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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on October 31, 2011

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Isola Group Ltd.
(Exact name of registrant as specified in its charter)


Cayman Islands (State or other jurisdiction of incorporation or organization)		3672 (Primary Standard Industrial Classification Code Number)		38-3853493 (I.R.S. Employer Identification No.)

3100 West Ray Road, Suite 301
Chandler, Arizona 85226
(480) 893-6527
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Raymond P. Sharpe
President and Chief Executive Officer
Isola Group Ltd.
3100 West Ray Road, Suite 301
Chandler, Arizona 85226
(480) 893-6527
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:
Steven D. Pidgeon, Esq. DLA Piper LLP (US) 2525 East Camelback Road, Suite 1000 Phoenix, Arizona 85016 (480) 606-5100 Fax: (480) 606-5101		Julia Cowles, Esq. Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000 Fax: (650) 752-2111

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effectiveness of this registration statement.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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


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

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Proposed maximum aggregate offering price(1)(2)	Amount of registration fee(3)




Ordinary Shares, $0.0001 par value	$100,000,000	$11,460

(1): Includes ordinary shares issuable upon exercise of an option to purchase additional shares from us granted to the underwriters.
(2): Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of the Securities Act.
(3): Calculated pursuant to Rule 457(o) under the Securities Act.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS Subject to completion, Dated October 31, 2011

Shares

Ordinary shares

This is the initial public offering of our ordinary shares. No public market currently exists for our ordinary shares. It is currently estimated that the initial public offering price will be between $ and $ per share.

We intend to apply to have our ordinary shares listed on the Nasdaq Global Market under the symbol "ISLA".

Investing in our ordinary shares involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our ordinary shares in "Risk Factors" beginning on page 11 of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per share	Total


Initial public offering price	$	$

Underwriting discount	$	$

Proceeds, before expenses, to us	$	$

The underwriters have the option, exercisable on or before the thirtieth day after the date of this prospectus, to purchase up to an additional ordinary shares from us at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.

The underwriters are offering the ordinary shares as set forth under "Underwriting". Delivery of the shares will be made on or about , 2011.


UBS Investment Bank		Piper Jaffray


Needham & Company, LLC		Oppenheimer & Co.

The date of this prospectus is , 2011

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You should rely only on the information contained in this prospectus. We and the underwriters have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, or such other dates as are stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our ordinary shares.

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Prospectus

		Page

Prospectus Summary			1
Risk Factors			11
Forward-looking Statements			28
Use of Proceeds			29
Dilution			30
Dividend Policy			32
Capitalization			33
Selected Historical Consolidated Financial and Other Data			34
Management's Discussion and Analysis of Financial Condition and Results of Operations			37
Business			80
Management			97
Executive Compensation			103
Principal Shareholders			123
Certain Relationships and Related Party Transactions			126
Shares Eligible for Future Sale			130
Description of Share Capital			132
Description of Indebtedness			146
Taxation			148
Underwriting			152
Validity of Ordinary Shares			158
Experts			158
Additional Information			158
Index to Consolidated Financial Statements			F-1

Through and including (25 days after the commencement of the offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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MARKET RANKING AND INDUSTRY DATA

This prospectus includes estimates of market share and industry data and forecasts that we obtained from industry publications and surveys, including market research firms and government sources, and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain market and industry data included in this prospectus, and our position and the positions of our competitors within these markets, are based on estimates of our management, which are primarily based on our management's knowledge and experience in the markets in which we operate. These estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors" in this prospectus.

Throughout this prospectus, when we refer to our "addressable" market for PCB laminate materials, or segments of our "addressable" market for PCB laminate materials, we exclude paper and composite laminate segments, and the internal Japanese market, none of which are addressed by Isola.

TRADEMARKS AND TRADE NAMES

This prospectus contains registered and unregistered trademarks and service marks of us and our subsidiaries, as well as trademarks and service marks of third parties. All brand names, trademarks and service marks appearing in this prospectus are the property of their respective holders.

CONVENTIONS THAT APPLY IN THIS PROSPECTUS

Fiscal Year

In this prospectus, unless the context requires otherwise, references to fiscal 2011 are for the fiscal year ending December 31, 2011, references to fiscal 2010 are for the fiscal year ended January 1, 2011, references to fiscal 2009 are for the fiscal year ended December 26, 2009, references to fiscal 2008 are for the fiscal year ended December 27, 2008, references to fiscal 2007 are for the fiscal year ended December 29, 2007, references to fiscal 2006 are for the fiscal year ended December 30, 2006, references to fiscal 2005 are for the fiscal year ended December 31, 2005, and references to fiscal 2004 are for the fiscal year ended December 31, 2004.

Technical Terms

–>: "Dielectric" refers to an electrical insulator that can be polarized by an applied electric field. When a dielectric is placed in an electric field, electric charges do not flow through the material, as in a conductor, but only slightly shift from their average equilibrium positions causing dielectric polarization.
–>: "Dielectric Constant" refers to a measure of how close a material comes to free space (air) conditions and how constant these conditions hold through the material.
–>: "Glass Transition Temperature" or "Tg" refers to the temperature in Celsius at which the laminate begins to change between a hard, relatively brittle condition and a viscous, or rubbery, condition.
–>: "Lead-free" refers to laminates or prepreg that are suitable for lead-free soldering in the assembly of finished printed circuit boards. No laminates or prepreg actually contain the element lead. The distinction is important, however, as lead-free solders melt at higher temperatures than solders containing lead, which require laminates and prepreg capable of withstanding the stresses of a higher temperature environment.

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–>: "Loss", in the context of a material's characteristics, refers to the ratio of energy dissipated to energy stored.
–>: "Prepreg" is an industry term derived from the contraction of "previously impregnated". Prepreg is a dielectric material that provides electrical insulation properties. It is manufactured, as the term suggests, by the impregnation of fabric with specially formulated resin systems that confer specific electrical, thermal and physical properties to the prepreg. While modern prepreg is generally made from fiberglass fabric, some simple consumer electronics still use prepreg made from paper or paper composite. Prepreg is both a final product and an intermediate-stage product in the manufacture of copper-clad laminate.

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Prospectus Summary

This summary highlights important information about our business and about this prospectus. This summary does not contain all of the information that may be important to you. You should carefully read this prospectus in its entirety before making an investment decision. In particular, you should read the section titled "Risk Factors" and the consolidated financial statements and notes related to those statements included elsewhere in this prospectus. Unless the context indicates otherwise, we use the terms "Isola", "we", "our", the "Company", and "us" in this prospectus to refer to Isola Group Ltd., and, where appropriate, its consolidated subsidiaries. Unless otherwise indicated, the information contained in this prospectus assumes the completion of the reorganization as described in this prospectus under "Concurrent Transactions" immediately prior to the consummation of this offering.

ISOLA GROUP LTD.

Overview

Isola is a leading global material sciences company that designs, develops and manufactures copper-clad laminate ("CCL") and prepreg (collectively, "laminate materials") used to fabricate advanced multilayer printed circuit boards ("PCBs"). PCBs provide the physical platform for the semiconductors, passive components and connection circuitry that power and control virtually all modern electronics. We focus on the market for high-performance laminate materials, developing proprietary resins that are critical to the performance of PCBs used in advanced electronic applications. We continually invest in research and development and believe that our industry-leading resin formulations, many of which are patented, provide us with a competitive advantage. With 11 manufacturing facilities and three research centers worldwide, as well as a global sales force, we are the largest supplier of laminate materials to PCB fabricators in the United States and Europe, and we are one of the larger suppliers in our addressable Asian market, based on revenue for fiscal year 2010.

Our high-performance PCB laminate materials are used in a variety of advanced electronics, including network and communications equipment and high-end consumer electronics, as well as advanced automotive, aerospace, military and medical applications. Demand in these markets is driven by the rapid growth of bandwidth-intensive high-speed data transmission, the expansion of the internet, the emergence of cloud computing and the evolution of increasingly complex communications technology. This has led to an urgent need for the development of the underlying infrastructure to support this growth, including faster and more efficient semiconductor technology. In addition, increasingly pervasive environmental regulations are driving a need for lead-free compatible, high-performance laminate materials.

We sell our products globally to leading PCB fabricators, including DDi, Ruwel, Sanmina, TTM Technologies, Viasystems and WUS Printed Circuit. These fabricators produce PCBs incorporating our laminate materials for electronic equipment designed or produced by a broad group of major original equipment manufacturers, or OEMs, including Alcatel-Lucent, Brocade, Cisco, Google, Hewlett-Packard, Huawei, IBM and Sun Microsystems (now Oracle). We work closely with these leading PCB fabricators and major OEMs to ensure that our high-performance laminate materials incorporating our proprietary resins meet the thermal, electrical and physical performance criteria of each new generation of electronic equipment.

We were acquired in 2004 by a group of investors led by TPG Capital, a global private equity firm, and Redfern Partners, a strategic partner and investor in the laminate materials industry. Under the direction of TPG Capital and our management, we have undertaken a number of operational changes that have increased manufacturing efficiencies and improved business processes. We believe that these measures, together with our focus on higher margin high-performance products, provide us with the operating leverage to take advantage of improving economic conditions.

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Our history dates back nearly 100 years to the founding of Isola Werke AG in Germany in 1912. Isola Werke AG manufactured insulators utilizing the then-revolutionary Bakelite plastic technology, which provided superior insulating and heat resistance properties. We began production of copper-clad epoxy laminates, the direct predecessors of today's PCB laminate products, in the 1960s. In 2006, we acquired the assets of Polyclad Laminates, Inc., which extended our product portfolio and expanded our business in the growing Asian markets.

For the six months ended July 2, 2011, our revenue was $316.6 million, Adjusted EBITDA was $49.2 million, and our net loss was $19.1 million, as compared to revenue of $307.0 million, Adjusted EBITDA of $49.2 million and a net loss of $30.5 million for the six months ended June 26, 2010. For fiscal 2010, our revenue was $612.0 million, our Adjusted EBITDA was $89.7 million and our net income was $5.1 million, as compared to revenue of $416.1 million, Adjusted EBITDA of $39.0 million and net loss of $100.7 million in fiscal 2009. For an understanding of our primary non-GAAP metric, Adjusted EBITDA, including reconciliation to net income, see our discussion of non-GAAP financial measures in "Selected Historical Consolidated Financial and Other Data", included elsewhere in this prospectus.

Industry Overview and Market Opportunity

Current trends and drivers in the PCB laminate materials industry include:

–>: rapidly expanding infrastructure requirements for high-speed data transmission and increasing demand for high-performance PCB laminate materials;
–>: increased performance requirements of advanced electronics requiring high-performance PCB laminate materials;
–>: growing demand for environmentally friendly, lead-free compatible laminate materials; and
–>: greater emphasis on collaboration with OEMs and PCB fabricators.

High-performance PCB laminate materials are defined by their superior performance capabilities achieved primarily through the use of advanced resin formulations. These products compete primarily on their technological capabilities and are used in circuit boards that combine eight or more layers, with some applications requiring circuit boards with more than 20 layers. Our high-performance laminate materials have a variety of applications in the markets for servers and storage devices, network communications, advanced automotive electronics, high-end consumer electronics, military/aerospace equipment, medical equipment and satellite television receivers.

Significant barriers to entry exist within the high-performance PCB laminate materials industry, including capital intensity, long-term customer relationships characterized by pre-production collaboration, and lengthy periods (often up to one year) taken by OEMs to qualify laminates for new products. Once a particular PCB laminate material is designed in or qualified for use in a specific product line and one or more particular laminate suppliers are selected, these suppliers tend to remain suppliers of choice, even as the PCBs for these products change to address OEM product line improvements, extensions or next generation developments.

Based on data from Prismark, an independent research firm, we estimate that our addressable market for high-performance PCB laminate materials was $4.6 billion in 2010. According to BPA, another independent research firm, the market for multilayer PCB laminate materials (predominantly comprised of the high-performance market segment) is expected to make up approximately 55% of the worldwide PCB laminate materials market in 2011 (measured in square meters) and remains the fastest growing segment with an expected compound annual growth rate, or CAGR, of 12.4% from 2010 to 2014 for PCB production value.

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Our Competitive Strengths

We believe that we possess the following competitive strengths, which will enable us to continue to grow our business globally:

Product technology leadership. Our significant technology expertise enables us to produce market-leading high-performance PCB laminate materials. We possess an extensive portfolio of patent and other intellectual property rights covering our proprietary resin formulations and we believe we have pioneered the development of several product categories with "best in class" technology. Our proprietary resin formulations are capable of supporting complex circuit boards used in the most demanding electronic equipment and differentiate our products from commonly available, lower-performance materials. We continue to devote considerable efforts to research and develop new resin formulations and other PCB laminate materials to meet evolving market needs.

Blue-chip customer base served by global strategic manufacturing locations. We have developed strong, long-term relationships with leading global PCB fabricators and the major OEMs they serve. We believe that these collaborative relationships provide us with a competitive advantage and assist us in bringing new products to market in a timely manner. We own state-of-the-art equipment in manufacturing facilities that are strategically located around the world in close proximity to these key industry participants. Our global network of plants facilitates quick-turn manufacturing and delivery of product, which reduces our customers' inventory levels and shipping costs.

Streamlined manufacturing with significant operating leverage. We seek to achieve continual improvement in our manufacturing and business processes. We use "six sigma" processes and "lean" best practices, and we recently completed the implementation of a sophisticated SAP-based enterprise resource planning ("ERP") and analytical system across our global operations. In 2009, we closed three of our manufacturing facilities to improve factory utilization and lowered our fixed costs. Together with other measures, these closures are estimated to result in permanent fixed cost savings of approximately $30 million annually.

Experienced management team. We have a highly experienced management team comprised of well-respected industry veterans who possess an average of over 20 years of experience in the electronics industry. Our management team has a proven track record of implementing sound business practices, including focusing our product development on higher margin products, improving the efficiency of our manufacturing facilities and successfully integrating acquired businesses.

Our Growth Strategies

We intend to extend our market leadership in the higher margin, high-performance laminate materials market through the following growth strategies:

Leverage collaborative relationships and technology leadership to develop innovative solutions. We have implemented focused product development teams to further expand our relationships with leading PCB fabricators and the OEMs they serve. Our product development teams include members of our research and development, technical support and OEM marketing groups, all working under the direction of our Chief Technology Officer. Our teams actively monitor OEM product developments and engage in regular dialog with OEMs and their PCB fabricators in order to anticipate and plan for future electrical, thermal and physical product specifications. Through this collaborative effort we seek to develop innovative laminate materials solutions that meet future OEM product requirements.

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Further penetrate the Asian market. Many OEMs and PCB fabricators are migrating manufacturing of increasingly complex electronic equipment to Asia. In addition, several Asian markets are simultaneously undergoing infrastructure build-outs as their economies grow and develop. To supply this market, six of our 11 manufacturing facilities are located in Asia, and we maintain a sales force dedicated to serving this region. We will seek to capitalize on the opportunities presented by the very large and fast growing Asian markets for high-performance laminate materials based on the high quality of our products and technology.

Extend high-performance products into new applications. We believe that other markets will benefit from our laminate materials and proprietary resin formulations, including the markets for advanced automotive equipment and consumer devices such as next generation smart phones and tablets. In addition, we believe that environmental regulations will become increasingly global and expand the addressable market for our high-performance, lead-free compatible and halogen-free PCB laminate materials. We intend to devote sales and technical resources to address these growing potential markets.

Opportunistically pursue strategic acquisitions and alliances. We have grown through select acquisitions since we were acquired in 2004. While we believe that our future success will depend primarily on product innovation from collaborative relationships with our major customers and the OEMs they serve, we may pursue strategic acquisitions that provide complementary products or technologies.

Risk Factors

An investment in our ordinary shares involves risks. For a discussion of factors you should consider before deciding to invest in our ordinary shares, we refer you to "Risk Factors" and the following summary:

–>: the markets for our customers' products are volatile, which can cause wide swings in the demand for our products;
–>: we depend upon a relatively small number of customers for a large portion of our sales, and a decline in sales to major customers could harm our results of operations;
–>: we sell on a purchase order basis and are subject to uncertainties and variability in demand by our customers that could decrease revenues and harm our results of operations;
–>: we depend on a small number of suppliers for the raw materials and certain components used to manufacture our products. If these suppliers fail to provide an adequate supply of raw materials or components of sufficient quality, or these suppliers become unavailable to us, we may experience significant delays in the manufacturing and shipping of our products to customers and our business could suffer;
–>: we face intense competition in the PCB materials industry, including from diversified manufacturers and suppliers, which could negatively impact our results of operations and cause our market share to decline;
–>: if demand for high-performance, higher margin products does not increase, our future gross margins and operating results may be worse than expected; and
–>: our failure to respond timely or adequately to market changes may render our existing technology less competitive or obsolete, and our operating results may suffer.

The Principal Sponsors

Our current principal sponsors (the "Principal Sponsors") are:

TPG Capital. TPG Capital, L.P. (together with its affiliates, "TPG Capital") is the global buyout group of TPG, a leading private investment firm founded in 1992 with approximately $48 billion of assets under management as of June 30, 2011 and offices in San Francisco, Beijing, Fort Worth, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, Shanghai, Singapore and Tokyo. TPG

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Capital has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings. TPG Capital's investments span a variety of industries including financial services, travel and entertainment, technology, industrials, retail, consumer, media and communications, and healthcare.

Oaktree. Oaktree Capital Management, L.P. (together with its affiliates, "Oaktree") is a premier global alternative and non-traditional investment manager with approximately $80 billion of assets under management as of June 30, 2011. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, high-yield bonds, convertible securities, senior loans, corporate control, real estate, emerging market equities and mezzanine finance. Oaktree was founded in 1995 by a group of principals who have worked together since the mid-1980s. Headquartered in Los Angeles, the firm has over 600 staff members and offices in 13 cities worldwide.

Concurrent Transactions

Corporate Reorganization

Currently, we operate through Isola Group S.a.r.l., a holding company incorporated in Luxembourg (the "Luxembourg Holding Company"), a low-tax jurisdiction. The Luxembourg Holding Company is owned by investors that include TPG Capital, Oaktree, Clearlake Capital and its affiliates, Tennenbaum Capital and its affiliates, The Blackstone Group LP and its affiliates, Redfern Partners, LLC and its affiliates and certain members of our management (collectively, the "Sponsors"). The Sponsors hold their investment in the Luxembourg Holding Company through two parent entities: TPG Hattrick Partners, L.P. (the "Sponsor Limited Partnership") and TPG Hattrick Holdco, LLC (the "Sponsor Holding Company"). The Sponsor Holding Company is the general partner of the Sponsor Limited Partnership.

The Sponsor Limited Partnership currently owns all of the issued and outstanding securities of the Luxembourg Holding Company, including 500 common shares and three classes of convertible preferred certificates (420,455 Class A convertible preferred certificates, 95,788,400 Class B convertible preferred certificates and 43,500,666 Class C convertible preferred certificates) that are accounted for as debt.

In preparation for our initial public offering, the Sponsor Limited Partnership recently formed a new company in the Cayman Islands, a tax-exempt jurisdiction, called Isola Group Ltd. Immediately prior to the completion of our initial public offering, we will undergo a corporate reorganization that includes the following steps:

–>: all of the outstanding securities of the Luxembourg Holding Company, including the common shares and convertible preferred certificates described above, will be contributed by the Sponsor Limited Partnership to Isola Group Ltd., which will result in Isola Group Ltd. becoming our new holding company and the Luxembourg Holding Company becoming a subsidiary of Isola Group Ltd.;
–>: both the Sponsor Limited Partnership and the Sponsor Holding Company will be liquidated and the ordinary shares of Isola Group Ltd. will be distributed to our Sponsors; and
–>: all outstanding management equity awards in the Sponsor Limited Partnership and the Sponsor Holding Company will be terminated and replaced with new equity awards for ordinary shares of Isola Group Ltd. that have the same value and substantially the same terms.

At the completion of our initial public offering:

–>: Isola Group Ltd. will be a public company;
–>: assuming the underwriters do not exercise their over-allotment option, the Principal Sponsors will together own approximately % of our outstanding ordinary shares, investors in our initial public offering will own approximately % of our outstanding ordinary shares and there will be options outstanding to purchase approximately % of our outstanding ordinary shares; and

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–>: the Sponsors and Isola Group Ltd. will enter into a shareholders agreement that provides for certain board representation rights and registration rights with respect to their ordinary shares.

Refinancing

In connection with this offering, we intend to enter into a new senior secured credit facility consisting of a $ million senior secured term loan and a $ million senior secured revolving credit facility. The proceeds of the new term loan will be used to repay the outstanding balances under the existing senior secured credit agreement and mezzanine credit agreement that are not repaid from the proceeds of this offering. We expect the new senior secured credit facility to be completed concurrently with the closing of this offering. Our entry into the new senior secured credit facility is conditioned on the completion of this offering. See "Description of Indebtedness".

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Corporate Information about Isola Group Ltd.

Isola Group Ltd. was incorporated under the laws of the Cayman Islands on September 20, 2011. Our principal executive offices are located at 3100 W. Ray Road, Suite 301, Chandler, Arizona 85226. The telephone number of our principal executive offices is (480) 893-6527, and we maintain a website at www.isola-group.com. The information on, or that can be accessed through, our website is not part of this prospectus.

The Offering


Issuer		Isola Group Ltd.
Ordinary Shares Offered by Issuer		shares.
Option to Purchase Additional Shares		We have granted the underwriters a 30-day option to purchase up to an additional ordinary shares at the initial public offering price less the underwriting discount.
Ordinary Shares to Be Outstanding Immediately After this Offering		shares.
Ordinary Shares to be Beneficially Owned by the Sponsors Immediately After this Offering		shares. See "Principal Shareholders".
Use of Proceeds		We intend to use the net proceeds of this offering, together with the proceeds of the term loan under a new senior secured credit facility that we expect to enter into at the completion of this offering, to prepay all of the term loans outstanding under our existing senior secured credit agreement and mezzanine credit agreement at a redemption price of 100% plus interest to the prepayment date.
		As of July 2, 2011, we had $210.0 million aggregate principal amount of senior secured term loans outstanding that currently bear interest at a rate of 10% per annum and mature on September 30, 2015, and $185.7 million aggregate principal amount of unsecured term loans outstanding that currently bear interest at a rate of 16% per annum and mature on March 24, 2016. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources".
Dividend Policy		We do not intend to pay cash dividends on our ordinary shares for the foreseeable future. See "Dividend Policy".
Lock-up		We, our executive officers and directors and certain holders of our outstanding ordinary shares, stock options and other equity awards that together hold at least % of our outstanding ordinary shares have agreed with the underwriters, subject to certain exceptions, not to offer, sell, contract to sell or otherwise, directly or indirectly, dispose of or hedge any of our ordinary shares or securities convertible into or exchangeable or exercisable for our ordinary shares for a period of 180 days after the date of this prospectus. See "Underwriting" for more information.
Proposed Nasdaq Global Market Symbol		ISLA.

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The number of ordinary shares to be outstanding immediately after this offering as set forth above is based on the number of ordinary shares outstanding at , 2011, and excludes an aggregate of additional ordinary shares that will be available for future awards pursuant to our 2011 Equity Incentive Plan.

Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' option to purchase additional ordinary shares from us.

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Summary Historical Consolidated Financial and Other Data

The following table presents our summary historical consolidated financial and other data. The consolidated statements of operations data and other financial data for fiscal 2010, 2009 and 2008, and the consolidated balance sheet data as of the end of fiscal 2010, are derived from our audited consolidated financial statements which are included elsewhere in this prospectus. The consolidated statements of operations and other financial data for the six months ended July 2, 2011 and June 26, 2010, and the consolidated balance sheet data as of July 2, 2011, are derived from our unaudited interim financial statements for those periods included elsewhere in this prospectus. These unaudited interim financial statements have been prepared on a basis consistent with the respective audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of that information for such periods. The financial data presented for the interim periods are not necessarily indicative of the results for the full year.

The summary historical financial data below should be read in conjunction with "Use of Proceeds", "Capitalization", "Selected Historical Consolidated Financial and Other Data", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus.

			Six months ended

			Six months ended						Fiscal year
						June 26, 2010			Fiscal year
			July 2, 2011			June 26, 2010			2010			2009			2008

			(dollars in thousands, except per share amounts)
Consolidated Statement of Operations Data:
Revenues			$	316,583		$	306,957		$	611,987		$	416,140		$	570,333
Cost of goods sold				240,433			231,908			467,751			330,584			487,052

Gross profit				76,150			75,049			144,236			85,556			83,281

Operating expenses:
	Sales, general and administrative			38,371			31,343			65,271			59,656			62,763
	Research and development			5,193			4,817			9,532			9,244			10,663
	Restructuring			177			3,464			4,782			18,129			7,692
	Goodwill impairment			—			—			—			—			8,513

		Total operating expenses	$	43,741		$	39,624		$	79,585		$	87,029		$	89,631

Operating income / (loss)				32,409			35,425			64,651			(1,473	)		(6,350	)
Other income—net				1,031			3,005			2,020			224			2,768
Embedded derivative gain / (loss)				17,472			(58,162	)		25,030			(27,513	)		115,352
Interest expense⁽¹⁾				(39,032	)		(26,997	)		(72,134	)		(54,620	)		(58,478	)
Interest income				94			159			339			453			1,307
Foreign exchange gain / (loss)—net				(20,402	)		27,863			9,596			(2,116	)		(341	)

Income / (loss) from continuing operations before income taxes				(8,428	)		(18,707	)		29,502			(85,045	)		54,258
Provision for income taxes				(10,679	)		(11,818	)		(24,420	)		(6,504	)		(6,804	)
Loss from discontinued operations, net of tax				—			—			—			(9,177	)		(11,655	)

Net income / (loss)				(19,107	)		(30,525	)		5,082			(100,726	)		35,799
Net income / (loss) per common share
	Basic		$	(38.21	)	$	(61.05	)	$	10.16		$	(201.45	)	$	71.60
	Diluted		$	(38.21	)	$	(61.05	)	$	10.16		$	(201.45	)	$	71.60
Weighted average number of common and common equivalent shares outstanding
	Basic			500			500			500			500			500
	Diluted			500			500			500			500			500

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	Six months ended			Fiscal year

	July 2, 2011			2010

	(dollars in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	56,010		$	36,733
Current assets		228,537			201,208
Current liabilities		149,242			131,603
Working capital		79,295			69,605
Long-term debt and capital lease obligations		319,784			306,547
Convertible preferred certificates		224,679			199,136
Embedded derivative liability		54,087			66,395
Total liabilities		820,260			774,758
Common stock and additional paid in capital		31,879			30,667
Total stockholders' deficiency		(417,894	)		(397,564	)

	Six months ended				Fiscal year

	July 2, 2011		June 26, 2010		2010		2009		2008

	(dollars in thousands, except per share amounts)
Other Financial Data:
Adjusted EBITDA⁽²⁾	$	49,180	$	49,186	$	89,661	$	38,983	$	37,647

(1): Interest expense for the six months ended July 2, 2011 was $39.0 million (comprised of cash interest expense of $18.0 million and non-cash interest expense of $21.0 million). Non-cash interest expense includes the amortization of deferred loan origination costs, the amortization of original issue discount, the accretion of interest paid-in-kind on our debt under our mezzanine credit agreement and the accretion of interest on our convertible preferred certificates. We intend to use the proceeds of this offering to reduce our current indebtedness and to refinance the remaining balance of our current indebtedness with $ million borrowed under a new senior secured credit facility bearing interest at % per annum. If such transactions had occurred as of the end of fiscal 2010, our total interest expense for the six months ended July 2, 2011 would have been $ million.
(2): Adjusted EBITDA is a supplemental non-GAAP measure used by management and external users of our consolidated financial statements. We define adjusted EBITDA as net income / (loss) less (A) loss from discontinued operations, net of tax, plus (B) (i) interest expense and interest income, net, (ii) provision for income taxes, (iii) depreciation and amortization and (iv) certain additional adjustments. These additional adjustments include stock-based compensation, restructuring charges, foreign exchange gain / (loss)—net, goodwill impairment, management fees paid to TPG Capital, embedded derivatives gain / (loss), gain related to a settlement of a patent infringement matter and pre-IPO expenses. For more information on Adjusted EBITDA and a reconciliation of net income (loss), the most directly comparable financial measure under U.S. GAAP, to Adjusted EBITDA for the periods presented, see footnote 4 to "Selected Historical Consolidated Financial and Other Data". Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

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Risk Factors

An investment in our ordinary shares involves a high degree of risk. You should carefully consider the following information, together with other information in this prospectus, before buying our ordinary shares. If any of the following risks or uncertainties occur, our business, results of operations and financial condition could be materially adversely affected. In that case, the trading price of our ordinary shares could decline, and you may lose all or a part of the money you paid to buy our ordinary shares.

RISKS RELATED TO OUR INDUSTRY AND BUSINESS

The markets for our customers' products are volatile, which can cause wide swings in the demand for our products.

Our business depends on the electronics industry, which is cyclical and subject to significant downturns characterized by diminished product demand, rapid declines in average selling prices and over-capacity. This industry has experienced periods characterized by relatively low demand and price depression and is likely to experience recessionary periods in the future. Economic conditions affecting the electronics industry in general, or specific market segments, such as computers and communications, have adversely affected our operating results in the past and may do so in the future.

Over the past three years, the global economy has been greatly impacted by the recessionary conditions linked to rising default levels in the U.S. home mortgage sector, volatile fuel prices, and a changing political and economic landscape. These factors have contributed to historically low consumer confidence levels, resulting in a significantly intensified downturn in demand for products incorporating PCBs, which in turn lowered demand for our products and adversely affected our operating results. When we experience excess capacity, variable margins from our revenues may not fully cover our fixed overhead expenses, and our gross margins may fall. A lasting economic recession, excess manufacturing capacity, or a prolonged decline in the electronics industry could negatively affect our business, results of operations, and financial condition.

In order to respond to quick-turn orders and offer short lead times at some of our production facilities, in some cases as little as 12-48 hours, these facilities must operate at less than full capacity. However, if we do not receive as many quick-turn orders as we expect at these facilities and have foregone other production, we may underutilize our manufacturing capacity.

We depend upon a relatively small number of customers for a large portion of our sales, and a decline in sales to major customers could harm our results of operations.

A small number of customers, which include PCB manufacturers and distributors, are responsible for a significant portion of our sales. While only one of our customers accounted for more than 10% of our revenues in each of fiscal 2010, fiscal 2009 and fiscal 2008 and the six months ended July 2, 2011 and June 26, 2010, we believe that our ten largest customers accounted for the majority of our revenues in each of these periods. Although we cannot assure you that our principal customers will continue to purchase our products at past levels, we expect to continue to depend upon a relatively small number of customers for a significant portion of our sales. Our customer concentration could fluctuate, depending on future customer requirements, which will depend in large part on conditions in the end-markets in which our customers operate. The loss of one or more significant customers or a decline in sales to our significant customers could harm our business, results of operations, and financial condition and lead to declines in the trading price of our ordinary shares.

In addition, during industry downturns, we may need to reduce prices and we may be unable to collect payments from our customers. There can be no assurance that key customers will not cancel orders, or that

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they will continue to place orders with us in the future at the same levels as experienced by us in prior periods, or that they will be able to meet their payment obligations. This concentration of customers may materially and adversely affect our operating results due to the loss or cancellation of business from any of these key customers, significant changes in scheduled deliveries to any of these customers, or decreases in the prices of the products sold to any of these customers.

We sell on a purchase order basis and are subject to uncertainties and variability in demand by our customers that could decrease revenues and harm our operating results.

We sell to customers on a purchase order basis and not pursuant to long-term contracts. Customers may cancel their orders, reduce production quantities or delay production at any time for a number of reasons. Many of our customers have, over the past several years, experienced significant decreases in demand for their products and services. The uncertain economic conditions in the global economy and in several of the markets in which our customers operate have in the past prompted some of our customers to cancel orders, delay the delivery of some of the products that we manufacture or order fewer products than we previously anticipated. Consequently, our sales are subject to short-term variability in demand by our customers. In the past, we have been required to increase staffing and other expenses in order to meet the anticipated demand of our customers. The level and timing of orders placed by our customers may vary due to:

–>: changes in our customers' inventory levels;
–>: changes in customers' manufacturing strategies;
–>: demand fluctuations for our customers' products; and
–>: changes in new product introductions.

Future terminations, reductions, or delays in our customers' orders could harm our business, results of operations, and financial condition. Variability in demand from our customers may contribute to fluctuations in our quarterly results, which may make our revenues more difficult to accurately forecast.

We depend on a small number of suppliers for the raw materials and certain components used to manufacture our products. If these suppliers fail to provide an adequate supply of raw materials or components of sufficient quality, or these suppliers become unavailable to us, we may experience significant delays in the manufacturing and shipping of our products to customers and our business could suffer.

We depend on a small number of suppliers for the raw materials, including copper, resin and fiberglass, as well as certain components, used in the manufacture of our products. These suppliers must comply with Isola's stringent specifications and technical requirements. Our reliance on these suppliers involves significant risks and uncertainties, including whether they will provide an adequate supply of required raw materials or components of sufficient quality, will not increase prices for the raw materials or components and will perform their obligations on a timely basis. If we are unable to obtain raw materials or components from third-party suppliers in the quantities and of the quality that we require on a timely basis and at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers to end their business with us, reduce our gross profit and seriously harm our business, results of operations and financial condition. Moreover, if any of our suppliers becomes financially unstable, we may have to find new suppliers. It may take several months to locate alternative suppliers, if required. We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain replacement raw materials and components within the time frames that we require at an affordable cost, or at all.

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There may be shortages of, or price fluctuations with respect to, raw materials or components, which would cause us to curtail our manufacturing or incur higher than expected costs.

We purchase the raw materials and certain components we use in producing our products, and we may be required to bear the risk of price fluctuations of raw materials or components. Shortages of raw materials and price fluctuations have occurred in the past and may occur in the future. Copper prices have been particularly volatile in the last four years, declining to less than $3,000 per ton in late 2008 and increasing to more than $10,000 per ton during the six months ended July 2, 2011. Although historically we have been able to pass through a substantial portion of the raw material cost increases to our customers, we may not continue to be able to do so in the future if we experience significant supply disruptions or excess levels of industry capacity or due to other factors outside of our control, in which case our profitability could suffer. Our ability to pass through raw material price increases may be limited by the level of industry excess capacity, competitive practices and other regional-specific factors which are out of our control. In addition, if we experience a shortage of materials or components, we may not be able to produce products for our customers in a timely fashion.

We are vulnerable to an increase in the cost of energy.

Our production processes require us to use substantial amounts of power. In the past several years, there has been a significant increase in global energy prices. Changes in the cost or availability of energy resources, including oil, gas and electricity, are beyond our control and could materially increase our cost of operations. We maintain only limited back-up power generation facilities at some of our manufacturing locations. In the event of a power shortage, we could be required to cease operations at an affected facility until power is restored. There can be no assurance that our facilities will avoid material utility-based interruptions, which could have a material effect on our results of operations and financial condition.

