10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Check One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the fiscal year ended April 3, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

Commission File No. 0-12695

INTEGRATED DEVICE TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-2669985
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2975 Stender Way, Santa Clara, California	95054
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 727-6116

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

Preferred Stock Purchase Rights

(Title of class)

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  ¨

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes  x    No  ¨

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was approximately $1,152,431.000 as of May 29, 2005, based upon the closing sale price of $12.49 per share on the NASDAQ National Market for that date. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were approximately 106,564,000 shares of the Registrant’s Common Stock issued and outstanding as of May 29, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13, and 14 of Part III incorporate information by reference from the Proxy Statement for the 2005 Annual Meeting of Stockholders.

PART I

This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events and the future results of Integrated Device Technology, Inc. and are based on current expectations, estimates, forecasts and projections about the industry in which we operate and the beliefs and assumptions of our management. Words such as ‘expects,’ ‘anticipates,’ ‘targets,’ ‘goals,’ ‘projects,’ ‘intends,’ ‘plans,’ ‘believes,’ ‘seeks,’ ‘estimates,’ variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled “Factors Affecting Future Results” under Part II, Item 7 and elsewhere, and in other reports we file with the Securities and Exchange Commission (SEC), specifically the most recent reports on Form 10-Q, each as it may be amended from time to time.

We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

ITEM 1. BUSINESS

We design, develop, manufacture and market a broad range of high-performance semiconductor solutions for the advanced communications and computing industries. Within communications, target markets include: core, metro, access, enterprise, small office/home office (SOHO), data center and wireless, and the Company’s computing devices are designed specifically for PC and server applications.

We provide vital semiconductor solutions to accelerate innovation so our customers can create and capitalize on higher value networks. We do this by developing detailed systems-level knowledge, and applying our expertise in timing, logic, memory and switching to develop solutions to compelling technology problems.

We market our products on a worldwide basis primarily to original equipment manufacturers (OEMs) through a variety of channels, including a direct sales force, distributors, electronic manufacturing suppliers (EMSs) and independent sales representatives.

We seek to differentiate from competitors’ offerings through the following capabilities:

• we’ve been aggressively investing in the system level knowledge and whole product solution elements to allow us to solve difficult problems and enable our customers to rapidly deploy new technology;

• we’ve applied our diverse skills, know-how and technology to help customers achieve maximum benefit from evolving standards relevant in the market;

• we continue to demonstrate the dependability and reliability of a broad-based, high-volume vendor with a long term view.

We fabricate the majority of our current semiconductor wafers using advanced complementary metal oxide silicon (CMOS) process technology in our own fabrication facility in Oregon. We complement our internal manufacturing with the use of foundry resources primarily for processes we do not plan to support in our own fab. Historically, we assembled or packaged the majority of our products in manufacturing facilities that we own in Penang, Malaysia and Manila, the Philippines, where we also conduct product test operations. Shortly after the end of fiscal 2005, we announced the closure of our assembly and test facility in Manila. The test and finish work currently performed at the Manila facility will be transferred to our assembly and test facility in Penang, Malaysia at or around June 2005. Certain assembly functions will be transferred to third party sub-contractors, planned for the end of September 2005. These actions are a result of our continued focus on improving profitability.

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In fiscal 2005, we formed the IDT serial-switching division, built in part by the acquisition of ZettaCom, Inc. (ZettaCom) a privately held, fabless network communications IC Company and its proprietary switch-fabric and traffic-manager solutions. We also completed a technology licensing agreement with Internet Machines Corporation (IMC) that resulted in the non-exclusive purchase of its PCI Express^™ technology and the integration of a team of design engineers who are also now part of our serial-switching division. These acquisitions enabled us to accelerate our entry into the standards-based serial-switching market and strengthen our focus on PCI Express and Advanced Switching Interconnect (ASI).

In fiscal 2003, we acquired Solidum Systems Corp. (Solidum), a privately held provider of classification and content inspection processing solutions. In fiscal 2002, we acquired Newave Semiconductor Corp. (Newave), a privately held designer and marketer of integrated circuits for the telecommunications markets. In fiscal 2000, we acquired Quality Semiconductor, Inc. (QSI), which had been engaged in the design, development and marketing of high-performance logic, timing, and networking semiconductor products.

IDT was incorporated in California in 1980 and reincorporated in Delaware in 1987. The terms “the Company,” “IDT,” “our,” “us” and “we” refer to Integrated Device Technology, Inc. and its consolidated subsidiaries.

PRODUCTS AND MARKETS

We provide a broad portfolio of advanced integrated circuits (ICs), including ICs focused on accelerating innovation in next-generation network equipment and computing applications. IDT serves equipment vendors by applying its advanced hardware, integrated software and memory technologies to create flexible, highly integrated products that enhance the functionality and processing of network services. We offer approximately 1,300 devices in more than 15,000 product configurations.

IDT products serve the following market areas:

Core networks

• Core routers

• Wide area network (WAN) switches

Metro networks

• Multi-service switching platforms

• Edge routers

• Carrier-class media gateways

Access networks

• Aggregation and IP service equipment

• Digital subscriber line access multiplexers

• Cable modem termination systems

• Media gateways

• Central office switches

• Digital loop carriers and next-generation digital loop carriers

• Digital cross-connects

• Add-drop multiplexers

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Enterprise networks

• Ethernet workgroup switches

• Ethernet Enterprise backbone switches

• Enterprise WAN access equipment

• Load balancers and content switches

• Virtual private networks (VPNs) and firewalls

• Intrusion detection systems (IDS) and intrusion prevention systems (IPS)

• Wireless access points (WAPs)

• Private branch exchanges (PBXes) and IP-PBXes

• Multi-service switches

Small office/Home office

• Routers

• Wireless access points

• IDS and IPS

• Phones

• PCs

• Gateways

Data center networks

• Monolithic (high-end) and modular (mid-range) disk arrays

• Network-attached storage

• Storage area network (SAN) switches—core

• SAN switches—edge

Wireless networks

• Base transceiver stations

• Base station controllers

• Mobil switching centers

• Handsets

Computing

• Servers

• DIMM modules

• Personal computers

We operate in two business segments:

• Communications and Timing Products

• SRAMs

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During fiscal 2005, the Communications and Timing Products and SRAMs segments accounted for approximately 84% and 16%, respectively, of total IDT revenues of $390.6 million. In fiscal 2004 and 2003, these segments accounted for 85% and 15%, respectively, of total IDT revenues of $345.4 million and $343.9 million, respectively.

Communications and Timing Products Segment

This segment includes network search engines, switching solutions, integrated communications processors, flow-control management devices, FIFOs, multi-ports, telecommunications products, timing solutions, PC clocks, DIMM support products, and digital logic products.

Network Search Engines (NSEs):    We offer a family of NSEs based on the integration of ternary content addressable memory (TCAM) and high-performance logic. IDT NSEs support network processing units and ASICs or FPGAs, and enable intelligent application management in next-generation networking equipment. We are the first to offer the industry’s highest-performance NSE operating up to 250 MHz, and are the first vendor to introduce an NSE with an integrated LA-1 interface. Our NSE portfolio includes a family of custom devices, as well as families of NSEs with high-performance interfaces for ASICs, and glue-less interfaces to leading network processors, to accelerate packet classification and forwarding in core, metro and access networks.

Switching Solutions:    We have been aggressively driving products and ecosystem development for our standards-based switching thrust, featuring PCI Express and Advanced Switching Interconnect . In February 2005, we announced our PRECISE^™ family of PCI Express solutions consisting of bridging and switching products aimed at high-performance server and storage applications. We offer customers a complete integrated hardware/software development kit that includes evaluation boards, software drivers and a graphical user interface that enables complete system configuration and optimization. In addition to PCI Express bridging and switching solutions, we offer a family of switch-fabric and traffic-manager solutions that incorporate standard interfaces such as SPI-4.2 and CSIX, which lead to improved efficiencies for network equipment manufacturers and their customers. The high integration of these switch fabric and traffic managers allows for dramatically increased port densities and reduced power requirements, providing key operational benefits to service providers.

Integrated Communications Processors:    Our Interprise^™ family of integrated communications processors offers a range of processors and development tools. In addition, we partner with industry-leading software and hardware vendors to deliver system platforms to communications customers. The devices are based on the MIPS^® instruction set architecture and target high-growth communications market segments such as ethernet switches, enterprise gateways, and wireless LANs, as well as emerging edge and access market areas, including fiber-to-the-home and WAPs. Our Interprise^™ processors provide a unique combination of flexibility, performance and appropriate integration levels that enable customers to get to market quickly with cost-effective, flexible systems.

Flow-Control Management Devices (FCM):    As a leading provider of innovative products, we continued to evolve our distinctive competencies in integrating advanced memory and logic architectures to create a new category of value-added semiconductor solutions called flow-control management devices. FCM products provide access and/or queuing for data streams between subsystems and explicitly assist with additional functions, such as policing, shaping, scheduling, or directing the data. FCM devices have extensive impact in communications subsystem designs and also provide benefits in medical, video and data acquisition applications. The devices replace traditional methods of managing the flow of data within a system—previously accomplished with multiple ASICs, FPGAs and external SRAM, DRAM or FIFOs. Our FCM portfolio consists of devices that execute packet exchanging, queuing and multiplexing functions.

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First-in/first-out memories (FIFOs):    We develop products and technologies to help designers solve inter-chip communications problems such as rate matching, data buffering, bus matching and data priority managing. We provide a large product portfolio with more than 350 synchronous, asynchronous and bi-directional FIFO offerings that address complex issues associated with high-performance networking applications, such as terabit routers, multi-service switching platforms, host bus adaptors and wireless base stations.

Multi-ports:    The multi-port product portfolio consists of asynchronous and synchronous dual-ports, four-ports and bank-switchable dual-ports, and is targeted at leading-edge communications and networking markets.

Telecommunications Products:    We offer a broad telecommunications semiconductor portfolio, including products for access and transport, TDM switching and voice processing. The IDT SuperJET^™ family of J1/E1/T1 transceivers includes the industry’s first monolithic octal density device, to address next-generation universal line-card designs in communications applications. In addition, we provide best-in-class products for multiplexing, system synchronization, the widest selection of time slot interchange switches and the industry’s highest density voice CODEC. Our telecom products are used in a variety of communications applications, including multi-service aggregators and provisioning platforms, wireless base stations, enterprise routers and media gateways that are critical to enabling and accelerating the convergence of voice and data networks.

Timing Solutions:    We are a leading provider of timing solutions, offering a broad range of silicon timing devices that focus on clock generation and distribution. We are uniquely positioned to offer differentiated solution elements, such as a programmable platform, precision technology, advanced I/O, and stratum-compliant synchronization. We offer an extensive portfolio of timing devices, including devices for clock generation, programmable skew, zero delay, and non-PLL based clock fan out devices that are targeted at applications within communications, storage, digital consumer and industrial markets.

PC Clocks:    We developed a leading portfolio of PC clock devices for next-generation desktop, notebook, and server platforms. Leveraging our expertise in communications timing technology, we developed the industry’s first four PLL-based PC clock devices. Our initial devices were targeted at desktop PC platforms and offer complete and independent control of key clock circuits within the system, including CPU, SATA (Serial ATA) and USB interfaces, resulting in increased flexibility and system performance. Our CV115C PC clock is the first on the market to offer independent clocking for PCI Express, making it an appropriate fit for next-generation desktop PC platforms.

DIMM Support Products:    We are a leading provider of timing and logic solutions and have leveraged these core competencies to develop a full array of products for the DIMM market. In fiscal 2005, we announced our support for fully-buffered dual-inline memory modules, with the addition of our new advanced memory buffer device. We were also the first company to introduce a complete chip set of JEDEC-compliant DDR2 DIMM logic components. Our DIMM Support products address the memory needs of growing market areas such as servers, workstations, and communication devices.

Digital Logic Products:    We develop fast CMOS TTL-compatible, low-voltage CMOS, advanced low-voltage CMOS, and complex logic devices, including the industry’s broadest range of high-performance, 3.3-volt CMOS logic products. These products are developed for network switches and routers, wireless base stations, storage networks and servers.

SRAMs Segment

With over two decades of SRAM experience, we produce a broad line of high-speed, industry-standard SRAMs that are used in communications markets. We offer a wide range of products from 16-Kbit to 18-Mbit densities in both synchronous and asynchronous architectures. We invented the zero bus turnaround^™ technology, which has become the communications SRAM standard, and co-developed the quad data rate^™ architecture.

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Sales Channels

We use a variety of sales channels, including a direct sales force, distributors, EMSs, and independent sales representatives. A significant percentage of our sales, including sales to Cisco and other large OEM customers, are through EMSs and distributors. One distributor, Avnet, represented approximately 10%, 11%, and 13% of our revenues for fiscal 2005, 2004 and 2003, respectively. One EMS, Celestica, represented approximately 11%, 14% and 15% of our revenues in fiscal 2005, 2004 and 2003.

We employ a direct sales force that operates out of field sales offices located in the United States and abroad. We also utilize three primary distributors, Avnet, Arrow Electronics and Insight Electronics, for sales in the United States. A significant percentage of our export sales are also made through global and regional distributors and EMSs in Europe, Asia Pacific and Japan.

During fiscal 2005, 2004 and 2003, sales outside of the Americas represented approximately 68%, 71% and 63%, respectively, of our total revenues.

Customers

We market our products on a worldwide basis primarily to OEMs in our two business segments. Many of our end-customer OEMs have outsourced their manufacturing to a concentrated group of global EMSs who then buy product directly from us on behalf of the OEM. EMSs have achieved greater autonomy in the design win, product qualification and product purchasing decisions, especially for commodity products. Furthermore, these EMSs have generally been centralizing their global procurement processes. This has had the effect of concentrating a significant percentage of our revenue with a small number of companies. Products in the Communications and Timing Products segment are targeted primarily to communications customers. Although products in the SRAMs segment are general purpose in nature, we also supply the majority of our products in this segment to our communications customers. Customers often purchase products from more than one of our product families. We are dependent on a limited number of OEMs as our end-customers, and our future results depend significantly on the strategic relationships we have formed with them. No direct OEM customer accounted for 10% or more of our revenues in fiscal 2005, 2004 or 2003. However, when sales through all channels are considered, we estimate that end-customer sales to Cisco represented between 20-25% of our revenues in fiscal 2005, 2004 and 2003.

Manufacturing

In fiscal 2005, we manufactured products representing more than 90% of our revenue at our Hillsboro, Oregon wafer fabrication facility. This facility produces 200mm (8-inch) wafers from 0.6-micron down to 0.12-micron process technologies. We also use multiple wafer foundries for the balance of our production. We expect future production at wafer foundries to increase as a percentage of our total manufacturing.

We currently operate two component assembly and test facilities, a 145,000 square-foot facility in Penang, Malaysia and a 176,000 square-foot facility near Manila, the Philippines. Substantially all of our test operations and a majority of our assembly operations are performed at these two facilities. We also use subcontractors, principally in the Philippines and Korea, to perform certain assembly operations. In addition, we have limited test capabilities in Santa Clara and Salinas.

Shortly after the end of fiscal 2005, the Company announced its plans to consolidate its assembly and test operations and outsource a portion of its assembly operations. Under the plan, the Company will close its assembly and test facility in Manila, the Philippines.

Backlog

Our backlog (which we define as all confirmed, unshipped orders) as of April 3, 2005 was approximately $62.1 million, compared to $67.8 million as of March 28, 2004. We offer products with limited or no second

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sources, as well as industry-standard products. Sales are generally made pursuant to purchase orders, which are frequently revised by customers as their requirements change. We have also entered into master purchase agreements, which do not require minimum purchase quantities, with many of our OEM and EMS customers. We schedule product deliveries on receipt of purchase orders under the related customer agreements. Generally, these purchase orders and customer agreements, especially those for standard products, also allow customers to reschedule delivery dates and cancel purchase orders without significant penalties. In general, orders, especially for industry standard products, are often made with very short lead times and may be canceled, rescheduled, repriced or otherwise revised prior to shipment. In addition, distributor orders are subject to price adjustments both before and after shipment. Finally, orders placed by distributors or by consignment customers may reflect those customers’ intent to adjust their inventory levels, rather than providing an indication of near-term revenue opportunities. Approximately 52% of our revenues currently occur through distribution and consignment arrangements and with few exceptions we recognize revenues not upon shipment to fulfill their orders but upon their selling through the product to the ultimate end customer. For all these reasons, we do not believe that our order backlog is a reliable indicator of future revenues.

Research and Development

Our research and development efforts emphasize the development of proprietary and enhanced-performance products, and advanced CMOS processes. We believe that a continued high level of investment in research and development is necessary to maintain our competitive position. We operate research and development centers in Santa Clara and Salinas, California; Hillsboro, Oregon; Atlanta, Georgia; Warren, New Jersey. Ottawa, Canada; Shanghai, China and Sydney, Australia. Research and development expenses, as a percentage of revenues, were approximately 27%, 29% and 38% in fiscal 2005, 2004 and 2003, respectively.

Our product development activities are focused on the design of integrated circuits that provide new features and enhanced performance primarily for communications and computing applications. Additionally, we are developing advanced manufacturing process technologies, including 0.12-micron semiconductor fabrication techniques. These process technologies are designed to enable cost and performance advantages and to support higher production volumes of integrated circuits and the continued growth of our communications and computing products.

Competition

Intensely competitive, the semiconductor industry is characterized by rapid technological advances, cyclical market patterns, price erosion, evolving industry standards, occasional shortages of materials, intellectual property disputes, high capital equipment costs and uncertain availability of and control over manufacturing capacity. Many of our competitors have substantially greater technical, marketing, manufacturing or financial resources than we do. In addition, several foreign competitors receive financial assistance from their governments, which could give them a competitive advantage. We compete in different product areas, to varying degrees, on the basis of technical innovation and product performance, as well as product quality, availability and price. Products in the SRAM segment can generally be characterized as commodity-type items and tend to be most price-sensitive.

Our competitive strategy is to differentiate our products through innovative configurations, proprietary features, high performance, and breadth of offerings. Price competition, introductions of new products by our competitors, delays in our own product introductions or other competitive factors could have a material adverse effect on our business and results of operations in the future.

Our communications and timing products compete with similar products offered by such companies as Cypress Semiconductor (Cypress), PMC-Sierra (PMC), Toshiba, NEC, Texas Instruments, Pericom Semiconductor, Infineon Technologies, NetLogic, Legerity, Agere Systems, Zarlink Semiconductor, Exar, Intel, Motorola, Integrated Circuit Systems, PLX Technology (PLX), and Maxim Integrated Products.

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In markets where we compete to sell SRAM products, market supply and pricing strategies of competitors significantly impact the price we receive for our products. Our competitors include U.S.-based companies such as Cypress and Integrated Silicon Solutions. International competitors include Samsung Electronics and various other companies based in Taiwan, Korea and elsewhere in Asia.

Intellectual Property and Licensing

We believe that our intellectual property is a valuable corporate asset, and we continue to invest in intellectual property protection. We also intend to continue our efforts to increase the breadth of our patent portfolio. There can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented, that the rights granted there under will provide competitive advantages to us or that our efforts generally to protect our intellectual property rights will be successful.

In recent years, there has been a growing trend of companies resorting to litigation to protect their semiconductor technology from unauthorized use by others. In the past, we have been involved in patent litigation which adversely affected our operating results. Although we have obtained patent licenses from certain semiconductor manufacturers, we do not have licenses from a number of semiconductor manufacturers with broad patent portfolios. Our success will depend on our ability to obtain necessary intellectual property rights and protect our intellectual property rights. While we have filed patent applications, we cannot be certain that these applications will issue into patents or that we will be able to obtain the necessary intellectual property rights. Further, we cannot be certain that once granted other parties will not contest our intellectual property rights.

Environmental Regulation

Various federal, state and local provisions regulate the use and discharge of certain hazardous materials used in semiconductor manufacturing. Failure to comply with environmental regulations in the future could subject us to substantial liability or cause our manufacturing operations to be interrupted. These regulations could also require us to procure costly equipment or incur significant remediation expenses. We believe we are fully compliant with all applicable environmental laws.

Employees

As of April 3, 2005, we employed approximately 2,955 people worldwide, including approximately 900 in Malaysia and approximately 750 in the Philippines. Our future success depends in part on our ability to attract and retain qualified personnel, particularly engineers, who are often in great demand. We have implemented policies enabling our employees to share in our success, including stock option, stock purchase and profit sharing programs, and bonus plans for key contributors. We have never had a work stoppage. None of our employees is currently represented by a collective bargaining agreement, and we consider our employee relations to be good.

Available Information

We electronically file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports with the SEC on our website on the World Wide Web at http://www.idt.com, by contacting the Investor Relations Department at our corporate offices by calling (408) 654-6420 or by sending an e-mail message to ir@idt.com.

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ITEM 2. PROPERTIES

We own and operate a wafer fabrication facility in Hillsboro, Oregon (245,000 square feet). We own assembly and test plants in Malaysia (145,000 square feet) and the Philippines (176,000 square feet). The Malaysian plant is subject to ground leases and we have an interest in, but do not own all of the land we occupy in the Philippines. For more information on our production facilities, please refer to Item 1, “Manufacturing,” in this Report.

The Hillsboro facility was formerly subject to a synthetic lease. In September 2002, the Company elected to terminate the lease and acquire the leased property, plant and equipment for approximately $64 million. The Company no longer has any property, plant or equipment subject to synthetic leases.

We phased out production at our wafer fabrication facility in Salinas, California in June 2002. We continue to conduct non-manufacturing operations, primarily product marketing and design, in Salinas.

Our corporate headquarters, and various administrative, engineering and support functions are located in Santa Clara, California. We lease and occupy approximately 250,000 square feet of space at our Santa Clara campus. We also lease various facilities throughout the world for research and development and sales and marketing functions, including design centers in the United States, Australia, Canada, and China.

During fiscal 2005, we purchased a new corporate campus in San Jose, California (263,000 square feet). In fiscal 2006, we will consolidate our current Santa Clara and Salinas facilities into the new San Jose facility.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers, and their respective ages as of April 3, 2005, are as follows:

Name	Age	Position
Gregory S. Lang	41	President and Chief Executive Officer
Phil Bourekas	41	Vice President, Worldwide Marketing
Thomas Brenner	42	Vice President, Flow Control Management Division
Julian Hawkins	39	Vice President, Worldwide Sales
Clyde Hosein	45	Vice President, Chief Financial Officer
Mike Hunter	53	Vice President, Worldwide Manufacturing
Daryn Lau	40	Vice President, Serial Switching Division
Jimmy Lee	52	Vice President, Timing Solutions and Telecom Divisions
Chuen-Der Lien	49	Vice President, Chief Technical Officer, Circuit and Process Design
Michael Miller	48	Vice President, Chief Technology Officer, Systems Technology
Scott Sarnikowski	43	Vice President and Co-General Manager, IP Co-Processors Division
Christopher P. Schott	54	Vice President and Co-General Manager, IP Co-Processors and SRAM Divisions

Mr. Lang joined the Company as President in October 2001 and became Chief Executive Officer in January 2003. From September 1996 to October 2001, Mr. Lang was vice president and general manager of the Platform Networking Group at Intel Corporation. Mr. Lang previously held various other management positions during his 15-year tenure at Intel.

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Mr. Bourekas has been with the Company since 1988. Mr. Bourekas was appointed to his current position in July 2004. Mr. Bourekas was the Vice President of the Internetworking Products Division from February 2000 until July 2004. Mr. Bourekas was the Vice President of Strategic Marketing from August 1999 until February 2000. Prior to August 1999, Mr. Bourekas held various engineering, strategic marketing and management positions at IDT.

Mr. Brenner joined IDT in October 2002 as Vice President of Worldwide Marketing and became Vice President, Flow Control Management Division in November 2003. Prior to joining IDT, Mr. Brenner spent five years at LSI Logic and was the vice president and general manager of the networking ASIC division.

Mr. Hawkins joined IDT in July 2004. Mr. Hawkins has held several senior management positions for companies in the networking and semiconductor industries. Mr. Hawkins joined IDT from Infineon Technologies, Inc., where he spent three years as vice president of sales for North America. In addition, prior industry experience included eight years at Samsung Semiconductor Inc., where Mr. Hawkins held various management positions, including vice president of marketing for memory and flat panel LCD sales in the Americas.

Mr. Hosein joined IDT in March 2003 as Vice President and Chief Financial Officer. From 2001 to 2003, Mr. Hosein was the senior vice president, finance & administration and chief financial officer for Advanced Interconnect Technologies. From 1997 to 2001, Mr. Hosein held various management positions at Candescent Technologies Corporation including Vice President and Chief Financial Officer. Prior to Candescent, Mr. Hosein held various management positions during his 14-year career at IBM.

Mr. Hunter has been with IDT since 1996 and was appointed Vice President, Worldwide Manufacturing in February 1998. Prior to joining IDT, Mr. Hunter held management positions at Chartered Semiconductor Manufacturing Ltd., Fujitsu Personal Systems, Fairchild Semiconductor and Texas Instruments Incorporated.

Mr. Lau joined IDT in May 2004 as Vice President of the Serial Switching Division through the acquisition of ZettaCom by IDT. Prior to IDT, Mr. Lau was the co-Founder, President & CEO of ZettaCom from October 1999 to May 2004. Subsequent to year-end, Mr. Lau left the Company.

Mr. Lee joined IDT in 1984. He was appointed to his current position in August 1999. His previous positions at IDT included Vice President of the FIFO Products Division from 1996 to 1999. Prior to joining IDT, Mr. Lee held a management position at Intel Corp.

Dr. Lien joined IDT in 1987 and was appointed to his current position in 1996. Prior to joining the Company, he held engineering positions at Digital Equipment Corporation and AMD.

Mr. Miller has been with the Company since 1985 and was appointed to his current position in August 2002. His previous positions at IDT were engineering management positions in the areas of software, applications and product definition.

Mr. Sarnikowski joined IDT in March 2003 as Vice President and Co-General Manager of the IP Co-Processor Division. Prior to joining IDT, Mr. Sarnikowski was the vice president of marketing for Raza Foundries, Inc. from August 2000 to June 2002. Mr. Sarnikowski also held the position of vice president of marketing for Internet Dynamics, Inc. (purchased by RedCreek Networks) during 2000. From 1997 to 2000, Mr. Sarnikowski held various management positions with ADC Telecommunications.

Mr. Schott has been with the Company since 1981. Mr. Schott was promoted to Vice President, Multiport Products, in 1989. He assumed his current position in December 2000.

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Corporate Governance

The Board of Directors (the “Board”) is the ultimate decision-making body of the Company except with respect to those matters reserved for decision by the stockholders. The Board is responsible for selection of the executive management team, providing oversight responsibility and direction to management, and evaluating the performance of management on behalf of the stockholders. Responsibility for day-to-day management of operations is delegated to the executive management team.

The Board is composed of a majority of independent directors. Currently, five out of six directors are independent, as defined by the standards set by the SEC and the NASDAQ National Market^®. Greg Lang, the president and CEO, is the only director employed by the Company.

All directors who are members of chartered Board committees are independent directors. The Company’s chartered Board committees currently include audit, compensation, governance and nominating committees. All committees operate under charters approved by the Board. These charters are available on the Company’s website at www.idt.com. The Board of Directors appoints the members and chairs of the committees.

The Audit Committee oversees the integrity of the Company’s consolidated financial statements and assessment of internal controls; the Company’s compliance with legal and regulatory requirements; the independent registered public accounting firm’s qualifications and independence; and the performance of the Company’s internal audit function and independent registered public accounting firm. The Audit Committee nominates and retains the Company’s independent registered public accounting firm to examine the Company’s accounts, reviews the independence of the independent registered public accounting firm as a factor in making these determinations and pre-approves audit and non-audit services performed by the independent registered public accounting firm. The Audit Committee meets at least once per quarter, and regularly meets with the independent registered public accounting firm without management present, and provides them with access to the Audit Committee at any time. All members of the Audit Committee are financially literate, as such qualification is interpreted by the Company’s Board in its business judgment. In addition, all members of the Audit Committee are financial experts as defined by the rules of the SEC and the NASDAQ National Market.

The Compensation Committee meets at least annually to discuss the design and evaluation of the compensation plans, policies and programs of the Company, especially those regarding executive compensation, determining the compensation of the chief executive officer and other executive officers of the Company and overseeing the production of an annual report on executive compensation for inclusion in the Company’s proxy materials in accordance with applicable rules and regulations. The Compensation Committee shall work with management to ensure that the Company’s compensation programs are designed to encourage high performance, promote accountability and align employee interests with the interests of the Company’s stockholders. The Compensation Committee reviews and approves incentive, bonus or similar plans of the Company based upon the recommendations submitted by the Chairman and Chief Executive Officer. The Compensation Committee reviews and approves the Company’s stock option and other stock incentive award programs.

The Governance Committee meets at least annually and is responsible for developing and making recommendations to the Board about the adoption or amendment of corporate governance guidelines and principles applicable to the Company. In addition, the Governance Committee reviews and makes recommendations to the Board regarding the Charters of the Board committees and the membership composition of the Board committees.

The Nominating Committee meets at least annually and provides assistance to the Board in the identification of individuals qualified to become Board members and recommends to the Board the selection of director nominees for the next annual meeting of the stockholders or recommends to the Board candidates to fill vacancies on the Board. The Nominating Committee will also review periodically with the Chairman of the Board and the Chief Executive Officer the succession plans relating to positions held by executive officers, and make recommendations to the Board with respect to the selection of individuals to serve in those positions.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

(a)    Our Common Stock is traded on the NASDAQ National Market under the symbol IDTI. The following table shows the high and low closing sales prices for our Common Stock as reported by the NASDAQ National Market for the fiscal periods indicated:

	High		Low
Fiscal 2005
First Quarter	$	16.74	$	12.15
Second Quarter		13.84		9.35
Third Quarter		12.93		9.23
Fourth Quarter		13.16		9.90
Fiscal 2004
First Quarter	$	12.25	$	7.94
Second Quarter		15.73		10.37
Third Quarter		19.27		12.42
Fourth Quarter		20.96		13.35

As of May 29, 2005, there were approximately 815 record holders of our Common Stock. A substantial majority of our shares are held by brokers and other institutions on behalf of individual stockholders. We have never paid cash dividends on our Common Stock. We currently plan to retain any future earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.

(b)    None.

(c)    None.

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below are qualified in their entirety by reference to, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes thereto included in this Annual Report on Form 10-K.

Statements of Operations Data

(in thousands, except per share data)	Fiscal Year Ended
	April 3, 2005 (1)			March 28, 2004 (2)		March 30, 2003 (3)			March 31, 2002 (4)			April 1, 2001
Revenues	$	390,640		$	345,443	$	343,878		$	379,817		$	991,789
Restructuring, asset impairment and other		1,380			—		115,370			24,742			—
Research and development expenses		103,729			98,535		129,108			129,146			128,749
Gains (losses) on equity investments, net		(12,831	)		3,151		(6,557	)		36,160			86,994
Net income (loss)		13,333			6,396		(277,896	)		(46,192	)		415,203
Basic net income (loss) per share	$	0.13		$	0.06	$	(2.68	)	$	(0.44	)	$	3.99
Diluted net income (loss) per share		0.12			0.06		(2.68	)		(0.44	)		3.76
Shares used in computing net income (loss) per share:
Basic		105,825			104,607		103,520			104,560			104,042
Diluted		108,204			108,526		103,520			104,560			110,287

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Balance Sheets and Other Data

(in thousands, except employee data)	April 3, 2005		March 28, 2004		March 30, 2003		March 31, 2002		April 1, 2001
Cash, cash equivalents and investments (5)	$	581,233	$	608,214	$	552,722	$	668,904	$	821,092
Total assets		902,140		905,553		881,312		1,225,819		1,460,912
Other long-term obligations		15,599		15,651		23,775		51,221		66,529
Stockholders’ equity	$	787,116	$	784,224	$	758,692	$	1,054,709	$	1,139,897
Number of employees		2,955		3,150		3,090		3,690		4,970

(1) Includes restructuring charges of $6.9 million of which $3.2 million, $1.4 million, and $2.3 million were classified as cost of revenues, R&D and SG&A respectively. The Company also recorded a $0.7 million impairment of existing technology related to Newave. In addition, the Company recorded credits to asset impairment related to the sale of land and equipment from its Salinas facility of $2.5 million.

(2) Includes restructuring charges of $1.5 million of which $0.5 million and $1.0 million were classified as R&D and SG&A respectively.

(3) Includes restructuring and asset impairment charges of $127.2 million of which $115.4 million, $9.4 million and $2.4 million were classified as cost of revenues, R&D and SG&A respectively. The Company also recorded a valuation allowance against 100% of its net deferred tax assets in 2003.

(4) Includes restructuring and asset impairment charges of $26.0 million of which $24.7 million, $0.6 million and $0.7 million were classified as cost of revenues, R&D and SG&A respectively.

(5) Cash, cash equivalents and investments exclude equity investments.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We recommend that this discussion and analysis be read in conjunction with our consolidated financial statements and the notes thereto, which are included elsewhere in this Annual Report on Form 10-K.

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve a number of risks and uncertainties. These include, but are not limited to: operating results; new product introductions and sales; competitive conditions; capital expenditures and resources; manufacturing capacity utilization; customer demand and inventory levels; intellectual property issues; and the risk factors set forth in the section “Factors Affecting Future Results.” As a result of these risks and uncertainties, actual results could differ from those anticipated in the forward-looking statements. Unless otherwise required by law, we undertake no obligation to publicly revise these statements for future events or new information after the date of this Annual Report on Form 10-K.

Forward-looking statements, which are generally identified by words such as “anticipates,” “expects,” “plans,” and similar terms, include statements related to revenues and gross profit, restructuring and asset impairment charges, research and development activities, selling, general, and administrative expenses, intangible expenses, interest income and other, taxes, capital spending and financing transactions, as well as statements regarding successful development and market acceptance of new products, industry and overall economic conditions and demand, and capacity utilization.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates.

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We believe that the following accounting policies are “critical” as defined by the Securities and Exchange Commission, in that they are both highly important to the portrayal of our financial condition and results, and require significant management judgment and assumptions about matters that are inherently uncertain. We also have other important policies, including those related to revenue recognition and concentration of credit risk. However, these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are significant, difficult or subjective. These policies are discussed in the Notes to the Consolidated Financial Statements.

Income Taxes.    We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require us to evaluate the realizability of our net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, we consider various tax planning strategies, forecasts of future taxable income and our most recent operating results in assessing the need for a valuation allowance. In the consideration of the realizability of net deferred tax assets, recent results must be given substantially more weight than any projections of future profitability. In the fourth quarter of fiscal 2003, we determined that, under applicable accounting principles, it was more likely than not that we would not realize any value for any of our net deferred tax assets. Accordingly, we established a valuation allowance equal to 100% of the amount of these assets. Our assumptions regarding the ultimate realization of these assets remained unchanged in fiscal 2005 and 2004 and accordingly, we continue to maintain a valuation allowance equal to 100% of the amount of these assets.

In addition, we record liabilities related to income tax contingencies. Determining these liabilities requires us to make significant estimates and judgments of whether, and the extent to which, additional taxes will be due based on potential tax audit issues in the U.S. and other tax jurisdictions throughout the world. Our estimates are based on the outcomes of previous audits as well as the precedents set in tax cases which include similar tax positions to those taken by the Company. If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we will adjust the liability and affect a related change in our tax provision during the period in which we make such determination.

Inventories.    Inventories are recorded at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value. We record reserves for obsolete and excess inventory based on our forecasts of demand over specific future time horizons. We also record reserves to value our inventory at the lower of cost or market which rely on forecasts of average selling prices (ASPs) in future periods. Actual market conditions, demand, and pricing levels in the volatile semiconductor markets that we serve may vary from our forecasts, potentially impacting our inventory reserves and resulting in material effects on our gross margin.

Valuation of Long-Lived Assets and Goodwill.    We own and operate our own manufacturing facilities, as described in Part I of this Annual Report, and have also acquired certain businesses and product portfolios in recent years. As a result we have significant property, plant and equipment, goodwill and other intangible assets. We evaluate these items for impairment on an annual basis, or sooner, if events or changes in circumstances indicate that carrying values may not be recoverable. Triggering events for impairment reviews may include adverse industry or economic trends, restructuring actions, lowered projections of profitability, or a sustained decline in our market capitalization. Evaluations of possible impairment and, if applicable, adjustments to carrying values, require us to estimate, among other factors, future cash flows, useful lives and fair market values of our reporting units and assets. Actual results may vary from our expectations. We recorded asset impairment charges of $0.7 million, $0 and $121.4 million in fiscal 2005, 2004 and 2003, respectively.

In connection with our adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” (FAS 142), we completed a transitional goodwill impairment review as of the beginning of fiscal 2003 and annual impairment reviews during the fourth quarters of fiscal 2005, 2004, and 2003. These reviews found no impairment. Under our accounting policy we will continue to perform an annual review in the fourth quarter of each future fiscal

15

year, or more often if indicators of impairment exist. Our annual reviews consider estimates of the fair value of our reporting units and may include analyses of projected discounted cash flows using our estimates of future revenues and expenses over a multi-year horizon. As of April 3, 2005, our assets included $55.5 million in goodwill related to the acquisitions of ZettaCom, Newave and Solidum.

Overview

Fiscal 2005 represented our second consecutive year in which we recorded growth in revenues, operating income, and net income. These improvements are primarily due to a recovery in the economy, the market segments we serve, demand for our products including higher sales for relatively new products such as our network search engines, and our focus on managing costs and expenses. Quarterly revenues were reasonably consistent over the course of the year, with no quarter’s result more than a few percentage points above or below the four-quarter average.

