successful if this trend does not continue to develop in the manner we expect.

We operate as an independent semiconductor foundry focused primarily on specialty process technologies. Our business model assumes that demand for these processes within the semiconductor industry will grow and will follow the broader trend towards outsourcing foundry operations. Although the use of foundries is established and growing for standard CMOS processes, the use of outsourced foundry services for specialty process technologies is less common and may never develop into a significant part of the semiconductor industry. If fabless companies and vertically integrated device manufacturers opt not to, or determine that they cannot, reduce their costs or allocate resources and capital more efficiently by accessing independent specialty foundry capacity, the manufacture of specialty process technologies may not follow the trend of standard CMOS processes. If the broader trend to outsourced foundry services does not prove applicable to the specialty process technologies that we are focused on, our business, results of operations and cash flow may be harmed.

If we are not able to continue transitioning our product mix from standard CMOS process technologies to specialty process technologies, our business and results of operations may be harmed.

Since Jazz Semiconductor’s separation from Conexant, it has focused its research and development and marketing efforts primarily on specialty process technologies and adding new customers in the specialty field. These specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar CMOS processes and double-diffused metal oxide semiconductor processes. To be competitive, reduce our dependence on standard process technologies and successfully implement our business plan, we will need to continue to derive a significant percentage of our revenues from specialty process technologies. In order to expand and diversify our customer base, we need to identify and attract customers who will use the specialty process technologies it provides. We cannot assure you that demand for our specialty process technologies will increase or that we will be able to attract customers who use them.

In addition, because we intend to continue to focus on specialty process technologies, we do not plan to invest in the research and development of more advanced standard CMOS processes. As standard CMOS process technologies continue to advance, we will not remain competitive in these process technologies. If Jazz’s current customers switch to another foundry for standard CMOS process technologies and we are unable to increase our revenues from our specialty process technologies, Jazz’s business, results of operations and cash flows will be harmed.

Our historical financial performance may not be indicative of our future results.

Since Jazz Semiconductor’s inception, a large percentage of its revenues have primarily been derived from products manufactured using standard CMOS processes that are no longer the focus of its business. As customers design their next generation products for smaller geometry CMOS processes, they may look to other foundries to provide their requisite manufacturing capacity. As a result, we may not continue to generate the same level of revenues from our standard CMOS processes in the future as it shifts our focus and operations to our more specialized processes: advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar CMOS processes and double-diffused metal oxide semiconductor processes. If our potential or existing customers design their products using smaller geometry CMOS processes at other foundries, and we are unable to increase the revenues we derive from our specialty process technologies, our business, results of operations and cash flows may be harmed.

Failure to comply with governmental regulations by us, our manufacturing suppliers or our customers could reduce our sales or require design modifications.

The semiconductors we produce and the export of technologies used in our manufacturing processes may be subject to U.S. export control and other regulations as well as various standards established by authorities in other countries. Failure to comply with existing or evolving U.S. or foreign governmental regulation or to obtain timely domestic or foreign regulatory approvals or certificates could materially harm our business by reducing our sales, requiring modifications to our processes that we license to our foreign manufacturing suppliers, or requiring too extensive modifications to our customers’ products. Neither we nor our customers may export products using or incorporating controlled technology without obtaining an export license. In addition, when we face excess demand, it may be dependent on our manufacturing suppliers in China for a significant portion of our planned manufacturing capacity, and export licenses may be required in order for Jazz to transfer technology related to our manufacturing processes to our foreign manufacturing suppliers. These restrictions may make foreign competitors facing less stringent controls on their processes and their customers’ products more competitive in the global market than we or our customers. The U.S. government may not approve any pending or future export license requests. In addition, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, could be revised from time to time.

A significant portion of our workforce is unionized, and our operations may be adversely affected by work stoppages, strikes or other collective actions which may disrupt our production and adversely affect the yield of our fab.

A significant portion of our employees at our Newport Beach, California fab are represented by a union and covered by a collective bargaining agreement that is scheduled to expire in 2012. We cannot predict the effect that continued union representation or future organizational activities will have on our business. We cannot assure you that we will not experience a material work stoppage, strike or other collective action in the future, which may disrupt our production and adversely affect our customer relations and operational results.

If we are unable to collaborate successfully with electronic design automation vendors and third-party design service companies to meet our customers’ design needs, our business could be harmed.

We have established relationships with electronic design automation vendors and third-party design service companies. We work together with these vendors to develop complete design kits that our customers can use to meet their design needs using our process technologies. Our ability to meet our customers’ design needs successfully depends on the availability and quality of the relevant services, tools and technologies provided by electronic design automation vendors and design service providers, and on whether Jazz, together with these providers, is able to meet customers’ schedule and budget requirements. Difficulties or delays in these areas may adversely affect our ability to meet our customers’ needs, and thereby harm our business.

If the semiconductor wafers we manufacture are used in defective products, we may be subject to product liability or other claims and our reputation could be harmed.

We provide custom manufacturing to our customers who use the semiconductor wafers we manufacture as components in their products sold to end users. If these products are used in defective or malfunctioning products, We could be sued for damages, especially if the defect or malfunction causes physical harm to people. The occurrence of a problem could result in product liability claims as well as a recall of, or safety alert or advisory notice relating to, the product. We cannot assure you that our insurance policies will cover specific product liability issues or that they will be adequate to satisfy claims made against Jazz in the future. Also, we may be unable to obtain insurance in the future at satisfactory rates, in adequate amounts, or at all. Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business, reputation, financial condition and on our ability to attract and retain customers.

Our production yields and business could be significantly harmed by natural disasters, particularly earthquakes.

Our Newport Beach, California fab is located in southern California, a region known for seismic activity. Due to the complex and delicate nature of our manufacturing processes, our facilities are particularly sensitive to the effects of vibrations associated with even minor earthquakes. Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel. We cannot be certain that precautions we have taken to seismically upgrade our fab will be adequate to protect our facilities in the event of a major earthquake, and any resulting damage could seriously disrupt our production and result in reduced revenues.

Our production may be interrupted if it cannot maintain sufficient sources of fresh water and electricity.

The semiconductor manufacturing process requires extensive amounts of fresh water and a stable source of electricity. Droughts, pipeline interruptions, power interruptions, electricity shortages or government intervention, particularly in the form of rationing, are factors that could restrict our access to these utilities in the area in which our fab is located. In particular, our Newport Beach, California fab is located in an area that is susceptible to water and electricity shortages. If there is an insufficient supply of fresh water or electricity to satisfy our requirements, it may need to limit or delay our production, which could adversely affect our business and operating results. Increases in utility costs would also increase our operating expenses. In addition, a power outage, even of very limited duration, could result in a loss of wafers in production, deterioration in our fab yield and substantial downtime to reset equipment before resuming production.

Jazz and Tower expect to enter into a Special Security Agreement with the United States Department of Defense which may limit the synergies and other expected benefits of the Merger.

In connection with our aerospace and defense business, our facility security clearance and trusted foundry status, we and Tower are working with the Defense Security Service of the United States Department of Defense ("DSS") to develop an appropriate structure to mitigate any concern of foreign ownership, control or influence over the operations of Jazz specifically relating to protection of classified information and prevention of potential unauthorized access thereto. In order to safeguard classified information, it is expected that the DSS will require adoption of a Special Security Agreement ("SSA"). The SSA may include certain security related restrictions, including restrictions on the composition of the board of directors, the separation of certain employees and operations, as well as restrictions on disclosure of classified information to Tower. The provisions contained in the SSA may also limit the projected synergies and other benefits to be realized from the Merger. There is no assurance when, if at all, an SSA will be reached.

Risks relating to construction activities

We lease our fabrication facilities and headquarters, and in December 2010, the properties were sold by Conexant to Uptown Newport LP (“Uptown”), a joint venture consisting of a fund controlled by New York-based DRA Advisors LLC and an affiliate of the Shopoff Group, a real estate investment firm based in Irvine, California. In connection with the sale, we negotiated amendments to our operating leases that confirm our ability to remain in the fabrication facilities through 2017 and to exercise options to extend that lease through 2027. Uptown has expressed its intention to begin development of a portion of the property adjacent to our fabrication facility, with the first phase of development of mixed use townhouses, midrise and hi-rise condominium potentially beginning in 2014 or thereafter. In the amendments to our leases, we secured various contractual safeguards designed to limit and mitigate any adverse impact of construction activities on our fabrication operations. Although we do not anticipate a material adverse impact to our operations, it is possible that construction activities adjacent to our fabrication facility could result in temporary reductions or interruptions in the supply of utilities to the property and that a portion or all of the fabrication facility may need to be idled temporarily during development. If construction activities limit or interrupt the supply of water, gas or electricity to our fabrication facility or cause significant vibrations or other disruptions, it could limit or delay our production, which could adversely affect our business and operating results. In addition, an unplanned power outage caused by construction activities, even of very limited duration, could result in a loss of wafers in production, deterioration in our fab yield and substantial downtime to reset equipment before resuming production.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Jazz’s headquarters and manufacturing facilities are located in Newport Beach, California. Jazz leases the use of these facilities from Uptown Newport LP under non-cancellable operating leases that expire March 12, 2017, and Jazz has the option to extend each lease for two consecutive five-year periods after March 12, 2017. Under a lease amendment, Uptown may terminate the lease for the Company’s headquarters building, but not the Company’s fabrication facility, no earlier than January 2014. If Uptown terminates the lease for the Company’s headquarters building, it is obligated to pay the Company a lease termination fee equal to $3,000,000 if the lease is terminated in January 2014, with the lease termination fee declining by $22,000 per month if Uptown terminates the headquarters building lease after January 2014.

The following table provides certain information as to Jazz’s principal general offices, manufacturing and warehouse facilities:

Property Location	Use	Floor Space
Newport Beach, California	Headquarters office	68,227 square feet
Newport Beach, California	Manufacturing facility	320,510 square feet

Jazz expects these offices and warehouse facilities to be adequate for its business purposes through 2011 and expects additional space to be available to use on commercially reasonable terms as needed.

Item 3. Legal Proceedings

During 2008, an International Trade Commission (“ITC”) action was filed by Agere/LSI Corporation (“LSI”), which alleged infringement by 17 corporations of LSI’s patent no. 5,227,335. Following the initial filing, LSI amended the ITC complaint in October 2008 to add the Company, Tower and three other corporations as additional respondents. The case was tried before an administrative law judge (“Judge”) in July 2009. In September, 2009, the Judge ruled against LSI and in favor of the respondents, determining that the patent claims asserted by LSI are invalid. In November, 2009, in response to a Petition for Review filed by LSI, the ITC determined that it would review the Judge’s determination on patent invalidity. In March 2010 the ITC determined that there is no ITC violation and the LSI patent was ruled to be invalid. LSI appealed that determination to the U.S. Court of Appeals for the Federal Circuit. While the appeal was pending, the patent expired. In November 2010 the Federal Circuit issued an order vacating the ITC’s final determination and remanding the investigation to the ITC with instructions to dismiss the investigation as moot in light of the expiration of the patent, and the ITC dismissed the ITC action as moot.

In connection with the Company's aerospace and defense business, its facility security clearance and trusted foundry status, the Company and Tower are working with the Defense Security Service of the United States Department of Defense ("DSS") to develop an appropriate structure to mitigate any concern of foreign ownership, control or influence over the operations of Jazz specifically relating to protection of classified information and prevention of potential unauthorized access thereto. In order to safeguard classified information, it is expected that the DSS will require adoption of a Special Security Agreement ("SSA"). The SSA may include certain security related restrictions, including restrictions on the composition of the board of directors, the separation of certain employees and operations, as well as restrictions on disclosure of classified information to Tower. The provisions contained in the SSA may also limit the projected synergies and other benefits to be realized from the Merger. There is no assurance when, if at all, an SSA will be reached.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Securities

Effective September 19, 2008, upon completion of the Merger, the Company’s common stock, warrants and units were delisted from the American Stock Exchange. As a result of the Merger, Tower is now the only registered holder of record of the Company’s common stock.

The following tables set forth, for the fiscal quarters indicated, the quarterly high and low closing prices of our common stock as reported on the American Stock Exchange.

Dividends

We have not paid any dividends on our common stock to date and do not intend to pay dividends in the near future. It is our board’s current intention to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future. The payment of dividends, if and when paid, will be within the discretion of our then board of directors and will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition.

Item 6. Selected Financial Data

Omitted pursuant to General Instruction I (1) (a) and (b) of Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

JAZZ TECHNOLOGIES, INC.

The following discussion and analysis of the financial condition and results of operations of Jazz Technologies, Inc. for the years ended December 31, 2010 and December 31, 2009, should be read in conjunction with the consolidated financial statements and related notes as well as other information contained in this Annual Report on Form 10-K, including the information in the section entitled “Risk Factors” of this report.

FORWARD LOOKING STATEMENTS

This report on Form 10-K may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Report Act of 1995. These statements, which represent our expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results. Such statements may include but are not limited to statements concerning the following:

anticipated trends in revenues;

growth opportunities in domestic and international markets;

new and enhanced channels of distribution;

customer acceptance and satisfaction with our products;

expected trends in operating and other expenses;

purchase of raw materials at levels to meet forecasted demand;

anticipated cash and intentions regarding usage of cash;

changes in effective tax rates; and

anticipated product enhancements or releases.

These forward-looking statements are subject to risks and uncertainties, including those risks and uncertainties described in this report on Form 10-K that could cause actual results to differ materially from those anticipated as of the date of this report. We assume no obligation to update any forward-looking statements to reflect events or circumstances arising after the date of this report.

Results of Operations

For the years ended December 31, 2010 and 2009, we had net income of $27.7 million and $0.5 million, respectively.

The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated.