We may experience significant fluctuations in results of operations from period to period.

Our quarterly results may vary significantly depending on various factors, many of which are beyond our control. These factors include:

–>: the volume of customer orders;
–>: changes in demand for customers' and OEMs' products;
–>: pricing and other competitive pressures;
–>: our effectiveness in managing manufacturing processes;
–>: changes in cost and availability of raw materials and labor;
–>: changes in our product mix;
–>: changes in political and economic conditions; and
–>: local factors and events that may affect our production volume, such as local holidays.

Our sales may, from time to time, shift from one quarter to the next, affecting anticipated results.

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If demand for high-performance, higher margin products does not increase, our future gross margins and operating results may be worse than expected.

We typically earn lower gross margins on certain of our base, low-Tg products and higher gross margins on certain of our high-performance laminate materials. We experience continued pressure from customers to reduce prices, and competition remains intense, particularly in Asia. This pricing pressure has affected, and could continue to adversely affect, our gross margins. If demand for our high-performance, higher margin products does not increase in the future, our gross margins and operating results may be worse than expected.

Our failure to respond timely or adequately to market changes may render our existing technology less competitive or obsolete, and our operating results may suffer.

The market for our products is characterized by continuing product development and changing technologies. The success of our business depends in part upon our ability to maintain and enhance our technological capabilities, develop and market products and services that meet changing customer needs and successfully anticipate or respond to technological product platform changes on a cost-effective and timely basis. There can be no assurance that we will effectively respond to the technological product requirements of the changing market, including having sufficient cash flow to make additional capital expenditures that may be required as a result of those changes. To the extent we are unable to respond to such technological product requirements, our operating results may suffer.

Our customers require our products to undergo a lengthy and expensive qualification process which does not assure follow-on product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.

In general, OEMs require that our products undergo an extensive qualification process, which may involve testing of our products for performance and reliability. This qualification process may continue for several months or even up to one year in certain cases. Moreover, qualification of a product by a customer does not assure any sales of the product to that customer. After our products are qualified, it can take several months or more before the customer commences volume production of components or systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products to the customer may be precluded or delayed, which may impede our growth and cause our business to suffer.

In addition, we work closely with OEMs to develop products that are well suited to their changing needs. We will not recover the cost of this product development directly even if we are actually engaged as a supplier to an OEM's product line, and there can be no guarantee that such collaborations will result in any sales of our products to such OEM.

Our products may contain design or manufacturing defects, which could result in reduced demand for our services and liability claims against us.

We manufacture products that are highly complex and need to meet increasingly demanding technical and quality requirements. These products may contain design or manufacturing errors or failures, despite our quality control and quality assurance efforts. Defects in the products we manufacture, whether caused by a design, manufacturing, or materials failure or error, may result in delayed shipments, customer dissatisfaction, a reduction or cancellation of purchase orders, or liability claims against us. If these defects occur frequently or in large quantities, our reputation may be impaired. Although our invoices and sales

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arrangements contain provisions designed to limit our exposure to product liability and related claims, existing or future laws or unfavorable judicial decisions could negate these provisions. Product liability litigation against us, even if it were unsuccessful, would be time-consuming and costly to defend. We may not maintain technology errors and omissions insurance at any given time for all or certain of our operations, and we may not be able to purchase such insurance coverage in the future on terms that are satisfactory to us, if at all. Moreover, such coverage may not be sufficient to cover actual losses.

We face intense competition in the PCB materials industry, including from diversified manufacturers and suppliers, which could negatively impact our results of operations and cause our market share to decline.

The PCB materials industry is intensely competitive, and we compete worldwide in the markets for such materials. Our principal competitors are substantially larger and have greater financial resources than us, and our operating results may be affected by our ability to maintain our competitive positions in these markets. Some of our competitors and potential competitors may have advantages over us, including:

–>: greater financial and manufacturing resources that can be devoted to the development, production, and sale of their products;
–>: more established and broader sales and marketing channels;
–>: manufacturing facilities that are located in countries with lower production costs;
–>: more manufacturing facilities worldwide, some of which are closer in proximity to PCB fabricators;
–>: lower capacity utilization, which in peak market conditions can result in shorter lead times to customers;
–>: ability to add additional capacity faster or more efficiently;
–>: preferred vendor status with existing and potential customers;
–>: greater name recognition; and
–>: larger customer bases.

In addition, these competitors may respond more quickly to new or emerging technologies, adapt more quickly to changes in customer requirements or devote greater resources to the development, promotion, and sale of their products than we do.

Consolidation trends among our customers could adversely affect our business.

In recent years, a number of our customers have consolidated and further consolidation of customers may continue. If an existing customer is not the controlling entity of the supply chain function following a consolidation, we may not be retained as a preferred or approved supplier. In addition, product duplication could result in the termination of a product line that we currently support. While there is potential for increasing our position with the combined customer, our revenues may decrease if we are not retained as a supplier. We may also be subject to increased pricing pressure from the combined customer because of its increased market share.

Our international sales and operations subject us to additional risks that could adversely affect our operating results.

We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various Asian and European markets. Moreover, we manufacture a significant portion of our products in

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manufacturing facilities outside of the United States. Our international revenue and operations are subject to a number of material risks, including, but not limited to:

–>: difficulties in staffing, managing and supporting operations in multiple countries;
–>: rising costs of labor in certain countries;
–>: difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;
–>: fewer legal protections for intellectual property;
–>: foreign and U.S. taxation issues and international trade barriers;
–>: difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;
–>: potential fluctuations in foreign economies;
–>: government currency control and restrictions on repatriation of earnings;
–>: fluctuations in the value of foreign currencies and interest rates;
–>: general economic and political conditions in the markets in which we operate;
–>: domestic and international economic or political changes, social unrest, hostilities and other disruptions in regions where we currently operate or may operate in the future; and
–>: different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future.

Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales, including sales to customers outside the United States, are primarily denominated in U.S. dollars, and downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.

We operate in countries that have experienced political unrest or instability or government controls over the conduct of business, including China and countries in Southeast Asia. Recently, in China, labor disputes and strikes based partly on wages have slowed or stopped production at certain manufacturers. In some cases, employers have responded by significantly increasing the wages of workers at such plants. In addition, regulatory authorities and others have increased their scrutiny of labor conditions in countries in which we operate. To the extent such developments result in more burdensome labor laws and regulations or require us to increase the wages of employees, our ability to adequately staff our plants and the costs associated with the manufacture and shipping of our products in those jurisdictions could be adversely affected, which would have a material adverse effect on our business and operating results.

Our leverage and our debt service obligations may adversely affect our cash flow.

As of July 2, 2011, we had total indebtedness of approximately $543.9 million, and a stockholders' deficiency of $417.9 million. After giving effect to the application of the proceeds from this offering (at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus) and the proceeds of the new term loan we expect to enter into at the closing of this offering, as set forth in "Use of Proceeds", we expect our total indebtedness to be $ million.

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Risk Factors

Our indebtedness and resulting financial leverage could have significant negative consequences, including:

–>: increasing our vulnerability to general adverse economic and industry conditions;
–>: requiring the use of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;
–>: limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
–>: placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.

Our current credit agreements contain financial and operating covenants that limit our management's discretion with respect to certain business matters. Among other things, these covenants restrict our ability and our subsidiaries' ability to incur additional debt, create liens or other encumbrances, make investments, change the nature of our business, sell or otherwise dispose of assets and merge or consolidate with other entities. At the end of fiscal 2010, we were in compliance with these covenants. If we are not able to comply with all of these covenants, for any reason, some or all of our outstanding debt could become immediately due and payable.

If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

Our success depends in part on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws to protect our intellectual property and other proprietary rights. Significant technology used in our products, however, is not the subject of any patent protection, and we may be unable to obtain patent protection on such technology in the future. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of foreign countries in which we manufacture and market our products may afford little or no effective protection of our intellectual property. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. In addition to the legal methods that we use to protect our intellectual property described above, we may elect to manufacture certain of our products in the United States, where manufacturing costs are higher, in order to better protect our intellectual property. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. This could result in third parties manufacturing and selling competitive products that employ our technologies. If we fail to protect our intellectual property and other proprietary rights, our business, results of operations or financial condition could be materially harmed.

In addition, defending our intellectual property rights may entail significant expense. We have, from time to time, resorted to legal proceedings to protect our intellectual property and may continue to do so in the future. Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we were to prevail. If unsuccessful, these efforts could also result in the limitation or invalidation of the intellectual property rights we sought to enforce. Finally, during the course of any patent litigation, there may be public announcements of the results of hearings,

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motions, and other interim proceedings or developments in the litigation. If securities analysts or investors regard these announcements as negative, the market price of our ordinary shares may decline. General proclamations or statements by key public figures may also have a negative impact on the perceived value of our intellectual property.

We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time-consuming to defend and limit our ability to use certain technologies in the future.

Because our competitors and others actively seek patent protections, we may in the future be subject to claims that our technologies infringe upon third parties' intellectual property or other proprietary rights. In addition, the vendors from which we license technology used in our products or our customers could become subject to similar infringement claims. Any claims, with or without merit, could be time-consuming and expensive to defend, and could divert our management's attention away from the execution of our business plan. Moreover, any settlement or adverse judgment resulting from the claim could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, or at all; that we would be able to develop alternative technology on a timely basis, if at all; or that we would be able to obtain a license to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, our affected product. In addition, we may be required to indemnify our vendors or customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling in such a claim. An adverse determination could also prevent us from offering our products to others. Infringement claims asserted against us or our vendors or customers may have a material adverse effect on our business, results of operations or financial condition.

Our confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

We rely substantially upon proprietary information, trade secrets and know-how to conduct our manufacturing operations and research and development activities. We take steps to protect our proprietary rights and information, including the use of confidentiality and other agreements with our employees and consultants and in our commercial relationships, including with distributors and customers. However, these steps may be inadequate. Confidentiality agreements used in some of our commercial relationships expire after a stated term. Moreover, our confidentiality agreements may be violated, and there may be no adequate remedy available for any such violation. We cannot assure you that our proprietary information will be kept confidential or that we can meaningfully protect our trade secrets. Our competitors may independently develop substantially equivalent proprietary information or may otherwise gain access to our trade secrets, which could adversely affect our ability to compete in the market.

We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee may impair our ability to operate effectively.

Our success depends upon the continued services of our senior management team and key technical employees, particularly in our research and development department. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships. In addition, because of the highly technical nature of our business, the loss of any significant number of our existing

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engineering and project management personnel could have a material adverse effect on our business and operating results.

Furthermore, our manufacturing process requires a skilled labor force. Although we are not generally dependent on any one employee or a small number of employees involved in our manufacturing process, we have in the past experienced periods of high employee turnover and may in the future experience significantly high employee turnover at our Asian facilities. If we are not able to replace these people with new employees with comparable capabilities, our operations could suffer as we may be unable to keep up with innovations in the industry or the demands of our customers. As a result, we may not be able to continue to compete effectively.

Unfavorable tax law changes, unfavorable government reviews of our tax returns, changes in our geographical earnings mix, or imposition of withholding taxes on repatriated earnings could adversely affect our effective tax rate and our operating results.

Our operations are subject to income and transaction taxes in the United States and other jurisdictions. A change in the tax laws in the jurisdictions in which we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increase in the amount of taxes we incur. In particular, proposals have been made to change certain U.S. tax laws relating to foreign entities with U.S. connections. Legislation has been proposed that would require treating certain foreign corporations as U.S. domestic corporations (and therefore taxable on all of their worldwide income) if the management and control of the foreign corporation occurs, directly or indirectly, primarily within the United States. In addition, the U.S. government has proposed various other changes to the U.S. international tax system, certain of which could adversely impact foreign-based multinational corporate groups, and increased enforcement of U.S. international tax laws. Although these U.S. tax law changes may not be enacted in their current forms, it is possible that these or other changes in the U.S. tax laws could significantly increase our U.S. income tax liability in the future.

We are subject to periodic audits or other reviews by tax authorities in the jurisdictions in which we conduct our activities. Audits can result in increased tax payments, penalties and interest, which would affect our results of operation and cash position.

Because we conduct operations in multiple jurisdictions, our effective tax rate is influenced by the amounts of income and expense attributed to each such jurisdiction. If such amounts were to change so as to increase the amounts of our net income subject to taxation in higher-tax jurisdictions, or if we were to commence operations in jurisdictions assessing relatively higher tax rates, our effective tax rate could be adversely affected.

In addition, we may determine that it is advisable from time to time to repatriate earnings from subsidiaries, under circumstances which could give rise to the imposition of potentially significant withholding taxes by the jurisdictions in which such amounts were earned, without our receiving the benefit of any offsetting tax credits, which also could adversely impact our effective tax rate.

We are subject to risks of currency fluctuations.

A portion of our cash and other current assets is held in currencies other than the U.S. dollar. As of the end of fiscal 2010, we had approximately $36.7 million of current assets held by subsidiaries with a functional currency other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect the value of these assets as translated to U.S. dollars in our balance sheet. To the extent that we ultimately decide to repatriate some portion of these funds to the United States, the actual value transferred could be impacted by movements in exchange rates. Any such type of movement could negatively impact the

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amount of cash available to fund operations or to repay debt. Significant inflation or disproportionate changes in foreign exchange rates could occur as a result of general economic conditions, acts of war or terrorism, changes in governmental monetary or tax policy, or changes in local interest rates. The impact of future exchange rate fluctuations between the U.S. dollar and other currencies cannot be predicted. To the extent that we may have outstanding indebtedness denominated in other currencies, the appreciation of other currencies against the U.S. dollar will have an adverse impact on our financial condition and results of operations.

Our failure to comply with the requirements of environmental laws could result in litigation, fines and revocation of permits necessary to our manufacturing processes.

Our operations are regulated under a number of international, federal, state, local, and foreign environmental and safety laws and regulations that 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. Because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if we fully comply with applicable environmental laws and are not directly at fault for the contamination, we may still be liable.

Any material violations of environmental laws or failure to maintain required environmental permits could subject us to fines, penalties, and other sanctions, including the revocation of our effluent discharge permits, which could require us to cease or limit production at one or more of our facilities, and harm our business, results of operations, and financial condition. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend.

Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violation. We operate in environmentally sensitive locations, and we are subject to potentially conflicting and changing regulatory agendas of political, business, and environmental groups. We are increasingly required to certify compliance with various material content restrictions in our products based on laws of various jurisdictions or territories such as the Restriction of Hazardous Substances ("RoHS") and Registration, Evaluation, Authorization and Restriction of Chemicals ("REACH") directives in the European Union and China's RoHS legislation. In addition, our customers or the OEMs they supply may adopt more stringent environmental requirements for their products in response to political or social pressure. Changes or restrictions on discharge limits, emissions levels, material storage, handling or disposal or increasingly stringent certification requirements might require a high level of unplanned capital investment or facility or materials relocation. It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business, results of operations, and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Legal Proceedings".

Our business and operations could be adversely impacted by climate change initiatives.

Our manufacturing processes require that we purchase significant quantities of energy from third parties, which results in the generation of greenhouse gasses, either directly on-site or indirectly at electric utilities. Both domestic and international legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility. Considerable international attention is now focused on development of an international policy framework to guide international action to address climate change. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could affect our energy source and supply choices as well as increase the cost of energy and raw materials derived from sources that generate greenhouse gas emissions.

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Risk Factors

Damage to our manufacturing facilities due to fire, natural disaster, or other events could harm our financial results.

We have manufacturing facilities in the United States in Arizona, California and South Carolina. We also have manufacturing facilities in Germany, Italy, China, Singapore, Malaysia and Taiwan. The destruction or closure of any of our facilities for a significant period of time as a result of fire, explosion, blizzard, act of war or terrorism, flood, tornado, earthquake, lightning, or other natural disaster could harm us financially, increasing our costs of doing business and limiting our ability to deliver our products on a timely basis.

We may engage in future acquisitions or dispositions that could disrupt our business, cause dilution to our shareholders or adversely impact our financial condition and operating results.

In the future we may acquire companies or assets of companies or dispose of portions of our business in order to enhance our market position or strategic strengths. We are not currently a party to any agreements or commitments, and we have no understandings with respect to any such acquisitions or dispositions. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions or dispositions on favorable terms, if at all, even after devoting substantial resources to them. If we do complete acquisitions or dispositions, we cannot be sure that they will ultimately strengthen our competitive position or that they will not be viewed negatively by customers, financial markets, or investors. In addition, any acquisitions that we make could lead to difficulties in integrating personnel and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions or dispositions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, and adversely impact our operating results or financial condition. Future acquisitions may reduce our cash available for operations and other uses and could result in an increase in amortization expense related to finite-lived intangible assets acquired, potentially dilutive issuances of equity securities, or the incurrence of debt, any of which could adversely affect our financial condition and operating results.

We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In preparation for our initial public offering, we have increased our personnel devoted to legal, accounting and human resources matters and have implemented additional procedures to improve compliance and effectiveness in these functional areas. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, and rules subsequently implemented and yet to be implemented by the Securities and Exchange Commission and Nasdaq have imposed and will impose various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Compliance

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will require us to increase our general and administrative expense in order to pay added compliance personnel, outside legal counsel and public accountants to assist us in, among other things, external reporting, instituting and monitoring a more comprehensive compliance function and board governance function, establishing and maintaining internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and preparing and distributing periodic public reports in compliance with our obligations under the U.S. federal securities laws. We currently do not have an internal audit group, and we will evaluate the need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the Securities and Exchange Commission or other regulatory authorities, which would require additional financial and management resources.

We have identified a material weakness in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

During the preparation of our consolidated financial statements for fiscal 2010, we and our independent registered public accounting firm identified deficiencies in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board. These internal control deficiencies resulted in material adjustments to our previously issued consolidated financial statements for fiscal 2004 through 2009, as well as to our consolidated financial statements for fiscal 2010 that were subsequently issued, and affected the periods covered by such statements. Management determined the control deficiencies constitute a material weakness in our internal control over financial reporting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting".

We are in the process of remediating the material weakness, but we have not yet been able to complete our remediation efforts. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting". It will take additional time to design, implement and test the controls and procedures required to enable our management to conclude that our internal control over financial reporting is effective. We cannot at this time estimate how long it will take to complete our remediation efforts or the cost of those efforts. We cannot assure you that measures we plan to take will be effective in mitigating or preventing significant deficiencies or material weaknesses in our internal control over financial reporting. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses or cause us to fail to meet our periodic reporting obligations. Beginning with our Annual Report on Form 10-K for our 2012 fiscal year ending December 29, 2012 (to be filed in early 2013) when the SEC's rules under Section 404 of Sarbanes-Oxley become applicable to us, such a failure could also result in a conclusion that our internal controls over financial reporting were not effective. The existence of a material weakness could result in errors in our financial statements that could result in further restatements of our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in the trading price of our stock.

We are subject to the Foreign Corrupt Practices Act ("FCPA"). A determination that we violated this act may affect our business and operations adversely.

We are subject to the regulations imposed by the FCPA, which generally prohibits companies that are publicly listed in the U.S. and their intermediaries from making improper payments to foreign officials for

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the purpose of obtaining or keeping business. In connection with our initial public offering, we are implementing policies and procedures to train our personnel in FCPA compliance matters. Any determination that we have violated the FCPA could have a material adverse effect on our financial position, operating results and cash flows.

RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR ORDINARY SHARES

We are controlled by the Sponsors, whose interests may not be aligned with yours.

Prior to the completion of this offering, the Sponsors own, directly or indirectly, % of our outstanding ordinary shares. After giving effect to this offering, assuming an offering of ordinary shares, the Sponsors will control, directly or indirectly, approximately % of our ordinary shares, assuming no exercise of the underwriters' option to purchase additional shares. In addition, at the completion of this offering, we will enter into a shareholders agreement with our Sponsors that will give each of TPG Capital and Oaktree the right to nominate representatives to our board of directors, and require all of our Sponsors to vote for the election of these nominees to our board of directors, so long as TPG Capital and Oaktree own specified percentages of our outstanding voting securities. See "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors—Shareholders and Registration Rights Agreement". As a result, the Sponsors will continue to be able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. The Sponsors will also have sufficient voting power to amend our organizational documents. The interests of the Sponsors may not coincide with the interests of other holders of our ordinary shares.

Furthermore, each of the Sponsors is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Our memorandum and articles of association do not prohibit the Sponsors, or any of their respective officers, directors, agents, employees, shareholders, members, partners, affiliates and subsidiaries, or any of our directors, from acquiring an interest or expectancy in corporate opportunities, and do not impose upon such persons or entities any duty to disclose such potential corporate opportunities to us or refrain from competing with us, even if such opportunities are ones we or our subsidiaries might reasonably be deemed to have pursued or had the desire to pursue. Furthermore, such persons or entities may take such corporate opportunities for themselves or offer them to other persons or entities. Our Sponsors may also consider combining our operations with those of another company. So long as the Sponsors continue to own a significant amount of our outstanding ordinary shares, they will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions.

We will be a "controlled company" within the meaning of Nasdaq rules and, as a result, will qualify for and will rely on exemptions from certain corporate governance requirements.

After completion of this offering, the Sponsors will continue to control a majority of the voting power of our outstanding ordinary shares. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of Nasdaq. Under Nasdaq rules, a company of which more than 50% of the voting power is held by a person or group of persons acting together is a "controlled company" and may

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elect not to comply with certain corporate governance requirements of Nasdaq, including the requirements that:

–>: a majority of the board of directors consist of independent directors;
–>: the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;
–>: the compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and
–>: there be an annual performance evaluation of the nominating and corporate governance and compensation committees.

We have adopted charters for our audit, nominating and corporate governance and compensation committees, intend to conduct annual performance evaluations for these committees, and initially expect all of our committee members and a majority of our board of directors to be considered independent directors under the independence criteria of Nasdaq. Although we intend to comply with these listing requirements whether or not we are a controlled company, there is no guarantee that we will not take advantage of the exemptions available to "controlled companies" in the future. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

Shareholder rights under Cayman Islands law may differ materially from shareholder rights in the United States, which could adversely affect the ability of us and our shareholders to protect our and their interests.

We are a company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, by the Companies Law (2010 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. In particular, some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate laws. Moreover, we could be involved in a corporate combination in which dissenting shareholders would have no rights comparable to appraisal rights which would otherwise ordinarily be available to dissenting shareholders of United States corporations. Also, our Cayman Islands counsel is not aware of a significant number of reported class actions or derivative actions having been brought in Cayman Islands courts. Such actions are ordinarily available in respect of United States corporations in U.S. courts. Finally, Cayman Islands companies may not have standing to initiate shareholder derivative action before the federal courts of the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against the management, directors or the Sponsors than would shareholders of a corporation incorporated in a jurisdiction in the United States, and our ability to protect our interests may be limited if we are harmed in a manner that would otherwise enable us to sue in a United States federal court. See "Description of Share Capital—Differences in Corporate Law".

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Certain provisions of our charter documents could discourage, delay or prevent a merger or acquisition at a premium price.

Our memorandum and articles of association will contain provisions that:

–>: permit us to issue, without any further vote or action by our shareholders, 25,000,000 preferred shares in one or more series and, with respect to each series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of such series, and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series; and
–>: at such time as we are no longer a "controlled company", will allow our board of directors to establish a classified board, and limit the ability of shareholders to call extraordinary general meetings or act by written consent in lieu of a meeting (we believe that such action by written consent would be impractical after the consummation of this offering, even while we are a "controlled company," because it requires unanimous shareholder approval under the laws of the Cayman Islands).

The foregoing provisions may impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing shareholders.

As a holder of the ordinary shares, you may have difficulty obtaining or enforcing a judgment against us because we are incorporated under the laws of the Cayman Islands.

Because we are a Cayman Islands company, there is uncertainty as to whether the Grand Court of the Cayman Islands would recognize or enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in the Cayman Islands against us predicated upon the securities laws of the United States or any state thereof.

An active trading market for our ordinary shares may not develop, and you may not be able to sell your ordinary shares at or above the initial public offering price.

Prior to this offering, there has been no public market for our ordinary shares. Although we have applied to have our ordinary shares quoted on the Nasdaq Global Market, an active trading market for our ordinary shares may never develop or be sustained following this offering. If no trading market develops, securities analysts may not initiate or maintain research coverage of our Company, which could further depress the market for our ordinary shares. As a result, investors may not be able to sell their ordinary shares at or above the initial public offering price or at the time that they would like to sell.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

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Risk Factors

The market price of our ordinary shares may be volatile, which could result in substantial losses for investors purchasing shares in this offering.

The initial public offering price for our ordinary shares will be determined through negotiations with the underwriters. This initial public offering price may vary from the market price of our ordinary shares after the offering. Some of the factors that may cause the market price of our ordinary shares to fluctuate include:

–>: the failure of securities analysts to cover our ordinary shares after this offering, or changes in financial estimates or recommendations by analysts;
–>: actual or anticipated variations in our or our competitors' operating results;
–>: failure by us or our competitors to meet analysts' projections or guidance that we or our competitors may give the market;
–>: volatility in our operating performance;
–>: future sales of our ordinary shares;
–>: investor perceptions of us and the industry;
–>: the public's reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission;
–>: general economic conditions; and
–>: the other factors described elsewhere in these "Risk Factors".

In addition, if the market for stocks of companies in our industry or the stock market in general experiences a loss of investor confidence, the trading price of our ordinary shares could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.

We anticipate that the net proceeds of this offering, together with current cash, cash equivalents, cash provided by operating activities and funds available from our new senior secured credit facility that we expect to enter into concurrent with this offering, including a $ million senior secured term loan with a $ million senior secured revolving credit facility, will be sufficient to meet our current and anticipated needs for general corporate purposes. It is possible, however, that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs, refinance our indebtedness or take advantage of acquisition opportunities. If this occurs, we may need additional financing to execute on our current or future business strategies, including to:

–>: hire additional engineers and other personnel;
–>: develop new or enhance existing products;
–>: enhance our operating infrastructure;
–>: acquire complementary businesses or technologies; or
–>: otherwise respond to competitive pressures.

If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our shareholders could be significantly diluted, and these newly issued securities may have

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rights, preferences or privileges senior to those of existing shareholders, including those acquiring shares in this offering. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures would be significantly limited.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our ordinary shares to drop significantly, even if our business is doing well.

Sales of a substantial number of our ordinary shares in the public market could occur at any time after the expiration of the lock-up agreements described in "Underwriters". These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our ordinary shares. After this offering, we will have ordinary shares outstanding based on the number of shares outstanding as of , 2011. This includes the shares that we are selling in this offering, which may be resold in the public market immediately. The remaining shares, or % of our outstanding shares after this offering, will be able to be sold, subject to any applicable volume limitations under U.S. federal securities laws, in the near future as set forth below.

In addition, the Sponsors have certain registration rights, which they may exercise in order to sell their shares through a registration statement filed by us on their behalf. For more information, see "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors—Shareholders and Registration Rights Agreement".

We plan to offer stock awards, which have the potential to dilute shareholder value and cause the price of our ordinary shares to decline.

We expect to offer stock awards to our directors, officers and employees, some of which may be vested at the time of this offering. If the stock awards are vested and exercised, and those shares are sold into the public market, the market price of our ordinary shares may decline. In addition, the availability of ordinary shares for award under any equity incentive plan that we adopt, or the grant of stock awards, may adversely affect the market price of our ordinary shares.

If you purchase ordinary shares sold in this offering, you will experience immediate and substantial dilution because our existing holders of ordinary shares paid substantially less than the initial public offering price for your shares.

You will experience immediate and substantial dilution of $ in pro forma net tangible book value per share because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire, based on the net tangible book value per share as of , 2011. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares.

We do not currently intend to pay dividends on our ordinary shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.

Isola Group Ltd. has never declared or paid any cash dividends on its ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth and do not anticipate paying cash dividends on our ordinary shares in the future. In addition, the instruments currently governing our indebtedness contain covenants that place limitations on the amount of dividends we may pay. Therefore, you are not likely to receive any dividends on your ordinary shares for the foreseeable future.

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Forward-looking Statements

This prospectus contains "forward-looking statements". All statements other than statements of historical fact are "forward-looking" statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward-looking terminology such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "might", "plan", "potential", "predict", "should" or "will" or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this prospectus under the headings "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this prospectus under the headings "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business", may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

–>: adverse developments in the global economy;
–>: our dependence on growth in our customers' businesses;
–>: our ability to remain competitive in the markets we serve;
–>: our inability to continue to develop, manufacture and market innovative, customized products and services that meet customers' requirements for performance and reliability;
–>: any failure of our suppliers to provide us with raw materials;
–>: termination of our key contracts, including technology license agreements, or loss of our key customers;
–>: our inability to protect our intellectual property;
–>: our failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect us;
–>: the loss of key employees;
–>: our exposure to foreign currency exchange rate risks;
–>: terrorist acts or acts of war; and
–>: other risks and uncertainties, including those listed under the caption "Risk Factors".

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason, except as required by law.

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Use of Proceeds

We estimate that our net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $ million, assuming the shares are offered at $ per ordinary share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus.

We intend to use the net proceeds as follows:

–>: $ million of the net proceeds will be used to prepay $ million in aggregate principal amount of indebtedness under our existing senior secured credit agreement, at a redemption price of 100% plus interest to the prepayment date; and
–>: $ million of the net proceeds will be used to prepay $ million in aggregate principal amount of indebtedness under our mezzanine credit agreement, at a redemption price of 100% plus interest to the prepayment date.

As of July 2, 2011, we had $210.0 million aggregate principal amount of secured term loans outstanding under our senior credit agreement which currently bear interest at a rate of 10% per annum and mature on September 30, 2015, and $185.7 million aggregate principal amount of unsecured loans outstanding under our mezzanine credit agreement which currently bear interest at a rate of 16% per annum and mature on March 24, 2016.

After application of the proceeds of this offering, the remaining balances of the loans under the senior and mezzanine credit agreements will be repaid with borrowings under a new senior secured credit facility, which we intend to enter into concurrently with the completion of this offering.

The following table summarizes the estimated sources and uses of proceeds in connection with the sale of ordinary shares by us and borrowings under our new senior secured credit facility consisting of a $ million senior secured term loan and a $ million senior secured revolving credit facility, assuming this offering and the refinancing had occurred on July 2, 2011. You should read the following together with the information set forth under "Prospectus Summary—Concurrent Transactions".

Sources		Amount


		(dollars in millions)
Ordinary shares offered hereby		$
New senior secured credit facility

Total Sources		$

Uses		Amount


		(dollars in millions)
Repay existing secured term loans		$
Repay existing unsecured term loans

Total Uses		$

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Dilution

Dilution represents the difference between the amount per share paid by investors in this offering and the as adjusted net tangible book value per share of our ordinary shares immediately after this offering.

Our net tangible book value as of , 2011 was a surplus of $ million, or $ per ordinary share. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of ordinary shares outstanding.

After giving effect to our receipt of the estimated net proceeds from our sale of ordinary shares in this offering, and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us, our net tangible book value, as adjusted, as of , 2011 would have been $ million, or $ per ordinary share. This represents an immediate increase in net tangible book value of $ per common share to our existing shareholders and an immediate dilution of $ per share to new investors purchasing our ordinary shares in this offering. The following table illustrates this per share dilution to the later investors:



Initial public offering price per share		$
	Pro forma net tangible book value per share as of , 2011
	Increase per share attributable to investors purchasing our ordinary shares in this offering

As adjusted net tangible book value per share after this offering

Dilution in net tangible book value per share to new investors purchasing our ordinary shares in this offering		$

The following table summarizes, as of , 2011, the number of shares purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us by existing shareholders and new investors purchasing our ordinary shares in this offering at an assumed offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing shareholders paid.

	Shares purchased				Total consideration

	Shares purchased				Total consideration				Average price per share
	Number	Percent			Amount	Percent			Average price per share

Existing shareholders				%				%	$
New investors
Total			100	%			100	%

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the total consideration paid by new investors by $ million and increase (decrease) the percent of total consideration paid by new investors by % assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same.

The number of ordinary shares to be outstanding after this offering is based on ordinary shares outstanding as of , 2011. Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters' option to purchase additional shares, and no exercise of any of our outstanding stock awards. If the underwriters' option to purchase additional shares is exercised in full, the number of ordinary shares held by existing shareholders will be reduced to % of the total

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number of ordinary shares to be outstanding upon completion of this offering which would be increased to shares, or %, of the total number of ordinary shares to be outstanding upon completion of this offering.

In addition, effective immediately upon the signing of the underwriting agreement for this offering, an aggregate of of our ordinary shares will be reserved for issuance under our 2011 Equity Incentive Plan. To the extent that any of our outstanding stock awards are exercised, new options are issued under our 2011 Equity Incentive Plan or we issue additional ordinary shares or other equity securities in the future, there will be further dilution to investors participating in this offering. Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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Dividend Policy

Isola Group Ltd. has never declared or paid any cash dividends on its ordinary shares. We currently intend to retain earnings, if any, to finance the development and growth of our business and do not anticipate paying cash dividends on our ordinary shares in the future. Our payment of any future dividends is restricted by our current credit agreements. The declaration and payment of dividends also is subject to the discretion of our board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.

In addition, under the Companies Law of the Cayman Islands, our board of directors may declare dividends only out of our accumulated net profits, out of share premium, provided that immediately following the date on which the dividend is to be paid we can pay our debts as they come due in the ordinary course of business, or (subject to the same solvency test as applies to payments from premium) out of any distributable capital reserve resulting from contributed surplus paid in to us.

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Capitalization

Prior to this offering, a substantial amount of the investment in Isola is represented by convertible preferred certificates issued by Isola's current Luxembourg Holding Company to the Sponsor Limited Partnership, which is controlled by our Sponsors. Immediately prior to this offering, we will reorganize as Isola Group Ltd., a Cayman Islands company, and all of the outstanding securities of the Luxembourg Holding Company, including the common shares and these convertible preferred certificates, will be effectively converted into ordinary shares of Isola Group Ltd., as described in "Concurrent Transactions—Corporate Reorganization" (the "Corporate Reorganization and Conversion").

The following table sets forth both our cash and cash equivalents and our capitalization as of July 2, 2011:

–>

on an actual basis;

–>

on a pro forma basis to give effect to the Corporate Reorganization and Conversion;

–>

on a pro forma as adjusted basis to give effect to:

–>: the Corporate Reorganization and Conversion;
–>: the sale of ordinary shares by us in this offering at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the front cover page of this prospectus; and
–>: the application of the net proceeds of this offering and our new senior secured credit facility as described under "Use of Proceeds".

This table should be read in conjunction with our consolidated financial statements and accompanying notes thereto, "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" included elsewhere in this prospectus.