Late in the fiscal year, we took further measures to reduce costs and improve profitability. In the fourth fiscal quarter, we announced the consolidation of our Northern California operations from multiple locations into a single new site in San Jose, and the centralization and streamlining of a number of manufacturing support, sales, IT, and R&D positions. Shortly after the end of the fiscal year, we announced that we would also be closing our product assembly and test operations in Manila, the Philippines, and transferring the functions that had been performed there to either our similar facility in Penang, Malaysia, or to outside subcontractors. We expect to lower our run-rate expenses by approximately $5-6 million per quarter as the cumulative result of the above actions, once they are fully implemented late in fiscal 2006.

In part, we expect these cost reduction efforts to fund continued high levels of investment in key new product areas such as network search engines, serial switching products, and timing solutions for the communications and computing markets. At the same time, once these actions are implemented, they should position the company to achieve significant operating profits even at current revenue levels.

Results of Operations

Revenues (fiscal 2005 compared to fiscal 2004).    Our revenues for fiscal 2005 were $390.6 million, an increase of $45.2 million or 13.1% compared to the previous year. Overall average selling prices (ASPs) per unit for our products increased by 15.8% during fiscal 2005 as a result of favorable changes in the mix of product sold and better pricing for SRAM products during a portion of the year. This increase was partially offset by a decrease in overall units sold from 215.1 million units in fiscal 2004 to 210.3 million units in fiscal 2005 which we believe is attributable to efforts by our customers to realign their inventory levels after the pace of market recovery last year was more modest than many originally expected.

Revenues for our Communications and Timing segment (which includes NSEs, switching solutions, FIFOs, multiports, and flow control management devices; communications applications-specific standard products (ASSPs); and high-performance logic and timing products) increased by $36.4 million or 12.4%. Revenues for our SRAMs segment increased by $8.8 million or 16.6%. Units sold increased in our Communications and Timing segment by 1.9 million units while units sold in our SRAM segment decreased by 6.7 million units. As a result of favorable shifts in product mix, ASPs increased for the year in both of our segments.

During fiscal 2005, we experienced growth in each of the regions throughout the world with the Americas leading the increase, up 24.9%. Revenues in Europe, Asia Pacific (APAC), and Japan also increased by 15.8%, 7.5%, and 2.6%, respectively, in fiscal 2005 as compared to one year ago. As a percentage of our worldwide revenues, the APAC region represented the largest percentage at 37.2% due primarily to the concentration of EMSs in the region which assemble our end customer platforms.

Revenues (recent trends and outlook).    After very favorable pricing trends early in fiscal 2005, ASP trends returned to the typical of quarterly price declines for our industry in the second half of the year. However, based

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on our belief that customers’ inventory adjustments are mostly behind us, and our forecasts for new NSE, DIMM, and timing products, we expect unit growth to more than offset pricing pressures and result in moderate revenue growth during fiscal 2006.

Revenues (fiscal 2004 compared to fiscal 2003).    Our revenues for fiscal 2004 were $345.4 million, an increase of $1.6 million or 0.5% compared to the previous year. Overall units sold were up significantly as a result of recovery across the markets we serve from 185.4 million units in fiscal 2003 to 215.1 million units in fiscal 2004, but this increase in unit volumes sold was largely offset by lower ASPs per unit for our products which were down by 13.2% during fiscal 2004.

Revenues for our Communications and Timing segment increased by $0.2 million or 0%, while revenues for our SRAM segment increased by $1.4 million or 2.7%. Units sold were up significantly in both segments as we exited the year with increasing demand for our products. Despite seeing prices begin to stabilize late in the year, ASPs were down significantly for the year.

Throughout fiscal 2004, we continued to see the shift of our revenues to APAC primarily related to growth in our consignment programs with EMSs in the region as our end customer platforms migrated there to be assembled in lower cost environments. Our revenues in APAC increased significantly in fiscal 2004 as compared to fiscal 2003, rising 31%. Revenues in Japan also increased in fiscal 2004 as compared to one year ago by approximately 15%. The Americas region was most adversely affected by the shift, declining 22% during the year. In Europe, revenues were also lower by approximately 14%.

Gross profit (fiscal 2005 compared to fiscal 2004).    Gross profit for fiscal 2005 was $195.5 million, an increase of $34.7 million compared to the $160.8 million recorded in fiscal 2004. Our gross margin for fiscal 2005 was 50.0% compared to 46.6% for fiscal 2004. The increase in gross profit in fiscal 2005 was primarily attributable to the significant increase in revenues discussed above, improved manufacturing utilization, a higher proportion of our wafers at 0.18 micron and finer geometries, improved SRAM pricing during part of the year, and lower pricing-related inventory reserve requirements. In addition, during the fourth quarter of fiscal 2005, we received a sales tax refund from the state of California of $5.6 million related to the Manufacturers Investment Credit. As this amount was originally recorded in connection with capital purchases in manufacturing and R&D, we allocated the credit back to cost of revenues and R&D expense based on a ratio consistent with the purchases in the years to which the credit applied. This contributed a benefit of $4.2 million to gross margin. Depreciation and technology amortization expenses were higher by $4.8 million and $3.6 million, respectively, due to capital expenditures during the current and prior fiscal years and the acquisition of ZettaCom. Allocations of manufacturing spending to R&D were higher by approximately $1.0 million. We estimate that gross profit during fiscal 2005 was lower by $0.7 million as a result of additional excess or obsolete reserves versus a $2.5 million benefit in fiscal 2004 related to the sale of product previously reserved as excess.

Gross profit (fiscal 2004 compared to fiscal 2003).    Gross profit for fiscal 2004 was $160.8 million, an increase of $159.0 million compared to the $1.8 million recorded in fiscal 2003. Our gross margin for fiscal 2004 was 46.6% compared to 0.5% for fiscal 2003. The substantial increase in gross profit was primarily attributable to restructuring and impairment charges of $115.4 million in fiscal 2003 that did not recur in fiscal 2004. In addition, gross profit benefited from significantly better manufacturing utilization in fiscal 2004, primarily related to purposefully reducing our inventory levels throughout fiscal 2003, from $78.2 million at the beginning of the fiscal year to $41.2 million at the end of the fiscal year. Depreciation and technology amortization expenses were also lower by $19.4 million and $2.0 million, respectively, due to the asset impairment charges taken in the fourth quarter of fiscal 2003. Finally, retention bonuses of $3.6 million related to the closure of our Salinas manufacturing facility in first quarter of fiscal 2003 did not recur in fiscal 2004. These benefits were partially offset by lower allocations of manufacturing spending to R&D of approximately $10.0 million. In addition, we estimate that gross profit in fiscal 2004 benefited by $2.5 million during the year as a result of sales of inventory previously reserved as excess or obsolete, slightly less than the $3.0 million benefit in fiscal 2003.

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Restructuring, asset impairment and other.    In fiscal 2005, as part of an effort to increase our profitability, we implemented reductions in force which impacted many of our operations including our wafer fabrication facility in Oregon. We recorded restructuring charges of $6.9 million, which primarily consisted of severance and termination benefits related to our reductions in force. Of the $6.9 million charge, $3.2 million was recorded as cost of goods sold, $1.4 million as R&D, and $2.3 million as SG&A. As part of the announced plan, a portion of the employees will remain with the Company over a transition period. In connection with this action, we recorded retention costs of $0.9 million with $0.4 million recorded as cost of goods sold, $0.2 million as R&D, and $0.3 million as SG&A. Over the next 12 months, we anticipate recording an additional $1.5 million of retention costs.

In addition, during fiscal 2005, we sold land and equipment originating from our Salinas wafer fabrication facility, which had been previously impaired in fiscal 2002. As the proceeds from these sales exceeded the impaired value of the assets, we recorded gains of $2.5 million which are included in restructuring, asset impairment, and other.

Anticipated annual savings for fiscal 2006 as a result of restructuring actions taken in fiscal 2005 are as follows:

(in millions)	COGS		R&D		SG&A		TOTAL
Compensation related	$	6.0	$	3.2	$	5.2	$	14.4
Facilities		0.4		1.6		1.4		3.4
Total	$	6.4	$	4.8	$	6.6	$	17.8

The above does not include the offsetting costs of retention and severance for those employees who were affected by the reduction in force or the anticipated savings of the closure of our Manila plant announced shortly after the end of the fiscal year.

During fiscal 2003, after three consecutive quarters in which revenues either improved or remained essentially unchanged from the immediately preceding period, revenue declined measurably in the third quarter of fiscal 2003. During the course of the fourth quarter of fiscal 2003, taking this drop off into consideration as well as the persistent weak global and industry economic conditions, we revised our near and medium term revenue expectations downward significantly. We also reviewed corresponding key assumptions in our overall strategic business and manufacturing capacity plans. These material changes in our outlook and plans, which we were first able to quantify in our fiscal fourth quarter budgeting process, triggered an impairment review of our long-lived assets.

Our impairment review indicated that estimated future undiscounted cash flows would not be sufficient to recover the carrying values of plant and equipment related to both our wafer fabrication facility in Hillsboro and our offshore test and assembly plants. As a result, we recorded a charge of $107.9 million to write down these assets, which we continue to hold and use, to their estimated fair values. Of the $107.9 million charge, $99.6 million was recorded as cost of revenues and the remainder as R&D. Management is responsible for the estimated fair values utilized to record the asset impairment charges. Management considered a number of factors to estimate the fair values, including valuations and appraisals, when making these determinations.

Methods used in estimating the fair market values of the facilities included considering results from independent appraisals which incorporated standard real estate appraisal techniques including the cost approach, the income approach, and the comparable sales approach. For specific equipment, we estimated fair market value primarily using recent sales data available for comparable equipment. We then compared the carrying value to the estimated fair value of the assets and recorded an impairment charge for the difference.

We also determined in the fourth quarter of fiscal 2003 that certain intangible assets related to our acquisition of Newave, specifically existing technology, had also become impaired, and we recorded a $13.5 million charge to cost of sales to adjust the existing technology asset to its estimated fair market value. Our

18

revenue estimates at the time of the acquisition were made when the market outlook was considerably more favorable. In performing the overall impairment analysis for goodwill, we followed the guidance under paragraph 29 of SFAS 142, which requires long-lived assets, other than goodwill, be tested for impairment first and that the carrying amount of these assets be adjusted for impairment before testing goodwill. Accordingly, only after adjusting the carrying value of the above long-lived assets, due to their impairment, did we then test the goodwill noting no impairment.

In fiscal 2003, we also took actions, including reductions in force and the closure of certain design and sales facilities, to better align our business model with then current industry conditions and our revised revenue expectations. During fiscal 2003, we recorded restructuring charges of $5.8 million, which consisted primarily of severance and related termination benefits related to reductions in force totaling approximately 210 positions. The charges were incurred in the first, third and fourth quarters of fiscal 2003 and were recorded as cost of revenues ($2.3 million) and operating expenses ($3.5 million).

At the time the impairment and restructuring charges were taken in Fiscal 2003, anticipated annual savings were as follows:

(in millions)	COGS		R&D		SG&A		TOTAL
Depreciation and amortization	$	19.4	$	6.8	$	—	$	26.2
Compensation related		4.7		5.4		6.3		16.4
Facilities and other		3.4		4.3		5.7		13.4
Total	$	27.5	$	16.5	$	12.0	$	56.0

Our actual results through the end of fiscal 2005 were not significantly different from our expectations; however, additional capital equipment purchases and selective additions to headcount had a partial offsetting effect.

In addition to expenses specifically identified as asset impairment and restructuring charges, we incurred other Salinas-related closure expenses in fiscal 2003, mainly for retention bonuses. These expenses totaled $5.0 million in fiscal 2003. We phased out production at the Salinas wafer fabrication facility and completed the transfer of production to our Hillsboro wafer fabrication facility in the first quarter of fiscal 2003, and we first realized the full benefit in gross profit of this consolidation in the second quarter of fiscal 2003.

Research and development.    R&D expenses increased by $5.2 million or 5.3% in fiscal 2005 to $103.7 million. The increase was primarily attributable to an increase in labor related spending of $7.1 million, primarily due to increased headcount and retention costs incurred in connection with the ZettaCom acquisition in fiscal 2005 and performance-related personnel costs in connection with the improved financial results. Allocations of manufacturing spending to development activities increased by $1.0 million, reflecting a higher proportional usage of manufacturing infrastructure by the R&D departments. Partially offsetting these amounts was a sales tax refund allocation of $1.4 million related to equipment purchases in previous fiscal years explained above in the gross margin discussion. In addition, deferred compensation expense in connection with our acquisition of Newave was lower by $0.9 million as a result of the completion of the vesting provisions of arrangements with certain key Newave employees. Finally, product development, photomask and related expenses also decreased during the year.

R&D expenses declined by $30.6 million or 23.7% in fiscal 2004 to $98.5 million. The largest driver of the decrease was attributable to the asset impairments and restructuring activities, including the closure of our Dallas design center, which we estimated represented a $16.5 million savings for the year. In addition, lower allocations of manufacturing costs to R&D of approximately $10 million contributed significantly to the change as manufacturing capacity was proportionally more focused on production activities rather than R&D activities. Finally, deferred compensation expense in connection with our acquisition of Newave was also lower by $2.1 million as a result of the completion of the vesting provisions of arrangements with certain key Newave employees.

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In fiscal 2006, our new product development efforts are expected to continue to focus in areas like: networking and switching products such as our network search engines (incorporating content-addressable memory or CAM technology); flow control management devices, such as SPI Exchange devices and multi-ported specialty memory products; and timing and clock products for communications and computing applications. In addition, we expect significant product development efforts in our newly formed Serial Switching Division, including switch fabric and traffic management technologies.

As a result of the increased development efforts described above along with projected increases in certain performance and other related personnel costs, we expect that R&D spending in fiscal 2006 will increase slightly in comparison to fiscal 2005.

Selling, general and administrative.    SG&A expenses increased by $3.6 million or 5.0% in fiscal 2005 to $76.0 million. The increase is primarily attributable to higher performance-related personnel costs in fiscal 2005; increased spending on outside services, such as consulting and auditing services in connection with Sarbanes Oxley section 404 and increased sales-related expenses, including rep commissions. These amounts were partially offset by lower equipment depreciation costs and bad debt reserve requirements.

SG&A expenses declined by $10.7 million or 12.9% in fiscal 2004 to $72.4 million. The decrease was primarily attributable to the restructuring and other cost reduction actions executed during fiscal 2003. These actions resulted in a reduction in labor and other employee-related expenses as a result of multiple reductions in force, which we estimate represented $6.3 million in savings. In addition, expenses related to outside services were lower by approximately $1.5 million in fiscal 2004 as a result of cost control measures.

We currently expect the costs of infrastructure for our SG&A expenses to decrease in FY06; however, offsetting this would be variable, revenue-related expenses such as sales-related, and performance related personnel expenses.

Acquired in-process research and development.    During fiscal 2005, in conjunction with our acquisition of ZettaCom, we recorded a $1.7 million charge for acquired in-process research and development (IPR&D). In addition we recorded a $0.1 million IPR&D charge related to follow-on payments during fiscal 2005 related to our acquisition of certain technologies for use in high-speed packet processing from IBM. During fiscal 2004, in connection with the IBM transaction, we recorded a $0.3 million charge for IPR&D. During fiscal 2003, in connection with our acquisition of Solidum, we recorded a $2.7 million charge for acquired IPR&D. For each of these transactions, the allocation of the purchase price to IPR&D was determined by identifying technologies that had not attained technological feasibility and that did not have future alternative uses.

Details of significant IPR&D charges are as follows:

In connection with the ZettaCom acquisition, we recorded a $1.7 million charge to IPR&D. This amount was determined by identifying a project under development which was not yet proven to be technically feasible and did not have alternative future uses. Estimated future expenses were deducted and economic rents charged for the use of other assets. Based on this analysis, a present value calculation of estimated after-tax cash flows attributable to the projects was computed using a discount rate of 31%. Present values were adjusted by factors representing the percentage of completion for the project, which was estimated at 73%. The estimated cost to complete the research project at the date of acquisition was $3.7 million. As of April 3, 2005, of the four parts which make up the project under development, one had been completed. The remaining parts are estimated to be completed by December 2005.

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Gains and losses on equity investments, net. Activity for the periods presented is summarized as follows:

(in thousands)	Fiscal 2005			Fiscal 2004		Fiscal 2003
Other than temporary impairment on Netlogic shares	$	(12,831	)	$	—	$	—
Realized gains on sales of PMC shares		—			3,151		—
Other than temporary impairment charge on PMC shares		—			—		(6,557	)
Gains (losses) on equity investments, net	$	(12,831	)	$	3,151	$	(6,557	)

In the first quarter of fiscal 2005, we recorded an impairment charge of $12.8 million related to our investment in NetLogic Microsystems. On July 8, 2004, NetLogic completed an initial public offering at an initial offering price of $12 per share. The IPO pricing, less related commissions, implied the investment was worth less than its carrying value. Based in part on the relative magnitude of the decline in value, we concluded that there was an other-than-temporary impairment on the investment at June 27, 2004 and accordingly, recorded an impairment charge to adjust the carrying value down to its estimated net realizable value. During the second quarter of fiscal 2005, we sold 100% of our investment at the previously written down value.

During fiscal 2004, we sold our remaining shares of PMC Sierra (PMC) resulting in a net gain of $3.2 million. During fiscal 2003, we recorded a $6.6 million pretax other-than-temporary impairment charge also related to this investment. At that time, we determined that an other than temporary decline had occurred because the market value of the shares had been significantly below our carrying value for a consecutive six-month period and we had no evidence that the reduction in value would be recoverable within a reasonable period of time.

Interest income and other, net.    Changes in interest income and other, net are summarized as follows:

(in thousands)	Fiscal 2005		Fiscal 2004		Fiscal 2003
Interest income	$	12,142	$	12,520	$	18,233
Other income, net		221		1,178		807
Interest income and other, net	$	12,363	$	13,698	$	19,040

The $0.4 million decrease in interest income in fiscal 2005 is primarily attributable to lower average cash and investment balances as a result of our acquisition activity and the purchase of our new campus in San Jose, CA., offset by an increase in interest rates during the latter half of the fiscal year. The $5.7 million decrease in interest income in fiscal 2004 compared to fiscal 2003 is primarily attributable to lower average interest rates on our investment portfolio, as the proceeds of maturing investments were reinvested in a lower interest rate environment.

The $1.0 million decrease in other income, net in fiscal 2005 is primarily attributable to lower gains recognized on the sale of short-term investments. Other income, net, increased by $0.4 million in fiscal 2004 compared to fiscal 2003 primarily as a result of higher gains on sales of investments throughout fiscal 2004.

Provision/Benefit for income taxes.    We recorded a 100% valuation allowance in the fourth quarter of fiscal 2003 against all our net deferred tax assets. We have not recorded a tax benefit for tax losses and tax credits generated during fiscal 2005 and 2004, as we maintain the position that it is more likely than not that we will not be able to utilize our net deferred tax assets in the foreseeable future. Even though we generated taxable income for fiscal 2005 and 2004, and we currently expect to be profitable for fiscal 2006, we are required to place substantially more weight on our historical results over a longer period than the current or prior fiscal years. As such, we have determined that a 100% valuation allowance is still appropriate at the end of fiscal 2005.

During the fourth quarter of fiscal 2005 we signed an Advanced Pricing Agreement (APA) with the Internal Revenue Service (IRS) settling an issue related to transfer pricing. As a result, at some point in the future, we will be required to make cash payments attributable to withholding taxes in the Philippines of approximately $2.4 million. Upon signing the APA we reduced our related tax reserve by a net $7.1 million. Also, in connection with

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the announced closure of our Philippine manufacturing facility, in the fourth quarter of fiscal 2005 we recorded a $4.7 million tax provision resulting from the potential repatriation of related earnings to the United States.

The tax benefit recorded for fiscal 2004 includes $3.1 million for tax refunds we received related to previous tax years. The benefit of these refunds was partially offset by tax expense related to income generated in certain foreign tax jurisdictions.

Our tax provision of $76.8 million for fiscal 2003 consists primarily of a 100% valuation allowance recorded in the fourth quarter of fiscal 2003 against our net deferred tax assets. As a result of establishing this valuation allowance, we recorded no tax benefit on pretax losses and tax credits generated during fiscal 2003.

Liquidity and Capital Resources

Our cash and marketable securities were $581.2 million at April 3, 2005, a decrease of $27 million compared to March 28, 2004. Long- and short-term debt, excluding operating leases, were $0 and $5.6 million as of April 3, 2005 and March 28, 2004, respectively.

Net cash provided by operating activities was $80.9 million for fiscal 2005, compared to $78.7 million for fiscal 2004. During fiscal 2005, we recorded net income of $13.3 million as compared to net income of $6.4 million in the prior year. Non-cash adjustments were significantly higher in fiscal 2005, including those related to:

• An other-than-temporary equity investment impairment charge of $12.8 million;

• Acquisition-related costs, which were higher by $5.7 million as a result of higher in-process R&D charges (by $1.6 million), higher acquisition related intangible amortization (by $3.4 million) as a result of the ZettaCom acquisition, and the existing technology impairment in relation to Newave; and

• Depreciation, which was higher by $2.6 million as a result of capital expenditures over the past year.

Net sources of cash related to working capital related items decreased by $30.5 million in fiscal 2005 as compared to fiscal 2004. Working capital items consuming relatively more cash during fiscal 2005 included:

• An increase in inventories of $4.0 million as compared to a reduction of $8.4 million in the year-ago period. We grew inventory levels early in fiscal 2005 in anticipation of increased demand which did not materialize as compared to the previous year when we were purposely lowering our inventory levels;

• The net effect of prepayments and other assets of $18.4 million, primarily as a result of $10.6 million of proceeds from the sales of building and equipment from our closed Salinas facility, and the receipt of approximately $5.5 million related to a distributor financing arrangement, both occurring during 2004 and not recurring in 2005;

• A decrease in deferred income on shipments to distributors of $2.2 million as compared to an increase of $3.5 million in the year-ago period as distributors managed inventory more cautiously in 2005 compared to the same period in 2004;

• A decrease in accounts payable during fiscal 2005 compared to an increase in fiscal 2004, using $4.6 million more net cash; and

• A decrease in income tax payable of $7.5 million in fiscal 2005 as compared to an increase of $1.0 million in the year-ago period. We decreased tax reserves in connection with a partial audit settlement with the IRS audit in fiscal 2005.

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The above factors were partially offset by other working capital items that provided relatively more cash in fiscal 2005, including:

• A slight decrease in accounts receivable during fiscal 2005 of $0.3 million compared to an increase of $13.0 million in fiscal 2004 combined for a change of approximately $13.3 million; and

• An increase in accrued compensation and related expenses of $3.4 million as compared to an increase of $0.5 million in the year-ago period. The increase relates primarily to the timing of payroll, with two weeks accrued at the end of fiscal 2005 versus one week at the end of fiscal 2004, along with additional costs in connection with the improved financial results.

Net cash provided by operating activities in fiscal 2004 was $78.7 million, compared to $11.7 million in fiscal 2003. The majority of the increase relates to cash provided by net income adjusted for non-cash items. In addition, working capital sources of cash included decreases in inventories, net and other assets, as well as an increase in deferred income on shipments to distributors. Other assets decreased as a result of $10.6 million in net proceeds from the sale of building and equipment, classified as assets held for sale, related to our Salinas facility and $5.5 million related to a financing repayment from a distributor during the year. Inventories decreased as a result of the management of our inventory levels during the year and stronger demand for our products. Deferred income on shipments to distributors increased by $3.5 million over this period, as our distributors began to increase their inventory levels to meet anticipated customer demand. Working capital uses of cash included an increase in accounts receivable and a decrease in other accrued liabilities. Accounts receivable increased during the year as a result of higher revenues, the effect of distributors building inventory where accounts receivable increases as channel inventory grows and the continued shift in our business to EMSs, particularly in APAC, who have negotiated extended payment terms. The decrease in other accrued liabilities primarily relates to deferred revenue which was recognized during the year in connection with license agreements.

Our investing activities used $88.1 million of cash in fiscal 2005 as compared to a use of cash of $24.6 million in fiscal 2004. In fiscal 2005, our acquisition related expenditures were significantly higher as we paid $34.4 million, net of cash acquired, in connection with the acquisition of ZettaCom. Other than the ZettaCom transaction, various technology acquisitions consumed $5.0 million in cash in fiscal 2005, down from $8.1 million in 2004. In fiscal 2005, our sales of short-term investments, net of purchases, were $7.8 million higher than in the comparable period of fiscal 2004. Finally, capital expenditures in fiscal 2005 were higher by $40.1 million as we purchased a new corporate campus and, earlier in the year, new equipment primarily to increase our manufacturing capacity early in fiscal 2005.

We used $24.6 million of cash in fiscal 2004 as compared to a use of $96.0 million for investing activities in fiscal 2003. In fiscal 2004, our proceeds from sales of short-term investments, net of purchases, were $39.5 million lower than fiscal 2003 while purchases of plant and equipment decreased by $14.8 million as we tightened our capital spending budget entering the year in an effort to control costs. In addition, fiscal 2003 contained two significant expenditures of cash which did not recur in fiscal 2004 related to terminating the synthetic lease related to our Hillsboro, Oregon, manufacturing site by purchasing approximately $64.4 million in additional fixed assets and our investment of $30.0 million in an interest bearing, convertible financial instrument which was subsequently converted into preferred shares of a privately-held technology company.

Our financing activities in fiscal 2005 used $11.2 million in cash as compared to cash provided of $14.7 million in fiscal 2004. The main source of cash inflows in fiscal 2005 related to $18.5 million attributable to issuances of common stock in connection with the exercise of stock options and the purchase of shares under the employee stock purchase plan. However, we used $24.2 million to repurchase common stock and $5.6 million for lease and debt payments in fiscal 2005 as compared to only $4.2 million for lease and debt payments and no common stock repurchases in fiscal 2004.

Our financing activities in fiscal 2004 provided $14.7 million in cash as compared to cash used of $33.6 million in fiscal 2003. The main source of cash inflows in fiscal 2004 related to $18.9 million attributable to

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issuances of common stock in connection with the exercise of stock options and the purchase of shares under the employee stock purchase plan. In addition, there were no repurchases of common stock during fiscal 2004 as compared to repurchases of $40.4 million in fiscal 2003.

We anticipate capital expenditures of approximately $32 million during fiscal 2006, to be financed through cash generated from operations and existing cash and investments. This estimate includes costs for construction related to our new campus in San Jose, CA.

The following table summarizes our contractual arrangements at April 3, 2005, and the expected timing and effects of these commitments on our liquidity and cash flow in future periods:

	Payments Due by Period
(in thousands)	Total		Less Than 1 Year		2-3 Years		4-5 Years		After 5 Years
Operating leases	$	18,250	$	6,437	$	7,973	$	2,462	$	1,378

Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent binding contractual obligations, as purchase orders often represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We generally do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation prior to services being performed without significant penalty.

We believe that existing cash and investment balances, together with cash flows from operations, will be sufficient to meet our working capital and capital expenditure needs through fiscal 2006. We may choose to investigate other financing alternatives; however, we cannot be certain that additional financing will be available on satisfactory terms.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151 Inventory Costs (SFAS 151). This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overhead to costs of conversion be based upon the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory cost incurred in fiscal years beginning after June 15, 2005. As such, the Company is required to adopt these provisions at the beginning of fiscal 2007. The Company does not expect the adoption of SFAS 151 to have a material impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS 123R, Share-Based Payments (SFAS 123R). Generally, the requirements of SFAS 123R are similar to those of SFAS 123. However, SFAS 123R requires companies to now recognize all share-based payments to employees, including grants of employee stock options, in their statements of operations based on the fair value of the payments. Pro forma disclosure will no longer be an alternative. We are required to adopt SFAS 123R beginning with the first quarter of our fiscal year 2007.

SFAS 123R permits public companies to adopt its requirements using one of two methods: (1) a “modified prospective” method under which compensation cost is recognized beginning with the effective date based on the requirements of SFAS 123R for all share-based payments granted after the effective date and based on the

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requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that are unvested on the effective date; or (2) a “modified retrospective” method which includes the requirements of the modified prospective method and also permits companies to restate either all prior periods presented or prior interim periods of the year of adoption using the amounts previously calculated for pro forma disclosure under SFAS 123. We have not yet determined which method we will select for our adoption of SFAS 123R.

As permitted by SFAS 123, we currently account for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options through our consolidated statements of operations but rather, disclose the effect in our consolidated financial statement footnotes. Accordingly, the adoption of SFAS 123R’s fair value method will have a significant impact on our reported results of operations. However, the impact of the adoption of SFAS 123R cannot be quantified at this time because it will depend on levels of share-based payments granted in the future. The Company has not yet completed its analysis of the impact of adopting SFAS 123R and is therefore currently unable to quantify the effect on its financial statements. However, the adoption of this new statement will have a significant impact on the results of operations and net income per share of the Company as the Company will be required to expense the fair value of all share-based payments.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” The American Jobs Creation Act introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to U.S. companies, provided certain criteria are met. FSP No. 109-2 provides accounting and disclosure guidance on the impact of the repatriation provision on a company’s income tax expense and deferred tax liability. The Company is currently studying the impact of the one-time favorable foreign dividend provision and intend to complete the analysis by January 1, 2006. Accordingly, the Company has not adjusted its income tax expense or deferred tax liability to reflect the tax impact of any repatriation of non-U.S. earnings it may make.

Factors Affecting Future Results

Our operating results can fluctuate dramatically.    We recorded net income of $13.3 million and $6.4 million in fiscal 2005 and 2004, respectively, after recording a loss of $277.9 million in fiscal 2003. Fluctuations in operating results can result from a wide variety of factors, including:

• the cyclicality of the semiconductor industry and industry-wide wafer processing capacity;

• changes in demand for our products and in the markets we serve;

• the success and timing of new product and process technology announcements and introductions from us or our competitors;

• potential loss of market share among a concentrated group of customers;

• competitive pricing pressures;

• changes in the demand for and mix of products sold;

• complex manufacturing and logistics operations;

• availability and costs of raw materials, and of foundry and other manufacturing services;

• costs associated with other events, such as intellectual property disputes, or other litigation; and

• political and economic conditions in various geographic areas.

In addition, many of these factors also impact the recoverability of the carrying value of certain manufacturing, tax, goodwill, and other tangible and intangible assets. As business conditions change, future write-downs or abandonment of these assets could occur. For example, in fiscal 2003, we recorded impairment charges totaling $197.2 million for certain manufacturing, research and development, intangible and tax assets.

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Further, we may be unable to compete successfully in the future against existing or potential competitors, and our operating results could be harmed by increased competition. Our operating results are also impacted by changes in overall economic conditions, both domestically and abroad. Should economic conditions deteriorate, domestically or overseas, our sales and business results could be harmed.

The cyclicality of the semiconductor industry exacerbates the volatility of our operating results.    The semiconductor industry is highly cyclical. Substantial changes in demand for our products have occurred rapidly in the past. In addition, market conditions characterized by excess supply relative to demand and resulting pricing declines have also occurred in the past. Significant shifts in demand for our products and pricing declines resulting from excess supply may occur in the future. Large and rapid swings in demand and pricing for our products can result in significantly lower revenues and underutilization of our fixed cost infrastructure, both of which would cause material fluctuations in our gross margins and our operating results.

Demand for our products depends primarily on demand in the communications markets.    The majority of our products are incorporated into customers’ systems in enterprise/carrier class network, wireless infrastructure and access network applications. A smaller percentage of our products also serve in customers’ computer storage, computer-related, and other applications. Customer applications for our products have historically been characterized by rapid technological change and significant fluctuations in demand. Demand for most of our products, and therefore potential increases in revenue, depends upon growth in the communications market, particularly in the data networking and wireless telecommunications infrastructure markets and, to a lesser extent, the computer-related markets. Any slowdown in these communications or computer-related markets could materially adversely affect our operating results, as most recently evidenced by conditions in fiscal 2003.

Our results are dependent on the success of new products.    New products and wafer processing technology will continue to require significant R&D expenditures. If we are unable to develop, produce and successfully market new products in a timely manner, and to sell them at gross margins comparable to or better than our current products, our future results of operations could be adversely impacted. In addition, our future revenue growth is also partially dependent on our ability to penetrate new markets, where we have limited experience and where competitors are already entrenched. Even if we are able to develop, produce and successfully market new products in a timely manner, such new products may not achieve market acceptance.

We are dependent on a concentrated group of customers for a significant part of our revenues.    We are dependent on a limited number of OEMs as our end-customers, and our future results depend significantly on the strategic relationships we have formed with them. If these relationships were to diminish, and if these customers were to develop their own solutions or adopt a competitor’s solution instead of buying our products, our results could be adversely affected. For example, any diminished relationship with Cisco or other key customers could adversely affect our results. While we sell essentially nothing to Cisco directly, we estimate that when all channels of distribution are considered, including sales of product to EMS customers, Cisco represented approximately 20-25% of our total revenues for fiscal 2005.

Many of our end-customer OEMs have outsourced their manufacturing to a concentrated group of global EMSs who then buy product directly from us on behalf of the OEM. EMSs have achieved greater autonomy in the design win, product qualification and product purchasing decisions, especially for commodity products. Furthermore, these EMSs have generally been centralizing their global procurement processes. This has had the effect of concentrating a significant percentage of our revenue with a small number of companies. Competition for the business of these EMSs is intense and there is no assurance we can remain competitive and retain our existing market share within these customers. If these companies were to allocate a higher share of commodity or second source business to our competitors instead of buying our products, our results would be adversely affected. Furthermore, as these EMSs represent a growing percentage of our overall business, our concentration of credit and other business risks with these customers has increased. Competition among global EMSs is intense, they operate on extremely thin margins, and their financial condition, on average, declined significantly during the industry downturn in fiscal 2001-2002. If any one or more of these global EMSs were to file for

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bankruptcy or otherwise experience significantly adverse financial conditions, our business would be adversely impacted as well. During fiscal 2005, one EMS, Celestica, accounted for approximately 11% of our revenue and represented approximately 16% of our accounts receivable as of April 3, 2005.

Finally, we utilize a relatively small number of global and regional distributors around the world, who also buy product directly from us on behalf of their customers. If our business relationships were to diminish or any one or more of these global distributors were to file for bankruptcy or otherwise experience significantly adverse financial conditions, our business could be adversely impacted. One distributor, Avnet represented 10% of revenues for fiscal 2005.

Our product manufacturing operations are complex and subject to interruption.    From time to time, we have experienced production difficulties, including reduced manufacturing yields or products that do not meet our or our customers’ specifications that have caused delivery delays, quality problems, and possibly lost revenue opportunities. While delivery delays have been infrequent and generally short in duration, we could experience manufacturing problems, capacity constraints and/or product delivery delays in the future as a result of, among other things; complexity of manufacturing processes, changes to our process technologies (including transfers to other facilities and die size reduction efforts), and ramping production and installing new equipment at our facilities.

Substantially all of our revenues are derived from products manufactured at facilities which are exposed to the risk of natural disasters. We have a wafer fabrication facility in Hillsboro, Oregon, and assembly and test facilities in the Philippines and Malaysia. If we were unable to use our facilities, as a result of a natural disaster or otherwise, our operations would be materially adversely affected. While we maintain certain levels of insurance against selected risks of business interruption, not all risks can be insured at a reasonable cost. Even if we have purchased insurance, the adverse impact on our business, including both costs and lost revenue opportunities, could greatly exceed the amounts, if any, that we might recover from our insurers.

We are dependent upon electric power generated by public utilities where we operate our manufacturing facilities and we have periodically experienced electrical power interruptions. We maintain limited backup generating capability, but the amount of electric power that we can generate on our own is insufficient to fully operate these facilities, and prolonged power interruptions could have a significant adverse impact on our business.

Historically, we have utilized subcontractors for the majority of our incremental assembly requirements, typically at higher costs than at our own Malaysian and Philippine assembly and test operations with the planned closure of our Manila facility in fiscal 2006. Our increased reliance on subcontractors increases certain risks because we have less control over manufacturing quality and delivery schedules, maintenance of sufficient capacity to meet our orders and maintaining assembly processes we require. We expect to increase our use of subcontractors to supplement our own production capacity. Due to production lead times and potential subcontractor capacity constraints, any failure on our part to adequately forecast the mix of product demand and resulting subcontractor requirements could adversely affect our operating results. In addition, we cannot be certain that these subcontractors will continue to assemble, package, and test products for us on acceptable economic and quality terms or at all and it may be difficult for us to find alternatives if they don’t do so.

Much of our manufacturing capability is relatively fixed in nature.    Much of our manufacturing cost structure remains fixed in nature and large and rapid swings in demand for our products can make it difficult to efficiently utilize this capacity on a consistent basis. Significant downturns, as we have most recently experienced in fiscal 2002-2003, will result in material under utilization of our manufacturing facilities while sudden upturns could leave us short of capacity and unable to capitalize on incremental revenue opportunities. These swings and the resulting under utilization of our manufacturing capacity or inability to procure sufficient capacity to meet end customer demand for our products will cause material fluctuations in the gross margins we report, and could have a material adverse affect thereon.

We build most of our products based on estimated demand forecasts.    Demand for our products can change rapidly and without advance notice. Demand can also be affected by changes in our customers’ levels of inventory

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and differences in the timing and order patterns between them and their end customers. If demand forecasts are inaccurate or change suddenly, we may be left with large amounts of unsold products, may not be able to fill all orders in the short term and may not be able to accurately forecast capacity utilization or make optimal investment and other business decisions. This can leave us holding excess and obsolete inventory or unable to meet customer short-term demands, either of which can have an adverse impact on our operating results.