	Year Ended
	December 31, 2010			December 31, 2009
Net revenues		100	%		100	%
Cost of revenues		61.1			75.0
Gross profit		38.9			25.0
Operating expenses:
Research and development		5.6			9.2
Selling, general and administrative		7.3			9.4
Amortization of intangible assets		0.3			0.5
Total operating expenses		13.2			19.1
Operating income		25.7			5.9
Financing expense and other income, net		(8.1	)		(8.8	)
Income tax benefit (expense)		(5.6	)		3.2

Net income		12.0	%		0.3	%

Comparison of Years Ended December 31, 2010 and December 31, 2009

Revenues

Our net revenues for the year ended December 31, 2010 increased by $71.6 million, or 45% to $230.8 million from $159.2 million for the year ended December 31, 2009. This increase is mainly due to increase in our products’ shipments and higher utilization in our fabrication facilities due to improved market conditions and increased demand for our specialty products and our specific product offering.

Cost of Revenues

Our cost of revenues increased to $141.0 million for the year ended December 31, 2010 from $119.4 million for the year ended December 31, 2009. The 18% increase in cost of revenues as compared to the 45% increase in revenue is mainly due to the higher utilization of the manufacturing facilities and our continuing efforts of cost reduction plan executed by the Company.

Gross Profit

Gross profit increased to $89.8 million in the year ended December 31, 2010 as compared to $39.8 million for the year ended December 31, 2009, reflecting the increased products’ shipments and higher utilization in our fabrication facilities due to improved market conditions and increased demand for our specialty products and our specific product offering and cost saving efforts described above. Gross profit margin improved to 39% for the year ended December 31, 2010 as compared to 25% in the year ended December 31, 2009.

Operating Expenses

Operating expenses for the year ended December 31, 2010 amounted to $30.5 million, substantially the same as the$30.3 million in the year ended December 31, 2009.

Financing expense and Other Income, Net

Financing expense and other income, net for the year ended December 31, 2010 amounted to $18.8 million, as compared to $14.0 million for the year ended December 31, 2009. Financing expense net, mainly relate to our notes. Financing expense, net for the year ended December 31, 2010 include $2.4 million following the notes Exchange Agreement, detailed in Note 6.

Income Tax Benefit (Expense)

Income tax expense amounted to $12.8 million in the year ended December 31, 2010, as compared to income tax benefit of $5.0 million in the year ended December 31, 2009. The increase in income tax expense is due to the increase in the operating income in the year ended December 31, 2010.

Net Income

Net income for the year ended December 31, 2010 was $27.7 million as compared to $0.5 million for the year ended December 31, 2009. Such $27.1 million improvement is due to the $49.8 million improvement in operating profit, which was partially offset mainly by the $17.9 million increase in income tax expenses.

Changes in Financial Condition

Liquidity and Capital Resources

As of December 31, 2010, we had cash and cash equivalents of $29.0 million compared to $28.6 million as of December 31, 2009. We had borrowings of $22.0 million under our line of credit with Wachovia and had $7.0 million of additional availability under this credit line. Of the borrowings of $22.0 million, we consider $10.0 million to be long-term as the repayment of that sum will be made beyond the one year period.

As of December 31, 2010 our indebtedness is approximately $159.3 million, comprised of approximately $137.3 million par value of convertible and non-convertible notes (of which $43.7 million is due in 2011) and $22 million borrowing under the Wachovia line of credit. To service our indebtedness and meet our other cash needs, we will require a significant amount of cash, which may not be available to us. Our ability to make payments on, or repay or refinance, our indebtedness and to fund capital expenditures, working capital and other cash needs will depend largely upon our future operating performance. Our future operating performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that future borrowings will be available to us under the credit facilities or from other sources in an amount and on terms and conditions sufficient to enable us to make payments on our indebtedness or to fund our other liquidity needs. In order to finance our debt and other liabilities and obligations, we continue to explore measures to obtain funds from sources in addition to cash on hand and expected cash flow from our ongoing operations, including sales of assets, including our holdings in HHNEC; issuance of new securities; intellectual property licensing; reductions or delays of capital expenditures, strategic acquisitions, investments and alliances; and improving operational efficiencies and sales. The Wachovia line of credit imposes certain limitations on our ability to repay the notes and/or to incur additional indebtedness without Wachovia’s consent. If we are unable to refinance the notes, and we default on payment of the notes at maturity, such default would trigger a cross default under the Wachovia line of credit, which would permit the lenders to accelerate the obligations thereunder, potentially requiring us to repay or refinance the Wachovia credit line. We cannot assure you that we would be able to refinance any of our indebtedness, including the notes and the Wachovia credit line, on commercially reasonable terms, or at all. There is no assurance that we will be able to obtain sufficient funding from the financing sources detailed above or other sources in a timely manner to allow us to fully or partially repay our indebtedness. A default by us on any of our indebtedness could have a material adverse effect on our operations, shareholders value and the interests of our creditors, and will affect our ability to fulfill our debt obligations and other liabilities.

Notes Exchange

On July 9, 2010, Jazz, together with its domestic subsidiaries and its parent, Tower, entered into an exchange agreement (the “Exchange Agreement”) with certain holders (the “Participating Holders”) holding approximately $79.6 million principal amount of our outstanding 8% convertible notes due 2011 (the “Old Notes”). Under the Exchange Agreement, the Participating Holders agreed to exchange their Old Notes for approximately $93.6 million in aggregate principal amount of newly-issued 8% notes of the Company due 2015 (the “New Notes”) and warrants to purchase approximately 25.2 million ordinary shares of Tower ( “Warrants J”). On July 15, 2010, the transactions contemplated by the Exchange Agreement were consummated, resulting in the issuance of the New Notes and Warrants J in exchange for the Old Notes in accordance with the terms of the Exchange Agreement. The New Notes are unsecured obligations of the Company, rank on parity in right of payment with all other indebtedness of the Company including the Old Notes, and are effectively subordinated to all secured indebtedness of the Company to the extent of the value of the collateral securing such indebtedness. The New Notes shall rank senior to all future indebtedness of the Company to the extent the future indebtedness is expressly subordinated to the New Notes. The New Notes are jointly and severally guaranteed on a senior unsecured basis by the Company’s domestic subsidiaries. Beginning July 1, 2013, the Company may redeem some or all of the New Notes for cash at a redemption price equal to par plus accrued and unpaid interest plus a redemption premium equal to 4% if redemption occurs prior to July 1, 2014 and 2% if redemption occurs between July 1, 2014 and prior to maturity. Holders of the New Notes are entitled, subject to certain conditions and restrictions, to require the Company to repurchase the New Notes at par plus accrued interest and a 1% redemption premium in the event of certain change of control transactions. As of December 31, 2010, approximately $93.6 million in aggregate principal amount of New Notes and approximately $43.7 million in aggregate principal amount of Old Notes remained outstanding.

Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments as of December 31, 2010

	Payment Due
	Total		Less than 1 year		2 Years		3 Years		4 Years		5 Years		After 5 years
	(in thousands)
Contractual Obligations
Short term liabilities primarily vendors and accounts payable (1)	$	31,815	$	31,815	$	--	$	--	$	--	$	--	$	--
Loans from banks (2)		23,418		12,730		250		250		10,188		--		--
Debentures (3)		179,814		60,064		7,484		7,484		7,484		97,298		--
Fabrication facilities, land and headquarters lease		14,253		2,300		2,300		2,300		2,300		2,300		2,753
Equipment purchase agreements (4)		1,556		1,556		--		--		--		--		--
Other long-term liabilities (5)		12,496		--		1,010		1,018		916		997		8,555
Purchase obligations		10,400		2,600		2,600		2,600		2,600		--		--
Total contractual obligations	$	273,752	$	111,065	$	13,644	$	13,652	$	23,488	$	100,595	$	11,308

Short-term liabilities include primarily our trade accounts payable for equipment and services as well as payroll related commitments.

Loans from banks include principal and interest payments.

Debentures include total amount of principal and interest payments for the presented periods.

Equipment purchase agreements include amounts related to ordered equipment that has not yet been received.

Other long-term liabilities excludes long-term tax contingencies and other tax liabilities of $5.5 million from the amounts presented, as the amounts that will be settled in cash are not known and the timing of the payments is uncertain.

In addition to these contractual obligations, we have committed approximately $1.6 million in standby letters of credit and guarantees to secure our equipment obligations.

The above table does not include other contractual obligations or commitments we have, such as undertakings pursuant to royalty agreements, commissions and service agreements. We are unable to reasonably estimate the total amounts or the time table for such payments to be paid under the terms of these agreements, as the royalties, commissions and required services are a function of future revenues, the volume of business and hourly-based fees.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to market risk from changes in interest rates, certain foreign currency exchange rate fluctuations, and certain commodity prices. Our exposure to market risk results primarily from fluctuations in interest rates that affect our variable-rate borrowings. Although we have international operating entities, our sales are primarily denominated in U.S. dollars, and our exposure to foreign currency rate fluctuations is not significant to our financial condition and results of operations. We have not used derivative financial instruments to manage foreign currency exchange risk exposure, to hedge credit/market risks or for speculative purposes.

We estimate that a 1.0% increase in interest rates would have an insignificant impact on our financial statements due to the structure of our investment portfolio.

As of December 31, 2010 and December 31, 2009, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 8. Financial Statements

INDEX

JAZZ TECHNOLOGIES, INC.

	Page

Consolidated Financial Statements	22

Report of Independent Registered Public Accounting Firm	23

Consolidated Balance Sheets	24

Consolidated Statements of Operations	25

Consolidated Statement of Stockholder’s Equity (Successor)	26

Consolidated Statement of Stockholders’ Equity (Predecessor)	27

Consolidated Statements of Cash Flows	28-29

Notes to Consolidated Financial Statements	30-52

Brightman Almagor Zohar

1 Azrieli Center

Tel Aviv 67021

P.O.B. 16593, Tel Aviv 61164

Israel

Tel: +972 (3) 608 5555

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of

Jazz Technologies, Inc.

Newport Beach, CA

We have audited the accompanying consolidated balance sheet of Jazz Technologies, Inc. and subsidiaries, (the “Company”) (a wholly owned subsidiary of Tower Semiconductor Ltd.) as of December 31, 2010 and 2009 (“Successor”), and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the two years in the period ended December 31, 2010. We have also audited the consolidated statements of operations, stockholder’s equity, and cash flows for the period from September 19, 2008 through December 31, 2008 (the “Successor Periods”) subsequent to the acquisition of the Company by Tower Semiconductor Ltd, and for the period from December 29, 2007 through September 18, 2008 (the “Predecessor Period”) prior to such acquisition. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jazz Technologies, Inc and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the Successor Periods and Predecessor Period, described above, in conformity with accounting principles generally accepted in the United States of America.

Brightman Almagor Zohar & Co.

Certified Public Accountants

A Member Firm of Deloitte Touche Tohmatsu

Tel-Aviv, Israel

February 13, 2011

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Consolidated Balance Sheets

(in thousands)

	December 31, 2010			December 31, 2009
	Successor			Successor
ASSETS
Current assets:
Cash and cash equivalents	$	29,031		$	28,622
Receivables:
Trade receivables, net of allowance for doubtful accounts of $326 and $877 at December 31, 2010 and December 31, 2009, respectively		29,687			23,664
Due from related party		3,376			25
Inventories		19,096			11,828
Deferred tax asset		4,728			7,177
Prepaid expenses and other current assets		3,768			2,918
Total current assets		89,686			74,234
Property, plant and equipment, net		96,908			96,194
Investments		17,100			17,100
Intangible assets, net		48,394			53,029
Goodwill		7,000			7,000
Other assets – related parties		22,392			--
Other assets – others		1,895			203
Total assets	$	283,375		$	247,760

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank debt and current maturities of debentures	$	53,338		$	7,000
Accounts payable		13,023			16,699
Due to related parties		3,389			5,367
Accrued compensation and benefits		5,677			5,862
Deferred revenues		1,834			2,506
Accrued interest		5,393			577
Other current liabilities		7,418			6,003
Total current liabilities		90,072			44,014
Long term liabilities:
Long-term debt from banks		10,000			20,000
Notes		64,463			110,971
Deferred tax liability		9,876			11,195
Accrued pension, retirement medical plan obligations and other long-term liabilities		18,055			11,734
Total liabilities		192,466			197,914
Stockholder’s equity:
Additional paid-in capital		63,531			50,070
Cumulative stock based compensation		887			427
Accumulated other comprehensive loss (*)		(1,903	)		(1,344	)
Retained earnings		28,394			693
Total stockholders' equity		90,909			49,846
Total liabilities and stockholders’ equity	$	283,375		$	247,760

(*) Accumulated other comprehensive loss includes mainly plan assets and benefit obligation, net of taxes.

See accompanying notes.

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

	Year ended December 31, 2010			Year ended December 31, 2009			Period from September 19, 2008 through December 31, 2008 (1)			Period from December 29, 2007 through September 18, 2008(2)
	(Successor)									(Predecessor)
Net revenues	$	230,784		$	159,209		$	56,255		$	132,385
Cost of revenues		141,001			119,386			38,516			114,491
Gross profit		89,783			39,823			17,739			17,894
Operating expenses:
Research and development		12,942			14,626			3,004			9,773
Selling, general and administrative		16,770			14,911			6,456			12,734
Amortization of intangible assets		788			790			211			1,008
Write off of in-process research and development		--			--			1,800			--
Merger related costs		--			--			--			4,069
Total operating expenses		30,500			30,327			11,471			27,584
Operating income (loss)		59,283			9,496			6,268			(9,690	)
Financing expense and other income, net		(18,752	)		(13,974	)		(4,664	)		(13,915	)
Net income (loss) before income taxes		40,531			(4,478	)		1,604			(23,605	)
Income tax benefit (expense)		(12,830	)		5,022			(1,455	)		33
Net income (loss)	$	27,701		$	544		$	149		$	(23,572	)
Net loss per share (basic and diluted)										$	(1.24	)

Weighted average shares (basic and diluted)											19,015

(1) The amounts included in the period ended December 31, 2008 reflect the results of the Company’s operations following the date of the merger with Tower on September 19, 2008.

(2) Amounts presented have been adjusted for the retrospective application required by ASC 470-20-15 (FSP APB 14-1).

See accompanying notes.