		As of July 2, 2011

		Actual			Pro forma	Pro forma as adjusted

		(dollars in thousands, except per share data)
Cash and cash equivalents		$	56,010

Debt and borrowings
	Secured term loans issued under existing senior secured credit agreement, net of unamortized discount of $25.3 million		184,656
	Unsecured term loans issued under mezzanine credit agreement, net of unamortized discount of $66.2 million		119,512
	Secured term loans issued under new senior secured credit facility		—
	Loans issued under new revolving credit facility		—
	Convertible preferred certificates		224,679
	Other indebtedness		15,017

Total debt and borrowings		$	543,864		$	$

Stockholders' equity
	Common shares of Isola Group S.a.r.l., €25 par value ($31), 500 shares authorized, issued and outstanding (actual)		15
	Ordinary shares of Isola Group Ltd., 100,000,000 shares authorized, shares issued and outstanding (pro forma), and shares issued and outstanding (pro forma as adjusted)
Additional paid-in capital			31,864
Accumulated deficit			(413,709	)
Accumulated other comprehensive income / (loss)			(36,064	)

Total stockholders' deficiency			(417,894	)

Total capitalization		$	125,970		$	$

Table of Contents

Selected Historical Consolidated Financial and Other Data

The following table presents our selected historical consolidated financial and other data. The consolidated statements of operations data, balance sheet data and other financial data as of and for fiscal 2010, 2009, 2008, 2007 and 2006 are derived from our audited consolidated financial statements which, except for fiscal 2007 and 2006 and balance sheet data as of the end of fiscal 2008, are included elsewhere in this prospectus. The consolidated statements of operations data, balance sheet data and other financial data as of and for the six months ended July 2, 2011 and June 26, 2010 are derived from our unaudited interim financial statements for those periods included elsewhere in this prospectus and have been prepared on a basis consistent with the respective audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of that information for such periods. The financial data presented for the interim periods is not necessarily indicative of the results for the full year. The selected historical consolidated financial and other data below should be read in conjunction with "Use of Proceeds", "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus.

			Six months ended						Fiscal year

			July 2, 2011			June 26, 2010			2010			2009			2008			2007			2006⁽³⁾

			(dollars in thousands, except per share amounts)⁽¹⁾
Consolidated Statement of Operations Data:
Revenues			$	316,583		$	306,957		$	611,987		$	416,140		$	570,333		$	631,233		$	642,622
Cost of goods sold				240,433			231,908			467,751			330,584			487,052			523,517			527,018

Gross profit				76,150			75,049			144,236			85,556			83,281			107,716			115,604

Operating expenses:
	Sales, general and administrative			38,371			31,343			65,271			59,656			62,763			63,875			75,141
	Research and development			5,193			4,817			9,532			9,244			10,663			8,518			7,257
	Restructuring			177			3,464			4,782			18,129			7,692			1,736			4,385
	Goodwill impairment															8,513

		Total operating expenses	$	43,741		$	39,624		$	79,585		$	87,029		$	89,631		$	74,129		$	86,783

Operating income / (loss)				32,409			35,425			64,651			(1,473	)		(6,350	)		33,587			28,821
Other income / (loss)—net				1,031			3,005			2,020			224			2,768			3,211			(1,076	)
Embedded derivative gain / (loss)				17,472			(58,162	)		25,030			(27,513	)		115,352			59,707			(71,582	)
Interest expense⁽²⁾				(39,032	)		(26,997	)		(72,134	)		(54,620	)		(58,478	)		(49,097	)		(26,905	)
Interest income				94			159			339			453			1,307			2,511			1,646
Foreign exchange gain / (loss)–net				(20,402	)		27,863			9,596			(2,116	)		(341	)		(27,000	)		(1,929	)

Income / (loss) from continuing operations before income taxes				(8,428	)		(18,707	)		29,502			(85,045	)		54,258			22,919			(71,025	)
Provision for income taxes				(10,679	)		(11,818	)		(24,420	)		(6,504	)		(6,804	)		(11,136	)		(7,807	)
Loss from discontinued operations, net of tax													(9,177	)		(11,655	)		(7,328	)		(5,630	)

Net income / (loss)			$	(19,107	)	$	(30,525	)	$	5,082		$	(100,726	)	$	35,799		$	4,455		$	(84,462	)
Net income / (loss) per common share
	Basic		$	(38.21	)	$	(61.05	)	$	10.16		$	(201.45	)	$	71.60		$	8.91		$	(168.92	)
	Diluted		$	(38.21	)	$	(61.05	)	$	10.16		$	(201.45	)	$	71.60		$	8.91		$	(168.92	)
Weighted average number of common and common equivalent shares outstanding
	Basic			500			500			500			500			500			500			500
	Diluted			500			500			500			500			500			500			500

Table of Contents

Selected Historical Consolidated Financial and Other Data

	As of						Fiscal year

	July 2, 2011			June 26, 2010			2010			2009			2008			2007			2006

	(dollars in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	56,010		$	58,182		$	36,733		$	38,932		$	74,084		$	88,564		$	83,380
Current assets		228,537			251,300			201,208			178,362			213,435			277,742			300,160
Total assets		402,366			413,071			377,194			357,852			424,324			528,482			535,188
Current liabilities		149,242			537,389			131,603			480,461			467,488			215,994			222,236
Working capital (deficit)		79,295			(286,089	)		69,605			(302,099	)		(254,053	)		61,748			77,924
Long-term debt and capital lease obligations		319,784			13,968			306,547			16,408			30,254			313,325			310,463
Convertible preferred certificates		224,679			155,860			199,136			176,595			162,567			152,700			126,565
Total liabilities		820,260			841,611			774,758			756,210			726,882			852,935			862,629
Common stock and additional paid in capital		31,879			28,978			30,667			28,175			26,418			25,196			22,846
Total stockholders' deficiency		(417,894	)		(428,542	)		(397,564	)		(398,358	)		(302,558	)		(324,453	)		(327,441	)
Other Financial Data:
Adjusted EBITDA⁽⁴⁾	$	49,180		$	49,186		$	89,661		$	38,983		$	37,647		$	66,170		$	52,956

(1): For factors that may affect the comparability of financial information included in this table to future results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operation—Factors Affecting Comparability".
(2): Interest expense for the six months ended July 2, 2011 was $39.0 million (comprised of cash interest expense of $18.0 million and non-cash interest expense of $21.0 million). Non-cash interest expense includes the amortization of deferred loan origination costs, the amortization of original issue discount, the accretion of interest paid-in-kind on our debt under our mezzanine credit agreement and the accretion of interest on our convertible preferred certificates. We intend to use the proceeds of this offering to reduce our current indebtedness and to refinance the remaining balance of our current indebtedness with $ million borrowed under a new senior secured credit facility bearing interest at % per annum. If such transactions had occurred as of the end of fiscal 2010, our interest expense for the six months ended July 2, 2011 would have been $ million.
(3): We acquired the Polyclad Laminates ("Polyclad") business segment from Cookson Electronics on April 21, 2006. The acquisition of Polyclad was accounted for as a purchase transaction. Polyclad's operating results have been included since the date of acquisition.
(4): Adjusted EBITDA is defined as net income / (loss) less (A) loss from discontinued operations, net of tax, plus (B) (i) interest expense and interest income, net, (ii) provision from income taxes, (iii) depreciation and amortization and (iv) certain additional adjustments. These additional adjustments include stock-based compensation, restructuring charges, foreign exchange gain / (loss)–net, goodwill impairment, management fees paid to TPG Capital, embedded derivatives gain / (loss), gain related to a settlement of a patent infringement matter and pre-IPO expenses.
: Adjusted EBITDA is a measure used by management and external users of our consolidated financial statements to evaluate operating performance, but it is not a recognized term under U.S. GAAP and is not an alternative to net income as a measure of overall financial performance or to Cash Flows from Operating Activities as a measure of cash generated from operating activities. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for management's discretionary use, as it does not consider certain cash requirements such as for tax payments and debt service requirements, nor does it consider the need for incremental working capital or capital expenditures.
: We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending on accounting methods and book values of assets, capital structure and the method by which assets were acquired. We further believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA or Adjusted EBITDA measure when reporting their results. We use non-GAAP financial measures to supplement U.S. GAAP measures to provide a further understanding of the factors and trends affecting the business that U.S. GAAP measures alone can not provide. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Table of Contents

Selected Historical Consolidated Financial and Other Data

The following table presents a reconciliation of net income / (loss), the most directly comparable financial measure under U.S. GAAP, to Adjusted EBITDA for the periods presented.

	Six months ended						Fiscal year

	July 2, 2011			June 26, 2010			2010			2009			2008			2007			2006

	(dollars in thousands)
Net income / (loss):	$	(19,107	)	$	(30,525	)	$	5,082		$	(100,726	)	$	35,799		$	4,455		$	(84,462	)
Less loss from discontinued operations, net of tax											9,177			11,655			7,328			5,630

Income / (loss) from continuing operations		(19,107	)		(30,525	)		5,082			(91,549	)		47,454			11,783			(78,832	)
Interest expense		39,032			26,997			72,134			54,620			58,478			49,097			26,905
Interest income		(94	)		(159	)		(339	)		(453	)		(1,307	)		(2,511	)		(1,646	)
Provision for income taxes		10,679			11,818			24,420			6,504			6,804			11,136			7,807
Depreciation and amortization		8,683			8,464			16,937			18,296			21,752			23,001			17,044
Stock-based compensation		1,212			803			2,219			1,757			1,222			2,350			1,752
Restructuring charges		177			3,464			4,782			18,129			7,692			1,736			4,385
Foreign exchange translation (gain) / loss		20,402			(27,863	)		(9,596	)		2,116			341			27,000			1,929
Goodwill impairments														8,513
Management fee expense—TPG Capital		1,024			1,025			2,052			2,050			2,050			2,285			2,030
Embedded derivative (gain) / loss		(17,472	)		58,162			(25,030	)		27,513			(115,352	)		(59,707	)		71,582
Gain related to settlement of a patent infringement matter					(3,000	)		(3,000	)
Pre-IPO expenses		4,644

Adjusted EBITDA	$	49,180		$	49,186		$	89,661		$	38,983		$	37,647		$	66,170		$	52,956

Table of Contents

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related footnotes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the sections titled "Risk Factors" and "Forward-Looking Statements" included elsewhere in this prospectus. You should read the following discussion together with the sections titled "Risk Factors", "Selected Historical Consolidated Financial and Other Data" and our consolidated financial statements, including the related footnotes, included elsewhere in this prospectus.

OVERVIEW

Business

Our high-performance PCB laminate materials are used in a variety of advanced electronics, including network and communications equipment and high-end consumer electronics, as well as advanced automotive, aerospace, military and medical applications. Demand in these markets is driven by the rapid growth of bandwidth-intensive, high-speed data transmission, the expansion of the internet, the emergence of cloud computing and the evolution of increasingly complex communications technology. This has led to an urgent need for the development of the underlying infrastructure to support this growth, including faster and more efficient semiconductor technology. In addition, increasingly pervasive environmental regulations are driving a need for lead-free compatible, high-performance laminate materials.

We sell our laminate materials globally to leading PCB fabricators, including DDi, Ruwel, Sanmina, TTM Technologies, Viasystems and WUS Printed Circuit. These fabricators produce PCBs incorporating our laminate materials for electronic equipment designed or produced by a broad group of major original equipment manufacturers, or OEMs, including Alcatel-Lucent, Brocade, Cisco, Google, Hewlett-Packard, Huawei, IBM and Sun Microsystems (now Oracle). We work closely with these leading PCB fabricators and major OEMs to ensure that our high-performance laminate materials incorporating our proprietary resins meet the thermal, electrical and physical performance criteria of each new generation of electronic equipment.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Recession and Response

Over the past three years, we have improved our manufacturing capacity utilization and business processes, focused on designing and manufacturing higher margin, high-performance products, and refinanced our indebtedness. Many of these improvements were a result of our response to the global recession.

We entered into two credit facilities in 2006, referred to as our first- and second-lien facilities. The leverage covenants set forth in these facilities became more restrictive over time, requiring periodic increases in our EBITDA (as defined under those facilities) relative to our indebtedness outstanding. At the end of the second quarter of 2008, we were unable to comply with the tightened covenants. In August 2008, we negotiated amendments to these facilities that provided us with more flexible financial covenants, but also resulted in increased interest expense and additional loan amortization payments.

In the wake of the global recession that began in 2008, our revenues and EBITDA declined significantly in the last two quarters of 2008, and in January 2009 we notified the lenders under our first- and second-lien facilities that we had defaulted under the revised leverage covenants and were suspending cash interest payments. With the assistance of an outside advisor, we took aggressive measures to reduce fixed expenses and cash outflows. The more significant measures were the closure of our manufacturing facilities in Fremont, California, Dalian, China and Bottegone, Italy, and the transfer of production from these closed facilities to other nearby manufacturing sites. We also suspended matching grants for U.S. employee 401(k) contributions and our annual company-wide bonus plan and initiated mandatory salary reductions. We estimate that the consolidation of manufacturing and related actions permanently reduced our annual fixed operating costs by an estimated $30.0 million and significantly improved our manufacturing capacity utilization.

When global demand for electronic products began to improve in mid-2009, our enhanced operational leverage, in combination with our increased emphasis on higher margin, high-performance products, led to improved profits and cash flow. In September 2010, based on these improvements, we paid in full the principal and accrued interest on our first- and second-lien credit facilities from cash on hand and loans under two new credit agreements: a $210.0 million senior credit and guaranty agreement, referred to as our senior secured credit agreement, and a mezzanine credit and guaranty agreement in an initial principal amount of $175.0 million, referred to as our mezzanine credit agreement.

Immediately prior to this offering, Isola Group S.a.r.l. (our current Luxembourg holding company) will reorganize as a Cayman Islands company, Isola Group Ltd. The reorganization is expected to be a tax-free transaction and the Company does not anticipate that there will be any material income tax expense as a result of the restructuring or any material change to the Company's ongoing tax position.

KEY FINANCIAL MEASURES

Revenue

Revenue consists primarily of sales of our laminate materials: copper-clad laminates and prepreg. We sell these materials to major PCB fabricators primarily through our direct global sales force, and we sell to smaller fabricators primarily through third-party distribution arrangements. We have no long-term customer agreements and sell to customers on a purchase order basis. Consequently, we maintain very little backlog, and our revenue is subject to short-term variability in demand. Although we do not maintain long-term agreements with our customers, we have developed close relationships with them and the major OEMs that they serve. Through these relationships, we seek to ensure that our PCB laminate materials are qualified for use in an OEM's product line. In some cases, OEMs may specify Isola laminates as the preferred material. Once a particular PCB laminate material is "designed in" or qualified for use in a specific product line and one or more particular laminate suppliers are selected, these suppliers tend to remain

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Management's Discussion and Analysis of Financial Condition and Results of Operations

suppliers of choice, even as PCBs for these products change to address OEM product line improvements or extensions or next generation developments.

Revenue in the laminate materials industry tends to reflect broad economic trends, as well as trends in the semiconductor industry. Historically, revenue has been disproportionally affected (both positively and negatively) by such trends due to adjustments of inventory levels within the supply chain in response to changing economic conditions. In particular, PCB fabricators tend to discontinue laminate purchases at the perceived onset of economic downturns and tend to wait to restock supplies until they reach critical levels following recessionary conditions. Revenue was $570.3 million for fiscal 2008, $416.1 million for fiscal 2009 and $612.0 million for fiscal 2010, and $307.0 million for the six months ended June 26, 2010 as compared to $316.6 million for the six months ended July 2, 2011, reflecting the decline into, and beginning of a recovery from, the global recession.

Our sales prices are affected primarily by competitive factors, as well as changing costs of raw materials used in production, especially copper. Copper is a globally traded commodity subject to ongoing market fluctuations. When feasible, we pass on changes in costs of raw materials to our customers. We believe that the high-performance segment of the PCB materials industry is more resilient to economic downturns and that customers are generally more willing to absorb, or share, increases in raw materials costs for such products.

A significant percentage of our revenue has historically been concentrated in a limited number of larger customers. While only one of our customers accounted for more than 10% of our revenues in each of fiscal 2010, fiscal 2009 and fiscal 2008 and the six months ended July 2, 2011 and June 26, 2010, we believe that our ten largest customers accounted for the majority of our revenues in each of these periods. Though the composition of our top ten customers varies from year to year, we expect that sales to a limited number of customers will continue to account for a significant percentage of our total revenue for the foreseeable future.

Cost of Goods Sold

Our cost of goods sold includes raw materials, direct and indirect labor and overhead costs such as rent, supplies, and utilities. Cost of goods sold was $240.4 million in the six months ended July 2, 2011 (75.9% of total revenue) as compared to $231.9 million in the six months ended June 26, 2010 (75.6% of total revenue). Cost of goods sold was $467.8 million in fiscal 2010 (76.4% of total revenue), $330.6 million in fiscal 2009 (79.4% of total revenue) and $487.1 million in fiscal 2008 (85.4% of total revenue). The changes in cost of goods sold as compared to revenue are discussed in the "Gross Margin" section below.

Gross Margin

Gross margin, which is gross profit as a percentage of total revenue, has historically been, and is expected in the future to be, affected by a variety of factors, including the mix of products we sell, competitive pricing pressures, changes in the costs of raw materials (and our ability to pass through these changes to our customers), labor costs, overhead costs, production volume and manufacturing capacity utilization.

Our high-performance products, which address technically challenging applications, typically have higher average selling prices and higher gross margins than our standard products. In addition, when we provide products on a "quick-turn" basis we are often able to command a pricing premium, which results in higher gross margin than products provided on a standard lead-time basis.

Our overall gross margin was 24.1% in the six months ended July 2, 2011 as compared to 24.4% in the six months ended June 26, 2010; overall gross margin was 23.6% in fiscal 2010, 20.6% in fiscal 2009 and 14.6% in fiscal 2008. The first six months of fiscal 2010 were positively impacted by the restocking of our

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Management's Discussion and Analysis of Financial Condition and Results of Operations

materials by PCB manufacturers as economic conditions improved. The improvement in gross margin from fiscal 2008 to fiscal 2010 reflects the operational improvements we made during fiscal 2008 and 2009 and our ongoing focus on higher margin, high-performance products. We expect overall gross margin to continue to improve over time as demand expands in a strengthening economy and high-performance products become an increasing percentage of our overall revenue. However, our revenues and gross margin will continue to be subject to general economic conditions and cyclical factors affecting our industry.

Operating Expenses

Our operating expenses include the following:

Sales, general and administrative expense. Our sales, general and administrative, or SG&A, expense includes expenses incurred in the selling and marketing of our products to customers, as well as corporate administrative expenses. Sales expenses consist primarily of compensation, benefits and other expenses for sales and marketing personnel, as well as expenses related to advertising, marketing and trade shows, plus bad debt expense. General and administrative expenses consist primarily of compensation and associated expenses for executive management, human resources, finance and administrative personnel. SG&A expense was $38.4 million in the six months ended July 2, 2011 (12.1% of total revenue) as compared to $31.3 million in the six months ended June 26, 2010 (10.2% of total revenue). The increase in SG&A expense for the six months ended July 2, 2011 was due to higher professional fees associated with this offering. SG&A expense was $65.3 million in fiscal 2010 (10.7% of total revenue), $59.7 million in fiscal 2009 (14.3% of total revenue) and $62.8 million in fiscal 2008 (11.0% of total revenue). The percentage reduction in fiscal 2010 compared to fiscal 2009 was primarily attributable to the increase in revenue. We expect SG&A expense to decrease as a percentage of revenue in the future as the economy continues to strengthen and demand for our products increases.

Research and development expense. Research and development, or R&D, expense consists of the compensation, benefits and other expenses of R&D personnel, as well as other product development costs, such as direct product design, development and process engineering expenses, legal fees related to the defense of intellectual property and the depreciation of the capital equipment and facilities used by R&D staff. All R&D costs are recorded as expenses when incurred. Our investments in R&D were $5.2 million in the six months ended July 2, 2011 (1.6% of total revenue) as compared to $4.8 million in the six months ended June 26, 2010 (1.6% of total revenue). R&D expenses were $9.5 million in fiscal 2010 (1.6% of total revenue), $9.2 million in fiscal 2009 (2.2% of total revenue), and $10.7 million in fiscal 2008 (1.9% of total revenue). We are committed to adding more technical resources to this important function and expect that R&D expense will increase over time. However, R&D expense as a percentage of our total revenue is expected to decline in the future as demand for our products increases.

Based on input from OEMs and PCB fabricators, we develop new resin formulations that achieve specific needs for electrical, thermal and physical performance. We undertake very little exploratory research not directly linked to particular market or customer needs. Our OEM marketing and R&D efforts are tightly integrated, with both functions reporting to our Chief Technology Officer. However, the expense of these OEM marketing efforts, which we estimate totaled approximately $2.1 million in the six months ended July 2, 2011 as compared to approximately $2.0 million in the six months ended June 26, 2010, and we estimate totaled approximately $4.4 million in fiscal 2010, approximately $3.6 million in fiscal 2009 and approximately $3.8 million in fiscal 2008, is included in SG&A expense.

Restructuring expense. We identify separately the expenses related to restructuring activities, including the cost of site closures and attendant severance expenses, as well as professional fees incurred in connection with restructuring activities. As described above, in 2008 and 2009 we initiated a number of measures centered on streamlining our organizational structure, reducing labor costs and improving manufacturing

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Management's Discussion and Analysis of Financial Condition and Results of Operations

capacity utilization. In this regard, we recorded restructuring expenses of $0.2 million in the six months ended July 2, 2011 as compared to $3.5 million in the six months ended June 26, 2010. Restructuring expenses were $4.8 million in fiscal 2010, $18.1 million in fiscal 2009 and $7.7 million in fiscal 2008. Our major restructuring initiatives have been largely completed. We expect to incur minimal restructuring charges in the remainder of 2011, principally in connection with our reorganization as a Cayman Islands company and immaterial residual costs associated with various prior site closures.

Goodwill impairment charges. We test our goodwill asset for possible impairment at least annually and recognize any related losses when incurred. If the carrying value of goodwill exceeds its fair value, a second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Circumstances that may lead to impairment of goodwill include, but are not limited to, the loss of a significant customer or customers and unforeseen reductions in customer demand, future operating performance or industry demand. As a result of recession-induced reductions in industry demand, we recognized a goodwill impairment charge in 2008 of $8.5 million. This charge eliminated all goodwill from our balance sheet.

Non-operating Expenses

Other income—net. Other income—net consists of royalty income and other various forms of non-operating income and expenses. Other income—net was $1.0 million in the six months ended July 2, 2011, as compared to $3.0 million in the six months ended June 26, 2010, which included a $3.0 million gain on the successful settlement of an intellectual property dispute. Other income–net was $2.0 million in fiscal 2010, $0.2 million in fiscal 2009 and $2.8 million in fiscal 2008.

Embedded derivative gain / (loss). The conversion feature of our convertible preferred certificates is considered an embedded derivative. In addition, the mandatory pre-payment features of our senior secured credit agreement and our mezzanine credit agreement are also considered embedded derivatives. The value of each of these embedded derivatives is measured quarterly, and any changes in the values are reflected in embedded derivative gain / (loss). Changes in the value of these derivatives have no impact on cash flow.

The embedded derivative gain / (loss) associated with the convertible preferred certificates and debt in any period reflects changes in the valuation of our company which we determine with the assistance of a third party consultant using both income and market approaches to arrive at our enterprise value. The income approach estimates our enterprise value by discounting our expected future cash flows to present value. The market approach estimates our total enterprise value by comparing our business to similar businesses whose securities are actively traded in public markets, or businesses that are involved in a public or private transaction. Valuation multiples are derived from trading multiples of public companies that participate in our industry. These valuation multiples are then applied to the equivalent financial metrics of our business, giving consideration to differences between our company and similar companies for such factors as size, financial leverage, and growth prospects.

When the estimated enterprise value of our company increases from period to period, the value of the embedded derivatives liability associated with the convertible preferred certificates increases and we record an embedded derivative loss. Conversely, when the estimated enterprise value of our company decreases from period to period, we record an embedded derivative gain.

The embedded derivative gain on the convertible preferred certificates was $11.9 million in the six months ended July 2, 2011, as compared to a loss of $58.2 million in the six months ended June 26, 2010. In fiscal 2010 we recorded an embedded derivative gain of $21.7 million, in fiscal 2009 we recorded a loss of $27.5 million and in fiscal 2008 we recorded a gain of $115.4 million.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

The embedded derivative gain on loans under the senior secured credit agreement and mezzanine credit agreement was $5.6 million for the six months ended July 2, 2011, as compared to zero for the six months ended June 26, 2010, which preceded the date of our senior secured credit agreement and mezzanine credit agreement (these credit agreements were effective on September 30, 2010, which fell into our fiscal fourth quarter of 2010). The embedded derivative gain related to the mandatory pre-payment features of our senior secured credit agreement and mezzanine credit agreement was $3.3 million in fiscal 2010.

Interest expense. Interest expense consists of cash and non-cash interest expense. Non-cash interest expense includes the amortization of deferred loan origination costs, the amortization of original issue discount ("OID"), the accretion of interest paid-in-kind ("PIK") on our mezzanine debt and the accretion of interest on our convertible preferred certificates. See "Description of Indebtedness—Our Existing Credit Agreements".

Total interest expense was $39.0 million in the six months ended July 2, 2011, as compared to $27.0 million in the six months ended June 26, 2010. This $12.0 million increase was primarily due to higher interest rates as well as higher OID amortization. Non-cash interest expense was $21.0 million in the six months ended July 2, 2011, as compared to $5.4 million in the six months ended June 26, 2010. In the six months ended July 2, 2011, the non-cash interest included $7.2 million of PIK interest on our mezzanine debt and $5.0 million of OID amortization expense, (of which $2.1 million was attributable to loans under the senior secured credit agreement and $2.9 million was attributable to loans under the mezzanine agreement), and $1.0 million amortization of deferred loan origination costs. Non-cash interest also includes accreted interest on the convertible preferred certificates of $7.8 million in the six months ended July 2, 2011 and $4.7 million in the six months ended June 26, 2010.

Total interest expense was $72.1 million in fiscal 2010, $54.6 million in fiscal 2009 and $58.5 million in fiscal 2008. Interest expense increased $17.5 million in fiscal 2010 compared to fiscal 2009, which amount included $9.5 million of "interest on unpaid interest" under the previous first- and second-lien credit facilities. Non-cash interest expense was $21.2 million in fiscal 2010, $11.7 million in fiscal 2009 and $20.5 million in fiscal 2008. Of the non-cash interest expense in fiscal 2010, $3.6 million was PIK interest on our mezzanine debt and $2.3 million was OID amortization, of which $1.0 million was attributable to loans under the senior secured credit agreement and $1.3 million was attributable to loans under the mezzanine agreement. $4.6 million of non-cash interest in 2010 was attributable to deferred loan origination costs of which $2.8 million was due to the write-off of deferred loan origination costs related to our prior first- and second-lien credit facilities which were repaid in the fourth quarter of fiscal 2010. Non-cash interest expense also includes interest on the convertible preferred certificates of $10.7 million in fiscal 2010, $10.5 million in fiscal 2009 and $15.1 million in fiscal 2008.

We intend to prepay in full our outstanding senior secured and mezzanine debt with the proceeds of this offering and with the proceeds of borrowings under a new senior secured credit facility, which will accelerate the amortization of OID and deferred loan origination costs associated with our current credit agreements. See "—Factors Affecting Comparability—Reduction of Interest Expense Through Debt Repayment" and "Use of Proceeds".

Foreign Exchange Effects

Our functional currency and reporting currency is the U.S. dollar. Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than our subsidiaries' functional currencies) are included in foreign exchange gains and losses in the consolidated statement of operations in the period they occur.

Foreign currency transaction gains and losses, unrealized translation gains and losses associated with certain of our foreign subsidiaries with a U.S. dollar functional currency that maintain their books of record

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in a currency other than the U.S. dollar and unrealized translation gains and losses on short-term intercompany and operating receivables and payables denominated in a currency other than the functional currency are included in foreign exchange gains and losses in the consolidated statement of operations.

For each foreign subsidiary whose functional currency is the local currency, assets and liabilities are translated into U.S. dollars using exchange rates prevailing at the end of each reporting period, while revenues and expenses are translated at average rates in effect for the period. The related translation gains and losses are included in accumulated other comprehensive income / (loss) within equity on the consolidated balance sheet.

Foreign exchange gain / (loss)—net totaled a loss of $20.4 million in the six months ended July 2, 2011 as compared to a gain of $27.9 million in the six months ended June 26, 2010, and totaled a gain of $9.6 million in fiscal 2010, a loss of $2.1 million in fiscal 2009, and a loss of $0.3 million in fiscal 2008.

Discontinued Operations

Discontinued operations reflect the operations and the loss on the disposal of our closed Italian laminate facility, Mas Italia. We have completed the liquidation of this subsidiary pursuant to a formal legal process. In connection with our plan to close the facility in 2009, we reclassified the financial results of Mas Italia as discontinued operations. Accordingly, we reported a loss from discontinued operations of $5.6 million in 2009 and $11.7 million in 2008, and a loss on disposal of discontinued operations of $3.6 million in 2009. We do not expect to incur any further significant losses in connection with closure of this facility or liquidation of its related subsidiary.

FACTORS AFFECTING COMPARABILITY

We anticipate that the following factors, which are described in greater detail above, will affect the comparability of our historic and future financial performance:

–>: our major restructuring activities have been largely completed, and we expect to incur minimal charges related to these activities in the future;
–>: financial results attributable to our discontinued operations were minimal in the three months ended July 2, 2011, and are expected to be immaterial for the remainder of 2011; and
–>: as a result of the effective conversion of our Sponsors' investment in Isola from convertible preferred certificates to ordinary shares in connection with our initial public offering, we will not incur financial effects (principally accreted non-cash interest expense) related to these securities subsequent to the effective date of the offering.

The following sets forth additional factors that may affect the comparability of our historic and future results:

Fiscal Year and 53rd Week Impact

We operate on either a 52- or 53-week fiscal year. References to fiscal 2010 are for the fiscal year ended January 1, 2011; references to fiscal 2009 are for the fiscal year ended December 26, 2009; and references to fiscal 2008 are for the fiscal year ended December 27, 2008.

Each quarterly period of the fiscal year typically has 13 weeks, except for the occasional 53-week year when the fourth quarter has 14 weeks. This 53-week year occurs every five to six years to keep the fiscal and calendar quarters in approximate alignment. Our fiscal years 2009 and 2008 each consisted of 52 weeks. Our 2010 fiscal year consisted of 53 weeks, which had a favorable impact on revenue and operating income. Fiscal year 2011 is a 52-week year.

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Reduction of Interest Expense

Immediately prior to the completion of our initial public offering, we will undergo a corporate reorganization that includes the effective conversion of all of our outstanding convertible preferred certificates to ordinary shares. As a result of this conversion, we will no longer record accreted interest expense related to the convertible preferred certificates, which was $10.7 million in fiscal 2010. In the fiscal quarter in which the conversion takes place, we will reclassify the embedded derivative liability which has a balance of $ million at , 2011 to stockholder's equity in the consolidated balance sheet. We will also reclassify approximately $ million of OID incurred in connection with the Class C convertible preferred certificates to stockholder's equity in the consolidated balance sheet.

We intend to use the proceeds of this offering to reduce our current indebtedness and to refinance the remaining balance of our current indebtedness with $ million borrowed under a new senior secured credit facility bearing interest at % per annum. We expect to reduce our annualized cash interest expense by $ million and our total interest expense by $ million. Both annualized interest expense savings are based on our annualized actual cash and non-cash interest expense for the six month period ended July 2, 2011. Also, in the fiscal quarter in which we pay down our current debt, as a result of refinancing our current indebtedness we will amortize to interest expense approximately $ million of OID incurred in connection with these financings and write off approximately $ million of deferred financing costs. We expect that our interest expense will benefit from the termination of the amortization of OID and deferred loan origination costs described above.

Management Fees and Expense

In connection with the acquisition and investment in the Isola Group by TPG Capital, we entered into a management agreement with TPG Capital, which remains one of our Principal Sponsors. In each of the six months ended July 2, 2011 and June 26, 2010, we accrued approximately $1.0 million in management fees payable to TPG Capital under this agreement. Management fees and related expenses were $2.1 million annually in fiscal 2010, 2009 and 2008, and were paid in full by mid-year 2011. Concurrently with the closing of this offering, the management agreement will be terminated, provided that we will remain obligated to pay TPG Capital an $8.0 million transaction fee plus approximately $1.0 million in accrued management fees and related expenses through such date. See "Certain Relationships and Related Transactions—Agreements with Our Sponsors".

Public Company Expense

Upon consummation of this public offering, we will become a public company and our ordinary shares will be listed for trading on the Nasdaq Global Market. As a result, we will need to comply with numerous additional laws, regulations, and requirements. In 2011, we hired a General Counsel, a Director of External Reporting and a Senior Tax Director, and we plan to hire other tax, finance, accounting and human resources personnel, as needed, to enhance our internal compliance capabilities. We will also be adding new independent board members, who will be compensated in accordance with market practice, and we have procured more comprehensive director and officer liability insurance covering our increased exposure as a public company. We estimate that incremental annual public company costs will be approximately $3.0 million.

We expect that we will incur approximately $9.0 million in expenses in connection with this offering, including our reorganization as a Cayman Islands company. We have incurred $4.6 million in expenses in connection with this offering as of July 2, 2011, which we have elected to expense rather than defer and apply as a reduction of net proceeds to be received from this offering.

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Non-cash Stock-based Compensation Charges

Upon consummation of the offering and capitalization of our new Cayman holding company, outstanding management equity awards will be converted to equivalent awards in the new, publicly traded company. In addition, we adopted our 2011 Equity Incentive Plan under which we may make future equity awards to directors, executives, and other employees.

Upon the closing, we anticipate granting restricted stock to our independent directors and various equity awards to officers and key employees. These equity awards will result in a non-cash compensation charge to the consolidated statement of operations in future fiscal periods as the awards vest.

Tax Contingencies

The Company and its subsidiaries file income tax returns with U.S. federal, state and local and non-U.S. jurisdictions and are subject to audits of those returns. Currently, the Internal Revenue Service ("IRS") is examining the 2008 and 2009 federal income tax returns. The Company and its subsidiaries are no longer subject to IRS examination for periods prior to 2007, although carryforward attributes that were generated prior to 2007 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. Income tax returns filed by the Company's German subsidiaries are also under examination for the years 2004 through 2007. With a few exceptions, the Company and its subsidiaries are no longer subject to examination for years prior to 2004.

The Company has recorded $56.4 million and $53.4 million related to uncertain tax positions in the consolidated balance sheet as of July 2, 2011 and January, 1, 2011, respectively. In this regard, an uncertain tax position represents the Company's expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities, the Company does not recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in its consolidated balance sheet. Much of the recorded liability for uncertain tax positions is associated with tax jurisdictions where we have experienced significant net operating losses in the past and accordingly, a significant portion of the recorded liability, if settled unfavorably, would not be settled in cash.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Overview

As a result of becoming a public company, we will have to comply with the standards adopted by the Public Company Accounting Oversight Board. More specifically, pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to report on, among other things, the effectiveness of our internal control over financial reporting. This reporting requirement will begin with our Annual Report on Form 10-K for our 2012 fiscal year ending December 29, 2012 (to be filed in early 2013). Management's assessment of the effectiveness of our internal controls will have to include disclosure of any material weaknesses identified in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal controls over financial reporting. Prior to becoming a public company, we are not required to be compliant with the requirements of Section 404 of the Sarbanes-Oxley Act.