We are dependent on a limited number of suppliers.    Our manufacturing operations depend upon obtaining adequate raw materials on a timely basis. The number of vendors of certain raw materials, such as silicon wafers, ultra-pure metals and certain chemicals and gases, is very limited. In addition, certain packages require long lead times and are available from only a few suppliers. From time to time, vendors have extended lead times or limited supply to us due to capacity constraints. Although we currently fabricate most of our wafers internally, we are dependent on outside foundries for a small but growing portion of our wafer requirements. Similarly, while we currently conduct most assembly and test operations internally, we do rely upon subcontractors for a significant portion of these back-end services. Our results of operations would be materially adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if there were significant increases in the costs of raw materials, or if foundry or back-end subcontractor capacity was not available, or was only available at uncompetitive prices.

We are subject to a variety of environmental and other regulations related to hazardous materials used in our manufacturing processes.    Any failure by us to adequately control the use or discharge of hazardous materials under present or future regulations could subject us to substantial costs or liabilities or cause our manufacturing operations to be suspended.

Intellectual property claims could adversely affect our business and operations.    The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which have resulted in significant and often protracted and expensive litigation. We have been involved in patent litigation in the past, which adversely affected our operating results. Although we have obtained patent licenses from certain semiconductor manufacturers, we do not have licenses from a number of semiconductor manufacturers that have broad patent portfolios. Claims alleging infringement of intellectual property rights have been asserted against us and could be asserted against us in the future. These claims could result in our having to discontinue the use of certain processes; cease the manufacture, use and sale of infringing products; incur significant litigation costs and damages; and develop non-infringing technology. We might not be able to obtain such licenses on acceptable terms or to develop non-infringing technology. Further, the failure to renew or renegotiate existing licenses on favorable terms, or the inability to obtain a key license, could materially adversely affect our business.

International operations add increased volatility to our operating results.    A growing and now substantial percentage of our revenues are derived from international sales, as summarized below:

(percentage of total revenues)	Fiscal 2005		Fiscal 2004		Fiscal 2003
Americas	32	%	29	%	37	%
Asia Pacific	37	%	39	%	30	%
Japan	14	%	16	%	14	%
Europe	17	%	16	%	19	%
Total	100	%	100	%	100	%

In addition, our assembly and test facilities in Malaysia and the Philippines, our design centers in Canada, China and Australia, and our foreign sales offices incur payroll, facility and other expenses in local currencies. Accordingly, movements in foreign currency exchange rates can impact our revenues and costs of goods sold, as well as both pricing and demand for our products. Our offshore sites and export sales are also subject to risks associated with foreign operations, including:

• political instability and acts of war or terrorism, which could disrupt our manufacturing and logistical activities;

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• currency controls and fluctuations;

• changes in local economic conditions; and

• changes in tax laws, import and export controls, tariffs and freight rates.

Contract pricing for raw materials and equipment used in the fabrication and assembly processes, as well as for foundry and subcontract assembly services, can also be impacted by currency exchange rate fluctuations.

Finally, in support of our international operations, a portion of our cash and investment portfolio resides offshore. At April 3, 2005, we had cash and investments of approximately $55 million invested overseas in accounts belonging to various IDT foreign operating entities. While these amounts are primarily invested in US dollars, a portion is held in foreign currencies, and all offshore balances are exposed to local political, banking, currency control and other risks.

We depend on the ability of our personnel, raw materials, equipment and products to move reasonably unimpeded around the world.    Any political, military, world health (e.g., SARS) or other issue which hinders this movement or restricts the import or export of materials could lead to significant business disruptions. Furthermore, any strike, economic failure, or other material disruption on the part of major airlines or other transportation companies could also adversely affect our ability to conduct business. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on information technology, or directly impact our marketing, manufacturing, financial and logistics functions our results of operations and financial condition could be materially adversely affected.

Our common stock has experienced substantial price volatility.    Such volatility may occur in the future, particularly as a result of quarter-to-quarter variations in the actual or anticipated financial results of IDT, other semiconductor companies, or our customers. Stock price volatility may also result from product announcements by us or our competitors, or from changes in perceptions about the various types of products we manufacture and sell. In addition, our stock price may fluctuate due to price and volume fluctuations in the stock market, especially in the technology sector.

We are dependent on key personnel.    Our performance is substantially dependent on the performance of our executive officers and key employees. The loss of the services of any of our executive officers, technical personnel or other key employees could adversely affect our business. In addition, our future success depends on our ability to successfully compete with other technology firms in attracting and retaining key technical and management personnel. If we are unable to identify and hire highly qualified technical and managerial personnel, our business could be harmed.

We may have difficulty integrating acquired companies and technologies.    We acquired ZettaCom in fiscal 2005 and certain technologies from IBM in fiscal 2004. In addition, we acquired Newave and Solidum in fiscal 2002 and 2003, respectively, and we may pursue other acquisitions in the future. Failure to successfully integrate acquired companies and technologies into our business could adversely affect our results of operations. Integration risks and issues may include, but are not limited to, key personnel retention and assimilation, management distraction, technology development, and unexpected costs and liabilities, including goodwill impairment charges.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our interest rate risk relates primarily to our investment portfolio, which consisted of $188.8 million in cash and cash equivalents and $392.5 million in short-term investments as of April 3, 2005. By policy, we limit our exposure to long-term investments, and a substantial majority of our investment portfolio at the end of fiscal 2005 and 2004 had maturities of less than two years. As a result of a relatively short duration of our portfolio, a hypothetical 10% move in interest rates would have an insignificant effect on our financial position, results of

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operations and cash flows. We do not currently use derivative financial instruments in our investment portfolio. By policy, we mitigate the credit risk through diversification and adherence to high credit-quality rating standards. We further minimize our risks by restricting the sector concentration and asset allocation of certain types of securities in our investment portfolio.

We do not have any outstanding debt as of April 3, 2005, and had $5.6 million in debt as of March 28, 2004.

We are exposed to currency exchange rate risk as a result of our international operations, assets and liabilities of foreign subsidiaries, and to a lesser extent, capital purchases denominated in foreign currencies. The major currency risk of our international operations consist of operating expenses denominated in Malaysian Ringgit, Philippine Peso, Canadian Dollar, Chinese Yuan, Australian Dollar, Japanese Yen, Euro, and British Pound. We use derivative financials instruments which are principally forward contracts to help manage our foreign currency exposures. We do not enter into derivatives for trading purposes. The Company has not hedged any currency risk of its Malaysian subsidiary since the currency has been fixed at 3.8 Ringgit to the US Dollar for over eight years. There is heightened speculation in the currency market that this currency peg may change some time in the near term. We performed a sensitivity analysis for both fiscal 2005 and 2004 including the risk of a currency move in Malaysia, and determined that a 10% change in the value of the US dollar would have less than a $5 million near-term impact on our financial position and results of operations and cash flows.

The Company did not have any currency exposure related to any outstanding capital purchases as of April 3, 2005 or March 28, 2004.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements covered by Report of Independent Registered Public Accounting Firm included in Item 8:

	Page
Report of Independent Registered Public Accounting Firm	32
Consolidated Balance Sheets at April 3, 2005 and March 28, 2004	34
Consolidated Statements of Operations for each of the three fiscal years in the period ended April 3, 2005	35
Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended April 3, 2005	36
Consolidated Statements of Stockholders’ Equity for each of the three fiscal years in the period ended April 3, 2005	37
Notes to Consolidated Financial Statements	38
Schedule II—Valuation and Qualifying Accounts

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Integrated Device Technology, Inc.:

We have completed an integrated audit of Integrated Device Technology, Inc’s 2005 consolidated financial statements and of its internal control over financial reporting as of April 3, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing under Item 8 present fairly, in all material respects, the financial position of Integrated Device Technology, Inc. and its subsidiaries at April 3, 2005 and March 28, 2004, and the results of their operations and their cash flows for each of the three years in the period ended April 3, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of April 3, 2005 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 3, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

32

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

San Jose, California

June 14, 2005

33

INTEGRATED DEVICE TECHNOLOGY, INC.

Consolidated Balance Sheets

(in thousands, except share and per-share amounts)	April 3, 2005			March 28, 2004
Assets
Current assets:
Cash and cash equivalents	$	188,761		$	207,060
Short-term investments		392,472			401,154
Accounts receivable, net of allowance for returns and doubtful accounts of $1,417 and $1,665		52,948			53,091
Inventories		37,331			32,745
Prepayments and other current assets		11,292			12,101
Total current assets		682,804			706,151
Property, plant and equipment, net		124,570			108,424
Goodwill		55,523			40,218
Acquisition-related intangibles		29,812			12,566
Other assets		9,431			38,194
Total assets	$	902,140		$	905,553
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	18,726		$	20,190
Accrued compensation and related expenses		15,293			11,560
Deferred income on shipments to distributors		19,478			21,411
Income taxes payable		25,722			33,267
Other accrued liabilities		20,206			19,250
Total current liabilities		99,425			105,678
Deferred tax liability		4,709			—
Long-term obligations		10,890			15,651
Total liabilities		115,024			121,329
Commitments and contingencies (Notes 8 and 9)
Stockholders’ equity:
Preferred stock; $.001 par value: 10,000,000 shares authorized; no shares issued		—			—
Common stock; $.001 par value: 350,000,000 shares authorized; 106,136,015 and 105,957,324 shares outstanding		106			106
Additional paid-in capital		843,423			825,377
Deferred stock-based compensation		—			(1,140	)
Treasury stock (9,057,000 and 7,000,000 shares) at cost		(204,909	)		(180,751	)
Retained earnings		150,492			137,159
Accumulated other comprehensive income (loss)		(1,996	)		3,473
Total stockholders’ equity		787,116			784,224
Total liabilities and stockholders’ equity	$	902,140		$	905,553

The accompanying notes are an integral part of these consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.

Consolidated Statements of Operations

	Fiscal Year Ended
(In thousands, except per share data)	April 3, 2005			March 28, 2004			March 30, 2003
Revenues	$	390,640		$	345,443		$	343,878
Cost of revenues		193,762			184,615			226,693
Restructuring, asset impairment and other		1,380			—			115,370
Gross profit		195,498			160,828			1,815
Operating expenses:
Research and development		103,729			98,535			129,108
Selling, general and administrative		76,016			72,409			83,145
Acquired in-process research and development		1,830			264			2,670
Total operating expenses		181,575			171,208			214,923
Operating income (loss)		13,923			(10,380	)		(213,108	)
Gains (loss) on equity investments, net		(12,831	)		3,151			(6,557	)
Interest expense		(102	)		(344	)		(514	)
Interest income and other, net		12,363			13,698			19,040
Income (loss) before income taxes		13,353			6,125			(201,139	)
Provision (benefit) for income taxes		20			(271	)		76,757
Net income (loss)	$	13,333		$	6,396		$	(277,896	)
Basic net income (loss) per share:	$	0.13		$	0.06		$	(2.68	)
Diluted net income (loss) per share:	$	0.12		$	0.06		$	(2.68	)
Weighted average shares:
Basic		105,825			104,607			103,520
Diluted		108,204			108,526			103,520

The accompanying notes are an integral part of these consolidated financial statements.

35

INTEGRATED DEVICE TECHNOLOGY, INC.

Consolidated Statements of Cash Flows

	Fiscal Year Ended
(in thousands)	April 3, 2005			March 28, 2004			March 30, 2003
Operating activities
Net income (loss)	$	13,333		$	6,396		$	(277,896	)
Adjustments:
Depreciation and amortization		52,856			50,247			78,282
Acquired in-process research and development		1,830			264			2,670
Merger-related stock-based compensation		565			1,438			2,257
Amortization of intangible assets		6,541			2,296			4,024
Restructuring, asset impairment and other		731			180			121,489
Loss (gain) on sale of property, plant and equipment		(11	)		(111	)		29
Deferred taxes		4,709			—			88,635
Other-than-temporary impairment of equity investments		12,831			—			6,557
Tax benefit from employee stock plans		78			—			—
Changes in assets and liabilities (net of amounts acquired):
Accounts receivable, net		321			(12,980	)		(35	)
Inventories		(3,951	)		8,444			37,058
Other assets		(700	)		17,685			(4,340	)
Accounts payable		(1,899	)		2,676			(1,405	)
Accrued compensation and related expenses		3,409			540			(3,522	)
Deferred income on shipments to distributors		(2,166	)		3,500			(18,532	)
Income taxes payable		(7,545	)		987			(11,022	)
Other accrued liabilities		10			(2,908	)		(12,593	)
Net cash provided by operating activities		80,942			78,654			11,656
Investing activities
Acquisitions, net of cash acquired		(34,410	)		—			(10,393	)
Purchases of property, plant and equipment		(69,049	)		(28,954	)		(43,722	)
Purchase of assets under synthetic lease		—			—			(64,369	)
Proceeds from sale of property, plant and equipment		293			155			802
Purchases of marketable securities		(421,383	)		(506,015	)		(670,862	)
Proceeds from sales of marketable securities		441,458			518,269			722,593
Purchases of technology and other investments		(4,984	)		(8,078	)		(30,000	)
Net cash used for investing activities		(88,075	)		(24,623	)		(95,951	)
Financing activities
Proceeds from issuance of common stock		18,545			18,909			12,716
Repurchase of common stock		(24,160	)		—			(40,445	)
Payments on capital leases and other debt		(5,551	)		(4,180	)		(5,848	)
Net cash provided by (used for) financing activities		(11,166	)		14,729			(33,577	)
Net increase (decrease) in cash and cash equivalents		(18,299	)		68,760			(117,872	)
Cash and cash equivalents at beginning of period		207,060			138,300			256,172
Cash and cash equivalents at end of period	$	188,761		$	207,060		$	138,300
Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	62		$	338		$	521
Income taxes, net of refunds		2,524			(1,264	)		(598	)

The accompanying notes are an integral part of these consolidated financial statements.

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INTEGRATED DEVICE TECHNOLOGY, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)	Common Stock and Additional Paid-In Capital					Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Deferred Stock-Based Compensation			Total Stockholders’ Equity
	Shares		Dollars
Balance, March 31, 2002	104,396,165		$	794,068		$	(140,308	)	$	408,659		$	(2,667	)	$	(5,043	)	$	1,054,709
Repurchase of common stock	(2,100,000	)		(2	)		(40,443	)		—			—			—			(40,445	)
Issuance of common stock	1,397,238			12,716			—			—			—			—			12,716
Unvested options canceled	—			(153	)		—			—			—			153			—
Deferred stock-based compensation expense	—			—			—			—			—			2,257			2,257
Other comprehensive income:
Translation adjustment	—			—			—			—			1,497			—			1,497
Unrealized gain on derivatives	—			—			—			—			29			—			29
Unrealized gain on investments, net	—			—			—			—			5,825			—			5,825
Net loss	—			—			—			(277,896	)		—			—			(277,896	)
Balance, March 30, 2003	103,693,403			806,629			(180,751	)		130,763			4,684			(2,633	)		758,692
Issuance of common stock	2,263,921			18,909			—			—			—			—			18,909
Unvested options canceled	—			(55	)		—			—			—			55			—
Deferred stock-based compensation expense	—			—			—			—			—			1,438			1,438
Other comprehensive income:
Translation adjustment	—			—			—			—			1,937			—			1,937
Unrealized loss on derivatives	—			—			—			—			(31	)		—			(31	)
Unrealized gain on investments, net	—			—			—			—			(3,117	)		—			(3,117	)
Net income	—			—			—			6,396			—			—			6,396
Balance, March 28, 2004	105,957,324			825,483			(180,751	)		137,159			3,473			(1,140	)		784,224
Repurchase of common stock	(2,057,000	)		(2	)		(24,158	)		—			—			—			(24,160	)
Issuance of common stock	2,235,691			18,545			—			—			—			—			18,545
Unvested options canceled	—			(575	)		—			—			—			575			—
Deferred stock-based compensation expense	—			—			—			—			—			565			565
Tax benefit from stock options	—			78			—			—			—			—			78
Other comprehensive income:
Translation adjustment	—			—			—			—			638			—			638
Unrealized loss on investments, net	—			—			—			—			(6,107	)		—			(6,107	)
Net income	—			—			—			13,333			—			—			13,333
Balance, April 3, 2005	106,136,015		$	843,529		$	(204,909	)	$	150,492		$	(1,996	)	$	—		$	787,116

The accompanying notes are an integral part of these consolidated financial statements.

37

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements

Note 1

Summary of Significant Accounting Policies

Nature of Business.    Integrated Device Technology, Inc. (IDT or the Company) designs, develops, manufactures and markets a broad range of communications-oriented integrated circuits (ICs).

Basis of Presentation.    The Company’s fiscal year ends on the Sunday nearest March 31. Fiscal 2005 included 53 weeks and ended on April 3, 2005. Fiscal 2004 and 2003 each included 52 weeks and ended on March 28, 2004 and March 30, 2003, respectively. Certain reclassifications have been made to prior-year balances to present the financial statements on a consistent basis.

Principles of Consolidation.    The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents and Short-Term Investments.    Cash equivalents are highly liquid securities with original maturities of three months or less at the time of purchase. Securities with original maturities greater than three months are classified as short-term investments when they represent investments that are intended for use in current operations. As of April 3, 2005 and March 28, 2004 all of the Company’s short-term investments consisted of highly marketable securities that are intended to be available to meet the Company’s current cash needs and are classified as available-for-sale securities. Available-for-sale securities are reported at fair value, and unrealized gains or losses, net of related tax, are recorded in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, until realized. Realized gains or losses are computed based upon specific identification and are included in interest income and other, net.

The Company maintains a portfolio of marketable equity securities held to generate returns that seek to offset changes in liabilities related to the equity market risk of certain deferred compensation arrangements. The securities within this portfolio are classified as trading and are stated at fair value. As of April 3, 2005 and March 28, 2004, portfolio assets were $8.7 million and $8.0 million, respectively, and are included in other assets on the Consolidated Balance Sheets. As of April 3, 2005 and March 28, 2004 deferred compensation liabilities were $8.7 million and $8.0 million, respectively, and are included in long-term obligations on the Consolidated Balance Sheets.

Management evaluates equity investments on a regular basis to determine if an other-than-temporary impairment has occurred. For publicly traded investments, this evaluation includes a review of the closing price over the previous six months as well as the future outlook for the investment. If the investment has traded consistently for a six-month period below its carrying value and the Company has no evidence to believe that the investment will recover, the Company will record an impairment for the difference between its carrying value and the market value of the shares at the end of the period. The Company had unrealized losses on available-for-sale investments at April 3, 2005 which exceeded 12 months. As the average decline is less than one percent and only represented interest rate decline, management does not believe that any of the unrealized losses represented an other-than-temporary impairment based on its evaluation of available evidence as of April 3, 2005.

Inventories.    Inventories are recorded at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value. Inventory held at consignment locations is included in finished goods

38

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

inventory as the Company has full title and rights to the inventory. Inventory reserves include provisions for obsolete and excess inventory based on management’s forecasts of demand over specific future time horizons and reserves to value our inventory at the lower of cost or market which rely on forecasts of average selling prices (ASPs) in future periods.

Property, Plant, and Equipment.    Property, plant and equipment are stated at cost. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives of the assets. Estimated useful lives for major asset categories are as follows: machinery and equipment, 3 to 5 years; and buildings and improvements, 10 to 30 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remaining term of the lease.

Long-Lived Assets and Goodwill.    The Company accounts for long-lived assets, including purchased intangibles other than goodwill, in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The carrying values of such assets are evaluated at least annually or whenever events or circumstances indicate that the carrying values may not be recoverable. If estimated undiscounted cash flows are not sufficient to recover the carrying values, the affected assets are considered impaired and are written down to their estimated fair value, which is generally determined on the basis of discounted cash flows or outside appraisals.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company tests for impairment of goodwill and other indefinite-lived assets on an annual basis, or more frequently if indicators of impairment are present. These tests are performed at the reporting unit level using a two-step, fair-value based approach. The first step, used to determine if impairment possibly exists, is to compare the carrying amount of a reporting unit, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds the fair value, the second step is to determine the amount of a possible impairment by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.

Income Taxes.    The Company accounts for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require that the realizability of net deferred tax assets be evaluated on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that is more likely than not to be realized. Accordingly, the Company considers various tax planning strategies, forecasts of future taxable income and its most recent operating results in assessing the need for a valuation allowance. In the consideration of the realizability of net deferred tax assets, recent losses are given substantially more weight than any projections of future profitability. The determination of certain tax liabilities involves applying complex tax regulations from many different tax jurisdictions around the world and for tax years still available for or currently under audit. The Company records liabilities for tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, it believes additional taxes will be due. If the Company later determines that its exposure is lower or that the liability is not sufficient to cover its revised expectations, the Company will adjust the liability and affect a related change in its tax provision during the period in which it makes such determination.

Revenue Recognition.    The Company’s revenue primarily relates to semiconductors sold through three channels: direct sales to original equipment manufacturers (OEM’s) and electronic manufacturing service providers (EMS’s), consignment sales to EMS’s and OEM’s, and sales through distributors. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and our ability to collect is reasonably assured. For direct sales, we

39

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

recognize revenue in accordance with the applicable shipping terms. Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory stock by the customer. Many of our larger distributors have stock rotation, price protection and ship from stock pricing adjustment rights. Accordingly, we defer revenue and related cost of revenues on sales to these distributors until the product is sold through by the distributor to an end-customer. Revenues related to licensing agreements are recognized ratably over the lives of the related patents.

Net Income (Loss) Per Share.    Basic and diluted net income (loss) per share are computed using weighted-average common shares outstanding. Diluted net income per share also includes the effect of stock options. The following table sets forth the computation of basic and diluted net income (loss) per share:

	Fiscal Year Ended
(in thousands, except per share amounts)	April 3, 2005		March 28, 2004		March 30, 2003
Basic:
Net income (loss) (numerator)	$	13,333	$	6,396	$	(277,896	)
Weighted average shares outstanding (denominator)		105,825		104,607		103,520
Net income (loss) per share	$	0.13	$	0.06	$	(2.68	)
Diluted:
Net income (loss) (numerator)	$	13,333	$	6,396	$	(277,896	)
Weighted average shares outstanding		105,825		104,607		103,520
Net effect of dilutive stock options		2,379		3,919		—
Total shares (denominator)		108,204		108,526		103,520
Net income (loss) per share	$	0.12	$	0.06	$	(2.68	)

Net loss per share for the year ended March 30, 2003 is based only on weighted average shares outstanding. Potential dilutive stock options for this period of 9.6 million were excluded from the calculation of diluted earnings per share, as their effect would be anti-dilutive in a net loss period. Of the total number of employee stock options outstanding for the years ended April 3, 2005 and March 28, 2004, 6.1 million and 3.7 million, respectively, were excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than the average share price of the common shares for the period and, therefore, the effect would be anti-dilutive.

Comprehensive Income (Loss).    Comprehensive income (loss) is defined as the change in equity during a period from non-owner sources. The components of comprehensive income (loss) were as follows:

	Fiscal Year Ended
(in thousands)	April 3, 2005			March 28, 2004			March 30, 2003
Net income (loss)	$	13,333		$	6,396		$	(277,896	)
Currency translation adjustments		638			1,937			1,497
Change in unrealized gain on derivatives		—			(31	)		29
Net gain (loss) on investments*		(6,107	)		(3,117	)		5,825
Comprehensive income (loss)	$	7,864		$	5,185		$	(270,545	)
*  Unrealized gain/(loss) on investments	$	(6,107	)	$	34		$	9,825
*  Reclassification adjustment, net	$	—		$	(3,151	)	$	(4,000	)

40

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Included in the reclassification adjustment, net above are realized gains and losses on equity investments.

The components of accumulated other comprehensive income (loss) were as follows:

(in thousands)	April 3, 2005			March 28, 2004
Cumulative translation adjustments	$	1,420		$	782
Unrealized gain (loss) on available-for-sale investments		(3,416	)		2,691
Total accumulated other comprehensive income (loss)	$	(1,996	)	$	3,473

Translation of Foreign Currencies.    For subsidiaries where the functional currency is the local currency, gains and losses resulting from translation of foreign currency financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income (loss). For subsidiaries where the functional currency is the U.S. dollar, gains and losses resulting from the process of remeasuring foreign currency financial statements into U.S. dollars are included in other income.

Fair Value Disclosures of Financial Instruments.    Fair values of investments and currency forward contracts are based on quoted market prices or pricing models using current market rates. Fair values of cash equivalents and a substantial majority of short-term investments approximate cost due to the short period of time until maturity.

Concentration of Credit Risk and Allowance for Doubtful Accounts.    The Company’s most significant potential exposure to credit concentration risk includes debt-security investments, foreign exchange contracts and trade accounts receivable. The Company’s investment policy addresses sector and industry concentrations, credit ratings and maturity dates. The Company invests its excess cash primarily in money market instruments, diversifies its investments and, by policy, invests only in highly rated securities to minimize credit risk.

The Company sells integrated circuits to OEMs, distributors and EMSs primarily in the United States, Europe and Asia. The Company monitors the financial condition of its major customers, including performing credit evaluations of those accounts which management considers to be high risk, and generally does not require collateral from its customers. When deemed necessary, the Company may limit the credit extended to certain customers. The Company’s relationship with the customer, and the customer’s past and current payment experience, are also factored into the evaluation in instances where limited financial information is available. The Company maintains an allowance for doubtful accounts for probable credit losses. When the Company becomes aware that a specific customer may default on its financial obligation, a specific amount, which takes into account the level of risk and the customer’s outstanding accounts receivable balance, is reserved. In addition, the Company provides an additional reserve that is based upon a percentage of the total accounts receivable balance. These reserve amounts are classified within selling, general and administrative expenses. Write-offs of accounts receivable balances were not significant in each of the three years presented.

One distributor, Avnet, represented approximately 10%, 11%, and 13% of our revenues for fiscal 2005, 2004 and 2003, respectively. One EMS, Celestica, represented approximately 11%, 14% and 15% of our revenues in fiscal 2005, 2004 and 2003 as well as 16% and 21% of total accounts receivable as of April 3, 2005 and March 28, 2004, respectively. There were no OEMs or distributors who accounted for greater than 10% of accounts receivable in the periods presented.

For foreign exchange contracts, the Company manages its potential credit exposure primarily by restricting transactions to only high-credit quality counterparties.

41

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Stock-based Compensation Plans.    The Company accounts for its stock option plans and employee stock purchase plan (ESPP) in accordance with the intrinsic value method prescribed in the Accounting Principles Board’s (APB) Opinion No. 25, Accounting for Stock Issued to Employees.

The Company’s pro forma information using the fair value method of accounting for stock-based employee compensation for the three years ended April 3, 2005, which assumes amortization of the estimated fair values over the options’ vesting periods, is as follows:

	Fiscal Year Ended
(in thousands, except per share amounts)	April 3, 2005			March 28, 2004			March 30, 2003
Reported net income (loss)	$	13,333		$	6,396		$	(277,896	)
Add: Stock-based employee compensation included in reported net income (loss)		565			1,438			2,257
Deduct: Stock-based employee compensation expense determined under a fair-value based method for all awards		(38,908	)		(51,439	)		(84,726	)
Pro forma net loss	$	(25,010	)	$	(43,605	)	$	(360,365	)
Pro forma net loss per share:
Basic	$	(0.24	)	$	(0.42	)	$	(3.48	)
Diluted	$	(0.24	)	$	(0.42	)	$	(3.48	)
Reported net income (loss) per share:
Basic	$	0.13		$	0.06		$	(2.68	)
Diluted	$	0.12		$	0.06		$	(2.68	)

The Company has applied the Black-Scholes model to estimate the grant-date fair value of stock options, including shares issued under the ESPP, based upon the following weighted average assumptions:

	Fiscal Year Ended
	April 3, 2005		March 28, 2004		March 30, 2003
Employee stock options
Expected life (in years)	3.77		3.64		3.46
Risk-free interest rate	3.2	%	2.4	%	2.7	%
Volatility	77.0	%	91.0	%	91.0	%
Dividend yield	—		—		—
	April 3, 2005		March 28, 2004		March 30, 2003
ESPP shares
Expected life (in years)	0.87		0.80		0.66
Risk-free interest rate	1.8	%	1.3	%	1.8	%
Volatility	62.0	%	86.0	%	87.0	%
Dividend yield	—		—		—

The weighted average estimated fair value per share of stock options granted during fiscal 2005, 2004 and 2003 was $6.79, $9.09 and $7.50, respectively. The weighted average estimated fair value per share of shares granted under the ESPP during fiscal 2005, 2004 and 2003 was $4.31, $4.89 and $5.96, respectively.

42

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Product Warranty.    The Company maintains a reserve for obligations it incurs under its product warranty program. The standard warranty period offered is one year, though in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of its warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the program.

New Accounting Pronouncements.    In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151 Inventory Costs (SFAS 151). This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to costs of conversion be based upon the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory cost incurred in fiscal years beginning after June 15, 2005. As such, the Company is required to adopt these provisions at the beginning of fiscal 2007. The Company does not expect the adoption of SFAS 151 to have a material impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS 123R, Share-Based Payments. Generally, the requirements of SFAS 123R are similar to those of SFAS 123. However, SFAS 123R requires companies to now recognize all share-based payments to employees, including grants of employee stock options, in their statements of operations based on the fair value of the payments. Pro forma disclosure will no longer be an alternative. The Company is required to adopt SFAS 123R beginning with the first quarter of fiscal 2007.

SFAS 123R permits public companies to adopt its requirements using one of two methods: (1) a “modified prospective” method under which compensation cost is recognized beginning with the effective date based on the requirements of SFAS 123R for all share-based payments granted after the effective date and based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that are unvested on the effective date; or (2) a “modified retrospective” method which includes the requirements of the modified prospective method and also permits companies to restate either all prior periods presented or prior interim periods of the year of adoption using the amounts previously calculated for pro forma disclosure under SFAS 123. The Company has not yet determined which method it will select for its adoption of SFAS 123R.

As permitted by SFAS 123, IDT currently accounts for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options through its statement of operations but rather, disclose the effect in its financial statement footnotes. Accordingly, the adoption of SFAS 123R’s fair value method will have a significant impact on the Company’s reported consolidated results of operations. However, the impact of the adoption of SFAS 123R cannot be quantified at this time because it will depend on levels of share-based payments granted in the future. The Company has not yet completed its analysis of the impact of adopting SFAS 123R and is therefore currently unable to quantify the effect on its financial statements. However, the adoption of this new statement will have a significant impact on the results of operations and net income per share of the Company as the Company will be required to expense the fair value of all share-based payments.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” The American Jobs Creation Act introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to U.S. companies, provided certain criteria are met. FSP No. 109-2 provides accounting and disclosure guidance on the impact of the repatriation provision on a company’s income tax expense and deferred tax liability. The Company is currently studying the impact of the one-time favorable foreign dividend

43

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

provision and intends to complete the analysis by January 1, 2006. Accordingly, the Company has not adjusted its income tax expense or deferred tax liability to reflect the tax impact of any repatriation of non-U.S. earnings it may make.

Note 2

Acquisition of Technology

In April 2004, the Company acquired a non-exclusive license to PCI-Express technology from Internet Machines Corporation (IMC) as well as certain other assets and liabilities, in a cash transaction, immaterial in value, that did not constitute a business combination. As such, the Company allocated the amount paid to the assets and liabilities acquired based on their estimated fair values. The principal identifiable intangible assets acquired were existing technology and workforce in-place. The fair values assigned are based on estimates, assumptions, and other information compiled by management.

In addition, during fiscal 2005, the Company made follow-on payments of $4.0 million in connection with the August 2003 acquisition of technologies from IBM as the additional milestones were met. The amounts of these payments were allocated consistent with the allocation of the initial purchase price, including $0.1 million for IPR&D.

In August 2003, the Company acquired certain technologies for use in high-speed packet processing from IBM in a transaction, immaterial in value, which did not constitute a business combination. The principal identifiable intangible assets acquired were existing technology and customer relationship. The fair values assigned are based on estimates, assumptions, and other information compiled by management, including a third-party valuation that utilized established valuation techniques appropriate for the high technology industry. In-process technology acquired of $0.3 million was expensed at the date of acquisition.

Note 3

Business Combinations

On May 7, 2004, the Company acquired ZettaCom, Inc., a privately held provider of switch fabric and traffic management solutions. The Company paid $34.5 million in cash for ZettaCom. ZettaCom’s results subsequent to May 7, 2004 are included in the Company’s consolidated results. The Company valued the existing technology and in-process technology acquired utilizing a discounted cash flow model which uses forecasts of future revenues and expenses related to the intangible assets. The non-compete agreements were valued by estimating the affect on future revenues and cash flows if a non-compete were not in-place thereby allowing former employees of ZettaCom to re-enter the market. IDT utilized a discount rate of 27% for existing technology, 31% for in-process technology, and 29% for the non-compete agreements. The purchase price allocation depicted is preliminary and subject to change when the Company obtains additional information concerning certain contingencies of ZettaCom.

In October 2002, the Company acquired Solidum Systems Corp. (Solidum), a privately held provider of classification and content inspection processing solutions for approximately $10.0 million in cash. The Company valued the existing technology and in-process technology acquired utilizing a discounted cash flow model which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized a discount rate of 25% for existing technology and 30% for in-process technology.

For both ZettaCom and Solidum, in-process technology acquired was expensed at the date of acquisition. The existing technology is being amortized to cost of revenues over a seven year estimated life. The non-compete agreements are being amortized to research and development expense over the three-year term of the agreements.

44

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

The business combinations were accounted for under the purchase method of accounting. The total purchase price is summarized below:

(in thousands)	ZettaCom		Solidum
Cash price	$	34,264	$	10,000
Direct costs of acquisition		252		677
Total purchase price	$	34,516	$	10,677

The total purchase price of the acquisitions was allocated to the estimated fair value of assets acquired and liabilities assumed based on independent appraisals and management estimates are as follows:

(in thousands)	ZettaCom			Solidum
Fair value of tangible net assets (liabilities) acquired	$	(2,089	)	$	498
In-process research and development		1,700			2,670
Existing technology		18,400			3,450
Other identified intangibles		1,200			140
Goodwill		15,305			3,919
Total purchase price	$	34,516		$	10,677

Acquired in-process research and development.    In connection with the ZettaCom acquisition in fiscal 2005 and the Solidum acquisition in fiscal 2003, the Company recorded charges to in-process research and development (IPR&D) of $1.7 million and $2.7 million, respectively. These amounts were determined by identifying research projects which were not yet proven to be technically feasible and did not have alternative future uses. Estimated future expenses were deducted and economic rents charged for the use of other assets. Based on this analysis, a present value calculation of estimated after-tax cash flows attributable to the projects was computed using a discount rate of 31% for ZettaCom and 30% for Solidum. Present values were adjusted by factors representing the percentage of completion for the project, which was estimated at 73% for ZettaCom and ranged from 40% to 95% for Solidum. In each case, the amount was determined by identifying research projects which had not yet proven to be technically feasible and did not have alternative future uses. Estimated future expenses were deducted and economic rents charged for the use of other assets.

Retention payments.    In connection with the ZettaCom acquisition, the Company entered into retention agreements with the former employees of ZettaCom who became IDT employees as part of the transaction. The agreements include approximately $3.7 million which may be paid out over the 18-30 months following the close of the acquisition. The retention payments are earned by the passage of time. As such, the Company records these amounts as compensation expense as they are incurred. During fiscal 2005, the Company recorded $1.8 million in expense related to retention obligations, $1.4 million of which was paid out during the year.

45

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Note 4

Balance Sheet Detail

(in thousands)	April 3, 2005			March 28, 2004
Inventories
Raw materials	$	3,980		$	3,537
Work-in-process		22,863			20,984
Finished goods		10,488			8,224
	$	37,331		$	32,745
Property, Plant and Equipment, Net
Land	$	16,914		$	6,552
Machinery and equipment		832,958			816,623
Building and leasehold improvements		147,864			127,726
		997,736			950,901
Less: accumulated depreciation and amortization		(873,166	)		(842,477	)
	$	124,570		$	108,424
Long-Term Obligations
Deferred compensation related liabilities	$	8,748		$	7,996
Long-term portion of deferred revenue		1,265			6,595
Long-term portion of capital lease obligations		—			838
Long-term portion of software license obligation		664			—
Other		213			222
	$	10,890		$	15,651

Note 5

Restructuring and Asset Impairment

In fiscal 2005, as part of an effort to increase our profitability, we implemented reductions in force which included many of our operations including our wafer fabrication facility in Oregon. We recorded restructuring charges of $6.9 million, which primarily consisted of severance and related termination benefits related to reductions in force. The charges were incurred in the first, third and fourth quarters of fiscal 2005 and were recorded as cost of revenues of $3.2 million and operating expenses of $3.7 million. As part of the announced plan for the January 2005 reduction in force, a portion of the employees will remain with the Company over a retention period. During fiscal 2005, we recorded $0.9 million for retention and we anticipate recording an additional $1.5 million of retention costs over the next 12 months. We anticipate cash payments to be made in connection with the restructuring plan throughout fiscal 2006 and be substantially complete by then.

During the annual impairment review, the Company determined that existing technology related to the acquisition of Newave had become impaired, and recorded a $0.7 million charge to cost of revenues to adjust the existing technology to its estimated fair market value. Late in the year, the demand for the main part that supported the value of existing technology went away. As such, the remaining cash flows could not support the carrying value of the asset.