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Consolidated Statements of Stockholder’s Equity (Successor)

(in thousands, except share data)

	Common Stock
	Shares		Amount		Additional paid-in capital		Accumulated other comprehensive income (loss)			Accumulated deficit		Total stockholder’s equity
Balance at September 19, 2008		--	$	--	$	--	$	--		$	--	$	--
Issuance of common stock		100		--		50,070		--			--		50,070
Stock compensation expense		--		--		96		--			--		96
Comprehensive loss:
Change in plan assets and benefit obligation, net of taxes $1,615		--		--		--		(2,527	)		--		(2,527	)
Foreign currency translation adjustment		--		--		--		160			--		160
Net profit		--		--		--		--			149		149
Total comprehensive loss		--		--		--		--			--		(2,218	)
Balance at December 31, 2008		100	$	--	$	50,166	$	(2,367	)	$	149	$	47,948
Stock compensation expense		--		--		331		--			--		331
Comprehensive loss:
Change in plan assets and benefit obligation, net of taxes $550		--		--		--		1,096			--		1,096
Foreign currency translation adjustment		--		--		--		(73	)		--		(73	)
Net profit		--		--		--		--			544		544
Total comprehensive loss		--		--		--		--			--		1,567
Balance at December 31, 2009		100	$	--	$	50,497	$	(1,344	)	$	693	$	49,846
Stock compensation expense		--		--		460		--			--		460
Tax benefit relating to stock based compensation		--		--		214							214
Warrant contributed by Tower		--		--		13,247		--			--		13,247
Comprehensive loss:
Change in plan assets and benefit obligation, net of taxes $301		--		--		--		(585	)		--		(585	)
Foreign currency translation adjustment		--		--		--		26			--		26
Net profit		--		--		--		--			27,701		27,701
Total comprehensive loss		--		--		--		--			--		27,142
Balance at December 31, 2010		100	$	--	$	64,418	$	(1,903	)	$	28,394	$	90,909

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Consolidated Statement of Stockholders’ Equity (Predecessor)

(in thousands, except share data)

	Common Stock
	Shares		Amount		Additional paid in capital		Accumulated other comprehensive income (loss)			Accumulated deficit			Total stockholder’s equity
Balance at December 28, 2007 (1)		19,031	$	2	$	138,629	$	965		$	(44,535	)	$	95,061
Restricted stock compensation expense		--		--		60		--			--			60
Stock compensation expense		--		--		634		--			--			634
Comprehensive loss:
Change in plan assets and benefit obligation		--		--		--		8,631			--			8,631
Foreign currency translation adjustment		--		--		--		(1	)		--			(1	)
Net loss (1)		--		--		--		--			(23,572	)		(23,572	)
Total comprehensive loss		--		--		--		--			--			(17,942	)
Balance at September 18, 2008 (1)		19,031	$	2	$	139,323	$	9,595		$	(68,107	)	$	80,853

(1) Amounts presented have been adjusted for the retrospective application required by ASC 470-20-15 (FSP APB 14-1).

See accompanying notes.

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year ended December 31, 2010			Year ended December 31, 2009			Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008 (1)
	(Successor)									(Predecessor)
Operating activities:
Net income (loss)	$	27,701		$	544		$	149		$	(23,572	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss from notes exchange, net		2,350			--			--			--
Depreciation and amortization of intangible assets		32,387			23,237			6,753			27,200
Notes accretion and amortization of deferred financing costs		5,878			5,314			33			6,116
Net gain on disposal of equipment					--			--			(334	)
Other income, net		(14	)		(2,065	)		--			847
Write-off of in-process research and development					--			1,800			--
Stock based compensation expense		460			331			96			694
Changes in operating assets and liabilities, net of effects from acquisitions:
Receivables		(6,023	)		(2,240	)		(4,875	)		16,759
Inventories		(7,268	)		623			456			(717	)
Prepaid expenses and other assets		(450	)		257			(155	)		(565	)
Deferred tax assets		2,449			(4,512	)		2,942			--
Accounts payable		(4,310	)		(2,671	)		1,740			(7,032	)
Due to related parties, net		(2,301	)		5,675			1,539			(647	)
Accrued compensation and benefits		(185	)		190			(5,220	)		(545	)
Deferred revenue		(672	)		548			(1,177	)		(2,211	)
Accrued interest		4,816			(4,634	)		4,285			(3,050	)
Other current liabilities		1,448			1,533			(1,121	)		(8,344	)
Deferred tax liability		(1,319	)		(554	)		(3,135	)		(110	)
Accrued pension, retirement medical plan obligations and long-term liabilities		5,436			(441	)		3,535			(2,626	)
Net cash provided by operating activities		60,383			21,135			7,645			1,863
Investing activities:
Purchases of property and equipment		(54,429	)		(16,198	)		(3,366	)		(5,004	)
Investments in intangible assets and other assets		(1,171	)		(1,600	)		--			--
Net proceeds from sale of equipment		600			--			--			1,171
Net cash used in investing activities		(55,000	)		(17,798	)		(3,366	)		(3,833	)
Financing activities:
Debt repayment		--			(2,216	)		--			(4,100	)
Short-term debt from bank		(5,000	)		--			--			(1,000	)
Proceeds from long-term loans		--			--			20,000			--
Payment of debt and acquisition-related liabilities		--			--			(349	)		(63	)
Net cash provided by (used in) financing activities		(5,000	)		(2,216	)		19,651			(5,163	)
Effect of foreign exchange rate change		26			(73	)		158			7
Net increase (decrease) in cash and cash equivalents		409			1,048			24,088			(7,126	)
Cash and cash equivalents at beginning of the period		28,622			27,574			3,486			10,612
Cash and cash equivalents at end of the period	$	29,031		$	28,622		$	27,574		$	3,486

(1) Amounts presented have been adjusted for the retrospective application required by ASC 470-20-15 (FSP APB 14-1).

Supplemental disclosure of interest and taxes paid and non-cash investing and financing activities:
Interest paid	$	5,926	$	15,457	$	3,025	$	7,829
Warrant contributed by Tower, see Note 6	$	13,247	$	--	$	--	$	--
Taxes paid	$	3,746	$	1,996	$	--	$	24
Property, plant and equipment purchases accrued	$	3,382	$	6,263	$	2,090	$	1,259

Supplemental disclosure of other non-cash activities:

Purchase Price Allocation Adjustments as of September 19, 2008
Property, plant and equipment	$	(12,739	)
Investments	$	(2,200	)
Intangible assets	$	9,444
Other assets	$	(3,649	)
Goodwill	$	7,000
Current liabilities	$	(4,522	)
Deferred tax liability, net	$	(7,425	)
Convertible notes	$	19,600
Issuance of common stock	$	(50,070	)
Total	$	(44,561	)

See accompanying notes.

Jazz Technologies, Inc. (A Wholly Owned

Subsidiary of Tower Semiconductor, Ltd.) and Subsidiaries

Notes to Consolidated Financial Statements

Note 1: Business and Formation

Unless specifically noted otherwise, as used throughout these notes to the consolidated financial statements, “Jazz”, “Company” refers to the business of Jazz Technologies, Inc. and “Jazz Semiconductor” refers only to the business of Jazz Semiconductor, Inc. References to “the Company” for dates prior to September 19, 2008 mean the Predecessor which on September 19, 2008 was merged with a subsidiary of Tower Semiconductor Ltd., an Israeli company (“Tower”), and references to “the Company” for periods on or after September 19, 2008 are references to the Successor Tower subsidiary.

The Company

Jazz, formerly known as Acquicor Technology Inc., was incorporated in Delaware on August 12, 2005. The Company was formed to serve as a vehicle for the acquisition of one or more domestic and/or foreign operating businesses through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination.

The Company is based in Newport Beach, California and following the acquisition of Jazz Semiconductor Inc., became an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices. The Company’s specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide (“SiGe”) semiconductor processes, for the manufacture of analog and mixed-signal semiconductors. Its customer’s analog and mixed-signal semiconductor devices are used in cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems.

Merger with Tower Semiconductor, Ltd.

On May 19, 2008, the Company entered into an Agreement and Plan of Merger and Reorganization (“Merger”) with Tower and its wholly-owned subsidiary, Armstrong Acquisition Corp., a Delaware corporation (“Merger Sub”), which provided for Merger Sub to merge with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Tower.

At a special meeting of the Company's stockholders held on September 17, 2008, the requisite majority of the Company’s stockholders voted in favor of the Merger, which was closed on September 19, 2008. Under the terms of the Merger, Tower acquired all of the outstanding shares of Jazz in a stock-for-stock transaction. Each share of the Company’s common stock not held by Tower, Merger Sub or the Company was automatically converted into and represents the right to receive 1.8 ordinary shares of Tower. Cash was paid in lieu of fractional shares. In addition, on September 19, 2008, upon completion of the Merger, the Company’s common stock was delisted from the American Stock Exchange. As a result of the Merger, Tower is the only registered holder of the Company’s common stock and a change in control occurred. The Merger was accounted for under the purchase method of accounting in accordance with U.S. generally accepted accounting principles for accounting and financial reporting purposes. Under this method, Jazz was treated as the “acquired” company. In connection with this Merger, the Company adopted Tower’s fiscal year for reporting purposes.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. They contain all accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial position at December 31, 2010 (Successor) and December 31, 2009 (Successor), and the consolidated results of its operations and cash flows for the years ended December 31, 2010 (Successor) and December 31, 2009 (Successor) and for the periods ended December 31, 2008 (Successor) and September 18, 2008 (Predecessor). All intercompany accounts and transactions have been eliminated.

For purposes of presentation and disclosure, we refer to the Company as the Predecessor for all periods before September 19, 2008, the date of consummation of the Merger and as the Successor as of and for all periods thereafter. The financial statements also reflect “push-down” accounting in accordance with ASC 805-50-S99 (SEC Staff Accounting Bulletin No. 54), with respect to the Merger.

Reclassifications

Certain amounts in prior years’ financial statements have been reclassified in order to conform to the 2010 presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

Revenue Recognition

The Company’s net revenues are generated principally from sales of semiconductor wafers. The Company derives the remaining balance of its net revenues from engineering services and other support services. The majority of the Company’s sales occur through the efforts of its direct sales force.

In accordance with ASC 605 “Revenue Recognition”, the Company recognizes revenues when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured. These criteria are usually met at the time of product shipment. Revenues are recognized when the acceptance criteria are satisfied, based on performing electronic, functional and quality tests on the products prior to shipment. Such Company testing reliably demonstrates that the products meet all of the specified criteria prior to formal customer acceptance; hence, collection of payment for services is reasonably assured.

The Company provides for sales returns and allowances relating to specific yield or quality commitments as a reduction of revenues at the time of shipment based on historical experience and specific identification of events necessitating an allowance.

Revenues for engineering and other services are recognized ratably over the contract term or as services are performed. Revenues from contracts with multiple elements are recognized as each element is earned based on the relative selling price of each element. An element is recognized separately when the undelivered elements are not essential to the functionality of the delivered elements and when the amount is not contingent upon delivery of the undelivered elements.

Advances received from customers towards future engineering services, product purchases and in some cases capacity reservation are deferred until services are rendered, products are shipped to the customer, or the capacity reservation period ends.

Cash and Cash Equivalents

Cash and cash equivalents consist of banks deposits and short-term investments (primarily time deposits and certificates of deposit) with original maturities of three months or less.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is computed mainly on the specific identification basis for accounts whose collectability, in the Company’s estimation, is uncertain.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the United States. For financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.

Foreign Currency Translation

The Company uses the U.S. dollar as its functional currency. All of the Company’s sales and a substantial majority of its costs are transacted in U.S. dollars. The Company purchases wafers in Asia and supports sales and marketing activities in various countries outside of the United States. Most of these costs are paid for with U.S. dollars. Foreign currency transaction gains and losses, resulting from changes in the currency in which the transaction is denominated and the U.S. dollar, are included in determining net (loss) income for the period. The foreign exchange gains and losses were not material for the periods presented.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined for raw materials and supplies mainly on the basis of the weighted moving average cost per unit. Cost is determined for work in process and finished goods on the basis of actual production costs.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 12 years. Leasehold improvements are amortized over the life of the asset or initial term of the lease, whichever is shorter. Significant renewals and betterments are capitalized and any assets being replaced are written off. Maintenance and repairs are charged to expense as incurred. For impairment of assets tests see below.

Investment

In connection with the acquisition of Jazz Semiconductor in February 2007, the Company acquired an investment in Shanghai Hua Hong NEC Electronics Company, Ltd. (“HHNEC”). As of December 31, 2010, the investment represented a minority interest of approximately 10% in HHNEC. The investment in HHNEC is carried at cost determined to be the fair value of the investment at the Merger with Tower.

We were obligated to pay additional amounts to former stockholders of Jazz Semiconductor if we would have realized proceeds in excess of $10 million from a liquidity event through February 16, 2010. In that event, Jazz would have been obligated to pay the former Jazz Semiconductor stockholders an amount equal to 50% of the proceeds over $10 million. No liquidity event occurred on or before February 16, 2010, and accordingly, that obligation has expired. We have no further obligation to pay the former Jazz Semiconductor stockholders any amount realized from a liquidity event relating to our interest in HHNEC.

Impairment of Assets

The Company reviews long-lived assets and intangible assets on a periodic basis, as well as when such a review is required based upon relevant circumstances, to determine whether events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company has not recognized any impairment loss for any long-lived or intangible asset.

Impairment of Goodwill

Goodwill is subject to an impairment test on at least an annual basis or upon the occurrence of certain events or circumstances. Goodwill impairment is assessed based on a comparison of the fair value of the unit, to which the goodwill is ascribed, as against the underlying carrying value of its net assets, including goodwill. If the carrying amount of the unit exceeds its fair value, the implied fair value of the Company’s goodwill is compared with its carrying amount to measure the amount of impairment loss, if any.

The Company conducted an impairment check as of December 31, 2010. The Company used the income approach methodology of valuation that includes discounted cash flows to determine the fair value of the Company. Significant management judgment is required in the forecasts of future operating results used for this methodology. As a result of this analysis, the carrying amount of the Company’s net assets, including goodwill were not considered to be impaired and the Company did not recognize any impairment of goodwill for the period ended December 31, 2010. Prior to its acquisition by Tower, the Company had no goodwill.