Material Weakness

In preparation for this offering, we and our independent registered public accounting firm identified a material weakness in our internal controls over financial reporting. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of

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deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected and corrected in a timely manner. Our internal control deficiencies resulted in material adjustments to the Company's previously issued consolidated financial statements for fiscal years 2004 through 2009 and to its consolidated financial statements for fiscal 2010. These material adjustments were not previously identified by us because we had limited resources within the accounting function possessing a requisite level of technical experience in the selection and application of certain accounting principles.

Our accounting determinations with respect to our more complex transactions reflected research by our financial and accounting management and the review and vetting of management's preliminary conclusions with external technical resources. These efforts, however, were not sufficient to ensure that we reached the proper conclusions and accounting determinations regarding the following accounting topics issued by the Financial Accounting Standards Board's Accounting Standards Codification ("ASC"):

–>: ASC Topic 480: "Distinguishing Liabilities from Equity". We have convertible preferred certificates as part of our capital structure. These are hybrid securities, often issued by companies chartered in Luxembourg, which have characteristics of both debt and equity. Previously, we had accounted for these convertible preferred certificates as equity. In 2011, it was determined that these securities are properly accounted for as debt instruments based upon their legal form under Luxembourg law. Further, we completed a financing in 2010 that included the issuance of senior secured term loans, unsecured term loans and Class C convertible preferred certificates, with a syndicate of lenders, the majority of which are partial owners in the Sponsor Limited Partnership. We did not allocate the total arrangement proceeds among the underlying instruments based upon relative fair value. Our outstanding convertible preferred certificates will be effectively converted into ordinary shares of Isola Group Ltd. upon the completion of this offering as described in "Concurrent Transaction—Corporate Reorganization."
–>: ASC Topic 815: "Derivatives and Hedging". We completed a refinancing in September 2010, but we failed to recognize at that time that the prepayment options of the new credit agreements constituted embedded derivatives for financial reporting purposes. The conversion feature within our convertible preferred certificates also represents an embedded derivative. It was also determined during 2011 that the fair value associated with the conversion feature had not taken into account the rights and privileges associated with our capital structure.
–>: ASC Topic 830: "Foreign Currency Matters". In 2011, it was determined that we had not changed our corporate functional currency from the euro to the U.S. dollar coincident with a leveraged recapitalization that changed the currency of our primary financing from the euro to the U.S. dollar. Further analysis uncovered that two operating subsidiaries had used incorrect local functional currencies.
–>: ASC Topic 718: "Compensation—Stock Compensation". The Sponsor Limited Partnership, which is the parent entity that owns Isola Group S.a.r.l. (Isola's current Luxembourg holding company) and is not part of the consolidated Isola group, issued stock-based awards to certain members of executive management. In 2011, it was subsequently determined that we should have recorded an appropriate expense for stock-based compensation related to the awards issued by the Sponsor Limited Partnership to certain members of our executive management and that the related compensation expense determination should have considered the rights and preferences of our ownership structure as well as the ownership structure of the Sponsor Limited Partnership.

Management has determined that these control deficiencies constitute a material weakness in the design and operation of internal controls.

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In light of the material weakness in our internal control over financial reporting, we performed additional analysis and other post-closing procedures in an effort to ensure that our consolidated financial statements included in this filing have been prepared in accordance with GAAP.

Our Chief Financial Officer, under the supervision of our Chief Executive Officer and with the oversight of our board of directors, is responsible for implementing changes and improvements in our internal control over financial reporting and remediating the control deficiencies that gave rise to the material weakness. To date, we have hired a Director of External Reporting, who has experience working in the accounting departments of public companies.

In addition, beginning in the third quarter of 2011, we began to formulate a plan to remediate the underlying causes of our material weakness. The plan includes the following actions:

–>: redefine the organizational structure, roles and responsibilities of the accounting and finance staff and establish additional layers of oversight and quality review, especially with respect to the accounting for complex transactions, including derivatives and financing transactions;
–>: continue to recruit additional accounting and finance personnel with the necessary technical skills to fulfill the more demanding accounting and reporting standards required of a public company;
–>: engage outside technical accounting and financial advisors on an ongoing basis to assist our accounting and finance staff to determine proper accounting for more complex transactions, including derivatives and financing transactions;
–>: enhance and extend the documentation, policies and procedures, including documentation of internal controls, required for the timely financial closing and reporting processes that will be required of us as a public company;
–>: require our accounting and financial staff to attend professional courses or seminars to remain abreast of the ever evolving accounting pronouncements and the additional complexities and reporting requirements of a public company;
–>: review and rewrite, as appropriate, our current accounting manual; and
–>: continue to cross-train accounting and financial staff to ensure coverage and continuity in key positions.

Although we believe that these actions will improve our internal control over financial reporting, and our disclosure controls and procedures, additional time is required to fully implement these remediation efforts and to demonstrate they have resulted in the effective operation of our internal controls. Our management will closely monitor and modify, as appropriate, the remediation plan outlined above to eliminate the identified material weakness.

If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there would continue to be a reasonable possibility that a material misstatement of the Company's financial statements would not be prevented or detected on a timely basis.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below, that are used to prepare our financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form

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the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements.

While our significant accounting policies are described in more detail in the notes to our audited financial statements included later in this prospectus, we believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our financial statements:

Revenue Recognition

We recognize revenue from sales of our products net of estimated returns and allowances, when persuasive evidence of an arrangement exists, including where the agreement of a fixed price to our customers has been reached and collectability is reasonably assured. Customer purchase orders are used to determine the existence of an arrangement. Our sales terms do not include rights of return or subsequent price discounts; therefore, we recognize revenue on products sold at the time of shipment or delivery, based on the terms of the agreement. Shipping and handling costs charged to customers are included in revenue, and the associated shipping and handling costs incurred by us are recorded as cost of goods sold.

Allowance for Doubtful Accounts

We perform ongoing credit evaluations of our customers and adjust credit limits based on each customer's creditworthiness, as determined by our review of current credit information. We continuously monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience, our anticipation of uncollectible accounts receivable and any specific customer collection issues that we have identified. While our credit losses have historically been insignificant (other than a $6.7 million loss in fiscal 2008 which was a result of the softening of the economic environment), we may experience higher credit loss rates in the future than we have in the past. Our receivables are concentrated in relatively few customers. Therefore, a significant change in the liquidity or financial position of any one significant customer could make collection of our accounts receivable more difficult, require us to increase our allowance for doubtful accounts and negatively affect our working capital.

Inventories

Inventories include the cost of materials, direct labor, and related manufacturing overhead and are stated at the lower of cost (computed using the first-in, first-out method) or market. We continually assess the recoverability of inventory based on assumptions about demand and market conditions. Inventory carrying value is reduced for estimated excess and obsolescence by the difference between cost and estimated market value. This estimate is based on assumptions regarding future demand and market conditions. Forecasted demand is determined based on historical sales and expected future sales.

Long-lived Assets, Goodwill and Intangibles

Long-lived assets, including property and equipment, and intangible assets subject to amortization, are assessed for impairment whenever events and circumstances have occurred that indicate the remaining estimated useful lives may warrant revision, or that the remaining balance of these assets may not be recoverable. In performing the review for recoverability, we estimate the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If an asset is impaired, the amount of the impairment loss would be calculated based on the excess of the carrying amount of the asset over its estimated fair value. Factors we consider important that could trigger an impairment review include continued operating losses, significant negative industry trends, significant underutilization of the assets and significant changes in the way we plan to use the assets. The estimation of future cash flows involves numerous assumptions, which require our judgment, including, but not limited to, future use of the assets

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for our operations versus sale or disposal of the assets, future selling prices for our products and future production and sales volumes. We must use our judgment in determining the groups of assets for which impairment tests are separately performed.

Depreciation and amortization of intangible assets and other long-lived assets is provided using the straight-line method over the assets' respective estimated useful lives, reflecting the pattern of economic benefits associated with these assets. Changes in circumstances such as technological advances, or changes to our business model could cause the actual useful lives of long-lived assets and other intangible assets to differ from our initial estimates. If we determine that the useful life of an asset should be revised, we depreciate the remaining net book value over the new estimated useful life.

In 2010, we did not record any asset impairments and there were no indications of impairment suggesting a requirement to test the long-lived assets for impairment. In 2009, we recorded $4.1 million in asset impairments associated with the closure of our manufacturing facilities in Fremont, California and Dalian, China. In 2008, we recorded $3.3 million in asset impairments in connection with our Fremont facility.

Goodwill, which represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination and is not subject to amortization, is evaluated, at a minimum, on an annual basis and whenever events or circumstances have occurred that indicate that the carrying value may not be recoverable. Our testing approach utilizes a discounted cash flow analysis and comparative market multiples to determine each reporting unit's fair value for comparison to its carrying value. In fiscal 2008, we recorded $8.5 million in goodwill impairments which reduced our goodwill balance to zero; this impairment was attributable primarily to the reduction in our revenues and profits due to the general decline of the economy.

Litigation and Loss Contingencies

From time to time, we may be involved in claims, lawsuits and other proceedings. Such matters involve uncertainty as to the eventual outcomes and any gains or losses we may ultimately realize when one or more future events occur or fail to occur. We record expenses for litigation and loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We estimate the probability of such losses based on the advice of internal and external counsel, outcomes from similar litigation, status of the lawsuits (including settlement initiatives), legislative developments and other factors.

Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates accordingly.

Fair Value Measurement

We apply fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy has three levels based on the reliability of the inputs as follows:

–>: Level 1—Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that we have the ability to access.

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–>: Level 2—Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.
–>: Level 3—Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect our own assumptions about the inputs that market participants would use.

Financial instruments consist of cash, trade receivables, bank lines of credit, short-term bank debt, trade payables, long-term debt, including convertible preferred certificates, and derivative instruments. With the exception of our derivative instruments, which are recorded at fair value, and our long-term debt and convertible preferred certificates, the carrying value of these other financial instruments approximates fair value either because of the short maturities of these instruments or because the interest rates are based upon variable reference rates.

We engage a third party consultant to assist in the determination of the estimated fair value of our long-term debt, convertible preferred certificates and embedded derivative liabilities.

The most significant asset or liability recorded at fair value on a recurring basis is our derivative liability, specifically as related to our convertible preferred certificates. The fair value of our embedded derivatives related to our convertible preferred certificates and our stock-based compensation awards is most sensitive to our determination of the enterprise value of our Company. The enterprise value inputs associated with the Company's valuation were derived using the income and market approaches. The inputs that significantly impact the enterprise value determination include, but are not limited to, the following:

–>: our projected financial performance and operating results;
–>: the market performance of comparable companies;
–>: changes in the probability of various scenarios towards higher valuation outcomes;
–>: discount and illiquidity rates; and
–>: the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given prevailing market conditions.

A more detailed description of the valuation methodologies used for our long-term debt, convertible preferred certificates and for our assets and liabilities measured at fair value is included in the footnotes to the consolidated financial statements pertaining the each asset and liability.

Valuation methodologies used for stock-based awards are included in the footnotes to the consolidated financial statements and in "—Stock-based Compensation Expense" below.

Income Taxes

We are subject to income taxes in the United States and foreign jurisdictions, and we use estimates in determining our provision for income taxes. We account for taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax-basis reporting of assets and liabilities that are measured using the enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. We are required to adjust our deferred tax assets and liabilities in the period when tax rates or provisions of the income tax laws are enacted.

Our effective income tax rate for fiscal 2010 was 82.8%, resulting in a provision for income taxes of $24.4 million compared to pretax income of $29.5 million. Our effective tax rate for fiscal 2010 was higher than our statutory income tax rate for fiscal 2010, which was 28.6%. While changes in our effective tax rates are attributable to the mix of taxable income across the geographies in which we conduct business, our

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effective income tax rate for fiscal 2010 was adversely impacted by several items such as the accruals for uncertain tax positions and fluctuations in the level of income or loss earned in loss-making jurisdictions for which we do not expect to realize tax benefits. The effective tax rate in fiscal year 2010 was greater than the statutory rate due to the accrual for uncertain tax positions that increased the effective tax rate 115.3%. This was offset by a release of the valuation allowance associated with a reduction in deferred tax assets in certain loss-making jurisdictions, including the U.S., which reduced the effective tax rate by 60.8%.

Our effective tax rate in fiscal year 2009 was lower than the statutory rate primarily as a result of net operating losses incurred in certain jurisdictions, including in the U.S., for which we do not expect to realize an associated tax benefit. The effective tax rate in fiscal year 2008 was lower than the statutory rate because of the accrual for uncertain tax positions, which increased the effective tax rate by 11.3%. This was offset by the release of the valuation allowance associated with a reduction in deferred tax assets in certain loss-making jurisdictions, including the U.S., which resulted in a net reduction of the effective tax rate by 37.4%.

We recorded a valuation allowance of $104.9 million at July 2, 2011 to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. We have recorded valuation allowances on deferred tax assets in a number of tax jurisdictions, the most significant of which are the U.S., Luxembourg and Italy. The most significant tax jurisdictions with deferred tax assets and no valuation allowances are China and Taiwan. If our assumptions change and we determine we will more likely than not be able to realize those deferred tax assets, the tax benefits related to any reversal of the valuation allowance will be accounted for in the period in which we make such determination. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of our recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

A tax benefit from an uncertain tax position may only be recognized based on the technical merits when it is more likely than not that the position will be sustained upon examination. The recognition and measurement of tax benefits requires significant judgment that might change as new information becomes available. If our financial results or other relevant facts change, thereby impacting the likelihood of realizing the tax benefit of an uncertain tax position, significant judgment would be applied in determining the effect of the change on our valuation allowance.

Pension and Other Post-retirement Benefits

We sponsor several pension plans for certain salaried and hourly employees, and bargaining unit pension plans covering retirees and vested former employees of the Company. Accounting for pensions and other post-retirement benefits involves estimating the cost of future benefits and attributing the cost over the employees' expected periods of employment with the Company. The determination of our obligation and expense for these costs requires certain assumptions (see Note 7 to the consolidated financial statements). These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and health care cost trend rates and are subject to change. While we believe that the assumptions used are appropriate, significant differences in results or significant changes in our assumptions may materially affect the pension and other post-retirement obligations and related future expense.

Changes in key assumptions for our pension and other post-retirement benefits plans would have the following effects for the year ended January 1, 2011:

Discount Rate—Holding all other assumptions constant, a one percentage point increase or decrease in the discount rate assumption for fiscal 2010 would have decreased or increased net periodic benefit cost in fiscal 2011 by approximately $0.8 million with no impact on post-retirement benefits. In addition, a one percentage point increase in the discount rate would decrease the pension and other post-retirement benefits obligation recorded at January 1, 2011 by approximately $13.5 million, of which $0.1 million relates to

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post-retirement benefits, and a one percentage point decrease would increase the pension and other post-retirement benefits obligations recorded at January 1, 2011 by approximately $16.4 million, of which $0.1 million relates to post-retirement benefits.

Expected Long-Term Rate of Return—A one percentage point increase or decrease in the expected long-term rate of return assumption for fiscal 2010, holding all other assumptions constant, would increase or decrease our net periodic benefit cost for the year ended January 1, 2011 by approximately $0.6 million, with no impact on post-retirement benefits.

Health Care Cost Trend Rates—A one percentage point increase or decrease in the initial assumed health care trend rate through ultimate assumed health care trend rates would have an immaterial effect on the accumulated post-retirement benefit obligation at January 1, 2011.

Stock-based Compensation Expense

Awards granted

Certain of our employees and directors have been granted awards to purchase limited partner common units in the Sponsor Limited Partnership ("partnership units"). These awards include options to purchase partnership units ("options") and restricted partnership units ("restricted units").

The exercise prices of the options granted were established by the non-executive directors of the Sponsor Holding Company's board of managers who have historically functioned as the Company's compensation committee.

Award valuation and recognition of compensation expense

The fair values of all option and restricted unit awards, which we refer to as stock-based payment awards, are determined as of their grant date. We estimate the fair value of each option award using the Black-Scholes option pricing model. This model requires the use of the following assumptions: (i) expected volatility, which is based on a peer group of publicly traded entities over a period consistent with the expected terms of the options; (ii) expected life of the option award, which is determined based on management's best estimate of when vested awards are expected to be exercised; (iii) expected dividend yield, which is 0%, as we do not anticipate paying dividends in the foreseeable future; (iv) the risk-free interest rate, which is based on the U.S. Treasury yield curve in effect at the time of grant consistent with the option's expected life; and (v) the fair value of the partnership units, which is based on the determination of our enterprise value. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially from previously granted awards.

The weighted average assumptions used in the Black-Scholes model for fiscal 2008 and 2010 and for the six months ended July 2, 2011 are as follows:




Expected volatility	72	%	65	%	80	%
Risk-free interest rate	3.2	%	1.4	%	2.4	%
Expected term (in years)	6.5		6.0		6.0
Dividend yield	0.0	%	0.0	%	0.0	%

No options were granted during fiscal 2009.

The grant date fair value of stock-based payment awards is recognized as compensation expense using the straight line method, net of estimated forfeitures, over the vesting period. Option and restricted unit awards

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vest ratably over a 2- to 5-year period beginning with the first anniversary of the grant date. We estimate forfeitures based on our historical forfeiture of stock-based payment awards adjusted to reflect future changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates.

Exchange event

On October 8, 2010, certain employees and directors holding options (vested or unvested at that date) were given an offer to either retain their existing options with the originally issued terms or surrender their options for $0.53 in cash for each vested option payable immediately as well as $0.53 in cash for each unvested option payable upon completion of that unvested option's original service-based vesting condition.

Also on October 8, 2010, the remaining employees and directors holding options (vested or unvested at that date) were given an offer to surrender all of their existing options (vested or unvested at that date) in exchange for a combination of new options and new restricted units. As of October 8, 2010, 4,562,000 options were outstanding and the holders thereof elected the following:

Action taken		Options


Vested options surrendered for cash			565,000
Unvested options surrendered for cash upon vesting			331,000
Options exchanged for new options and restricted units			3,630,000
Original options retained			36,000

As a result, employees received $299,450 in cash for vested options surrendered and were entitled to $175,430 in cash for unvested options to be paid as those options vest under their original terms. The consideration given for the vested options surrendered was in excess of the surrender date fair value by $175,610, and this amount was recognized as compensation expense in 2010. As future service is required for payment of the options unvested as of October 8, 2010, we determined that the transaction was a modification under ASC 718 that changes the award classification from equity to liability. Incremental compensation cost for these modified awards, measured as the excess of their fair value over the fair value of the original awards immediately before the terms were modified, was not material.

A total of 13,460,500 new options were issued and 3,337,500 new restricted units were issued in connection with the exchanges. We determined the issuance of new options and new restricted units was a modification under ASC 718 for substantially all of the exchanged options. Accordingly, we measured the incremental fair value of consideration given for these modified awards over that of the options tendered and determined there to be $6.8 million of additional value. This additional stock-based compensation, as well as $1.6 million of unrecognized stock-based compensation related to the options tendered in the modification, will be recognized over the vesting period of the new options and new restricted units using the straight-line method.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Options granted

During fiscal 2010 and 2008 and the six months ended July 2, 2011, we granted options with exercise prices as follows:

Grant date		Exercise price per option		Partnership unit fair value		Option grant date fair value per option


January 29, 2008	1,145,000	$	1.22	$	2.07	$	1.46
April 30, 2008	1,625,000	$	1.22	$	1.45	$	1.08
October 8, 2010	13,460,500	$	0.49	$	0.63	$	0.41
January 22, 2011	96,100	$	0.49	$	0.83	$	0.64

Restricted units granted

During fiscal 2010 and the six months ended July 2, 2011, we granted restricted units as follows:

Grant date		Partnership unit fair value		Restricted unit grant date fair value per unit


October 8, 2010	3,337,500	$	0.63	$	0.63
January 22, 2011	54,700	$	0.83	$	0.83

Stock-based compensation recognized

We recorded stock-based compensation expense of $2.2 million, $1.8 million, $1.2 million, and $1.2 million for fiscal 2010, 2009, 2008 and the six months ended July 2, 2011, respectively.

Based upon the assumed initial public offering price of $ per share, the aggregate intrinsic value of the 13,496,500 options outstanding as of July 2, 2011 was $ million, of which $ million related to vested options and $ million related to unvested options. The aggregate intrinsic value of the 12,296,500 options outstanding as of July 2, 2011 was $ million, of which $ million related to vested options and $ million related to unvested options.

Approach to valuation of partnership units

In conducting the valuation of the partnership units, we used a methodology that is consistent with the methods outlined in the AICPA Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the "Practice Aid"). These valuations were prepared contemporaneous with the grant of stock-based payment awards granted by us. In preparing the 2010 consolidated financial statements, we determined the contemporaneous valuations did not appropriately consider the rights and preferences of the Company's and the Sponsor Limited Partnership's share and partner unit classes, respectively. Accordingly, during 2011, we performed retrospective valuations to estimate the fair value of the partnership units underlying the stock-based payment awards at each significant historical stock-based payment award date. The revised fair values were utilized to prepare our financial statements for all periods affected.

The enterprise value inputs associated with our valuations were derived using the income and market approaches. The income approach estimates our enterprise value by discounting the expected future cash flows to present value. Under the market approach, our total enterprise value is estimated by comparing our business to similar businesses whose securities are actively traded in public markets, or businesses that are involved in a public or private transaction. We have selected valuation multiples derived from trading

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multiples of public companies that participate in our industry. These valuation multiples were then applied to the equivalent financial metric of our business, giving consideration to differences between our Company and similar companies for such factors as company size, financial leverage, and growth prospects.

We prepared financial forecasts to be used in the computation of the enterprise value for the income approach for each valuation date. The financial forecasts took into account our past experience and future expectations. There is inherent uncertainty in these estimates. The risks associated with achieving our forecasts were assessed in selecting the appropriate discount rates. If different discount rates had been used, the valuations would have been different. The fair value of our debt was then subtracted from the calculated enterprise value. The resulting equity value was then allocated among the instruments that comprise our capital structure based upon rights and preferences of the instruments using the option-pricing method. As all of the allocated value associated with these instruments would be available to the Sponsor Limited Partnership, the option-pricing method was used to allocate the equity value of the Company among the varying partner interests of the Sponsor Limited Partnership, including the partnership units underlying our stock-based payment awards. The allocation was based on a series of call options using the Black-Scholes option pricing model.

The option-pricing method involves making estimates of the anticipated timing of a potential liquidity event such as a sale of our Company or an initial public offering, and estimates of the volatility of the partnership units. The anticipated timing is based on the plans of our board and management. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for the shares. We estimated the volatility of the partnership units based on available information on volatility of stocks of publicly traded companies in the industry. Had we used different estimates of volatility, the resulting value of the partnership units would have been different.

A discussion of significant factors and assumptions in determining the estimated fair value of our stock-based payment awards granted between December 27, 2007 and July 2, 2011 is provided below:

Valuation of partnership units as of January 29, 2008

We performed a retrospective valuation of the partnership units of the Sponsor Limited Partnership as of January 29, 2008 and estimated the fair market value to be $2.07 per unit as of that date. To estimate our enterprise value, we used the discounted cash flow ("DCF") methodology for the income approach and a combination of the guideline public company methodology and the guideline transaction methodology for the market approach, as described above.

For the DCF methodology, we prepared annual forecasts of our future cash flows through December 2015 and applied a terminal value based on the constant growth dividend model to estimate the total value of the cash flows beyond the final year. Our forecasts of future cash flows were based on our estimated net debt-free cash flows. These cash flows were then discounted to the valuation date at an estimated weighted average cost of capital. Our cost of capital was derived by applying the widely-used capital asset pricing model ("CAPM"). We believe that the procedures employed in the DCF methodology, including estimating the net debt-free cash flows, weighted average cost of capital, discount rate and terminal value, were reasonable and consistent with the Practice Aid.

For the guideline public company methodology, we selected, as of the valuation date, a range of trading multiples for a group of comparable public companies manufacturing components of printed circuit boards such as laminates and related materials that, at the time, we considered to be most comparable to us based on size and business model. We focused primarily on a subset of companies within the broader company group, as we believe their operations are the most comparable to our own.

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For the guideline transaction methodology, we observed a range of implied multiples reflecting the ratio of the purchase price paid in the transactions to the target companies' trailing 12 months financial metrics prior to the acquisition date for comparable companies in the laminate and electronics industry that had recently been sold. We selected a multiple consistent with our relative profitability compared with the transaction companies.

The valuations resulting from the foregoing methodologies were then combined to determine an estimated overall enterprise value. In estimating our enterprise value, we weighted the income and market approaches equally. Within the market approach, we gave greater weight to the guideline public company method compared with the guideline transaction methodology based on the relative reliability of the methods and underlying data.

For the January 29, 2008 retrospective valuation, we calculated total allocable equity value by subtracting the fair value of our debt from the enterprise value. We then allocated the equity value using the option-pricing method based upon rights and preferences of the various financial instruments. Accordingly, the value of the partnership units was determined by calculating its allocation of value based on their rights. In order to determine the allocation break points, we made estimates of the anticipated timing of a potential liquidity event and estimates of the volatility of our equity securities. The anticipated timing was based on our plans toward the liquidity event and on our board of directors' judgment. Estimating the volatility of the stock price of a privately held company is complex because there is no readily available market for the shares. We estimated the volatility of our stock based on available information on volatility of stocks of publicly traded companies in the industry.

After allocating the value of the Company's equity classes, and applying a marketability discount of 22%, we determined the estimated fair value attributable to the partnership units was $2.07 per unit as of January 29, 2008. The discount for lack of marketability reflects the lower value placed on securities that are not freely transferable, as compared to those that trade frequently in an established market. The marketability discount was based on an at-the-money Black-Scholes put option analysis, assuming a dividend yield of zero; a maturity of one year; a risk-free rate of 2.3%, which was equal to the rate on U.S. Treasury bills matching the expected term; and an annualized volatility of 60%, which was the average volatility of the comparable public companies adjusted for relative leverage over a period equal to the expected term.

The methodology and factors used in estimating the partnership unit value on other stock award grant dates were largely consistent with the discussion above. Significant changes in assumptions and factors impacting partnership unit value for other stock award grant dates are discussed below.

Valuation of partnership units as of April 30, 2008

On April 30, 2008, the fair value of a partnership unit of the Sponsor Limited Partnership was determined to be $1.45 per unit. Volatility of the selected guideline public companies increased as compared with January 29, 2008 as stock prices recovered somewhat from the prior period declines. The weighted average cost of capital also increased primarily due to the increased volatility in guideline stock prices.

Our overall outlook for the Company was also decreasing at this time due to the declining revenue and profitability. As a result, we selected lower multiples for the guideline public company method.

We calculated total allocable equity value by subtracting the fair value of our debt from the enterprise value. We then allocated the equity value using the option-pricing method based upon rights and preferences of the various equity classes and applied a marketability discount of 30%, which was higher due to increased volatility. The resulting estimated fair value attributable to the partnership units was $1.45 per unit, which we determined to be the fair value of our partnership units as of April 30, 2008.

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Valuation of partnership units as of October 8, 2010

On October 8, 2010, the fair value of a partnership unit of the Sponsor Limited Partnership was determined to be $0.63 per unit. Compared with April 2008, our historical financial results and future outlook were improving. Volatility and cost of capital inputs were similar compared with April 2008. Stock prices of reference guideline companies and their financial performance continued to be relatively low, resulting in lower market price multiples that were offset by our better performance than in the prior periods. As a result, the market-based methods indicated higher values for the business enterprise value of the Company.

We calculated total allocable equity value by subtracting the fair value of our debt from the enterprise value. While debt increased, the primary reason for the decline in per unit value compared to April 2008 was the issuance of additional partnership units in conjunction with the financing transaction that took place in September 2010 (see Note 4 of the annual financial statements). The total economic interests at the partnership unit level increased over 2.5 times, which diluted the per unit value. After allocating the value of the equity classes, and applying a marketability discount of 28%, the estimated fair value attributable to the partnership units was determined to be $0.63 per unit as of October 8, 2010.

Valuation of partnership units as of January 22, 2011

On January 22, 2011, we granted stock options and restricted units to certain key employees. The fair value of a partnership unit as of that date was determined to be $0.83 per unit, and was based upon retrospective valuations performed as of January 1, 2011 and April 2, 2011. The financial statement impact of these stock-based awards is immaterial.

The judgments made in determining the volatility and risk-free rate assumptions to be used in calculating the estimated grant date fair value of the stock option awards are consistent with the judgments made in determining such inputs for the partnership units valuations.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

The following table sets forth selected results of operations data for the periods presented and as a percentage of our revenue for those periods:

			Six months ended												Fiscal year

			July 2, 2011						June 26, 2010						2010						2009						2008
			Amount			% of Revenue			Amount			% of Revenue			Amount			% of Revenue			Amount			% of Revenue			Amount			% of Revenue

			(dollars in thousands)
Revenue			$	316,583			100	%	$	306,957			100	%	$	611,987			100.0	%	$	416,140			100.0	%	$	570,333			100.0	%
Cost of goods sold				240,433			75.9	%		231,908			75.6	%		467,751			76.4	%		330,584			79.4	%		487,052			85.4	%
Gross profit				76,150			24.1	%		75,049			24.4	%		144,236			23.6	%		85,556			20.6	%		83,281			14.6	%
Operating expenses
	Sales, general and administrative			38,371			12.1	%		31,343			10.2	%		65,271			10.7	%		59,656			14.3	%		62,763			11.0	%
	Research and development			5,193			1.6	%		4,817			1.6	%		9,532			1.6	%		9,244			2.2	%		10,663			1.9	%
	Restructuring			177			0.1	%		3,464			1.1	%		4,782			0.8	%		18,129			4.4	%		7,692			1.3	%
	Goodwill impairment			—			0.0	%		—			0.0	%		—			0.0	%		—			0.0	%		8,513			1.5	%

		Total operating expenses		43,741			13.8	%		39,624			12.9	%		79,585			13.0	%		87,029			20.9	%		89,631			15.7	%
Operating income / (loss)				32,409			10.2	%		35,425			11.5	%		64,651			10.6	%		(1,473	)		(0.4	)%		(6,350	)		(1.1	)%
Other income—net				1,031			0.3	%		3,005			1.0	%		2.020			0.3	%		224			0.1	%		2,768			0.5	%
Embedded derivative gain / (loss)				17,472			5.5	%		(58,162	)		(18.9	)%		25,030			4.1	%		(27,513	)		(6.6	)%		115,352			20.2	%
Interest expense				(39,032	)		(12.3	)%		(26,997	)		(8.8	)%		(72,134	)		(11.8	)%		(54,620	)		(13.1	)%		(58,478	)		(10.3	)%
Interest income				94			0.0	%		159			0.1	%		339			0.1	%		453			0.1	%		1,307			0.2	%
Foreign exchange gain / (loss)—net				(20,402	)		(6.4	)%		27,863			9.1	%		9,596			1.6	%		(2,116	)		(0.5	)%		(341	)		(0.1	)%

Income / (loss) from continuing operations, before income taxes				(8,428	)		(2.7	)%		(18,707	)		(6.1	)%		29,502			4.8	%		(85,045	)		(20.4	)%		54,258			9.5	%
Provision for income taxes				(10,679	)		(3.4	)%		(11,818	)		(3.9	)%		(24,420	)		(4.0	)%		(6,504	)		(1.6	)%		(6,804	)		(1.2	)%

Net income / (loss) from continuing operations			$	(19,107	)		(6.0	)%	$	(30,525	)		(9.9	)%	$	5,082			0.8	%	$	(91,549	)		(22.0	)%	$	47,454			8.3	%

Six Months Ended July 2, 2011 Compared to Six Months Ended June 26, 2010

Overview—Although unit demand was less robust, overall revenues increased modestly for the six months ended July 2, 2011 compared to the six months ended June 26, 2010; however, the six months ended July 2, 2011 were unfavorably affected by incremental $4.6 million operating expenses related to preparation for our initial public offering, and overall operating income was $3.0 million, or 8.5%, lower than in the comparable prior year period.

Revenue—

	Six months ended

	Six months ended				Change
			June 26, 2010		Change
	July 2, 2011		June 26, 2010		Amount			%

	(dollars in thousands)
Asia	$	185,165	$	176,480	$	8,685			4.9	%
Americas		56,856		63,747		(6,891	)		(10.8	)%
Europe		74,562		66,730		7,832			11.7	%

Total revenue	$	316,583	$	306,957	$	9,626			3.1	%

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Total revenue was $316.6 million for the six months ended July 2, 2011 compared to $307.0 million for the six months ended June 26, 2010, an increase of $9.6 million, or 3.1%.

Revenues in Asia for the six months ended July 2, 2011 increased $8.7 million, or 4.9%, over the comparable prior year period, driven by improved unit volumes of high-performance products, even though unit volumes of non-high-performance products and overall unit volumes lagged compared to the prior year period. Revenue for the six months ended July 2, 2011 also benefited from higher pricing to recover increased costs of raw materials.

Revenues in the Americas were $6.9 million, or 10.8%, lower for the six months ended July 2, 2011 versus last year's comparable period. Lower unit volumes and lower revenues reflect the weaker economic conditions in the United States in the current year period. In contrast, fundamental demand for electronics in the comparable prior year period was bolstered by inventory restocking of basic materials within the supply chain.

Revenues in Europe were $7.8 million, or 11.7%, higher for the six months ended July 2, 2011 versus the comparable period of 2010. Revenues for the current year were bolstered by sales to customers in the solar energy and industrial sectors. A stronger euro to U.S. dollar exchange rate in the current year period accounted for approximately $4.2 million, or just more than half, of the increased revenue.

Demand for our high-performance products continued to outpace demand for standard products. The relatively stronger demand for our high-performance products reflects our continued marketing focus on these products and success in getting them qualified for new applications. Demand for these high-performance products is also relatively price-inelastic, providing better opportunities to pass through material cost increases.

Cost of goods sold and gross profit—

	Six months ended

	July 2, 2011					June 26, 2010
	July 2, 2011					June 26, 2010					Change
			% of Revenue					% of Revenue			Change
	Amount		% of Revenue			Amount		% of Revenue			Amount		%

	(dollars in thousands)
Cost of goods sold	$	240,433		75.9	%	$	231,908		75.6	%	$	8,525		3.7	%
Gross profit	$	76,150		24.1	%	$	75,049		24.4	%	$	1,101		1.5	%

Cost of goods sold was $240.4 million for the six months ended July 2, 2011, an increase of $8.5 million, or 3.7%, over the comparable prior period driven mainly by higher costs for raw material and labor, partially offset by lower unit volumes and lower attendant variable manufacturing costs. Our gross margin was slightly lower for the six months ended July 2, 2011 at 24.1% compared to 24.4% gross margin achieved in the comparable prior year period due to the higher costs for raw material and labor; however, these increased costs were partially offset by an increased percentage of sales of higher margin, high-performance products in 2011, as well as from pricing actions to pass through higher raw material costs to our customers.

