10-Q

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

FORM 10-Q

(Mark One)
/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission File No. 1-7935

INTERNATIONAL RECTIFIER CORPORATION
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	95-1528961 (IRS employer identification number)
233 Kansas Street El Segundo, California 90245
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (310) 726-8000

No Change
(Former name, former address and former fiscal year, if changed since last report)

    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes /x/  No / /

    There were 62,597,562 shares of the registrant's common stock, par value $1.00 per share, outstanding on May 10, 2001.

Table of Contents

			Page Reference
PART I.		FINANCIAL INFORMATION
	ITEM 1.	Financial Statements
		Unaudited Consolidated Statement of Income for the Three-Month and Nine-Month Periods Ended March 31, 2001 and 2000	3
		Unaudited Consolidated Statement of Comprehensive Income for the Three-Month and Nine-Month Periods Ended March 31, 2001 and 2000	4
		Unaudited Consolidated Balance Sheet as of March 31, 2001 and June 30, 2000 (audited)	5
		Unaudited Consolidated Statement of Cash Flows for the Nine-Month Periods Ended March 31, 2001 and 2000	6
		Notes to Unaudited Consolidated Financial Statements	7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
	ITEM 3.	Qualitative and Quantitative Disclosures about Market Risk	20
PART II.		OTHER INFORMATION
	ITEM 4.	Exhibits and Reports on Form 8-K	22

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share amounts)

		Three Months Ended March 31,					Nine Months Ended March 31,
		2001		2000			2001		2000
Revenues		$	275,994	$	197,959		$	793,498	$	521,296
Cost of sales			161,044		125,530			470,739		342,446
	Gross profit		114,950		72,429			322,759		178,850
Selling and administrative expense			35,111		28,816			103,602		82,556
Research and development expense			18,169		11,795			49,805		33,455
Amortization expense			2,663		—			3,354		—
Operating profit			59,007		31,818			165,998		62,839
Other income (expense):
	Net interest income (expense)		5,039		(2,138	)		16,820		(9,458	)
	Other, net		542		475			1,517		1,075
	Income before income taxes		64,588		30,155			184,335		54,456
Provision for income taxes			16,729		8,460			47,863		15,248
	Income before extraordinary charge		47,859		21,695			136,472		39,208
Extraordinary charge for early extinguishment of debt, net of income tax benefit of $1,856			—		4,772			—		4,772
	Net income	$	47,859	$	16,923		$	136,472	$	34,436
Net income per common share — Basic:
	Income before extraordinary charge	$	0.77	$	0.40		$	2.20	$	0.75
	Effect of extraordinary charge		—		(0.09	)		—		(0.10	)
Net income (loss) per common share — Basic:		$	0.77	$	0.31		$	2.20	$	0.65
Net income per common share — Diluted:
	Income before extraordinary charge	$	0.73	$	0.38		$	2.07	$	0.71
	Effect of extraordinary charge		—		(0.09	)		—		(0.08	)
Net income (loss) per common share — Diluted:		$	0.73	$	0.29		$	2.07	$	0.63
Average common shares outstanding — Basic			62,248		53,808			62,028		52,585
Average common shares and potentially dilutive
securities outstanding — Diluted			65,943		57,742			66,034		54,977

The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)

		Three Months Ended March 31,						Nine Months Ended March 31,
		2001			2000			2001			2000
Net income		$	47,859		$	16,923		$	136,472		$	34,436
Other comprehensive income (loss), net of tax effect of $(161), $573, $325, and $166, respectively:
	Foreign currency translation adjustments		(2,392	)		(1,465	)		(5,113	)		(426	)
	Unrealized gains (loss) on available-for-sale Securities, net of tax		(638	)		—			697			—
	Unrealized gains on foreign currency forward contracts, net of tax		3,490			—			3,490			—
Other comprehensive income (loss)		$	460		$	(1,465	)	$	(926	)	$	(426	)
Comprehensive income		$	48,319		$	15,458		$	135,546		$	34,010

The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)

			March 31, 2001 (unaudited)			June 30, 2000
ASSETS
Current assets:
	Cash and cash equivalents		$	483,133		$	196,406
	Short-term investments			342,566			57,930
	Trade accounts receivable, net			212,907			180,349
	Inventories			133,551			117,974
	Deferred income taxes			23,697			21,953
	Prepaid expenses and other receivables			24,724			17,011
		Total current assets		1,220,578			591,623
Property, plant and equipment, net				422,357			390,787
Goodwill and intangible assets, net				92,795			23,530
Other assets				59,185			20,030
		Total assets	$	1,794,915		$	1,025,970
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Bank loans		$	8,849		$	12,089
	Long-term debt, due within one year			1,529			1,984
	Accounts payable			97,594			85,580
	Accrued salaries, wages and commissions			21,925			17,757
	Other accrued expenses			69,648			32,750
		Total current liabilities		199,545			150,160
Long-term debt, less current maturities				553,151			4,589
Other long-term liabilities				6,951			8,486
Deferred income taxes				36,520			18,669
Stockholders' equity:
	Common stock			62,330			61,594
	Capital contributed in excess of par value			645,518			627,118
	Retained earnings			297,677			161,205
	Accumulated other comprehensive loss			(6,777	)		(5,851	)
		Total stockholders' equity		998,748			844,066
		Total liabilities and stockholders' equity	$	1,794,915		$	1,025,970

The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)

		Nine Months Ended March 31,
		2001			2000
Cash flow from operating activities:
Net income		$	136,472		$	34,436
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization		48,583			41,191
	Amortization of goodwill and intangibles		3,354			—
	Deferred income		(300	)		(350	)
	Deferred income taxes		7,038			(2	)
	Deferred compensation		—			(77	)
	Extraordinary charge		—			4,772
	Change in working capital		(11,474	)		(44,313	)
Net cash provided by operating activities			183,673			35,657
Cash flow from investing activities:
	Additions to property, plant and equipment		(75,855	)		(42,809	)
	Proceeds from sale of property, plant & equipment		1,656			4,661
	Purchase of short-term investments		(283,590	)		—
	Acquisition of businesses net of cash & cash equivalents		(74,660	)		(28,500	)
	Proceeds from sale of short-term investments		—			3,900
	Change in other, net		(10,353	)		(2,758	)
Net cash used in investing activities			(442,802	)		(65,506	)
Cash flow from financing activities:
	Net proceeds (repayments) of short-term bank debt		863			(161,139	)
	Payments on long-term debt and obligations under capital leases		(1,118	)		(3,602	)
	Net proceeds from issuance of convertible debt		528,181			—
	Net proceeds from issuance of common stock		—			361,662
	Proceeds from exercise of stock options		19,137			4,062
	Other, net		(281	)		369
Net cash provided by financing activities			546,782			201,352
Effect of exchange rate changes on cash and cash equivalents			(936	)		353
Net increase in cash and cash equivalents			286,717			171,856
Cash and cash equivalents, beginning of period			196,416			31,497
Cash and cash equivalents, end of period		$	483,133		$	203,353

The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2001

1.  Summary of Significant Accounting Policies

    The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries, which are located in North America, Europe, Mexico, Japan, India and Southeast Asia. All significant intercompany transactions, balances and profits have been eliminated in consolidation.

    The consolidated financial statements included herein are unaudited; however, they contain all normal recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at March 31, 2001 and the consolidated results of operations and cash flows for the nine-month periods ended March 31, 2001 and 2000. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the nine-month period ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year.

    The accompanying unaudited consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended June 30, 2000.

    The Company operates on a fiscal calendar under which the nine months ended March 31, 2001 and 2000 consisted of 39 weeks each.

2.  Net Income Per Common Share

    Net income per common share—Basic is computed by dividing net income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Net income per common share—Diluted differs from Net income from common share—Basic due to certain assumed conversions of dilutive securities such as options and convertible debt. The Company's convertible debt was anti-dilutive for the periods presented.

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    The following table provides a reconciliation of the numerator and denominator of the Basic and Diluted per-share computations for the nine-month periods ended March 31, 2001 and 2000 (in thousands except per share amounts):

				Net Income (Numerator)		Shares (Denominator)	Per Share Amount
Three months ended March 31, 2001
	Net income per common share—Basic			$	47,859	62,248	$	0.77
		Effect of dilutive securities:
			Stock options		—	3,695		(0.04	)
	Net income per common share—Diluted			$	47,859	65,943	$	0.73
Three months ended March 31, 2000
	Net income per common share—Basic			$	16,923	53,808	$	0.31
		Effect of dilutive securities:
			Stock options		—	3,934		(0.02	)
	Net income per common share—Diluted			$	16,923	57,742	$	0.29
Nine months ended March 31, 2001
	Net income per common share—Basic			$	136,472	62,028	$	2.20
		Effect of dilutive securities:
			Stock options		—	4,006		(0.13	)
			Net income per common share—Diluted	$	136,472	66,034	$	2.07
Nine months ended March 31, 2000
	Net income per common share—Basic			$	34,436	52,585	$	0.65
		Effect of dilutive securities:
			Stock options		—	2,392		(0.02	)
	Net income per common share—Diluted			$	34,436	54,977	$	0.63

3.  Cash and Cash Equivalents

   The Company classifies all highly liquid investments with maturities of three months or less as cash equivalents. The cost of these investments approximates fair value.

4.  Investments

    The Company considers all investments, besides cash and cash equivalents, with maturities up to 15 months or less to be available-for-sale under the Statement of Financial Accounting Standards No. ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities", which are reported in the balance sheet as short-term investments and adjusted to fair market value through Other Comprehensive Income.