46

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

In addition, during fiscal 2005, we sold land and equipment from our Salinas wafer fabrication facility, which had been previously impaired as part of the fiscal 2002 impairment charges. As the proceeds from these sales exceeded the impaired value of the assets, we recorded credits of $2.5 million to restructuring, asset impairment and other.

During FY 2003, after three consecutive quarters in which revenues either improved or remained essentially unchanged from the immediately preceding period, revenue declined measurably in the third quarter of fiscal 2003. During the fourth quarter of fiscal 2003, taking this drop off into consideration as well as the persistent weak global and industry economic conditions, the Company revised its near and medium term revenue expectations downward significantly. The Company also reviewed corresponding key assumptions in its overall strategic business and manufacturing capacity plans. These material changes in the Company’s outlook and plans, which IDT was first able to quantify in the fiscal fourth quarter budgeting process, triggered an impairment review of its long-lived assets.

The Company’s impairment review indicated that estimated future undiscounted cash flows would not be sufficient to recover the carrying values of plant and equipment related to both its wafer fabrication facility in Hillsboro, Oregon and its offshore test and assembly plants. As a result, IDT recorded impairment charges of $107.9 million to write down these assets, which it continues to hold and use, to their estimated fair market values. Of the $107.9 million charge, $99.6 million was recorded as cost of sales and $8.3 million as research and development. Management is responsible for the estimated fair values utilized to record the asset impairment charges. Management considered a number of factors to estimate the fair values, including valuations and appraisals, when making these determinations.

Methods used in estimating the fair market values of the facilities included considering results from independent appraisals which incorporated standard real estate appraisal techniques including the cost approach, the income approach, and the comparable sales approach. For specific equipment, the Company estimated fair market value primarily using recent sales data available for comparable equipment. The Company then compared the carrying value to the estimated fair value of the assets and recorded an impairment charge for the difference.

During the same review, the Company also determined that certain intangible assets related to IDT’s acquisition of Newave, specifically existing technology, had also become impaired, and recorded a $13.5 million charge to cost of sales to adjust the existing technology to its estimated fair market value. The revenue estimates at the time of the acquisition were made when the market outlook was considerably more favorable. After seeing some strength late in fiscal 2002 and early in fiscal 2003, the Company’s revenues declined significantly in the third quarter of fiscal 2003. In the fourth quarter of fiscal 2003, in connection with the Company’s annual budget and planning process, the Company revised its outlook downward serving as a trigger for an impairment analysis. The Company continues generating cash flows from this asset.

Also in fiscal 2003, the Company incurred $5.8 million in restructuring charges related mainly to workforce reduction actions affecting substantially all organizations in the Company and taken as a result of continued weakness in the semiconductor industry. Of this amount, $2.3 million was specifically identified as restructuring and included as part of cost of revenues.

47

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

The following table shows the breakdown of the restructuring and asset impairment charges and the liability remaining as of April 3, 2005:

	Cost of goods sold									Operating expenses
(in thousands)	Restructuring, primarily severance			Asset impairment- PP&E			Asset impairment- intangible assets			Restructuring, primarily severance			Asset impairment- PP&E
FY 2003 charges	$	2,441		$	99,554		$	13,500		$	3,459		$	8,329
Non-cash charges		—			(99,554	)		(13,500	)		(106	)		(8,329	)
Cash payments		(1,839	)		—			—			(1,907	)		—
Balance as of 3/30/03		602			—			—			1,446			—
FY 2004 charges		—			—			—			1,564			—
Non-cash charges		—			—			—			(180	)		—
Cash payments		(602	)		—			—			(2,598	)		—
Balance as of 3/28/04		—			—			—			232			—
FY 2005 charges (credits)		3,187			(2,513	)		731			3,751			—
Non-cash charges		—			—			(731	)		—			—
Cash receipts (payments)		(1,904	)		2,513						(2,460	)		—
Balance as of 4/3/05	$	1,283		$	—		$	—		$	1,523		$	—

Fiscal 2005 charges for asset impairment include the $0.7 million impairment of existing technology related to the Newave acquisition as well as credits of $2.5 million related to proceeds from the sales of land and equipment related to our Salinas facility which was previously impaired.

Assets held for sale in the amount of $0.4 million as of March 28, 2004, representing the estimated net realizable value of the remaining Salinas manufacturing assets, are included in prepayments and other current assets. During fiscal 2005, the Company sold the land and additional manufacturing equipment for net proceeds of $2.9 million. During fiscal 2004, the Company sold the building and a portion of the related manufacturing equipment for net proceeds of $10.6 million. Net proceeds from the sale of these assets are included in the Other assets caption of Consolidated Statements of Cash Flow.

Note 6

Debt

The Company had no short-term borrowings, other than the current portion of long-term debt, during the two fiscal years ended April 3, 2005. Information regarding the Company’s long-term obligations is presented below:

(in thousands)	April 3, 2005		March 28, 2004
Capital leases and equipment financing arrangements at rates ranging from 2.4% to 4.1%, with maturities through August 2005	$	—	$	5,551
Less: current portion		—		(4,713	)
	$	—	$	838

During fiscal 2005, the Company executed lease buyout on all of its remaining capital leases. Obligations under capital leases and equipment financing arrangements were collateralized by the related assets. The Company leased total assets of approximately $27.9 million at March 28, 2004. Accumulated depreciation on these assets was approximately $27.5 million at March 28, 2004.

48

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Note 7

Investments

Available-for-sale investments at April 3, 2005 were as follows:

(in thousands)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government agency securities	$	252,495	$	20	$	(1,953	)	$	250,562
State and local government securities		7,650		—		(91	)		7,559
Corporate debt instruments		243,045		315		(1,707	)		241,653
Bank deposits		14,019		—		—			14,019
Money market instruments		53,074		—		—			53,074
Total available-for-sale investments		570,283		335		(3,751	)		566,867
Less amounts classified as cash equivalents		174,395		—		—			174,395
Short-term investments	$	395,888	$	335	$	(3,751	)	$	392,472

Available-for-sale investments at March 28, 2004 were as follows:

(in thousands)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government agency securities	$	218,727	$	794	$	(13	)	$	219,508
State and local government securities		7,997		42		—			8,039
Corporate debt instruments		213,731		1,907		(39	)		215,599
Auction rate securities (1)		16,300		—		—			16,300
Bank deposits		22,350		—		—			22,350
Money market instruments		121,468		—		—			121,468
Total available-for-sale investments		600,573		2,743		(52	)		603,264
Less amounts classified as cash equivalents		202,039		88		(17	)		202,110
Short-term investments	$	398,534	$	2,655	$	(35	)	$	401,154

(1) Prior to fiscal 2005, the Company classified its investment in auction rate securities as cash equivalents on the Consolidated Balance Sheets. In fiscal 2005, the Company has classified all investments in auction rate securities as short-term investments. To conform to current year presentation, the Company has reclassified $16.3 million of auction rate securities from cash equivalents to short-term investments for fiscal 2004. The impact on the Consolidated Statements of Cash Flows was an increase in cash used for investing activities of $10.2 million and $6.1 million for fiscal 2004 and 2003, respectively. The reclassification had no impact on the Consolidated Statements of Operations for any of the periods presented.

The cost and estimated fair value of available-for-sale investments at April 3, 2005, by contractual maturity, were as follows:

(in thousands)	Cost		Estimated Fair Value
Due in 1 year or less	$	363,762	$	362,852
Due in 1-2 years		161,984		160,213
Due in 2-5 years		44,537		43,802
Total investments in available for sale debt securities	$	570,283	$	566,867

49

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at April 3, 2005.

	Less than 12 months					12 months or Greater					Total
(in thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government agency securities	$	180,766	$	(1,748	)	$	13,396	$	(205	)	$	194,162	$	(1,953	)
State and local government securities		7,558		(91	)		—		—			7,558		(91	)
Corporate debt instruments		130,051		(1,540	)		7,953		(167	)		138,004		(1,707	)
Total	$	318,375	$	(3,379	)	$	21,349	$	(372	)	$	339,724	$	(3,751	)

The unrealized losses on the Company’s investments in the obligations of these issuers were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at April 3, 2005.

The duration of the unrealized losses on available for sale securities at March 28, 2004 did not exceed 12 months.

The company sold available-for-sale securities, with a fair value at the date of sale of $306.8 million in fiscal 2005, $266.9 million in fiscal 2004 and $91.7 million in fiscal 2003. The gross realized gains on these sales totaled $0.4 million in fiscal 2005, $1.5 million in fiscal 2004 and $0.8 million in fiscal 2003. The gross realized losses on these sales totaled $0.7 million in fiscal 2005, $0.4 million in fiscal 2004, and $0 in fiscal 2003.

Note 8

Commitments and Guarantees

The Company leases most of its administrative facilities under operating leases which expire at various dates through fiscal 2013.

The Company’s wafer fabrication facility in Hillsboro, Oregon, was subject to a synthetic lease which was scheduled to expire in May 2005. The Company was required to maintain a deposit of $50.6 million with the lessor. In September 2002, the Company elected to terminate the lease and acquire the leased property, plant and equipment for approximately $64 million. The purchase price was funded primarily by the $50.6 million lease deposit. The Company no longer has any property, plant or equipment subject to synthetic leases.

As of April 3, 2005, aggregate future minimum commitments under all operating leases were as follows: $6.4 million (2006), $4.9 million (2007), $3.1 million (2008), $1.3 million (2009), $1.2 million (2010) and $1.4 million (2011 and thereafter). Lease expense for the years ended April 3, 2005, March 28, 2004 and March 30, 2003 totaled approximately $9.2 million, $9.6 million and $14.3 million, respectively.

The Company maintains a reserve for obligations it incurs under its product warranty program. The standard warranty period offered is one year, though in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of its warranty liability based on actual past warranty claims

50

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the program. Historical warranty returns activity has been minimal and as a result the related reserve was $0.2 million and $0.5 million, as of April 3, 2005 and March 28, 2004, respectively.

As of April 3, 2005, the Company’s financial guarantees consisted of standby letters of credit which were primarily related to customs bonds requirements and workers’ compensation plans. The maximum amount of potential future payments under these arrangements was $2.5 million. The Company also has foreign exchange facilities used for hedging arrangements with a bank that allows the Company to enter into foreign exchange contracts totaling up to $60.0 million, all of which was available at April 3, 2005.

The Company indemnifies certain customers, distributors, and subcontractors for attorney fees and damages awarded against these parties in certain circumstances in which the Company’s products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of the Company’s indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that we might be required to make as a result of these agreements. The Company has not paid any claim or been required to defend any claim related to our indemnification obligations, and accordingly, the Company has not accrued any amounts for our indemnification obligations. However, there can be no assurances that the Company will not have any future financial exposure under these indemnification obligations.

Note 9

Litigation

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of patents and other intellectual property rights. The Company is not currently aware of any legal proceedings that the Company believes may have, individually or in the aggregate, a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Note 10

Goodwill and Other Intangible Assets

Goodwill and identified intangible asset balances are summarized as follows:

	April 3, 2005
(in thousands)	Gross assets		Accumulated amortization			Net assets
Goodwill	$	55,523	$	—		$	55,523
Identified intangible assets:
Existing technology		29,284		(5,945	)		23,339
Trademark		2,240		(1,250	)		990
Customer relationship		5,162		(1,387	)		3,775
Non-compete agreement		3,309		(1,646	)		1,663
Other		158		(113	)		45
Subtotal, identified intangible assets		40,153		(10,341	)		29,812
Total goodwill and identified intangible assets	$	95,676	$	(10,341	)	$	85,335

51

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

	March 28, 2004
(in thousands)	Gross assets		Accumulated amortization			Net assets
Goodwill	$	40,218	$	—		$	40,218
Identified intangible assets:
Existing technology		8,986		(1,570	)		7,416
Trademark		2,240		(930	)		1,310
Customer relationship		3,452		(403	)		3,049
Non-compete agreement		1,625		(834	)		791
Other		63		(63	)		—
Subtotal, identified intangible assets		16,366		(3,800	)		12,566
Total goodwill and identified intangible assets	$	56,584	$	(3,800	)	$	52,784

Amortization expense for identified intangibles is summarized below:

(in thousands)	Fiscal 2005		Fiscal 2004		Fiscal 2003
Existing technology		4,375		1,324		3,390
Other identified intangibles		2,166		972		634
Total	$	6,541	$	2,296	$	4,024

Changes to the carrying value of goodwill were as follows:

(in thousands)	Goodwill
March 30, 2003	$	40,218
Additions		—
March 28, 2004		40,218
Additions		16,048
Adjustments		(743	)
April 3, 2005	$	55,523

At the end of fiscal 2005, the Company adjusted goodwill related to the ZettaCom acquisition as a result of a change in estimate on the Company’s lease impairment. As the Company was able to secure a sublease tenant for the former ZettaCom facility than had been estimated in the initial valuation, the Company recorded a $0.7 million adjustment to goodwill for the difference in lease impairment amounts.

Based on the identified intangible assets recorded at April 3, 2005, the future amortization expense of identified intangibles for the next five fiscal years is as follows (in thousands):

Year ending March,	Amount
2006	$	6,920
2007		6,647
2008		5,989
2009		4,186
2010		3,025
Thereafter		3,045
Total	$	29,812

52

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

The amounts allocated to existing technology are being amortized over an estimated useful life of seven years. Other identified intangibles are being amortized over estimated useful lives of two to seven years.

Goodwill is reviewed annually for impairment (or more frequently if indicators of impairment arise). The Company completed its annual impairment assessment in the fourth quarters of fiscal 2005, 2004 and 2003 and concluded that goodwill was not impaired. For purposes of these assessments, the Company identified six reporting units, IP-Co Processors, Flow Control Management Devices, Timing Solutions, Serial Switching, Telecom, and SRAM. Goodwill from ZettaCom was assigned to the Serial Switching unit, Newave to Telecom, and Solidum to IP-Co Processors. All goodwill and related impairment is included in the Communication and Timing products segment.

During the fourth quarters of fiscal 2005 and 2003, the Company recorded $0.7 million and $13.5 million, respectively, in impairment charges related to existing technology intangibles acquired as part of the Newave acquisition in fiscal 2001. In performing the overall impairment analysis for goodwill, the Company followed the guidance under paragraph 29 of SFAS 142, which requires long-lived assets, other than goodwill, be tested for impairment first and that the carrying amount of these assets be adjusted for impairment before testing goodwill. Accordingly, only after adjusting the carrying value of long-lived assets, due to their impairment, did the Company then test the goodwill noting no impairment.

Note 11

Stockholders’ Equity

Stock Option Plans.    Shares of common stock reserved for issuance under the Company’s stock option plans include 2,500,000 shares under the 2004 Equity Plan, 13,500,000 shares under the 1994 Employee Stock Option Plan, 23,500,000 shares under the 1997 Employee Stock Option Plan, and 108,000 shares under the 1994 Director Stock Option Plan. At April 3, 2005, a total of 9,868,849 options were available for issuance under these plans. Also outstanding and exercisable at April 3, 2005 were options initially granted under previous stock option plans which have not been canceled or exercised.

Under the plans, options are issued with an exercise price equal to the market price of the Company’s common stock on the date of grant, and the maximum option term is 10 years. Plan participants typically receive an initial grant that vests in annual and/or monthly increments over four years. Thereafter, participants generally receive a smaller annual grant which vests on the same basis as the initial grant.

In connection with the mergers with Quality Semiconductor Inc. (QSI) and Newave, the Company assumed the stock option plans of those companies. No additional options will be granted under these assumed plans.

Following is a summary of the Company’s stock option activity and related weighted average exercise prices for each category:

	Fiscal 2005				Fiscal 2004				Fiscal 2003
(shares in thousands)	Shares		Price		Shares		Price		Shares		Price
Beginning options outstanding	18,817		$	13.13	9,552		$	14.86	17,124		$	24.24
Granted	3,722			12.05	11,993			12.40	5,384			16.33
Exercised	(1,230	)		8.47	(1,491	)		7.97	(751	)		6.81
Canceled	(1,862	)		15.42	(1,237	)		25.61	(12,205	)		29.16
Ending options outstanding	19,447		$	13.00	18,817		$	13.13	9,552		$	14.86
Ending options exercisable	12,381		$	13.04	10,408		$	12.41	6,121		$	13.91

53

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Activity for fiscal 2003 includes options canceled and fiscal 2004 includes options granted in connection with the Company’s Voluntary Exchange Offer, as discussed below.

Following is summary information about stock options outstanding at April 3, 2005:

(shares in thousands)	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.43 – $  7.06	577	1.30	$	6.03	577	$	6.03
7.13 –   10.62	3,178	2.63		8.11	2,356		7.65
10.78 –   10.80	5,894	5.19		10.80	5,129		10.80
10.85 –   11.95	3,725	5.42		11.38	1,163		11.10
12.00 –   18.31	3,436	5.06		14.78	1,392		16.85
18.56 –   95.94	2,637	4.20		25.30	1,764		27.33
$0.43 – $95.94	19,447	4.54	$	13.00	12,381	$	13.04

Employee Stock Purchase Plan.    The Company is authorized to issue up to 11,100,000 shares of its common stock under its 1984 Employee Stock Purchase Plan (ESPP). Under the ESPP, eligible domestic employees may purchase shares of IDT common stock at 85% of its fair market value on specified dates. Activity under the ESPP is summarized in the following table:

(shares in thousands)	Fiscal 2005		Fiscal 2004		Fiscal 2003
Number of shares issued		1,006		645		647
Average issuance price	$	8.08	$	9.51	$	11.76
Number of shares available at year-end		1,553		2,559		1,332

Stockholder Rights Plan.    In December 1998, the Board of Directors adopted a plan designed to protect the rights of IDT stockholders in the event of a future, unsolicited takeover attempt. Under the plan, each outstanding share of IDT common stock bears one preferred share purchase right. Under certain circumstances, each purchase right entitles its holder to acquire one-hundredth of a share of a newly designated junior participating preferred stock at a price of $45.00 per share. The preferred stock is structured so that the value of one-hundredth of a share of such preferred stock will approximate the value of one share of common stock. The rights do not trade separately and will expire on December 21, 2008.

Stock Repurchase Program.    During fiscal 2005, under a program authorized by the Board of Directors in October 2004, the Company repurchased 2.1 million shares of its common stock at an aggregate cost of $24.2 million. As of April 3, 2005, $25.8 million is available to purchase additional shares under the current stock repurchase program. Repurchases may be made from time to time in the open market and in negotiated transactions, including block transactions or accelerated stock repurchase transactions, at times and at prices considered appropriate by the Company. The repurchases were recorded as treasury stock and result in a reduction of stockholders’ equity. The repurchase program may be discontinued at any time. The stock repurchase program is intended to partially offset the exercise of common stock options by employees and the distribution of common stock through the Employee Stock Purchase Plan.

During fiscal 2003, under a program authorized by the Board of Directors in November 2000 and amended in December 2001, the Company repurchased 2.1 million shares of its common stock at an aggregate cost of $40.4 million. The repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.

54

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Since the Company first began buying back its stock in fiscal 2001, the Company has repurchased a total of 9.1 million shares at an aggregate cost of $204.9 million.

Voluntary Exchange Offer.    During the third quarter of fiscal 2003, the Company completed a voluntary stock option exchange program for its eligible employees. The Company’s chief executive officer, president, board of directors and employees within certain non-U.S. jurisdictions were not eligible to participate in this program. Under the exchange offer program, IDT employees were given the opportunity to voluntarily exchange unexercised vested and unvested stock options previously granted to them that had an exercise price of $11.01 or more.

The offer to exchange expired on December 6, 2002. Of the approximately 1,900 employees who were eligible, approximately 1,200 participated. Of the approximately 12.6 million stock options eligible for exchange, approximately 10.1 million options were tendered by participants in the offer and were canceled by the Company. On June 11, 2003, approximately 7.3 million replacement options were granted.

Certain of the tendered and accepted options had been assumed by the Company in connection with its acquisition of Newave Semiconductor in April 2001. As a result of the exchange offer, the Company was required to accelerate deferred compensation previously recorded in connection with these options. The amount of compensation expense accelerated and recorded in fiscal 2003 was $0.2 million.

Note 12

Employee Benefits Plans

Under the Company’s profit sharing plan, substantially all employees are eligible for a designated percentage of profits. Profit sharing contributions totaled $1.4 million, $0.6 million and $0 in fiscal 2005, 2004 and 2003, respectively. Under another plan, the Company awards bonuses to executive officers and other key employees based on profitability and individual performance. As of April 3, 2005, $1.5 million was accrued under this plan. There were no amounts accrued under this plan in fiscal 2004 or fiscal 2003.

The Company sponsors a 401(k) retirement matching plan for qualified domestic employees. The Company recorded expenses of approximately $1.2 million, $0.6 million and $1.5 million in matching contributions under the plan in fiscal 2005, 2004 and 2003, respectively.

In fiscal 2001, the Company established a non-qualified deferred compensation plan, which allows executive officers and other key employees to defer salary, bonus and other compensation-related payments. The Company incurred costs for this plan for insurance, administrative, and other support costs of $0.5 million, $0.8 million and $0.5 million in fiscal 2005, 2004 and 2003, respectively.

55

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Note 13

Income Taxes

The components of income (loss) before taxes and the provision (benefit) for income taxes were as follows:

	Fiscal Year Ended
(in thousands)	April 3, 2005			March 28, 2004			March 30, 2003
Income (loss) before taxes:
United States	$	(5,056	)	$	53,419		$	(174,689	)
Foreign		18,409			(47,294	)		(26,450	)
Income (loss) before taxes	$	13,353		$	6,125		$	(201,139	)
Provision (benefit) for taxes:
Current:
United States	$	(8,115	)	$	(2,038	)	$	—
State		(739	)		32			—
Foreign		4,165			1,735			984
		(4,689	)		(271	)		984
Deferred:
United States		—			—			51,591
State		—			—			23,293
Foreign		4,709			—			889
		4,709			—			75,773
Provision (benefit) for taxes	$	20		$	(271	)	$	76,757

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred tax assets and liabilities were as follows:

(in thousands)	April 3, 2005			March 28, 2004
Deferred tax assets:
Deferred income on shipments to distributors	$	5,749		$	7,427
Non-deductible accruals and reserves		6,617			5,857
Inventory related and other expenses		10,016			13,814
Net operating losses and credit carryforwards		183,828			169,713
Deferred licensing revenue		2,206			4,194
Equity earnings in affiliates		4,418			4,669
Depreciation and amortization		16,672			15,591
Other		6,973			4,952
		236,479			226,217
Deferred tax liabilities:
Purchased intangibles		(6,802	)		(1,488	)
US tax on earnings of foreign subsidiaries not permanently reinvested		(15,077	)		(9,489	)
Foreign tax on earnings of foreign subsidiaries not permanently reinvested		(4,709	)		—
		(26,588	)		(10,977	)
Valuation allowance		(214,600	)		(215,240	)
Net deferred tax liabilities	$	(4,709	)	$	—

56

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

For fiscal 2005, the Company reduced its computed deferred tax rate used to compute deferred taxes, from 37.9% to 37.2%. The lower rate primarily reflects a change made to the Oregon income tax apportionment factor rules.

In the fourth quarter of fiscal 2003, the Company established a full valuation allowance against its net deferred tax assets because management could not conclude it was more likely than not that these deferred tax assets would be realized. Management reached this decision based on judgment, which included consideration of historical losses and projections of future profits with substantially more weight being placed on recent losses than any projections of future profitability. For the same reasons, this full valuation allowance continued through fiscal 2005 excluding a deferred tax liability of $4.7 million, which relates to expected tax withholding from future earnings distributions from the Company’s manufacturing subsidiary in the Philippines.

During fiscal 2005, the valuation allowance for deferred tax assets decreased by $0.5 million from the end of fiscal 2004. As of April 3, 2005 and March 28, 2004, $46.3 million and $47.5 million of the valuation allowance for deferred tax assets is attributable to stock option deductions arising from activity under the Company’s stock option plans, the benefits of which will increase capital in excess of par value when realized. Approximately $24.8 million of valuation allowance at the end of fiscal 2005 will be allocated to reduce goodwill or other non-current intangible assets, when realized, from companies IDT has acquired.

A reconciliation between the statutory U.S. income tax rate of 35% and the effective rate is as follows:

	Fiscal Year Ended
(in thousands)	April 3, 2005			March 28, 2004			March 30, 2003
Provision (benefit) at 35% U.S. statutory rate	$	4,673		$	2,144		$	(70,399	)
Differences in U.S. and foreign taxes		2,734			17,559			6,068
Extraterritorial income exclusion		(945	)		(2,170	)		(2,166	)
Non-deductible, acquisition related costs		793			503			1,245
State tax, net of federal benefit		26			28			—
Valuation allowance recorded against previously recognized deferred tax assets		—			—			75,773
Net operating losses and tax credits not benefited/(benefited)		(4,954	)		(16,889	)		66,449
Refunds received from prior years amended returns		—			(2,038	)		—
Partial settlement of IRS audit		(7,070	)		—			—
Withholding on foreign subsidiary earnings not permanently reinvested		4,709			—			—
Other		54			592			(213	)
Provision (benefit) for taxes	$	20		$	(271	)	$	76,757

Under Malaysian law, in fiscal 2005 and in past years, the Company generated certain tax incentive benefits to reduce its local tax obligations below the normal 28% statutory rate. The Company’s manufacturing subsidiary in the Philippines operated under a tax holiday which expired at the end of July 2003, subsequent to which earnings were taxed at 5.0% instead of the 32% statutory rate.

The Company’s intention is to permanently reinvest a portion of its foreign subsidiary earnings, while it intends to remit as a dividend to its U.S. parent company, at some future date, the remainder of these earnings. Accordingly, U.S. taxes have not been provided on approximately $78.4 million of permanently reinvested foreign subsidiary earnings, excluding the cumulative loss of the Company’s cost sharing subsidiary in the

57

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Caymans. U.S. taxes have been provided, pursuant to APB Opinion No. 23, on $40.5 million of foreign subsidiary earnings that are intended to be remitted as a dividend at some future date. Tax expense of $4.7 million, related to expected Philippine tax withholding from future earnings distributions from the Company’s manufacturing subsidiary in the Philippines, was recorded in fiscal 2005 in connection with the decision that the facility will be closed in fiscal 2006. Upon distribution of foreign subsidiary earnings in the form of dividends or otherwise, the Company will be subject to both U.S. income taxes and various foreign country withholding taxes.

As of April 3, 2005, the Company had federal net operating loss carryforwards of approximately $253.8 million. In addition, the Company had total net operating loss carryforwards for all states of $144.8 million. The federal net operating loss carryforward will expire in various fiscal years from 2012 through 2024 if not utilized. The state net operating loss carryforward will expire in various fiscal years from 2013 through 2024 if not utilized. In addition, the Company had approximately $41.0 million of federal research and development tax credit carryforward, $1.2 million of foreign tax credit carryforward, and $3.3 million of federal alternative minimum tax credit carryforward. The federal research tax credit carryforward will expire from fiscal years 2008 through 2025 if not utilized and the foreign tax credit carryforward will expire from fiscal years 2010 to 2015 if not utilized. The Company also had available approximately $38.3 million of state income tax credit carryforward, $0.7 million of which will expire in various years between fiscal years 2006 and 2012 if not utilized. The Company also had Canadian federal investment tax credits of $2.3 million, which will expire in various fiscal years from 2006 to 2015, if not utilized. In addition, the Company also has Canadian federal and provincial net operating loss carryforwards of approximately $18.2 million and $17.1 million, respectively, which will expire in various fiscal years from 2006 through 2009 if not utilized. The Company had Canadian federal and provincial scientific research and experimental development expenditure carryforwards of approximately $8.1 and $10.4 million.

Examination by the Internal Revenue Service (IRS) of the Company’s income tax returns for fiscal 2000 through fiscal 2002 began in fiscal 2003. Shortly after the end of fiscal 2005, the IRS extended their audit to include fiscal 2003 and 2004. During fiscal 2005, as a result of a partial settlement with the IRS pertaining to its ongoing audit, previously provided tax reserves of $7.1 million were reversed as they were no longer required. The examination by the IRS of the Company’s income tax returns for fiscal 2000 – 2004 is not complete. Management believes that the ultimate resolution of these examinations will not have any material adverse impact on the Company’s financial condition or results of operations.

Note 14

Segments

The Company operated in two segments during fiscal 2005, 2004 and 2003: (1) Communications and Timing Products and (2) SRAMs. The Communications and Timing Products segment includes network search engines, switching solutions, integrated communications processors, flow-control management devices, FIFOs, multi-ports, telecommunications products, timing solutions, PC clocks, DIMM support products, and digital logic products. The SRAMs segment consists of high-speed SRAMs.

The accounting policies for segment reporting are the same as for the Company as a whole. IDT evaluates segment performance on the basis of operating profit or loss, which excludes restructuring, asset impairment, acquisition-related and other similar costs, equity investment gains/(losses), interest expense, interest and other income, and taxes. There are no inter-segment revenues to be reported. IDT does not identify or allocate assets by operating segment, nor does the CEO, as chief operating decision maker, evaluate groups on the basis of these criteria.

58

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

Products in the SRAM segment have primarily commodity characteristics, including high unit sales volumes and lower ASP’s and gross margins. Unit sales of products in the Communications and Timing Product segment, with the exception of logic devices, tend to be lower than those in the SRAM segment, but generally have higher ASP’s and margins.

The tables below provide information about the reportable segments for fiscal 2005, 2004 and 2003.

Segment Revenues

	Fiscal Year Ended
(in thousands)	April 3, 2005		March 28, 2004		March 30, 2003
Communications and Timing Products	$	329,085	$	292,669	$	292,495
SRAMs		61,555		52,774		51,383
Total revenues	$	390,640	$	345,443	$	343,878

Segment Profit (Loss)

	Fiscal Year Ended
(in thousands)	April 3, 2005			March 28, 2004			March 30, 2003
Communications and Timing Products operating profit (loss)	$	45,104		$	29,235		$	(25,875	)
SRAM’s operating loss		(19,521	)		(32,658	)		(44,831	)
Restructuring and asset impairment		(5,156	)		(1,564	)		(127,159	)
Amortization of intangible assets		(6,541	)		(2,296	)		(4,024	)
Amortization of deferred stock-based compensation		(565	)		(1,438	)		(2,257	)
Acquisition-related contingent consideration		—			—			(1,300	)
Acquisition-related costs		(2,037	)		—			—
Facility closure costs		(291	)		(1,065	)		(4,992	)
Acquired in-process R&D		(1,830	)		(264	)		(2,670	)
Income tax refund		5,617			—			—
Other		(857	)		(330	)		—
Gains (losses) on equity investments, net		(12,831	)		3,151			(6,557	)
Interest expense		(102	)		(344	)		(514	)
Interest income and other, net		12,363			13,698			19,040
Income (loss) before income taxes	$	13,353		$	6,125		$	(201,139	)

The Company’s significant operations outside of the United States include manufacturing facilities in Malaysia and the Philippines, design centers in Canada, China and Australia, and sales subsidiaries in Japan, Asia Pacific and Europe. Revenues from unaffiliated customers by geographic area, based on the customers’ shipment locations, were as follows:

	Fiscal Year Ended
(in thousands)	April 3, 2005		March 28, 2004		March 30, 2003
Americas	$	125,156	$	100,215	$	128,637
Europe		63,925		55,188		64,480
Japan		56,067		54,672		47,583
Asia Pacific		145,492		135,368		103,178
Total revenues	$	390,640	$	345,443	$	343,878

59

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

The Company’s long-lived assets consist primarily of property, plant and equipment, which are summarized below by geographic area:

(in thousands)	April 3, 2005		March 28, 2004
United States	$	99,336	$	85,597
Malaysia		12,711		8,631
Philippines		9,921		10,520
All other countries		2,602		3,676
Total property, plant and equipment, net	$	124,570	$	108,424

Note 15

Derivative Financial Instruments

As a result of its significant international operations, sales and purchase transactions, the Company is subject to risks associated with fluctuating currency exchange rates. The Company may use derivative financial instruments to hedge these risks when instruments are available and cost effective in an attempt to minimize the impact of currency exchange rate movements on its operating results and on the cost of capital equipment purchases. The Company may enter into hedges of forecasted transactions when the underlying transaction is highly probable and reasonably certain to occur within the subsequent twelve months. Examples of these exposures would include forecasted expenses of a foreign manufacturing plant, design center or sales office. The Company may additionally enter into a derivative to hedge the foreign currency risk of a capital equipment purchase if the capital equipment purchase order is executed and designated as a firm commitment. The Company does not enter into derivative financial instruments for speculative or trading purposes. There were no hedges of forecasted transactions or firm commitments during fiscal 2005, 2004 and 2003.

The Company also utilizes currency forward contracts to hedge currency exchange rate fluctuations related to certain short term foreign currency assets and liabilities. Gains and losses on these undesignated derivatives offset gains and losses on the assets and liabilities being hedged and the net amount is included in earnings. An immaterial amount of net gains and losses were included in earnings during fiscal 2005, 2004 and 2003.

Besides foreign exchange rate exposure, the Company’s cash and investment portfolios are subject to risks associated with fluctuations in interest rates. While the Company’s policies allow for the use of derivative financial instruments to hedge the fair values of such investments, the Company has yet to enter into this type of hedge.

Note 16

Gain (Loss) on Equity Investments, Net

In the first quarter of fiscal 2005, the Company recorded an impairment charge of $12.8 million related to our investment in NetLogic Microsystems. On July 8, 2004, NetLogic completed an initial public offering at an initial offering price of $12 per share. IDT was included in the offering as a selling shareholder. The IPO pricing, less related commissions, implied the investment was worth less than its carrying value. Based in part on the relative magnitude of the decline in value, the Company concluded that there was an other-than-temporary impairment on the investment at June 27, 2004 and accordingly, recorded an impairment charge to adjust the carrying value down to its estimated net realizable value. During the second quarter of fiscal 2005, the Company sold its investment at the previously written down value. At March 28, 2004, this investment, which was accounted for on the cost basis, was classified in Other Assets at a value of $30.0 million.

60

INTEGRATED DEVICE TECHNOLOGY, INC.

Notes to Consolidated Financial Statements—(Continued)

During the second quarter of fiscal 2004, the Company sold its remaining shares in PMC-Sierra Inc. (PMC) and recorded a $3.2 million, net gain. During the second quarter of fiscal 2003, the Company recorded a $6.6 million pretax charge related to its investment in PMC. The charge represented what the Company considered to be an other-than-temporary decline in the aggregate market value of its PMC investment.

Note 17

Sales Tax Refund

During the fourth quarter of fiscal 2005, the Company received a sales tax refund from the state of California of $5.6 million related to the Manufacturers Investment Credit (MIC). As this amount was originally recorded in connection with capital purchases in manufacturing and R&D, we allocated the credit back to cost of revenues and R&D expense based on a ratio consistent with the purchases in the years to which the credit applied. Of the total $5.6 million, $4.2 million was recorded as a credit to cost of revenues and $1.4 million as a credit to R&D.

Note 18

Subsequent Event

On April 14, 2005 the Company announced its plans to consolidate its assembly and test operations and outsource a portion of its assembly operations. Under the plan the Company will close its assembly and test facility in Manila, the Philippines, which will result in a reduction in force of approximately 750 employees. The plan includes transferring the test and finish work currently performed at the Manila facility to the Company’s assembly and test facility in Penang, Malaysia at or around the end of June 2005 and transferring the assembly work currently performed at the Manila facility and certain assembly equipment to third party sub-contractors at or around the end of September 2005. As part of the announcement, employees will receive severance payments in accordance with the local Philippine labor code. Employees will also receive additional consideration, which will be based on their years of service to the Company and contingent upon their continued employment through the plant closure date.

61

SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

QUARTERLY RESULTS OF OPERATIONS

	Fiscal Year Ended April 3, 2005
(in thousands, except per share data)	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	101,307		$	96,671	$	95,658	$	97,004
Gross profit		53,155			50,009		45,612		46,722
Net income (loss)		(5,047	)		8,853		3,348		6,179
Basic net income (loss) per share		(0.05	)		0.08		0.03		0.06
Diluted net income (loss) per share		(0.05	)		0.08		0.03		0.06
	Fiscal Year Ended March 28, 2004
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	83,045		$	80,777	$	87,100	$	94,521
Gross profit (loss)		34,321			38,576		41,475		46,456
Net loss		(4,752	)		1,150		2,340		7,658
Basic net income (loss) per share		(0.05	)		0.01		0.02		0.07
Diluted net income (loss) per share		(0.05	)		0.01		0.02		0.07

During fiscal year 2005, the Company recorded restructuring and impairment charges of $0.7 million, $0.4 million and $5.8 million in the first, third and fourth quarters of fiscal 2005, respectively. In addition, we recorded credits to restructuring and impairment as the proceeds from the sale of land and equipment exceeded the impaired value of the assets. These credits of $0.2 million, $1.6 million, $0.1 million, and $0.6 million in the first, second, third and fourth quarters of fiscal 2005, respectively. The first quarter includes a $12.8 million other-than-temporary impairment loss in connection with the sale of the Company’s investment in NetLogic Microsystems. The first quarter also includes a $1.7 million IPR&D charge in connection with the acquisition of ZettaCom, Inc. The third quarter includes an additional IPR&D charge related to a follow-on payment made in connection with the acquisition of certain technologies from IBM in fiscal 2004.

During fiscal year 2004, the Company recorded restructuring charges of $0.6 million, $0.8 million, and $0.2 million in the first, second, and third quarters, respectively. The second quarter includes a $3.2 million gain recorded in connection with the sale of our remaining shares of PMC and the third quarter includes a $0.3 million IPR&D charge in connection with the acquisition of technology from IBM.