Operating expenses—Overall, operating expenses increased by $4.1 million, or 10.4%, for the six months ended July 2, 2011 compared to the six months ended June 26, 2010. The increase in operating expenses

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was due to higher sales, general and administrative expenses and research and development expenses, partially offset by lower restructuring expenses, as more fully described below.

	Six months ended

	July 2, 2011					June 26, 2010
	July 2, 2011					June 26, 2010					Change
			% of Revenue					% of Revenue			Change
	Amount		% of Revenue			Amount		% of Revenue			Amount			%

	(dollars in thousands)
Sales, general and administrative expense	$	38,371		12.1	%	$	31,343		10.2	%	$	7,028			22.4	%
Research and development expense		5,193		1.6	%		4,817		1.6	%		376			7.8	%
Restructuring expense		177		0.1	%		3,464		1.1	%		(3,287	)		(94.9	)%

Total operating expenses	$	43,741		13.8	%	$	39,624		12.9	%	$	4,117			10.4	%

Sales, general and administrative expense. SG&A expense increased to $38.4 million (12.1% of revenue) for the six months ended July 2, 2011 from $31.3 million (10.2% of revenue) in the comparable prior year period. The increase in SG&A expense was primarily due to higher audit fees, which increased $3.1 million, and legal and consulting fees, which were $1.7 million higher than the prior year period. The increase in these fees is primarily related to this offering.

Research and development expense. R&D expense increased 7.8% to $5.2 million for the six months ended July 2, 2011 from $4.8 million for the six months ended June 26, 2010. The increase in R&D expense was primarily due to higher personnel-related expenses.

Restructuring expense. Restructuring expense was $0.2 million for the six months ended July 2, 2011, versus $3.5 million in the comparable prior year period. This steep reduction of $3.3 million reflects the substantial completion of our restructuring activities in the prior year. The minimal restructuring expense for the six months ended July 2, 2011 is primarily for ongoing maintenance expenses related to the previous closures of various facilities.

Operating income / (loss)

	Six months ended

	July 2, 2011						June 26, 2010
	July 2, 2011						June 26, 2010						Change
				% of Revenue						% of Revenue			Change
	Amount			% of Revenue			Amount			% of Revenue			Amount			%

	(dollars in thousands)
Asia	$	32,569			10.3	%	$	33,997			11.1	%	$	(1,428	)		(4.2	)%
Americas		7,957			2.5	%		9,696			3.2	%		(1,739	)		(17.9	)%
Europe		6,299			2.0	%		1,775			0.6	%		4,524			254.9	%
Corporate		(14,416	)		(4.6	)%		(10,043	)		(3.3	)%		(4,373	)		43.5	%

Total operating income / (loss)	$	32,409			10.2	%	$	35,425			11.5	%	$	(3,016	)		(8.5	)%

Operating income was $3.0 million, or 8.5%, lower in the first half of 2011 compared to the first half of 2010. Revenue and operating income in the current period benefited from an improved product mix and more aggressive pricing actions to recover higher costs of raw materials than in the prior year period, all of which more than offset the impacts of lower unit volume. Operating income was also unfavorably impacted by the increase in audit, legal and consulting fees related to this offering.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

In Asia, despite higher revenues in the current year period, operating income was $1.4 million lower than in the prior year period as a result of lower gross margins, despite an improved product mix, due to higher material costs not fully passed through to customers and inflationary pressures on utilities and other factory inputs.

Operating income in the Americas in the 2011 period was $1.7 million below the comparable prior year period as a result of the unfavorable profit impact of lower revenues. This was moderated by an improved gross margin, arising from a favorable product mix, and lower operating expenses. However, pricing to pass through material cost increases, without an additional profit component, has the arithmetic effect of diluting gross margin.

Operating income in Europe was $4.5 million higher in the first half of 2011 compared to the first half of 2010. Revenue and operating income in the first half of 2011 benefited from more aggressive pricing actions to recover higher costs of raw materials than in the comparable prior year period, which offset the impact of lower unit volumes.

Corporate reflects administrative, legal, sales and marketing, and research and development expenses. The increased Corporate operating loss for the first six months of 2011 compared to the first six months of 2010 was primarily due to higher SG&A expense incurred for outside professional services related to the Company's decision to proceed with an IPO.

Other non-operating income / (expense)

	Six months ended

	July 2, 2011						June 26, 2010
	July 2, 2011						June 26, 2010						Change
				% of Revenue						% of Revenue			Change
	Amount			% of Revenue			Amount			% of Revenue			Amount			%

	(dollars in thousands)
Other income—net	$	1,031			0.3	%	$	3,005			1.0	%	$	(1,974	)		(65.7	)%
Embedded derivative gain / (loss)		17,472			5.5	%		(58,162	)		(18.9	)%		75,634			130.0	%
Interest expense		(39,032	)		(12.3	)%		(26,997	)		(8.8	)%		(12,035	)		(44.6	)%
Interest income		94			0.0	%		159			0.1	%		(65	)		(40.9	)%
Foreign exchange gain / (loss)—net		(20,402	)		(6.4	)%		27,863			9.1	%		(48,265	)		(173.2	)%

Total non-operating income / (expense)	$	(40,837	)		(12.9	)%	$	(54,132	)		(17.6	)%	$	13,295			24.6	%

Other income—net. Other income—net decreased to $1.0 million for the six months ended July 2, 2011 from $3.0 million for the six months ended June 26, 2010. The comparable prior year period included a gain of $3.0 million from a favorable settlement of a matter related to our intellectual property rights.

Embedded derivative gain / (loss). The embedded derivative gain / (loss) reflects any change in the values of the embedded derivatives in some of our financial instruments. The change in value is determined quarterly. The conversion feature of the convertible preferred certificates and the mandatory pre-payment features of the senior secured credit agreement and mezzanine credit agreement are considered embedded derivatives. There was an embedded derivative gain of $17.5 million for the six months ending July 2, 2011, of which $11.9 million related to the convertible preferred certificates and $5.6 million related to the loans under the senior secured credit agreement and mezzanine credit agreement. For the six months ended June 25, 2010, we recorded an embedded derivative loss of $58.2 million, all of which related to the convertible preferred certificates.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Our Sponsors will effectively convert their investments in Isola from convertible preferred certificates to ordinary shares in connection with this offering, and thereafter we will not incur further financial effects related to the convertible preferred certificates. However, any change in the value of the embedded derivative of the convertible preferred certificates as of the date the offering is completed will be included in this account in the period in which the offering occurs.

Interest expense and interest income. Total interest expense increased $12.0 million, or 44.6%, to $39.0 million for the six months ended July 2, 2011 from $27.0 million for the six months ended June 26, 2010. The increase in interest expense is due to the amortization in the current quarter of OID and deferred loan origination fees related to our senior secured and mezzanine credit agreements as well as the higher outstanding principal debt balances under these facilities compared to the amounts outstanding under the credit agreements in place last year. Interest expense for the six months ended July 2, 2011 included $5.0 million of OID amortization ($2.1 million related to our senior secured debt and $2.9 million related to our mezzanine debt) as well as $1.0 million amortization of loan origination costs.

Foreign exchange gain / (loss)—net. We recorded a net foreign exchange loss of $20.4 million for the six months ended July 2, 2011 compared to a net foreign exchange gain of $27.9 million for the six months ended June 26, 2010. The change was primarily driven by the weakened euro versus the U.S. dollar in the current period.

Provision for income taxes

	Six months ended

	July 2, 2011						June 26, 2010
	July 2, 2011						June 26, 2010						Change
				% of Revenue						% of Revenue			Change
	Amount			% of Revenue			Amount			% of Revenue			Amount			%

	(dollars in thousands)
Net income / (loss) before tax	$	(8,428	)		(2.7	)%	$	(18,707	)		(6.1	)%	$	10,279			54.9	%
Tax provision	$	(10,679	)		(3.4	)%	$	(11,818	)		(3.9	)%	$	1,139			9.6	%
Effective tax rate		(126.7	)%					(63.2	)%					(63.5	)%

The effective tax rates for each of the six months ended July 2, 2011 and June 26, 2010 was based on our forecasted annualized effective tax rates and adjusted for discrete items that occurred within the periods. The forecasted annualized effective rates are (146.3%) and (60.3%) for the six months ended July, 2, 2011 and June 26, 2010, respectively. Our provision for income taxes decreased primarily as a result of the change in the mix of earnings among the tax jurisdictions in which we operate.

Fiscal Year 2010 Compared to Fiscal Year 2009

Overview—The worldwide demand for our products, which had begun to recover in the third quarter of 2009, continued to improve in 2010. The Company was well-positioned to benefit from the economic recovery as a result of improved manufacturing capacity utilization and cost reduction measures implemented in the prior year.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Revenue—

	Fiscal year				Change

	2010		2009		Amount		%

	(dollars in thousands)
Asia	$	349,421	$	226,588	$	122,833		54.2	%
Americas		129,109		100,275		28,834		28.8	%
Europe		133,457		89,277		44,180		49.5	%

Total revenue	$	611,987	$	416,140	$	195,847		47.1	%

Total revenue increased by $195.8 million, or 47.1%, from 2009 to 2010, reflecting improvement in the global economy boosted by the restocking of inventory within the electronics supply chain. Revenue in each geographic segment benefited from higher unit volumes, higher pricing, and a more favorable sales mix, reflecting an increased percentage of sales of high-performance products in 2010 as compared to 2009. Revenue in Asia increased $122.8 million, or 54.2%; revenue in the Americas increased $28.8 million, or 28.8%; and revenue in Europe increased $44.2 million, or 49.5%. The revenue increase in Europe was moderated by the weaker average euro to U.S. dollar exchange rate during 2010 compared to 2009.

Demand for our high-performance products outpaced demand for standard products, with gross sales for our high-performance products increasing 52.9% year-over-year. Gross sales from our high-Tg, lead-free and high-speed digital product lines, as described in "Business—Product Markets and Product Applications", increased by 63.2% and 98.7%, respectively, in 2010.

Gross sales for our high-performance and standard products are shown below:

		Fiscal year				Change

Gross Sales⁽¹⁾		2010		2009		Amount		%

		(dollars in thousands)
High-performance
	High-Tg, lead-free	$	285,635	$	175,066	$	110,569		63.2	%
	High-speed digital		94,662		47,630		47,032		98.7	%
	Military, specialty and other		117,615		103,026		14,589		14.2	%
Total high-performance			497,912		325,722		172,190		52.9	%

Standard			131,023		102,444		28,579		27.9	%
Total gross sales		$	628,935	$	428,166	$	200,769		46.9	%

(1): Gross sales represents total revenue excluding certain adjustments for cash discounts, rebates, and other sales adjustments that cannot be allocated to a specific product segment. These adjustments totaled $16.9 million in 2010 and $12.1 million in 2009 respectively. Total revenue was $612.0 million for 2010 and $416.1 million in 2009. Management uses gross sales as a measure of operating performance.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Cost of goods sold and gross profit—

	Fiscal year

	2010					2009
	2010					2009					Change
			% of revenue					% of revenue			Change
	Amount		% of revenue			Amount		% of revenue			Amount		%

	(dollars in thousands)
Cost of goods sold	$	467,751		76.4	%	$	330,584		79.4	%	$	137,167		41.5	%
Gross profit	$	144,236		23.6	%	$	85,556		20.6	%	$	58,680		68.6	%

Cost of goods sold increased by $137.2 million, or 41.5%, from 2009 to 2010, primarily as a result of increased manufacturing volumes. Our gross profit increased to 23.6% in 2010 from 20.6% in 2009, representing a 3.0 percentage point improvement. This improvement in gross profit resulted primarily from the better manufacturing capacity utilization combined with an increased percentage of sales of our higher margin, high-performance products in 2010.

Operating expenses. Overall, operating expenses decreased $7.4 million from 2009 to 2010, representing an 8.6% decrease, primarily due to lower restructuring expense, as described below.

	Fiscal year

	2010					2009
	2010					2009					Change
			% of revenue					% of revenue			Change
	Amount		% of revenue			Amount		% of revenue			Amount			%

	(dollars in thousands)
Sales, general and administrative expense	$	65,271		10.7	%	$	59,656		14.3	%	$	5,615			9.4	%
Research and development expense		9,532		1.6	%		9,244		2.2	%		288			3.1	%
Restructuring expense		4,782		0.8	%		18,129		4.4	%		(13,347	)		(73.6	)%

Total operating expenses	$	79,585		13.0	%	$	87,029		20.9	%	$	(7,444	)		(8.6	)%

Sales, general and administrative expense. SG&A expense increased by $5.6 million from 2009 to 2010, representing a 9.4% increase. The increase in SG&A expense is attributable to higher personnel costs, due to higher variable incentive compensation (bonus), and professional fees which were offset by a decrease in bad debt expense. In fiscal 2009, cost reduction measures, including compensation-related measures, were taken as our revenue declined. In fiscal 2010, we saw an increase in sales and were able to reinstitute our bonus program which allowed us to award $4.1 million in bonuses and increase salaries by $3.6 million worldwide. Other professional fees increased by $0.9 million in fiscal 2010 as we began investing in new information technology projects. Fiscal 2009 also was adversely impacted by the write-off of $2.8 million of uncollectible accounts receivable.

Restructuring expense. Restructuring expense decreased by $13.3 million from 2009 to 2010. In 2009, we incurred substantial expenses in connection with the closure of facilities in Fremont, California, and Dalian, China, and professional fees related to these closures. In 2010, restructuring expense consisted primarily of professional fees related to financial restructuring activities and some residual expenses related to the previous year's facility closures.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Operating income / (loss)

	Fiscal year

	2010						2009
	2010						2009						Change
				% of revenue						% of revenue			Change
	Amount			% of revenue			Amount			% of revenue			Amount		%

	(dollars in thousands)
Asia	$	58,777			9.6	%	$	21,755			5.2	%	$	37,022		170.2	%
Americas		16,900			2.8	%		2,561			0.6	%		14,339		559.9	%
Europe		3,958			0.6	%		(8,578	)		(2.1	)%		12,536		146.1	%
Corporate		(14,984	)		(2.4	)%		(17,211	)		(4.1	)%		2,227		12.9	%

Total operating income / (loss)	$	64,651			10.6	%	$	(1,473	)		(0.4	)%	$	66,124		4,489.1	%

Consolidated operating income increased to $64.7 million in fiscal 2010, up substantially from a loss of $1.5 million in the prior year. Operating income improved in each geographic segment due to higher revenue in fiscal 2010 compared to fiscal 2009, as a result of rebounding economic conditions, increasing demand for electronic products and restocking of depleted PCB material inventories by some of our customers.

Operating income in each segment also benefitted from higher rates of manufacturing capacity utilization and the increased percentages in overall sales of higher margin, high-performance products. The Corporate operating loss decreased to a loss of $15.0 million in fiscal 2010 from a loss of $17.2 million in the prior year. This was primarily a result of lower restructuring expense in 2010, partially offset by greater expense associated with variable incentive compensation awards that were reinstituted in 2010.

Other non-operating income / (expense)

	Fiscal year

	2010						2009
	2010						2009						Change
				% of revenue						% of revenue			Change
	Amount			% of revenue			Amount			% of revenue			Amount			%

	(dollars in thousands)
Other income / (expense)—net	$	2,020			0.3	%	$	224			0.1	%	$	1,796			801.8	%
Embedded derivative gain / (loss)		25,030			4.1	%		(27,513	)		(6.6	)%		52,543			191.0	%
Interest expense		(72,134	)		(11.8	)%		(54,620	)		(13.1	)%		(17,514	)		(32.1	)%
Interest income		339			0.1	%		453			0.1	%		(114	)		(25.2	)%
Foreign exchange gain / (loss)—net		9,596			1.6	%		(2,116	)		(0.5	)%		11,712			553.5	%

Total non-operating income (expense)	$	(35,149	)		(5.7	)%	$	(83,572	)		(20.1	)%	$	48,423			57.9	%

Other income—net. Other income—net increased by $1.8 million from 2009 to 2010, primarily due to a gain of $3.0 million in the current year from a favorable settlement of a matter related to our intellectual property rights.

Embedded derivative gain / (loss). There was an embedded derivative gain of $25.0 million in 2010 compared to a loss of $27.5 million in 2009. The conversion feature of the convertible preferred certificates and the mandatory pre-payment features of the senior secured credit agreement and mezzanine credit agreement are considered embedded derivatives. In 2010, the embedded derivative gain related to the convertible preferred certificates was $21.7 million and the embedded derivative gain related to the senior

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Management's Discussion and Analysis of Financial Condition and Results of Operations

secured credit agreement and mezzanine credit agreement was $3.3 million. In 2009, there was an embedded derivative loss of $27.5 million, all of which was related to the convertible preferred certificates. Changes in the valuations of the Company from period to period account for the gains or losses in this account.

Interest expense and interest income. Total interest expense increased by $17.5 million, or 32.1%, from 2009 to 2010. In fiscal 2010, we recorded $9.5 million of additional interest on accrued interest on our first- and second-lien credit facilities. In addition, fiscal 2010 interest expense included $3.6 million of PIK interest on our mezzanine debt, as well as $2.3 million of OID amortization expense, of which $1.0 million was attributable to the senior credit agreement and $1.3 million was attributable to the mezzanine credit agreement in 2010. We also expensed $2.8 million of loan origination costs in 2010. At the end of fiscal 2010, the cash interest rate on our senior credit agreement was 10.0%, and the interest rate on our mezzanine credit agreement was 16.0%, half payable in cash and half payable-in-kind ("PIK").

Foreign exchange gain / (loss)—net. We recorded a net foreign exchange gain of $9.6 million in 2010, compared to a net foreign exchange loss of $2.1 million in 2009. This change was primarily due to the strengthening of the U.S. dollar against the euro in 2010.

Provision for income taxes

	Fiscal year

	2010						2009
	2010						2009						Change
				% of revenue						% of revenue			Change
	Amount			% of revenue			Amount			% of revenue			Amount			%

	(dollars in thousands)
Net income / (loss) before tax	$	29,502			4.8	%	$	(85,045	)		(20.4	)%	$	114,547			134.7	%
Tax provision	$	(24,420	)		(4.0	)%	$	(6,504	)		(1.6	)%	$	(17,916	)		(275.5	)%
Effective tax rate		82.8	%					(7.6	)%					90.4	%

Our provision for income taxes increased by approximately $17.9 million from 2009 to 2010, primarily due to an increase in the reserve recorded for uncertain tax positions, and an increase of income earned in the taxable jurisdictions. Our effective tax rate was (7.6)% for 2009, as compared to 82.8% in 2010.

Fiscal Year 2009 Compared to Fiscal Year 2008

Overview—Our operating results for 2009 were significantly impacted by the global recession that began in 2008 and continued to deepen into the first half of 2009. We continued the implementation of various programs initiated in 2008 to improve manufacturing capacity utilization and lower costs, and our operating results improved in the second half of 2009 as a result of the combination of these measures and improving economic conditions.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Revenue—

	Fiscal year				Change

	2009		2008		Amount			%

	(dollars in thousands)
Asia	$	226,588	$	310,379	$	(83,791	)		(27.0	)%
Americas		100,275		132,987		(32,712	)		(24.6	)%
Europe		89,277		126,967		(37,690	)		(29.7	)%

Total revenue	$	416,140	$	570,333	$	(154,193	)		(27.0	)%

Total revenue decreased by $154.2 million to $416.1 million in 2009 from $570.3 million in 2008, a decrease of 27.0%. The reduction in revenue was primarily attributable to the recessionary conditions that prevailed for most of 2009. Revenue in each geographic segment declined. Revenue in Asia decreased $83.8 or 27.0%; revenue in the Americas decreased $32.7 million or 24.6%; and revenue in Europe decreased $37.7 million or 29.7%.

Demand for our high-performance products proved more resilient to recessionary conditions than standard products, with gross sales of our high-performance products decreasing 21.0% year-over-year. Gross sales from our high-Tg, lead-free and high-speed digital product lines as described in "Business—Product Markets and Product Applications" decreased by 14.1% and 2.1%, respectively, in 2009.

Gross sales for our high-performance and standard products are shown below:

		Fiscal year				Change

Gross Sales⁽¹⁾		2009		2008		Amount			%

		(dollars in thousands)
High-performance
	High-Tg, lead-free	$	175,066	$	203,834	$	(28,768	)		(14.1	)%
	High-speed digital		47,630		48,635		(1,005	)		(2.1	)%
	Military, specialty and other		103,026		159,967		(56,941	)		(35.6	)%
Total high-performance			325,722		412,436		(86,714	)		(21.0	)%

Standard			102,444		170,020		(67,576	)		(39.7	)%
Total gross sales		$	428,166	$	582,456	$	(154,290	)		(26.5	)%

(1): Gross sales represents total revenue excluding certain adjustments for cash discounts, rebates, and other sales adjustments that cannot be allocated to a specific product segment. These adjustments totaled $12.1 million in 2009 and $12.2 million in 2008 respectively. Total revenue was $416.1 million for 2009 and $570.3 million in 2008. Management uses gross sales as a measure of operating performance.

Cost of goods sold and gross profit—

	Fiscal year

	2009					2008
	2009					2008					Change
			% of revenue					% of revenue			Change
	Amount		% of revenue			Amount		% of revenue			Amount			%

	(dollars in thousands)
Cost of goods sold	$	330,584		79.4	%	$	487,052		85.4	%	$	(156,468	)		(32.1	)%
Gross profit	$	85,556		20.6	%	$	83,281		14.6	%	$	2,275			2.7	%

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Total cost of goods sold in 2009 decreased by $156.5 million, or 32.1%, compared to 2008, primarily as a result of lower levels of sales and production in a recessionary environment. Gross margin, however, improved to 20.6% in 2009 from 14.6% in 2008. The improvement in gross margin resulted from the higher levels of manufacturing capacity utilization in our remaining facilities following the closure of three facilities during 2009. Gross margin in 2009 also benefited from an improved product mix with revenue of higher margin, high-performance products comprising a greater percentage of overall revenue. Although raw materials costs (especially for copper) increased steadily throughout 2009, we were generally successful in passing through these increased costs to our customers.

Operating expenses. Total operating expenses in 2009 decreased by $2.6 million, or 2.9%, from the prior year to $87.0 million. The absence in 2009 of the goodwill impairment charge incurred in the prior year, lower expenditures for SG&A (arising from lower bad debt expense and a number of cost containment actions), and lower R&D expenses were only partially offset by higher restructuring costs arising from the closure of two of our manufacturing facilities, as more fully described below.

	Fiscal year

	2009					2008
	2009					2008					Change
			% of revenue					% of revenue			Change
	Amount		% of revenue			Amount		% of revenue			Amount			%

	(dollars in thousands)
Sales, general and administrative expense	$	59,656		14.3	%	$	62,763		11.0	%	$	(3,107	)		(5.0	)%
Research & development expense		9,244		2.2	%		10,663		1.9	%		(1,419	)		(13.3	)%
Restructuring expense		18,129		4.4	%		7,692		1.3	%		10,437			135.7	%
Goodwill impairment		—					8,513		1.5	%		(8,513	)		100.0	%

Total operating expenses	$	87,029		20.9	%	$	89,631		15.7	%	$	(2,602	)		(2.9	)%

Sales, general and administrative expense. SG&A expense decreased by $3.1 million from 2008 to 2009, a 5.0% reduction. This was primarily attributable to lower bad debt expense in 2009 compared to 2008. Bad debt expense in fiscal 2009 was $2.8 million compared to $8.2 million in fiscal 2008, a reduction of $5.4 million. A number of our customers became insolvent during 2008 as a result of the recession. SG&A expense in fiscal 2009 also benefited approximately $1.9 million from a number of cost-saving measures, including the suspension of matching grants for U.S. employees' 401(k) contributions, elimination of a company-wide bonus plan, mandatory salary reductions (where legally possible), staff reductions and other cost-saving measures. Fiscal 2008 SG&A expense included a gain of $2.8 million related to the sale of land and buildings in the Philippines.

Research and development expense. R&D expense decreased by $1.4 million, or 13.3%, from 2008 to 2009, primarily due to reduced purchases of materials, supplies and services and lower personnel-related expense in Asia, all of which was partially offset by increased expense incurred in connection with the successful legal defense of our intellectual property rights.

Restructuring expense. Restructuring expense in 2009 increased $10.4 million, or 135.7%, over the prior year, reflecting the costs of closing manufacturing facilities in Fremont, California and Dalian, China, and related professional fees.

Goodwill impairment. In fiscal 2008 we recorded a non-cash charge of $8.5 million for the impairment of goodwill. The goodwill impairment was a result of the reduction in business related to the general decline of the global economy. This charge reduced the goodwill balance to zero.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Operating income / (loss)

	Fiscal year

	2009						2008
	2009						2008						Change
				% of revenue						% of revenue			Change
	Amount			% of revenue			Amount			% of revenue			Amount			%

	(dollars in thousands)
Asia	$	21,755			5.2	%	$	27,684			4.9	%	$	(5,929	)		(21.4	)%
Americas		2,561			0.6	%		(11,884	)		(2.1	)%		14,445			121.5	%
Europe		(8,578	)		(2.1	)%		(6,523	)		(1.1	)%		(2,055	)		(31.5	)%
Corporate		(17,211	)		(4.1	)%		(15,627	)		(2.7	)%		(1,584	)		(10.1	)%

Total operating income / (loss)	$	(1,473	)		(0.4	)%	$	(6,350	)		(1.1	)%	$	4,877			76.8	%

There was an operating loss of $1.5 million in fiscal 2009 compared to an operating loss of $6.4 million in the prior year. The profit impact of lower revenue in 2009 was partially offset by improved gross margins as a percentage of revenues and lower operating expenses. Gross profits benefited from increased sales of high-performance products in 2009 and improved manufacturing capacity utilization. Lower operating expenses were primarily due to a decrease in SG&A expense, offset by higher restructuring expenses associated with the closure of three manufacturing facilities in 2009 and the absence of further impairments of goodwill.

In Asia, operating income in fiscal 2009 decreased to $21.8 million from $27.7 million in fiscal 2008, a decline of $5.9 million, or 21.4%. This decline in operating income was primarily due to the profit impact of lower revenue, partially offset by improved gross profit, which arose from higher levels of manufacturing capacity utilization following the closure of the facility in Dalian, China and an increased percentage of higher margin, high-performance products in the overall revenue mix.

In the Americas, there was modest operating income in fiscal 2009 of $2.6 million, which compared favorably to the operating loss of $11.9 million in the prior year. Although revenue decreased nearly 24.6%, lower fixed manufacturing cost and lower operating expenses, both primarily due to the closure of our Fremont facility and other cost reduction measures taken during the year, more than offset the profit impact of lower revenue.

In Europe, the operating loss widened in fiscal 2009 to $8.6 million, an increase of $2.1 million from the operating loss of $6.5 million in fiscal 2008. The higher operating loss in 2009 resulted from the profit impact of lower revenue, only partially offset by a higher gross profit and lower operating expenses following the discontinuance of operations at the Mas Italia facility and the consolidation of European laminate production in Germany in 2009.

The operating loss attributable to Corporate was $17.2 million in fiscal 2009, an increase of $1.6 million over the prior year. The increase was primarily due to higher restructuring charges which increased $10.4 million, offset to a significant extent by lower SG&A expense.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Other non-operating income / (expense)

	Fiscal year

	2009						2008
	2009						2008						Change
				% of revenue						% of revenue			Change
	Amount			% of revenue			Amount			% of revenue			Amount			%

	(dollars in thousands)
Other income (expense), net	$	224			0.1	%	$	2,768			0.5	%	$	(2,544	)		(91.9	)%
Embedded derivative gain / (loss)		(27,513	)		(6.6	)%		115,352			20.2	%		(142,865	)		(123.9	)%
Interest expense		(54,620	)		(13.1	)%		(58,478	)		(10.3	)%		3,858			6.6	%
Interest income		453			0.1	%		1,307			0.2	%		(854	)		(65.3	)%
Foreign exchange gain / (loss)—net		(2,116	)		(0.5	)%		(341	)		0.1	%		(1,775	)		(520.5	)%

Total non-operating income / (expense)	$	(83,572	)		(20.1	)%	$	60,608			10.6	%	$	(144,180	)		(237.9	)%

Other income—net. Other income—net decreased in 2009 by $2.5 million, or 91.9%, over the prior year. Other income—net in 2009 and 2008 consisted primarily of royalty income. Royalty income decreased in fiscal 2009 on lower industry-wide demand for the technologies on which royalties are based.

Embedded derivative gain / (loss). There was an embedded derivative loss of $27.5 million in 2009 compared to a gain of $115.4 million in 2008. The embedded derivative gain / (loss) in both years was related to the convertible preferred certificates.

Interest expense. Interest expense declined in 2009 by $3.9 million, or 6.6%, over the prior year. The decline reflects the absence in 2009 of the partial write-off of deferred loan origination costs required in 2008 as a result of amendments to the first- and second-lien credit agreements.

Foreign exchange gain / (loss)—net. We recorded a net foreign exchange loss of $2.1 million in 2009 and $0.3 million in 2008. The difference was due to strengthening of the euro against the U.S. dollar.

Provision benefit for income taxes

	Fiscal year

	2009						2008
	2009						2008						Change
				% of revenue						% of revenue			Change
	Amount			% of revenue			Amount			% of revenue			Amount			%

	(dollars in thousands)
Net income / (loss) before tax	$	(85,045	)		(20.4	)%	$	54,258			9.5	%	$	(139,303	)		(256.7	)%
Tax provision	$	(6,504	)		(1.6	)%	$	(6,804	)		(1.2	)%	$	300			4.4	%
Effective tax rate		(7.6	)%					12.5	%					(20.1	)%

Our provision for income taxes decreased by $0.3 million, or 4.4%, from 2008 to 2009, primarily due to fluctuations in income earned in taxable jurisdictions.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We have historically financed our operations, including requirements for our working capital, fixed capital and pension funding, through cash generated from operations, including operations outside of the U.S., and various lending arrangements. Tax consequences resulting from the transfer of earnings from the Company's various non-U.S. operating subsidiaries to the Company's U.S. subsidiaries would have an immaterial effect on our financial position, results of operations and cash flows.

At July 2, 2011 we had working capital (current assets less current liabilities) of $79.3 million. Of this amount, unrestricted cash and cash equivalents was $56.0 million. Restricted cash at July 2, 2011 was $2.0 million (primarily to support letters of credit and retirement obligations in Germany).

Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash and cash equivalents and current borrowings, will provide adequate funds for ongoing operations, planned capital expenditures, debt service and other requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate and related working capital requirements, the timing and extent of our research and development efforts, the level of our sales and marketing activities and capital expenditures.

We have budgeted $14.3 million for cash expenditures related to capital expenditures for 2011, primarily for cost reduction projects in the areas of process and quality improvements, of which we expended $4.8 million for the six months ended July 2, 2011. Our cash expenditures related to capital expenditures totaled $15.7 million in 2010 and $6.2 million in 2009.

Our Credit Agreements Prior to the Offering

Prior to the offering, our primary lending arrangements consist of a senior secured credit agreement and a mezzanine credit agreement entered into with a syndicate of lenders, including our Sponsors. We intend to fully repay all loans outstanding under both of these agreements with the proceeds of this offering and the proceeds of a new senior secured term loan that we intend to enter into concurrently with the closing of this offering.

Senior secured credit agreement. Our senior secured credit agreement provides for a senior secured term loan of $210.0 million, the full amount of which was drawn at closing on September 30, 2010. Loans under the senior credit agreement were issued at a discount of $28.5 million. The proceeds were used to refinance part of our then-existing first- and second-lien term loans, as well as to pay other fees and expenses related to our senior secured credit agreement. Loans under the senior secured agreement bear interest, at our option, at a rate per annum equal either to a base rate (that can be no less than 3%) plus 7%, or an adjusted Eurodollar rate (that can be no less than 2%) plus 8%. As of July 2, 2011, we had principal of $210.0 million outstanding under the senior secured credit agreement, bearing interest at 10% per annum and $25.3 million of unamortized original issue discount resulting in a net balance of $184.7 million. Loans under this agreement mature on September 30, 2015. The borrower under this agreement is our wholly-owned subsidiary, Isola USA Corp., and loans under the agreement are guaranteed by various Isola Group Ltd. subsidiaries.

Mezzanine credit agreement. On September 30, 2010, we issued an initial principal amount of $175.0 million in unsecured term loans pursuant to our mezzanine credit agreement. The unsecured term loans were issued at a discount of $70.4 million. The proceeds were used in part to refinance our then-existing first- and second-lien term debt, as well as to pay other fees and expenses related to the mezzanine credit agreement. The unsecured term loans issued pursuant to the mezzanine credit agreement bear interest at a rate of 16% per annum, with half (8% per annum) payable in cash and the other half (8%

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per annum) payable by accreting such amount to the outstanding principal amount of the unsecured term loans. The accretion of interest is referred to as payment-in-kind, or PIK, interest expense. As of July 2, 2011, we had principal of $185.7 million outstanding under the mezzanine credit agreement, which included $10.7 million of accreted PIK interest. The unamortized original issue discount was $66.2 million, resulting in a net balance of $119.5 million.

The Company incurred $19.2 million of loan origination costs pursuant to the senior secured credit agreement and the mezzanine credit agreement. Recognition of these costs has been deferred and is amortized to interest expense over the terms of the agreements. As of July 2, 2011, we had $17.4 million of unamortized loan origination costs of which $2.9 million was included in current assets and $14.5 million was included in long-term assets on our consolidated balance sheet.

The senior secured credit agreement and mezzanine credit agreement require us to maintain certain covenants that restrict our ability to operate our business, including, but not limited to, restrictions on the ability of the borrower and certain Isola group subsidiaries to (i) dispose of assets or stock; (ii) incur additional indebtedness and guarantee obligations; (iii) pay certain dividends; (iv) create liens on assets; (v) make investments, loans or advances; (vi) restrict distributions to the borrowers or guarantors from their subsidiaries; (vii) engage in mergers or consolidations; (viii) engage in certain transactions with affiliates; (ix) incur additional negative pledges; (x) incur capital expenditures; (xi) change our fiscal year or accounting practices or the lines of business in which we and our subsidiaries are involved; (xii) enter into sale-leaseback transactions; (xiii) prepay principal of, premium, or interest on, or redeem, purchase, retire, defease, or create a sinking fund or make a similar payment with respect to, any subordinated indebtedness and certain other debt; (xiv) change the conduct of business; (xv) conduct activities of any parent holding company; (xvi) amend our organizational documents; (xvii) cease to keep in full force and effect our corporate existence and all rights, franchises, licenses and permits material to our business; (xviii) not pay our taxes or certain claims when they are due; or (xix) allow insurance to expire.