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    Available-for-Sale Securities as of March 31, 2001:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Short-term Investments:
Corporate Debt	$	270,452	$	788	$	(25	)	$	271,215
U.S. Government and Agency Obligations		51,575		161		(3	)		51,733
Other Debt		19,468		150		—			19,618
	$	341,495	$	1,099	$	(28	)	$	342,566
Long-term Investments:
Equity Securities	$	10,049	$	37	$	—		$	10,086

5.  Derivative Financial Instruments

   Effective July 1, 2000, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS 133." SFAS No. 133 and 138 require that all derivatives, including foreign exchange contracts, be recognized in the balance sheet at their fair value.

    The Company utilizes derivative financial instruments, primarily forward contracts, in order to reduce financial market risks. These instruments are used to hedge foreign currency exposures of underlying assets, liabilities, or certain forecasted foreign currency denominated transactions. The Company's accounting policies for these instruments are based on whether they meet criteria for designation as hedging transactions. Changes in fair value of derivatives that are designated as cash flow hedges, are highly effective, and qualify as hedging instruments, are recorded in other comprehensive income until the underlying hedged item is recognized in earnings. Any ineffective portion of a derivative change in fair value is immediately recognized in earnings. Changes in fair value of derivatives that do not qualify as hedging instruments, are recorded in earnings.

    In March 2001, the Company entered into a foreign currency forward exchange contract to sell 1.2 billion Japanese Yen on a quarterly basis from June 2001 through March 2006. This contract is used to hedge the effect of exchange rate fluctuations on forecasted intercompany purchases by the Company's subsidiary in Japan. During the quarter ended March 31, 2001, unrealized gains relating to this contract, net of tax, of $3.5 million, were recorded in other comprehensive income. Based on the fair value of this forward exchange contract at March 31, 2001, the Company does not expect to reclassify a material amount from accumulated other comprehensive income to earnings during the next twelve months.

6.  Inventories

    Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories at March 31, 2001 and June 30, 2000 (audited) were comprised of the following (in thousands):

	March 31, 2001		June 30, 2000
Raw materials	$	27,543	$	18,296
Work-in-process		59,011		59,654
Finished goods		46,997		40,024
	$	133,551	$	117,974

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7.  Bank Loans and Long-Term Debt

   A summary of the Company's long-term debt and other loans at March 31, 2001 and June 30, 2000 (audited) is as follows (in thousands):

	March 31, 2001		June 30, 2000
Convertible subordinated notes at 4.25% due 2007	$	550,000	$	—
Other loans and capitalized lease obligations		4,680		6,573
Debt, including current portion of long-term debt ($1,529 March 2001 and $1,984 June 2000, respectively)		554,680		6,573
Foreign unsecured revolving bank loans at rates from 1.5% to 7.42%		8,849		12,089
Total Debt	$	563,529	$	18,662

    On July 13, 2000, the Company sold $550 million principal amount of 4¹/4% Convertible Subordinated Notes due 2007. The interest rate is 4¹/4% per annum on the principal amount, payable semi-annually in arrears in cash on January 15 and July 15 of each year, beginning January 15, 2001. The notes are convertible into shares of the Company's common stock at any time on or before July 15, 2007, at a conversion price of $73.935 per share, subject to adjustment if certain events affecting the Company's common stock occur. The notes are subordinated to all of the Company's existing and future senior indebtedness and to all debt and other liabilities of the Company's subsidiaries. The Company may redeem any of the notes, in whole or in part, on or after July 18, 2003, as specified in the notes and the indenture agreement covering the notes.

    The Company filed a shelf registration statement with the SEC on October 16, 2000, which became effective on November 24, 2000, covering the resale of the notes and the underlying common stock. The Company has agreed to use reasonable efforts to keep the shelf registration statement effective until either of the following has occurred:

•

All securities covered by the registration statement have been sold; or



•

The expiration of the holding period applicable with respect to the notes and the underlying common stock under Rule 144(k) under the Securities Act, or any successor provision.

    In addition, in November 2000, the Company entered into a three-year syndicated multi-currency revolving credit facility with BNP Paribas and seven other banks, which provided a credit line of $150 million. The credit agreement will allow borrowing by the Company's foreign subsidiaries and provide funding for the Company's general corporate purposes. The facility bears interest at (i) local currency rates plus (ii) a margin between 0.25% and 1.125% for base rate advances and a margin of between 1.25% and 2.125% for eurocurrency rate advances. Other advances bear interest as set forth in the credit agreement. The commitment fee for the credit agreement is 0.375% of the unused portion of the credit facility, annually. The facility also contains certain financial and other covenants. The Company pledged as security certain shares of certain of its subsidiaries. As of March 31, 2001, the Company had no cash borrowings outstanding under the credit agreement.

8.  Restructuring and Severance Charges

    During June 1999, the Company recorded an $8.3 million charge related to employee severance associated with the elimination of approximately 39 positions. The Company completed this restructuring as of June 2000, with the actual elimination of a total of 36 positions. As of March 31, 2001, we had paid $7.6 million in termination benefits. The remaining unutilized severance accrual of $0.7 million at March 31, 2001, which is classified as current, relates to ongoing severance payments attributed to certain of those eliminated positions.

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9.  Geographical Information

    The Company operates in one business segment. Revenues from unaffiliated customers are based on the location in which the sale originated. Geographic information for March 31, 2001 and 2000 is presented below (000's):

		Three Months Ended March 31,				Nine Months Ended March 31,
		2001		2000		2001		2000
Revenues from Unaffiliated Customers
North America		$	109,172	$	71,105	$	307,720	$	194,617
Europe			61,165		46,417		169,827		118,866
Asia Pacific and Japan			92,069		70,236		278,353		182,501
	Subtotal	$	262,406	$	187,758	$	755,900	$	495,984
Unallocated royalties			13,588		10,201		37,598		25,312
Total		$	275,994	$	197,959	$	793,498	$	521,296

	March 31, 2001		June 30, 2000
	(unaudited)
Long-lived Assets
North America	$	523,469	$	386,515
Europe		39,246		43,086
Asia Pacific and Japan		11,622		4,746
Total	$	574,337	$	434,347

    In the three- and nine-month periods ended March 31, 2001, no single customer accounted for more than 10% of the Company's consolidated net revenues. In the three- and nine-month periods ended March 31, 2000, one distributor accounted for 10.9% and 11.6%, respectively, of the Company's consolidated net revenues.

10.  Environmental Matters

    Federal, state, and local laws and regulations impose various restrictions and controls on the storage, use and discharge of certain materials, chemicals, and gases used in semiconductor manufacturing processes. The Company does not believe that compliance with such laws and regulations as now in effect will have a material adverse effect on the Company's results of operations, financial position or cash flows.

    However, under some of these laws and regulations, the Company could be held financially responsible for remedial measures if properties are contaminated or if waste is sent to a landfill or recycling facility that becomes contaminated. Also, the Company may be subject to common law claims if it releases substances that damage or harm third parties. The Company cannot make assurances that changes in environmental laws and regulations will not require additional investments in capital equipment and the implementation of additional compliance programs in the future, which could have a material adverse effect on the Company's results of operations, financial position or cash flows, as could any failure by the Company to comply with environmental laws and regulations.

    The Company and Rachelle Laboratories, Inc. ("Rachelle"), a former operating subsidiary of the Company that discontinued operations in 1986, were each named a potentially responsible party ("PRP") in connection with the investigation by the United States Environmental Protection Agency

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("EPA") of the disposal of allegedly hazardous substances at a major superfund site in Monterey Park, California ("OII Site"). Certain PRPs who settled certain claims with the EPA under consent decrees filed suit in Federal Court in May 1992 against a number of other PRPs, including the Company, for cost recovery and contribution under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). The Company has settled all outstanding claims that have arisen out of the OII Site. No claims against Rachelle have been settled.

    The Company also received a letter directed to Rachelle, dated July 25, 1995 from the U.S. Department of Justice, offering to settle claims against Rachelle relating to the first elements of clean-up work at the OII Site for $4,953,148 (the final remedy assessment has not yet been made). The offer stated that the settlement would not cover the cost of any additional remedial actions required to finish the clean-up. This settlement offer expired by its terms on September 1, 1995. On August 7, 1995, the Company received a Supplemental Information Request from the EPA directed to Rachelle, to which counsel for Rachelle responded with information regarding waste shipped to the OII Site. Counsel for Rachelle received a letter from the EPA dated September 30, 1997, requesting that Rachelle participate in the final remedial actions at the site, and counsel replied on October 21, 1997. The Company has taken the position that none of the wastes generated by Rachelle were hazardous. Counsel for Rachelle received a request from the EPA in June 2000 to update the name of the contact party for Rachelle designated to receive information on future proposed settlements. The request appears to have been sent to all PRPs and indicated that the EPA intends to formulate a final settlement offer in the near future.

    The Company cannot determine with accuracy the amount of the potential demand to Rachelle for the cost of the final remedy. Based upon information received to date, the Company believes that any demand for the cost of the final remedy would, if made, likely be significant, although it should be substantially below the demand amount for earlier phases of the OII Site clean-up. Any demands related to the costs for the final remedy would be in addition to the amount demanded for earlier phases of the OII Site clean-up. The Company's insurer has not accepted liability although it has made payments for defense costs for the lawsuit against the Company.