Accounting for Income Taxes

The Company utilizes the liability method of accounting for income taxes in accordance with ASC 740 (formerly Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS No. 109”)). Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The likelihood of a material change in the Company’s expected realization of these assets depends on its ability to generate sufficient future taxable income.

The future utilization of the Company’s net operating loss carry forwards to offset future taxable income is subject to an annual limitation as a result of ownership changes that have occurred or that could occur in the future. The Company has had two “change in ownership” events that limit the utilization of net operating loss carry forwards. The second “change in ownership” event occurred on September 19, 2008, the date of the Company’s merger with Tower.

We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical merits, upon examination and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more-likely-than-not realizable. Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements, represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets. Our policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense.

Pension Plans

The Company adopted ASC 715-20 Defined Benefit Plans-General which requires that we recognize the funded status of our defined benefit and other postretirement benefit plans in our balance sheet, with changes in the funded status recognized through comprehensive income, net of tax, in the year in which they occur. The requirement to measure plan assets and benefit obligations as of the date of the fiscal year-end balance sheet is consistent with our current accounting treatment. ASC 715-20 requires the amounts recognized in financial statements be determined on an actuarial basis. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover, medical trend rates and discount rates. A change in these assumptions could cause actual results to differ from those reported.

Stock Based Compensation

The Company applies the provisions of ASC 718 Compensation-Stock Compensation, under which employee share-based equity awards accounted for under the fair value method. Accordingly, stock-based compensation to employees and directors is measured at the grant date, based on the fair value of the award. The Company estimated stock price volatility based on historical volatility of its own stock price from April 2008 to September 18, 2008 and based on its peers prior to April 2008. Since September 19, 2008, the Company estimates stock price volatility based on historical volatility of Tower’s stock price. The Company recognizes compensation expense using the straight-line amortization method for stock-based compensation awards with graded vesting.

The key assumptions used in the Black-Scholes model in determining the fair value of options granted during the years ended December 31, 2010, 2009 and 2008 are as follows:

	Year ended December 31, 2010			Year ended December 31, 2009			Period from September 19, 2008 through December 31, 2008
Expected life in years	4.7 years			4.7 years			6 years
Expected annual volatility		50.97%-53.37	%		63.01-76.06	%		50.97	%
Risk-free interest rate		1.14%-2.61	%		2.51-2.53	%		2.61	%
Dividend yield		0.00	%		0.00	%		0.00	%

Concentrations

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history, age of the balance and the customer’s current credit worthiness, as determined by a review of the customer’s current credit information. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon historical experience and any specific customer collection issues that have been identified. A considerable amount of judgment is required in assessing the ultimate realization of these receivables. Customer receivables are generally unsecured.

Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance as of December 31, 2010 and December 31, 2009 consists of the following customers:

	December 31, 2010			December 31, 2009
Customer 1		20	%		14	%
Customer 2		16			8
Customer 3		15			35

Net revenues from significant customers representing 10% or more of net revenues are provided by customers as follows:

	Year ended December 31, 2010			Year ended December 31, 2009			Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008
	(Successor)			(Successor)			(Successor)			(Predecessor)
Customer A		24	%		32	%		34	%		16	%
Customer B		15			13			13			14
Customer C		10			*			*			*
Customer D		*			*			*			11

* Indicates less than 10%.

As a result of the Company’s concentration of its customer base, loss or cancellation of business from, or significant changes in scheduled deliveries of product sold to these customers or a change in their financial position could materially and adversely affect the Company’s consolidated financial position, results of operations and cash flows.

The Company operates a single manufacturing facility located in Newport Beach, California. A major interruption in the manufacturing operations at this facility would have a material adverse affect on the consolidated financial position and results of operations of the Company.

Initial Adoption of New Standards

ASU 2009-5 - Fair Value Measurement and Disclosures of Liabilities

Effective January 1, 2010, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2009-05, “Fair Value Measurement and Disclosures Topic 820 - Measuring Liabilities at Fair Value”, which provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures - Overall, for the fair value measurement of liabilities. This update provides clarification that in circumstances that liabilities are measured at fair value, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: (1) a valuation technique that uses the quoted price of the identical or similar liability or identical or similar liability when traded as an asset (which would be considered Level 1 fair value measurement); or (2) another valuation technique that is consistent with the principles of Topic 820. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include an adjustment to the fair value due to the restriction that prevents the transfer of the liability. The adoption of this update did not impact the Company’s consolidated financial position, results of operations or cash flows.

ASU 2010-6 - Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures”, that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The FASB also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The new and revised disclosures are required to be implemented in interim or annual periods beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010. The adoption of this standard did not have any effect on the Company’s financial position and results of operations.

ASU 2010-17- Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition (a consensus of the FASB Emerging Issues Task Force)

In April 2010, the FASB issued Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition (a consensus of the FASB Emerging Issues Task Force). The amendments in this update provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive as defined in the ASU.

A vendor’s decision to use the milestone method of revenue recognition for transactions within the scope of the amendments in this update is a policy election. Other proportional revenue recognition methods also may be applied as long as the application of those other methods does not result in the recognition of consideration in its entirety in the period the milestone is achieved.

The update is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this update did not have any impact on the Company’s consolidated financial statements.

ASU 2010-25 - Plan Accounting-Defined Contribution Pension Plans (Topic 962)-Reporting Loans to Participants by Defined Contribution Pension Plans

In September 2010, the FASB issued this ASU to clarify how loans to participants should be classified and measured by defined contribution pension benefit plans.

Existing guidance requires participant loans to be classified as plan investments, which are generally measured at fair value.

The amendments in this Update require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest.

The amendments in this Update should be applied retrospectively to all prior periods presented, effective for fiscal years ending after December 15, 2010. Early adoption is permitted. The ASU did not have any influence on the company's results of operations.

Recently Issued Accounting Standards

ASU 2010-29 - Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations

In December 2010, the FASB issued this ASU to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.

The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.

The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The ASU is not expected to influence on the company's results of operations.

ASU 2010-28 Intangibles-Goodwill and Other (Topic 350) When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts

In December 2010, the FASB issued this ASU to address questions about entities with reporting units with zero or negative carrying amounts. Under Topic 350 on goodwill and other intangible assets, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). Because some entities concluded that Step 1 of the test is passed in circumstances of zero or negative carrying amounts, because the fair value of their reporting unit will generally be greater than zero, some constituents raised concerns that Step 2 of the test is not performed despite factors indicating that goodwill may be impaired.

The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist.

For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.

Upon adoption of the amendments, an entity with reporting units that have carrying amounts that are zero or negative is required to assess whether it is more likely than not that the reporting units’ goodwill is impaired. If the entity determines that it is more likely than not that the goodwill of one or more of its reporting units is impaired, the entity should perform Step 2 of the goodwill impairment test for those reporting unit(s). Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings as required by Section 350-20-35. The ASU is not expected to have any material effect on the company's results of operations.

ASU 2009-13 - Multiple Deliverable Revenue Arrangements

In October 2009, the FASB issued ASU 2009-13, “Multiple Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force” (formerly topic 08-1) an amendment to ASC 605-25. The update provides amendments to the criteria in Subtopic 605-25 for separating consideration in multiple-deliverable arrangements. The amendments in this update establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments in this update will also replace the term “fair value” in the revenue allocation guidance with the term “selling price” in order to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant.

The amendments will also eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price.

The update is effective for revenue arrangements entered into or modified in fiscal years beginning on or after June 15, 2010 with earlier adoption permitted. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

ASU 2010-13 - Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades

In April 2010, the FASB issued this ASU to clarify the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades.

This update provides amendments to Topic 718 to clarify that employee share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should also be classified as an equity award. The update is effective for periods beginning after December 15, 2010. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Note 3: Merger with Tower

On September 19, 2008, pursuant to the terms of the Merger signed on May 19, 2008, Tower acquired all of Jazz’s outstanding capital in a stock-for-stock transaction.

For accounting purposes, the purchase price was $50.1 million and reconciles to all consideration and payments made to date as follows (in thousands):

Stock consideration	$	39,189
Other equity consideration		7,555
Total Merger consideration		46,744
Transaction costs		3,326
Total purchase price	$	50,070

Pursuant to the Merger with Tower, each outstanding share of Jazz's common stock was converted into the right to receive 1.8 ordinary shares of Tower, at an aggregate fair value of approximately $39.2 million. The fair value of the shares was determined based on the average prices for Tower's ordinary shares on NASDAQ over a five day period commencing 2 days before and ending 2 days after the Merger was announced in accordance with provisions set forth in EITF 99-12 “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.”

Pursuant to the Merger with Tower, the Company’s outstanding stock options immediately prior to the effective time of the Merger, whether vested or unvested, were converted to options to purchase Tower’s ordinary shares on the same terms and conditions as were applicable to such options under the Predecessor Company’s plan, with adjusted exercise prices and numbers of shares to reflect the exchange ratio of the common stock. This conversion was accounted for as a modification in accordance with provisions in ASC 718 with the fair value of the outstanding options of $1.3 million being included as part of the purchase price.

Pursuant to the Merger with Tower, all outstanding warrants to purchase the shares of the Company’s common stock that were outstanding immediately prior to the effective time of the Merger, became exercisable for Tower ordinary shares with adjusted exercise prices and number of shares to reflect the exchange ratio of the common stock. The fair value of the outstanding warrants of $6.3 million was included as part of the purchase price.

Tower’s transaction costs of $3.3 million primarily consist of fees for financial advisors, attorneys, accountants and other advisors incurred in connection with the Merger.

The Company also incurred approximately $4.1 million in similar merger costs which are included as part of operating expenses in the Predecessor’s statement of operations for the period from December 29, 2007 through September 18, 2008.

Note 4: Other Balance Sheet Details

Inventories

Inventories, net of reserves, consist of the following at December 31, 2010 and December 31, 2009 (in thousands):

	December 31, 2010		December 31, 2009
Raw material	$	4,684	$	1,879
Work in process		11,821		7,739
Finished goods		2,591		2,210
	$	19,096	$	11,828

Property, plant and equipment

Property, plant and equipment consist of the following at December 31, 2010 and December 31, 2009 (in thousands):

	Useful life (In years)		December 31, 2010			December 31, 2009
Building improvements		10-12	$	24,230		$	24,230
Machinery and equipment		7		115,790			91,107
Furniture and equipment		5-7		2,308			2,203
Computer software		3		850			850
				143,178			118,390
Accumulated depreciation				(46,270	)		(22,196	)
			$	96,908		$	96,194

Intangible Assets

Intangible assets consist of the following at December 31, 2010 (in thousands):

	Weighted Average Life (years)		Cost		Accumulated Amortization		Net
Technology		4;9	$	2,300	$	612	$	1,688
Patents and other core technology rights		9		15,100		3,836		11,264
In process research and development		--		1,800		1,800		--
Customer relationships		15		2,600		396		2,204
Trade name		9		5,200		1,321		3,879
Facilities lease		19		33,500		4,141		29,359
Total identifiable intangible assets		14	$	60,500	$	12,106	$	48,394

Intangible assets consist of the following at December 31, 2009 (in thousands):

	Weighted Average Life (years)		Cost		Accumulated Amortization		Net
Technology		4;9	$	2,300	$	217	$	2,083
Patents and other core technology rights		9		15,100		2,159		12,941
In-process research and development		--		1,800		1,800		--
Customer relationships		15		2,600		222		2,378
Trade name		9		5,200		744		4,456
Facilities lease		19		33,500		2,329		31,171
Total identifiable intangible assets		14	$	60,500	$	7,471	$	53,029

The Company expects future amortization expense to be as follows (in thousands):

	Charge to cost of revenues		Charge to operating expenses		Total
Fiscal year ends:
2011	$	3,847	$	787	$	4,634
2012		3,847		787		4,634
2013		3,847		787		4,634
2014		3,847		787		4,634
2015		3,847		787		4,634
Thereafter		22,490		2,734		25,224
Total expected future amortization expense	$	41,725	$	6,669	$	48,394

The amortization related to technology, patents and other core technologies, and facilities lease is charged to cost of revenues. The amortization related to customer relationships and trade name is charged to operating expenses.

Note 5: Credit Facility

On September 19, 2008, the Company entered into a second amended and restated loan and security agreement, as parent guarantor, with Wachovia Capital Markets, LLC, as lead arranger, bookrunner and syndication agent, and Wachovia Capital Finance Corporation (Western), as administrative agent, and Jazz Semiconductor and Newport Fab, LLC, as borrowers (the “Loan Agreement”), with respect to a three-year secured asset-based revolving credit facility for the total amount of up to $55 million, including up to $10 million for letters of credit. On December 31, 2008, Wells Fargo acquired all of Wachovia Corporation and its businesses and obligations and therefore now administers the Loan Agreement as administrative agent.

On June 29, 2010, the Company entered into a Fourth Amendment to the Loan Agreement. Pursuant to the terms of the Fourth Amendment to the Loan Agreement, the maturity date of the revolving credit facility is extended to September 19, 2014, and available credit under the facility is an amount up to $45 million. The borrowing availability varies according to the levels of the borrowers’ accounts receivable, eligible equipment and other terms and conditions described in the Wachovia Loan Agreement. Loans under the facility will bear interest at a rate equal to, at borrowers’ option, either the lender’s prime rate plus a margin ranging from 0.50% to 1.0% or the LIBOR rate (as defined in the Wachovia Loan Agreement) plus a margin ranging from 2.25% to 2.75% per annum.

The facility is secured by all of the Company’s assets and the assets of the borrowers.

The Loan Agreement contains customary covenants and other terms, including covenants based on the Company’s EBITDA (as defined in the Loan Agreement), as well as customary events of default. If any event of default occurs, Wells Fargo may declare due immediately, all borrowings under the facility and foreclose on the collateral. Furthermore, an event of default under the Loan Agreement would result in an increase in the interest rate on any amounts outstanding.