In addition, our senior secured credit agreement requires us to maintain certain financial and operating covenants, including compliance with an interest coverage ratio and a leverage ratio. The interest coverage ratio is the ratio of Consolidated Adjusted EBITDA to consolidated interest expense for a rolling four-fiscal quarter period. At July 2, 2011, the required interest coverage ratio was at 1.75:1.00, and our actual ratio was 2.81:1.00. The required interest coverage ratio increases over time, to 2.00:1.00 effective March 31, 2012 and increasing to 2.25:1.00 effective December 28, 2013.

The leverage ratio is the ratio of consolidated total secured debt to Consolidated Adjusted EBITDA for a rolling four-fiscal quarter period. At July 2, 2011, the maximum allowed leverage ratio was at 3.35:1.00, and our actual leverage ratio was 2.19:1.00. The maximum leverage ratio decreases over time, to 3.25:1.00 effective December 31, 2012 and decreasing to 2.25:1.00 effective June 28, 2014.

The definition of Consolidated Adjusted EBITDA under the senior secured credit agreement differs from Adjusted EBITDA used elsewhere in the prospectus. Under our senior secured credit agreement, Consolidated Adjusted EBITDA includes additional add-backs to net income for certain pension costs, property and other taxes, and certain other expenses.

Our Credit Facilities Following the Offering

In connection with this offering, we intend to enter into a new senior secured credit facility consisting of a $ million senior secured term loan with a $ million senior secured revolving credit facility. The proceeds of the new term loan will be used to repay the portion of the loans under our existing senior secured credit and mezzanine agreements that are not repaid with the proceeds of this offering. We expect the new senior secured credit facility to be completed substantially concurrently with the closing of this offering. Our entry into the new senior secured credit facility is conditioned on the completion of this offering.

We anticipate that the new senior secured credit facility will reduce our annual interest expense and subject us to less restrictive financial covenants. For additional information on the principal terms of this facility, see "Description of Indebtedness—Our New Credit Facilities".

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Cash Flows

The table below sets forth selected cash flow data for the periods presented:

	Six months ended

	Six months ended						Fiscal year
	July 2, 2011			June 26, 2010			Fiscal year
	July 2, 2011			June 26, 2010			2010			2009			2008

	(dollars in thousands)
Net cash provided by / (used in) operating activities	$	23,726		$	23,726		$	(55,348	)	$	(15,099	)	$	(16,837	)
Net cash provided by / used in investing activities		1,073			(1,538	)		(9,278	)		(6,974	)		(3,758	)
Net cash provided by / (used in) financing activities		(6,696	)		(486	)		60,642			(13,072	)		5,758
Effect of exchange rates on cash and cash equivalents		1,174			(2,452	)		1,785			(7	)		357

Net increase / (decrease) in cash and cash equivalents	$	19,277		$	19,250		$	(2,199	)	$	(35,152	)	$	(14,480	)

Operating Activities. Cash provided by or (used in) operating activities is the cash we generate through running the business and reflects change in the balances of operating assets and liabilities as well as adjustments to net income for non-cash income and expense items.

For the six months ended July 2, 2011, net cash provided by operating activities was $23.7 million. The operating cash in-flow was provided by earnings from operations as well as lower investment in inventories which more than offset an increase in accounts receivable.

For the six months ended June 26, 2010, net cash provided by operating activities was $23.7 million. Increased receivables and inventories in support of increased revenues were partially financed by higher levels of accounts payable as well as higher accrued interest payable under our then-defaulted loan agreements which was paid in the fourth quarter of fiscal 2010.

In fiscal 2010, net cash used in operating activities was $55.3 million. The payment on September 30, 2010 of $76.4 million of interest expense which had been accrued since the start of fiscal 2009 was the primary reason for the negative operating cash flows in 2010. Higher receivables and inventories also led to an increase in the cash used in operations.

Net cash used in operating activities was $15.1 million in fiscal 2009. Net cash used in operations was affected by increases in receivables and inventory and reduced accounts payable as several vendors shortened their credit terms to us. Cash outflows were partially offset by an increase of $42.7 million in accrued liabilities, most of which was due to the accrual of interest expense on the loans related to the then-defaulted first- and second-lien credit facilities that we were unable to pay.

For fiscal 2008, net cash used in operating activities was $16.8 million. As revenues slowed in the last two quarters of 2008, we were able to reduce our balances in receivables and inventories; however this was offset by lower accounts payable.

Investing Activities. Cash used in investing activities relates primarily to payments to, or proceeds from, restricted cash accounts, and payments for capital expenditures. Most of our capital expenditures are to improve manufacturing productivity, to improve the quality of our products, to address environmental health and safety considerations or to replace aging equipment.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

For the six months ended July 2, 2011, cash provided by investing activities was $1.1 million. Purchases of property, plant and equipment were $4.8 million, which was more than offset by the release of restricted cash of $5.5 million related to the closure of our Dalian, China facility and repayment of an entrustment loan in the second quarter of 2011. We also had a small amount of proceeds from the disposition of property, plant and equipment.

For the six months ended June 26, 2010, net cash used in investing activities was $1.5 million. Purchases of property, plant and equipment were $4.2 million, which was partially offset by the release of restricted cash of $2.4 million.

In fiscal 2010, net cash used in investing activities was $9.3 million. Purchases of property, plant and equipment were $15.7 million, which was offset in part by proceeds from the sale of property, plant and equipment of $4.4 million and the release of restricted cash of $2.0 million following the partial repayment of an entrustment loan by the Dalian, China facility.

In fiscal 2009, net cash used in investing activities was $7.0 million. Net cash used in investing activities in fiscal 2009 was primarily for the acquisitions of property, plant and equipment in the amount of $6.2 million; cash used was affected by significantly lower than normal annual investment in capital expenditures due to the severity of the worldwide recession and our need to conserve cash.

In fiscal 2008, net cash used in investing activities was $3.8 million. Purchases of property, plant and equipment of $11.3 million were mostly offset by proceeds from the sale of property, plant and equipment of $4.9 million and the release of restricted cash of $3.5 million.

Financing Activities. Cash provided by (used in) financing activities relates primarily to proceeds and payments from capital and debt raising transactions and payments under agreements and facilities, including capital lease obligations.

For the six months ended July 2, 2011, net cash used in financing activities was $6.7 million. Financing activities include $1.7 million of expenses, primarily legal and accounting, related to this offering. The remaining financing activities occurred in our overseas subsidiaries and reflect the roll-over of various term loans and the payoff of the entrustment loan by the Dalian, China facility in the amount of $5.5 million.

For the six months ended June 26, 2010, net cash used in financing activities was $0.5 million and consisted of payments on capital lease obligations.

In fiscal 2010, net cash provided by financing activities was $60.6 million. We completed a major refinancing in fiscal 2010, entering into new senior secured and mezzanine credit agreements as well as issuing convertible preferred certificates. We received gross proceeds from these transactions of $376.4 million, which was allocated among the three forms of financing based on their relative fair values. The funds received from these transactions along with $32.7 million of cash were used to repay the principal and accrued interest of the then-outstanding first- and second-lien credit facilities. We incurred $19.2 million of debt issuance costs related to the new senior secured and mezzanine credit agreements

In fiscal 2009, net cash used in financing activities was $13.1 million. We received proceeds of $30.7 million which reflected the renewal of short-term credit facilities at our overseas subsidiaries. Debt repayments similarly reflected the repayments of these short-term credit facilities. We made a $6.3 million repayment of principal on our first-lien credit facility in the U.S. as well as a reduction of $2.2 million in the entrustment loan by our Dalian, China entity.

In fiscal 2008, net cash provided by financing activities was $5.8 million. Proceeds of $77.1 million included a $31.9 million draw-down in the U.S. under the revolving credit facility of the first-lien credit agreement. Debt payments included $12.8 million of principal repayments under the first-lien credit agreement and a $3.0 million reduction of the entrustment loan by the Dalian, China facility. The remaining debt proceeds

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and payments were related to the roll-over of short-term credit facilities at our overseas subsidiaries. Debt issuance costs of $3.3 million were incurred to amend the first- and second-lien credit agreements in August 2008.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table sets forth, as of January 1, 2011, the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms due in each of the periods presented:

	Payments due by period

	Total		Year 1		Years 2-3		Years 4-5		More than 5 years

	(dollars in thousands)
Secured term loans under senior secured credit agreement⁽¹⁾	$	311,209	$	21,292	$	37,275	$	252,642	$	0
Unsecured term loans under mezzanine credit agreement⁽²⁾		359,461		14,716		28,411		37,409		278,925
Short-term debt⁽³⁾		21,710		21,710
Interest rate swaps⁽⁴⁾		1,259		365		723		171		0
Capital leases⁽⁵⁾		19,460		1,337		2,674		2,674		12,775
Operating leases⁽⁵⁾		5,943		1,404		1,877		857		1,805
Purchase obligations⁽⁶⁾		21,071		4,905		7,061		3,687		5,418
Convertible preferred certificates⁽⁷⁾		1,933,597		0		0		0		1,933,597
Total	$	2,673,710	$	65,729	$	78,021	$	297,440	$	2,232,520

(1): Represents future principal and interest payments on the senior secured credit agreement entered into on September 30, 2010. Includes projected interest of $101.2 million based on the interest rate as of January 1, 2011. Refer to Note 4 "Debt" in the consolidated financial statements.
(2): Represents future principal and interest payments on the mezzanine credit agreement entered into on September 30, 2010. Includes projected interest of $184.5 million based on the interest rate as of January 1, 2011. Of this amount, $94.0 million represents interest "payable in kind" and $90.5 million represents interest payable in cash. Refer to Note 4 "Debt" in the consolidated financial statements.
(3): Represents future principal and interest payments on short-term debt. Includes projected interest of $0.7 million based on interest rates as of January 1, 2011. Refer to Note 4 "Debt" in the consolidated financial statements.
(4): Represents obligations related to interest rate swaps entered into in February 2007, May 2007 and December 2010. Each interest rate swap is based on variable rates. The projected obligation is based on the interest rate as of January 1, 2011. Refer to Note 6 "Interest Rate Swaps" in the consolidated financial statements.
(5): Represents obligations under capital and operating leases. Includes imputed interest of $4.2 million. Refer to Note 8 "Commitments and Contingencies" in the consolidated financial statements.
(6): Includes amounts associated with agreements to purchase goods or services that are enforceable and legally binding on us and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. These amounts are primarily comprised of contracts for electricity, gas and other utilities.
(7): Represents future principal and interest payments associated with our convertible preferred certificates, which constitute legal debt instruments in Luxembourg, the jurisdiction of issuance. The convertible preferred certificates are denominated in Euro and earn interest based on variable rates. The obligation includes projected interest of $1,747.0 million and is based on interest rates as of January 1, 2011. Refer to Note 5 "Convertible Preferred Certificates" in the consolidated financial statements. Immediately prior to this offering, all of the convertible preferred certificates will be effectively converted into ordinary shares of Isola Group Ltd., and the principal and interest on the convertible preferred certificates will no longer be payable in cash. See the "Pro forma payments due by period" table that follows, which illustrates the pro forma effect of this conversion.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

The above table excludes the following items:

(a): Amounts potentially payable to taxing authorities for uncertain tax positions taken on returns. The amount and timing of payments with respect to these items are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimates of the timing and amount of future payments. As of January 1, 2011, we had accrued $53.5 million related to uncertain tax positions. While each of our uncertain tax positions could be settled in cash at a future date, a significant portion of the uncertain tax positions relates to jurisdictions in which we have incurred net operating losses. Refer to Note 12 "Income Taxes" in the consolidated financial statements.
(b): Amounts payable to TPG Capital pursuant to an agreement whereby TPG Capital provides financial, advisory and consulting services to us. There are no minimum levels of service required to be provided pursuant to the agreement and the agreement is in effect until cancelled by either party or the consummation of this offering. The annual amount due under the agreement is $2.1 million. Refer to Note 13 "Related Party Transactions" in the consolidated financial statements.
(c): Estimated minimum funding requirements and expected voluntary contributions for retiree benefit plans as set forth by ERISA in relation to our pension and post-retirement benefit obligations. Refer to Note 7 "Pension and Other Retirement Benefits" in the consolidated financial statements.

The following table sets forth, as of July 2, 2011, the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms due in each of the periods presented on a pro forma basis to give effect to (i) the reorganization and effective conversion of the convertible preferred certificates to ordinary shares and (ii) the application of $ million of the net proceeds from this offering and borrowings of $ million of indebtedness under a new senior secured credit facility to prepay the secured term loans made under our senior secured credit agreement and the unsecured term loans made under our mezzanine credit agreement as described in "Use of Proceeds":

	Pro forma payments due by period

	Total	Year 1	Years 2-3	Years 4-5	More than 5 years

	(dollars in thousands)
Secured term loans under new senior secured credit facility⁽¹⁾	$	$	$	$	$
Short-term debt⁽²⁾
Interest rate swaps⁽³⁾
Capital leases⁽⁴⁾
Operating leases⁽⁴⁾
Purchase obligations⁽⁵⁾
Total	$	$	$	$	$

(1): Represents future principal and interest payments on our new senior secured credit facility. Includes projected interest of $ million.
(2): Represents future principal and interest payments on short-term debt. Includes projected interest of $ million based on interest rates as of July 2, 2011. Refer to Note 4 "Debt" in the consolidated financial statements.
(3): Represents obligations related to interest rate swaps entered into in February 2007, May 2007 and December 2010. Each interest rate swap is based on variable rates. The projected obligation is based on the interest rate as of July 2, 2011. Refer to Note 6 "Interest Rate Swaps" in the consolidated financial statements.
(4): Represents obligations under capital and operating leases. Includes imputed interest of $ million. Refer to Note 8 "Commitments and Contingencies" in the consolidated financial statements.

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(5): Purchase obligations include amounts associated with agreements to purchase goods or services that are enforceable and legally binding on us and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. These amounts are primarily comprised of contracts for electricity, gas and other utilities.

The above table excludes the following items:

(a): Amounts potentially payable to taxing authorities for uncertain tax positions taken on returns. The amount and timing of payments with respect to these items are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimates of the timing and amount of future payments. As of July 2, 2011, we had accrued $56.4 million related to uncertain tax positions. While each of our uncertain tax positions could be settled in cash at a future date, a significant portion of the uncertain tax positions relates to jurisdictions in which we have incurred net operating losses. Refer to Note 12 "Income Taxes" in the consolidated financial statements.
(b): Amounts payable to TPG Capital represent a transaction fee of $8.0 million and accrued management fees of $1.0 million associated with financial, advisory and consulting services provided to the Company. The amounts payable do not have scheduled repayment terms.
(c): Estimated minimum funding requirements and expected voluntary contributions for retiree benefit plans as set forth by ERISA in relation to the our pension and post-retirement benefit obligations. Refer to Note 7 "Pension and Other Retirement Benefits" in the consolidated financial statements.

PENSION PLANS

Pension Plans. We sponsor several pension plans and provide various medical and life insurance benefits to certain retirees at a minimal cost to Isola. Although we have terminated or curtailed select benefits or plans, including our U.S. pension plans, several others are expected to continue, including pension plans required by collective bargaining agreements outside of the United States. Some of these plans are underfunded. Based on various assumptions, in the aggregate our pension plans were underfunded by $43.0 million at January 1, 2011. We expect to make annual pension contributions of approximately $4.5 million for the foreseeable future. For additional information on our pension plans and postretirement benefits, see Note 7 to the Consolidated Financial Statements.

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

Interest Rate Risk, Derivative Instruments

We are exposed to certain risks relating to our ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. We do not use derivative financial instruments for trading or speculation purposes.

We are subject to interest rate risk in connection with borrowings under our existing senior secured credit agreement. As of July 2, 2011, we had $210.0 million in senior secured term loans outstanding under our existing senior secured credit agreement, the unhedged portion of which is subject to variable interest rates. We can elect to lock in interest rates on the existing senior secured debt for one, two, three or six months. The interest rates vary based upon the loan type, which is either a base rate loan or an adjusted Eurodollar rate. As of July 2, 2011, we had elected to accrue interest for three months using the adjusted Eurodollar rate, which resulted in an interest rate of 10%. Under the existing senior agreement, the adjusted Eurodollar rate would need to increase above 2% to have an impact on future interest expense.

On December 30, 2010, we entered into an interest rate swap agreement with a notional amount of $25 million under which we pay a fixed 2.8% and receive the greater of three-month LIBOR or 2%. The swap is set to expire December 31, 2013. Settlement dates occur quarterly. We did not designate this swap

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agreement as a hedge and, therefore, the change in its fair value will be recorded in our consolidated statement of operations in interest expense, along with the quarterly settlement amounts. This derivative instrument addresses a requirement of our senior secured credit agreement to have 50% of all indebtedness for borrowed money subject to interest rate agreements and/or fixed rates. The fair value of this interest rate swap at the end of the six months ended July 2, 2011 was immaterial.

Foreign Currency Risk

While the Company generates revenues in several currencies, a majority of its operating expenses are in U.S. dollars. Therefore depreciation in these other currencies against the U.S. dollar would negatively impact revenue upon translation to the U.S. dollars; however, the impact on operating expenses would be less. For example, for fiscal 2010, a 10% decrease in the euro against the U.S. dollar would have resulted in a $13.9 million decrease in revenue and an increase of $0.2 million in the net loss in fiscal 2010.

Inflation Risk

Inflationary factors, such as increases in our cost of goods sold and operating expenses, may adversely affect our results of operations. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, an increase in the rate of inflation in the future, particularly in Europe and China, may have an adverse affect on our levels of gross profit and operating expenses as a percentage of revenue if the sales prices for our products do not proportionately increase with these increased expenses.

Commodity Risk

We are subject to commodity risks related to the prices of the raw materials used in the manufacture of our advanced PCB laminate materials, including copper, glass and resin. These raw materials, especially copper, are subject to price fluctuations. We have been able to pass through to our customers a substantial portion of the raw material cost increases in the past, although our ability to do so to the same degree in the future is not guaranteed. Historically, we have been able to pass through raw material price increases more readily in connection with our high-performance products.

OFF-BALANCE SHEET ARRANGEMENTS

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our results of operations and financial condition.

SEASONALITY

Historically, our business has not been subject to recurring seasonal patterns. Revenue and earnings from quarter-to-quarter within a fiscal year are driven primarily by general economic factors and the demand for electronic products.

RECENT ACCOUNTING PRONOUNCEMENTS

Changes to accounting principles generally accepted in the United States of America ("U.S. GAAP") are established by the FASB in the form of accounting standards updates ("ASUs") to the FASB's Accounting Standards Codification.

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The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and were either determined to be not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

In January 2010, FASB issued ASU No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"). ASU 2010-06 requires new disclosures regarding significant transfers in and out of Levels 1 and 2, as well as information about activity in Level 3 fair value measurements, including presenting information about purchases, sales, issuances and settlements on a gross versus a net basis in the Level 3 activity roll forward. In addition, ASU 2010-06 clarifies existing disclosures regarding input and valuation techniques, as well as the level of disaggregation for each class of assets and liabilities. ASU No. 2009-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures pertaining to purchases, sales, issuances and settlements in the roll forward of Level 3 activity; those disclosures are effective for interim and annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 in fiscal 2010 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued an amendment to the existing guidance on the presentation of comprehensive income. Under the amended guidance, entities have the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Entities no longer have the option of presenting the components of other comprehensive income within the statement of changes in stockholders' equity. This amendment is effective on a retrospective basis for interim and annual periods beginning after December 15, 2011, which for the Company begins with the first quarter of 2012. The adoption of this amendment will result in a change to the Company's current presentation of comprehensive income, but will not have any impact on the Company's consolidated financial position or results of operations.

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Business

OUR COMPANY

We sell our products globally to leading PCB fabricators, including DDi, Ruwel, Sanmina, TTM Technologies, Viasystems and WUS Printed Circuit. These fabricators produce PCBs incorporating our laminate materials for electronic equipment designed or produced by a broad group of major original equipment manufacturers, or OEMs, including Alcatel-Lucent, Brocade, Cisco, Google, Hewlett-Packard, Huawei, IBM and Sun Microsystems (now Oracle). We work closely with these leading PCB fabricators and major OEMs to ensure that our high-performance laminate materials, which incorporate our proprietary resins, meet the thermal, electrical and physical performance criteria of each new generation of electronic equipment.

We were acquired in 2004 by a group of investors led by TPG Capital, formerly known as Texas Pacific Group, a global private equity firm, and Redfern Partners, a strategic partner and an investor in the laminate materials industry. Under the direction of TPG Capital and our management, we have undertaken a number of operational changes designed to increase manufacturing efficiencies and improve business processes. We believe that these measures, together with our focus on higher margin high-performance products, provide us with the operating leverage to take advantage of improving economic conditions.

Our history dates back nearly 100 years to the founding of Isola Werke AG in Germany in 1912. Isola Werke AG manufactured insulators utilizing the then-revolutionary Bakelite plastic technology, which provided superior insulating and heat resistance properties. We began production of copper-clad epoxy laminates, the direct predecessors of today's high-performance PCB laminate products, in the 1960s. In 2006, we acquired the assets of Polyclad Laminates, Inc., which extended our product portfolio and expanded our business in the growing Asian markets.

For the six months ended July 2, 2011, our revenue was $316.6 million, Adjusted EBITDA was $49.2 million and our net loss was $19.1 million, as compared to revenue of $307.0 million, Adjusted EBITDA of $49.2 million and a net loss of $30.5 million for the six months ended June 26, 2010. For fiscal 2010, our revenue was $612.0 million, our Adjusted EBITDA was $89.7 million and our net income was

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Business

$5.1 million, as compared to revenue of $416.1 million, Adjusted EBITDA of $39.0 million and a net loss of $100.7 million in fiscal 2009. For a discussion of our primary non-GAAP metric, Adjusted EBITDA, including reconciliation to net income, see our discussion of non-GAAP financial measures in "Selected Historical Consolidated Financial and Other Data", included elsewhere in this prospectus.

INDUSTRY OVERVIEW AND MARKET OPPORTUNITY

High-performance laminate materials are used in a variety of advanced electronics, including network and communications equipment, high-end consumer electronics, as well as advanced automotive, aerospace, military and medical applications. The increasingly complex performance and environmental requirements of advanced electronics are driving greater demand for higher performance PCBs, which require laminate materials with resins specifically formulated to satisfy demanding performance criteria.

Based on data from Prismark, an independent research firm, we estimate that our addressable market for high-performance PCB laminate materials was $4.6 billion in 2010. According to BPA, another independent research firm, the market for multilayer PCB laminate materials (predominately comprised of the high-performance market segment) is expected to make up approximately 55% of the worldwide PCB laminate materials market in 2011 (measured in square meters) and remains the fastest growing segment with an expected CAGR of 12.4% from 2010 to 2014 for PCB production value.

PCB Laminate Materials and Fabrication

Prepreg and CCL are the primary laminate materials used in the construction of multilayer PCBs, and we estimate that these materials represent greater than 40% of the material cost required to fabricate a PCB.

Prepreg is an industry term derived from the contraction of "previously impregnated". Prepreg is a dielectric material that provides electrical insulation and other properties. Prepreg is manufactured by the impregnation of fiberglass fabric with specially formulated resins. The resin confers specific electrical, thermal and physical properties to the prepreg and is critical to the proper functioning of a PCB. Prepreg may be incorporated into a CCL or sold as a separate product.

CCL consists of an inner layer of prepreg laminated on both sides with a thin layer of copper foil. The lamination is achieved by pressing together one or more plies of copper and prepreg under intense heat, pressure and vacuum conditions.

PCB fabricators use prepreg and CCL to construct multilayered PCBs in a complex process comprised of multiple operations that are often repeated. In general, the copper surfaces of the laminate are etched to create an electronic circuit. These etched laminates are assembled into a multilayer configuration by inserting one or more plies of insulating prepreg between each etched laminate. Holes are then drilled and plated in the PCB to establish electrical connections among the layers. The resulting multilayer PCB is an intricate interconnection device on which semiconductors and other components are mounted, which is then incorporated into an end-market product.

Although end products and PCB designs often evolve rapidly as a result of product line improvements or extensions, the lifespan of the underlying PCB laminate materials is relatively long. The same laminate materials can be used in successive generations of PCBs within a product line or be adapted to new products having similar performance specifications.

PCB Laminate Materials Segments and Properties

PCB laminate materials can be categorized as either high-performance, standard or paper-based.

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High-performance PCB laminate materials are defined by their superior performance capabilities achieved primarily through the use of advanced resin formulations and materials. These products compete primarily on their technological capabilities and secondarily on the price of PCB laminate materials with similar performance characteristics. High-performance products are used in circuit boards that combine eight or more layers, with some applications requiring circuit boards with more than 20 layers. In the high-performance market, the following properties are critical:

–>: Electrical: This property refers to the speed with which an electric current moves through the circuit and the signal loss, or dissipation. Signal speed of a material is expressed by its dielectric constant; signal loss is expressed by its dissipation factor.
–>: Thermal: This property refers to the stability of the material at various temperatures. This is important for dimensional stability over the expected range of temperatures that a PCB will be exposed to during its final assembly (i.e., soldering process), as well as the operating temperature of the particular electronic device. Thermal stability of a material is measured by its glass transition temperature (expressed as "Tg").
–>: Physical: This property refers to a number of factors, including peel strength (i.e., susceptibility to de-lamination), flammability, moisture absorption, ease of processing, drilling and reliability.

Standard PCB laminate materials are based on proven, though relatively less sophisticated, resin chemistry. These products compete primarily on price and are produced in high volumes and at a low cost. Standard PCB laminate materials involve minimal proprietary technology and are used in applications requiring lower layer counts and less complexity.

Paper-based PCB laminate materials are used in very simple consumer electronics, are very low-cost and typically rely upon somewhat rudimentary chemical formulations. Isola does not participate in this market segment.

End-market Overview

The market for high-performance PCB laminate materials is influenced by a number of factors, including developments in the markets for servers and storage, network communications and advanced automotive electronics as discussed below.

Servers and storage. The need for additional server and data storage capacity has significantly increased due to the proliferation of digital data and the widespread adoption of cloud computing applications. Cloud computing entails the use of virtual servers which are accessed through the internet and deliver hosted services that have traditionally been deployed in-house, including software as a service, platform as a service and infrastructure as a service. According to IDC, a leading independent research organization, as reported in its Digital Universe Study of June 2011 (sponsored by EMC), the amount of digital data created, replicated and stored by 2015 will reach 7.9 trillion gigabytes, which is 6.4 times the amount of data in 2010, representing a CAGR of 45%. Storing and utilizing vast amounts of data will require significant increases in server and storage capacity and capability, as well as more robust cloud computing technology. As servers and storage equipment become more sophisticated and technically demanding, manufacturers will need more effective PCB laminate materials comprised of high-performance resin formulations to achieve the required performance in PCBs.

Network communications. Enterprise routers and wireless infrastructure form the network foundation required for high-speed data transmission and internet access over wired and wireless servers, including the 4G wireless services that are now being rolled out globally. Currently deployed network infrastructure will require significant investment in more sophisticated equipment with greater speed, processing power and performance characteristics in order to provide the increased capacity needed to address increased volumes

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of traffic and data driven by social networking, increased mobile internet access and increased transmission of high-bandwidth content such as high-definition videos. The Cisco Visual Networking Index estimates that global IP traffic will grow at a CAGR of approximately 32% from 2010 to 2015, largely driven by the increase in mobile internet demand.

Advanced automotive electronics. While traditional automotive electronics utilize standard PCB laminate materials, the emergence of more sophisticated features, such as vehicle information systems, engine and power train electronics and vehicle control systems, are driving demand for more advanced automotive electronics. These electronics require higher-performing PCBs that incorporate high-performance laminate materials. Prismark estimates that automotive electronic applications represented 5.5% of the global PCB market in 2011, and that the high-performance PCB market for automotive electronics is expected to grow at a 6.9% CAGR from 2010 to 2015.

Other markets. Other markets include military/aerospace equipment, advanced mobile devices and satellite television receivers. High-performance PCBs are used in military/aerospace applications, including radar, guidance control, communications and navigation, warfare and electro-optical equipment. Advanced mobile devices such as smart phones and tablets incorporate PCBs made with high-performance halogen-free laminate materials. Satellite receivers require advanced high frequency PCB laminate materials that efficiently transform signals to high quality, low frequency signals suitable for transmission over indoor cables.

Trends and Drivers in the Global PCB Laminate Industry

Current trends and drivers in the global industry for PCB laminate materials include the following:

Rapidly expanding data infrastructure and increasing demand for high-performance PCB laminate materials. Higher volumes of high-performance PCB laminate materials will be required as OEMs sell more enterprise-level servers, storage solutions, routers, switches and other high-performance electronics. Growth in these products continues due to fast-growing applications such as cloud computing, social networking and online video streaming combined with ubiquitous internet access. This trend is expected to continue as developed nations continually improve upon existing technologies and developing nations further adopt and rely on high-performance electronics.

Increasing performance requirements of advanced electronics require high-performance PCB laminate materials. To meet continually increasing performance requirements of advanced electronics, semiconductor and component manufacturers regularly introduce successive generations of higher performance microprocessors, memory and logic devices and electronic components. High-performance multi-layer PCBs and laminate materials are required to facilitate fast interconnect speeds and deliver superior electrical properties, enabling semiconductors and components to optimally function as a system. As a result, the PCB laminate materials industry must continually develop better performing, more cost effective laminate and resin formulations to meet the growing requirements of new semiconductor and component technologies.

Growing demand for environmentally friendly lead-free compatible PCB laminate materials. Increased regulation applicable to electronic equipment requires manufacturers to consider use of lead-free materials in products and manufacturing processes. While these regulatory measures do not have a direct impact on PCB laminate materials, which do not contain lead or other prohibited chemicals, they do change the thermal requirements of the laminates used in the lead-free soldering of PCBs. Lead-free applications have been gaining momentum globally with many companies introducing products to meet the new regulations, and some converting exclusively to lead-free compatible assemblies in order to avoid having separate bills of material and dedicated product lines.

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Greater emphasis on closer collaboration with OEMs and materials suppliers. Time-to-market for new products has become increasingly important as the rate of technology advancement accelerates and competition increases. OEMs are more frequently working directly with laminate materials suppliers early in the product lifecycle to qualify specific laminates to be used in the PCBs incorporated into the end product. This collaboration allows OEMs to accelerate the product development process and bring products to market faster. In addition, just-in-time inventory stocking by PCB fabricators results in a need for quick-turn availability of laminate materials. Laminate materials producers benefit from these trends, partnering closely with customers to accommodate their demands, while obtaining higher margins on quick-turn orders.

OUR COMPETITIVE STRENGTHS

We believe that we possess the following competitive strengths, which will enable us to continue to grow our business globally.

Product technology leadership. Our significant technology expertise enables us to produce market-leading high-performance PCB laminate materials. We possess an extensive portfolio of patent and other intellectual property rights covering our proprietary resin formulations, and have pioneered the development of several product categories with "best in class" technology. Our proprietary resin formulations are capable of supporting complex circuit boards used in the most demanding electronic equipment. We believe that our technology provides a competitive advantage, and differentiates our products from commonly available, lower performance materials. We continue to devote considerable efforts to research and develop new resin formulations and other PCB laminate materials to meet evolving market needs.

Recognized market leadership. We maintain a leading market share, based on revenues, in each of our larger addressable markets for high-performance laminate materials. We have an established reputation as an industry leader and product innovator with strong brand recognition. We believe that our products are known for their performance, quality and long product life cycles. We believe that our reputation and brand awareness provide meaningful advantages when developing and marketing new and existing products and will play a significant role in our future growth.

Blue-chip customer base served by global strategic manufacturing locations. We have developed strong, long-term relationships with leading global PCB fabricators and the major OEMs they serve. We believe that the collaborative relationships provide us with a competitive advantage and assist us in bringing new products to market in a timely manner. We own state-of-the-art equipment in manufacturing facilities that are strategically located around the world in close proximity to these key industry participants. Our global network of plants facilitates quick-turn manufacturing and delivery of product, which reduces our customers' inventory levels and shipping costs.

Streamlined manufacturing with significant operating leverage. We seek to achieve continual improvement in our manufacturing and business processes. We use "six sigma" processes and "lean" best practices, and recently completed the implementation of a sophisticated SAP-based ERP and analytical system across our global operations. In 2009, we closed three of our manufacturing facilities to improve factory utilization and lowered our fixed costs. Together with other measures, these closures are estimated to result in permanent fixed cost savings of approximately $30 million annually.

Experienced management team. We have a highly experienced management team comprised of well-respected industry veterans who possess an average of over 20 years of experience in the electronics industry. Our management team has a proven track record of implementing sound business practices, which include focusing our product development on higher margin products, improving the efficiency of our manufacturing facilities and successfully integrating acquired businesses.

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OUR GROWTH STRATEGIES

We intend to extend our market leadership in the higher margin, high-performance laminate materials market through the following growth strategies:

Leverage collaborative relationships and technology leadership to develop innovative solutions. We have implemented focused product development teams to further expand our relationships with leading PCB fabricators and the OEMs they serve. Our product development teams include members of our research and development, technical support and OEM marketing groups, all working under the direction of our Chief Technology Officer. Our teams actively monitor product developments for OEMs and engage in regular dialog with them and their PCB fabricators, in order to anticipate and plan for required technical product specifications. Through this collaborative effort we seek to develop innovative laminate materials solutions that meet future OEM product requirements.

Further penetrate the Asian market. Many OEMs and PCB fabricators are increasingly migrating the manufacturing of complex electronic equipment to Asia. In addition, several Asian markets are simultaneously undergoing infrastructure build-outs as their economies grow and develop. To supply this market, six of our 11 manufacturing facilities are located in Asia, and we maintain a sales force dedicated to serving this region. We will seek to capitalize on the opportunities presented by the very large and fast growing Asian markets for high-performance PCB laminate materials based on the high quality of our products and our technology.

Extend high-performance products into new applications. We believe that other markets could benefit from our PCB laminate materials and proprietary resin formulations, including the markets for next generation automotive equipment and consumer devices such as smart phones and tablets. In addition, we believe that environmental regulations will become increasingly global and expand the addressable market for our high-performance, lead-free compatible and halogen-free PCB laminate materials. We intend to devote marketing and technical resources to address these growing potential markets.