    The Company received a letter dated September 9, 1994, from the State of California Department of Toxic Substances Control stating that it may be a PRP for the deposit of hazardous substances at a facility in Whittier, California. In June 1995, the Company joined a group of other PRPs to remove contamination from the site. The group currently estimates the total cost of the clean-up to be between $20 million and $25 million, although the actual cost could be much higher. The Company estimated that it sent approximately 0.1% of the waste, by weight, sent by all PRPs contributing to the clean-up of the site, and the Company believes the cost of the clean-up will be roughly allocated among PRPs by the amount of waste contributed. On July 31, 1999, the group proposed two settlement offers to the Company: one for $34,165 and the second for $68,330. The first settlement offer covers investigation and remediation of the site itself and a small area extending beyond the site. The second settlement offer covers this area plus all additional down gradient contamination. On September 14, 1999, the Company accepted the $68,330 settlement offer, which requires EPA acceptance, and made the required payment on September 28, 1999. There can be no assurance, however, that the EPA will accept the settlement offers or what the ultimate outcome of this matter will be. The Company believes that, whatever the outcome, it will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.

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11.  Intellectual Property Rights

    All of the Company's broadest power MOSFET patents were subject to, and have successfully emerged from, reexamination by the United States Patent and Trademark Office ("PTO"). On May 1, 2001, the PTO issued a Reexamination Certificate for the Company's U.S. Patent No. 5,008,725. The PTO previously issued a decision upholding the patentability of the claims of the last of the Company's patents to be reexamined, U.S. Patent No. 5,130,767.

12.  Litigation

    The Company and certain of its directors and officers have been named as defendants in three class action lawsuits filed in Federal District Court for the Central District of California in 1991. These suits seek unspecified but substantial compensatory and punitive damages for alleged intentional and negligent misrepresentations and violations of the federal securities laws in connection with the public offering of the Company's common stock completed in April 1991 and the redemption and conversion in June 1991 of the Company's 9% Convertible Subordinated Debentures due 2010. They also allege that the Company's projections for growth in fiscal 1992 were materially misleading. Two of these suits also named the Company's underwriters, Kidder, Peabody & Co. Incorporated and Montgomery Securities, as defendants.

    On March 31, 1997, the Court, on the Company and the individual defendants' motion for summary judgment, issued the following orders: (a) the motion for summary judgment was granted as to claims brought under Sections 11 and 12(2) of the Securities Act of 1933; (b) the motion was denied as to claims brought under Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission Rule 10b-5; and (c) the motion was granted as to the common law claims for fraud and negligent misrepresentation to the extent said claims are based on representations contained in the offering prospectus and was denied as to other such claims. The Court also granted the summary judgment motion brought by the underwriters. The plaintiffs' motion for reconsideration or certification of an interlocutory appeal of these orders was denied.

    On January 28, 1998, the Court decertified the class pursuing common law claims for fraud and negligent misrepresentation and granted the defendants' motion to narrow the shareholder class period to June 19, 1991 through October 21, 1991. Plaintiffs' motion for reconsideration or certification of an interlocutory appeal of these rulings was denied.

    On June 14, 1999, the Court approved a notice of the pendency of the class action and a proof of claim form for dissemination to class members. Such dissemination took place in June 1999. The parties have agreed, subject to Court approval, to continue the trial date to September 25, 2001.

    Although the Company believes that the remaining claims alleged in the suits are without merit, the ultimate outcome cannot be presently determined. A substantial judgment or settlement, if any, could have a material adverse effect on the Company's results of operations, financial position or cash flows. No provision for any liability that may result upon adjudication of these matters has been made in the consolidated financial statements.

    On June 22, 2000, the Company filed suit in Federal District Court in Los Angeles, California against IXYS Corporation, alleging infringement of certain of the Company's U.S. patents. The suit seeks damages and other relief customary in such matters. On August 17, 2000, IXYS filed an answer and counterclaim, and on February 14, 2001, amended its answer and counterclaim, denying infringement and alleging patent invalidity and unenforceability. Trial has been set to commence on June 12, 2001.

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13.  Income Taxes

    The Company's effective tax rate for the three- and nine-month periods ended March 31, 2001 was 25.9% and 26.0%, respectively, which differs from the U.S. federal statutory tax rate of 35%. The lower effective tax rate reflects foreign tax credits, research and development credits, state tax credits, and lower valuation allowances, which are partially offset by higher statutory tax rates in certain foreign jurisdictions and foreign jurisdiction losses without foreign tax benefit.

    The Company's effective tax rate for the three- and nine-month periods ended March 31, 2000 was 28.1% and 28%, respectively, which differs from the U.S. federal statutory tax rate of 35%. The lower effective tax rate was due primarily to lower valuation allowances, the benefit of foreign tax credits and research and development credits, partially offset by higher statutory tax rates and foreign jurisdiction losses without foreign tax benefit.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the Three- and Nine-Month Periods Ended March 31, 2001 Compared with the Three- and Nine-Month Periods Ended March 31, 2000

    The following table sets forth certain items as a percentage of revenues.

	Three Months Ended March 31, (Unaudited)				Nine Months Ended March 31, (Unaudited)
	2001		2000		2001		2000
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	58.4		63.4		59.3		65.7
Gross profit	41.6		36.6		40.7		34.3
Selling and administrative expense	12.7		14.5		13.1		15.8
Research and development expense	6.5		6.0		6.3		6.4
Amortization expense	1.0		—		0.4		—
Operating profit	21.4		16.1		20.9		12.1
Net interest income (expense)	1.8		(1.1	)	2.1		(1.9	)
Other income, net	0.2		0.2		0.2		0.2
Income before income taxes and extraordinary charge	23.4		15.2		23.2		10.4
Provision for income taxes	6.1		4.3		6.0		2.9
Income before extraordinary charge	17.3		10.9		17.2		7.5
Extraordinary charge on early extinguishment of debt	—		2.4		—		0.9
Net Income	17.3	%	8.5	%	17.2	%	6.6	%

    Revenues for the three-month period ended March 31, 2001 increased 39% to $276.0 million from $198.0 million in the year-ago period. Revenues for the nine-month period ended March 31, 2001 increased 52% to $793.5 million from $521.3 million a year ago.

    Customer revenue by region, set forth below, reflects the location where the customer takes delivery of our product.

	% Revenue by Region Three Months Ended March 31,				% Revenue by Region Nine Months Ended March 31,
Customer Revenue by Region:	2001		2000		2001		2000
North America	36	%	35	%	36	%	36	%
Europe	23	%	25	%	23	%	25	%
Asia Pacific	28	%	30	%	30	%	31	%
Japan	13	%	10	%	11	%	9	%
	100	%	100	%	100	%	100	%

    For the three- and nine-month periods ended March 2001, Europe and Asia Pacific decreased primarily due to the impact of a decrease in demand for desktops, cell phones, and multi-market products, and Japan increased due to a rise in demand for consumer products.

    Our proprietary product revenues (power integrated circuits, advanced circuit devices, and power systems) grew 25% quarter-to-quarter and 119% year-to-year. Revenues for these products represented 37% of total revenues, up from 31% in the preceding quarter and 24% in the year-ago quarter. Component product revenues declined 7% from the preceding quarter, reflecting a decline in the

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multi-market products that account for about 30% of our business. Year-to-year, component revenues grew 15%. Revenues in the current quarter included $13.6 million of net patent royalties, compared to $12.6 million in the preceding quarter and $10.2 million in the year-ago quarter.

    The Company's consumer, automotive, and aerospace business remained strong in the quarter. Together, these sectors ended the quarter with more than 45% sequential order growth and more than 30% sequential revenue growth over the preceding quarter and accounted for more than a third of our business. During the course of the quarter, demand in the telecom/datacom sector (which includes servers, routers, and infrastructure) slowed sharply and ended with revenues and orders below the December-quarter level. Multi-market products, which constitute about 30% of our business, felt the impact of pushouts and cancellations from distributors and contract manufacturers reacting to shorter industry lead times and end-market uncertainties.

    Orders for proprietary products grew 38% quarter-to-quarter and 174% year-to-year. These products represented more than half of our total bookings in the quarter. Orders for components dropped, as market conditions worsened and lead times declined for multi-market products. Overall orders, taking into account all products, declined 17% quarter-to-quarter but increased 3% year-to-year.

    Based on current market conditions and backlog, multi-market products are expected to experience continued price pressure in the June quarter. Overall, June quarter revenues are expected to be less than March quarter revenues.

    In the three-month period ended March 31, 2001, gross profit increased to $115.0 million (41.6% of revenues) from $72.4 million (36.6% of revenues) in the comparable year-ago quarter. Gross profit for the nine-month period ended March 31, 2001 increased to $322.8 million (40.7% of revenues) from $178.9 million (34.3% of revenues) in the comparable year-ago period. The gross margin increase reflected a greater proportion of proprietary products, cost reductions and higher royalties.

    In the three- and nine-month periods ended March 31, 2001, selling and administrative expense was $35.1 million and $103.6 million (12.7% and 13.1% of revenues), respectively, compared to $28.8 million and $82.6 million (14.5% and 15.8% of revenues) in the comparable year-ago periods. A reduction in the ratio of selling and administrative expense to revenues reflects the results of ongoing operating efficiencies.

    In the three- and nine-month periods ended March 31, 2001, our research and development expenditures grew to $18.2 million and $49.8 million (6.5% and 6.3% of revenues), respectively, compared to $11.8 million and $33.5 million (6.0% and 6.4% of revenues) in the comparable prior-year periods. We expect research and development expenditures to be approximately 6.5% of revenues this fiscal year.