Borrowing availability under the facility as of December 31, 2010 was $7 million. Outstanding borrowings were $22 million and $1.6 million of the facility supporting outstanding letters of credits on that date. The Company considers borrowings of $10 million to be long-term debt as of December 31, 2010. As of December 31, 2010, the Company was in compliance with all the covenants under this facility.

Note 6: Convertible Notes issued in 2006

In 2006, The Company completed private placements of convertible notes. The convertible notes bear interest at a rate of 8% per annum payable semi-annually that mature in December, 2011 (“Old Notes”). The Company may redeem the Old Notes for cash at a redemption price equal to par plus accrued and unpaid interest.

During early 2008, the Company purchased $5.0 million in principal amount of its Old Notes at a price of $4.1 million, including $4,444 for prepayment of interest from the date of the last interest payment to the date of purchase. The purchase price was 82% of the principal amount of such notes.

During 2009, the Company purchased $4.9 million in principal amount of its Old Notes at a price of $2.2 million, including $54 for prepayment of interest from the date of the last interest payment to the date of purchase. The purchase price was 46% of the principal amount of such notes and resulted in a net gain of $2.1 million, which is included as part of interest and other expense in the statement of operations for the year ended December 31, 2009.

Pursuant to the Merger with Tower, each holder of the Old Notes immediately prior to the Merger, has the right to convert such holder’s note into Tower ordinary shares based on an implied conversion price of approximately $4.07 per Tower ordinary share.

In addition, following the Merger, Tower has the right to deliver, in lieu of shares, cash or a combination of cash and shares of Tower to satisfy the conversion obligation. The amount of such cash and Tower ordinary shares, if any, will be based on the trading price of Tower’s ordinary shares during the 20 consecutive trading days beginning on the third trading day after proper delivery of a conversion notice.

In connection with the Merger the Old Notes, with a face value of $128.2 million as of the Merger date, were recorded at the fair value of $108.6 million on the date of the Merger with Tower.

As of December 31, 2010, following the Exchange Agreement detailed below, approximately $43.7 million in principal amount of Old Notes remains outstanding.

The Company’s obligations under the Old Notes are guaranteed by the Company’s wholly owned domestic subsidiaries. The Company has not provided condensed consolidating financial information for such subsidiaries because the Company has no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several and any subsidiaries of the Company other than the subsidiary guarantors are minor. Other than the restrictions in the Loan Agreement, there are no significant restrictions on the ability of the Company and its subsidiaries to obtain funds from their subsidiaries by loan or dividend.

Upon the occurrence of certain specified fundamental changes, the holders of the Old Notes will have the right, subject to various conditions and restrictions, to require the Company to repurchase the Old Notes, in whole or in part, at par plus accrued and unpaid interest to, but not including, the repurchase date.

Notes Issued in 2010

On July 9, 2010, the Company, together with its domestic subsidiaries and its parent, Tower, entered into an exchange agreement (the “Exchange Agreement”) with certain note holders (the “Participating Holders”) holding approximately $79.6 million principal amount of the Old Notes. Under the Exchange Agreement, the Participating Holders exchanged their Old Notes for newly-issued 8% non-convertible notes of the Company due June 2015 (the “New Notes”) with an exchange ratio of 1.175 New Notes for each 1.000 Old Notes. In addition, the Participating Holders received warrants to purchase approximately 25.3 million ordinary shares of Tower for a consideration of $1.70 per share (“Warrants J”). On July 15, 2010, the transactions contemplated by the Exchange Agreement were consummated, resulting in the issuance of the New Notes and Warrants J in exchange for the Old Notes in accordance with the terms of the Exchange Agreement.

Interest on the New Notes accrues from June 30, 2010 at a rate of 8% per annum. Interest is payable semiannually on June 30 and December 31 of each year commencing on December 31, 2010.

The New Notes are governed by an indenture (the “Indenture”) among the Company, its domestic subsidiaries as guarantors and U.S. Bank National Association, a national banking association, as trustee. The New Notes constitute unsecured obligations of the Company, rank on parity in right of payment with all other indebtedness of the Company including the Old Notes, and are effectively subordinated to all secured indebtedness of the Company to the extent of the value of the collateral securing such indebtedness. The New Notes shall rank senior to all future indebtedness of the Company to the extent the future indebtedness is expressly subordinated to the New Notes. The New Notes are jointly and severally guaranteed on a senior unsecured basis by the Company’s domestic subsidiaries. The Company’s obligations under the Old Notes and New Notes are not guaranteed by Tower.

As of December 31, 2010, approximately $93.6 million in principal amount of New Notes remains outstanding.

Beginning July 1, 2013, the Company may redeem some or all of the New Notes for cash at a redemption price equal to par plus accrued and unpaid interest plus a redemption premium equal to 4% if redemption occurs prior to July 1, 2014 and 2% if redemption occurs between July 1, 2014 and maturity.

The Indenture contains certain covenants including covenants restricting the Company’s ability and the ability of its subsidiaries to, among other things, incur additional debt, incur additional liens, make specified payments and make certain asset sales.

Holders of the New Notes are entitled, subject to certain conditions and restrictions, to require the Company to repurchase the New Notes at par plus accrued interest and a 1% redemption premium in the event of certain change of control transactions.

If there is an event of default on the New Notes, all of the New Notes may become immediately due and payable, subject to certain conditions set forth in the Indenture. An event of default under the Indenture will occur if the Company (or in some cases certain of its subsidiaries) (i) is delinquent in making certain payments under the New Notes, (ii) engages in a merger, consolidation or sale of substantially all of the Company’s assets, except as permitted by the Indenture, (iii) fails to deliver certain required notices under the New Notes, (iv) fails, following notice, to cure a breach of any other default under the New Notes or Indenture, (v) incurs certain events of default with respect to other indebtedness, (vi) is subject to certain bankruptcy proceedings or orders or (vii) fails to pay certain judgments. An event of default will also occur upon the occurrence of certain events relating to the guarantees of the New Notes.

On September 2010 Tower filed a registration statement under the Securities Act covering resale of the Warrants J and underlying shares, which was declared effective in September 2010.

As part of the debt exchange, the Company entered into a Registration Rights Agreement with the Participating Holders pursuant to which the Company agreed to use commercially reasonable efforts to file and cause to be declared effective a registration statement under the Securities Act of 1933, as amended, "the Securities Act” covering an offer to the holders of the New Notes to exchange the New Notes for newly-issued notes of the Company on terms identical to the New Notes (except that such newly-issued notes will not be subject to restrictions on transfer). The registration statement was filed on October 20, 2010 and was declared effective in December 2010.

The Company applied the provisions of ASC 470-50 "Modifications and Extinguishments" to account for debt exchange. The Company first determined that the exchange is not considered troubled debt, mainly due to the fact that no concession was given by the creditor. Based on the provisions of the ASC 470-50 the Company determined that the exchange resulted in an extinguishment of the old debt and the issuance of a new debt. As described above, warrants and New Notes were issued to settle to Old Notes. The Company considered the transaction to be at arm's length (the transaction was made between willing unrelated parties) and as such to provide evidence of fair value. Since the new debt was not traded and no quotes were available, the Company determined the fair value of the New Notes in a manner consistent with the manner used in the purchase price allocation in connection with the acquisition of the Company by Tower in September 2008, by giving weights to the present value techniques. This, together with the fair value of the warrants were used to determine the value of the Old Notes and resulted in an expense of approximately $2.4 million, which has been recorded in the statement of operations report for the year ended December 31, 2010.

In that regards, the Company accounted for the warrants to shares of Tower, as capital contribution of Tower to the Company. The fair value of the Warrants was recorded in equity and the corresponding entry was part of the overall expense in debt exchange described above.

For disclosure purpose, the Old Notes and New Notes fair value of $134.7 million is determined by taking in consideration (i) the market approach, using the last quotations of the notes and (ii) the income approach utilizing the present value method at discount rate with credit worthiness appropriate for the Company.

The following table presents the associated interest cost related to the Old Notes and New Notes for the periods presented which consists of both the contractual interest coupon and amortization of the discount on the liability component:

	Year ended December 31, 2010 – Old Notes and New Notes			Year ended December 31, 2009 – Old Notes			Period from September 18, 2008 through December 31, 2008 – Old Notes			Period from December 29, 2007 through September 18, 2008 – Old Notes
	Successor									Predecessor
Contractual interest recognized		10,319			10,061			2,849			7,411
Discount amortization		5,768			5,199			1,452			5,643
Effective interest rate – Old Notes		14	%		14	%		14	%		21	%
Effective interest rate – New Notes		19	%		--			--			--

Note 7: Income Taxes

The Company’s effective tax rate differs from the statutory rate as follows (in thousands):

	Year ended December 31, 2010			Year ended December 31, 2009			Period from September 19, 2008 through December 31, 2008		Period from December 29, 2007 through September 18, 2008
	(Successor)								(Predecessor)
Tax provision (benefit) computed at the federal statutory rate	$	14,182		$	(1,567	)	$	562	$	(8,262	)
State tax, net of federal provision (benefit)		(302	)		(3,686	)		197		(37	)
In-process research and development		--			--			630		--
Domestic Production Activities Deduction		(1,136	)		--			--		--
Permanent items & others		86			231			66		1,569
Tax-exempt interest		--			--			--		--
Valuation allowance		--			--			--		6,697
Income tax provision (benefit)	$	12,830		$	(5,022	)	$	1,455	$	(33	)

The Company’s tax provision is as follows (in thousands):

	Year ended December 31, 2010			Year ended December 31, 2009			Period from September 19, 2008 through December 31, 2008		Period from December 29, 2007 through September 18, 2008
	(Successor)								(Predecessor)
Current tax expense:
Federal	$	11,141		$	4		$	2	$	8
State		31			43			17		32
Foreign		16			3			14		36
Total current		11,188			50			33		76
Deferred tax expense:
Federal		1,828			464			1,125		--
State		(186	)		(5,536	)		297		(109	)
Total deferred		1,642			(5,072	)		1,422		(109	)
Income tax provision (benefit)	$	12,830		$	(5,022	)	$	1,455	$	(33	)

The Company’s effective tax rate for the year ended December 31, 2010 is lower than the statutory rate primarily due to the federal Domestic Production Activities Deduction.

The Company establishes a valuation allowance for deferred tax assets, when it is unable to conclude that it is more likely than not that such deferred tax assets will be realized. In making this determination the Company evaluates both positive and negative evidence. The state deferred tax assets exceed the reversal of taxable temporary differences. Without other significant positive evidence, the Company has determined that the state deferred tax assets are not more likely than not to be realized.

Significant components of the Company’s deferred tax assets and liabilities from federal and state income taxes are as follows (in thousands):

	December 31, 2010			December 31, 2009
Deferred tax assets– current:
Net operating loss carryforwards	$	758		$	1,737
Employees benefits and compensation		1,699			2,178
Accruals, reserves and others		2,484			3,435
Total deferred tax assets		4,941			7,350
Valuation allowance		(213	)		(173	)
Total current deferred tax benefit		4,728			7,177
Net deferred tax liability- long-term :
Deferred tax assets -
Net operating loss carryforwards		11,080			10,924
Employees benefits and compensation		4,943			3,423
Other		472			1,038
		16,495			15,385
Valuation allowance		(3,157	)		(2,063	)
		13,338			13,322
Deferred tax liability - property, plant and equipment		(2,603	)		(1,017	)
Intangible assets		(14,495	)		(15,915	)
Investment basis difference		(2,916	)		(2,922	)
Other		(927	)		--
Debt discount		(2,273	)		(4,663	)
Total deferred tax liabilities		(9,876	)		(11,195	)
Net deferred taxes	$	(5,148	)	$	(4,018	)

The future utilization of the Company's net operating loss carry forwards to offset future taxable income is subject to an annual limitation as a result of ownership changes that have occurred. Additional limitations could apply if ownership changes occur in the future. The Company has had two “change in ownership” events that limit the utilization of net operating loss carry forwards. The first “change in ownership” event occurred in February 2007 upon our acquisition of Jazz Semiconductor. The second “change in ownership” event occurred on September 19, 2008, the date of the Company’s Merger with Tower. The Company concluded that the net operating loss limitation for the change in ownership which occurred in September 2008 will be an annual utilization of $2.1 million for the use in its tax return. Accordingly the Company had at December 31, 2010 federal net operating loss carry forwards of approximately $39 million that will begin to expire in 2021 unless previously utilized.

At December 31, 2010, the Company had state net operating loss carry forwards of approximately $120.9 million. The state tax loss carry forwards will begin to expire in 2016, unless previously utilized.

At December 31, 2010, the Company had combined federal and state alternative minimum tax credits of $0.1 million. The alternative minimum tax credits do not expire.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Successor	Unrecognized tax benefits
	(in thousands)
Balance at January 1, 2010	$	10,929
Additions for tax positions of current year		4,937
Additions for tax positions of prior year		249
Reductions for tax positions of prior year		(1,207	)
Balance at December 31, 2010	$	14,908

Successor	Unrecognized tax benefits
	(in thousands)
Balance at January 1, 2009	$	1,871
Additions for tax positions of prior year		9,641
Reductions for tax positions of prior year		(583	)
Balance at December 31, 2009	$	10,929

Successor	Unrecognized tax benefits
	(in thousands)
Balance at September 19, 2008	$	1,222
Additions based on tax positions related to the current year		649
Additions for tax positions of prior year		--
Reductions for tax positions of prior year		--
Reductions related to purchase accounting deferred tax asset reduction		--
Settlements		--
Balance at December 31, 2008	$	1,871

Predecessor	Unrecognized tax benefits
	(in thousands)
Balance at December 28, 2007	$	970
Additions based on tax positions related to the current year		524
Additions for tax positions of prior year		--
Reductions for tax positions of prior year		--
Reductions related to purchase accounting deferred tax asset reduction		(272	)
Settlements		--
Balance at September 18, 2008	$	1,222

The Company accounts for its uncertain tax provisions in accordance with ASC 740. The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense. At December 31, 2010, the Company had unrecognized tax benefits of $14.9 million. The amount of unrecognized tax benefit that, if recognized and realized, would affect the effective tax rate is $9.5 million as of December 31, 2010.