PRODUCT MARKETS AND PRODUCT APPLICATIONS

Product Markets. Isola focuses on the high-performance segments of the market for PCB laminate materials, which are expected to provide the greatest growth opportunities. Currently the largest of the markets we serve include:

–>: High-Tg. High-Tg products exhibit superior thermal, electrical and physical performance characteristics, including the ability to withstand fabrication processes involving temperatures of 170°C or more. They are used in the communications, industrial, medical, automotive, military, aerospace and computing industries.
–>: High-Tg, lead-free. High-Tg, lead-free compatible products incorporate resins specially formulated to withstand thermal stresses arising in higher temperature lead-free PCB fabrication. Demand for lead-free products is driven by growing environmental concerns, including lead-free initiatives in major geographies. We maintain an extensive portfolio of proprietary technology and we believe we have significant market share in this product segment.
–>: High-speed digital. High-speed digital, or high-frequency, products provide superior electrical properties, specifically low dissipation factors and low dielectric constants. Demand for these products

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is driven by a need for increased circuit speeds for servers, storage application networks, network infrastructure and military electronics. We have a leading market position and an extensive portfolio of proprietary technology addressing this market.

We also participate in the following high-performance markets:

–>: Halogen-free. Halogen-free products satisfy consumer demand for "green" products because they do not contain halogen-derived flame retardants. This market is currently growing primarily in the consumer electronics sector with specific applications ranging from smart phones to tablets and LCD displays. Although the current market for these products is extremely price competitive, newer and more demanding applications are emerging. We are currently developing more advanced halogen-free materials utilizing resin formulations with improved thermal and electrical properties to address the emerging needs of this market, and we expect that these next generation halogen-free products are likely to command higher prices and provide improved margins.
–>: Military/specialty. These laminate materials find specialized uses within the military and aerospace industries. Typically they have high glass-transition temperatures, very high decomposition temperatures and low expansion rates—all attributes required for demanding military and aerospace applications. We work through licensed government contractors to address existing and emerging applications.

We also provide the following standard products to our customers:

–>: Low- and mid-Tg. These laminate materials are used in less demanding applications within the consumer, automotive and industrial industries. Our revenues in the low- and mid-Tg markets are expected to decline as we continue to focus on the more attractive, high-performance markets.

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Product Applications. The below chart shows the characteristics and some major applications of various high-performance products and standard products that we offer.

Market	Segment	Major Isola products	Characteristics	Major applications


High-performance	High-Tg	-FR406	- High thermal limits (170^oC or higher)	- Advanced automotive applications - Communications and computing - Medical, military and aerospace
	High-Tg, lead-free	-370HR -410HR	- High thermal limits (170^oC or higher) - Lead-free variant compatible with automated lead-free soldering	- Enterprise class servers - Entry-level routers and storage solutions - Mid-range computers - Advanced automotive electronics
	High-speed digital	-FR408 -FR408HR -IS415	- High thermal limits (170^oC or higher) - Better electrical properties - Greater transmission efficiency - More robust materials	- Enterprise class servers and storage applications - High-speed routers and communication equipment
	Halogen-free	-DE156	- Do not use halogen compounds to impart fire retardants - "Green" alternative	- Smart phones - Tablets - Other high-end consumer products
	Military / specialty	-P95 -P96 -406N	- High thermal limits - Very low expansion	- Aerospace equipment - Military and other specialty applications
Standard	Mid-Tg	-IS400	- Moderate thermal limits (under 170^oC)	- Automotive electronics
	Base low-Tg	-DE104 -FR402	- Low thermal limits (125^oC or less)	- Basic automotive electronics - Entry-level consumer devices

We are able to customize our PCB laminate materials to meet particular customer requirements and maintain over 25,000 SKUs, or Stock Keeping Units.

CUSTOMERS AND SALES STRATEGY

Sales and Distribution

Isola's products are primarily sold through our direct sales forces located in Asia, Europe and the United States. As of August 1, 2011, we employed approximately 62 direct sales and technical service representatives. In addition, we use third party distribution channels in the United States, Canada and Europe, as well as in select Asian countries, primarily to address smaller PCB fabricators.

Strategic Customer and OEM Relationships

As a global leader in the high-performance segments of the PCB laminate materials industry, we have developed long-term customer relationships with leading PCB fabricators such as AT&S, DDi, Gold Circuit

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Electronics, Hitachi, Ibiden, Multek, Ruwel, Sanmina, TTM Technologies, Unimicron, Viasystems and WUS Printed Circuit. While only one of our customers accounted for more than 10% of our revenues in each of fiscal 2010, fiscal 2009 and fiscal 2008 and the six months ended July 2, 2011 and June 26, 2010, we believe that our ten largest customers accounted for the majority of our revenues in each of these periods.

We also maintain strategic relationships with the OEMs our customers serve, such as Alcatel-Lucent, Bosch, Brocade, Cisco, Ericsson, Google, Hewlett-Packard, Huawei, IBM, Motorola, Nokia, Siemens and Sun Microsystems (now Oracle). We work with OEMs to deliver highly customized products that meet their specific performance requirements on a cost-effective basis.

We have established industry-specific marketing teams dedicated to collaborating with key players in particular end-markets on new product introductions. These teams collaborate with major OEMs and their PCB fabricators, as well as with our research and development personnel, to specify proprietary resins that meet the specific performance criteria of next generation products. While OEMs do not purchase laminate materials directly from Isola, they are an important part of the design process, significantly influencing the specific performance requirements of the laminates and prepreg to be used in new products and in some cases pre-qualifying a limited number of approved suppliers whose materials may be incorporated into the product. In cases where materials are pre-qualified, PCB fabricators or OEMs will select a particular laminate material among the pre-qualified materials, typically based on price, service and performance. Once a particular PCB laminate material is designed in or qualified for use in a specific product line and one or more particular laminate suppliers are selected, these suppliers tend to remain suppliers of choice, even as the PCBs for these products change to address OEM product line improvements or extensions or next generation developments.

We generally sell our products directly to our customers. We do limited advertising in select trade publications, and we actively participate in major trade shows as our principal form of sales promotion.

RESEARCH AND DEVELOPMENT

Isola's business strategy depends on the continued improvement of our PCB laminate technologies. As of August 1, 2011, we had approximately 64 employees engaged in research and development, with an additional 24 employees engaged in technical support and additional 19 employees engaged in OEM marketing activities. We maintain a major research and development facility near our corporate headquarters in Chandler, Arizona, as well as facilities in Germany and Singapore to serve Europe and Asia, respectively. In addition, global teams of technical and support personnel maintain collaborative partnerships with our customers and leading OEMs in order to help us maintain technological and product leadership. Our OEM marketing function and research and development function are tightly integrated, and both report to our Chief Technology Officer.

Our research and development activities are primarily focused on the following areas:

High-Speed / High-Frequency Applications—We are developing laminate materials and related resin formulations that can support increasingly critical high-speed/high-frequency applications. Specifically, we seek to continually develop improved dielectric platforms which deliver lower dissipation factors and lower, controlled dielectric constants, and improved performance. We are also developing PCB laminate materials that will support faster data transfer rates in order to enhance our portfolio of materials for radio frequency ("RF") applications. As a result of these development efforts, we plan to introduce two new products addressing these applications by the end of 2011: I-Speed, addressing the emerging high-speed applications that go beyond 10 Gigabit Ethernet; and I-Tera, a next generation product for lead-free, low-loss RF applications.

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–>: High-Tg, Lead-Free Compatible and High Reliability Products—We are developing resins, PCB laminate materials and process enhancements that can support lead-free compatible, high-performance applications that are designed to address increasingly pervasive environmental regulations and lead-free initiatives. We are focusing on improving dielectric properties and reliability.
–>: Halogen-Free Platforms—We are currently developing more advanced halogen-free materials utilizing resin formulations with improved thermal and electrical properties to address the emerging needs of this market, and expect that these next generation halogen-free products are likely to command higher prices and provide improved margins.

In the six months ended July 2, 2011, we spent $5.2 on research and development activities and $0.5 million on capital expenditures related to these activities. In fiscal 2010 we spent $9.5 million on research and development activities and $0.7 million on capital expenditures related to these activities, in fiscal 2009 we spent $9.2 million on research and development activities and $0.4 million on capital expenditures related to these activities, and in fiscal 2008 we spent $10.7 on research and development activities and $0.1 million on capital expenditures related to these activities.

NOTABLE RESEARCH AND DEVELOPMENT ACCOMPLISHMENTS

We continually invest in research and development, as well as in our relationships with key customers and OEMs, in order to develop products that address the particular needs of the OEMs served by our customers. Many of our R&D efforts result in innovative new products that enable us to gain a "first mover" advantage over our competition and leading market share. Because many OEM products have life cycles of six to 10 years, our research and development efforts can result in long-term, sustainable benefits.

Set forth below are two examples of our R&D efforts.

370HR (High-Tg, Lead-Free)

Over the past several years, contract manufacturers and PCB fabricators have been compelled to use lead-free soldering alloys due to increasing consumer and regulatory pressure. These alloys require soldering temperatures significantly higher than lead-containing alloys, and thus the laminate materials industry had developed a cured laminate capable of withstanding the process. While the cured laminate chemistry solved the higher assembly temperature problem, it also introduced new problems such as thermal expansion and proved harder for PCB fabricators to drill and process. It was clear that a new laminate product was needed to address these issues.

Through a unique combination of our intellectual property and technical know-how, we developed a new, patented filler technology that significantly lowered the instance of thermal expansion and improved the processing attributes of the laminate. This technology was introduced as our 370HR product, which we believe was the first high-Tg, lead-free product of its kind to offer superior reliability and provide a compelling value proposition to OEMs.

Today, we believe that the 370HR is acknowledged as the "best in class" product for high reliability applications across the telecommunications, high-end computing and high-end automotive markets. We have a leading position in the high-Tg market segment, and enjoy numerous OEM design approvals for our products in this segment. By anticipating customer needs, we were able to gain a "first mover" advantage over our competition, and our continuing development efforts have allowed us to maintain our leadership.

FR408HR (High-Speed Digital)

The rapid growth of smart phones, the increased use of social media and the expansion of cloud computing have pressured OEMs to develop servers, routers and other infrastructure hardware that can operate at

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ever-higher speeds. Due to increasing consumer and regulatory pressure, the components of these devices have also needed to be lead-free.

To meet the requirements for increased speed and frequency, as well as environmental concerns, PCB fabricators needed a high-performance but cost-effective laminate that would be compatible with existing manufacturing processes, handle the transition to lead-free soldering, and allow for low-loss signal transmission, all at a reasonable price.

In early 2009, our research department began to address this industry-wide issue, initially using modeling and simulation programs to determine the efficacy of various potential chemical combinations. Within three months, we had developed a potential materials solution, which was field-tested in collaboration with several PCB fabricators, presenting the successful results to OEMs just weeks later. In total, it took us less than six months to go from concept to market introduction of our FR408HR laminate material, which we believe is the PCB industry's first and leading lead-free compatible, high-speed and low-loss laminate.

Today, the FR408HR is used by major high-end PCB fabricators globally and has been designed into several key OEM product lines. The FR408HR forms an important component of our high-speed digital product portfolio, which we have been able to grow significantly over the last five years by understanding the needs of our customers and developing innovative products.

LAMINATE MANUFACTURING PROCESS

Isola maintains 11 manufacturing facilities, strategically located in the United States, Europe and Asia, including nine fully integrated laminate facilities, one "pressing and finishing-only" facility to serve a customer in a relatively remote location in Asia and one fiberglass manufacturing facility in Italy. Our global network of plants facilitates quick-turn manufacturing and delivery of product, and minimizes customers' shipping costs and inventory levels. We employ "six sigma" business processes to improve working capital management and enhance factory productivity. We also employ manufacturing "best practices" throughout our 11 facilities and maintain a dedicated, internet-based private computer network for manufacturing personnel to share information.

The process for manufacturing our prepreg and laminates is capital intensive and requires sophisticated equipment as well as clean-room environments. The diagram below depicts the key steps in our manufacturing process.

1.: The preparation and formulation of specially designed resin systems.
2.: The impregnation of specially designed fiberglass fabric with the resin system and partial curing of the resulting prepreg.
3.: The assembly of single or multiple plies of prepreg and copper foil in a clean-room environment, which is referred to as "lay-up".
4.: The lamination of the copper-clad assemblies under simultaneous exposure to intense heat, pressure and vacuum conditions, which is referred to as "pressing".
5.: The sizing and packaging of the laminates to customer specifications.

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Prepreg is manufactured in a treater at the impregnation stage of the manufacturing process. A treater is a continually operating roll-to-roll machine that impregnates the fiberglass or other reinforcement fabric with a resin formulation and then sequences the resin-impregnated fabric through a series of ovens which partially cure the resin-fiberglass.

We manufacture CCL by assembling in a clean room one or more plies of prepreg stacked between sheets of specially manufactured copper foil purchased from outside vendors. Similar such assemblies are then inserted into a large, multiple-opening vacuum lamination press, which subjects the assemblies to intense heat, pressure and vacuum conditions. After the press cycle is completed, the laminates are removed from the press and sheeted, paneled and finished to customers' specifications. The CCL is then inspected and packaged for shipment to customers.

ENTERPRISE SOFTWARE

In 2010, Isola completed a long-term project to consolidate its laminate manufacturing facilities on a single ERP platform. Utilizing SAP ERP software, this system established a common template across all of our laminate operations for the finance/accounting, manufacturing and sales and service functions.

The global ERP template enables centralized financial planning and reporting and facilitates a fast and efficient financial closing process at the end of each fiscal period. This template provides a flexible and standardized methodology to support our anticipated growth. By eliminating older legacy systems and adopting this new system, we believe we have reduced business risk and achieved a high level of system and data integrity.

Our SAP ERP platform is tightly integrated with our global business intelligence system. This analytical environment provides our management with rapid insight into changing operational conditions. The business intelligence system offers a single source of information from multiple disciplines, including sales and marketing, supply-chain logistics, and financial planning and analysis. It also provides specific, periodic operational scorecards to guide the management team's ongoing business improvement efforts.

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SOURCES OF RAW MATERIALS

Materials costs comprised approximately 70.6% of Isola's total cost of goods sold in the six months ended July 2, 2011, and 69.5% in fiscal 2010. Copper, resin and fiberglass are the principal raw materials used in the manufacture of our advanced PCB laminate materials.

We have developed close working relationships with multiple suppliers for each of our three key raw materials. Our suppliers are required to comply with our stringent specifications and technical requirements. In addition to copper, resin and fiberglass, Isola uses certain specialty materials for which it relies on a limited number of suppliers or a sole supplier. To date, we have not experienced any major supply disruptions.

Prices of raw materials, especially copper, are subject to price fluctuations. Historically, we have been able to pass through raw material price increases more readily in the high-performance segment of the market than for our mid- or low-Tg materials.

INTELLECTUAL PROPERTY

We hold a position of technology leadership within the laminate industry, providing our customers with innovative solutions to meet their application needs. This is a result of our significant investment in research and development, particularly with respect to innovative proprietary resin formulations and our comprehensive patent portfolio. As of August 4, 2011, we held a total of 172 patents (including foreign counterparts) in the United States, Europe and Asia. While these patents are primarily directed to our resin formulations, we also hold patents related to our thin-glass style and copper foil manufacturing processes. We continue to file new patent applications, for which terms extend up to 20 years from the filing date in the United States. Our key patents include:

–>: Drum Side Treated Foil, or DSTF, which enables the use of reverse treat copper technology widely used by the copper foil manufacturers;
–>: Styrene Maleic Anhydride, or SMA, which we have used to formulate many products providing us with a leading edge in high-speed and high-frequency markets; and
–>: two patents related to our proprietary Talc mineral-based fillers used in our lead-free compatible PCB laminate materials.

Our key U.S. patents described above have expiration dates ranging from 2015 to 2017.

In order to protect our intellectual property rights, we rely on a combination of patent, trade secret, copyright and trademark laws, as well as employee and third-party nondisclosure agreements. Because of the differences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States. We believe that while the protection afforded by patent, trademark and trade secret laws may provide some advantages, the competitive position of participants in our industry is principally determined by such factors as the technical and creative skills of their personnel, the frequency of their new product developments and their ability to anticipate and rapidly respond to evolving market requirements. Therefore, we have focused our efforts on developing substantial expertise and know-how in our industry, and protecting that know-how with confidentiality agreements and trade secrets.

In addition to confidentiality agreements, we rely on a variety of methods to protect unpatented proprietary technology and trade secrets. To protect our proprietary materials formulae, only a select few of our senior research and development employees have access to key resin formulations. In addition, we ship the ingredients for some of our resins to our offshore facilities in containers which do not identify by name the components of the resin.

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We rely on our trademarks, trade names and brand names to distinguish our products and services from the products and services of our competitors, and have registered or applied to register many of these trademarks.

We also license certain of our manufacturing processes to PCB fabricators and copper foil suppliers, from which we derive limited income.

We periodically evaluate our competitors' product offerings in order to identify potential infringements of our intellectual property rights. When deemed appropriate, we have aggressively defended our intellectual property rights through legal action.

COMPETITION

Isola has many competitors, ranging in size from large, international corporations, some of which are vertically integrated, to small regional producers. Some of our competitors are well-established and have a larger market share, as well as greater manufacturing, financial, research and development and marketing resources than we do. We compete for business in the PCB materials industry primarily on the basis of technology, product performance, innovative new product development, product qualification, price and customer responsiveness and service. Our primary global competitors in the high-performance market, which we consider to be our core competency, include Guangdong Shengyi Sci. Tech. Co., ITEQ, Panasonic, Park Electrochemical, Rogers Corp. and Taiwan Union Technology Corporation. Unlike many of our competitors, we are focused solely on the design, development and manufacturing of PCB laminate materials.

For a more complete description of the risks we face related to competition, see "Risk Factors—Risks Related to Our Industry and Business". We face intense competition within the PCB materials industry, including from diversified manufacturers and suppliers, which could negatively impact our results of operations and cause or market share to decline".

LEGAL PROCEEDINGS

From time to time, Isola is subject to various legal proceedings that arise in the normal course of our business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us. As of the date of this prospectus, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position.

REGULATION

Isola's operations are subject to various environmental laws and regulations that limit discharges into the environment, establish standards for the handling, generation, use, emission, release, discharge, treatment, storage and disposal of, or exposure to, hazardous materials, substances and waste, and require cleanup of contaminated soil and groundwater. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations could have a material adverse effect on our operations, including the temporary or permanent shut down of our facilities. Many of these laws and regulations provide for substantial fines and penalties and, in some cases, criminal sanctions for violations. Some of these laws and regulations may also impose liability for property damage and personal injury stemming from the presence of, or exposure to, hazardous substances. For example, under the Superfund Act and similar state laws in the United States, or under comparable laws in foreign jurisdictions, if one of our manufacturing facilities were to be identified by the applicable governmental authority as a hazardous waste disposal site or contaminated area, all parties who may have contributed to

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any waste, including us, could be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste.

We are required to certify compliance with various material content restrictions in our products based on laws of various jurisdictions or territories, such as the Restriction of Hazardous Substances ("RoHS") directives in the European Union, and comparable directives in China, which restrict the use of various hazardous materials, including lead, in the manufacture of certain types of electronic and electrical equipment. The European Union's Registration, Evaluation, Authorization and Restriction of Chemicals regulations ("REACH"), requires companies manufacturing or importing certain chemical substances into the European Union to register those substances. Disclosure by manufacturers that they use such materials could result in pressure from customers and other constituencies. We do not believe that these laws or regulations currently apply to our operations, although we continually monitor changes in interpretations of these laws, and regulations adopted under them, for potential application to our operations. These laws and regulations provide for substantial fines and penalties for violations and, if applicable, could require the change or discontinuation of certain operations, any of which could have a material adverse effect on us.

Our operations are also governed by laws and regulations relating to workplace safety and worker health. We believe we are in material compliance with these laws and regulations. We also believe that we are in material compliance with applicable labor and employment laws and regulations.

EMPLOYEES

As of August 1, 2011, Isola had approximately 2,088 employees worldwide. Of these employees, 1,703 were engaged in manufacturing operations and 385 were employed in engineering, sales or administrative positions. We consider our employee relations to be good.

As of August 1, 2011, approximately 135 of our employees (or 6.5% overall) were members of one of the following unions: in Singapore, the United Workers of Electronic and Electrical Industries; in Germany, IG Metall; and in Italy, FEMCA CISL and FILTEA CGIL. Our relationship with these unions generally has been satisfactory. Within the last five years, we have not experienced any work stoppages at any of our facilities.

PROPERTIES AND FACILITIES

Isola's corporate headquarters are in leased office space located in Chandler, Arizona. We maintain manufacturing facilities and research and development laboratories globally. We believe that our facilities are adequate for our current and projected needs.

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The following table sets forth information concerning our principal facilities owned or leased by us.

Location		Owned / leased / land use rights		Expiration of lease or land use rights	Type of facility


Elk Grove, California		Owned	44,000	N/A	Manufacturing
Chandler, Arizona (3100 W. Ray Road)		Leased	18,500	May 31, 2013	Corporate and regional offices
Chandler, Arizona (165 S. Price Road)		Owned	97,000	N/A	Manufacturing; research and development
Franklin, New Hampshire⁽¹⁾		Owned	99,700	N/A	Manufacturing
Fremont, California⁽¹⁾		Owned	76,800	N/A	Manufacturing
Ridgeway, South Carolina		Owned	110,000	N/A	Manufacturing

	*Total in North America*		446,000
Hong Kong		Leased	11,400	May 31, 2012	Regional offices
Taoyuan, Taiwan		Owned	138,600	N/A	Manufacturing
Yangmei, Taiwan		Owned	90,700	N/A	Manufacturing
Huizhou, China⁽²⁾		Land Use Right	220,500	January 1, 2048	Manufacturing
Suzhou, China⁽²⁾		Land Use Right	146,500	December 31, 2046	Manufacturing
Kuching, Malaysia		Leased	39,200	April 30, 2012	Manufacturing
Singapore		Leased	134,200	December 31, 2019	Manufacturing; research and development

	*Total in Asia*		781,100
Duren, Germany		Owned	826,300	N/A	Manufacturing; regional offices; research and development
Brugherio, Italy (glass fabric)		Leased	252,000	March 9, 2023	Manufacturing

	*Total in Europe*		1,078,300
*TOTAL WORLDWIDE*			2,305,400

(1): These facilities have been closed and are currently being marketed for sale.
(2): There is no private land ownership in China. Land in China is owned by the government and cannot be sold to any individual or entity. Instead, the government grants or allocates landholders a "land use right", which is sometimes referred to informally as land ownership. Land use rights are granted for specific purposes and for limited periods. Each period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations. We have been issued land use right certificates for our property located in Huizhou, China until 2048 by the municipal government of Boluo and for our property located in Suzhou, China until 2046 by the municipal government of Suzhou Industrial Park. Such certificates may be renewed upon our application and the municipal governments' approval.

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FINANCIAL INFORMATION FOR SEGMENTS AND GEOGRAPHICAL AREAS

For information regarding revenues from external customers by segment and geographic area, measures of profit or loss and total assets by segment and long-lived assets by geographic area, see Note 14 to our consolidated financial statements and Note 12 to our unaudited interim financial statements, included elsewhere in this prospectus.

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Prior to this offering, we were a private company controlled by our Sponsors. The following table sets forth certain information regarding our executive officers, other key employees and directors.

Name		Position


Raymond Sharpe	62	President, Chief Executive Officer and Director
F. Gordon Bitter	68	Executive Vice President and Chief Financial Officer
Tarun Amla	47	Executive Vice President and Chief Technology Officer
Mathew LaRont	47	President, Asia and Global Supply Chain Officer
Robert Chaney	51	President, Americas
Karl Stollenwerk	53	President, Europe
Kevin Burns	47	Director
Donald Colvin	58	Director
H. McIntyre Gardner	50	Director
Jordon Kruse	40	Director
Jeffrey McCreary	54	Director
Eric Noeth	26	Director
Cassidy Traub	30	Director

EXECUTIVE OFFICERS AND KEY EMPLOYEES

Raymond Sharpe is the President and Chief Executive Officer of Isola, a position that he has held since he joined us in June 2004. Mr. Sharpe has also served as a member of our board of directors since September 2011, and served as a member of the board of directors of the Sponsor Holding Company since June 2004. Prior to joining Isola, Mr. Sharpe was the Chief Executive Officer of Cookson Electronics and a member of the board of directors of Cookson Group Plc, a position he held for over ten years. Mr. Sharpe helped build Cookson Electronics into a leading global supplier of materials and equipment servicing the PCB, PCB assembly and semiconductor packaging markets. In addition, Mr. Sharpe served for ten years as a director for SPS Technologies, Inc., a NYSE-listed manufacturer of specialty materials for the aerospace industry. He also currently serves as a director of Cytec Industries Inc., a NYSE-listed specialty chemicals company. Mr. Sharpe received a bachelor of arts degree from East Carolina University and has over thirty years of experience in the electronics industry. In April 2011, Mr. Sharpe was elected to serve on the board of IPC, the industry association for printed circuit board and electronics manufacturing service companies. Mr. Sharpe was selected to serve as a member of our board of directors because of his extensive leadership experience in the electronics industry, his intimate knowledge of Isola's business and operations, and his deep understanding of both our markets and our competitors.

F. Gordon Bitter is the Executive Vice President and Chief Financial Officer of Isola, a position that he has held since he joined us in 2008. Prior to joining Isola, Mr. Bitter was the Senior Vice President and Chief Financial Officer of Plexus, a Nasdaq-listed contract manufacturer of high-end technology products servicing the wireless infrastructure, networking, medical and aerospace markets. Prior to his five year tenure at Plexus, Mr. Bitter was the Senior Vice President and Chief Financial Officer of Hadco Corporation, a NYSE-listed PCB manufacturer. Mr. Bitter received a bachelor of science degree in mathematics from Bucknell University and an M.B.A. from the Wharton School of the University of Pennsylvania.

Tarun Amla is the Executive Vice President and Chief Technology Officer of Isola, and is responsible for our global research and technology and global OEM marketing programs with a focus on new product development. Prior to his current role, Mr. Amla served in various leadership capacities, including as Vice

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President of Operations and Technology and Vice President of Marketing and Technology. Prior to joining Isola, Mr. Amla was the Director of Operations for AlliedSignal Laminate Systems in Singapore. During his more than twenty years in the electronics industry, Mr. Amla has gained extensive experience in general management, manufacturing operations, engineering, product technology, marketing and sales. Mr. Amla received a bachelor of science degree in mechanical engineering from the National Institute of Technology Calicut in India, a master of science degree in engineering from Arizona State University with an emphasis on modeling and simulation, a master of science degree in mechanical engineering with a concentration in computational mechanics from Purdue University, and an M.B.A. from the Kellogg School of Management at Northwestern University.

Mathew LaRont is the President, Asia, a position he has held since June 2011. In July 2009, Mr. LaRont assumed additional responsibility as Isola's Global Supply Chain Officer, a position that he still holds. In his current roles, Mr. LaRont is responsible for all aspects of our Asian operations and oversees our strategic global supply chain, managing supply contracts and supplier licensing. Prior to his current position, Mr. LaRont served as the President, Americas and prior to that, Vice President, Sales and Marketing—Asia. Mr. LaRont joined Isola in 2004. Prior to joining Isola, Mr. LaRont held various positions with Solectron Corporation, a global electronics manufacturing company, including Director of Global Materials and General Manager in Taiwan. Prior to his tenure at Solectron Corporation, Mr. LaRont served as the Director of Sales and Operations for Sanmina-SCI Corporation, a Nasdaq-listed integrated electronics manufacturing service provider, and held various managerial positions with Praegitzer Industries, Inc., including Financial Controller and Regional Sales Manager for the West Coast. With over twenty years of electronics industry experience, Mr. LaRont brings a broad range of expertise to Isola.

Robert Chaney is the President, Americas, a position he has held since joining us in August 2011. In his current role, Mr. Chaney is responsible for all sales, customer service and manufacturing operations in the Americas. Prior to joining Isola, Mr. Chaney was President of the PCB Interconnect Technologies division at Sanmina-SCI Corporation, a position he held from June 2010 to December 2010. Prior to Sanmina-SCI, Mr. Chaney was President of First Mile Technologies, a provider of Internet, security monitoring, fiber connectivity, phone, and cable television services, a position he held from January 2004 to June 2010. Mr. Chaney has held senior-level positions with a number of other high-technology companies, including ATMI, Nanovation Technologies, AT&T and IBM. Mr. Chaney is a graduate of Purdue University and has more than twenty years of experience in the electronics industry.

Karl Stollenwerk is the President, Europe, a position he has held since May 2009. In his current role, Mr. Stollenwerk is responsible for managing all operations for the Isola and Isola Fabrics business in Europe. Before assuming his current position, Mr. Stollenwerk was Director of Sales, General Manager and Managing Director of our Isola Dueren operation. Mr. Stollenwerk joined Isola in October 1987 and, during his more than twenty years with Isola, he has acquired extensive experience in marketing and sales in the electronics industry. He has a broad knowledge of all customer-related aspects of the European PCB industry.

NONEMPLOYEE DIRECTORS

Kevin Burns has served as a member of our board of directors since September 2011, and served as a member of the board of directors of the Sponsor Holding Company since June 2004. Mr. Burns has been a Partner in the Operations Group of TPG Capital, a private equity investment firm, since 2003. In March 2008 he became the Partner in Charge of TPG Capital's Manufacturing/Industry Sector. Prior to joining TPG Capital, he served as Executive Vice President and Chief Materials Officer of Solectron Corporation, an electronics manufacturing services provider. Prior to joining Solectron, Mr. Burns served as Vice President of Worldwide Operations of the Power Generation Business Unit of Westinghouse Corporation, and President of Westinghouse Security Systems. Prior to Westinghouse, he was a consultant at

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McKinsey & Company, Inc. and spent three years at the General Electric Corporation in various operating roles. Mr. Burns received a bachelor of science degree in mechanical and metallurgical engineering (cum laude) from the University of Connecticut and received an M.B.A. from the Wharton School of the University of Pennsylvania. He currently serves on the boards of directors of Armstrong World Industries, Graphic Packaging Holding Co. and American Tire Distributors. From 2008 to 2011, Mr. Burns also served on the board of directors of Freescale Semiconductor Holdings I, Ltd. Mr. Burns was selected to serve as a member of our board of directors because of his extensive management expertise and his knowledge of both our Company and industry.

Donald Colvin has served as a member of our board of directors since September 2011. Mr. Colvin joined ON Semiconductor and SCI LLC as Senior Financial Director in March 2003 and currently serves as Executive Vice President and Chief Financial Officer. Before joining ON Semiconductor, beginning in 1998, Mr. Colvin served as Vice President of Finance and Chief Financial Officer at Atmel Corporation, a manufacturer of advanced semiconductors. Mr. Colvin served as Chief Financial Officer of a subsidiary of Atmel from 1995 to 1998. From 1985 to 1995, he held various positions with European Silicon Structures, most recently as Chief Financial Officer. Mr. Colvin also held various financial positions with Motorola Semiconductors Europe from 1977 to 1985. Mr. Colvin holds a bachelor of arts degree in economics and an M.B.A. from the University of Strathclyde, Scotland. From May 2007 to August 2011, Mr. Colvin served as a member of the board of directors of Applied Micro Circuits Corporation, a Nasdaq-listed provider of integrated circuits for processing, transporting and storing information. Mr. Colvin was selected to serve as a member of our board of directors because of his finance and accounting expertise, managerial experience and knowledge of our industry.

H. McIntyre Gardner has served as a member of our board of directors since September 2011. Mr. Gardner retired in 2008 from Merrill Lynch & Co., Inc. as the Head of Americas Region and Global Bank Group, Global Private Client. Prior to joining Merrill Lynch in July 2000, Mr. Gardner was the President and Chief Operating Officer of Helen of Troy Limited, a Nasdaq-listed personal care products manufacturer. Mr. Gardner has also been a member of the board of directors of Spirit Airlines, a Nasdaq-listed provider of passenger airline services, since 2010. Mr. Gardner received a bachelor of arts degree from Dartmouth College. Mr. Gardner was selected to serve as a member of our board of directors because of his financial management expertise, qualifications as a business executive and his prior experience as a director of both public and private companies.

Jordon Kruse has served as a member of our board of directors since September 2011, and served as a member of the board of directors of the Sponsor Holding Company since October 2010. Mr. Kruse is a Managing Director at Oaktree Capital Management, LP, a Los Angeles based institutional money manager. He is a member of Oaktree's Principal Fund, which focuses on investments in private equity and distressed debt for control and is responsible for the aviation, packaging, chemicals, building products and consumer apparel sectors. Prior to joining Oaktree in 2001, Mr. Kruse was an attorney at the law firm of Kirkland & Ellis LLP, which he joined in 1997. Mr. Kruse serves on the board of directors of Spirit Airlines, Inc., a Nasdaq-listed provider of passenger airline services, Dayton Superior Corporation, a manufacturer and distributor of products used in concrete construction, Chesapeake UK Holding Ltd, a supplier of specialty paperboard packaging products in Europe, Nordenia International AG, a manufacturer of plastic films and flexible packaging, BP Clothing LLC, an apparel company, Cyanco Corporation, a manufacturer of sodium cyanide used in the gold mining industry, and CF Group Inc., a commercial furniture company. Mr. Kruse received a bachelor of arts degree from the University of Virginia and a J.D. from Northwestern University. Mr. Kruse was selected to serve as a member of our board of directors because of his financial expertise, knowledge of our Company and his general business experience.

Jeffrey McCreary has served as a member of our board of directors since September 2011, and served as a member of the board of directors of the Sponsor Holding Company since January 2006. Mr. McCreary is an

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independent management consultant who retired in 2005 as a Senior Vice President for Texas Instruments. In this capacity he was responsible for Texas Instruments' sales and account management, field technical support and channel marketing strategies around the globe. Prior to joining Texas Instruments, Mr. McCreary held engineering and strategic marketing positions within the Bell System. Mr. McCreary received a bachelor of science degree in electrical engineering and an honorary doctorate of engineering from the Rose-Hulman Institute of Technology. Mr. McCreary currently serves on the board of Gennum Corporation, a Toronto Stock Exchange-listed provider of semiconductor products and intellectual property cores for consumer connectivity, enterprise, video broadcast and data communications applications. Mr. McCreary was selected to serve as a member of our board of directors because of his international experience in business, his background in engineering, and his extensive experience in the technology industry.

Eric Noeth has served as a member of our board of directors since September 2011, and served as a member of the board of directors of the Sponsor Holding Company since October 2010. Mr. Noeth has been a member of the technology-focused investment practice of TPG Capital, a private equity investment firm, since August 2009. Prior to joining TPG Capital, Mr. Noeth worked in Morgan Stanley's Investment Banking Division, where he focused on advising companies in the technology and telecom industries. Mr. Noeth joined Morgan Stanley in 2007 after receiving a bachelor's degree in business administration from Indiana University, where he graduated with honors. Mr. Noeth was selected to serve as a member of our board of directors because of his finance and banking background and experience in the technology industry.