    In the three- and nine-month periods ended March 31, 2001, amortization expense, principally related to acquisitions, was $2.7 million and $3.4 million (1.0% and 0.4% of revenues), respectively. Amortization expense was not incurred in the comparable prior periods. Increase in amortization expense is due to our acquisition activities during fiscal year 2001 and in the third quarter of fiscal year 2000.

    With respect to current-quarter activity related to restructuring and severance charges taken in prior periods, refer to the "Notes to Unaudited consolidated financial statements—Note 9. Restructuring and Severance Charges."

    Net interest income increased by $7.2 million and $26.3 million in the three and nine months ended March 31, 2001, respectively, compared to the respective prior-year period. The increase resulted from interest income generated from higher levels of cash and short-term investments.

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    Net foreign currency gains and losses were less than $1.0 million in each three-month and nine-month period.

    Our effective tax rate for the three- and nine-month periods ended March 31, 2001 was 25.9% and 26.0%, respectively, which differs from the U.S. federal statutory tax rate of 35%. The lower effective tax rate reflects foreign tax credits, research and development credits, state tax credits, and lower valuation allowances, which are partially offset by higher statutory tax rates in certain foreign jurisdictions and foreign jurisdiction losses without foreign tax benefit.

    Our effective tax rate for the three- and nine-month periods ended March 31, 2000 was 28.1% and 28%, respectively, which differs from the U.S. federal statutory tax rate of 35%. The lower effective tax rate was due primarily to lower valuation allowances, the benefit of foreign tax credits and research and development credits, partially offset by higher statutory tax rates and foreign jurisdiction losses without foreign tax benefit.

Seasonality

    In the past, we have experienced moderate seasonality in our business. Recently, due to our rapid growth, it has been difficult to isolate the effect, if any, of seasonality.

Liquidity and Capital Resources

    At March 31, 2001, we had cash and cash equivalent balances of $483.1 million and short-term investments of $342.6 million. Our short-term investment portfolio consists of fixed-income, investment-grade securities with maturities of no more than 15 months.

    During the nine-month period ended March 31, 2001, operating activities generated cash flow of $183.7 million compared to $35.7 million in the prior-year period. Working capital increased by $11.5 million in the current nine-month period commensurate with our revenue growth.

    We invested $283.6 million in short-term investments, $75.9 million in capital equipment, and $74.7 million in new acquisitions in the nine-month period. In the first half of fiscal year 2001, we acquired Lambda Advanced Analog, Inc. and the business assets of Magnitude-3 LLC, suppliers of high-value-added power management systems and technology for aerospace and other high-reliability applications. On January 5, 2001, the Company acquired Unisem, Inc., ("Unisem"), for a cash purchase price of approximately $50 million. Unisem supplies analog integrated circuits that manage power for information technology applications. At March 31, 2001, we had made purchase commitments for capital expenditures of approximately $15.3 million. Based on current market conditions and assumptions, our plan for fiscal 2001 capital expenditures is approximately $115 million, principally for fabrication and assembly capacity to meet market demand. We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand and anticipated cash flow from operations. Although we believe that our current funding will be sufficient for normal operating activities, we may also consider the use of funds from other external sources, including, but not limited to, public or private offerings of debt or equity.

    Financing activities during the nine-month period generated $546.8 million. On July 13, 2000, we successfully completed a $550 million convertible subordinated notes offering that generated net proceeds to us of $528 million (net of underwriting commissions and transaction costs). As of March 31, 2001, we had revolving, equipment and foreign credit facilities of $160.8 million, against which $8.8 million had been borrowed. For additional information on current financing activities, refer to the "Notes to Unaudited consolidated financial statements—Note 8. Bank Loans and Long-Term Debt."

    At March 31, 2001 our cash, cash equivalents, short-term investments and unused credit facilities totaled $981.2 million.

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    Three class action lawsuits have been brought against IR and its Board of Directors. See "Note 13. Litigation" for further information. Although we believe that these class action lawsuits are without merit, the ultimate outcome and the related effect on liquidity thereof cannot be presently determined. Accordingly, we have not made provision for liability, if any, that may result upon adjudication of these matters. For the possible effects of environmental matters on liquidity, see "Notes to Unaudited consolidated financial statements—Note 11. Environmental Matters."

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Impact of the Introduction of the Eurodollar

    On January 1, 1999, eleven member states of the European Union established fixed conversion rates between their existing national currency and a common currency, the "euro." Until January 1, 2002, either the euro or the participating country's present currency will be accepted in non-cash transactions. On January 1, 2002, euro-denominated bills and coins will be issued and the participating country's present currency will be gradually withdrawn during a period of dual circulation not to exceed three months.

    We have completed an internal analysis to determine the effects of the January 1, 2002 conversion. The assessment included the potential impact of the technical challenges to adapt information technology and other systems to accommodate euro-denominated transactions, the impact on currency exchange rate risk and currency exchange costs, and the impact on existing contracts. We are currently targeting to have information systems converted in advance of the euro conversion date of January 1, 2002.

    Based on currently available information, management does not believe that the euro conversion will have a material adverse impact on our business or financial condition. We will continue to evaluate the impact of the euro conversion.

Risk Management

    At the end of June 2000, some equipment in one of our wafer fabrication lines was damaged due to a contractor error. While our facility continues to operate normally, an inspection and evaluation is underway to gauge the potential effects on the equipment and to conduct any necessary remediation. While we have experienced no material adverse effect and believe any material losses would be covered by our insurance, there can be no assurance that the matter would not have a material and adverse effect on our business, results of operations or cash flows.

Recent Accounting Pronouncements

    In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarized certain areas of the Staff's views in applying generally accepted accounting principles to revenue in financial statements. SAB 101, as amended by SAB 101A, "Amendment: Revenue Recognition in Financial Statements" and SAB 101B, "Second Amendment: Revenue Recognition in Financial Statements" is effective for us commencing in the fourth quarter of fiscal 2001. We do not believe that SAB 101, as amended by SAB 101A and SAB 101B, will have a material impact on the result of our operations, financial position, or cash flows.

    In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB Statement No. 125", ("SFAS No. 140"). SFAS No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. We adopted certain provisions of SFAS 140, which were effective for fiscal years ending after December 15, 2000, which did not have a material impact on the financial position or results of operations of the Company. The remaining provisions of SFAS 140 are effective after March 31, 2001 and are not expected to have a material impact on the result of our operations, financial position, or cash flows.

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Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

    This Form 10-Q Report contains some statements that are not historical facts but are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "anticipate," "believe," "estimate," "expect," "may," "should," "view," or "will" or the negative or other variations thereof. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Financial results are to a large extent dependent on the power MOSFET segment of the power semiconductor industry. If market demand does not continue to grow, revenue growth may be impacted, manufacturing capacity might be under-utilized, capital spending might be slowed, and Company performance might be negatively impacted. Other risks and uncertainties that could negatively impact our results include: delays in or higher-than-anticipated expenses associated with implementing planned cost reductions; the effectiveness of cost controls; the integration of acquired businesses into our Company's operations; the impact of changes in accounting methods; the impact of changes in laws and regulations, including tax, trade, environmental, and export regulations and policies; the actual results of outstanding litigation; the ability or the timing of the Company to achieve strategic acquisitions and the effect of associated costs; push-out of delivery dates; Company and market impact due to the cancellation of customer and/or industry programs; availability of adequate capacity and unanticipated costs of refurbishment or replacement of equipment; unfavorable changes in industry and competitive conditions; changes in interest and investment rates; delays in transferring and ramping production lines or completing customer qualifications; the accuracy of customers' forecasts; the ability of current manufacturing facilities to meet future operating needs; the actual effects of equipment damage in our wafer fabrication line described in the section entitled "Risk Management" above; product returns; changes in customers' order patterns; our mix of product shipments; the actual growth of the portable electronics industry; the continued rapid growth of demand for more efficient semiconductor components and power conversion solutions; market and sector conditions that affect our customers, licensees, and suppliers; pricing pressures; acceptance of competitors' products; introduction, acceptance, and availability of new and proprietary products; inability to fund capital expenditures from existing credit facilities or other external sources; the failure of suppliers and subcontractors to meet their delivery commitments to us; impact of any disruption in electricity, equipment and/or critical suppliers; unanticipated impacts on our business or financial condition due to the euro conversion; unfavorable changes in industry and competitive conditions; general economic conditions in our markets around the world; and the timing of changes in market conditions.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

    We are exposed to various risks, including changes in interest rates that affect our return on investments and foreign currency rate fluctuations. We do not hold or purchase any speculative foreign currency or interest rate contracts.

    In the normal course of business, we also face risks that are either nonfinancial or nonquantifiable. Such risks principally include country risk, credit risk and legal risk and are not discussed or quantified in the following analyses.

Interest Rate Risk

    Our financial assets and liabilities that are subject to interest rate risk are our short-term investments. As of March 31, 2001, a 10% change in interest rates would not have had a material effect on our results of operations, financial position or cash flows.

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Foreign Currency Risk

    We conduct business in various parts of the world and in various foreign currencies. We manage potential foreign currency exposure by entering into forward foreign exchange contracts or other non-speculative risk management instruments related to our foreign currency denominated receivables and payables at certain of our international subsidiaries. The gains and losses on these contracts are intended to offset changes in the related exposures. We do not hedge our foreign currency exposure in a manner that would entirely eliminate the effects of changes in foreign exchange rates on our consolidated net income.