During the third quarter of 2010, the Company liquidated its Chinese subsidiary and the Chinese taxing authorities completed a review of the historic income tax filings and accepted all the historic tax filings. As such, the Company has reversed the uncertain tax positions related to net operating losses that were abandoned when the Company liquidated its Chinese subsidiary. The $1.2 million decrease in the gross unrecognized tax benefits in 2010 has been recorded as a “reduction for tax positions of prior year” in the Successor tabular presentation above. The reduction did not have an impact on the Company’s effective tax rate.

During the fourth quarter of 2010, the Company completed its tax analysis on how to account for the repurchase premium for tax purposes on its restructured notes. The Company determined that due to the uncertainties regarding the timing of the deduction of the premium that a gross unrecognized tax position of approximately $4.9 million was recorded in accordance with ASC 740.

The Company does not anticipate a significant increase or decrease in its uncertain tax benefits within the twelve months of the reporting date.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years before 2007; state and local income tax examinations before 2006; and foreign income tax examinations before 2007. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry forward amount. The Company is not currently under Internal Revenue Service (“IRS”), state or local tax examination.

Note 8: Employee Benefit Plans

The following information provided recognizes the changes in 2010, 2009 and 2008 periodic expenses and benefit obligations due to the bargaining agreement effective December 19, 2009 entered into by the Company with its collective bargaining unit employees.

Postretirement Medical Plan

The components of the net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the Company’s postretirement medical plan expense are as follows (in thousands, except percentages):

		Year Ended December 31, 2010				Year Ended December 31, 2009				Period from September 19, 2008 through December 31, 2008				Period from December 29, 2007 through September 18, 2008
		(Successor)												(Predecessor)
Net periodic benefit cost
Service cost		$	177			$	178			$	46			$	189
Interest cost			512				463				126				477
Expected return on plan assets			--				--				--				--
Amortization of transition obligation/(asset)			--				--				--				--
Amortization of prior service costs			--				--				--				(509	)
Amortization of net (gain) or loss			48				57				--				--
Total net periodic benefit cost		$	737			$	698			$	172			$	157
Other changes in plan assets and benefits obligations recognized in other comprehensive income
Prior service cost for the period		$	376			$	--			$	--			$	(9,552	)
Net (gain) or loss for the period			643				19				1,338				(19	)
Amortization of transition obligation (asset)			--				--				--				--
Amortization of prior service costs			--				--				--				509
Amortization of net gain or (loss)			(48	)			(57	)			--				--
Total recognized in other comprehensive income		$	971			$	(38	)		$	1,338			$	(9,062	)
Total recognized in net periodic benefit cost and other comprehensive income		$	1,708			$	660			$	1,510			$	(8,905	)
Weighted average assumptions used:
Discount rate			6.30	%			6.10	%			7.00	%			6.50	%
Expected return on plan assets			N/A				N/A				N/A				N/A
Rate of compensation increases			N/A				N/A				N/A				N/A
Assumed health care cost trend rates:
Health care cost trend rate assumed for current year			10.00	%			9.00	%			9.00	%			9.00	%
Ultimate rate			5.00	%			5.00	%			5.00	%			5.00	%
Year the ultimate rate is reached			2017				2015				2014				2014
Measurement date	December 31, 2010				December 31, 2009				December 31, 2008				September 18, 2008

Impact of one-percentage point change in assumed health care cost trend rates as of December 31, 2010:	Increase		Decrease
Effect on service cost and interest cost	$	125	$	(100	)
Effect on postretirement benefit obligation	$	1,539	$	(1,250	)

The components of the change in benefit obligation; change in plan assets and funded status for the Company’s postretirement medical plan are as follows (in thousands):

	Year Ended December 31, 2010			Year Ended December 31, 2009			Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008
	(Successor)									(Predecessor)
Change in benefit obligation:
Benefit obligation at beginning of period	$	8,232		$	7,688		$	6,226		$	15,271
Service cost		177			178			46			189
Interest cost		512			463			126			477
Benefits paid		(129	)		(116	)		(48	)		(140	)
Change in plan provisions		376			--			--			(9,552	)
Actuarial loss (gain)		643			19			1,338			(19	)
Benefit obligation end of period	$	9,811		$	8,232		$	7,688		$	6,226
Change in plan assets:
Fair value of plan assets at beginning of period	$	--		$	--		$	--		$	--
Actual return on plan assets		--			--			--			--
Employer contribution		129			116			48			140
Benefits paid		(129	)		(116	)		(48	)		(140	)
Fair value of plan assets at end of period	$	--		$	--		$	--		$	--
Funded status	$	(9,811	)	$	(8,232	)	$	(7,688	)	$	(6,226	)
Amounts recognized in statement of financial position:
Non-current assets	$	--		$	--		$	--		$	--
Current liabilities		(200	)		(199	)		(180	)		(113	)
Non-current liabilities		(9,611	)		(8,033	)		(7,508	)		(6,113	)
Net amount recognized	$	(9,811	)	$	(8,232	)	$	(7,688	)	$	(6,226	)
Weighted average assumptions used:
Discount rate		5.90	%		6.30	%		6.10	%		7.00	%
Rate of compensation increases		N/A			N/A			N/A			N/A
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year (Pre 65/ Post 65)		10.0%/21.0	%		10.0%/10.0	%		9.0%/9.0	%		8.0%/8.0	%
Ultimate rate (Pre 65/ Post 65)		5.00%/5.00	%		5.00%/5.00	%		5.00%/5.00	%		5.00%/5.00	%
Year the ultimate rate is reached (Pre 65/ Post 65)		2021/2019			2017/2017			2015/2015			2014/2014

The following benefit payments are expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter (in thousands):

Fiscal Year	Other Benefits ($)
2011	$	200
2012		267
2013		286
2014		364
2015		399
2016 – 2021	$	2,899

Pension Plan

The Company has a pension plan that provides for monthly pension payments to eligible employees upon retirement. The pension benefits are based on years of service and specified benefit amounts. The Company uses a December 31 measurement date. The Company makes quarterly contributions in accordance with the minimum actuarially determined amounts.

The components of the change in benefit obligation, the change in plan assets and funded status for the Company’s pension plan are as follows (in thousands):

	Year Ended December 31, 2010			Year Ended December 31, 2009			Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008
	(Successor)									(Predecessor)
Net periodic benefit cost
Service cost	$	106		$	306		$	101		$	472
Interest cost		729			679			203			454
Expected return on plan assets		(693	)		(537	)		(189	)		(458	)
Amortization of transition obligation/(asset)		--			--			--			--
Amortization of prior service costs		--			--			--			--
Amortization of net (gain) or loss		--			192			--			--
Total net periodic benefit cost	$	142		$	640		$	115		$	468
Other changes in plan assets and benefits obligations recognized in other comprehensive income
Prior service cost for the period	$	--		$	--		$	--		$	--
Net (gain) or loss for the period		(85	)		(1,415	)		2,804			432
Amortization of transition obligation (asset)		--			--			--			--
Amortization of prior service costs		--			--			--			--
Amortization of net gain or (loss)		--			(192	)		--			--
Total recognized in other comprehensive income	$	(85	)	$	(1,607	)	$	2,804		$	432
Total recognized in net periodic benefit cost and other comprehensive income	$	57		$	(967	)	$	2,919		$	900
Weighted average assumptions used:
Discount rate		6.20	%		6.20	%		7.00	%		6.40	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		7.50	%
Rate of compensation increases		N/A			N/A			N/A			N/A
Estimated amounts that will be amortized from accumulated other comprehensive income in the next fiscal year ending:
Transition obligation (asset)	$	--		$	--		$	--		$	--
Prior service cost		--			--			--			--
Net actuarial (gain) or loss	$	--		$	--		$	192		$	--

The components of the change in benefit obligation; change in plan assets and funded status for the Company’s pension plan are as follows (in thousands):

	Year Ended December 31, 2010			Year Ended December 31, 2009			Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008
	(Successor)									(Predecessor)
Change in benefit obligation:
Benefit obligation at beginning of period	$	11,939		$	11,101		$	9,961		$	10,260
Service cost		106			306			101			472
Interest cost		729			679			203			454
Benefits paid		(265	)		(241	)		(47	)		(118	)
Change in plan provisions		--			--			--			--
Actuarial loss (gain)		596			94			883			(1,107	)
Benefit obligation end of period	$	13,105		$	11,939		$	11,101		$	9,961
Change in plan assets
Fair value of plan assets at beginning of period	$	9,253		$	6,995		$	8,560		$	7,957
Actual return on plan assets		1,375			2,046			(1,732	)		(1,080	)
Employer contribution		379			453			214			1,801
Benefits paid		(265	)		(241	)		(47	)		(118	)
Fair value of plan assets at end of period	$	10,742		$	9,253		$	6,995		$	8,560
Funded status	$	(2,363	)	$	(2,686	)	$	(4,106	)	$	(1,401	)
Accumulated benefit obligation	$	(13,105	)	$	(11,939	)	$	(11,101	)	$	(9,961	)
Amounts recognized in statement of financial position
Non-current assets	$	--		$	--		$	--		$	--
Current liabilities		--			--			--			--
Non-current liabilities		(2,363	)		(2,686	)		(4,106	)		(1,401	)
Net amount recognized	$	(2,363	)	$	(2,686	)	$	(4,106	)	$	(1,401	)
Weighted average assumptions used
Discount rate		5.70	%		6.20	%		6.20	%		7.00	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		7.50	%
Rate of compensation increases		N/A			N/A			N/A			N/A

The following benefit payments are expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter (in thousands):

Fiscal Year	Other Benefits
2011	$	384
2012		431
2013		486
2014		552
2015		598
2016 – 2020	$	3,806

The Company has estimated the expected return on assets of the plan of 7.5% based on assumptions derived from, among other things, the historical return on assets of the plan, the current and expected investment allocation of assets held by the plan and the current and expected future rates of return in the debt and equity markets for investments held by the plan. The obligations under the plan could differ from the obligation currently recorded if management’s estimates are not consistent with actual investment performance.

The Company’s pension plan weighted average asset allocations at December 31, 2010 by asset category are as follows:

Asset Category:	December 31, 2010			Target allocation 2011
Equity securities		74	%		65 – 75	%
Debt securities		26	%		25 – 35	%
Real estate		0	%		0	%
Other		0	%		0	%
Total		100	%		100	%

The Company’s primary policy goals regarding plan assets are cost-effective diversification of plan assets, competitive returns on investment, and preservation of capital. Plan assets are currently invested in mutual funds with various debt and equity investment objectives. The target asset allocation for the plan assets is 25-35% debt, or fixed income securities, and 65-75% equity securities. Individual funds are evaluated periodically based on comparisons to benchmark indices and peer group funds and necessary investment decisions are made in accordance with the policy goals of the plan investments by management.

Note 9: Stockholders’ Equity

Common Stock

Pursuant to the Merger with Tower, each share of the Company’s common stock not held by Tower, Merger Sub or the Company was automatically converted into and represents the right to receive 1.8 ordinary shares of Tower. Cash was paid in lieu of fractional shares. In connection with the Merger with Tower, the Company amended its Certificate of Incorporation to decrease the authorized shares of the Company’s common stock from 200 million shares to 100 shares.

The number of outstanding shares of Jazz’s common stock at December 31, 2010 was 100, all of which are owned by Tower.

Warrants

Pursuant to the Merger with Tower, all outstanding warrants to purchase the shares of the Company’s common stock, that were originally issued in 2006 and that were outstanding immediately prior to the effective date of the Merger were assumed by Tower and became exercisable for Tower ordinary shares. Each such warrant formerly exercisable to purchase one share of the Company’s common stock became exercisable to purchase 1.8 Tower ordinary shares at an exercise price of $2.78 per Tower ordinary share, which is equal to the exercise price of $5.00 immediately prior to the effective date of the merger divided by the exchange ratio of 1.8. Fractional ordinary shares of Tower were rounded up to the nearest whole number.

Tower may redeem the warrants: (i) in whole and not in part; (ii) at a price of $0.01 per warrant; (iii) upon a minimum of 30 days prior written notice of redemption; and if and only if, the last sales price of Tower’s ordinary shares equals or exceeds $4.72 per share for any 20 trading days within a 30 trading day period ending three business days before Tower sends the notice of redemption. Originally this threshold sales price was $8.50 per share of the Company’s common stock; $4.72 is equal to the original threshold for the sales price of the Company’s common stock divided by the exchange ratio of 1.8.

The number of outstanding warrants to purchase Tower's ordinary shares at December 31, 2010 was 59.5 million.

Stock Options

The Predecessor Company recorded $0.6 million of compensation expense for the period ended September 18, 2008 relating to the issuance of non-statutory stock options to employees and non-employee members of the Board.

Pursuant to the Merger with Tower, options to purchase shares of the Company’s common stock that were outstanding immediately prior to the effective date of the Merger, whether vested or unvested, became exercisable or will become exercisable for Tower ordinary shares. The Company recorded $24.8 and $81 thousand of compensation expenses for the year ended December 31, 2010 and the year ended December 31, 2009 for modifications of these existing options pursuant to the Merger.

On September 19, 2008, Tower awarded non-statutory stock options to employees of the Company to purchase 855,000 Tower’s ordinary shares. The stock option grants vest on the second anniversary from the date of grant. The exercise prices of the options awarded is $0.46 per share. The Company recorded $25 thousand of compensation expense for the period ended December 31, 2008 relating to this issuance of Tower’s non-qualified stock options to the Company’s employees.

During 2009, Tower awarded 2,690,000 non-qualified stock options to the Company employees that vest over a three year period from the date of grant. The weighted average exercise price was $0.29. The Company recorded $250 thousand of compensation expenses relating to options granted to employees, for the year ended December 31, 2009.

During 2010, Tower awarded 394,500 non-qualified stock options to the Company employees that vest over a three year period from the date of grant. The weighted average exercise price was $1.36. The Company recorded $435 thousand of compensation expenses relating to options granted to employees, for the year ended December 31, 2010.