Cassidy Traub has served as a member of our board of directors since September 2011. Mr. Traub is a Vice President at Oaktree Capital Management, LP, a Los Angeles based institutional money manager. He is a member of Oaktree's Principal Fund, which focuses on investments in private equity and distressed debt for control, and is responsible for the packaging, chemicals, technology and business services sectors. Prior to joining Oaktree in 2005, Mr. Traub was an investment banker at UBS Investment Bank, which he joined in 2003. Mr. Traub serves on the board of directors of Crimson Exploration Inc., a Nasdaq-listed energy company, Chesapeake UK Holding Ltd, a supplier of specialty paperboard packaging, and Cyanco Corporation, a manufacturer of sodium cyanide used in the gold mining industry. Mr. Traub received a bachelor of arts degree in economics from Princeton University. Mr. Traub was selected to serve as a member of our board of directors because of his financial expertise, knowledge of our Company and his general business experience.

COMPOSITION OF THE BOARD OF DIRECTORS

Controlled Company Exemption. After the completion of this offering, the Sponsors and their affiliates will control a majority of the voting power of our outstanding ordinary shares (approximately % if the underwriters do not exercise their option to purchase additional shares). In addition, at the completion of this offering, we will enter into a shareholders agreement with our Sponsors that will give each of TPG Capital and Oaktree the right to nominate representatives to our board of directors, and require all of our Sponsors to vote for the election of these nominees to our board of directors, so long as TPG Capital and Oaktree own specified percentages of our outstanding voting securities. See "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors—Shareholders and Registration Rights Agreement". As a result, we are a "controlled company" within the meaning of the Nasdaq corporate governance standards. Under the Nasdaq rules, if more than 50% of the voting power of a listed company is held by an individual, group or another company, the listed company is a "controlled company" and may elect not to comply with certain Nasdaq corporate governance standards, including:

–>: the requirement that a majority of our board of directors consist of independent directors;

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–>: the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;
–>: the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and
–>: the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

We have adopted charters for our audit, nominating and corporate governance and compensation committees, intend to conduct annual performance evaluations for these committees, and initially expect all of our committee members and a majority of our board of directors to be considered independent directors under the independence criteria of Nasdaq. All of our directors, except Mr. Sharpe, are considered independent directors. Although we intend to comply with these listing requirements whether or not we are a controlled company, there is no guarantee that we will not take advantage of the controlled company exemptions in the future. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

Any director may be removed from office by our shareholders. Our Principal Sponsors are together the beneficial owners of a majority of our ordinary shares and will be able to unilaterally remove directors.

BOARD COMMITTEES

Prior to the consummation of this offering, we anticipate that our board of directors will establish an audit committee, a compensation committee and a corporate governance and nominating committee, as discussed below.

Audit Committee. Our audit committee will be responsible for, among other things, making recommendations concerning the engagement of our independent public accountants, reviewing with the independent public accountants the plans and results of the audit engagement, approving professional services provided by the independent public accountants, reviewing the independence of the independent public accountants, considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls. Our audit committee will be comprised of Messrs. Colvin (chairman), Gardner and McCreary, each of whom is a financial expert for purposes of the Nasdaq rules.

Compensation Committee. The compensation committee will be primarily concerned with administering programs and policies regarding the compensation of executive officers and employee benefit plans. The committee is responsible for determining compensation of our executive officers and other employees and overseeing the administration of all employee benefit plans and programs. Our compensation committee will be comprised of Messrs. Gardner (chairman), Burns and Kruse.

Corporate Governance and Nominating Committee. The corporate governance and nominating committee will be primarily concerned with identifying individuals qualified to become members of our board of directors, selecting the director nominees for the next annual meeting of the shareholders and reviewing our corporate governance policies. The committee will be responsible for reviewing director compensation and benefits, overseeing the annual self-evaluations of our board of directors and making recommendations to the board concerning the structure and membership of the other board committees. Our corporate governance and nominating committee will be comprised of Messrs. McCreary (chairman), Noeth and Traub.

For so long as we are a controlled company within the meaning of the Nasdaq listing standards, each of TPG Capital and Oaktree have the right to designate one member to our compensation committee, and one

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member to our corporate governance and nominating committee. See "Certain Relationships and Related Party Transactions—Agreements with Our Sponsors-Shareholders and Registration Rights Agreement".

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no compensation committee interlocks; no executive officer of ours serves as a member of the board of directors or the compensation committee of another entity that has an executive officer serving on our board of directors.

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COMPENSATION DISCUSSION AND ANALYSIS

This section explains the material elements of the compensation of our named executive officers:

–>: Raymond Sharpe, President and Chief Executive Officer
–>: F. Gordon Bitter, Executive Vice President and Chief Financial Officer
–>: Tarun Amla, Executive Vice President and Chief Technology Officer
–>: Robert Haskins, former President, Asia
–>: Mathew LaRont, President, Asia and Global Supply Chain Officer

How have compensation decisions historically been made?

Prior to this offering, we were a privately held company controlled by our Sponsors. Accordingly, we have not been subject to stock exchange listing or SEC rules, including those requiring that a majority of our board of directors be independent or regarding the formation and functioning of board committees, such as the compensation committee. Prior to this offering, the non-employee members of the Sponsor Holding Company's board of managers, which we refer to in this section as our board of directors, have functioned as a compensation committee and established our general compensation philosophy. The board of directors has annually reviewed and approved any changes in the compensation of our executives and granted options, restricted units and other awards.

Historically, our chief executive officer has made recommendations to our board of directors and has participated in discussions regarding executive compensation, but has not participated in any discussions or decisions regarding his own compensation. Members of our corporate finance, legal and human resources staffs have provided data and analyses to the board of directors at their request.

In late 2009, we engaged Mercer, a global human resources and financial services consulting firm, to conduct a market review of our executive compensation program. To analyze our executive compensation program, Mercer used two market references to compare our compensation practices for our executives to those in our market:

–>: Published Compensation Surveys: Two private surveys regarding executive compensation in the high technology industry: the Mercer US Global Premium Executive Remuneration Suite and the Towers Watson Top Management Compensation Survey; and
–>: Select Peer Group: Publicly available data for a competitive peer group of publicly traded companies in the electronic manufacturing industry of similar revenue size and market capitalization.

Our 2010 peer group consisted of the following companies:


–> Merix Corp*	–> H.B. Fuller	–> Mentor Graphics
–> Powerwave Technologies	–> RF Micro Devices	–> Rogers Corporation
–> SMART Modular Technologies	–> TTM Technologies	–> Viasystems Group*
–> Zebra Technologies

*: Effective February 16, 2010, Merix Corp merged with Viasystems Group.

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Mercer benchmarked each of the elements of our 2010 executive compensation, including base salaries, performance-based annual incentives and long-term equity incentive awards, against those of other executives in the selected peer group as well as the published compensation surveys and reported their findings to management. Our chief executive officer then presented the Mercer analysis to our board of directors. The Mercer analysis indicated that the base salaries and the target annual incentives for each of our named executive officers were generally below the market median. Additionally, the Mercer analysis indicated that our long-term equity incentive levels (when a 3-year average grant was assumed, as we have not typically provided annual equity grants) were below the 25th percentile.

The Mercer US Global Premium Executive Remuneration Suite included data from 2,757 companies in approximately 52 major industry classifications, including high tech manufacturing. The Towers Watson Data Services: Survey Report on Top Management Compensation included data from 3,422 companies in a variety of industries, including high tech manufacturing. The Mercer and Towers Watson survey data was equally weighted.

For each reviewed position, Mercer blended peer group data with the broader surveys, equally weighing the selected peer group and broader published compensation survey data. This blended data was used to benchmark base salaries, annual incentive and long-term incentive opportunities as well as total compensation.

In 2010, we again engaged Mercer to conduct a market overview of our executive compensation program for 2011.

How is the compensation program likely to evolve after the offering?

In 2011, immediately prior to the completion of this offering, we will reorganize as a Cayman Islands company, Isola Group Ltd., and both the Sponsor Holding Company and the Sponsor Limited Partnership will be liquidated. In connection with this offering, the board of directors of our Cayman Islands company, which we refer to in this section as our new board of directors, will establish a compensation committee that will be comprised of only certain members of the new board of directors. For additional information regarding the compensation committee of our new board of directors that will oversee our compensation program following the completion of this offering, see "Management—Board Committees." We expect that our compensation committee will meet several times per year to determine the components and levels of compensation and the appropriate performance metrics. While we expect that our post-offering compensation plans and programs will not significantly differ from our historical practices, there may be changes to some of our compensation practices as a public company, such as annual equity incentive awards, long-term equity incentive awards and changes in the metrics that we use to make annual cash incentive awards, to help motivate executive officers to achieve and exceed our business objectives, and to align the incentives of our officers with the long-term interests of our shareholders.

What types of equity compensation awards have historically been made, and how will our equity compensation practices change after the offering?

Historically, our equity compensation awards granted to executive officers and other employees have been made through awards to purchase limited partner common units in the Sponsor Limited Partnership (the "partnership units"), as well as profits interests in the Sponsor Limited Partnership ("profits interest units"). Prior to completion of this offering, the Sponsor Limited Partnership owns 100% of our current Luxembourg Holding Company, and is wholly-owned by the Sponsor Holding Company.

In 2004, following the acquisition of Isola by TPG Capital and certain of our other Sponsors, the Sponsor Limited Partnership established a "profits interest program" under which the Sponsor Limited Partnership granted profits interest units to certain of our senior executives, including Mr. Sharpe and Mr. Amla. The

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Sponsor Limited Partnership's profits interest program allows participants to share in the increase in value of Isola above certain valuation thresholds related to the purchase price paid for Isola in the 2004 acquisition (in this case, at 2x and 3x such price). The program was intended to provide an incentive to management to keep focused on our long-term value. The profits interest units vest after our Sponsors have received certain returns on their investment. All profits interest units are expected to be redeemed prior to the consummation of this offering.

In 2004, the Sponsor Limited Partnership also established an option plan (the "2004 Option Plan") to permit grants of options to purchase partnership units ("options") to our executive management and other employees.

In 2007, the Sponsor Limited Partnership established a restricted unit plan (the "2007 Restricted Unit Plan") to allow us to make grants of restricted partnership units ("restricted units"). A number of grants of these restricted units were made to key employees to provide an economic incentive for them to enhance the value of the Company and as a retention vehicle.

In the fourth quarter of 2010, we issued additional equity interests in the Sponsor Holding Company to the lenders who participated in our mezzanine credit agreement. The issuance of these equity interests substantially diluted the value of the partnership units. This dilution also diminished the value of the outstanding options that had been previously granted under the 2004 Option Plan. As a result, the outstanding option grants provided little or no incentives to the recipients, particularly since there was no public market for our securities.

To address this reduction in the value of the outstanding options, our board of directors authorized two new programs. The first program for eligible participants was the offer to either retain their existing options with the originally issued terms or surrender their options for $0.53 in cash for each vested option payable immediately as well as $0.53 for each unvested option payable upon completion of the unvested option's original service-based vesting condition.

The second program was the opportunity to participate in a cash incentive plan. Under this plan, the Company would accrue 5% of each participant's annual base salary and pay out these accrued amounts to participants at the end of 2012 provided that we achieved certain financial objectives and that a liquidity event, such as the public offering of our securities, occurred prior to December 31, 2012. Eligible employees were required to surrender their outstanding options in order to participate in these programs; all eligible employees agreed to participate.

A small number of our most senior executives, including our named executive officers, were not eligible to participate in these two programs. Rather, this group agreed to the cancellation of their prior option grants in exchange for new equity awards comprised of new option and restricted unit grants, both of which were issued on October 8, 2010. Both the new option and restricted unit grants vest ratably over three years on the anniversary date of the initial award, assuming continued employment with the Company and, with respect to the restricted units, provided that there has been either (i) a change in control, or (ii) an initial public offering of equity securities of the Company and that the participant may sell such securities in a public market free of any "market stand-off" or "lock-up" restrictions.

In connection with the completion of this offering, our new Cayman Islands company, Isola Group Ltd., will establish a new long-term incentive plan that will allow our executive management to receive equity awards, such as stock options, restricted stock and restricted stock units for ordinary shares of Isola Group Ltd. Except for the profits interest units, which are expected to be redeemed prior to the consummation of this offering, all of the existing ownership interests and equity awards of executive management and other employees in the Sponsor Limited Partnership, including the options and restricted

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units, will, concurrent with this offering, be converted into equivalent ordinary shares and awards for ordinary shares, respectively, of Isola Group Ltd., which will be publicly traded.

COMPENSATION PROGRAMS AND PRACTICES FOR 2010

What were the objectives and principles of our named executive officers' compensation?

Our philosophy is to fairly compensate all of our employees, including our named executive officers, for their specific contributions to our success. Compensation is designed to both motivate and retain employees taking into account both short-term and long-term considerations, all within the context of our ability to finance any compensation programs. We consider, among other things, our financial condition, compensation practices of our peer group companies and the market surveys provided by Mercer, and general economic trends (including their likely effects on our projected profitability and cash flows) in making compensation decisions.

Our 2010 executive compensation program was designed to achieve the following objectives:

–>: Attract, motivate and retain the talented people needed to lead a complex, high-technology business.
–>: Motivate executives to make decisions and pursue opportunities that are aligned with the interests of our Sponsors but without exposing us to undue risks.
–>: Balance our financial performance and the executive's contributions to that success, including by making variable cash compensation comprise a greater percentage of overall cash compensation for more senior executives.
–>: Emphasize a greater component of cash compensation in our overall compensation package, given the limited equity pool approved by our Sponsors from which to make grants to executives.
–>: Increase earnings and cash flow to meet debt service requirements and to generate funds to finance growth by establishing Consolidated Adjusted EBITDA (as defined under our senior secured credit agreement) targets to determine annual cash incentive awards.

What were the components of our named executive officers' 2010 compensation program and how did they reflect the objectives and principles described above?

The principal components of our named executive officers' compensation program in 2010 were as follows:

–>: Base Salary. This element provides a fixed component of compensation that is not tied to our financial or operational performance. Base salary offers regular compensation for the fulfillment of regularly assigned duties and responsibilities. Although salaries are typically reviewed each year, there are no assurances of annual increases.
–>: Annual Cash Incentive. Our variable incentive compensation plan ("Bonus Plan") rewards executives for meeting or exceeding Consolidated Adjusted EBITDA (as defined under our senior secured credit agreement) targets tied to our financial plan for the year. The opportunity to earn a substantial cash award under the Bonus Plan places a significant percentage of total cash compensation "at risk" and dependent on achieving our annual earnings and cash flow objectives. Our board of directors looked at the selected peer group data and the market surveys provided by Mercer to determine the allocation between short-term cash incentives, including Bonus Plan awards, which are based on the current year's financial performance, and longer-term equity incentives for our executives. The variable portions of our executive compensation packages are designed to motivate our executives to pursue present opportunities that are aligned with the Company's long-term interests while not encouraging undue risk taking.

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–>: Long-term Equity Incentives. A substantial part of compensation which is also "at risk" is longer-term equity based compensation in the form of options, restricted units and profits interest units in the Sponsor Limited Partnership. The incentive to participants in these arrangements is not only related to our financial performance, but also to our ability to establish a market for our equity securities, either through a public offering of our securities or other liquidity event. Executives have typically been awarded one-time grants at or close to their date of hire. However, as previously discussed, when we refinanced our first-and second-lien credit facilities in the fourth quarter of 2010, we cancelled most of these outstanding options, which were then under water, and made new grants of options and restricted units to certain executive officers. All other holders of canceled options became participants in a long-term cash incentive plan.
–>: Employment and Change of Control Agreements. We have employment agreements with our executive officers that set forth severance and other arrangements following the executive's termination "without cause" or a change in control which results in the executive's separation from the Company. We believe these arrangements with our executive officers are appropriate to ensure they will not be distracted by personal considerations in the case of a potential acquisition of the Company or other strategic transaction.

Our named executive officers are eligible to participate in our employee benefit plans on the same terms as our other employees. These benefits include a 401(k) plan, group health insurance and short- and long-term disability insurance. We do not have an active defined benefit retirement plan, although Mr. Amla is a vested participant in our former pension plan which was frozen on December 31, 2003 and former supplemental executive retirement plan, or SERP, which was frozen on January 31, 2009.

We believe that the combination of these components of compensation achieves the objectives and follows the principles that our board of directors has established. In the following sections, we provide more detail about the various components of our 2010 compensation programs and their roles in achieving our objectives consistent with our principles.

How were base salaries determined?

In fiscal 2009, base salaries for our named executive officers were maintained at the same level as the prior year due to the impact of the global recession on our business. Improving business conditions in fiscal 2010, however, afforded us an opportunity to make selective salary increases, effective January 2010. The following chart sets forth the increases in the base salaries of our named executive officers as well as the percentage change between fiscal 2009 and 2010:

								Percentage deviation in 2010 base salary from 2009 market data⁽¹⁾

					Percentage change 2009/2010
Named executive officer	2009 Base salary		2010 Base salary		Percentage change 2009/2010			25th Percentile			Median			75th Percentile

Raymond Sharpe	$	546,364	$	546,364		0	%		6.1	%		-6.8	%		-14.8	%
F. Gordon Bitter		330,000		330,000		0	%		25.5	%		6.8	%		-10.6	%
Tarun Amla		255,000		285,000		11.8	%		1.8	%		-7.5	%		-20.8	%
Robert Haskins		250,000		275,000		10.0	%		16.5	%		-9.2	%		-20.1	%
Mathew LaRont		240,000		265,000		10.4	%		18.3	%		-10.5	%		-20.4	%

(1): Market data from 2009 used to benchmark our named executive officers' 2010 base salaries was weighted evenly among companies in our selected peer group and companies in proprietary compensation surveys, with 50% of the market data deriving from our peer group and 50% from proprietary compensation surveys. For more information on our selected peer group and the proprietary compensation surveys used to benchmark our named executive officers, see "—Compensation Discussion and Analysis—How have compensation decisions historically been made?".

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Neither Mr. Sharpe nor Mr. Bitter received an increase in base salary in fiscal 2010, although each of their target awards under our Bonus Plan was increased. Our board of directors believed that Mr. Sharpe and Mr. Bitter should have more compensation "at risk" during what was expected to be a turnaround year.

The salary increases for Messrs. Amla, Haskins and LaRont were made in order to move their compensation closer to the market median, and, in the case of Mr. LaRont, to reflect his assumption of additional responsibilities for the supply chain function.

How was annual bonus compensation determined?

Our board of directors established a Bonus Plan for fiscal 2010, in which our named executive officers and other executives participated. The award opportunities for each participant are expressed as a percentage of base salary. We chose Consolidated Adjusted EBITDA (as defined under our senior secured credit agreement) as the sole criterion to determine awards because of its emphasis on operational earnings and its ability to serve as a proxy for "cash flow". Achieving a certain level of Consolidated Adjusted EBITDA is also an element of a key covenant of our principal credit agreements, so its use as the criterion for the 2010 Bonus Plan aligns the interest of our executives with the corporate objective of ensuring compliance with these agreements.

Consolidated Adjusted EBITDA (as defined under our senior secured credit agreement) is different than Adjusted EBITDA used elsewhere in this prospectus. Under our senior secured credit agreement, it includes additional add-backs to net income for certain pension costs and other taxes.

The 2010 Bonus Plan had three target levels of Consolidated Adjusted EBITDA for determining bonus awards:

–>: a "threshold" level of Consolidated Adjusted EBITDA of $40.0 million for fiscal 2010, below which no bonus could be earned;
–>: a "target" level of Consolidated Adjusted EBITDA of $53.0 million for fiscal 2010, above which a bonus could be earned; and
–>: a "maximum" level of Consolidated Adjusted EBITDA of $65.0 million for fiscal 2010, beyond which no additional bonus could be earned.

Each target level of Consolidated Adjusted EBITDA for fiscal 2010 was tied to our fiscal 2010 financial plan. Awards for attainment of Consolidated Adjusted EBITDA between the threshold and the target would have been determined by straight line interpolation, as was attainment of Consolidated Adjusted EBITDA between target and maximum.

Actual Consolidated Adjusted EBITDA for fiscal 2010 was $89.7 million and well in excess of the $65.0 million maximum credited level of Consolidated Adjusted EBITDA achievement, so our named executive officers received the maximum bonuses achievable under the 2010 Bonus Plan in fiscal 2010. The chart below shows the bonus opportunity (expressed both as a dollar amount and as a percentage of base salary) at each level and the actual bonus amount and percentage of base salary that were paid to each named executive. For example, Mr. Sharpe received a bonus of $983,455, equal to 180% of his base salary. Had we only achieved the target level of Consolidated Adjusted EBITDA, his bonus would have been

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$491,728 (equal to 90% of his base salary). Had we only achieved the threshold level of Consolidated Adjusted EBITDA, Mr. Sharpe's bonus would have been $368,796 (equal to 67.5% of his base salary).

Named executive officer	Threshold			Target			Maximum			Actual


Raymond Sharpe	$	368,796 (67.5	)%	$	491,728 (90	)%	$	983,455 (180	)%	$	983,455 (180	)%
F. Gordon Bitter		160,875 (48.75	)%		214,500 (65	)%		429,000 (130	)%		429,000 (130	)%
Tarun Amla		106,875 (37.5	)%		142,500 (50	)%		285,000 (100	)%		285,000 (100	)%
Robert Haskins		103,125 (37.5	)%		137,500 (50	)%		275,000 (100	)%		275,000 (100	)%
Mathew LaRont		99,375 (37.5	)%		132,500 (50	)%		265,000 (100	)%		265,000 (100	)%

Our named executive officers have a large percentage of their overall compensation at risk given they are instrumental to our overall success and have the greatest ability to impact our financial and operational results. This compensation allocation is consistent with executives at our peer group companies and the market surveys provided by Mercer.

We do not have a policy to recover or "claw back" incentive compensation in an amount that exceeds the amount that would have been earned based on our actual financial performance determined after an accounting restatement due to material non-compliance with any financial reporting requirements of the securities laws. While we understand that legislative mandates will require such a policy in the future, we are waiting to see the final rules to be issued by the SEC before adopting a policy.

What types of long-term incentive compensation did the named executive officers receive?

Historically, option grants have been made to executives and other management employees around the dates of their hire. We have also made grants of restricted units, profits interest units and options at other times as warranted by business conditions but have not done so on a consistent basis. Equity awards have been designed to align the incentives of our executives with the interests of our Sponsors and with our long-term success. Additionally, we believe that equity awards have enabled us to attract, motivate and retain executive talent.

As previously discussed, in the fourth quarter of 2010, we cancelled substantially all grants of options under the 2004 Option Plan for participants, including our named executive officers. Our board of directors subsequently approved new equity-based compensation for a small group of our most senior executives, including our named executive officers, comprised of both options and restricted units, to strike a balance between equity grants that resulted in unit price appreciation (options) and grants that resulted in retention value (restricted units). Newly hired executives have received grants similar to those of the incumbent executives who agreed to the cancellation of earlier grants.

The new option grants were made under the 2010 Option Plan and provide plan participants with non-qualified options to acquire partnership units. The option exercise price of the grants was $0.49 per partnership unit, which was slightly higher than the estimated value of the partnership units on the date of grant of $0.41 per partnership unit. The options have a 10-year term and are subject to a three-year ratable vesting schedule on the anniversary dates of the original grant.

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The new restricted unit grants were made under the 2010 Restricted Unit Plan. The estimated fair market value of the restricted units on the date of grant was $0.63 per partnership unit. The restricted units vest pursuant to a three-year ratable vesting schedule on the anniversary dates of the original grant, provided that there has been either (i) a change in control or (ii) an initial public offering of equity securities of the Company and that the participant may sell such securities in a public market free of any "market stand-off" or "lock-up" restrictions.

The number of partnership units subject to each award was determined by our board of directors taking into account market surveys of equity grants conducted by Mercer, internal equity, and the size of the available equity pool. The equity grants for the named executive officers that were made in 2010 and the 2x and 3x profits interests that were granted to Mr. Sharpe and Mr. Amla in 2004 are reflected in the table below:

Name


Raymond Sharpe	5,767,100	1,094,300	210,000	210,000
F. Gordon Bitter	1,537,900	465,100	—	—
Tarun Amla	1,252,500	458,400	10,000	10,000
Robert Haskins	1,200,000	400,000	—	—
Mathew LaRont	1,200,000	400,000	—	—

Do the named executive officers receive perquisites?

To facilitate the attraction and retention of highly qualified executives, we provide our named executive officers with other specified benefits that we believe are limited and consistent with current market practices. We do not provide any tax gross-ups to our named executive officers. In 2010, all of our named executive officers were eligible for an executive physical and Mr. Sharpe and Mr. Haskins received supplemental life insurance.

Under the terms of Mr. Sharpe's employment agreement, he receives an annual stipend of $35,000, which is paid in monthly installments, for a country club membership and a company car allowance.

In 2010, Mr. Amla received an annual stipend of $12,000 for a company car allowance.

Mr. Haskins, as an expatriate executive, received payments to cover housing, airfare for home leave for him and his family, automobile and other expenses, as well as tax equalization. We believe that these benefits are appropriate and in line with other similarly situated expatriate executives.

Do any of the components of our named executive officers' compensation provide benefits upon a termination of employment or a change in control?

Our named executive officers have agreements that provide for severance benefits for specific involuntary terminations of employment, including termination "without cause" or in the event of a change of control. The terms and estimated amounts of these benefits are described below under "Potential Payments upon Involuntary Termination without Cause before a Change in Control" and "Potential Payments upon Involuntary Termination without Cause or by Executive for Good Reason after a Change in Control". Under the terms of the 2010 Option Plan and the 2010 Restricted Unit Plan, our board of directors may accelerate the vesting of all unvested awards in the event of a change of control, in its sole discretion. For a discussion of the terms of our 2011 Equity Incentive Plan see "Executive Compensation—Equity Incentive Plans". We believe these provisions are reasonable because the possibility of a change in control could cause uncertainty among our named executive officers and concern over potential loss of equity awards and therefore could result in their departure or distraction to the detriment of our Company and our

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shareholders. We believe the combination of severance and change in control arrangements will help our executive officers maintain continued focus and dedication to their responsibilities to help maximize shareholder value.

Do we consider the tax impact of the compensation that we provided?

Section 162(m) of the Internal Revenue Code limits the tax deductibility by a public company of compensation in excess of $1 million paid to certain of its most highly compensated executive officers. However, performance-based compensation that has been approved by shareholders is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals.

The limitations of Section 162(m) have not been applicable to us prior to this offering. Following this offering, our compensation committee will consider the tax impact of all compensation arrangements in light of our overall compensation philosophy and objectives. However, there may be circumstances in which our and our shareholders' interests are best served by providing compensation that is not fully deductible and our ability to exercise discretion outweighs the advantages of qualifying compensation under Section 162(m).

ACTIONS TAKEN IN FISCAL 2011

As a part of its annual review of executive compensation, our board of directors made the following adjustments to the base salaries of our named executive officers for fiscal 2011, all of which were effective as of January 2011.

						Percentage deviation from 2010 market data⁽¹⁾

Named executive officer	2011 Base salary		Percentage increase			25th Percentile			Median			75th Percentile

Raymond Sharpe	$	600,000		9.8	%		9.3	%		-4.5	%		-15.5	%
F. Gordon Bitter		340,000		3.0	%		20.1	%		1.2	%		-14.6	%
Tarun Amla		315,000		10.5	%		7.9	%		-6.8	%		-24.6	%
Robert Haskins		285,000		3.6	%		16.3	%		-1.7	%		-22.3	%
Mathew LaRont		275,000		3.8	%		16.5	%		-3.2	%		-20.5	%

(1): Market data from 2010 used to benchmark our named executive officers' 2011 base salaries was weighted evenly among companies in our selected peer group and companies in proprietary compensation surveys, with 50% of the market data deriving from our peer group and 50% from proprietary compensation surveys. For more information on our selected peer group and the proprietary compensation surveys used to benchmark our named executive officers, see "—Compensation Discussion and Analysis—How have compensation decisions historically been made?".

Mr. Sharpe had not received a salary increase in two years, and his salary was well below the median for chief executive officers of comparable experience and tenure. Accordingly, his salary was increased from $546,364 to $600,000, an increase of 9.8%. Mr. Sharpe's salary remains below the market median.

Mr. Amla's salary was increased from $285,000 to $315,000, an increase of 10.5%. Mr. Amla's increase reflected an adjustment to move his salary closer to the market median and to compensate him for the elimination of a car allowance. Mr. Amla's salary remains below the market median.

Messrs. Bitter, Haskins and LaRont received salary increases of 3% to 4%, to provide cost of living adjustments comparable to those extended to non-executive employees in the United States.

Mr. Haskins resigned as an officer of Isola, effective May 16, 2011.

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We also adopted a Bonus Plan for 2011 that is similar in structure to the 2010 Bonus Plan. It is based on Consolidated Adjusted EBITDA (as defined under our senior secured credit agreement) and is tied to our current operating plan. The threshold level of Consolidated Adjusted EBITDA achievement for 2011 exceeds the 2010 maximum credited level of Consolidated Adjusted EBITDA achievement, reflecting the compensation committee's desire to continue to make the plan goals challenging to achieve:

Performance level	Threshold	Target	Maximum


Payout Trigger	75% of plan	100% of plan	115% of plan
Payout (as % of target)	75%	100%	200%

In connection with this offering, we anticipate implementing an omnibus incentive compensation plan that would enable us to grant a range equity-based incentive awards, including stock options, restricted stock, restricted stock units and stock appreciation rights, the vesting criteria of which may be performance- or time-based. See "Executive Compensation—Equity Incentive Plans".

COMPENSATION RISK ASSESSMENT

Our new board of directors reviewed our compensation policies and practices for all employees and determined that our compensation policies and programs are not structured to be reasonably likely to have a material adverse effect on Isola. Our new board of directors believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks, based on the following:

–>: our allocation of compensation between cash compensation and long-term equity compensation, combined with our typical three year vesting schedule (with vesting at a rate of 33¹/3% for each year of continued employment following the grant date), discourages short-term risk taking;
–>: our approach of goal setting, setting of targets with payouts at multiple levels of performance, capping the amount of our incentive payouts, and evaluation of performance results assist in mitigating excessive risk-taking;
–>: our compensation decisions include subjective considerations, which restrain the influence of formulae or objective factors on excessive risk taking; and
–>: our business does not face the same level of risks associated with compensation for employees at financial services (traders and instruments with a high degree of risk).

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SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to our named executive officers for fiscal 2010:

Name and principal position		Salary ($)		Bonus⁽²⁾ ($)			Stock awards⁽³⁾⁽⁵⁾ ($)		Option awards⁽⁴⁾⁽⁵⁾ ($)		All other compensation ($)			Change in pension value and non-qualified deferred compensation earnings ($)			Total ($)


Raymond Sharpe President and Chief Executive Officer	2010	$	556,871	$	983,455		$	689,409	$	2,028,431	$	45,882	⁽⁶⁾	$	—		$	4,304,048
F. Gordon Bitter Executive Vice President and Chief Financial Officer	2010		336,346		429,000			293,013		510,539		—			—			1,568,898
Tarun Amla Executive Vice President and Chief Technology Officer	2010		292,673		385,000	⁽⁷⁾		288,792		445,725		17,493	⁽⁸⁾		15,000	⁽⁹⁾		1,444,683
Robert Haskins Former President, Asia⁽¹⁰⁾	2010		287,319		275,000			252,000		398,100		305,204	⁽¹¹⁾		—			1,517,623
Mathew LaRont President, Asia and Global Supply Chain Officer, former President, North America⁽¹²⁾	2010		269,115		265,000			252,000		434,900		5,504	⁽¹³⁾		—			1,226,519

(1): The base salary amounts, Mr. Sharpe's stipend and Mr. Amla's car allowance reflect the fact that fiscal 2010 had 53 weeks.
(2): Except as otherwise described in the footnote below, represents cash bonuses paid under our 2010 Bonus Plan, our annual cash incentive plan that rewarded our named executive officers for meeting or exceeding Consolidated Adjusted EBITDA targets tied to our 2010 financial plan.
(3): Represents restricted limited partner common units in the Sponsor Limited Partnership.
(4): Represents options to purchase limited partner common units in the Sponsor Limited Partnership.
(5): The amounts shown reflect the incremental fair value of each new award granted to our named executive officers in the fourth quarter of 2010 under the 2010 Option Plan in exchange for the cancellation of each existing award held by our named executive officers in the fourth quarter of 2010 granted under the 2004 Option Plan, computed in accordance with the provisions of FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 9 to our consolidated financial statements included in this prospectus. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
(6): Represents the aggregate value during 2010 of all perquisites provided to Mr. Sharpe. Under the terms of Mr. Sharpe's employment agreement, he receives an annual stipend of $35,673, which is paid in monthly installments, for a country club membership and a car allowance. Also includes life insurance premiums for Mr. Sharpe in the amount of $7,057 and matching contributions made by the Company to his 401(k) account in the amount of $3,152.
(7): Represents (a) a bonus of $285,000 under our 2010 Bonus Plan; and (b) a one-time bonus of $100,000 paid to Mr. Amla in connection with expenses he incurred as a result of his relocation from Singapore to the United States.
(8): Represents the aggregate value during 2010 of all perquisites provided to Mr. Amla which includes $12,231 for a car allowance and matching contributions made by the Company to his 401(k) account in the amount of $5,262.

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(9): Represents an increase of: (i) $4,000 in Mr. Amla's qualified pension value; and (ii) $11,000 in Mr. Amla's supplemental executive retirement plan.
(10): Mr. Haskins resigned from the Company, effective May 16, 2011.
(11): Represents the aggregate value during 2010 of all perquisites provided to Mr. Haskins, including: (i) $17,813 for a club membership; (ii) $180,325 for rent, utilities and other housing related expenses; (iii) overseas allowance of $70,152; (iv) $6,606 for tax preparation services; (v) $2,922 for life insurance premiums; and (vi) $27,386 in contributions to the Mandatory Provident Fund in Hong Kong.
(12): Mr. LaRont served as President, North America and Global Supply Chain Officer during 2010. He currently serves as President, Asia and Global Supply Chain Officer.
(13): Represents the aggregate value during 2010 of all perquisites provided to Mr. LaRont which includes matching contributions made by the Company to his 401(k) account in the amount of $5,504.

FISCAL 2010 GRANTS OF PLAN-BASED AWARDS

The following table provides information regarding all grants of plan-based awards that were made to or earned by our named executive officers during fiscal 2010 as well as information regarding certain options granted in prior years under the 2004 Option Plan that were cancelled and exchanged for new options granted under the 2010 Option Plan. Disclosure on a separate line item is provided for each grant of an award made to and each repriced option held by a named executive officer. The information in this table supplements the dollar value of options and other awards set forth in the "Summary Compensation Table" by providing additional details about the awards.

Name				Exercise of base price of option awards ($/unit)⁽⁴⁾		Grant date fair value of stock and option awards


Raymond Sharpe	10/8/2010	1,094,300				$	689,409
	10/8/2010		5,767,100	$	0.49		2,028,431
F. Gordon Bitter	10/8/2010	465,100					293,013
	10/8/2010		1,537,900

Isola Group Ltd. S-1