During fiscal year 2003, the Company recorded restructuring and asset impairment charges of $0.5 million, $1.9 million and $124.8 million in the first, third and fourth quarters, respectively. The second quarter includes an other than temporary impairment charge of $6.6 million on the Company’s investment in PMC and the third quarter includes a $2.7 million IPR&D charge in connection with the acquisition of Solidum. IDT also recorded a 100% tax valuation allowance of $88.7 million against its net Deferred Tax Assets in the fourth quarter of fiscal 2003.

For further discussion of these and other items, see Item 7. Management’s Discussion and Analysis and Item 8. Notes to Consolidated Financial Statements.

62

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the company’s internal control over financial reporting as of April 3, 2005. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework.

Based on our assessment using those criteria, we concluded that our internal control over financial reporting was effective as of April 3, 2005.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of April 3, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8 of this Annual Report on Form 10-K.

63

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item with respect to the Company’s Directors is incorporated herein by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended April 3, 2005 and the information required by this item with respect to the Company’s executive officers is incorporated herein by reference from the section entitled “Executive Officers of the Registrant” in Part I, Item 4A of this Report.

The information concerning compliance with Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders. We have adopted a written code of business ethics that applies to all of our employees and to our Board of Directors. A copy of the code is available on our website at http://www.idt.com. If we make any substantive amendments to the code of business ethics or grant any waiver from a provision of the code of business ethics to any of our directors or officers, we will promptly disclose the nature of the amendment or waiver on our website.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements. See “Index to Consolidated Financial Statements” under Item 8 of this Annual Report.

2. Financial Statement Schedules. See Schedule II, “Valuation and Qualifying Accounts,” included with this Annual Report.

3. Exhibits. The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this report.

Exhibit No.	Description
2.1*	Agreement and Plan of Reorganization dated as of October 1, 1996, by and among the Company, Integrated Device Technology Salinas Corp. and Baccarat Silicon, Inc. (previously filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 1996).
2.2*	Agreement of Merger dated as of October 1, 1996, by and among the Company, Integrated Device Technology Salinas Corp. and Baccarat Silicon, Inc. (previously filed as Exhibit 2.2 to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 1996).
2.3*	Agreement and Plan of Merger, dated as of November 1, 1998, by and among the Company, Penguin Acquisition, Inc. and Quality Semiconductor, Inc. (previously filed as Exhibit 2.03 to the Registration Statement on Form S-4 filed on March 24, 1999).
3.1*	Restated Certificate of Incorporation (previously filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 2000).
3.2*	Certificate of Amendment of Restated Certificate of Incorporation (previously filed as Exhibit 3(a) to the Registration Statement on Form 8 dated March 28, 1989).
3.3*	Certificate of Amendment of Restated Certificate of Incorporation (previously filed as Exhibit 4.3 to the Registration Statement on Form S-8 (File Number 33-63133) filed on October 2, 1995).
3.4*	Certificate of Designations specifying the terms of the Series A Junior Participating Preferred Stock of IDT, as filed with the Secretary of State of Delaware (previously filed as Exhibit 3.6 to the Registration Statement on Form 8-A filed December 23, 1998).
3.5*	Bylaws of the Company, as amended and restated effective December 21, 1998 (previously filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 1998).
4.1*	Rights Agreement dated December 21, 1998 between the Company and BankBoston, N.A., as Rights Agent (previously filed as Exhibit 4.1 to the Registration Statement on Form 8-A filed December 23, 1998).
10.1*	Second Amendment to Lease dated September 1999 between the Company and Morton and Jeanette Rude Trust relating to 2975 Stender Way, Santa Clara, California (previously filed as Exhibit 10.1 to the Annual Report on Form 10-K for the fiscal year ended April 2, 2000).
10.2*	Third Amendment to Lease dated August 1999 between the Company and Spieker Properties L.P. relating to 3001 Stender Way, Santa Clara, California (previously filed as Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended April 2, 2000).
10.3*	Lease dated September 1999 between the Company and S.I. Hahn LLC relating to 2972 Stender Way, Santa Clara, California (previously filed as Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended April 2, 2000).

65

Exhibit No.	Description
10.4*	Amended and Restated 1984 Employee Stock Purchase Plan, as amended through August 27, 1998 (previously filed as Exhibit 4.10 to the Registration Statement on Form S-8 (File Number 333-64279) filed on September 25, 1998).**
10.5*	1994 Stock Option Plan, as amended as of September 22, 2000 (previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2000).**
10.6*	1994 Directors Stock Option Plan and related documents (previously filed as Exhibit 10.18 to the Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1994).**
10.7*	Form of Indemnification Agreement between the Company and its directors and officers (previously filed as Exhibit 10.68 to Annual Report on Form 10-K for the fiscal year ended April 2, 1989).**
10.8*	Technology License Agreement between the Company and MIPS Technologies, Inc (previously filed as Exhibit 10.8 to the Annual Report on Form 10-K for the fiscal year ended March 28, 1999). (Confidential Treatment Granted).
10.10*	Master Distributor Agreement dated August 26, 1985 between the Company and Hamilton/Avnet Electronics, Division of Avnet, Inc. (previously filed as Exhibit 10.54 to the Registration Statement on Form S-1 (File Number 33-3189))
10.12*	1995 Executive Performance Plan (previously filed as Exhibit 10.22 to the Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1995).**
10.13*	Form of Change of Control Agreement between the Company and certain of its officers **
10.14*	Lease dated December 2002 between the Company and LaGuardia Associates relating to 710 LaGuardia Street, Salinas, California.
10.15*	Registration Rights Agreement dated as of October 1, 1996 among the Company, Carl E. Berg and Mary Ann Berg (previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Fiscal Quarter Ended December 29, 1996).
10.16*	1997 Stock Option Plan (previously filed as Exhibit 10.23 to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002.
10.17*	Purchase and Sale Agreement and Joint Escrow Instructions between the Company and Cadence Design Systems, Inc., dated December 1998 (previously filed as Exhibit 10.27 to the Registration Statement on Form S-4 as filed on March 24, 1999).
10.18*	Distributor Agreement dated June 22, 2000 between the Company and Arrow Electronics, Inc. (previously filed as Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year ended April 1, 2001). ***
10.19*	Agreement For Purchase And Sale Of Real Property Between Baccarat Silicon, Inc. and Dan Caputo Co. dated August 5, 2003 (previously filed as Exhibit 10.19 to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2003).
10.20*	Lease between the Company and S.I. Hahn, LLC dated February 2000 relating to 2901 Coronado Drive, Santa Clara, California (previously filed as Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended April 2, 2000).
10.21*	Non-Qualified Deferred Compensation Plan effective November 1, 2000 (previously filed as Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended April 1, 2001).**
10.22*	Employment Contract between IDT and Gregory Lang (previously filed as Exhibit 10.22 to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2001.**

66

Exhibit No.	Description
10.23*	Master purchase agreement between Cisco Systems, Inc. and Integrated Device Technology, Inc. dated May 7, 2003 (previously filed as exhibit 10.24 to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2003). ***
10.24*	1984 Employee Stock Purchase Plan, as amended and restated effective September 29, 2003 (previously filed as exhibit 10.25 to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2003).**
10.25*	2004 Equity Plan (previously filed as exhibit 10.25 to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 2004) **
10.26	Agreement For Purchase And Sale Of Real Property Between the Company and Electroglas, Inc. dated December 16, 2004
21.1	Subsidiaries of the Company.
23.1	Consent of PricewaterhouseCoopers LLP.
31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated June 14, 2005.
31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated June 14, 2005.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* This exhibit was previously filed with the Commission as indicated and is incorporated herein by reference.

** This exhibit is a management contract or compensatory plan or arrangement.

*** Confidential treatment has been requested for certain portions of this document pursuant to an application for confidential treatment sent to the Securities and Exchange Commission (SEC). Such portions have been redacted and marked with a triple asterisk. The non-redacted version of this document has been sent to the SEC.

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SIGNATURES

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

	INTEGRATED DEVICE TECHNOLOGY, INC. Registrant
June 14, 2005	By:	/s/    GREGORY S. LANG
		Gregory S. Lang
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature	Title	Date
/s/    GREGORY S. LANG         Gregory S. Lang	Chief Executive Officer, President and Director (Principal Executive Officer)	June 14, 2005
/s/    CLYDE R. HOSEIN         Clyde R. Hosein	Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)	June 14, 2005
/s/    JOHN C. BOLGER         John C. Bolger	Director	June 14, 2005
/s/    KENNETH KANNAPPAN         Kenneth Kannappan	Chairman of the Board and Director	June 14, 2005
/s/    JOHN SCHOFIELD         John Schofield	Director	June 14, 2005
/s/    DAVE ROBERSON         Dave Roberson	Director	June 14, 2005
/s/    RONALD SMITH         Ronald Smith	Director	June 14, 2005

68

SCHEDULE II

INTEGRATED DEVICE TECHNOLOGY, INC.

VALUATION AND QUALIFYING ACCOUNTS

(dollars in thousands)	Balance at Beginning of Period		Additions Charged (Credited) to Costs and Expenses			Charged (Credited) to Other Accounts		Deductions and Write-offs			Balance at End of Period
Allowance for returns and doubtful accounts
Year ended March 30, 2003 (1)	$	2,848	$	(839	)	$	1,065	$	(1,467	)	$	1,607
Year ended March 28, 2004 (1)		1,607		117			701		(760	)		1,665
Year ended April 3, 2005 (1)		1,665		(338	)		1,646		(1,556	)		1,417
Tax valuation allowance
Year ended March 30, 2003 (2)	$	61,989	$	172,962		$	10,580	$	—		$	245,531
Year ended March 28, 2004 (2)		245,531		(30,291	)		—		—			215,240
Year ended April 3, 2005 (2)		215,240		(9,346	)		8,864		—			214,758

(1) Balance as of the end of fiscal 2005, 2004, and 2003 includes both the allowance for doubtful accounts and the sales returns reserve. Amounts recorded to the allowance for doubtful accounts are included above in the “Charged (Credited) to Costs and Expenses” column as the charges are included in the SG&A expense caption of the consolidated statement of operations. Amounts recorded to the sales return reserve are included in the “Charged (Credited) to Other Accounts” as the charges are taken against the revenue line item on the consolidated statement of operations.

(2) Balance as of the end of fiscal 2005, 2004 and 2003 includes approximately $46.3 million, $47.5 million and $48.3 million, respectively, for deferred tax assets that are attributable to stock option deductions arising from activity under the Company’s stock option plans, the benefits of which will increase capital in excess of par value when realized. In addition, $24.8 million of valuation allowance at the end of fiscal 2005 will be allocated to reduce goodwill or other non-current intangible assets, when realized, from companies IDT has acquired. This activity is reported above in the “Charged (Credited) to Other Accounts” column.

EX-10.26

Exhibit 10.26

AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY

This Agreement for Purchase and Sale of Real Property (“Agreement”) is made as of this 16th day of December, 2004 (“Effective Date”) by and between ELECTROGLAS, INC., a Delaware corporation (“Seller”), and INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation (“Buyer”).

RECITALS

A. Seller is the owner of a four-building campus containing an aggregate of approximately two hundred sixty-three thousand thirty-nine (263,039) square feet located on approximately 21.507 acres of land commonly known as 6024 Silver Creek Valley Road, in the City of San Jose, County of Santa Clara, State of California.

B. Buyer desires to purchase and Seller desires to sell the above property for the purchase price and on the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

1. 1. Purchase and Sale of Property. Seller shall sell to Buyer, and Buyer shall purchase from Seller, upon the terms and conditions hereinafter set forth, the following:

2. 1.1 Real Property. The real property more particularly described on Exhibit “A” together with all of Seller’s right, title and interest in and to the rights appurtenant thereto, any and all easements, rights of way or other appurtenances reflected in the public records and used in connection with the beneficial use and enjoyment of said real property and all of Seller’s right, title and interest in and to all public roads and alleys adjoining or servicing said real property (collectively, the “Land”), together with the four buildings (“Building A,” “Building B”, “Building C” and “Building D”) as more particularly described and identified on Exhibit “B” attached hereto containing in the aggregate approximately two hundred sixty-three thousand thirty-nine (263,039) square feet and all other buildings, improvements and fixtures located on the Land (“Buildings”), and, with the exception of the Seller Retained Property (as defined in Section 1.3 below), all equipment owned by Seller and used in the operation of the Buildings, such as heating, ventilating and air conditioning systems, compressors, vacuum systems, generators, and emergency power generators (“Building Improvements”) (the Buildings and Building Improvements are hereafter collectively referred to as the “Improvements”) (the Land and the Improvements are hereafter collectively referred to as the “Real Property”).

3. 1.2 Intangible Personal Property. All air rights, licenses, franchises, permits, development rights, certificates of occupancy, entitlements, general intangibles, authorizations and approvals now or hereafter owned by Seller and used in connection with the ownership, use and operation of the Real Property (“Intangible Personal Property”).

4. 1.3 Personal Property. Seller’s right, title and interest in (a) all furniture located within the Buildings including, without limitation, office furniture, cubicles, demountable walls, cafeteria furniture, break room furniture, conference room furniture, lobby and ancillary furniture and patio furniture; (b) the security system servicing the Buildings, including all equipment, software, cameras and infrastructure associated with the security system; (c) all cafeteria fixtures and equipment; (d) all audiovisual equipment located and used within the Buildings; and (e) all fitness center equipment, all as more particularly described on Exhibit “C” attached hereto (collectively, the “Personal Property”), but excluding that certain personal property listed on Exhibit “C-l” attached hereto which will be retained by Seller (“Seller-Retained Property”).

5. 1.4 Contracts. Seller’s right, title and interest, to the extent transferable, in the Contracts (as defined in Section 7.3 below) pertaining to the Real Property that Buyer elects to assume at the Close of Escrow pursuant to Section 7.3 hereof.

6. 1.5 Leases. Seller’s right, title and interest in the Leases (as defined in Section 7.7 below) affecting the Real Property.

¨.1.6 Documents. Seller’s right, title and interest, to the extent transferable, in all guarantees, warranties, surveys, engineering studies and reports (including, without limitation, soils, environmental, geotechnical and structural surveys and studies), permits required for the operation of the Real Property, licenses, certificates, franchises and building plans and specifications relating to the Real Property (collectively, the “Documents”).

¨.The Real Property, Intangible Personal Property, Personal Property, Contracts and Documents are hereafter collectively referred to as the “Property.”

7. 2. Purchase Price. Buyer shall pay Twenty-nine Million Dollars ($29,000,000) for the Property (“Purchase Price”).

8. 3. Payment of Purchase Price. The Purchase Price for the Property shall be evidenced by and paid to Seller as follows:

9. 3.1 Initial Deposit. Prior to Buyer’s execution of this Agreement, Buyer deposited with Escrow Holder (as defined in Section 4.1 below), the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) (“Initial Deposit”). Pursuant to written instructions from Buyer, Escrow Holder placed the Initial Deposit in an interest-bearing account with all interest accruing to Buyer. If Buyer terminates this Agreement or is deemed to have terminated this Agreement prior to or upon the expiration of the Feasibility Period (as defined in Section 6 below), Escrow Holder shall return the Initial Deposit and all interest accrued thereon to Buyer. If Buyer gives Seller and Escrow Holder written notice of approval of Buyer’s Feasibility Conditions (as defined in Section 6.1) prior to the expiration of the Feasibility Period in accordance with Section 6.2, the Initial Deposit shall become nonrefundable to Buyer, except as otherwise provided in this Agreement. The Initial Deposit shall be credited against the Purchase Price at the Close of Escrow (as defined in Section 4.2 below).

10. 3.2 Additional Deposit. Unless Buyer terminates this Agreement or this Agreement is deemed terminated in accordance with Section 6.2, Buyer shall, on or before the last day of the Feasibility Period, deposit with Escrow Holder cash in the amount of Two Hundred Fifty Thousand Dollars ($250,000) (“Additional Deposit”).

Escrow Holder shall deposit the Additional Deposit into an interest-bearing account together with the Initial Deposit. The Additional Deposit shall be nonrefundable, except as otherwise provided in this Agreement. The Additional Deposit shall be credited against the Purchase Price at the Close of Escrow. If Buyer fails to complete the purchase of the Property in accordance with this Agreement, then Seller shall be entitled to retain the Initial Deposit and the Additional Deposit as liquidated damages pursuant to Section 13.1 hereof.

11. 3.3 Purchase Price Balance. On or before the Closing Date (as defined in Section 4.2), Buyer shall deposit with Escrow Holder cash in the amount of the Purchase Price, less the sum of the Initial Deposit and the Additional Deposit and all interest accrued thereon.

¨.3.4 Allocation of Purchase Price. A portion of the Purchase Price equal to Two Hundred Fifty Thousand Dollars ($250,000) shall be allocated to the tangible personal property subject to state and local sales tax not including fixtures conveyed by Seller to Buyer hereunder. Seller shall pay all sales taxes levied upon the sale of such tangible personal property not including fixtures and shall indemnify, defend and hold Buyer harmless from all such sales tax liability. The foregoing obligation shall survive the Close of Escrow.

¨.4. Escrow.

12. 4.1 Escrow Holder. Concurrently with the execution of this Agreement, the parties shall open an escrow (“Escrow”) with First American Title Company, whose address is 1737 North First Street, Suite 100, San Jose, California 95112, Attention: Ms. Dian Blair, (408) 451-7800 (“Escrow Holder” or “Title Company”, as applicable) for purposes of consummating the transaction contemplated by this Agreement. Concurrently with the opening of Escrow, the parties shall deliver to Escrow Holder a copy of this Agreement and instructions for the disposition of the Initial Deposit and Additional Deposit in accordance with the terms of this Agreement. At least twenty-four (24) hours prior to the Close of Escrow, Buyer and Seller shall each deliver to Escrow Holder written closing instructions and all executed documents, payments and funds necessary to complete the same in accordance with the terms hereof.

13. 4.2 Close of Escrow. Subject to the satisfaction of the conditions precedent set forth in Section 8, the Close of Escrow for the purchase and sale of the Property shall occur on January 5, 2005. For purposes of this Agreement, the “Close of Escrow” or the “Closing Date” shall mean the date that the Grant Deed (as defined in Section 10.1.1) is recorded by Escrow Holder in the Official Records of Santa Clara County, California. If possible, the parties shall arrange a special recording with the Escrow Holder so that Buyer may wire the balance of the Purchase Price into Escrow on the Closing Date and Seller’s proceeds may be wired to Seller the same day. If a special recording is not permitted by the County Recorder on the Closing Date, then Buyer shall deposit the balance of the Purchase Price into Escrow the day prior to the Closing Date.

5. Title.

5.1 Approval of Title and Survey.

5.1.1 Title Approval. Prior to the Effective Date, Escrow Holder provided

Buyer with a current preliminary title report for the Real Property (the “Title Report”) issued by Escrow Holder, together with copies of all related underlying documents. By letter to Seller’s counsel dated December 15, 2004, Buyer notified Seller of Buyer’s objections to specific exceptions to title as reflected in the Title Report (“Disapproved Title Exceptions”). All other exceptions to title shown on the Title Report not included in the Disapproved Title Exceptions shall be deemed approved by Buyer. Within three (3) days after receipt of Buyer’s notice of any Disapproved Title Exceptions, Seller may elect to (i) commit to cause such Disapproved Title Exceptions to be released of record or to cause the Title Company to endorse over such Disapproved Title Exceptions, prior to the Close of Escrow, or (ii) elect not to commit to remove any Disapproved Title Exceptions. If Seller fails to give notice of its election within said three (3) day period, Seller shall be deemed to have elected not to remove any Disapproved Title Exceptions. Notwithstanding the foregoing, Seller shall be obligated to remove any delinquent taxes or assessments, mechanic’s liens, judgment liens or monetary encumbrances (other than assessment district liens) affecting the Property (collectively, “Monetary Encumbrance”) prior to the Close of Escrow. Notwithstanding the foregoing, Seller may remove any mechanic’s lien affecting the Property by means of a bond that removes such lien from title. If Seller elects or is deemed to have elected not to remove any Disapproved Title Exceptions, Buyer shall have until the expiration of the Feasibility Period, to (i) elect to terminate this Agreement, or (ii) waive its objection to the Disapproved Title Exceptions and proceed to the Close of Escrow. Buyer’s failure to make such election within said three (3) day period shall be deemed Buyer’s waiver of the Disapproved Title Exceptions and election to proceed to the Close of Escrow.

1. 5.1.2 Survey Approval. During the Feasibility Period, Buyer shall have the right, but not the obligation to obtain an ALTA survey of the Real Property (“Survey”). On or before December 23, 2004, Buyer may notify Seller in writing of any objections Buyer may have with respect to the Survey (“Disapproved Survey Exceptions”). Failure of Buyer to give Seller written notice of any Disapproved Survey Exceptions on or before December 23, 2004 shall be deemed Buyer’s approval of the Survey. If Buyer provides notice of any Disapproved Survey Exceptions, then on or before December 27, 2004, Seller may elect to (i) cause such Disapproved Survey Exceptions to be removed prior to the Close of Escrow, or (ii) elect not to commit to remove any Disapproved Survey Exceptions. If Seller fails to give notice of its election on or before December 27, 2004, Seller shall be deemed to have elected not to remove any Disapproved Survey Exceptions. If Seller elects or is deemed to have elected not to remove any Disapproved Survey Exceptions, Buyer shall have the until and including December 29, 2004 to (A) elect to terminate this Agreement, or (B) waive its objection to the Disapproved Survey Exceptions and proceed to the Close of Escrow. Buyer’s failure to make such election within said time period shall be deemed Buyer’s waiver of the Disapproved Survey Exceptions and election to proceed to the Close of Escrow.

2. 5.1.3 Termination of Agreement. In the event this Agreement is terminated pursuant to this Section 5.1, Escrow Holder shall return the Initial Deposit and all interest accrued

thereon to Buyer, and thereafter neither party shall have any further obligation hereunder except with respect to the indemnity obligations pursuant to Sections 7.6 and 12 of this Agreement.

1. 5.2 Failure to Remove Disapproved Exceptions. If, after having committed to remove a Disapproved Title Exception or Disapproved Survey Exception, Seller is unable, despite its best efforts, to cause such Disapproved Title Exception or Survey Exception to be released of record or endorsed over, Buyer shall have the option, on or before the Close of Escrow, to (i) terminate this Agreement by written notice to Seller and Escrow Holder, in which case Escrow Holder shall immediately return to Buyer the Initial Deposit and Additional Deposit and all interest accrued thereon by Buyer’s unilateral instruction and thereafter neither party shall have any further obligation hereunder except with respect to the indemnity obligations in Sections 7.6 and 12 of this Agreement, or (ii) waive its objection to the Disapproved Title Exception or Disapproved Survey Exception in question by delivering written notice of such waiver to Seller and Escrow Holder and proceed to the Close of Escrow without adjustment in the Purchase Price. If Buyer fails to deliver the waiver notice described in the preceding sentence, Buyer shall be deemed to have elected to proceed under clause (i) above. Notwithstanding the foregoing, Seller’s failure to remove a Monetary Encumbrance on or before the Close of Escrow shall be a default by Seller under this Agreement. Seller may use its proceeds from the Purchase Price to remove any Monetary Encumbrance.

2. 5.3 Permitted Exceptions. As used herein, “Permitted Exceptions” shall mean all exceptions to title shown on the Title Report which are (i) standard preprinted exceptions in the Title Policy (as defined in Section 5.5) issued by Escrow Holder other than the “creditors rights” exception, which Seller shall cause to be removed, (ii) general and special real property taxes and assessments, a lien not yet due and payable, (iii) any other liens, easements, encumbrances, covenants, conditions and restrictions of record approved or expressly waived or deemed waived pursuant to Section 5.1, (iv) all Survey exceptions approved or expressly waived or deemed waived pursuant to Section 5.1 and (v) Seller’s Lease (as defined in Section 5.6).

3. 5.4 New or Additional Exceptions. Prior to the Close of Escrow, Seller shall not create or allow to exist any additional title exceptions, execute any leases of the Property or further encumber the Property for a period beyond the Close of Escrow, except with Buyer’s prior written consent, which may be given or withheld in Buyer’s sole and absolute discretion. If between the date of Buyer’s approval of title and the Close of Escrow, any additional exception to title appears as shown in a supplemental title report issued by the Title Company that is not approved by Buyer or caused by Buyer or Buyer’s activities on the Property (in which case the additional title exception shall be deemed a Permitted Exception), Buyer shall give prompt written notice of such new title exception to Seller. Seller shall be obligated to remove from title (or to cause to be insured over to Buyer’s reasonable satisfaction) any Monetary Encumbrance or such additional title exceptions that are voluntarily created by Seller between the expiration of the Feasibility Period and the Close of Escrow. With respect to any such additional title exceptions that are not a Monetary Encumbrance or that were not voluntarily created by Seller, Buyer shall have the right to either (i) terminate this Agreement by giving written

notice to Seller and Escrow Holder and obtain the refund of the Initial Deposit and Additional Deposit and all interest accrued thereon and thereafter neither party shall have any further obligation hereunder

except with respect to the indemnity obligations pursuant to Sections 7.6 and 12 of this Agreement, or

(ii) proceed with the Close of Escrow and acquire the Property subject to such additional title exceptions without any adjustment in the Purchase Price.

1. 5.5 Title Insurance. Buyer’s obligation to proceed to the Close of Escrow shall be conditioned upon the commitment by Escrow Holder to issue an ALTA Extended Coverage Owner’s Policy of Title Insurance with such endorsements as Buyer may require and which Escrow Holder agrees to issue during the Feasibility Period with a liability limit equal to the Purchase Price, insuring fee simple title to the Real Property vested in Buyer subject only to the Permitted Exceptions (the “Owner’s Title Policy”). Buyer shall be responsible, at Buyer’s sole cost and expense, for obtaining an ALTA Survey of the Property, and the payment of the ALTA portion of the title policy premium and the cost of any endorsements required by Buyer.

2. 5.6 Seller’s Lease. Seller shall continue to occupy all of the Buildings after the Close of Escrow pursuant to a Lease in the form attached hereto as Exhibit “D” (“Lease”), which Seller and Buyer shall execute and deliver into Escrow prior to the Close of Escrow.

3. 6. Buyer’s Feasibility Conditions. Buyer’s obligation to purchase the Property under this Agreement shall be conditioned and contingent upon the satisfaction or waiver in Buyer’s sole and absolute discretion of the feasibility conditions set forth in Section 6.1 (“Buyer’s Feasibility Conditions”) on or before 5:00 p.m. Pacific Time on December 22, 2004 (“Feasibility Period”).

4. 6.1 Buyer’s Feasibility Conditions. Buyer’s Feasibility Conditions shall consist of the following:

1. 6.1.1 Title. Buyer’s approval of the state of title to the Property, including (i) review and approval of the Title Report and of all documents constituting title exceptions thereunder, (ii) review and approval of an ALTA Survey for the Property (at Buyer’s option), and (iii) a determination that Escrow Holder will issue at the Close of Escrow the Owner’s Title Policy in the form specified in Section 5.5.

2. 6.1.2 Due Diligence Documents. Buyer’s review and approval of the Due Diligence Documents (as defined in Section 7.1).

6.1.3 Contracts. Buyer’s review, approval and designation of those Contracts that Buyer will assume at the Close of Escrow in accordance with Section 7.3.

6.1.4 Leases. Buyer’s review and approval of the Leases.

3. 6.1.5 Project Approvals. Buyer’s determination (i) that Buyer’s intended use of the Property conforms with all applicable zoning ordinances, subdivision laws, covenants, conditions and restrictions and all other land use laws and regulations to which the Property is subject, (ii) that the City will not impose any undue restrictions on approvals required for Buyer’s intended use of the Property; (iii) that Buyer will be able to obtain all governmental approvals and permits necessary for Buyer’s intended use of the Property; and (iv) that the Property is otherwise satisfactory for Buyer’s intended use.

1. 6.1.6 Physical Inspection. Buyer’s approval of such Physical Inspections (as defined in Section 7.4) which Buyer elects to undertake with respect to the Property during the Feasibility Period. All costs, expenses, liabilities or charges incurred in or related to the performance of any and all such Physical Inspections shall be the responsibility of Buyer.

2. 6.1.7 Environmental Condition. Buyer’s approval of the environmental condition of the Property, such Environmental Investigations (as defined in Section 7.5) which Buyer elects to undertake with respect to the Property during the Feasibility Period and Buyer’s review and approval of all studies, reports and documents relating to the environmental condition of the Property and properties in the vicinity of the Property, if any. All costs, expenses, liabilities or charges incurred in or related to the performance or review of any Environmental Investigation shall be the responsibility of Buyer.

3. 6.1.8 Other Matters. Buyer’s investigation and approval of such other matters concerning the Property as Buyer deems appropriate or necessary in its sole discretion.

4. 6.2 Waiver or Satisfaction of Conditions. Buyer’s Feasibility Conditions are solely for the benefit of Buyer and may be waived by Buyer in writing. If Buyer approves Buyer’s Feasibility Conditions, Buyer shall give Seller and Escrow Holder written notice of such approval not later than 5:00 p.m. Pacific Time on the last day of the Feasibility Period. If Buyer gives written notice of disapproval of Buyer’s Feasibility Conditions or fails to give written notice of approval of Buyer’s Feasibility Conditions prior to 5:00 p.m. Pacific Time on the last day of the Feasibility Period, this Agreement shall be deemed terminated, the Initial Deposit and all interest accrued thereon shall be returned to Buyer, and neither party shall have any further obligation hereunder except for Buyer’s indemnity obligation under Sections 7.6 and 12 hereof. Buyer’s failure to give its notice of approval of Buyer’s Feasibility Conditions prior to 5:00 p.m. Pacific Time on the last day of the Feasibility Period shall be deemed Buyer’s disapproval of Buyer’s Feasibility Conditions. Buyer’s timely notice of approval of Buyer’s Feasibility Conditions shall serve as Buyer’s election to proceed to the Close of Escrow.

7. Due Diligence Documents; Right of Entry.

7.1 Due Diligence Documents. To the extent Seller has not already provided such documents to Buyer prior to the Effective Date, Seller shall, immediately after the Effective Date, provide Buyer with copies of the following documents for Buyer’s review during the Feasibility Period, to the extent such documents exist and are in the possession of Seller or its consultants (collectively, “Due Diligence Documents”):

(a) the originals or copies of the “as-built” architectural and engineering plans and specifications for the Buildings and Building Improvements;

(b) any existing ALTA survey of the Real Property;

¨. (c) copies of all Phase I and Phase II environmental reports and any other environmental reports, and any soils reports;

(d) a copy of any covenants, conditions and restrictions recorded against the Real Property;

(e) copies of real property tax bills for the fiscal years 2002-2003, 2003-2004 and 2004-2005;

(f) copies of any and all permits and certificates of occupancy issued by any governmental authority with respect to the Buildings or the Real Property;

(g) copies of all Contracts and Documents;

¨. (h) copies of any leases, licenses or occupancy agreements made between Seller and any tenants, licensees or occupants of the Property;

(i) copies of the operating statements for the Property for 2005 and for the years 2003 and 2004, including operating expense history and all capital expenditures;

(j) copies of the most recent fire department inspection reports;

¨.(k) a schedule of any offsite or onsite improvement work Seller is obligated to complete, but has not yet completed, and capital improvement work in process, if any;

¨.(l) all materials provided to Seller by any previous potential purchaser of the Property; and

¨.(m) Such other documents, plans, records, files or other information regarding the Real Property, Buildings, Building Improvements, Personal Property, Intangible Personal Property, Contracts and Documents as may be in the possession of Seller or its agents and consultants excluding corporate, financial and accounting records or other proprietary information regarding the operations of Seller.

1. 7.2 Due Diligence Documents List. To the extent Seller has not done so prior to the Effective Date, Seller shall provide Buyer with a list of the Due Diligence Documents upon the Effective Date.

2. 7.3 Contracts. To the extent Seller has not done so prior to the Effective Date, Seller shall, immediately upon execution of this Agreement, provide Buyer with copies of all service, operation and maintenance contracts affecting the Property (“Contracts”). Prior to the expiration of the Feasibility Period, Buyer shall provide Seller with written notice designating all Contracts that Buyer elects to assume at the Close of Escrow. With respect to all other Contracts, Seller shall terminate such Contracts prior to the Close of Escrow; provided, however, to the extent that any of such Contracts are not terminable by Seller in the time frame between the expiration of the Feasibility Period and the Close of Escrow, then Seller shall remain liable for any

payments under such Contracts until the date of termination thereof. Notwithstanding the foregoing, to the extent Seller desires to use the cafeteria and fitness center in Building D during the term of the Lease, Seller shall maintain any Contracts applicable to the operation and maintenance of the cafeteria and fitness center in full force and effect after the Close of Escrow and shall be responsible for any payments due to the vendors under such Contracts.

1. 7.4 Physical Inspection. During the Feasibility Period, Buyer and Buyer’s employees, agents, contractors and consultants (“Buyer’s Parties”) shall have the right to enter the Real Property to perform such investigations and inspections of the Property, including but not limited to soil, engineering, geological, structural and visual tests and inspections (collectively, “Physical Inspections”) as Buyer deems reasonably necessary at Buyer’s sole cost and expense. In conducting such Physical Inspections, Buyer and Buyer’s Parties shall comply with all applicable laws, statutes, ordinances, rules and regulations. Buyer shall provide reasonable advance notice (which may be telephonic) to Seller at Seller’s address for notice set forth in Section 16.1 of any desired entry onto the Real Property by Buyer or Buyer’s Parties to perform Physical Inspections, stating the date on which Buyer desires such entry to occur, the name, address and telephone number of the Buyer’s Party who will make the entry, and the nature and location on the Real Property of the inspection to be performed. In the event that Buyer proposes to perform any destructive or invasive Physical Inspection, Seller shall approve or disapprove the proposed Physical Inspection within one (1) business day after receipt of such notice; provided, however, that Seller shall not unreasonably withhold approval to any invasive Physical Inspection. Seller’s failure to provide disapproval within said one (1) business day period shall be deemed Seller’s approval of such Physical Inspection. If Buyer or Buyer’s Parties take any sample from the Property in connection with an invasive Physical Inspection, Buyer shall provide to Seller a portion of such sample to allow Seller, if it so chooses, to perform its own testing. If Buyer does not purchase the Property and has received a refund of the Initial Deposit and Additional Deposit, then Buyer shall deliver copies of any reports relating to Physical Inspections performed by Buyer or Buyer’s Parties. At Seller’s option, any Physical Inspection that Buyer desires to perform within the Buildings may be scheduled before or after Seller’s regular working hours so as not to interfere with Seller’s use and occupancy of the Building. Buyer shall promptly repair any damage to the Buildings occurring as a result of a Physical Inspection to the condition that existed prior to such damage at its sole cost and expense. All Physical Inspections shall be subject to Section 7.6 hereof.

2. 7.5 Environmental Investigations. During the Feasibility Period, Buyer and Buyer’s Agents may enter the Real Property to perform such environmental assessments (including a Phase I and Phase II environmental assessment) of the Real Property (“Environmental Investigation”) which Buyer elects to undertake at Buyer’s sole cost and expense. Prior to performing any Environmental Investigation, Buyer shall submit to Seller at Seller’s address for notice set forth in Section 16.1 below, prior written notice of the date of Buyer’s proposed entry onto the Real Property for such Environmental Investigation, the name of Buyer’s environmental consultant who will conduct the investigation, and a description of the Environmental Investigation to be performed. In the event that Buyer proposes to perform any Environmental Investigation involving soil and/or groundwater sampling,

Seller shall approve or disapprove the proposed Environmental Investigation within one (1) business day after receipt of such notice; which approval may be withheld in Seller’s sole discretion; provided, however, if Seller disapproves of the proposed Environmental Investigation, Seller shall provide Buyer with written notice of its disapproval and the reasons therefor. Seller’s failure to provide written notice of disapproval within said one (1) business day period shall be deemed Seller’s approval of such Environmental Investigation. If Buyer or Buyer’s Parties take any sample from the Property in connection with an Environmental Investigation involving soil and/or groundwater sampling, Buyer shall provide to Seller a portion of such sample to allow Seller, if it so chooses, to perform its own testing. If Buyer does not purchase the Property and has received a refund of the Initial Deposit and Additional Deposit, then Buyer shall deliver copies of any reports relating to Environmental Investigation performed by Buyer or Buyer’s Parties. If the Environmental Investigation will occur within the Buildings, Seller may require that such Environmental Investigation be performed either before or after Seller’s regular working hours so as not to interfere with Seller’s use and occupancy of the Buildings. Buyer shall, at its sole cost and expense, obtain any and all permits and approvals required from applicable governmental agencies prior to commencing any testing that will disturb the surface of the Real Property. Seller’s representatives may be present at all times during the activities of Buyer and/or Buyer’s Parties on the Property. All Environmental Investigations shall be subject to Section 7.6 hereof.