    At March 31, 2001, we evaluated the effect that near-term changes in foreign exchange rates would have had on the fair value of our combined foreign currency position related to our outstanding foreign currency forward exchange contracts. If we had experienced an adverse change in foreign exchange rates of as much as 10%, the potential change in our foreign currency position would have had an immaterial effect on the results of our operations, financial position or cash flows.

    We derive a large portion of our revenues from sales in foreign markets. The notional amount of our foreign currency forward exchange contracts was $250.8 million at March 31, 2001 compared to $37.4 million at June 30, 2000. The increase in the notional amount is due primarily to our $220 million foreign currency forward exchange contract to sell 1.2 billion Japanese Yen from June 2001 to March 2006. Changes in fair value of our foreign currency forward contracts that were not designated as hedges were $1.2 million and recorded in earnings during the quarter ended March 31, 2001. The change in fair value of our foreign currency forward contract that was designated as a hedge was $3.5 million, net of tax, and was recorded in other comprehensive income during the quarter ended March 31, 2001. Net realized foreign currency transaction gains and losses were less than $1.0 million in the three months ended March 31, 2001.

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PART II. OTHER INFORMATION

ITEM 4. Exhibits and Reports on Form 8-K

(a)	Exhibits
	1.	International Rectifier Corporation 2000 Incentive Plan (Amended and Restated as of September 28, 2000) incorporated by reference in Registration Statement on Form S-8 as filed with the Securities and Exchange Commission, Registration Number 333-57608 (plan document previously filed and incorporated by reference as an Appendix to the Company's Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on October 12, 2000).
	2.	Effective as of February 20, 2001, the following section of Section 6(d) of the International Rectifier Corporation Amended and Restated Stock Incentive Plan of 1992 is amended to read, in its entirety, as follows:
		(d)	Effect of Termination of Directorship. In the event of a Non-Employee Director's death, an Option granted pursuant to this Section 6 held by such Non-Employee Director shall immediately become fully vested and remain fully exercisable for three years after the date of death or until the expiration of the stated term of such Option, whichever first occurs. If, after at least five consecutive years of service on the Board, a Non-Employee Director voluntarily resigns or decides not to stand for re-election, then an Option granted under this Section 6 held by such Non-Employee Director for at least six months from the date of grant shall immediately become and shall remain fully exercisable for three years from the date of termination of services as a Non-Employee Director or until the expiration of the stated term of such Option, whichever occurs first, and shall thereafter terminate. If a Non-Employee Director's services as a member of the Board terminate for any reason other than death or, after five consecutive years of service on the Board with such option held at least six months, resignation or decision to step down, any portion of an Option granted pursuant to this Section 6 which is not then exercisable shall terminate and any portion of such Option which is then exercisable may be exercised for three months after the date of such termination or until the expiration of the stated term of the Option, whichever first occurs. Notwithstanding anything to the contrary in this Plan, no Options granted under this Section 6 shall be accelerated to a date less than six months after the Date of Grant of such Option.
	3.	Amendment, dated as of March 22, 2001, to ISDA Master Agreement, dated as of July 1, 1999, between International Rectifier Corporation and BNP Paribas.
(b)	Reports on Form 8-K
	1.	The Company filed a report on Form 8-K relating to "Other Events" on February 6, 2001.
	2.	The Company filed a report on Form 8-K relating to "Other Events" on March 6, 2001.
	3.	The Company filed a report on Form 8-K relating to "Other Events" on April 13, 2001.

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SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INTERNATIONAL RECTIFIER CORPORATION Registrant
May 15, 2001	By:	/s/ MICHAEL P. MCGEE Michael P. McGee Executive Vice President, Chief Financial Officer and Principal Accounting Officer

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FORM 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

UNAUDITED CONSOLIDATED STATEMENT OF INCOME
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED BALANCE SHEET
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

PART II. OTHER INFORMATION

ITEM 4. Exhibits and Reports on Form 8-K

SIGNATURES

EX-3

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Exhibit 3

    AMENDMENT
dated as of March 22, 2001
to the 1992 ISDA Master Agreement and
Schedule to the ISDA Master Agreement
between

BNP Paribas
(formerly known as Banque Nationale de Paris)
("Party A") and International Rectifier Corporation
("Party B")

BNP Paribas and International Rectifier Corporation have previously entered into that certain ISDA Master Agreement dated as of July 1, 1999 (the "Agreement"), which Agreement includes the Schedule, and all Confirmations exchanged between the parties confirming the Transactions (or Swap Transactions) thereunder. The parties have now agreed to amend the Agreement by this Amendment (this "Amendment").

Amendment of the Agreement

Upon execution of this Amendment by both parties, the Agreement shall be and hereby is amended as follows:

(a)

The parties agree that Part 1(c) of the Schedule to the Agreement shall be amended by replacing the applicability of Section 5(a)(vi) of the Agreement to Party B with Sections 6.01(a) and 6.01(f) of the Credit Agreement (as defined below) for so long as the Credit Agreement has not expired or been terminated, or if Party A is a Lender or a party in an analogous role under any subsequent agreement, Part 1(c) of the Schedule to the Agreement shall be amended by replacing the applicability of Section 5(a)(vi) of the Agreement to Party B with the relevant sections of such subsequent agreement, and once the Credit Agreement has either expired or been terminated and Party A ceases to be a Lender or a party in an analogous role under any subsequent agreement, the provisions of Section 5(a)(vi) shall apply to Party B.

(b)

The parties agree that Part 1(d) of the Schedule to the Agreement shall be amended by replacing the applicability of Section 5(b)(iv) of the Agreement to Party B with the following:

"for so long as the Credit Agreement has not expired or been terminated, or Party A continues to be a Lender under the Credit Agreement or a Lender or a party in an analogous role under any subsequent agreement Section 5(b)(iv) of the Agreement shall not apply to Party B. If the Credit Agreement has either expired or been terminated and Party A ceases to be a Lender under the Credit Agreement or a Lender or a party in an analogous role under any subsequent agreement, the provisions of Section 5(b)(iv) shall apply to Party B.

(c)

The following is hereby included in the Schedule to the Agreement as Part 1, paragraph (h):

    The following shall constitute Additional Termination Events in respect of Party B and shall remain in full force and effect until the payment in full in cash of all Obligations of Party B under the Credit Agreement defined below:

The occurrence of any Event of Default under the terms of Sections 6.01(b), (c), (d), (e), (g), (h), (i), (j), (k), (l), (m), (n) and (o) of the "CREDIT AGREEMENT" dated as of November 2, 2000 among International Rectifier Corporation, a Delaware corporation (the "Company"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "Initial Lenders"), BNP Paribas ("BNP Paribas"), as the syndication agent and sole arranger ("Syndication Agent" and "Sole Arranger"), as the initial issuing bank (the "Initial Issuing Bank") and as administrative agent (together with any successors appointed pursuant to Article VIII, the "Administrative Agent") for the Lender Parties (as defined therein).

For the purpose of the foregoing the Affected Party shall be: Party B.

(d)

Part 4, paragraph (f) of the Schedule to the Agreement is hereby amended by replacing 4(f) in its entirety with the following:

Credit Support Document. In respect of Party A and in respect of Party B, None

(e)

Part 4, paragraph (g) of the Schedule to the Agreement is hereby amended by replacing 4(g) in its entirety with the following:

    Credit Support Provider. In respect of Party A and in respect of Party B, None

(f)

Part 4, paragraph (a) of the Schedule to the Agreement is hereby amended by replacing 4(a) with respect to Party A in its entirety with the following:

Address for notices or communications to Party A:

Address:	BNP Paribas, 20 Boulevard des Italiens, 75009 Paris, France
Attention:	BFI/BOLTIT
Telex No.	282919  Answerback: BNP 282919F
copy to:	BNP Paribas, 10 Harewood Avenue, London NW1 6AA, England
Attention:	Legal and Transaction Management Group
Telex No:	296723  Answerback: PARCAP
Electronic Messaging System Details:	BPCMGB2X
(For all purposes)

(g)

Part 4, paragraph (d) of the Schedule to the Agreement is hereby amended by replacing 4(d) with respect to Party A in its entirety with the following:

Party A is a Multibranch Party and may act through the following Offices:

BNP Paribas Head Office	Its New York Branch at	Its London Branch at
20, Boulevard des Italiens	The Equitable Tower	10 Harewood Avenue
75009 Paris	31st Floor	London NW1 6AA
France	787 Seventh Avenue New York, NY 10019 USA	England
Its Grand Cayman Branch

(h)

Part 5, paragraph (a) of the Schedule to the Agreement is hereby amended by replacing 5(a) in its entirety with the following:

"1991 ISDA Definitions. The definitions and provisions contained in the 1991 ISDA Definitions (published by the International Swap Dealers Association, Inc.) as supplemented by the 1998 ISDA Supplement (published by the International Swaps and Derivatives Association, Inc.) and as further amended and supplemented by the 1998 ISDA Euro Definitions (published by the International Swaps and Derivatives Association, Inc.) (together the "Definitions"), are incorporated into any Confirmation which supplements and forms part of this Agreement, and all capitalised terms used in a Confirmation shall have the meaning set forth in the Definitions, unless otherwise defined in a Confirmation. In the event of any conflict between the provisions of this Agreement and the provisions of the Definitions, the provisions of the Agreement shall apply, and in the event of any conflict between the provisions of this Agreement and a Confirmation, the provisions of the Confirmation shall apply.