Stock-based compensation expense was recognized in the following line items in the statement of operations as follows (in thousands):

	Year Ended December 31,						Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008
	2010			2009			Period from September 19, 2008 through December 31, 2008			Period from December 29, 2007 through September 18, 2008
	successor									predecessor
Component of income (loss) before provision for income taxes:
Cost of revenue	$	232		$	125		$	--		$	--
Research and development, net		109			75			15			45
Selling, general and administrative		120			132			55			519
Stock-based compensation expense		461			332			70			564
Income tax benefits related to stock-based compensation (before consideration of valuation allowance)		(173	)		(124	)		(28	)		(226	)
Stock-based compensation, net of taxes		288			208			42			338

The following table summarizes stock option award activity for the periods ended December 31, 2010 :

	Number of options			Weighted average exercise price per option
(Successor)	(in thousands)
Outstanding at December 31, 2009		5,948		$	0.76
Granted		395			1.36
Exercised		(783	)		0.52
Cancelled or expired		(1,080	)		0.66
Outstanding at December 31, 2010		4,480			0.88
Options exercisable at December 31, 2010		2,134		$	1.32

	Number of options			Weighted average exercise price per option
(Successor)	(in thousands)
Outstanding at December 31, 2008		3,583		$	1.12
Granted		2,690			0.29
Exercised		(3	)		0.58
Cancelled or expired		(322	)		1.05
Outstanding at December 31, 2009		5,948			0.76
Options exercisable at December 31, 2009		1,849		$	1.44

	Number of options			Weighted average exercise price per option
(Successor)	(in thousands)
Outstanding at September 19, 2008		5,258		$	1.56
Granted		855			0.46
Exercised		--			--
Cancelled or expired		(2,530	)		1.81
Outstanding at December 31, 2008		3,583			1.12
Options exercisable at December 31, 2008		1,063		$	1.55

	Number of Options			Weighted average exercise price per option
(Predecessor)	(in thousands)
Outstanding at December 28, 2007		2,561		$	3.22
Granted		604			1.09
Exercised		--			--
Cancelled or expired		(244	)		2.92
Outstanding at September 18, 2008		2,921		$	2.80

The aggregate pretax intrinsic value, weighted average remaining contractual life, and weighted average per share exercise price of options outstanding and of options exercisable as of December 31, 2010 were as follows:

Options Outstanding:

Range of Exercise Prices	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
($)	(In thousands)		($)		(In years)
0.29-0.95		2,850		0.37		6.15
1.40-1.88		1,630		1.75		6.38
		4,480

Options Exercisable:

Range of Exercise Prices	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
($)	(In thousands)		($)		(In years)
0.29-0.95		835		0.55		7.36
1.40-1.88		1,299		1.81		6.36
		2,134

The following table summarizes key data points for exercised options (in thousands):

	Year Ended December 31,				Period from September 19, 2008 through December 31, 2008		Period from December 29, 2007 through September 18, 2008
	2010		2009		Period from September 19, 2008 through December 31, 2008		Period from December 29, 2007 through September 18, 2008
	successor						predecessor
The intrinsic value of options exercised	$	751	$	1	$	--	$	--
Cash received from the exercise of stock options		405		1		--		--
The tax benefit realized from stock options exercised		257		--		--		--
The fair value of options exercised	$	131	$	--	$	--	$	--

Note 10: Related Party Transactions:

	December 31, 2010		December 31, 2009
Due from related party (included in the accompanying balance sheets - short- term and long-term)	$	25,768	$	25
Due to related parties (included in the accompanying balance sheets - short- term and long-term)	$	3,389	$	5,367

Related party balances are with Tower and are mainly for purchases and payments on behalf of the other party, tools sale, tools lease and service charges.

Note 11: Segment and Geographic Information

ASC Topic 280 “Segment Reporting”, requires the determination of reportable business segments (i.e., the management approach). This approach requires that business segment information used by the chief operating decision maker to assess performance and manage company resources be the source for segment information disclosure. The Company operates in one business segment: the manufacturing and process design of semiconductor wafers.

Revenues are derived principally from customers located within the United States.

Long-lived assets consisting of property, plant and equipment and intangible assets are primarily located within the United States.

Note 12: Commitments and Contingencies

Leases

Since 2002, the Company has leased its fabrication facilities, land and headquarters from Conexant under non-cancelable operating leases through March 2017. The Company has the unilateral option to extend the terms of each of these leases for two consecutive five-year periods. In December 2010, Conexant sold the Company’s fabrication facilities, land and headquarters to Uptown Newport LP (“Uptown”), a joint venture consisting of a fund controlled by New York-based DRA Advisors LLC and an affiliate of the Shopoff Group, a real estate investment firm based in Irvine, California. In connection with the sale, the Company negotiated amendments to its operating leases that confirm the Company’s ability to remain in the fabrication facilities through 2017 and the Company’s unilateral options to extend the terms of each of these leases for two consecutive five-year periods. Under our leases with Conexant, the Company’s rental payments consisted solely of its pro rata share of the expenses incurred by Conexant in the ownership of these buildings and applicable adjustments for increases in the consumer price index. These expenses included property taxes, building insurance, depreciation and common area maintenance. Under our amended leases with Uptown, the Company’s rental payments consist of fixed base rent and fixed management fees and our pro rata share of certain expenses incurred by Uptown in the ownership of these buildings, including property taxes, building insurance and common area maintenance. These lease expenses are included in operating expenses in the accompanying consolidated statements of operations. The Company is not permitted to sublease space that is subject to the leases with Uptown without Uptown’s prior approval. The Company also leases office and warehouse facilities from third parties. In connection with the acquisition of Jazz Semiconductor, the Company and Conexant had previously executed amendments to the leases, and additional amendments were executed with Uptown in December 2010. Under the lease amendments, Uptown may terminate the lease for the Company’s headquarters building, but not the Company’s fabrication facility, no earlier than January 2014. If Uptown terminates the lease for the Company’s headquarters building, it is obligated to pay the Company a lease termination fee equal to $3 million if the lease is terminated in January 2014, with the lease termination fee declining by $22,000 per month if Uptown terminates the headquarters building lease after January 2014.

Aggregate rental expense under operating leases, including amounts paid to Conexant and Uptown, was approximately, $2.4 million for the year ended December 31, 2010, $2.4 million for the year ended December 31, 2009 and $0.7 million and $2.0 million for the periods ended December 31, 2008 and September 18, 2008, respectively.

As of December 31, 2010, future minimum payments under operating leases are primarily due to Uptown and these costs have been estimated based on the actual costs incurred during 2010 and the costs determined under the amended leases with Uptown and when applicable have been adjusted for increases in the consumer price index.

Future minimum payments under non-cancelable operating leases are as follows:

	Payment Obligations by Year (in thousands)
	2011		2012		2013		2014		2015		Thereafter		Total
Operating leases	$	2,300	$	2,300	$	2,300	$	2,300	$	2,300	$	2,753	$	14,253

Supply Agreement

The Company has a fifteen-year, guaranteed supply agreement for certain gases used in the Company’s manufacturing process that expires July 12, 2014. The agreement specifies minimum purchase commitments and contains a termination fee that is adjusted downward on each of the agreement’s anniversary dates. The initial minimum purchase commitment of approximately $1.0 million annually is adjusted based on supplemental gas purchases, wage increases for the labor portion of the minimum purchase commitment and price increases for supplemental product. If the Company were to terminate the supply agreement prior to July 12, 2014, the termination fee would be approximately $3.0 million.

Purchases under this agreement were approximately $2.6 million for the year ended December 31, 2010, $2.9 million for the year ended December 31, 2009 and $0.9 million and $2.2 million for the periods ended December 31, 2008 and September 18, 2008, respectively.

Environmental Matters

The Company’s operations are regulated under a number of federal, state and local environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials. Compliance with environmental law is a major consideration for all semiconductor manufacturers because hazardous materials are used in the manufacturing process. In addition, because the Company is a generator of hazardous waste, the Company, along with any other person with whom it arranges for the disposal of such waste, may be subject to potential financial exposure for costs associated with an investigation and remediation of sites at which it has arranged for the disposal of hazardous waste, if such sites become contaminated. This is true even if the Company fully complies with applicable environmental laws. In addition, it is possible that in the future, new or more stringent requirements could be imposed. Management believes it has materially complied with all material environmental laws and regulations. There have been no material claims asserted nor is management aware of any material unasserted claims for environmental matters.

Litigation and Claims

During 2008, an International Trade Commission (“ITC”) action was filed by Agere/LSI Corporation (“LSI”), which alleged infringement by 17 corporations of LSI’s patent no. 5,227,335. Following the initial filing, in October 2008, LSI amended the ITC complaint to add the Company, Tower and three other corporations as additional respondents. In September, 2009, the administrative law judge ruled against LSI and in favor of the respondents, determining that the patent claims asserted by LSI are invalid. In November 2009, in response to a Petition for Review filed by LSI, the ITC determined that it would review the Judge’s determination on patent invalidity. In March 2010 the ITC determined that there is no ITC violation and the LSI patent was ruled to be invalid. LSI appealed that determination to the U.S. Court of Appeals for the Federal Circuit. While the appeal was pending, the patent expired. In November 2010 the Federal Circuit issued an order vacating the ITC’s final determination and remanding the investigation to the ITC with instructions to dismiss the investigation as moot in light of the expiration of the patent, and the ITC dismissed the ITC action as moot. The Company does not know whether any further legal proceedings will be pursued by LSI and cannot predict the outcome thereof.

In connection with the Company’s aerospace and defense business, its facility security clearance and trusted foundry status, the Company and Tower are working with the Defense Security Service of the United States Department of Defense (“DSS”) to develop an appropriate structure to mitigate any concern of foreign ownership, control or influence over the operations of the Company specifically relating to protection of classified information and prevention of potential unauthorized access thereto. In order to safeguard classified information, it is expected that the DSS will require adoption of a Special Security Agreement (“SSA”). The SSA may include certain security related restrictions, including restrictions on the composition of the board of directors, the separation of certain employees and operations, as well as restrictions on disclosure of classified information to Tower. The provisions contained in the SSA may also limit the projected synergies and other benefits to be realized from the Merger. There is no assurance when, if at all, an SSA will be reached.

Indemnification

The Company has entered into contracts with customers in which the Company provides certain indemnification to the customer in the event of claims of patent or other intellectual property infringement resulting from the customer’s use of the Company’s intellectual property. The Company has not recorded a liability for potential obligations under these indemnification provisions and would not record such a liability unless the Company believed that the likelihood of a material obligation was probable and estimatable.

Note 13: Valuation Account

Dollars in thousands			Additions
	Balance at the beginning of the period		Charges related to purchase accounting (A)		Charged to costs and expenses			Deductions (B)			Balance at the end of the period
Allowance for doubtful accounts receivable:
(Successor)
Year ended December 31, 2010	$	877	$	--	$	293		$	(844	)	$	326
Year ended December 31, 2009	$	852	$	--	$	714		$	(689	)	$	877
Period from September 19, 2008 through December 31, 2008	$	--	$	974	$	(314	)	$	192		$	852
(Predecessor)
Period from December 29, 2007 through September 18, 2008	$	793	$	--	$	315		$	(134	)	$	974

(A)	Allocation of purchase accounting to allowance accounts
(B)	Uncollectible accounts receivable written off, net of recoveries

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of the end of the period covered by this report, our principal executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our chief executive officer and our chief financial officer have concluded that these controls and procedures are effective at the “reasonable assurance” level. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework. Based on its assessment using those criteria, management concluded that, as of December 31, 2010, the Company’s internal control over financial reporting is effective.

Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not Applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Omitted pursuant to General Instruction I (1) (a) and (b) of Form 10-K.

Item 11. Executive Compensation

Omitted pursuant to General Instruction I (1) (a) and (b) of Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Omitted pursuant to General Instruction I (1) (a) and (b) of Form 10-K.

Item 13. Certain Relationships and Related Transactions and Director Independence

Omitted pursuant to General Instruction I (1) (a) and (b) of Form 10-K.

Item 14. Principal Accountant Fees and Services

The following presents aggregate fees billed to us by Deloitte Touche Tohmatsu, our current principal accountants for the years ended December 31, 2010, December 31, 2009 and December 31, 2008 and by Ernst & Young, our former principal accountants, for the first three quarters of 2008. All of the fees described below were pre-approved by our audit committee.

Audit Fees. Audit fees billed by Brightman Almagor Zohar, a member of Deloitte Touche Tohmatsu were $240,000 for the year ended December 31, 2010 and $255,000 for the year ended December 31, 2009. Audit fees billed were $100,000 for the year ended December 31, 2008. These fees billed by Deloitte Touche Tohmatsu were for professional services rendered for year-end audit of our annual financial statements and for reviews of our quarterly financial statements and do not include fees billed by Ernst & Young for the reviews of our quarterly financial statements and the registration statement filed in connection with Tower’s acquisition performed, which amounted to $433,400.

Audit-Related Fees. For the years ended December 31, 2010 and 2009 audit-related fees billed were $86,463 and $86,000, respectively, in connection with the Sarbanes Oxley. Audit-related fees billed were nil for the year ended December 31, 2008.

Tax Fees. Tax fees billed were nil for the years ended December 31, 2010, 2009 and 2008.

All Other Fees. Fees related to Notes Exchange for the year ended December 31, 2010 were $35,000. There were no other fees billed for the years ended December 31, 2010, 2009 or 2008.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	Financial Statements Schedules and Exhibits.

(1)

The following financial statements are included in Item 8:

Jazz Technologies, Inc.

Reports of Independent Registered Public Accounting Firms

Balance Sheets

Statements of Operations

Statement of Stockholder’s Equity (Successor)

Statement of Stockholders’ Equity (Predecessor)

Statements of Cash Flows

Notes to Financial Statements

ii)

Jazz Semiconductor, Inc.

Report of Independent Registered Public Accounting Firm

Balance Sheet

Statements of Operations

Statement of Stockholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

(2)

Financial Statement Schedules: None

(3)

Listing of Exhibits:

Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation — Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 25, 2008.