7.6 Insurance, Indemnity. Buyer shall maintain a policy or policies of commercial general liability insurance insuring against claims and liabilities arising directly from or related to acts, omissions or investigations of Buyer and Buyer’s Parties in, on, or about the Real Property during the Feasibility Period. Such insurance shall have limits of not less than Two Million Dollars ($2,000,000.00) per occurrence and shall (i) specifically name Seller as an additional insured during the Feasibility Period, (ii) not be canceled or the coverage or liability limits reduced without thirty (30) days prior written notice to Seller, and (iii) provide coverage which is primary to such coverage carried by Seller and not in excess thereto. Buyer shall deliver insurance certificates to Seller prior to any entry onto the Real Property by Buyer or any of Buyer’s Parties. Buyer shall indemnify, defend and hold Seller harmless from and against any and all claims, liabilities, costs and expenses, including reasonable attorneys’ fees and other direct costs that Seller may actually incur as a result of Buyer’s activities on the Real Property; provided, however, that the foregoing indemnity shall not apply to (i) any loss, liability, cost, claim, damage, injury or expense to the extent arising from or related to the acts or omissions of Seller, (ii) any diminution in value in the Property arising from or relating to matters discovered by Buyer during its investigation of the Property, (iii) any latent defects in the Property discovered by Buyer, and

(iv) the release or spread of any Hazardous Substances which are discovered (but not deposited) on or under the Real Property by Buyer. The foregoing indemnity shall survive beyond the Close of Escrow, or, if the sale is not consummated, beyond the termination of this Agreement.

7.7 Leases. Seller has entered into those certain leases of portions of the Real Property more particularly described on Exhibit “E” attached hereto (“Leases”). At the Close of Escrow, Seller shall assign to Buyer all of Seller’s right, title and interest in the Leases pursuant to that certain Assignment and Assumption of Leases in the form attached hereto as Exhibit “I” (“Assignment of Leases”). During the Feasibility Period, Buyer shall have the right to obtain an estoppel certificate from each of the tenants under the Leases. Seller shall cooperate with Buyer in Buyer’s efforts to obtain such estoppel certificates. Buyer’s receipt of any such estoppel certificate shall not be a condition precedent to Buyer’s obligations hereunder.

7.8 Buyer’s Independent Investigation.

7.8.1 Buyer acknowledges and agrees that it has been given and will be given before the end of the Feasibility Period, a full opportunity to inspect and investigate each and every aspect of the Property (as it exists as of the end of the Feasibility Period), either independently or through Buyer’s Parties, including, without limitation:

¨.(a) all matters relating to title, together with all governmental and legal requirements such as taxes, assessments, zoning, use permit requirements and building codes;

¨.(b) subject to Sections 7.4 and 7.5 hereof, the physical and environmental condition of the Property;

¨.(c) any easements and/or access rights affecting the Property;

¨.(d) the Contracts; and

¨.(e) all other matters of material significance affecting the Property.

1. 7.8.2 BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 9.1 BELOW, SELLER IS SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN “AS IS WITH ALL FAULTS” BASIS AND THAT EXCEPT FOR BUYER’S RELIANCE ON SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 9.1 BELOW, BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER OR ITS AGENTS AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION: (i) the quality, nature, adequacy and physical condition of the Property, (ii) the quality, nature, adequacy, and physical condition of soils, geology and any groundwater, (iii) the existence, quality, nature, adequacy and physical condition of utilities serving the Property, (iv) the development potential of the Property, and the Property’s use, habitability, merchantability or fitness, suitability, value or adequacy of the Property for any particular purpose, (v) the zoning or other legal status of the Property or any other public or private restrictions on the use of the Property, (vi) the compliance of the Property or its operation with any applicable codes, laws, regulations, statutes,

ordinances, covenants, conditions and restrictions of any governmental or quasi-governmental entity or of any other person or entity, (vii) the condition of title to the Property, (viii) the economics of the operation of the Property and (ix) the type, quality or nature of any use or business conducted on any neighboring property.

2. 7.9 Release. Except as provided below in this Section 7.9, Buyer on behalf of itself and its successors and assigns waives its right to recover from, and forever releases and discharges Seller, Seller’s affiliates, and the partners, shareholders, directors, officers, employees and agents of each of them, and their respective heirs, successors, personal representatives and assigns, from any and all demands, claims, legal or administrative proceedings, losses, liabilities, damages, penalties, fines, liens, judgments, costs or expenses whatsoever (including, without limitation, attorneys’ fees and costs), whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with the physical condition of the Property or any law or regulation applicable thereto, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Safe Drinking Water (42 U.S.C. Section 300f et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the California Hazardous Waste Control Law (California Health and Safety Sections 25100-25600), the Porter-Cologne Water Quality Control Act (California Water Code Section 13000 et seq.) and the Safe Drinking Water and Toxic Enforcement Act (California Health and Safety Code Section 25249.5 et seq.). The foregoing release and waiver shall not extend to any claims Buyer and its successors and assigns may have with respect to (i) a breach by Seller of any of Seller’s representations and warranties set forth in Section 9.1, (ii) fraud, (iii) breach of the Lease by Seller; (iv) breach of any obligations of Seller under this Agreement that survive the Close of Escrow, and (v) any third-party claims for personal injury or property damage arising out of Seller’s use, occupancy or operations at the Property prior to the Close of Escrow or during the term of the Lease.

In connection with the release provided for above, Buyer expressly waives the benefits of Section 1542 of the California Civil Code, which provides as follows: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

The provisions of this Section 7.9 shall survive the Close of Escrow but shall only be effective against Buyer in the event the parties have consummated the Close of Escrow hereunder.

1. 8. Buyer’s Conditions to Close of Escrow. The Close of Escrow and Buyer’s

obligation to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions (or Buyer’s waiver thereof) for Buyer’s benefit on or prior to the Close of Escrow (“Buyer’s Closing Conditions”):

2. 8.1 Title Policy. The Title Company shall be committed to issue to Buyer the Owner’s Title Policy in the form specified in Section 5.5;

3. 8.2 Feasibility Conditions. Buyer has approved or waived Buyer’s Feasibility Conditions prior to the expiration of the Feasibility Period;

4. 8.3 Seller Performance. Seller shall have performed all obligations to be performed by Seller pursuant to this Agreement prior to the Close of Escrow;

5. 8.4 Delivery of Documents. Seller shall have deposited into Escrow for delivery to Buyer at the Close of Escrow the documents described and required pursuant to Section 11.1 of this Agreement;

6. 8.5 Representations and Warranties. No event or circumstance shall have occurred which would make any of Seller’s representations, warranties and covenants set forth in this Agreement untrue as of the Close of Escrow; and

7. 8.6 No Change. There shall have occurred no material adverse change in the environmental condition of the Property that would materially impair the use of the Property for the conduct of Buyer’s business in the period between the expiration of the Feasibility Period and the Close of Escrow.

If any of Buyer’s Closing Conditions have not been satisfied by the Closing Date, then Buyer shall give Seller and Escrow Holder written notice on or before the Closing Date specifying the particular condition that has not been satisfied. If Buyer delivers such notice, then Seller may postpone the Close of Escrow for a period up to ten (10) days after the scheduled Closing Date in order to permit Seller to take such action as is necessary to cause the closing condition specified in Buyer’s notice to be satisfied. If the condition specified in Buyer’s notice is not satisfied on the Closing Date, as extended, then Buyer may terminate this Agreement by providing written notice of such termination to Seller and Escrow Holder on or within fifteen (15) days after the extended Closing Date. If Buyer so terminates this Agreement, Escrow Holder shall return the Initial Deposit and Additional Deposit and all interest accrued thereon to Buyer, and neither party shall have any further obligation hereunder except for the indemnity obligations under Sections 7.6 and 12 hereof. Notwithstanding the foregoing, if any of Buyer’s Conditions Precedent set forth in Sections 8.3, 8.4 and 8.5 are not satisfied, Buyer shall have all of the rights and remedies set forth in Section 13.2.

9. Representation and Warranties.

9.1 Seller’s Representations and Warranties. Seller hereby makes the following representations and warranties to Buyer as of the Effective Date and as of the Close of Escrow.

1. 9.1.1 Authority. Seller is a corporation duly formed in the State of Delaware, validly existing and in good standing under the laws of the State of California and has all requisite power and authority to own its properties and to transact its business. Seller has

full right, power and authority and is duly authorized to enter into this Agreement, to perform each of the covenants on its part to be performed hereunder and to execute and deliver, and to perform its obligations under all documents required to be executed and delivered by it pursuant to this Agreement, and this Agreement constitutes the valid and binding obligation of Seller enforceable against Seller in accordance with its terms.

2. 9.1.2 No Claims. No action, litigation, arbitration or other legal proceeding has been instituted, nor to the best of Seller’s knowledge, has Seller received written notice of any claim or is any such action, litigation, arbitration or other proceeding threatened against Seller which relates to the Property or the transactions contemplated hereby except as disclosed in writing to Buyer. There are currently no governmental investigation, litigation or arbitration proceedings to which Seller is a party which relate to the Property.

1. 9.1.3 Existing Agreement. Neither Seller or the Property is subject to any contract, agreement or restriction which would prevent the consummation of the transactions contemplated by this Agreement. No authorization, consent or approval of any governmental authority is required for the execution and delivery by Seller of this Agreement or the performance of its obligations hereunder.

2. 9.1.4 Insolvency. There are no attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings against Seller.

3. 9.1.5 Documents. True and correct copies of all the Contracts, Leases, Documents and Due Diligence Documents that are in Seller’s possession, custody and control have been delivered or will be made available to Buyer during the Feasibility Period. Seller has not received any written notice of any default under the Contracts and/or the Leases that has not been cured or waived and, to the best of Seller’s knowledge, Seller has no knowledge that any default or any claim of offset exists under the Contracts and/or the Leases. The Leases have not been modified or amended and, to the best of Seller’s knowledge, the Leases are in full force and effect.

4. 9.1.6 No Notice. Seller has not received any written notice from any governmental agency requiring the correction of any condition with respect to the Improvements or the Real Property, or any part thereof, by reason of a violation of any applicable federal, state, county or municipal law, code, rule or regulation, which has not been cured or waived, and, to the best of Seller’s knowledge, no such violation exists with respect to the Property.

5. 9.1.7 Condemnation. There are no pending or, to the best of Seller’s knowledge, contemplated condemnation or annexation proceedings affecting the Property or any part thereof.

6. 9.1.8 No Prior Conveyance. Prior to the Close of Escrow, Seller has not alienated, encumbered, transferred, assigned or otherwise conveyed any interest in the Property, except as set forth in the Title Report. Except for the Leases and as set forth in the Title Report, there are no leases or rental agreements affecting the Property and Seller shall not enter into any such leases or rental agreements during the term of this Agreement without the prior written consent of Buyer.

7. 9.1.9 No Commitments. Seller has not entered into any commitments or agreements with any governmental authorities or agencies affecting the Property that have not been disclosed in writing to Buyer.

9.1.10 Environmental. Neither Seller nor, to the best of Seller’s knowledge, any third party, has used, generated, manufactured, stored or disposed of any Hazardous Substances in, at, on, under or about the Real Property or transported any Hazardous Substance to or from the Real Property in violation of applicable law. The Real Property is not in violation, nor has been or is currently under investigation for violation of any federal, state or local law, ordinance or regulation relating to industrial hygiene, worker health and safety, or to the environmental conditions in, at, on, under or about the Real Property including, but not limited to, soil and groundwater conditions. The Real Property has not been subject to a deposit of any Hazardous Substance. There has been no discharge, migration or release of any Hazardous Substance from, into, on, under or about the Real Property. There is not now, nor, to the best of Seller’s knowledge, has there ever been on the Real Property, any underground storage tanks or surface or below-grade impoundments, any asbestos-containing materials or any polychlorinated biphenyls used in hydraulic oils in electrical transformers or other equipment on the Property. The term “Hazardous Substances” shall have the meaning set forth in Exhibit “F” attached hereto.

1. 9.1.11 Survival. Each of the representations and warranties made by Seller in this Agreement, or in any exhibit or on any document or instrument delivered pursuant hereto, shall be true and correct in all material respects on the date hereof, and shall be deemed to be made again as of the Close of Escrow, and shall then be true and correct in all material respects and shall survive the Close of Escrow; provided, however, that Buyer must give Seller written notice of any claim it may have against Seller for a breach of any representation or warranty set forth in this Section 9.1 within two (2) years after the Closing Date. Any claim that Buyer may have against Seller for breach of a representation or warranty contained in this Section 9.1 which is not asserted within such two (2) year period shall not be valid or effective, and Seller shall have no liability with respect thereto. In addition, Buyer may not bring any action against Seller for breach of a representation or warranty set forth in Section 9.1 hereof unless and until the aggregate amount of all liability and losses arising out of such breach exceeds Seventy-five Thousand Dollars ($75,000) and in no event shall Seller’s aggregate liability for breach of such representations and warranties (but not for Seller’s fraud) exceed Three Million Five Hundred Thousand Dollars ($3,500,000). The truth and accuracy of each of the representations and warranties, and the performance of all covenants of Seller contained in this Agreement, are conditions precedent to the Close of Escrow. Seller shall notify Buyer immediately of any facts or circumstances which are contrary to the foregoing representations and warranties contained in this Section 9.1. The provisions of this Section 9.1.11 shall survive the Close of Escrow.

2. 9.1.12 Certain Limitations on Seller’s Representations and Warranties. Notwithstanding anything to the contrary contained in this Agreement, no claim for a breach of a representation or warranty shall be actionable by Buyer if the breach in question results from or is based on a condition, state of facts or other matter with respect

to which Buyer has actual knowledge on or prior to the Close of Escrow. For purposes of this Section 9.1.12, the actual knowledge of Buyer shall mean the actual knowledge of Clyde Hosein, Chief Financial Officer and James L. Laufman, Vice President, General Counsel of Buyer and include the information that is provided to Buyer in the Due Diligence Documents and any third-party consultant reports Buyer obtains as a result of its due diligence investigation of the Property (“Exception Matter”). If Buyer obtains actual knowledge of an Exception Matter before the end of the Feasibility Period and Buyer determines to proceed with the purchase of the Property under this Agreement, then Buyer shall consummate the acquisition of the Property subject to such Exception Matter and without any adjustment in the Purchase Price. If Buyer obtains actual knowledge of an Exception Matter after the end of the Feasibility Period and prior to the Close of Escrow, Buyer may elect, prior to the Close of Escrow, to either (i) proceed with the purchase of the Property subject to such Exception Matters without any adjustment in the Purchase Price or (ii) upon written notice to Seller specifying the nature of the Exception Matters, Buyer may terminate this Agreement and receive a refund of the Initial Deposit and the Additional Deposit and all interest accrued thereon; provided, that if Buyer so elects to terminate this Agreement, Seller shall have the right, but not the obligation, to cure such Exception Matters (and the Close of Escrow shall be delayed to the extent necessary to allow Seller up to ten (10) days within which to effect such cure), and if Seller cures such Exception Matter within said ten (10) day period, then Buyer’s right to terminate this Agreement as a result of such Exception Matter shall be null and void and this Agreement shall continue without termination (and, if the Closing Date is extended, the Close of Escrow shall occur on the date that is five

¨.(5) days after the date Seller cures such Exception Matter). If Buyer fails to make the election in clause

¨.(ii) above, then Buyer shall be deemed to have made the election to proceed to the Close of Escrow under clause (i) above. Upon a termination of this Agreement pursuant to this Section 9.1.12, neither party shall have any further obligations hereunder except for the indemnity obligations under Sections

7.6 and 12 hereof.

1. 9.1.13 Seller’s Knowledge. As used in this Section 9.1, the phrase “to the best of Seller’s knowledge” shall mean the actual knowledge of Mr. Thomas E. Brunton and Mr. Steve Hmelar, after reasonable inquiry and investigation; provided, however, that such reasonable inquiry and investigation shall not require Seller to retain any consultants, contractors or other third parties to provide the information that is the subject matter of a representation or warranty.

2. 9.2 Buyer’s Representations. Buyer hereby makes the following representations and warranties to Seller as of the Effective Date and as of the Close of Escrow, all of which survive the Close of Escrow:

1. 9.2.1 Authority. Buyer is a corporation, duly organized in the State of Delaware, validly existing and in good standing in the State of California, and has the capacity and

full power and authority to enter into and carry out the agreements contained in, and the transactions contemplated by, this Agreement. This Agreement has been duly authorized and executed by Buyer, and upon delivery to and execution by Seller, shall be a valid and binding agreement of Buyer.

2. 9.2.2 Existing Agreements. Buyer is not subject to any contract, agreement or restriction which would prevent the consummation of the transactions contemplated by this Agreement. No authorization, consent or approval of any governmental authority is required for the execution and delivery by Buyer of this Agreement or the performance of its obligations hereunder.

3. 9.2.3 Insolvency. There are no attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings against Buyer.

4. 9.3 Seller’s Covenants. From the Effective Date until the earlier of the Close of Escrow or the termination of this Agreement, Seller covenants to Buyer as follows:

1. 9.3.1 Seller shall maintain the Property in the same condition and manner as existed upon the expiration of the Feasibility Period, damage by casualty and reasonable wear and tear excepted.

2. 9.3.2 Seller shall pay all bills and invoices for labor, material and services supplied to the Property prior to the Close of Escrow, except to the extent arising from Buyer’s activities on the Property.

3. 9.3.3 Seller shall maintain in full force any insurance coverage pertaining to the Property, either through the existing insurance policies or replacement policies.

9.3.4 Seller shall not enter into any new leases, contracts or agreements, or modify any existing Leases, contracts or agreements relating to the Property for a term beyond the Close of Escrow without the prior written consent of Buyer, which Buyer may withhold in its sole and absolute discretion.

10. Deposits Into Escrow.

4. 10.1 Seller’s Deposits Into Escrow. Seller shall deposit or cause to be deposited into Escrow prior to the Close of Escrow the following:

1. 10.1.1 An executed and acknowledged Grant Deed in the form attached hereto as Exhibit “G” (the “Grant Deed”);

2. 10.1.2 A bill of sale of all of Seller’s right, title and interest in and to any Personal Property in the form attached hereto as Exhibit “H” (the “Bill of Sale”);

10.1.3 An assignment of Contracts, Documents and Intangible Property in the form attached hereto as Exhibit “J” (the “Assignment”);

10.1.4 Two counterpart originals of the Assignment of Leases;

3. 10.1.5 An executed Federal Non-Foreign Investor Affidavit in the form attached hereto as Exhibit “K” (the “FIRPTA Affidavit”);

10.1.6 An executed Withholding Exemption Certificate (California Form 593 (W) as required under the California Revenue and Taxation Code;

10.1.7 Two counterpart originals of the Lease;

1. 10.1.8 Originals (or to the extent originals are not available, copies) of all of the Contracts assumed by Buyer pursuant to Section 7.3;

2. 10.1.9 Such evidence or documents reasonably required by the Title Company relating to (a) mechanic’s or materialmen’s liens, (ii) parties in possession, or (iii) the status and capacity of Seller and the authority of the person or persons who are executing the various documents on behalf of Seller in connection with the sale of the Property; and

1. 10.1.10 Such other documents as may be reasonably required to consummate this transaction.

2. 10.2 Buyer’s Deposits Into Escrow. Buyer shall deposit into Escrow prior to the Close of Escrow the following:

¨.10.2.1 The Purchase Price and such additional funds as may be required to pay Buyer’s share of closing costs as provided herein;

1. 10.2.2 Two counterpart originals of the Assignment;

2. 10.2.3 Two counterpart originals of the Assignment of Leases;

3. 10.2.4 Two counterpart originals of the Lease;

2. 10.2.5 Such evidence or documents as may be reasonably required by the Title Company evidencing the status and capacity of Buyer and the authority of the person or persons who are executing the various documents on behalf of Buyer in connection with the purchase of the Property; and

3. 10.2.6 Such other documents as may be reasonably required to consummate this transaction.

4. 10.3 Expenses of Escrow. Seller shall pay (i) the CLTA premium for the Owner’s Title Policy, (ii) all county documentary transfer taxes, (iii) all escrow fees and (iv) one-half of the City transfer tax. Buyer shall pay (i) the ALTA portion of the premium for the Owner’s Title Policy, if Buyer elects ALTA coverage, (ii) the cost of an ALTA survey, if Buyer elects to obtain the same; (iii) the cost of any title endorsements Buyer elects to obtain and (iv) one-half of the City transfer tax. All other reasonable and customary expenses, fees and costs incurred in connection with the consummation of the Escrow, including, without limitation, document preparation charges and recording fees, shall be borne by the parties hereto in accordance with the custom and practice in Santa Clara County, California, or in the absence of custom, equally between the parties. Buyer and Seller shall each bear their own respective attorneys’ fees and accounting costs incurred in connection with this transaction.

10.4 Prorations.

10.4.1 Taxes. All real property taxes and assessments shall be prorated between Buyer and Seller as of the Close of Escrow with appropriate debits and credits to the accounts of Buyer and Seller so that, as between Buyer and Seller, Seller shall pay all of the taxes and assessments to the extent allocable to the period ending on the date immediately prior to the Close of Escrow and Buyer shall pay all of the taxes and assessments to the extent duly allocable to the period commencing upon the Close of Escrow. If the amount of the current tax payment is not available, such proration shall be made on the basis of the most recent tax information available at the Close of Escrow and

the parties shall make appropriate corrections promptly when accurate information becomes available. Any corrected adjustment or prorations shall be paid in cash to the party entitled thereto. In addition, all personal property taxes levied on the Personal Property shall be prorated between Buyer and Seller as of the Close of Escrow with appropriate debits and credits to the accounts of Buyer and Seller so that, as between Buyer and Seller, Seller shall pay all of such personal property taxes to the extent allocable to the period ending on the date immediately prior to the Close of Escrow and Buyer shall pay all of the taxes and assessments to the extent duly allocable to the period commencing upon the Close of Escrow. If the amount of the current personal tax payment is not available, such proration shall be made on the basis of the most recent personal property tax information available at the Close of Escrow and the parties shall make appropriate corrections promptly when accurate information becomes available. Any corrected adjustment or prorations shall be paid in cash to the party entitled thereto.

1. 10.4.2 Operating Expenses. All expenses applicable to the operation and maintenance of the Property shall be prorated between Buyer and Seller as of the Close of Escrow with appropriate debits and credits to the accounts of Buyer and Seller so that, as between Buyer and Seller, Seller shall pay all of the expenses to the extent allocable to the period ending on the date immediately prior to the Close of Escrow and Buyer shall pay all of such expenses to the extent duly allocable to the period commencing upon the Close of Escrow. Seller shall be credited for any prepaid sums under Contracts assumed by Buyer pursuant to Section 7.3. Any item of expense which cannot be finally prorated because of the unavailability of information shall be tentatively prorated on the basis of the best data available and re-prorated within thirty (30) days after the information is available. Any corrected adjustment or prorations shall be paid in cash to the party entitled thereto. The provisions of this Section 10.4 shall survive the recordation of the Grant Deed.

2. 10.4.3 Leases. All rents and other tenant payments under the Leases shall be prorated between Buyer and Seller as of the Close of Escrow with appropriate debits and credits to the accounts of Buyer and Seller so that, as between Buyer and Seller, Seller shall receive all such rents and tenant payments allocable to the period ending on the date immediately prior to the Close of Escrow and Buyer shall receive all rents and tenant payments allocable to the period commencing upon the Close of Escrow. At the Close of Escrow, Buyer shall receive a credit against the Purchase Price equal to the amount of any unapplied security deposits required to be held by Seller under the Leases.

3. 10.4.4 Tax Appeals. If any property tax appeal proceedings instituted by Seller shall not have been resolved by the Close of Escrow and relate to any tax period all or a portion which precedes the Close of Escrow, Seller shall be entitled to control the disposition of such tax appeal, and any refunds received therefrom, net of any expenses incurred by Seller in connection therewith, shall be prorated between the parties on the basis of the portions of such refunds accruing to periods before and after the Close of Escrow.

4. 10.5 Possession. Possession of the Real Property shall be delivered to Buyer at the Close of Escrow, subject to the Lease.

5. 11. Transfers and Assignments. Buyer shall have the right to assign this

Agreement to a corporation, joint venture, partnership, limited liability company or other similar entity, controlled by or under common control with Buyer. Any assignment permitted under this Section 11 shall not release Buyer of its obligations hereunder, and the assignee or nominee under this Agreement shall assume all obligations of Buyer and agree to execute all documents and to perform all obligations imposed on Buyer as if the assignee or nominee was the original buyer under this Agreement. Except as expressly set forth above, Buyer shall not transfer or assign this Agreement or any of Buyer’s rights or obligations hereunder without the prior written consent of Seller, which Seller shall not unreasonably withhold. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties.

12. Broker’s Commission. The parties acknowledge that Joseph Moriarty and Greg Davies of CPS CORFAC International (“CPS”) have represented Buyer in this transaction (“Buyer’s Brokers”) and Eric Fox, Michael Benevento and Michael Filice of CPS have represented Seller in this transaction (“Seller’s Brokers”). Upon the Close of Escrow, Seller shall pay a real estate brokerage commission to CPS in connection with the brokerage services provided by Seller’s Brokers to Seller in connection with this transaction pursuant to a separate agreement and Buyer shall pay a real estate brokerage commission to CPS in connection with the brokerage services provided by Buyer’s Brokers to Buyer in connection with this transaction pursuant to a separate agreement. Except with respect to the CPS, each party represents and warrants to the other party that it has not dealt with, nor does such representing party have any knowledge of, any persons, firms or entities which would be entitled to a broker’s commission, finder’s fee or the like in connection with the transactions contemplated by this Agreement. In the event any warranty or representation made by a party in this Section 12 proves to be false, such party shall indemnify, defend and hold the other party harmless with respect to any claims, losses, costs, liabilities and other expenses (including attorneys’ fees) which the other party may incur as a result of such breach or misrepresentation. The foregoing obligation shall survive the Close of Escrow.

13. Remedies.

6. 13.1 Liquidated Damages. BUYER ACKNOWLEDGES THAT IF IT DEFAULTS IN ITS PERFORMANCE HEREUNDER AT THE CLOSE OF ESCROW, SELLER SHALL BE ENTITLED TO COMPENSATION FOR THE DETRIMENT RESULTING FROM THE REMOVAL OF THE PROPERTY FROM THE MARKET. THE PARTIES HERETO AGREE THAT THE DAMAGES THAT SELLER SHALL SUSTAIN AS A RESULT OF SUCH BREACH WILL BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN. THEREFORE, THE PARTIES AGREE THAT IF THE CLOSE OF ESCROW FAILS TO OCCUR AS A RESULT OF A BREACH BY BUYER OF ITS OBLIGATIONS HEREUNDER, SELLER SHALL BE ENTITLED TO RETAIN OR RECOVER THE SUM OF THE INITIAL DEPOSIT AND ADDITIONAL DEPOSIT (i.e., FIVE HUNDRED THOUSAND DOLLARS ($500,000.00)) AS ITS EXCLUSIVE REMEDY AGAINST BUYER, AT LAW OR IN EQUITY, FOR BREACH OF BUYER’S COVENANT TO PURCHASE THE PROPERTY (BUT NOT FOR BREACH OF THE MATTERS SET FORTH IN THE FOLLOWING SENTENCE), AND SAID SUM SHALL BE PAID AND RECEIVED AS LIQUIDATED DAMAGES

AND NOT AS A PENALTY. EXCEPT WITH RESPECT TO BUYER’S BREACH OF ANY INDEMNITY OBLIGATION OR ANY OTHER OBLIGATION OF BUYER HEREUNDER (OTHER THAN THE COVENANT TO PURCHASE THE PROPERTY) WHICH SURVIVES THE CLOSE OF ESCROW (WHICH BREACH SHALL ENTITLE SELLER TO SEEK ANY AND ALL REMEDIES AVAILABLE AT LAW AND IN EQUITY AND FOR WHICH BREACH THIS SECTION 13 SHALL NOT APPLY), BOTH PARTIES ACKNOWLEDGE AND AGREE THAT SAID AMOUNT IS PRESENTLY A REASONABLE ESTIMATE OF SELLER’S DAMAGES IN THE EVENT OF BUYER’S BREACH OF ITS OBLIGATION TO PURCHASE THE PROPERTY CONSIDERING ALL OF THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, INCLUDING THE RELATIONSHIP OF THE SUM TO THE RANGE OF HARM TO SELLER THAT REASONABLY COULD BE ANTICIPATED AND THE ANTICIPATION THAT PROOF OF ACTUAL DAMAGES WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT. BY INITIALING THIS SECTION BELOW, THE PARTIES HERETO SIGNIFY THEIR APPROVAL AND CONSENT TO THE TERMS OF THIS SECTION.

Seller’s Initials Buyer’s Initials

1. 13.2 Buyer’s Remedies. If the Close of Escrow fails to timely occur due to a breach of this Agreement by Seller which is not cured within ten (10) days after Seller’s receipt of Buyer’s written notice of such breach, (a) this Agreement shall not be terminated automatically, but only upon delivery to Escrow Holder and Seller of Buyer’s written notice of its election to terminate, in which case, (i) Escrow Holder shall immediately return to Buyer the Initial Deposit and Additional Deposit and all interest accrued thereon and any sums deposited by Buyer into Escrow by Buyer’s unilateral instruction, (ii) Seller shall reimburse Buyer for the actual third-party costs (not to exceed One Hundred Thousand Dollars ($100,000)) incurred by Buyer in performing its due diligence review of the Property and preparing and negotiating this Agreement within ten (10) days after receipt of Buyer’s invoice for such costs, and (iii) upon Buyer’s receipt of the Initial Deposit and Additional Deposit and the actual third party costs incurred by Buyer referenced in clause (ii) above, neither party shall have any further obligation hereunder except for the indemnity obligations set forth in Sections 7.6 and 12), or (b) Buyer shall be entitled to keep this Agreement in effect and pursue against Seller an action for specific performance of this Agreement, and Buyer may record a notice of pendency of action against the Property.

¨.14. Casualty Loss. If one or more of the Buildings are materially damaged or destroyed prior to the Close of Escrow, Seller shall, within five (5) days of such damage or destruction, give written notice to Buyer of the date and nature of such damage or destruction and of Seller’s election to repair or not to repair such damage or destruction. Seller shall have no obligation to repair such damage or destruction. “Material damage” shall mean damage which costs in excess of One Hundred Thousand Dollars ($100,000) to repair. If Seller elects not to repair such damage or destruction, Buyer may, by ¨.delivering written notice to Seller within five (5) calendar days following receipt of

Seller’s notice, elect to terminate this Agreement or accept title to the Property subject to such damage or destruction, without recourse against Seller or reduction in the Purchase Price. In the event Buyer elects to accept title to the Property, Seller shall assign to Buyer at the Close of Escrow any and all rights Seller may have to insurance proceeds payable in connection with such damage or destruction. If Buyer elects to terminate this Agreement, this Agreement shall be deemed canceled and of no further force or effect (except for obligations under this Agreement which expressly survive termination), the Initial Deposit and Additional Deposit and all accrued interest thereon shall be refunded to Buyer, and the parties shall have no recourse against each other at law or in equity, or otherwise be liable to the other, for any reason relating to this Agreement except for the indemnity obligations under Sections 7.6 and 12.

¨.15. Condemnation. If any part of the Real Property is condemned prior to the Close of Escrow, Seller shall, within five (5) days of Seller’s knowledge of the condemnation proceeding, give Buyer written notice of such condemnation and Buyer shall have the option of either purchasing the Property and receiving the proceeds from such condemnation with no further recourse against Seller (at law, in equity or otherwise) or declaring this Agreement terminated by delivering written notice of termination to Seller. If so terminated, this Agreement shall be deemed canceled and of no further force or effect, the Initial Deposit and Additional Deposit and all accrued interest thereon shall be refunded to Buyer, and the parties shall have no recourse against each other at law or in equity, or otherwise be liable to the other, for any reason relating to this Agreement except for the indemnity obligations under Sections 7.6 and 12.

¨.16. General Provisions.

2. 16.1 Notices. Any notice, request, demand, consent, approval or other communication required or permitted hereunder or by law shall be in writing and shall be deemed duly given (i) when personally delivered, (ii) sent by overnight courier providing evidence of receipt of delivery, (iii) by United States mail, registered or certified mail, postage prepaid, return receipt requested, or (iv) by facsimile or telecopy, to the addresses set forth below or to such other address of which the parties are subsequently notified in writing:

Buyer:	Integrated Device Technology, Inc.
	2975 Slender Way
	Santa Clara,
	California 95054
	Attn: James L. Laufman, Esq.
	Vice President, General Counsel
	Telephone: (408) 492-8614
	Facsimile: (408) 492-8454
With a copy to:	Berliner Cohen
	10 Almaden Boulevard, Eleventh Floor
	San Jose,
	California 95113
	Attn: Steven J. Casad, Esq.
	Telephone: (408) 286-5800
	Facsimile: (408) 998-5388

Seller:	Electroglas, Inc.
	6024 Silver Creek Valley Road San Jose, CA 95138 Attn: Mr. Thomas Brunton Telephone: (408) 528-3300 Facsimile: (408) 528-3542
With a copy to:	Morrison & Foerster LLP 755 Page Mill Road Palo Alto, CA 94304 Attn: Philip J. Levine, Esq. Telephone: (650) 813-5613 Facsimile: (650) 494-0792

Notices shall be deemed delivered upon receipt. Any party may change its address for notice by giving written notice of such change to the other party.

1. 16.2 Legal Fees. In the event either party brings an action or suit against the other party by reason of any breach of any of the covenants or agreements on the part of the other party arising out of this Agreement, then, in that event, the prevailing party in such action or dispute, whether by final judgment or out of court settlement, shall be entitled to have and recover of and from the other party all reasonable costs and expenses of suit, including reasonable attorneys’ fees.

2. 16.3 Waiver of Jury Trial. Buyer and Seller each acknowledge and agree that any controversy which may arise under this Agreement would be based upon difficult and complex issues, and therefore, Buyer and Seller each hereby waive any right to a trial by jury in any action or proceeding to enforce or defend any rights under this Agreement and agree that any such action or proceeding shall be tried in a court of competent jurisdiction by a judge and not by a jury.

3. 16.4 Survival of Indemnities. Buyer’s indemnity obligation under Sections 7.6 and 12 of this Agreement shall survive the recordation of the Grant Deed at the Close of Escrow. Seller’s indemnity obligations under Section 12 hereof shall survive the recordation of the Grant Deed at the Close of Escrow.

4. 16.5 Required Actions of Buyer and Seller. Buyer and Seller agree to execute such instruments and documents and to diligently undertake such actions as may be reasonably required in order to consummate the purchase and sale herein contemplated and shall use their diligent efforts to accomplish the Close of Escrow in accordance with the provisions hereof.

5. 16.6 Time of Essence. Time is of the essence of each and every term, condition, obligation, and provision hereof.

6. 16.7 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which, together, shall constitute one and the same instrument. The parties contemplate that they may be executing counterparts of this Agreement transmitted by facsimile and agree and intend that a signature by facsimile machine shall bind the party so signing with the same effect as though the signature were an original signature.

7. 16.8 Captions. Any captions to, or headings of, the paragraphs or subparagraphs of this Agreement are solely for the convenience of the parties hereto, are not a part of this Agreement, and shall not be used for the interpretation or determination of the validity of this Agreement or any provision hereof.

8. 16.9 No Obligations to Third Parties. Except as otherwise expressly provided herein, the execution and delivery of this Agreement shall not be deemed to confer any rights upon, nor obligate any of the parties hereto, to any person or entity other than the parties hereto.

1. 16.10 Exhibits. The Exhibits attached hereto are hereby incorporated herein by this reference.

2. 16.11 Amendment to this Agreement. The terms of this Agreement may not be modified or amended except by an instrument in writing executed by each of the parties hereto.

3. 16.12 Waiver. The waiver or failure to enforce any provision of this Agreement shall not operate as a waiver of any future breach of any such provision or any other provision hereto.

4. 16.13 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

5. 16.14 Fees and Other Expenses. Except as otherwise provided herein, each of the parties shall pay its own fees and expenses in connection with this Agreement.

6. 16.15 Severability. If any provision of this Agreement is, or hereinafter is adjudged to be, for any reason void, unenforceable, or invalid, it is the specific intent of the parties that the remainder hereof shall be and remain in full force and effect.

7. 16.16 Entire Agreement. This Agreement supersedes any prior agreement, oral or written, and contains the entire agreement between Buyer and Seller as to the subject matter hereof. No subsequent agreement, representation, or promise made by either party hereto, or by or to an employee, officer, agent, or representative of either party shall be of any effect unless it is in writing and executed by the party to be bound thereby.

8. 16.17 Applications. Buyer intends to apply for and process applications for permits and other governmental approvals that may be required for Buyer to construct tenant improvements in the Buildings after the Close of Escrow. Seller agrees to cooperate with Buyer, at no cost to Seller, by executing as the owner of the Real Property such applications as may be reasonably necessary for Buyer to construct such tenant improvements; provided, however, in no event shall any such permits or

other governmental approvals be finalized or be binding upon the Real Property until after the Close of Escrow. Buyer shall keep Seller informed of the progress of its applications for such permits and governmental approvals.

1. 16.18 No Recording. Neither this Agreement or any memorandum or short form thereof may be recorded by Buyer without Seller’s prior written consent, which consent shall not be unreasonably withheld.

2. 16.19 Performance on Business Days. In the event that the date on which performance or payment of any obligation of a party required hereunder is other than a business day, the time for payment or performance shall automatically be extended to the first business day following such date.

3. 16.20 Confidentiality. Buyer and Seller shall each maintain as confidential any and all non-public material obtained about the other and, in the case of Buyer, about the Property, and shall not disclose such information to any third party (other than professionals, employees, agents, attorneys and consultants) except for disclosures required by law. In addition, neither party shall issue any press release or other public announcement regarding this transaction without first obtaining the other party’s prior written approval with respect to the release or announcement and the content thereof. This provision shall survive beyond the Close of Escrow, or, if the sale is not consummated, beyond the termination of the Agreement.

IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of the day and year first above written.

“SELLER”
ELECTROGLAS, INC., a Delaware corporation
By:	/s/    KEITH BARNES
Its:	Chairman and CEO
By:	/s/    THOMAS BRUNTON
Its:	CFO

“BUYER”
INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation
By:	/s/    Clyde R. Hosein
Its:	Vice President and CFO
By:
Its:

EXHIBIT “A”

LEGAL DESCRIPTION OF PROPERTY

Real property in the City of San Jose, County of Santa Clara, State of California, described as follows:

PARCEL A:

All of Parcel A of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of Lot 1, together with a portion of Lot 2, as said Lots are shown

upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, also together with a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of said Lot 1 (Book 523 of Maps at pages 5 and 6) and the Southeasterly line of that certain parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East, 61.11 feet; thence North 36° 06’ 20” West, 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985, in Book J254 at page 146, Santa Clara County Records and the Southeasterly line of Silver Creek Valley Road (formerly known as Fontanoso Road) as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Northeasterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the left with a radius of 1264.00 feet through a central angle of 18° 58’ 05” for an arc length of 418.45 feet and North 45° 00’ 08” East 147.61 feet to the point of beginning.

PARCEL B:

All of Parcel B of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, together with portions of Lot 1 and Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of Lot 1 as said Lot is shown upon that certain map filed for record on December 22, 1983 in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California and the Southeasterly line of that certain parcel of land

granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2 to the true point of beginning; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East 61.11 feet; thence North 36° 06’ 20” West 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West, 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records and the Southeasterly line of Silver Creek Valley Road (formally known Fontanoso Road), as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Southwesterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the right with a radius of 1264.00 feet through a central angle of 11° 55’ 41” for an arc length of 263.15 feet to a point in the Westerly line of said Lot 1 and the most Southerly corner of said parcel of land granted to the City of San Jose; thence continuing Westerly along the Southeasterly line of Silver Creek Road, and the Southerly line of that parcel granted to the City of San Jose by Grant Deed recorded January 2, 1985, in Book J158, at page 385 Official Records along a curve to the right with a radius of 1264.00 feet through a central angle of 15° 22’ 50” for an arc length of 339.31 feet and North 88° 43’ 16” East 5.35 feet to the Northwesterly line of said 6.70 acre parcel; thence South 73° 00’ 30” West 271.24 feet along said Northwesterly line to the most Northeasterly corner of that certain Parcel B granted to the Santa Clara Valley Water Conservation District by Grant Deed recorded March 13, 1959 in Book 4352 of page 646, Official Records; thence along the Northeasterly line of said parcel, the following three (3) courses; (1) South 42° 43’ 41” East 176.98 feet; (2) Along a curve to the right with a radius of 480.00 feet through a central angle of 4° 17’ 00” for an arc length of 35.88 feet and (3) South 38° 26’ 41” East 246.31 feet to the Southerly line of said 6.70 acre parcel; thence North 89° 59’ 30” East 447.14 feet along the Southerly line of said parcel to the Southeast corner of said 6.70 acre parcel; thence North 89° 59’ 30” East 22.78 feet along Southerly line of Lot 2 to the true point of beginning.

EXCEPTING THEREFROM all that portion thereof conveyed to the City of San Jose, a California Corporation Charter City by Grant Deed recorded March 20, 2000, as Document No. 15184621 of Official Records.

APN: 678-93-24, 26, 34

Arb: 678-14-007; 007.01; 007.01.01; 008; 008.01; 008.01.01; 008.01.02; 008.02; 008.02.01

EXHIBIT “B” DESCRIPTION OF BUILDINGS Building A-2 story Customer Pavilion/Main Lobby containing approximately 17,992 square feet Building B-2 story Office/Manufacturing building containing approximately 141,311 square feet Building C-3 story Office Building containing approximately 89,247 square feet. Building D-2 story Employee Pavilion containing approximately 14,559 square feet.

EXHIBIT “C”

LIST OF PERSONAL PROPERTY

Area	Property Transferred to Buyer
All Areas Office Equipment:	None
All Areas Cubicles Components:	Walls Writing surfaces overhead cabinets file cabinets chairs book shelves
All Areas Hard Wall Offices:	Chairs Desks File Cabinets Book Shelves White boards attached to walls Clocks attached to walls Pictures of SJ Campus Tables
Break rooms:	Refrigerators Microwave’s Water Purifiers Tables and chairs

Training Rooms:	Tables Chairs Permanently attached white boards and screens
Conference Rooms:	Tables Chairs Cabinets Clocks Projector Screens White boards attached to walls
Board Room:	Chairs tables AV Equipment Clocks Campus Pictures Projector screen Kitchen Equipment
Demo Room:	A/V Equipment located in room or associated closet Built in Projector and screen
Hallways:	SJ Campus pictures
Lobby:	Receptionist Station Chairs Tables
Cafeteria & Patio:	All Kitchen equipment not supplied by corporate Chef All Tables and Chairs
Fitness Center:	All Fitness Equipment
Security:	All equipment, software, cameras associated with the security system
Engineering Labs:	shelving bolted to building
Shipping/Receiving:	Shelving and cages bolted to building Pallet Racks
Data Center (NOC):	UPS System Equipment Racks Cable Plant

Wiring Closets:	Racks and patch panels
Equipment Pads:	Compressors Pumps Generators
Other Facility Property:	Demountable Walls Bike Lockers
Storage Areas C3 Storage area:	None
B2 accounting record area:	None

EXHIBIT “C-l”

LIST OF SELLER-RETAINED PROPERTY

Area	Seller Retained Property
All Areas Office Equipment (all):	PC’s Printers Portable Projectors Overhead Projectors Telephones Copiers Adding Machines/Calculators Fax Machines Shredders Polycom Phones Mobile electronic White boards Free standing TV’s Typewriters
All Areas Cubicles Components:	Waste Baskets
All Areas Hard Wall Offices:	Art work

Break rooms: Training Rooms: Conference Rooms: Board Room: Demo Room: Hallways: Lobby: Cafeteria & Patio: Fitness Center: Note: coffee makers and vending machines belong to vending service Art work Mobile Video Conferencing equipment Easels None None Art work Plants Art Work None

Security: Engineering Labs:

Shipping/Receiving:

Data Center (NOC):

Wiring Closets:

Equipment Pads:

Other Facility Property:

Storage Areas: C3 Storage area:

B2 accounting record area:

All Tools and fixtures Work Benches Roll around carts Portable Hoists Air Tents Power Poles Environmental Chamber Haz Mat containers

Fork Lifts Pallet Jacks Hand Trucks Packing material dispensers Scales roll around cards and shelving

Phone System All Computers All Network Equipment

All Network Equipment Wireless Access Points

None

Plants Dumpsters owned by refuse Company

Old file cabinets containing EG documents

File cabinets

EXHIBIT D

LEASE AGREEMENT

THIS LEASE AGREEMENT (“Lease”) is made as of this              (        ) day of             , 2005, by and between INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation (“Landlord”), and ELECTROGLAS, INC., a Delaware corporation (“Tenant”).

WITNESSETH:

Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the four (4) buildings described as “Building A,” “Building B,” “Building C,” and “Building D” (collectively, the “Buildings”) and located at 6024 Silver Creek Valley Road, San Jose, California, as more particularly described on Exhibit A attached hereto (“Premises”). Landlord and Tenant hereby agree that, in the aggregate, the Buildings consist of approximately two hundred sixty-three thousand thirty-nine (263,039) rentable square feet. As used herein, the term “Project” shall mean the Buildings, the land upon which the Buildings are situated and any and all other improvements, fixtures and equipment now or hereafter situated on such land. The parties acknowledge that Tenant is leasing the Premises from Landlord following the sale of the Project by Tenant to Landlord. Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, upon the following terms and conditions:

1. 1. Use. Tenant shall use the Premises only for office, research and development, and other uses in effect prior to Tenant’s sale of the Project to Landlord.

2. 2. Term. The term (“Lease Term”) shall commence on the Closing Date (as such term is defined in that certain Agreement for Purchase and Sale of Real Property (the “Purchase Agreement”) made as of December     , 2004 by and between Tenant, as seller, and Landlord, as buyer) (“Commencement Date”) and end, unless sooner terminated pursuant to the terms of the Lease, on June 30, 2005 (subject to Tenant’s obligations under Section 5(b).

3. 3. Possession. The parties acknowledge that Tenant is in possession of the Premises as of the Commencement Date.

4. Monthly Rent.

¨.(a) Basic Rent. Tenant shall not be obligated to pay to Landlord rent for the Premises during the Lease Term.

(b) Common Area Charges. Except as provided in Sections 12 and 14, Tenant shall not be obligated to pay to Landlord any “common area charges” and/or “operating expenses.”

5. Termination of Lease.

¨.(a) Construction Areas. Tenant acknowledges that Landlord intends to use and occupy the Project upon the expiration or sooner termination of this Lease and that, in preparation for such use and occupancy, Landlord intends to commence the construction and renovation of leasehold and other improvements in the Premises (“Improvement Work”) as and when this Lease terminates with respect to the portions thereof specified in this Section 5. In order to permit Landlord to commence the Improvement Work, Tenant shall vacate and surrender those portions of the Premises consisting of the Construction Areas (as defined below) in accordance with Section 20 hereof by no later than January 31, 2005. Tenant hereby agrees and acknowledges that time is of the essence with respect to Tenant’s obligation to vacate and surrender the Construction Areas. Landlord and Tenant hereby agree and acknowledge that, irrespective of whether Tenant shall have vacated and surrendered the same, this Lease shall terminate with respect to the Construction Areas as of January 31, 2005, and Tenant shall have no further rights or obligations (nor shall Landlord have any further obligations) under this Lease with respect to the Construction Areas, except for those obligations under this Lease which expressly survive the termination or expiration of this Lease. The “Construction Areas” shall collectively mean: (a) the portions of the first (1^st ) and second (2^nd) floors of “Building A”; (b) the portions of the first (1^st) and second (2^nd) floors of “Building B”; and (c) the portions of the first (l^st) and third (3^rd) floors of “Building C” delineated without cross-hatching on Exhibit “B” attached hereto. The portion of the Premises not consisting of the Construction Areas or Tenant Common Areas (as defined below) which are delineated with cross-hatching on Exhibit “B” attached hereto shall hereinafter sometimes be collectively referred to as the “Remaining Premises.” From and after January 31, 2005, Tenant shall be permitted to use, on a non-exclusive basis with

Landlord, the entrances to the Buildings, interior corridors, restrooms, stairways and elevators more particularly shown in yellow on Exhibit “B” attached hereto (collectively, “Tenant Common Area”) as necessary to provide access to and use of the Remaining Premises. In addition, Landlord shall provide Tenant with reasonable access from the Tenant Common Area or from the exterior of the Building to the elevator in Building “C” to allow tenant access to the second and third floors of Building “C”. Tenant’s use of the Building “C” elevator shall be in common with Landlord’s construction personnel. Landlord may from time to time, upon prior notice to Tenant, change the access route to the Building “C” elevator to accommodate Landlord’s construction requirements. Landlord and Tenant hereby agree and acknowledge that, from and after January 31, 2005, the term “Premises” as used in this Lease shall refer only to the Remaining Premises less any Vacated Space (as defined below) vacated and surrendered from time to time under Section 5(b) below.

Notwithstanding the termination of the Lease as to the Construction Areas, until May 31, 2005, Tenant shall be entitled to use, on a non-exclusive basis, the (i) data Center located on the Second (2^nd) floor of “Building B” for the sole purpose of maintaining its telephone “PBX” therein (“PBX Room”) and (ii) the Intermediate Distribution Frame room located on the first floor of Building “B” for purposes of maintaining Tenant’s communications cabling (“IDF Room”). Tenant acknowledges and agrees that Landlord will require exclusive access to both the PBX Room and IDF Room not later than June 1, 2005 in order to perform Improvement Work in such areas to prepare the Project for Tenant’s occupancy and use. Tenant hereby agrees that Tenant’s right to use the PBX Room and IDF Room shall terminate as of May 31, 2005 and that Tenant shall no longer have access to the PBX Room and IDF Room from and after June 1, 2005. On or before May 31, 2004, Tenant shall disconnect its telephone system from the PBX and disconnect its cabling in the IDF Room. If Tenant fails to disconnect its telephone system from the PBX and its disconnect its cabling in the IDF Room, Landlord shall have the right to do at any time from and after June 1, 2005. In such event, Landlord shall not be liable to Tenant for any loss or damage resulting from such disconnection by Landlord and Tenant waives all claims against Landlord resulting from such disconnection by Landlord. Tenant hereby agrees and acknowledges that time is of the essence with respect to Tenant’s obligation to cease its use of the PBX Room and IDF Room and disconnection of its telephone system and cabling from such areas by May 31, 2005.

¨.(b) Surrender of Remaining Premises. The parties acknowledge that, as of the Commencement Date, Tenant’s operations and personnel will be located throughout the Buildings, including the Construction Areas. After the Commencement Date, Tenant may, at Tenant’s option and sole cost and expense, consolidate its operations and personnel into less than all of the Remaining Premises and vacate and surrender those portions of the Remaining Premises from which Tenant has relocated its operations and personnel (“Vacated Space”) so as to make such portions of the Remaining Premises available for Landlord to perform Improvement Work. From and after the Commencement Date, on a bi-weekly basis, Tenant shall provide Landlord written status reports regarding its consolidation and relocation efforts. Tenant shall give Landlord written notice when it has vacated and surrendered Vacated Space. Upon Landlord’s receipt of such notice, the Lease shall terminate as to such Vacated Space. The parties shall thereafter promptly acknowledge in writing the vacation and surrender of such Vacated Space and the termination of this Lease with respect to such Vacated Space.

(c) Performance of Improvement Work. Tenant hereby agrees and acknowledges that, as and when this Lease terminates with respect to the Construction Areas and Vacated Space, Landlord may perform (or cause to be performed) Improvement Work in the Construction Areas and Vacated Space. In connection with the Improvement Work, and subject to this Section 5(c), Tenant hereby agrees and acknowledges that Landlord (and Landlord’s employees, agents, contractors, engineers, consultants and/or representatives (collectively, “Landlord’s Parties”)) shall at all times have the right to use such portions of the common areas of the Project (including, without limitation, driveways, loading areas, parking areas, lobbies, walkways, corridors and elevators) as may be necessary or desirable (in Landlord’s reasonable discretion) to perform the Improvement Work, including, without limitation, for the purpose of transporting supplies, materials and equipment. Landlord hereby agrees and acknowledges that, as and when this Lease terminates with respect to the Construction Areas and Vacated Space, Tenant and Tenant’s employees, agents, contractors, engineers, consultants and/or representatives (“Tenant’s Parties”), will continue to occupy and use the Remaining Premises for the uses set forth in Section 1 above. Landlord and Tenant agree to mutually cooperate so that Landlord can perform the Improvement Work in the Construction Areas and Vacated Space in a manner that does not unreasonably interfere with Tenant’s use of the Premises and allow Tenant to conduct its business without interruption in utilities and services. Tenant acknowledges that the Improvement Work may cause dust, noise, vibrations and other disturbances in the Premises. Except as specifically provided in this Agreement, Tenant agrees that Landlord shall in no event be liable to Tenant for any impairment of Tenant’s access, use or occupancy of the Premises resulting from Landlord’s performance of the Improvement Work, nor shall the validity of this Lease or the obligations of Tenant hereunder be affected. Landlord and Tenant agree to the following:

¨. (i) Landlord shall cause Landlord Parties to observe the existing card key access security system maintained for the Project and Landlord shall issue access cards to the Landlord Parties as necessary.

¨.(ii) Landlord Parties will use loading ramps and loading dock areas for all unloading and all deliveries of materials and equipment. Landlord Parties shall not use the loading dock for all-day parking of vehicles. No building materials shall enter the Buildings by way of the lobby unless necessary for the orderly and efficient performance of the Improvement Work. No construction materials shall be permanently stored in the Tenant Common Area.

(iii) Landlord Parties shall conduct daily clean up of any work within the Tenant Common Area, including removal of any construction debris in the Tenant Common Area. Landlord Parties shall not use trash receptacles in the Tenant Common Area for construction debris.

¨.(iv) Landlord Parties shall follow all OSHA safety regulations in, on or about the Buildings at all times.

¨.(v) Upon completion of any Improvement Work in the Tenant Common Area, the portion of the Tenant Common Area subject to such work is to be thoroughly cleaned by the Landlord Parties.

¨.(vi) Landlord shall cause Landlord Parties to use care and consideration for Tenant’s Parties when using Tenant Common Areas such as restrooms and telephones. Smoking is prohibited in the Buildings and shall be permitted outside of the Buildings only in areas reasonably designated by Landlord. All workers are required to wear shirts and shoes. Radios used by Tenant Parties shall be kept at noise levels that do not interfere with Tenant’s use and occupancy of the Remaining Premises.

In order to coordinate the Tenant’s use and occupancy of the Premises with the performance of the Improvement Work, Tenant and Landlord hereby agree to appoint a representative (each a “Construction Representative”) to coordinate the timely and efficient performance of the Improvement Work and continued use and occupancy of the Premises by Tenant. The Construction Representatives shall make good faith efforts to resolve all disputes arising from the Improvement Work in a reasonable and timely manner. Tenant hereby appoints Steve Hmelar to serve as Tenant’s Construction Representative. Landlord hereby appoints Jim Harris to serve as Landlord’s Construction Representative.

The Construction Representatives shall hold weekly meetings at which Landlord’s Construction Representative shall inform Tenant’s Construction Representative of the construction activities planned by Landlord for the forthcoming week, including any work or activity which would substantially affect Tenant’s use and enjoyment of the Premises or Tenant Common Area. If Landlord’s construction activities will involve (i) any interruption in the plumbing, fire alarm, mechanical (including the compressed air system) or electrical systems to the Premises or the Tenant Common Area (each an “Interruption”) or (ii) any entry into the Premises by Landlord Parties to perform the Improvement Work (each an “Entry”), Landlord shall provide reasonable advance written notice of such Interruption or Entry to Tenant stating the date on which Buyer desires such Interruption or Entry to occur, the name, address and telephone number of the Landlord Party who will make the Entry, and the nature and location on the Premises of the Interruption or Entry. Tenant’s Construction Representative shall provide Landlord’s Construction Representative with written notice of his approval or disapproval of the Interruption or Entry within one (1) business day after receipt of such notice; provided, however, that such approval shall not be unreasonably withheld. If Tenant’s Construction Representative reasonably disapproves of the Interruption or Entry, the Construction Representatives shall meet and negotiate in good faith to reach agreement on a time for the Interruption or Entry that does not unreasonably burden or delay the Improvement Work and does not unreasonably interfere with Tenant’s use of the Premises. If the Construction Representatives cannot reach such agreement within two (2) days after written notice of disapproval from Tenant’s Construction Representative, the matter shall be resolved by good faith negotiation by Thomas Brunton of Tenant and Clyde Hosein of Landlord. Landlord shall promptly repair any damage to the Premises or restore any services interrupted as a result of an Interruption or Entry.

In addition, if there is a failure or interruption of electricity, communications or water service or the compressed air system to or in the Premises due to the construction activities of Landlord in the Project, and not due to (i) the failure of the utility supplier to provide such service, (ii) a casualty, or (iii) the act or omission of Tenant or Tenant’s Parties, then Landlord shall use best efforts to restore such services as soon as possible. If despite such best efforts, Landlord is unable to restore such services within two (2) business days after the occurrence of the failure or interruption, and Tenant has been unable to use the Premises for the conduct of its business for more than two (2) consecutive business days as a result thereof, then, notwithstanding anything contained in this Lease, as Tenant’s sole and exclusive remedy for such failure or interruption in services, Tenant shall be entitled to damages of Ten Thousand Dollars ($10,000) per day for each business day after the expiration of said two (2) business day period until the business day that the services are restored. If such failure or interruption of services involves less than the entire Premises, then the amount such per diem damage shall be negotiated in good faith by Thomas Brunton of Tenant and Clyde Hosein of Landlord, but shall in no event exceed Ten Thousand Dollars ($10,000) per business day. Except for the per diem damages set forth in this paragraph, in no event shall Landlord be liable for any injury to Tenant’s business or loss of income or profit resulting from a failure of interruption of electricity, water or communications services or the compressed air system in the Premises due to Landlord’s construction activities.

(d) Surrender of Remaining Premises. This Lease shall terminate with respect to the Remaining Premises, less any Vacated Space previously surrendered, on June 30, 2005. Tenant shall vacate and surrender the Remaining Premises, less all Vacated Space previously surrendered, in the condition required by Section 20 hereof not later than June 30, 2005. From and after June 30, 2005, Tenant shall have no further rights or obligations (nor shall Landlord have any further obligations) under this Lease with respect to such Remaining Premises, except for those obligations under this Lease which survive the termination or expiration of this Lease. Tenant acknowledges that Landlord must have possession of the entire Premises not later than June 30, 2005 in order to complete the Improvement Work and permit Landlord to occupy and conduct its business in the Premises and therefore time is of the essence with respect to Tenant’s obligation to vacate and surrender the Remaining Premises on or before June 30, 2005.

1. 6. Restriction on Use. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. Tenant shall not do anything in the Premises that will cause damage to the Buildings. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or the Project except in trash containers designated for that purpose by Landlord, or where otherwise designated by Landlord; and no toxic or hazardous materials shall be disposed of through

the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the Buildings.

2. 7. Compliance with Laws. Tenant shall, in connection with its use and occupancy of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations and requirements of federal, state, county, municipal and other governmental authorities, now or hereafter in effect, which shall impose any duty upon Tenant with respect to Tenant’s particular use or occupancy of the Premises, and (ii) any direction or occupancy certificate issued pursuant to law by any public authority with respect to the Premises.

3. 8. Alterations. Tenant may make or cause or allow to be made alterations, additions or improvements to the Premises (collectively referred to herein as “alterations”), but only to the extent necessary for Tenant’s continued use and occupancy of the Premises. Prior to making such alterations, Tenant shall provide Landlord with written notice describing the alteration to be made. In no event shall Tenant make any alterations in excess of Ten Thousand Dollars ($10,000) or affecting the Building’s electrical, fire alarm, life safety, heating, ventilating and air conditioning and mechanical systems without obtaining Landlord’s prior written consent, which shall not be unreasonably withheld. Landlord may require as a condition to its consent that Tenant remove any alterations prior to the expiration of the Lease Term and restore the area where such alterations were made to the condition existing on the Commencement Date in accordance with all applicable laws, codes and regulations then in effect; provided, however, that Landlord shall not require removal of any alterations if Landlord intends to demolish the area where the alteration is located as part of the Improvement Work.

9. Repair and Maintenance. Tenant hereby agrees and acknowledges that Tenant is currently in possession and occupancy of the Premises and familiar therewith. Tenant hereby further agrees and acknowledges that the Premises shall be taken in “as-is” condition, “with all faults,” “without representation or warranties.” Except as expressly provided below, Tenant shall at its sole cost keep and maintain in good condition and repair the interior of the Premises including, without limitation, the interior windows, doors and all door hardware, the interior walls and partitions. Subject to the provisions of Section 15, Landlord shall, at Landlord’s sole cost, keep and maintain the roof, structural elements, heating, ventilating and air conditioning, lighting, electrical, plumbing, mechanical and life-safety systems, the entrances to the Buildings, those portions of the Buildings outside of the Premises, the exterior walls of the Buildings and the interior and exterior common areas of the Project in good order and repair; provided, however, that Tenant shall provide janitorial services to the Tenant Common Areas at Tenant’s sole cost and expense. Tenant waives all rights under and benefits of California Civil Code Sections 1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect.

4. 10. Liens. Tenant shall keep the Premises and the Project free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant, its agents, employees or contractors. Should any such lien be recorded against the Project, Tenant shall give immediate notice of such lien to Landlord. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein

and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses (including attorneys’ fees) incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of ten percent (10%) per annum. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Building and any other party having an interest therein, from mechanics’ and materialmen’s liens and like liens.

11. Insurance.

¨.(a) Tenant’s Insurance. Tenant, shall at all times during the Lease Term, and at its own cost and expense, procure and continue in force the following insurance coverage: (i) Commercial General Liability Insurance with a combined single limit for bodily injury and property damage of not less than Three Million Dollars ($3,000,000) per occurrence and Five Million Dollars ($5,000,000) in the annual aggregate, covering the use of the Premises and the performance of Tenant of the indemnity agreements set forth in Section 16 hereof; and (ii) a policy of standard fire, extended coverage and special extended coverage insurance (all risks), including a vandalism and malicious mischief endorsement and sprinkler leakage coverage in such amounts as Tenant deems necessary with respect to personal property, inventory, equipment, trade fixtures and leased equipment owned or leased by Tenant and not transferred to Landlord under the terms of the Purchase Agreement (collectively, “Tenant’s Property”).

¨.(b) Form of Policies. The aforementioned minimum limits of policies shall in no event limit the liability of Tenant hereunder. Such insurance shall name Landlord and such other persons or firms with insurable interests, as Landlord specifies from time to time, as additional insureds with an appropriate endorsement to the policy(s) and shall be with companies having a rating of not less than AVIII in Best’s Insurance Guide. Prior to the Effective Date, Tenant shall furnish to Landlord, from the insurance companies, or cause the insurance companies to furnish, certificates of coverage with respect to any and all policies of insurance required to be maintained by Tenant pursuant to this Section 11. No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after thirty (30) days prior written notice to Landlord by the insurer. All such policies shall be endorsed to agree that Tenant’s policy is primary and that any insurance covered by Landlord is excess and not contributing with any insurance requirement hereunder. Tenant shall, at least twenty (20) days prior to the expiration of such policies, furnish Landlord with renewals or binders.

Additionally, Tenant shall maintain Worker’s Compensation required by law and shall provide Landlord with evidence of coverage. Said evidence shall be in the form of a certificate of insurance and shall provide for Landlord to receive thirty (30) days notice of cancellation from the insurer.

¨.(c) Landlord’s Insurance. Landlord shall, at Landlord’s expense, procure and maintain at all times during the term of the Lease, (i) a policy or policies of insurance covering loss or damage to the Buildings, Existing FF&E (as defined in Section 34) and leasehold improvements in such amounts as Landlord deems necessary (exclusive of Tenant’s Property), providing protection against all perils included within the classification of fire and extended coverage, vandalism coverage and malicious mischief, sprinkler leakage, water damage, and special extended coverage on building, and (ii) commercial general liability insurance in such amounts as are carried by reasonably prudent owners of comparable projects, and (iii) worker’s compensation coverage as required by applicable law. Upon written request from Tenant, Landlord shall inform Tenant of all insurance coverage carried by Landlord applicable to the Premises.

¨.(d) Waiver of Subrogation. The parties release each other and their respective authorized representatives from any claims for damage to the Premises, and to the fixtures, personal property, improvements, and alterations of either Landlord or Tenant, in or on the Premises, Buildings or Project, that are caused by or result from risks insured against under any insurance policies carried or required to be carried by the parties and in force at the time of any such damage. Any policy or policies of fire, extended or similar casualty insurance which either party obtains in connection with the Premises shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent any rights have been waived by the insured prior to the occurrence of injury of loss.

12. Utilities and Service; Janitorial. Tenant shall pay Landlord the amount of Fourteen Thousand Dollars ($14,000) per month as Tenant’s share of the cost of all water, gas, light, heating, ventilation and air conditioning, power, electricity, trash pickup, sewer charges and all other services supplied to or consumed in the Buildings (“Utility Costs”). Landlord and Tenant acknowledge that the foregoing monthly amount is a reasonable estimate of the percentage of utility and other services supplied to the Premises and the Tenant Common Areas. Tenant shall pay the foregoing amount of Utility Costs on the first day of each calendar month during the Lease Term. Utility Costs for any partial calendar month during Lease Term shall be prorated based on the number of days in such calendar month that the Lease Term is in effect. Landlord shall not be liable for the failure of any person or entity to furnish any of the foregoing utility services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations or other governmental actions, or by any other cause, similar or dissimilar.

Tenant shall be responsible, at Tenant’s sole cost and expense, for providing janitorial service in the Premises and in the Tenant Common Areas. Tenant shall obtain all telephone and communications services necessary for its use and operation of the Premises at its sole cost and expense.

2. 13. Entry by Landlord. Landlord reserves, and shall have the right, upon at least twenty-four (24) hours prior notice (except in an emergency), to enter the Premises (i) to inspect the Premises,

(ii) to supply services or make repairs required to be provided or made by Landlord hereunder, and (iii) to post notices required or allowed by this Lease or by law. Landlord shall use reasonable efforts to minimize any interference with Tenant’s use or occupancy of the Premises during any such entry.

14. Common Area; Parking. Subject to the terms and conditions of this Lease, Tenant and Tenant’s employees and invitees shall have the nonexclusive right to use the driveways, sidewalks and parking areas of the Project, the entrances of the Buildings, interior corridors, stairways and elevators in the Buildings providing access to the Premises (collectively, the “Common Area”).

Tenant shall have the nonexclusive use of the parking spaces in the Common Area. Tenant shall not at any time park or permit the parking of Tenant’s trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant’s vehicles or trucks, or the vehicles or trucks of Tenant’s suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Notwithstanding the foregoing, in order to assist Tenant in the surrender of the Construction Areas, Landlord shall allow Tenant to place up to ten (10) freestanding storage containers on a portion of the Project’s parking areas designated by Landlord. Tenant assumes all risk of damage or loss to Tenant’s property stored in such storage containers and Tenant hereby waives all claims against Landlord in connection therewith. All such storage containers shall be removed from the Project’s parking areas not later than June 30, 2005.

Landlord shall operate, manage and maintain the Common Area. The cost of such maintenance, operation and management of the Common Area, including maintenance of landscaping, maintenance and cleaning of parking lots and sidewalks, interior corridors, stairways and elevators in the Building shall be paid by Landlord; provided, however, Tenant shall provide and pay the cost of janitorial service for the Tenant Common Areas. Landlord shall pay all real property taxes and the costs of the insurance required to be maintained by Landlord under Section 11 hereof.

15. Damage by Fire; Casualty. In the event the Premises are damaged by any casualty which is covered under an insurance policy required to be maintained by Landlord pursuant to Section 11, Landlord shall be entitled to the use of all insurance proceeds and, subject to this Section 15 below, shall repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to Section 11, Landlord may, at Landlord’s option, either (i) repair such damage, at Landlord’s expense, as soon as reasonably possible, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Tenant within ten (10) days after the date of the occurrence of such damage of Landlord’s intention to cancel and terminate this Lease as of the date of the occurrence of the

damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant’s Property. If the Premises are totally destroyed during the Lease Term from any cause, whether or not covered by the insurance required under Section 11, this Lease shall automatically terminate as of the date of such total destruction. Notwithstanding the foregoing, if the Premises are damaged by any casualty and cannot be restored within thirty (30) days after the date of such damage, Tenant shall have the right to terminate this Lease effective as of the date of such damage by giving written notice of such termination to Landlord within thirty (30) days after the date of such damage.

Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration. The parties waive the provisions of California Civil Code sections 1932(2) and 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this Section 15 shall govern in the event of such destruction.

16. Indemnification.

¨.(a) Tenant shall indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from and against any claim, liability, loss, damage or expense (including attorneys’ fees) arising (i) from Tenant’s use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employees in or about the Premises or Project during the Lease Term, (ii) out of the failure of Tenant to observe or comply with Tenant’s obligation to observe and comply with laws or other requirements as set forth in Section 7, (iii) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises during the Lease Term, or (iv) from any other act, neglect, fault or omission of Tenant or its agents or employees in, on or about the Project during the Lease Term. The provisions of this Section 16 shall survive the expiration or earlier termination of this Lease.

¨.(b) Landlord shall indemnify, defend (with counsel reasonably acceptable to Tenant) and hold Tenant Parties harmless from and against any third-party claim, liability, loss, damage or expense (including attorneys’ fees) solely arising from the negligent acts, omissions, or willful misconduct of Landlord’s Parties in connection with Landlord’s Parties’ activities in, on or about the Project, except to the extent that such claim is for damage to the Premises and Tenant’s personal property, fixtures, furniture and equipment in the Premises and is covered by insurance that Tenant is required to obtain under this Lease (or would have been covered had Tenant carried the insurance required under this Lease).

17. Assignment and Subletting. Tenant shall not voluntarily assign, encumber or otherwise transfer its interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord’s written consent (which consent Landlord may withhold in its sole and absolute discretion).

Any assignment, encumbrance or sublease without Landlord’s consent, shall constitute a default under this Lease. The merger of Tenant with another entity or the acquisition of all or substantially all of the assets of Tenant by another entity shall not constitute an assignment for purposes of this Section 17.

2. 18. Default. The occurrence of any of the following shall constitute a default by Tenant: (i) failure of Tenant to pay any sum payable under this Lease within five (5) days after notice has been given to Tenant that such payment is delinquent; or (ii) failure of Tenant to perform any other term, covenant or condition of this Lease if the failure to perform is not cured within fifteen (15) days after notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within fifteen (15) days, Tenant shall not be in default and shall have such additional time (not to exceed thirty (30) days) as may be reasonably necessary to cure such failure to perform so long as Tenantcommences to cure such failure to perform within the fifteen (15) day period and diligently and in good faith continues to cure the failure to perform). The notice referred to in clause (ii) above shall specify the failure to perform and the applicable provision of this Lease and shall demand that Tenant perform the provisions of this Lease within the applicable period of time. No notice shall be deemed a forfeiture or termination of this Lease unless Landlord so elects in the notice.

In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right to terminate Tenant’s right to possession of the Premises (and thereby terminate this Lease). Should Landlord at any time terminate this Lease for any breach, in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and shall have all the rights and remedies of a landlord provided by California Civil Code Section 1951.2 or any successor code section. Tenant’s Property removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places that Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant.

19. Eminent Domain. If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for its relocation expenses necessitated by such taking, but only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award

as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises).

In the event of a partial taking, or conveyance in lieu thereof, of the Premises, then Tenant may terminate this Lease as of the date of such taking if Tenant determines that the remaining portion of the Premises is not satisfactory for Tenant’s use. Any election by Tenant to so terminate shall be by written notice given to Landlord within fifteen (15) days from the date of such taking or conveyance. If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this Lease as provided above, then this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed.

2. 20. Notice and Covenant to Surrender. On the expiration of the Lease Term or sooner termination of this Lease in accordance with Section 5 above, Tenant shall surrender to Landlord the Premises (or applicable portion thereof) in the condition existing as of the Commencement Date (normal wear and tear, casualty and condemnation excepted). On or prior to the expiration of the Lease Term, or sooner termination thereof in accordance with Section 5 above, Tenant shall, at Tenant’s sole cost and expense, remove all of Tenant’s personal property, furniture, equipment and trade fixtures from the Premises (but not the Existing FF&E) and repair any damage caused by such removal.

3. 21. Holding Over. TENANT ACKNOWLEDGES THAT LANDLORD REQUIRES IMMEDIATE POSSESSION OF THE REMAINING PREMISES UPON THE EXPIRATION OF THE LEASE IN ORDER TO COMPLETE THE IMPROVEMENT WORK FOR LANDLORD’S USE AND OCCUPANY OF THE BUILDINGS, TO MOVE LANDLORD’S PERSONNEL AND OPERATIONS INTO THE BUILDINGS AND TO BEGIN THE OPERATION OF ITS BUSINESS IN THE BUILDINGS. TENANT FURTHER ACKNOWLEDGES THAT IF TENANT FAILS TO VACATE AND SURRENDER THE REMAINING PREMISES TO LANDLORD ON OR BEFORE JUNE 30, 2005 AND HOLDS OVER IN THE REMAINING PREMISES FOR ANY PERIOD OF TIME AFTER JUNE 30, 2005, TENANT SHALL BE IN BREACH OF ITS OBLIGATIONS HEREUNDER. THE PARTIES AGREE THAT THE ACTUAL DAMAGES LANDLORD MAY SUFFER AS A RESULT OF SUCH BREACH WOULD BE EXTREMELY DIFFICULT OR IMPOSSIBLE TO DETERMINE. THE PARTIES FURTHER AGREE THAT THE AMOUNT OF $350,000.00 PER MONTH FOR EACH MONTH OR ANY PORTION THEREOF THAT TENANT HOLDS OVER IN THE REMAINING PREMISES AFTER JUNE 30, 2005 IS THE PARTIES’ BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES LANDLORD WOULD SUFFER BY TENANT’S HOLDING OVER, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT. THE FOREGOING AMOUNT SHALL CONSTITUTE LIQUIDATED DAMAGES FOR TENANT’S BREACH OF ITS OBLIGATION TO SURRENDER AND VACATE THE REMAINING PREMISES ON OR BEFORE JUNE 30, 2005. NOTWITHSTANDING THE FOREGOING, LANDLORD SHALL NOT BE RESTRICTED BY THE PROVISIONS OF THIS SECTION 21 FROM BRINGING AN ACTION FOR UNLAWFUL DETAINER

TO REMOVE TENANT FROM THE REMAINING PREMISES AFTER JUNE 30, 2005. THE PAYMENT OF THE AMOUNT SPECIFIED ABOVE AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTION 1671, 1676 AND 1677.

ACCEPTED AND AGREED TO:

LANDLORD TENANT

1. 22. Certificate of Estoppel. Tenant shall, within fifteen (15) calendar days after request therefor, execute and deliver to Landlord, a certificate stating that this Lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of any sums due hereunder, the date to which any such amounts has/have been paid in advance, and shall include such other items as Landlord may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by Tenant that this Lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or Project.