(i)

For so long as the Credit Agreement is in effect, Part 5, paragraph (c)(i) of the Schedule is amended by deleting the words "Section 4 of the Credit Agreement" and replacing them with the words "Section 4.01 of the Credit Agreement defined in Part (c) of this Amendment to the

Agreement". It being understood that this provision shall terminate upon the termination of the Credit Agreement.

(j)

For so long as the Credit Agreement is in effect, Part 5, paragraph (c)(ii) of the Schedule is amended by deleting the words "Section 5 of the Credit Agreement" and replacing them with the words "Section 5.01 and Section 5.02 of the Credit Agreement defined in Part (c) of this Amendment to the Agreement". It being understood that this provision shall terminate upon the termination of the Credit Agreement.

(k)

Part 5(c)(iii) and the last sentence of Part 5(j) of the Schedule are hereby deleted.

(l)

Agreements and Representations

    Each party represents to the other party that all representations contained in the Agreement (including all representations set forth in the Annex) are true and accurate in all material respects as of the date of this Amendment and that such representations are deemed to be given or repeated by each party, as the case may be, on the date of this Amendment.

    Party B represents and warrants to Party A that all Obligations incurred by Party B under this Agreement shall rank pari pasu with all other senior obligations of Party B in priority of payment.

    The parties agree that, for so long as the Credit Agreement has not expired or been terminated, all of Party B's Affimative and Negative Covenants contained in the Credit Agreement are deemed to be in full force and effect, and they further agree that, upon the expiration or termination of the Credit Agreement they will negotiate in good faith to replace such covenants with either (i) mutually agreeable covenants as embodied in a replacement credit agreement under the terms of which Party A is a participant, or (ii) an arrangement under which Party B shall provide cash collateral to Party A under the terms attached hereto as Exhibit 1.

(m)

Miscellaneous

      (a) Entire Agreement. This Amendment constitutes the entire agreement of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.

      (b) Counterparts. This Amendment may be executed and delivered in counterparts (through facsimile transmission or otherwise in writing), each such counterpart shall be deemed an original, and all such counterparts, together, shall constitute a single agreement.

      (c) Governing Law. This Amendment shall be governed by and construed in accordance with New York law.

      (d) All references to Banque Nationale de Paris in the Agreement shall be read as a reference to BNP Paribas.

      (e) Notwithstanding any provision to the contrary, any waiver or modification of any of the provisions of the Credit Agreement, or any subsequent agreement with Party B to which Party A is a Lender or a party in an analogous role, that are referenced or incorporated by reference in this Agreement, including, without limitation, affirmative and negative covenants, cross defaults, events of default and representations and warranties, shall be deemed a waiver or modification under this Agreement, without any further action.

IN WITNESS WHEREOF, Each of the parties has caused this Amendment to be executed by its duly authorized representative with effect as of November 2, 2000.

BNP Paribas Securities Corp. on behalf of BNP Paribas Corporation	International Rectifier Corporation
By:	By:
Name:	Name:
Title:	Title:
By:
Name:
Title:

(Multicurrency—Cross Border)

ISDA®

International Swaps & Derivatives Association, Inc.

MASTER AGREEMENT

dated as of 1^st July 1999

    Banque Nationale de Paris acting through its Los Angeles Branch and International Rectifier Corporation have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions.

    Accordingly, the parties agree as follows:

1.  Interpretation

    (a)  Definitions.  The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement.

    (b)  Inconsistency.  In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction.

    (c)  Single Agreement.  All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions.

2.  Obligations

    (a)  General Conditions.

(i)

Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.



(ii)

Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.



(iii)

Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.

    (b)  Change of Account.  Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five local Business Days prior to the scheduled date for the

1

payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change.

    (c)  Netting.  If on any date amounts would otherwise be payable:

(i)

in the same currency; and



(ii)

in respect of the same Transaction,

by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.

    (d)  Deduction or Withholding for Tax.

(i)

Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:



(1)

promptly notify the other party ("Y") of such requirement;



(2)

pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;



(3)

promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and



(4)

if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:



(A)

the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or



(B)

the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is

2

taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law.

(ii)

Liability. If:



(1)

X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4);



(2)

X does not so deduct or withhold; and



(3)

a liability resulting from such Tax is assessed directly against X,

then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).

    (e)  Default Interest; Other Amounts.  Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.

3.  Representations

    Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:

    (a)  Basic Representations.

(i)

Status. It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing;



(ii)

Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance;



(iii)

No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;



(iv)

Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have

3

been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

(v)

Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

    (b)  Absence of Certain Events.  No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.

    (c)  Absence of Litigation.  There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.

    (d)  Accuracy of Specified Information.  All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect.

    (e)  Payer Tax Representation.  Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true.

    (f)  Payee Tax Representations.  Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true.

4.  Agreements

    Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:

    (a)  Furnish Specified Information.  It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:

(i)

any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;



(ii)

any other documents specified in the Schedule or any Confirmation; and



(iii)

upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,

in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.

4

    (b)  Maintain Authorisations.  It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future.

    (c)  Comply with Laws.  It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party.

    (d)  Tax Agreement.  It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure.

    (e)  Payment of Stamp Tax.  Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organized, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.

5.  Events of Default and Termination Events

    (a)  Events of Default.  The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:

(i)

Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party;



(ii)

Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party;



(iii)

Credit Support Default.

(1)

Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed;



(2)

the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or



(3)

the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document;

(iv)

Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to

5

have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;

(v)

Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf);



(vi)

Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period);



(vii)

Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:



(1)

is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous

6

effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or

(viii)

Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:



(1)

the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or



(2)

the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.

    (b)  Termination Events.  The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:

(i)

Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, is becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):



(1)

to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or



(2)

to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction;

(ii)

Tax Event. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6 or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));



(iii)

Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(l)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or

7

withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii);

(iv)

Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or



(v)

Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation).

    (c)  Event of Default and Illegality.  If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default.

6.  Early Termination

    (a)  Right to Terminate Following Event of Default.  If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).

    (b)  Right to Terminate Following Termination Event.

(i)

Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.



(ii)

Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.

8

If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).

Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.

(iii)

Two Affected Parties. If an Illegality under Section 5(b)(i)(l) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.



(iv)

Right to Terminate. If—



(1)

a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or



(2)

an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,

either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.

    (c)  Effect of Designation.

(i)

If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.



(ii)

Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).

    (d)  Calculations.

(i)

Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.



(ii)

Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an

9

Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.

    (e)  Payments on Early Termination.  If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.

(i)

Events of Default. If the Early Termination Date results from an Event of Default:



(1)

First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.



(2)

First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement.



(3)

Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.



(4)

Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.

(ii)

Termination Events. If the Early Termination Date results from a Termination Event:



(1)

One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions.



(2)

Two Affected Parties. If there are two Affected Parties:

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(A)

if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and



(B)

if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y").

If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y.

(iii)

Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).



(iv)

Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses.

7.  Transfer

Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:

(a)

a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and

(b)

a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

8.  Contractual Currency

    (a)  Payment in the Contractual Currency.  Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so

11

received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.

    (b)  Judgments.  To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency.

    (c)  Separate Indemnities.  To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement.

    (d)  Evidence of Loss.  For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made.

9.  Miscellaneous

    (a)  Entire Agreement.  This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.

    (b)  Amendments.  No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.

    (c)  Survival of Obligations.  Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction.

    (d)  Remedies Cumulative.  Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.

    (e)  Counterparts and Confirmations.

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(i)

This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.



(ii)

The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation.

    (f)  No Waiver of Rights.  A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.

    (g)  Headings.  The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement.

10. Offices; Multibranch Parties.

(a)

If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into.

(b)

Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party.

(c)

If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation.

11. Expenses

A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.

12. Notices

    (a)  Effectiveness.  Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:

(i)

if in writing and delivered in person or by courier, on the date it is delivered;

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(ii)

if sent by telex, on the date the recipient's answerback is received;



(iii)

if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine);



(iv)

if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or



(v)

if sent by electronic messaging system, on the date that electronic message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.

    (b)  Change of Addresses.  Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it.

13. Governing Law and Jurisdiction

    (a)  Governing Law.  This Agreement will be governed by and construed in accordance with the law specified in the Schedule.

    (b)  Jurisdiction.  With respect to any suit, action, or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:

(i)

submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and



(ii)

waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.

Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.

    (c)  Service of Process.  Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law.

    (d)  Waiver of Immunities.  Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property,

14

(iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings.

14. Definitions

As used in this Agreement:

"Additional Termination Event" has the meaning specified in Section 5(b).

"Affected Party" has the meaning specified in Section 5(b).

"Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions.

"Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person.

"Applicable Rate" means:

    (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

    (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate;

    (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and,

    (d) in all other cases, the Termination Rate.

"Burdened Party" has the meaning specified in Section 5(b).

"Change in Tax Law" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into.

"consent" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent.

"Credit Event Upon Merger" has the meaning specified in Section 5(b).

"Credit Support Document" means any agreement or instrument that is specified as such in this Agreement.

"Credit Support Provider" has the meaning specified in the Schedule.

"Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.

"Defaulting Party" has the meaning specified in Section 6(a).

15

"Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iv).

"Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule.

"Illegality" has the meaning specified is Section 5(b).

"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed is respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).

"law" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "lawful" and "unlawful" will be construed accordingly.

"Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction.

"Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.

16

"Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.

"Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.

"Non-defaulting Party" has the meaning specified in Section 6(a).

"Office" means a branch or office of a party, which may be such party's head or home office.

"Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

"Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city.

"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.

17

"Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.

"Set-off" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.

"Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:

    (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and

    (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.

"Specified Entity" has the meaning specified in the Schedule.

"Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money.

"Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.

"Stamp Tax" means any stamp, registration, documentation or similar tax.

"Tax" means any present or future tax, levy, impost, duty, charge, assessment a fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax.

"Tax Event" has the meaning specified in Section 5(b).

"Tax Event Upon Merger" has the meaning specified in Section 5(b).

"Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date).

"Termination Currency" has the meaning specified in the Schedule.

18

"Termination Currency Equivalent" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties.

"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event.

"Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.

"Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties.

    IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.

Banque Nationale de Paris Acting through its Los Angeles Branch (Name of Party)	International Rectifier Corporation (Name of Party)
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

19

SCHEDULE
to the ISDA Master Agreement
(Multicurrency—Cross Border)
dated as of 1st July 1999

between

Banque Nationale de Paris acting through its Los Angeles Branch ("Party A")

and

International Rectifier Corporation ("Party B")

PART 1

Termination Provisions

(a)

"Specified Entity": None.

(b)

"Specified Transaction" will have the meaning specified in Section 14.

(c)

The "Cross Default" provisions of Section 5(a)(vi) will apply to Party A and Party B.

"Specified Indebtedness" shall have the meaning specified in Section 14; provided, however, with respect to Party A, Specified Indebtedness shall not include deposits received in the ordinary course of Party A's business.

"Threshold Amount" means USD 3,000,000 (or the equivalent thereof in any other currency, currencies or composite currency) with respect to Party A and Party B.

(d)

The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will apply to each party but shall not apply to any Credit Support Provider.

(e)

The "Automatic Early Termination" provisions of Section 6(a) will not apply to Party A and will not apply to Party B.

(f)

Payments on Early Termination. For the purpose of this Agreement

(i)

Market Quotation will apply; and

(ii)

The Second Method will apply.

(g)

"Termination Currency" means (i) if there is a Defaulting Party or only one Affected Party, a freely available currency applicable to one of the Terminated Transactions selected by the other party; or (ii) if there are two Affected Parties, a freely available currency applicable to one of the Terminated Transactions agreed to by the parties, or, if no such agreement is reached within two Business Days of the Early Termination Date, United States Dollars.

(h)

Additional Termination Event will not apply.

PART 2

Tax Representations

    (a)  Payer Representations.  For purposes of Section 3(e) of this Agreement, each party makes the following representation:

It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under

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Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement; (ii) the satisfaction of the agreement of the other party contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement; and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.

    (b)  Payee Representations.  For the purpose of Section 3(f) of this Agreement, Party A and Party B make the representations specified below:

None.

    (c)  Tax Event  Section 5(b)(ii) is hereby modified by deleting such subclause in its entirety and substituting therefor the following:

"(ii) Tax Event. The party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e),6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));"

PART 3

Agreement to Deliver Documents

For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents, as applicable:

(a)

Tax forms, documents or certificates to be delivered are:

(i)

Party A shall deliver to Party B promptly upon request of Party B, duly completed and executed United States Internal Revenue Service Forms 1001 and/or 4224.

(ii)

Party B shall deliver to Party A promptly upon request of Party A, duly completed and executed United States Internal Revenue Service Forms 1001 and/or 4224.

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(b)

Other documents to be delivered are:

Party required to deliver documents	Form/Document/Certificate	Date by which to be delivered
(1) Party A	(A) Certified copy of a power of attorney confirming the approval of the execution, delivery and performance of this Agreement on behalf of Party A and containing specimen signatures of those persons executing this Agreement on behalf of Party A;	Upon execution and delivery of this Agreement.
	(B) A copy of Party A's most recently available Annual Report containing consolidated financial statements for its most recently ended fiscal year certified by its independent public accountants as fairly presenting the financial condition of Party A and it consolidated subsidiaries' as at the close of such fiscal year.	Promptly after a request by Party B.

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(2) Party B	(A) Certified copies of all corporate authorizations and any other documents with respect to the execution, delivery and performance of this Agreement and any Credit Support Document, together with a certificate of authority and specimen signatures of the persons executing this Agreement and any Credit Support Document;	Upon execution and delivery of this Agreement.
	(B) A copy of its and its Credit Support Provider's most recently available annual report containing audited financial statements for its and its Credit Support Provider's, as the case may be, most recently ended fiscal year certified by its and its Credit Support Providers', as the case may be, independent public accountants as fairly presenting its and its Credit Support Providers', as the case may be financial condition and results of operations for and as at the close of such fiscal year;	Promptly after a request by Party A.
	(C) Each regular financial and/or business reporting document that is distributed or is generally available to its and its Credit Support Providers' partners, shareholders, creditors or investors or is filed with any regulatory authorities and is publicly available or relates to its and its Credit Support Providers' financial condition;	Promptly after a request by Party A.
	(E) Such other information respecting Party B's and its Credit Support Providers' condition or operations, financial or otherwise, as Party A may reasonably request from time to time.	Promptly after a request by Party A.
	(F) The Credit Support Document duly executed by it.	Upon execution and delivery of this Agreement.

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(iii)

The documents referred to in this Part 3(b) are covered by the representations set forth in Section 3(d).

PART 4

Miscellaneous

(a)

Addresses for Notices. For the purpose of Section 12(a) of this Agreement: Notices or communications to Party A with respect to each Transaction shall be sent to the address of the relevant Office set forth below or as specified in the relevant Confirmation or as otherwise notified by Party A to Party B. In addition, copies of each notice or communication given to Party A pursuant to Section 5 or 6 of this Agreement shall be sent to Banque Nationale de Paris, London branch, 8-13 King William Street, London EC4P 4HS Attn: Legal—IRD.

BNP Los Angeles
Address:	725 South Figueroa Street, Suite 2090, Los Angeles, California 90017
Attention:	Clive Bettles/Senior Vice President & Manager
Telex No:	6734168
Facsimile No:	(001) 213 891 0819  Tel No: (001) 213 488 9120

Address for notices and communications to Party B Is:

International Rectifier
Address:	100 N. Sepulveda Blvd., 7th Floor, El Segundo, California 90245
Attention:	Deidre J. Samuels, Global Cash Manager
Facsimile No:	(001) 310 726 8639  Tel No: (001) 310 726 8616/8430

(b)

Process Agent. For purposes of Section 13(c) of this Agreement:

Party A appoints as its Process Agent in the Borough of Manhattan, City, County and State of New York, BNP New York, with offices at 499 Park Avenue, New York, NY 10022, USA.

Party B appoints as its Process Agent in the Borough of Manhattan, City, County and State of New York: None.

(c)

Offices. The provisions of Section 10(a) will apply to this Agreement with respect to all offices specified in Part 4(d) of this Schedule.

(d)

Multibranch Party. For the purposes of Section 10(c) of this Agreement:

Party A is a not a Multibranch Party and may act through its Los Angeles office only.

Party B is not a Multibranch Party.

(e)

Calculation Agent. The Calculation Agent is Party A unless otherwise specified in a Confirmation in relation to the relevant Transaction.

(f)

Credit Support Document. In respect of Party B, the Security Agreement dated 1^st July 1999 between each of the Grantors, the Additional Grantors to Party A, as Agent for the Secured Parties, as defined in the Credit Agreement ("the Security Agreement"), as amended, restated, supplemented or otherwise modified from time to time.

"Credit Agreement" means the Credit Agreement dated as of July 1, 1999 between, inter alia, Party A and Party B.

(g)

Credit Support Provider. Each of the Grantors or any Additional Grantor, as defined in the Security Agreement.

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(h)

Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York.

(i)

Netting of Payments. Subparagraph (ii) of Section 2(c) of this Agreement will not apply, with effect from the date that the parties notify each other in writing that they are in a position to payment net across multiple Transactions, provided, however, that such election may apply separately for Transactions which are FX Transactions, Currency Options and Transactions involving calculations based on the prices of commodities, equities and/or securities as if such Transactions are each separate groups of Transactions.

(j)

"Affiliate" will have the meaning specified in Section 14 of this Agreement.

PART 5

Other Provisions

(a)

ISDA Definitions. Unless otherwise specified in a Confirmation, each Transaction between the parties is subject to and governed by the 1991 ISDA Definitions (the "1991 Definitions"). The provisions of the 1991 Definitions are incorporated herein and shall be deemed a part of this Agreement, except that references in the 1991 Definitions to a "Swap Transaction" shall be deemed to be references to a "Transaction". In the event of any inconsistency between the 1991 Definitions and this Agreement, this Agreement shall prevail. In the event of any inconsistency between the provisions of a Confirmation and this Agreement or the 1991 Definitions, such Confirmation will prevail for the purposes of the relevant Transaction.

(b)

Representations. Each party, in the case of clauses (i), (ii), (iii), (iv) and (v) and Party A in the case of clauses (vi) and (vii), will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):

(i)

Non-Reliance. It is acting for its own account and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explorations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. It has not received from the other party any assurance or guarantee as to the expected results of that Transaction.

(ii)

Evaluations and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the financial and other risks of that Transaction.

(iii)

Status of Parties. The other party is not acting as a fiduciary or an adviser for it in respect of that Transaction.

(iv)

It is acting as principal and not as agent or in any other capacity, fiduciary or otherwise.

(v)

It has entered into this Agreement (including each Transaction evidenced hereby) in conjunction with its line of business (including financial intermediation services) or the financing of its business.

(vi)

It is either (x) a "financial institution" under the provisions of Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") or (y) effective as of March 7,

25

1994 it "engages in financial contracts as a counterparty on both sides of one or more financial markets" within the meaning of 12 CFR Part 231 and meets at least one of the quantitative thresholds set forth in 12 CFR Part 231.3(a).

