Pursuant to the Master Separation and Distribution Agreement and an Employee Matters Agreement entered into between Verigy Ltd. and Agilent Technologies, Inc. in connection with Verigy’s separation from Agilent (collectively the “Separation Agreements”), on October 31, 2006, Agilent cancelled the unvested Agilent equity awards held by Verigy employees as of October 31, 2006 (the “Original Agilent Awards”).  In accordance with the Separation Agreements, and in connection with the cancellation of the Original Agilent Awards, the compensation committee of the board of directors of Verigy Ltd. approved and issued under the Verigy Ltd. 2006 Equity Incentive Plan replacement Verigy equity awards to Verigy employees whose Original Agilent Awards were cancelled (the “Replacement Awards”).

As specified in the Separation Agreements, the Replacement Awards: (i) are exercisable for that number of whole Verigy ordinary shares equal to the product of the number of shares of Agilent common stock that were issuable upon exercise of the Original Agilent Award as of October 31, 2006, multiplied by the Ratio, rounded down to the nearest whole number of Verigy ordinary shares, and (ii) have a per share exercise price equal to the quotient determined by dividing the exercise price per share of Agilent common stock at which the Original Agilent Award was exercisable as of October 31, 2006, by the Ratio, rounded up to the nearest cent.  The term Ratio means: the quotient of (a) the average of the high and low per-share trading prices of Agilent common stock on the NYSE on October 30, 2006, divided by (b) the average of the high and low per-share trading prices of Verigy common stock on the NASDAQ National Market on October 31, 2006.  Each of the Replacement Awards vests according to the original vesting schedule of the Original Agilent Award.

The Replacement Awards issued to executive officers of Verigy pursuant to the Separation Agreements are summarized in the following table:

(1)  2,924 of the ordinary shares subject to Mr. Erickson’s Replacement Awards have a exercise price per share of $7.48 and become vested on November 19, 2006; 11,164 of the ordinary shares subject to Mr. Erickson’s Replacement Awards have a exercise price per share of $10.19 and become vested in three equal installments on January 24, 2007, January 24, 2008, and January 24, 2009; 6,379 of the ordinary shares subject to Mr. Erickson’s Replacement Awards have a exercise price per share of $15.77 and vest as to one-half of the shares on January 26, 2007, and one-half of the shares on January 26, 2008; 5,316 of the ordinary shares subject to Mr. Erickson’s Replacement Awards have a exercise price per share of $11.98 and vest as to one-half of the shares on July 20, 2007, and one-half of the shares on July 20, 2008; and 8,506 of the ordinary shares subject to Mr. Erickson’s Replacement Awards have a exercise price per share of $10.28 and vest as to one-half of the shares on September 10, 2007, and one-half of the shares on September 10, 2008.

(2)  3,987 of the ordinary shares subject to Ms. Robinson’s Replacement Awards have a exercise price per share of $7.48 and become vested on November 19, 2006; 23,923 of the ordinary shares subject to Ms. Robinson’s Replacement Awards have a exercise price per share of $10.19 and become vested in three equal installments on January 24, 2007, January 24, 2008, and January 24, 2009; and 7,442 of the ordinary shares subject to Ms. Robinson’s Replacement Awards have a exercise price per share of $15.77 and vest as to one-half of the shares on January 26, 2007, and one-half of the shares on January 26, 2008.

(3)  Mr. Ronde was granted restricted share units in connection with the cancellation of his cancelled Original Agilent Awards.  Each replacement restricted share unit will vest two years from the date of grant but will not be distributed until November 1, 2010.

(4)  5,316 of the ordinary shares subject to Mr. Wagner’s Replacement Awards have a exercise price per share of $7.48 and become vested on November 19, 2006; 19,139 of the ordinary shares subject to Mr. Wagner’s Replacement Awards have a exercise price per share of $10.19 and become vested in three equal installments on January 24, 2007, January 24, 2008, and January 24, 2009; and 7,442 of the ordinary shares subject to Mr. Wagner’s Replacement Awards have a exercise price per share of $15.77 and vest as to one-half of the shares on January 26, 2007, and one-half of the shares on January 26, 2008.