2. 23. Attorneys’ Fees. If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, attorneys’ fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses.

3. 24. Waiver. No delay or omission in the exercise of any right or remedy of Landlord on any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease.

4. 25. Notices. All notices, demands, requests, consents and other communications which may be given or are required to be given by either party to the other shall be in writing and shall be sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid. All such communications from Tenant to Landlord shall be served or addressed to Tenant at Integrated Device Technology, Inc., 2975 Stender Way, Santa Clara, CA 95054, Attn: James L. Laufman, Vice President, General Counsel. All such communications by Landlord to Tenant shall be served or addressed to Tenant at Electroglas, Inc., 6024 Silver Creek Valley Road, San Jose, CA

95138 Attn: Mr. Thomas Brunton. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be.

5. 26. Governing Law; Severability. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect.

6. 27. Interest on Past Due Obligations; Late Charge. Any amount due from one party to the other party hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by such delinquent party. In addition, Tenant acknowledges that late payment by Tenant to Landlord of Utility Costs or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord within five (5) days after Tenant’s receipt of written notice from Landlord that such payment is due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant.

7. 28. Entire Agreement. This Lease, including any exhibits and attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this Lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this Lease. This Lease is not intended to alter the rights and obligations of the parties under the Purchase Agreement.

8. 29. Corporate Authority. Each party represents and warrants to the other that this Lease has been duly authorized by such party, and that upon execution and delivery to the other party, shall constitute a valid and binding obligation of such party.

9. 30. Real Estate Brokers. Each party represents and warrants to the other party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this Lease except CPS on behalf of Landlord and Tenant (“Broker”). The parties acknowledge and agree that the Broker is not being compensated separately for this Lease but is being paid a commission in connection with the Purchase Agreement. Each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorneys’ fees and related costs) arising out of or resulting from any claims for commissions or fees that may or have been asserted against the other party by any broker, finder or other person with whom Tenant or Landlord has or purportedly has dealt with in connection with the Premises and the negotiation and execution of this Lease.

1. 31. Exhibits and Attachments. All exhibits and attachments to this Lease are a part hereof.

2. 32. Environmental Matters.

¨.(a) Environmental Law Compliance. During the Lease Term, Tenant shall comply with all Environmental Laws and Environmental Permits (each as defined in Section 32(d) below) applicable to the operation or use of the Premises, will cause all other persons occupying or using the Premises to comply with all such Environmental Laws and Environmental Permits, and will immediately pay or cause to be paid all costs and expenses incurred by reason of such compliance.

¨.(b) Prohibition. Tenant shall not generate, use, treat, store, handle, release or dispose of, or permit the generation, use, treatment, storage, handling, release or disposal of Hazardous Materials on the Premises, or the Project, or transport or permit the transportation of Hazardous Materials to or from the Premises or the Project except for limited quantities used or stored at the Premises and required in connection with the routine operation and maintenance of the Premises.

¨.(c) Indemnity. Tenant shall defend, indemnify and hold harmless Landlord from and against all obligations (including removal and remedial actions), losses, claims, suits, judgments, liabilities, penalties, damages, costs and expenses (including attorneys’ and consultants’ fees and expenses) incurred by, imposed on or asserted against Landlord based on, or arising or resulting from

¨.(a) the actual or alleged presence of Hazardous Materials in the Premises which is caused or permitted by Tenant during the Lease Term.

¨.(d) Definitions. As used herein, the following terms shall have the following meanings: “Hazardous Materials” means (i) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and radon gas;

¨.(ii) any substances defined as or included in the definition of “hazardous substances,” “hazardouswastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants” or “pollutants,” or words of similar import, under any applicable Environmental Law; and (iii) any other substance exposure to which is regulated by any governmental authority. “Environmental Law(s)” means any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801 et seq.; the Clean Water Act, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.; the Atomic Energy Act, 42 U.S.C. §§ 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq. “Environmental Permits” means all permits, approvals, identification numbers, licenses and other authorizations required under any applicable Environmental Law.

1. 33. Signage. Tenant shall not, without obtaining the prior written consent of Landlord, install or attach any new or additional sign or advertising material on any part of the outside of the Buildings. Tenant may maintain any existing signs on the Buildings or Premises until the expiration of the Lease Term.

2. 34. Existing FF&E. Tenant shall have the right to use the furniture, fixtures and equipment located in the Premises as of the Commencement Date and transferred from Tenant to Landlord under the terms of the Purchase Agreement (“Existing FF&E”). The parties acknowledge that Landlord purchased the Existing FF&E from Tenant on the Commencement Date of this Lease. Tenant hereby agrees that Tenant shall accept and use such Existing FF&E in its “AS IS” condition, “with all faults” and without any express or implied warranty from Landlord (or any of Landlord’s agents, employees and/or representatives) of any kind. Tenant is not relying on any representations or warranties of any kind whatsoever, express or implied, from Landlord, its agents or brokers as to any matters concerning such Existing FF&E, including, without limitation, any implied warranty of fitness for a particular purpose. The Existing FF&E shall remain the property of Landlord during the Lease Term. Notwithstanding the preceding sentence, during the Lease Term, Tenant shall, at Tenant’s sole cost and expense, be responsible for cleaning, repairing, maintaining and replacing the Existing FF&E. Landlord shall have no duty to repair, maintain or replace such Existing FF&E. Tenant shall, at Tenant’s sole cost and expense, maintain the Existing FF&E in good condition and repair during the Lease Term. Tenant hereby assumes all risk of damage to property or injury to persons in connection with the use of the Existing FF&E and Tenant hereby waives all clams in respect thereof against Landlord. For purposes of this Section 34, “good condition and repair” shall mean the condition of such Existing FF&E as of the Commencement Date, reasonable wear and tear, casualty and condemnation excepted. In no event shall Tenant remove the Existing FF&E from the Premises. Upon the expiration (or earlier termination) of the Lease Term, Tenant shall surrender the Existing FF&E to Landlord in the same condition existing on the Commencement Date, reasonable wear and tear excepted.

IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease on the date first above written.

LANDLORD:

INTEGRATED DEVICE TECHNOLOGY, INC.

a Delaware corporation

By:

Its:

By:

Its:

TENANT:

ELECTROGLAS, INC., a Delaware corporation

By: Its:
	By: Its:

EXHIBIT “A” PREMISES Building A-2 story Customer Pavilion/Main Lobby containing approximately 17,992 square feet Building B-2 story Office/Manufacturing building containing approximately 141,311 square feet Building C-3 story Office Building containing approximately 89,247 square feet. Building D-2 story Employee Pavilion containing approximately 14,559 square feet.

Acrobat Document EXHIBIT “E”

LEASES

1. 1. PCS Site Agreement dated September 19, 2000 between Electroglas, Inc., a

Delaware corporation, and Sprint Spectrum L.P., a Delaware limited partnership, as evidenced by a Owner’s Consent, Non-Disturbance and Attornment Agreement recorded November 1, 2000 as Document No. 15443344 of the Official Records of Santa Clara County, California.

2. 2. Building and Rooftop Lease Agreement dated October 24, 2003 between Electroglas, Inc., a Delaware corporation, and GTE Mobilnet of California Limited Partnership, d/b/a Verizon Wireless, by Cellco Partnership, its partner, as evidenced by a Memorandum of Lease Agreement recorded January 27, 2004 as Document No. 17587539 of the Official Records of Santa Clara County, California.

3. 3. Communications Site Lease Agreement dated March 24, 2004 between Electroglas, Inc., a Delaware corporation, and Pacific Bell Wireless, LLC, a Nevada limited liability company, d/b/a Cingular Wireless, as evidenced by a Memorandum of Lease recorded August 9, 2004 as Document No. 17940459 of the Official Records of Santa Clara County, California.

EXHIBIT “F”

DEFINITION OF HAZARDOUS SUBSTANCES

The term “Hazardous Substance” as used in this Agreement shall mean any toxic or hazardous substance, material or waste or any pollutant or contaminant or infectious or radioactive material, including but not limited to those substances, materials or wastes regulated now or in the future under any of the statutes or regulations listed below and any and all of those substances included within the definitions of “hazardous substances”, “hazardous materials”, “hazardous waste”, “hazardous chemical substance or mixture”, “imminently hazardous chemical substance or mixture”, “toxic substances”, “hazardous air pollutant”, “toxic pollutant” or “solid waste” in the statues or regulations listed below. Hazardous Substances shall also mean any and all other similar terms defined in other federal state and local laws, statutes, regulations, orders or rules and materials and wastes which are, or in the future become, regulated under applicable local, state or federal law for the protection of health or the environment or which are classified as hazardous or toxic substances, materials or waste, pollutants or contaminants, as defined, listed or regulated by any federal, state or local law, regulation or order or by common law decision, including, without limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and other chlorinated solvents, (ii) any petroleum products or fractions thereof, (iii) asbestos, (iv) polychlorinated biphenyls, (v) flammable explosives, (vi) urea formaldehyde, and (vii) radioactive materials and waste.

In addition, a Hazardous Substance shall include:

¨.(l) a “Hazardous Substance”, “Hazardous Material”, “Hazardous Waste”, or “Toxic Substance” under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §§ 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801, et seq., or the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901, et seq.;

¨.(2) an “Extremely Hazardous Waste”, a “Hazardous Waste”, or a “Restricted

Hazardous Waste”, under §§ 25115, 25117 or 25122.7 of the California Health and Safety Code, or is listed or identified pursuant to §§ 25140 or 44321 of the California Health and Safety Code;

¨.(3) a “Hazardous Material”, “Hazardous Substance”, “Hazardous Waste”, “Toxic Air Contaminant”, or “Medical Waste” under §§ 25281, 25316, 25501, 25501.1, 25023.2 or 39655 of the California Health and Safety Code;

¨.(4) “Oil” or a “Hazardous Substance” listed or identified pursuant to § 311 of the Federal Water Pollution Control Act, 33 U.S.C. § 1321, as well as any other hydrocarbonic substance or by-product;

¨.(5) listed or defined as a “Hazardous Waste”, “Extremely Hazardous Waste”, or an “Acutely Hazardous Waste” pursuant to Chapter 11 of Title 22 of the California Code of Regulations;

¨.(6) listed by the State of California as a chemical known by the State to cause cancer or reproductive toxicity pursuant to § 25249.8(a) of the California Health and Safety Code;

¨.(7) a material which due to its characteristics or interaction with one or more other substances, chemical compounds, or mixtures, damages or threatens to damage, health, safety, or the environment, or is required by any law or public agency to be remediated, including remediation which such law or public agency requires in order for the property to be put to any lawful purpose;

¨.(8) any material the presence of which would require remediation pursuant to the guidelines set forth in the State of California Leaking Underground Fuel Tank Field Manual, whether or not the presence of such material resulted from a leaking underground fuel tank;

¨.(9) pesticides regulated under the Federal Insecticide, Fungicide and Rodenticide Act, 7

U.S.C. §§ 136 et seq.;

¨.(10) asbestos, PCBs, and other substances regulated under the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.;

¨.(l1) any radioactive material including, without limitation, any “source material”, “special nuclear material”, “by-product material”, “low-level wastes”, “high-level radioactive waste”, “spent nuclear fuel” or “transuranic waste”, and any other radioactive materials or radioactive wastes, however produced, regulated under the Atomic Energy Act, 42 U.S.C. §§ 2011 et seq., the Nuclear Waste Policy Act, 42 U.S.C. §§ 10101 et seq., or pursuant to the California Radiation Control Law, California Health and Safety Code §§ 25800 et seq.

¨.(12) industrial process and pollution control wastes, whether or not “hazardous” within the meaning of the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.;

¨.(13) regulated under the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq., or the California Occupational Safety and Health Act, California Labor Code §§ 6300 et seq.; and/or

¨.(14) regulated under the Clean Air Act, 42 U.S.C. §§ 7401 et seq. or pursuant to Division 26 of the California Health and Safety Code.

All other laws, ordinances, codes, statutes, regulations, administrative rules, policies and

orders, promulgated pursuant to said foregoing statutes and regulations or any amendments or replacement thereof, provided such amendments or replacements shall in no way limit the original scope and/or definition of Hazardous Substance defined herein.

EXHIBIT “G”

GRANT DEED

Order No.
Escrow or Loan No.
RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO:
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, CA 95054
Attn: James L. Laufman, Esq.,
Vice President, General Counsel
	SPACE ABOVE THIS LINE FOR RECORDER’S USE

Mail Tax Statements to: The undersigned grantor declares:

Same as above	Documentary Transfer Tax is shown on a separate sheet attached to this deed and is not a part of the public record.
A.P.N.

GRANT DEED

FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,

ELECTROGLAS, INC., a Delaware corporation,

hereby GRANTS to INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation

that certain real property in the City of San Jose, County of Santa Clara, State of California, more particularly described as follows: See Attachment 1

This Grant is made subject to all those matters set forth on the list of Permitted Exceptions attached hereto as

Attachment 2 and made a part hereof.

	ELECTROGLAS, INC., a Delaware corporation
Dated:	By:
	Its:
	By:
Its:
	DO NOT RECORD
	FILOR REQUESTS DO NOT RECORD             STAMP VALUE

NOTE: This Declaration is not a public record Document #

                             DECLARATION OF TAX DUE:

SEPARATE PAPER:

(Revenue and Taxation Code 11932-11933)

DOCUMENTARY TRANSFER TAX IS $                     (        ) Computed on full value (        ) Computed on full value less liens or encumbrances remaining at the time of

conveyance APN: Property located in:

(            ) Unincorporated

(    X    ) City of San Jose

CITY CONVEYANCE TAX IS $                    

Signature of party determining tax

Name (Typed or Printed)

STATE OF CALIFORNIA
	}	SS.
COUNTY OF SANTA CLARA

On                     , before me,                     , personally appeared                     ,	CAPACITY CLAIMED BY SIGNER
	Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document.
personally known to me–OR-proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
	INDIVIDUAL CORPORATE OFFICERS(S)
	–
	Title(s)
	PARTNER(S) LIMITED
	GENERAL
	ATTORNEY-IN-FACT
WITNESS my hand and official seal.	TRUSTEE(S)
	GUARDIAN/CONSERVATOR OTHER:
SIGNATURE OF NOTARY
	SIGNER IS REPRESENTING:
	Name of Person(s) or Entity(ies)

ATTACHMENT 1

LEGAL DESCRIPTION OF PROPERTY

Real property in the City of San Jose, County of Santa Clara, State of California, described as follows:

PARCEL A:

All of Parcel A of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of Lot 1, together with a portion of Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, also together with a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of said Lot 1 (Book 523 of Maps at pages 5 and 6) and the Southeasterly line of that certain parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East, 61.11 feet; thence North 36° 06’ 20” West, 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985, in Book J254 at page 146, Santa Clara County Records and the Southeasterly line of Silver Creek Valley Road (formerly known as Fontanoso Road) as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Northeasterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the left with a radius of 1264.00 feet through a central angle of 18° 58’ 05” for an arc length of 418.45 feet and North 45° 00’ 08” East 147.61 feet to the point of beginning.

PARCEL B:

All of Parcel B of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, together with portions of Lot 1 and Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at

pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of Lot 1 as said Lot is shown upon that certain map filed for record on December 22, 1983 in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California and the Southeasterly line of that certain parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2 to the true point of beginning; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East 61.11 feet; thence North 36° 06’ 20” West 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West, 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records and the Southeasterly line of Silver Creek Valley Road (formally known Fontanoso Road), as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Southwesterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the right with a radius of 1264.00 feet through a central angle of 11° 55’ 41” for an arc length of 263.15 feet to a point in the Westerly line of said Lot 1 and the most Southerly corner of said parcel of land granted to the City of San Jose; thence continuing Westerly along the Southeasterly line of Silver Creek Road, and the Southerly line of that parcel granted to the City of San Jose by Grant Deed recorded January 2, 1985, in Book J158, at page 385 Official Records along a curve to the right with a radius of 1264.00 feet through a central angle of 15° 22’ 50” for an arc length of 339.31 feet and North 88° 43’ 16” East 5.35 feet to the Northwesterly line of said 6.70 acre parcel; thence South 73° 00’ 30” West 271. 24 feet along said Northwesterly line to the most Northeasterly corner of that certain Parcel B granted to the Santa Clara Valley Water Conservation District by Grant Deed recorded March 13, 1959 in Book 4352 of page 646, Official Records; thence along the Northeasterly line of said parcel, the following three (3) courses; (1) South 42° 43’ 41” East 176.98 feet; (2) Along a curve to the right with a radius of 480.00 feet through a central angle of 4° 17’ 00” for an arc length of 35.88 feet and (3) South 38° 26’ 41” East 246.31 feet to the Southerly line of said 6.70 acreparcel; thence North 89° 59’ 30” East 447.14 feet along the Southerly line of said parcel to the Southeast corner of said 6.70 acre parcel; thence North 89° 59’ 30” East 22.78 feet along Southerly line of Lot 2 to the true point of beginning.

EXCEPTING THEREFROM all that portion thereof conveyed to the City of San Jose, a California Corporation Charter City by Grant Deed recorded March 20, 2000, as

Document No. 15184621 of Official Records.

APN: 678-93-24, 26, 34

Arb: 678-14-007; 007.01; 007.01.01; 008; 008.01; 008.01.01; 008.01.02; 008.02; 008.02.01

ATTACHMENT 2 PERMITTED EXCEPTIONS [To be added prior to the Close of Escrow]

EXHIBIT “H”

BILL OF SALE

For good and valuable consideration, the receipt of which is hereby acknowledged, ELECTROGLAS, INC., a Delaware corporation (“Seller”), does hereby sell, transfer, and convey to INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation (“Buyer”), that certain personal property more particularly described on Exhibit “A” attached hereto (“Personal Property”) owned and used by Seller in the operation and maintenance of that certain real property owned by Seller more particularly described on Exhibit “B” attached hereto (“Property”).

Seller is the lawful owner of Seller’s interest in the Personal Property and has not sold or hypothecated the Personal Property.

This Bill of Sale may be executed in two or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument.

Dated this      day of                     , 2005.

SELLER:

ELECTROGLAS, INC., a Delaware corporation

By:

Its:

By:

Its:

EXHIBIT “A” TO EXHIBIT “H”

LIST OF PERSONAL PROPERTY

Area	Property Transferred to Buyer
All Areas Office Equipment:	None
All Areas Cubicles Components:	Walls Writing surfaces overhead cabinets file cabinets Chairs book shelves
All Areas Hard Wall Offices:	Chairs Desks File Cabinets Book Shelves White boards attached to walls Clocks attached to walls Pictures of SJ Campus Tables
Break rooms:	Refrigerators Microwave’s Water Purifiers Tables and chairs

Training Rooms:	Tables Chairs Permanently attached white boards and screens
Conference Rooms:	Tables Chairs Cabinets Clocks Projector Screens White boards attached to walls
Board Room:	Chairs Tables AV Equipment Clocks Campus Pictures Projector screen Kitchen Equipment
Demo Room:	A/V Equipment located in room or associated closet Built in Projector and screen
Hallways:	SJ Campus pictures
Lobby:	Receptionist Station Chairs Tables
Cafeteria & Patio:	All Kitchen equipment not supplied by corporate Chef All Tables and Chairs
Fitness Center:	All Fitness Equipment
Security:	All equipment, software, cameras associated with the security system
Engineering Labs:	shelving bolted to building
Shipping/Receiving:	Shelving and cages bolted to building Pallet Racks
Data Center (NOC):	UPS System Equipment Racks Cable Plant

Wiring Closets:	Racks and patch panels
Equipment Pads:	Compressors Pumps Generators
Other Facility Property:	Demountable Walls Bike Lockers
Storage Areas C3 Storage area:	None
B2 accounting record area:	None

EXHIBIT “B” TO EXHIBIT “H”

LEGAL DESCRIPTION OF PROPERTY

Real property in the City of San Jose, County of Santa Clara, State of California, described as follows:

PARCEL A:

All of Parcel A of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of Lot 1, together with a portion of Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, also together with a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of said Lot 1 (Book 523 of Maps at pages 5 and 6) and the Southeasterly line of that certain parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East, 61.11 feet; thence North 36° 06’ 20” West, 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose, by Grant Deed recorded

February 19, 1985, in Book J254 at page 146, Santa Clara County Records and the Southeasterly line of Silver Creek Valley Road (formerly known as Fontanoso Road) as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Northeasterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the left with a radius of 1264.00 feet through a central angle of 18° 58’ 05” for an arc length of 418.45 feet and North 45° 00’ 08” East 147.61 feet to the point of beginning.

PARCEL B:

All of Parcel B of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, together with portions of Lot 1 and Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of Lot 1 as said Lot is shown upon that certain map filed for record on December 22, 1983 in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California and the Southeasterly line of that certain parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2 to the true point of beginning; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East 61.11 feet; thence North 36° 06’ 20” West 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West, 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records and the Southeasterly line of Silver Creek Valley Road (formally known Fontanoso Road), as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Southwesterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the right with a radius of 1264.00 feet through a central angle

of 11° 55’ 41” for an arc length of 263.15 feet to a point in the Westerly line of said Lot 1 and the most Southerly corner of said parcel of land granted to the City of San Jose; thence continuing Westerly along the Southeasterly line of Silver Creek Road, and the Southerly line of that parcel granted to the City of San Jose by Grant Deed recorded January 2, 1985, in Book J158, at page 385 Official Records along a curve to the right with a radius of 1264.00 feet through a central angle of 15° 22’ 50” for an arc length of 339.31 feet and North 88° 43’ 16” East 5.35 feet to the Northwesterly line of said 6.70 acre parcel; thence South 73° 00’ 30” West 271. 24 feet along said Northwesterly line to the most Northeasterly corner of that certain Parcel B granted to the Santa Clara Valley Water Conservation District by Grant Deed recorded March 13, 1959 in Book 4352 of page 646, Official Records; thence along the Northeasterly line of said parcel, the following three (3) courses; (1) South 42° 43’ 41” East 176.98 feet; (2) Along a curve to the right with a radius of 480.00 feet through a central angle of 4° 17’ 00” for an arc length of 35.88 feet and (3) South 38° 26’ 41” East 246.31 feet to the Southerly line of said 6.70 acre parcel; thence North 89° 59’ 30” East 447.14 feet along the Southerly line of said parcel to the Southeast corner of said 6.70 acre parcel; thence North 89° 59’ 30” East 22.78 feet along Southerly line of Lot 2 to the true point of beginning.

EXCEPTING THEREFROM all that portion thereof conveyed to the City of San Jose, a California Corporation Charter City by Grant Deed recorded March 20, 2000, as Document No. 15184621 of Official Records.

APN: 678-93-24, 26, 34

Arb: 678-14-007; 007.01; 007.01.01; 008; 008.01; 008.01.01; 008.01.02; 008.02; 008.02.01

EXHIBIT “I”

ASSIGNMENT AND ASSUMPTION OF LEASE

THIS ASSIGNMENT AND ASSUMPTION OF LEASE (“Assignment”) is executed this      day of             , 2005, by and between ELECTROGLAS, INC., a Delaware corporation (“Assignor”) and INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation (“Assignee”).

RECITALS

A. Assignor is the owner of certain real property located at 6024 Silver Creek Valley Road, San Jose, California (the “Property”), which Property is more particularly described in Exhibit A attached hereto.

B. The Property is currently subject to that those certain leases (the “Existing Leases”) identified on Exhibit B attached hereto.

C. Assignee is acquiring the Property from Assignor pursuant to that certain Agreement for Purchase and Sale of Real Property dated as of December     , 2004 (the “Purchase Agreement”).

D. Assignor desires (concurrently with its transfer and conveyance of the Property to Assignee) to assign and transfer to Assignee its interest, as landlord, under the Existing Leases, and Assignee desires to acquire from Assignor the interest of Assignor, as landlord, under the Existing Leases and to assume all of the obligations of Assignor as landlord under the Existing Leases. This Assignment shall be effective as of the date the grant deed from Assignor to Assignee is recorded in the Official Records of the County of Santa Clara, California (the “Effective Date”).

NOW, THEREFORE, it is hereby agreed as follows:

1. 1. As of the Effective Date, Assignor does hereby assign, transfer and convey to Assignee all of Assignor’s right, title and interest as landlord under the Existing Leases. Assignee hereby accepts the foregoing assignment, transfer and conveyance of Assignor’s interest as landlord under the Existing Leases, and hereby assumes all of the obligations of Assignor as landlord under the Existing Leases arising from and after the Effective Date.

2. 2. Assignee shall indemnify, defend and hold Assignor harmless from any claim, loss or liability arising out of or in any way connected with a default of landlord under the Existing Leases which shall occur on or after the Effective Date. Assignor shall indemnify, defend and hold Assignee harmless from any claim, loss or liability arising out of or in any way connected with a default of landlord under the Existing Leases which shall have occurred prior to the Effective Date.

3. 3. This Assignment may be executed in counterparts, each of which shall be an original, but all of which shall constitute one instrument. In addition, counterpart signature pages may be annexed to one Assignment.

IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the date set forth above, to be effective as of the Effective Date.

ASSIGNOR:

ELECTROGLAS, INC., a Delaware corporation

By:

Its:

By:

Its:

ASSIGNEE:

INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation

By:

Its:

By:

Its:

EXHIBIT “A” TO EXHIBIT “I”

LEGAL DESCRIPTION OF THE PROPERTY

Real property in the City of San Jose, County of Santa Clara, State of California, described as follows:

PARCEL A:

All of Parcel A of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10,1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of Lot 1, together with a portion of Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, also together with a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa Clara County Records, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of said Lot 1 (Book 523 of Maps at pages 5 and 6) and the Southeasterly line of that certain parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East, 61.11 feet; thence North 36° 06’ 20” West, 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose, by Grant Deed recorded February 19, 1985, in Book J254 at page 146, Santa Clara County Records and the Southeasterly line of Silver Creek Valley Road (formerly known as Fontanoso Road) as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Northeasterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the left with a radius of 1264.00 feet through a central angle of 18° 58’ 05” for an arc length of 418.45 feet and North 45° 00’ 08” East 147.61 feet to the point of beginning.

PARCEL B:

All of Parcel B of that certain Lot Line Adjustment Permit, File No. AT 98-03-031, issued by the City of San Jose, California, and recorded August 10, 1998 as Document No. 14327079 of Official Records. Said land being more particularly described as follows: Being a portion of that certain 6.70 acre parcel of land as shown on that Record of Survey entitled “Being a part of Lots 7 & 1 of the Fontanoso Tract, Book H of Maps at page 147”, filed for record on October 24, 1950 in Book 29 of Maps at page 6, Santa

Clara County Records, together with portions of Lot 1 and Lot 2, as said Lots are shown upon that certain Map filed for record on December 22, 1983, in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California, being more particularly described as follows: Beginning at the intersection of the Northeasterly line of Lot 1 as said Lot is shown upon that certain map filed for record on December 22, 1983 in Book 523 of Maps, at pages 5 and 6, Santa Clara County Records and lying within the City of San Jose, County of Santa Clara, State of California and the Southeasterly line of that certain parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records; thence South 45° 00’ 00” East 920.47 feet along said Northeasterly line of said Lot 1 and the Northeasterly line of said Lot 2 to the most Easterly corner of said Lot 2; thence South 44° 59’ 36” West 357.01 feet along the Southeasterly line of said Lot 2; thence South 89° 59’ 30” West 923.05 feet along the Southerly line of said Lot 2 to the true point of beginning; thence leaving said Southerly line of said Lot 2 North 00° 00’ 11” East 61.11 feet; thence North 36° 06’ 20” West 301.18 feet; thence North 53° 53’ 40” East 347.75 feet; thence North 25° 03’ 20” West, 52.74 feet to the Southeasterly line of that certain Parcel of land granted to the City of San Jose by Grant Deed recorded February 19, 1985 in Book J254, page 146, Official Records and the Southeasterly line of Silver Creek Valley Road (formally known Fontanoso Road), as shown on that certain Record of Survey of the Monument line of Hellyer Avenue, filed for record on March 14, 1984 in Book 525 of Maps at pages 52 through 59, and the beginning of a non-tangent curve to the left, the center of which bears North 26° 01’ 47” West; thence Southwesterly along the Southeasterly line of last said parcel granted to the City of San Jose and said Southeasterly line of Silver Creek Valley Road, along said curve to the right with a radius of 1264.00 feet through a central angle of 11° 55’ 41” for an arc length of 263.15 feet to a point in the Westerly line of said Lot 1 and the most Southerly corner of said parcel of land granted to the City of San Jose; thence continuing Westerly along the Southeasterly line of Silver Creek Road, and the Southerly line of that parcel granted to the City of San Jose by Grant Deed recorded January 2, 1985, in Book J158, at page 385 Official Records along a curve to the right with a radius of 1264.00 feet through a central angle of 15° 22’ 50” for an arc length of 339.31 feet and North 88° 43’ 16” East 5.35 feet to the Northwesterly line of said 6.70 acre parcel; thence South 73° 00’ 30” West 271. 24 feet along said Northwesterly line to the most Northeasterly corner of that certain Parcel B granted to the Santa Clara Valley Water Conservation District by Grant Deed recorded March 13, 1959 in Book 4352 of page 646, Official Records; thence along the Northeasterly line of said parcel, the following three (3) courses; (1) South 42° 43’ 41” East 176.98 feet; (2) Along a curve to the right with a radius of 480.00 feet through a central angle of 4° 17’ 00” for an arc length of 35.88 feet and (3) South 38° 26’ 41” East 246.31 feet to the Southerly line of said 6.70 acre parcel; thence North 89° 59’ 30” East 447.14 feet along the Southerly line of said parcel to the Southeast corner of said 6.70 acre parcel; thence North 89° 59’ 30” East 22.78 feet along Southerly line of Lot 2 to the true point of beginning.

EXCEPTING THEREFROM all that portion thereof conveyed to the City of San Jose, a California Corporation Charter City by Grant Deed recorded March 20, 2000, as Document No. 15184621 of Official Records.

APN: 678-93-24, 26, 34

Arb: 678-14-007; 007.01; 007.01.01; 008; 008.01; 008.01.01; 008.01.02; 008.02; 008.02.01

EXHIBIT “B” TO EXHIBIT “I”

EXISTING LEASES

1. 1. PCS Site Agreement dated September 19, 2000 between Electroglas, Inc., a Delaware corporation, and Sprint Spectrum L.P., a Delaware limited partnership, as evidenced by a Owner’s Consent, Non-Disturbance and Attornment Agreement recorded November 1, 2000 as Document No. 15443344 of the Official Records of Santa Clara County, California.

2. 2. Building and Rooftop Lease Agreement dated October 24, 2003 between Electroglas, Inc., a Delaware corporation, and GTE Mobilnet of California Limited Partnership, d/b/a Verizon Wireless, by Cellco Partnership, its partner, as evidenced by a Memorandum of Lease Agreement recorded January 27, 2004 as Document No. 17587539 of the Official Records of Santa Clara County, California.

1. Communications Site Lease Agreement dated March 24, 2004 between Electroglas, Inc., a Delaware corporation, and Pacific Bell Wireless, LLC, a Nevada limited liability company, d/b/a Cingular Wireless, as evidenced by a Memorandum of Lease recorded August 9, 2004 as Document No. 17940459 of the Official Records of Santa Clara County, California.

EXHIBIT “J”

ASSIGNMENT

Assignment and Assumption of Contracts, Documents and Intangible Property

For good and valuable consideration, the receipt of which is hereby acknowledged, ELECTROGLAS, INC. a Delaware corporation (“Assignor”), hereby irrevocably assigns, transfers and sets over to INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation (“Assignee”) all of Assignor’s right, title and interest in and to (i) the contracts (the “Contracts”) enumerated in Schedule A attached hereto and made a part hereof, (ii) any and all governmental permits and approvals (the “Permits and Approvals”) related to the Buildings located on the Real Property being conveyed by Assignor to Assignee by Grant Deed of even date herewith, (iii) all guarantees, warranties, surveys, engineering studies and reports (including, without limitation, soils, environmental geotechnical and structural surveys and studies), permits required for the operation of the Real Property, licenses, certificates, franchises and building plans and specifications relating to the Buildings and the Real Property (“Documents”), and (iv) all air rights, any licenses, franchises, permits, development rights, certificates of occupancy,

entitlements, general intangibles, authorizations and approvals used in connection with the ownership, use and operation of the Real Property (“Intangible Property”). All terms not otherwise defined herein shall have the same meaning as set forth in that certain Agreement for Purchase and Sale of Real Property dated as of December     , 2004 by and between Assignor and Assignee.

Assignee hereby assumes all obligations in connection with the Contracts and the Permits and Approvals, arising or first becoming due and payable after the date hereof and Assignor shall continue to be responsible for all monetary obligations in connection with the Contracts and the Permits and Approvals that become due and payable prior to the date hereof. Assignor hereby represents and warrants only that it has not previously assigned the Contracts, the Permits and Approvals, Documents and Intangible Property.

With respect to the assignment of the Documents to Assignee, such assignment shall be on a non-exclusive basis in order that Assignor may reserve the right to pursue any claims which it may have against a consultant, warrantor or guarantor pursuant to the Documents.

All terms of this Assignment shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective legal representatives, successors and assigns. No modification, waiver, amendment, discharge or change of this Assignment shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is or may be sought.

This Assignment shall be construed and enforced in accordance with the laws of the State of California.

This Assignment may be executed in any number of counterparts, each of which so executed shall be deemed an original; such counterparts shall together constitute but one agreement.

IN WITNESS WHEREOF, Assignor and Assignee have each executed this Assignment of this              day of             , 2004.

ASSIGNOR:

ELECTROGLAS, INC., a Delaware corporation

By:

Its:

By:

Its:

ASSIGNEE:

INTEGRATED DEVICE TECHNOLOGY, INC., a Delaware corporation

By:

Its:

By:

Its:

SCHEDULE A TO EXHIBIT “J”

LIST OF CONTRACTS

[To be added prior to the Close of Escrow]

EXHIBIT “K”

CERTIFICATION OF NON-FOREIGN STATUS (Entity Transferor)

Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform the

transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by ELECTROGLAS, INC., the undersigned hereby certifies the following on behalf of ELECTROGLAS, INC.:

1. 1. ELECTROGLAS, INC. is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);

2. 2. ELECTROGLAS, INC.’s U.S. employer identification number is                     ; and

3. 3. ELECTROGLAS, INC.’s office address is 6024 Silver Creek Valley Road, San Jose, California 95138, Attn: Mr. Thomas Brunton.

ELECTROGLAS, INC. understands that this certification may be disclosed to the Internal Revenue Service by transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury, I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of ELECTROGLAS, INC.

	ELECTROGLAS, INC., a Delaware corporation
Dated:	By:
	Its:

EX-21.1

EXHIBIT 21.1

LIST OF REGISTRANT’S SUBSIDIARIES

State or other jurisdiction of incorporation

Baccarat Silicon, Inc. Bay Semiconductor, Inc. Integrated Device Technology Asia Limited IDT Asia, Limited IDT Canada Inc. IDT Canada Holdings Inc. IDT Design Australia Pty Ltd. IDT Europe Limited I.D.T. France S.A.R.L. IDT Foreign Sales Corporation Integrated Device Technology International Holdings, Inc. Integrated Device Technology, Inc. Cayman Islands Corporation Integrated Device Technology (Philippines), Ltd. IDT Integrated Device Technology AB (Sweden) Integrated Device Technology GmbH Integrated Device Technology (Israel) Ltd. Integrated Device Technology S.r.l. Integrated Device Technology Korea, Inc. Integrated Device Technology (Malaysia) SDN. BHD Integrated Device Technology Realty Holdings, Inc. Integrated Device Technology Holding Inc. Integrated Device Technology (Philippines), Inc. Integrated Device Technology Singapore (1997) Pte Ltd Newave Semiconductor Corp. IDT-Newave Technology (Shanghai) Co., Ltd. Nippon IDT K.K.

California California Hong Kong Hong Kong Canada Canada Australia United Kingdom France Barbados California Cayman Islands Cayman Islands Sweden Germany Israel Italy Korea Malaysia Philippines Philippines Philippines Singapore California China Japan

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-46831, 33-54937, 33-63133, 33-15871, 333-36601, 333-45245, 333-77559, 333-64279, 333-35124, 333-42446, 333-59162, 333-61742, 333-100978, 333-112148, and 333-122231) of Integrated Device Technology, Inc. of our report dated June 14, 2005 relating to the consolidated financial statements, consolidated financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

San Jose, California

June 14, 2005

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Gregory S. Lang, Chief Executive Officer of Integrated Device Technology, Inc. (the “registrant”), certify that:

1. I have reviewed this annual report on Form 10-K of the registrant;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2005

/s/ Gregory S. Lang

Gregory S. Lang

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Clyde R. Hosein, Chief Financial Officer of Integrated Device Technology, Inc. (the “registrant”), certify that:

1. I have reviewed this annual report on Form 10-K of the registrant;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2005

/s/ Clyde R. Hosein

Clyde R. Hosein

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

I, Gregory S. Lang, Chief Executive Officer of Integrated Device Technology, Inc. (the “Company”), pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, certify to my knowledge that:

(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended April 3, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 14, 2005	/s/ Gregory S. Lang
	Gregory S. Lang Chief Executive Officer

A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

I, Clyde R. Hosein, Chief Financial Officer of Integrated Device Technology, Inc. (the “Company”), pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, certify to my knowledge that:

(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended April 3, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 14, 2005	/s/ Clyde R. Hosein
	Clyde R. Hosein Chief Financial Officer

A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.