3.2		Amended and Restated Bylaws — Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 30, 2007.

4.1		Specimen Unit Certificate — Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

4.2		Specimen Common Stock Certificate — Incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

4.3		Specimen Warrant Certificate — Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

4.4		Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant — Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

4.5		Warrant Clarification Agreement dated as of November 9, 2006 between the Registrant and Continental Stock Transfer & Trust Company — Incorporated by reference to Exhibit 4.6 to the Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2006.

4.6		Indenture, dated December 19, 2006, between the Registrant and U.S. Bank National Association, as trustee, including Form of 8% Convertible Note due 2011 — Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on December 22, 2007.

4.7		Supplemental Indenture, dated April 3, 2007, among the Registrant, Jazz Semiconductor, Inc., Newport Fab, LLC, Jazz/Hua Hong, LLC, Jazz IT Holding, LLC and U.S. Bank National Association, as trustee — Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 5, 2007.

4.8		Registration Rights Agreement, dated December 19, 2006, among the Registrant, CRT Capital Group LLC and Needham & Company, LLC — Incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed on December 22, 2007.

4.9		Limited Waiver, dated as of December 18, 2006, among Acquicor Management LLC, Harold L. Clark, John P. Kensey, Moshe I. Meidar, Paul Pittman, ThinkEquity Partners LLC, Wedbush Morgan Securities, Inc., CRT Capital Group LLC and Gunn Allen Financial, Inc. — Incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K filed on December 22, 2007.

4.10		Consent between the Registrant and ThinkEquity Partners LLC dated February 14, 2007 — Incorporated by reference to Exhibit 99.9 to the Schedule 13D filed by Gilbert F. Amelio and Acquicor Management LLC Report on March 20, 2007.

4.11		Consent between the Registrant and ThinkEquity Partners LLC dated September 4, 2007 — Incorporated by reference to Exhibit 99.11 to the Schedule 13D filed by Gilbert F. Amelio and Acquicor Management LLC Report on February 11, 2008.

4.12		Waiver, dated September 4, 2007, among the Registrant, ThinkEquity Partners LLC and each of Acquicor Management LLC, Harold L. Clark, John P. Kensey and Moshe I. Meidar — Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (Registration No. 333-146546)

4.13		Second Supplemental Indenture by and among Jazz Technologies, Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and U.S. Bank National Association, dated as of September 19, 2008 -- Incorporated by reference to Exhibit 4.1 to Jazz Technologies’ Current Report on Form 8-K filed on September 25, 2008.

4.14		Assumption Agreement by and among Jazz Technologies, Tower Semiconductor, Ltd. and Continental Stock Transfer & Trust Company, dated as of September 19, 2008 -- Incorporated by reference to Exhibit 4.2 to Jazz Technologies’ Current Report on Form 8-K filed on September 25, 2008.

4.15		Indenture dated July 15, 2010 by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC and U.S. Bank National Association – Incorporated by reference to Exhibit 4.15 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010

4.16		Registration Rights Agreement dated July 15, 2010 by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC and holders of the Registrant’s 8% Senior Notes due 2015 -- – Incorporated by reference to Exhibit 4.16 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

10.1		Form of Lock-up Agreement among the Registrant, ThinkEquity Partners LLC and each of Acquicor Management LLC, Harold L. Clark, John P. Kensey and Moshe I. Meidar — Incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

10.2		Registration Rights Agreement among the Registrant, Acquicor Management LLC, Harold L. Clark, John P. Kensey and Moshe I. Meidar — Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

10.3		Private Placement Unit Purchase Agreement among the Registrant, ThinkEquity Partners LLC, Acquicor Management LLC, Harold L. Clark, John P. Kensey and Moshe I. Meidar — Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-128058).

10.4		Agreement and Plan of Merger, dated as of September 26, 2006, by and among Acquicor Technology Inc., Joy Acquisition Corp., Jazz Semiconductor, Inc. and T.C. Group, L.L.C., as the stockholders’ representative — Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 29, 2006.

*10.5		2006 Equity Incentive Plan, as amended — Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 8, 2007.

*10.6		Form of Option Agreement under the 2006 Equity Incentive Plan — Incorporated by reference to Exhibit 99.2 to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-143022).

*10.7		Form of Restricted Stock Bonus Agreement under the 2006 Equity Incentive Plan — Incorporated by reference to Exhibit 99.2 to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-143022).

†10.8		Contribution Agreement among Specialtysemi, Inc., Conexant Systems, Inc. and Carlyle Capital Investors, L.L.C. dated February 23, 2002 — Incorporated by reference to Exhibit 10.1 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.9		First Amendment to Contribution Agreement between Specialtysemi, Inc., Conexant Systems, Inc. and Carlyle Capital Investors, L.L.C. dated March 12, 2002 — Incorporated by reference to Exhibit 10.2 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.10		Second Amendment to Contribution Agreement dated July 1, 2002 among Jazz Semiconductor, Inc., Conexant Systems, Inc., Carlyle Partners III L.P., CP III Coinvestment, L.P. and Carlyle High Yield Partners, L.P. — Incorporated by reference to Exhibit 10.3 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.11		Third Amendment to Contribution Agreement dated September 1, 2003 among Jazz Semiconductor, Inc., Conexant Systems, Inc., Carlyle Partners III L.P., CP III Coinvestment, L.P. and Carlyle High Yield Partners, L.P. — Incorporated by reference to Exhibit 10.4 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.12		Newport Fab, LLC Contribution Agreement between Conexant Systems, Inc. and Newport Fab, LLC dated February 23, 2002 — Incorporated by reference to Exhibit 10.5 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.13		IP License Agreement between Specialtysemi, Inc., Newport Fab, LLC and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.6 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.14		First Amendment to IP License Agreement dated July 1, 2002 between Jazz Semiconductor, Inc. and Conexant Systems, Inc. — Incorporated by reference to Exhibit 10.7 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.13		Transferred IP License Agreement between Specialtysemi, Inc., Newport Fab, LLC and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.8 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.15		First Amendment to Transferred IP License Agreement dated July 1, 2002 among Jazz Semiconductor, Inc., Conexant Systems, Inc. and Newport Fab, LLC— Incorporated by reference to Exhibit 10.9 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.16		Guarantee between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.10 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.17		Half Dome Lease Agreement between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.13 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.18		First Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated May 1, 2004 — Incorporated by reference to Exhibit 10.14 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.19		Second Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated December 31, 2005 — Incorporated by reference to Exhibit 10.15 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.20		Third Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated as of September 26, 2006— Incorporated by reference to Exhibit 10.14 to Jazz Technologies’ Current Report on Form 8-K filed on February 23, 2007.

10.21		Fourth Amendment to Half Dome Lease between Newport Fab, LLC and Conexant Systems, Inc. dated as of June 15, 2009.

10.22		Fifth Amendment to Half Dome Lease between Newport Fab, LLC and Uptown Newport LP dated as of December 8, 2010.

10.23		Sublease between Newport Fab, LLC and Conexant Systems dated as of December 22, 2010.

10.24		El Capitan Lease Agreement between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.16 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.24		First Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated October 1, 2004 — Incorporated by reference to Exhibit 10.17 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.26		Second Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated November 31, 2005 — Incorporated by reference to Exhibit 10.18 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.27		Third Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated September 1, 2006 — Incorporated by reference to Exhibit 10.18 to Jazz Technologies’ Current Report on Form 8-K filed on February 23, 2007.

10.28		Fourth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated September 26, 2006— Incorporated by reference to Exhibit 10.19 to Jazz Technologies’ Current Report on Form 8-K filed on February 23, 2007.

10.29		Fifth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated as of June 5, 2010.

10.30		Sixth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Uptown Newport LP dated as of December 22, 2010.

†10.31		License and Supply Agreement between Newport Fab, LLC and Advanced Semiconductor Manufacturing Corp. of Shanghai dated December 16, 2003 — Incorporated by reference to Exhibit 10.36 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.32		HHNEC Wafer Supply Agreement between Jazz/Hua Hong, LLC, Newport Fab, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 29, 2003 — Incorporated by reference to Exhibit 10.37 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.33		LLC Wafer Supply Agreement between Jazz/Hua Hong, LLC, Newport Fab, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 30, 2003 — Incorporated by reference to Exhibit 10.38 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.34		Technology Sublicense Agreement—Jazz Advanced Technology by Jazz/Hua Hong, LLC, Shanghai Hua Hong NEC Electronics Company, Limited and Newport Fab, LLC dated August 30, 2003 — Incorporated by reference to Exhibit 10.39 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.35		Technology License and Transfer Agreement by Newport Fab, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 30, 2003 — Incorporated by reference to Exhibit 10.40 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.36		Technology License Agreement—Jazz Advanced Technology Newport Fab, LLC, Jazz/ Hua Hong, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 30, 2003 — Incorporated by reference to Exhibit 10.41 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.37		Wafer Supply and Services Agreement among Jazz Semiconductor, Inc. and Skyworks Solutions, Inc. dated as of May 2, 2003 — Incorporated by reference to Exhibit 10.42 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.38		Amendment One to Wafer Supply and Services Agreement among Jazz Semiconductor, Inc. and Skyworks Solutions, Inc. dated as of May 2, 2003 — Incorporated by reference to Exhibit 10.43 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

†10.39		Amendment Two to Wafer Supply and Services Agreement among Jazz Semiconductor, Inc. and Skyworks Solutions, Inc. dated June 13, 2003 — Incorporated by reference to Exhibit 10.44 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.40		License Agreement between Jazz Semiconductor, Inc. and Conexant Systems, Inc. dated as of July 2, 2004 — Incorporated by reference to Exhibit 10.48 to Jazz Semiconductor’s Registration Statement on Form S-1 (Registration No. 333-133485).

10.41		Amended and Restated Loan and Security Agreement by and among the Registrant, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of February 28, 2007 — Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 6, 2007.

10.42		First Amendment dated September 6, 2007 to the Amended and Restated Loan and Security Agreement among the Registrant, as parent guarantor, Jazz Semiconductor, Inc., and Newport Fab, LLC, as borrowers, Wachovia Capital Markets, LLC, as lead arranger, bookrunner and syndication agent, Wachovia Capital Finance Corporation (Western), as administrative agent, and the lenders from time to time party thereto — Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2007.

10.43		Second Amendment to Amendment and Restated Loan and Security Agreement dated as of January 28, 2008 among Jazz Semiconductor, Inc, Newport Fab, LLC (d/b/a Jazz Semiconductor Operating Company), Jazz Technologies, Inc. and Wachovia Capital Finance Corporation (Western), in its capacity as agent for various lenders. - Incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the year ended December 28, 2007.

†10.44		Settlement Agreement dated as of July 31, 2007 between the Registrant and the TC Group, L.L.C. as stockholders’ representative — Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2007.

*10.45		Form of Change of Control Agreement entered into between the Registrant and each of Gilbert F. Amelio, Paul A. Pittman and Allen R. Grogan — Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2007.

*10.46		Form of Indemnity Agreement entered into between the Registrant and certain of its officers and directors — Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2007.

10.47		Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008 — Incorporated by reference to Exhibit 3.1 to Jazz Technologies’ Current Report on Form 8-K filed on September 25, 2008.

10.48		First Amendment dated March 17, 2009 to the Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008 – Incorporated by reference to Exhibit 10.1 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2009

10.49		Second Amendment dated July 16, 2009 to the Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008 – Incorporated by reference to Exhibit 10.1 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2009

10.50		Third Amendment dated as of April 21, 2010 to the Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008 – Incorporated by reference to Exhibit 10.46 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010

10.51		Fourth Amendment dated as of June 29, 2010 to the Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008 – Incorporated by reference to Exhibit 10.47 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010

10.52		Fifth Amendment dated as of July 19, 2010 to the Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008

10.53		Agreement and Plan of Merger and Reorganization by and among Tower Semiconductor Ltd., Armstrong Acquisition Corp. and Jazz Technologies, dated as of May 19, 2008 — Incorporated by reference to Exhibit 2.1 to Jazz Technologies’ Current Report on Form 8-K filed on May 20, 2008.

10.54		Exchange Agreement dated July 9, 2010 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC, Zazove Associates, LLC and certain holders of the Registrant’s 8% Senior Notes due 2011 – Incorporated by reference to Exhibit 10.48 to Jazz Technologies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010

23.1		Consent of Independent Registered Accounting Firm

24.1		Power of Attorney (included on the signature pages hereto).

31.1		Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a).

32.1		Section 1350 Certification. (Not provided as not required of voluntary filers)

†	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

*	Denotes a management compensatory plan or arrangement.

SIGNATURES

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

	JAZZ TECHNOLOGIES, INC.

	By:	/s/ RAFI MOR
		Rafi Mor
		Principal Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Rafi Mor and Susanna H. Bennett his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signatures	Title	Date

/s/ RAFI MOR	Principal Executive Officer	February 22, 2011
Rafi Mor	(Principal Executive Officer)

/s/ SUSANNA H. BENNETT	Chief Financial Officer	February 22, 2011
Susanna H. Bennett	(Principal Financial and Accounting Officer)

Index to Exhibits

10.21		Fourth Amendment to Half Dome Lease between Newport Fab, LLC and Conexant Systems, Inc. dated as of June 15, 2009.

10.22		Fifth Amendment to Half Dome Lease between Newport Fab, LLC and Uptown Newport LP dated as of December 8, 2010.

10.23		Sublease between Newport Fab, LLC and Conexant Systems dated as of December 22, 2010.

10.29		Fifth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated as of June 5, 2010.

10.30		Sixth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Uptown Newport LP dated as of December 22, 2010.

10.52		Fifth Amendment dated as of July 19, 2010 to the Second Amended and Restated Loan and Security Agreement by and among Jazz Technologies, Jazz Semiconductor, Inc., Newport Fab, LLC, Wachovia Capital Markets, LLC, Wachovia Capital Finance Corporation (Western) and the lenders from time to time party thereto, dated as of September 19, 2008

23.1		Consent of Independent Registered Accounting Firm

31.1		Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a).

Tower US Holdings Inc. - FORM 10-K - February 22, 2011

Attached files

Tower US Holdings Inc. Reports