(vii)

It is an "eligible swap participant" within the meaning of the Commodity Futures Trading Commission ("CFTC") Regulations Section 35.1(b)(2).

(c)

In respect of any transactions entered into between the parties, the following provisions will apply:

(i)

Representations. Party B will be deemed to represent to Party A on the date on which it enters each transaction hereunder each of the Representations and Warranties set out in Section 4 of the Credit Agreement except as such representations may have been excused or waived in accordance with the Credit Agreement by the parties hereto.

(ii)

Agreements. Party B will comply with each of the Covenants listed in Section 5 of the Credit Agreement with respect to each transaction hereunder, except as such covenants may have been excused or waived in accordance with the Credit Agreement by the parties thereto.

(iii)

Events of Default. It shall be an Event of Default with respect to Party B if an Event of Default occurs and is continuing as set out in Section 6 of the Credit Agreement and the Administrative Agent, as defined in the Credit Agreement, takes the action set out in Section 6.02 thereof unless such Event of Default has been waived or excused in accordance with the Credit Agreement by the parties thereto.

    In the event of a conflict between the Events of Default of this Agreement and those set out in Section 6 of the Credit Agreement, the Events of Default of the Credit Agreement shall prevail.

(d) Agreements.

(i)

Set Off. The following shall be included as Section 6 (f) of the Agreement:

"Any amount (the "Early Termination Amount") payable to one party (the "Payee") by the other party (the "Payer") under Section 6(e) in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(iv) has occurred, will, at the option of the party ("X") other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the "Other Agreement Amount") payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer, irrespective of the currency, place of payment or booking office of the obligation, under any other agreement(s) between the Payee and Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favour of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this Section 6(f).

For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency.

If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.

Nothing in this provision shall be effective to create a charge or other security interest. This provision shall be without prejudice and in addition to any right of set-off, combination of

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accounts, lien or other right to which any party is at any time entitled (whether by operation of law, contract or otherwise)."

Notwithstanding the above, with respect to Hedging Transactions defined above, no set off shall be permitted unless it is in accordance with Section 8.05 of the Credit Agreement.

(ii)

This Agreement, the Confirmations, the Transactions contemplated thereby and all other agreements contemplated thereby are and shall be maintained continuously from the date of execution thereof by Party B as official records of Party B.

(e)

Transfer to Avoid Termination Event. In Section 6 (b) (ii), first paragraph, line 7, the words "or Affiliates" shall be deleted.

(f)

Consent to Recording. Each party (i) consents to the recording of telephone conversations of trading and marketing personnel of the parties in connection with this Agreement and any Transactions hereunder and to the submission of such recordings in evidence in any Proceedings and (ii) agrees to obtain any necessary consent of, and give notice of such recording to, such personnel.

(g)

Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law any right it may have to have a trial by jury in respect of any Proceedings and acknowledges that it and the other party have been induced to enter into this Agreement (and provide for any Credit Support Document, as applicable) by, among other things, the mutual waivers in this Section.

(h)

Currency Swap Payments in Trust. If the parties are each required to make payments pursuant to Section 2(a) and any sum is paid by one party on a day when any other sum due and payable on or before that date under this Agreement by the other party has not been paid, the party that receives the payment due to it first shall hold an amount equal to the payment it received in trust (with the right to commingle that amount with its general funds) for the benefit of the other party until that other party receives the corresponding payment due to it.

(i)

Introduction of the ISDA Emu Protocol. The parties agree that the definitions and provisions contained in Annexes 1 to 5 and Section 6 of the Emu Protocol published by the International Swaps and Derivative Association, Inc. on 6th May 1998 are incorporated into and apply to this Agreement. References in these definitions and provisions to any "ISDA Master Agreement" shall be deemed to be references to this Agreement.

(j)

Amendments. Section 5(a)(iii) of the Agreement shall be amended by the inclusion of the following words at the end of Section 5(a)(iii)(1):

"except to the extent such compliance of performance has been excused or waived in accordance with such Credit Support Document by the parties thereto."

Section 5(a)(iii)(2) shall be amended by including the words, "or by agreement of the parties thereto" after the words "with its terms" in the third line thereof.

Section 5(a)(vi) shall be amended by including the words, "and such failure shall continue after the applicable grace period, if any, under the terms applying to such Specified Indebtedness", after the words "due and payable" in the eighth line thereof.

Section 5(a)(viii) shall be amended by including the following new paragraph at the end thereof;

"if unless such consolidation, merger or transfer is permitted by the Credit Agreement."

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PART 6

FX Transactions and Currency Options

(a)

1998 ISDA FX Definitions. The provisions of the 1998 FX and Currency Option Definitions published by ISDA, the Emerging Markets Trades Association and the Foreign Exchange Committee (the "FX Definitions") are hereby incorporated by reference and shall apply to FX Transactions and Currency Options entered into by the Offices of the Parties specified in Part 4(a). FX Transactions and Currency Options are each deemed to be Transactions pursuant to the Agreement. In the event of any inconsistency between the 1991 Definitions and the FX Definitions, the FX Definitions shall prevail with respect to an FX Transaction or a Currency Option. In the event of any inconsistency between the provisions of this Agreement and the 1991 Definitions or the FX Definitions, the provisions of this Agreement shall prevail. All Confirmations howsoever described and whether by means of electronic messaging system, letter, telex, facsimile or otherwise in respect of FX Transactions and Currency Options transactions shall constitute "Confirmations" as referred to in this Agreement even where not so specified in the Confirmation.

(b) Modifications to FX Definitions.

(i)

The FX Definitions are hereby modified by including the following words at the end of the final sentence of Section 3.5(g):

"An Option may be exercised in whole or in part. If an Option is exercised in part, the unexercised portion shall not be extinguished thereby but shall remain an Option to the extent of such unexercised portion until the earlier of (i) the expiration of the Option or (ii) an exercise of the Option that leaves no remaining unexercised portion thereof".

(ii)

The following additional definitions shall be included:

"Call Option" means a Currency Option entitling but not obligating the Buyer to purchase from the Seller at the Strike Price a specified quantity of the Call Currency.

"Put Option" means a Currency Option entitling but not obligating the Buyer to sell to the Seller at the Strike Price a specified quantity of the Put Currency.

(c)

(i)  Payment of Premiums for Currency Options. Unless otherwise agreed in writing by the parties, the Premium for any Currency Option shall be paid on its Premium Payment Date.

(ii)

If the Premium is not paid on its Premium Payment Date, the Seller may elect:

(A)

to accept a late payment of such Premium;

(B)

to give written notice of such non-payment and, if such payment shall not be received within two (2) Local Business Days of such notice, treat the related Currency Option as void; or

(C)

to give written notice of such non-payment and, if such payment shall not be received within two (2) Local Business Days of such notice, treat such nonpayment as an Event of Default under Section 5 (a)(i) of the Agreement.

(iii)

If the Seller elects to act under either (A) or (B) above, the Buyer shall pay all out-of-pocket costs and actual damages incurred in connection with such unpaid or late Premium or void Currency Option, including, without limitation, interest on such Premium from and including the Premium Payment Date to but excluding the late payment date in the same currency as such Premium at the prevailing market rate and any other losses, costs or expenses incurred by the Seller in connection with such terminated Currency Option, for the loss of its bargain,

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its cost of funding, or the loss incurred as a result of terminating, liquidating, obtaining or re-establishing a delta hedge or related trading position with respect to such Currency Option.

(d)

Netting Discharge and Termination of Currency Options. From a date to be mutually agreed, by the parties, any Call Option or any Put Option written by a party will automatically be terminated and discharged, in whole or in part, as applicable, and unless otherwise agreed, against a Call Option or a Put Option, respectively written by the other party, such discharge and termination to occur automatically upon the payment in full of the last Premium payable in respect of such Currency Options in accordance with standard payment instructions; provided that such discharge and termination may only occur in respect of Currency Options:

(i)

each being with respect to the same Put Currency and the same Call Currency;

(ii)

each having the same Expiration Date and Expiration Time;

(iii)

each being of the same style i.e. either both being American Style Options or both being European Style Options;

(iv)

each having the same Strike Price;

(v)

each having being transacted by the same offices of Party A and Party B; and

(vi)

neither of which shall have been exercised by delivery of a Notice of Exercise;

    and upon the occurrence of such discharge and termination, neither Party shall have any obligation to the other Party in respect of the relevant Currency Options or, as the case may be, parts thereof so discharged and terminated. Such discharge and termination shall be effective notwithstanding that either party may fail to record such discharge and termination in its books. In the case of a partial discharge and termination (i.e. where the relevant Currency Options are for different amounts of the Currency Pair), the remaining portion of the Currency Options which is partially discharged and terminated shall continue to be a Currency Option for the purposes of the Agreement, including this provision.

SIGNED FOR AND ON BEHALF OF BANQUE NATIONALE DE PARIS ACTING THROUGH ITS LOS ANGELES BRANCH	SIGNED FOR AND ON BEHALF OF INTERNATIONAL RECTIFIER CORPORATION
By:	By:
Name:	Name:
Title:	Title:
By:	By:
Name:	Name:
Title:	Title:

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QuickLinks

Exhibit 3

PART 1 Termination Provisions
PART 2 Tax Representations
PART 3 Agreement to Deliver Documents
PART 4 Miscellaneous
PART 5 Other Provisions
PART 6 FX Transactions and Currency Options