10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2009

or

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

For the transition period from                      to                     

COMMISSION FILE NUMBER 000-26124

IXYS CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	77-0140882
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

1590 BUCKEYE DRIVE
MILPITAS, CALIFORNIA 95035-7418
(Address of principal executive offices and Zip Code)

(408) 457-9000
(Registrant’s telephone number, including area code)

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 þ       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o       No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o       No þ

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of January 29, 2010 was 31,329,514.

IXYS CORPORATION

FORM 10-Q
December 31, 2009

INDEX

	Page
PART I — FINANCIAL INFORMATION		3
ITEM 1. FINANCIAL STATEMENTS		3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS		3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS		4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		27
ITEM 4. CONTROLS AND PROCEDURES		27
PART II — OTHER INFORMATION		28
ITEM 1. LEGAL PROCEEDINGS		28
ITEM 1A. RISK FACTORS		28
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		41
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		41
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		41
ITEM 5. OTHER INFORMATION		41
ITEM 6. EXHIBITS		41
EX-10.1
EX-31.1
EX-31.2
EX-32.1

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IXYS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

	December 31,			March 31,
	2009			2009
ASSETS
Current assets:
Cash and cash equivalents	$	86,496		$	55,441
Restricted cash		199			136
Accounts receivable, net of allowances of $1,579 at December 31, 2009 and $1,899 at March 31, 2009		36,542			37,251
Inventories		65,378			75,601
Prepaid expenses and other current assets		4,791			3,994
Deferred income taxes		13,017			12,797
Total current assets		206,423			185,220
Property, plant and equipment		47,691			52,912
Other assets		9,602			6,728
Deferred income taxes		8,106			7,972
Total assets	$	271,822		$	252,832
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	3,450		$	3,739
Current portion of loans payable		1,498			1,455
Accounts payable		16,688			13,767
Accrued expenses and other current liabilities		13,689			15,342
Total current liabilities		35,325			34,303
Long term income tax payable		4,845			4,845
Capitalized lease obligations, net of current portion		2,322			4,418
Long term loans, net of current portion		32,288			17,599
Pension liabilities		14,360			13,175
Total liabilities		89,140			74,340
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized: 5,000,000 shares; none issued and outstanding		—			—
Common stock, $0.01 par value:
Authorized: 80,000,000 shares; 36,720,901 issued and 31,259,914 outstanding at December 31, 2009 and 36,054,936 issued and 30,633,949 outstanding at March 31, 2009		367			361
Additional paid-in capital		181,014			177,551
Treasury stock, at cost: 5,460,987 common shares at December 31, 2009 and 5,420,987 common shares at March 31, 2009		(45,662	)		(45,374	)
Retained earnings		39,285			43,984
Accumulated other comprehensive income		7,678			1,970
Total stockholders’ equity		182,682			178,492
Total liabilities and stockholders’ equity	$	271,822		$	252,832

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

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IXYS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
Net revenues	$	64,032		$	58,337		$	166,663		$	215,308
Cost of goods sold		48,321			45,683			128,000			154,095
Gross profit		15,711			12,654			38,663			61,213
Operating expenses:
Research, development and engineering		5,144			4,733			14,202			15,558
Selling, general and administrative		8,817			9,209			25,183			30,701
Restructuring charges		32			—			1,042			—
Impairment charges		—			3,749			—			3,749
Total operating expenses		13,993			17,691			40,427			50,008
Operating income (loss)		1,718			(5,037	)		(1,764	)		11,205
Other income (expense):
Interest income		108			254			317			980
Interest expense		(426	)		(405	)		(1,203	)		(1,349	)
Other income (expense), net		691			(109	)		(1,702	)		1,624
Income (loss) before income tax		2,091			(5,297	)		(4,352	)		12,460
(Provision for) benefit from income tax		(1,692	)		1,315			(347	)		(4,899	)
Net income (loss)	$	399		$	(3,982	)	$	(4,699	)	$	7,561
Net income (loss) per share
Basic	$	0.01		$	(0.13	)	$	(0.15	)	$	0.24
Diluted	$	0.01		$	(0.13	)	$	(0.15	)	$	0.23
Cash dividends per share		—			—			—		$	0.10
Weighted average shares used in per share calculation
Basic		31,100			30,979			30,893			31,238
Diluted		31,269			30,979			30,893			32,236

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

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IXYS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Nine Months Ended
	December 31,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(4,699	)	$	7,561
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		9,130			9,783
Provision for receivable allowances		2,873			4,568
Net change in inventory provision		3,056			6,054
Foreign currency adjustments on intercompany amounts		1,235			(157	)
Goodwill impairment charge		—			3,749
Stock-based compensation		2,443			1,925
Loss (gain) on investments and disposal of fixed assets		(157	)		182
Changes in operating assets and liabilities:
Accounts receivable		(685	)		5,808
Inventories		10,006			(18,969	)
Prepaid expenses and other current assets		465			(2,541	)
Other assets		45			57
Accounts payable		2,164			(3,664	)
Accrued expenses and other liabilities		(2,579	)		3,199
Pension liabilities		(61	)		(388	)
Net cash provided by operating activities		23,236			17,167
Cash flows from investing activities:
Change in restricted cash		(63	)		482
Business combination, net of cash and cash equivalents acquired		(2,625	)		(420	)
Purchases of investments		(554	)		(1,083	)
Purchases of property and equipment		(2,565	)		(7,792	)
Proceeds from sale of investments		398			3,923
Net cash used in investing activities		(5,409	)		(4,890	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(3,058	)		(3,580	)
Repayments of long term loans and notes payable		(1,136	)		(1,823	)
Proceeds from line of credit		15,000			—
Proceeds from employee equity plans		1,026			3,480
Purchase of treasury stock		(288	)		(7,290	)
Payment of dividend to stockholders		—			(3,161	)
Net cash provided by (used in) financing activities		11,544			(12,374	)
Effect of exchange rate fluctuations on cash and cash equivalents		1,684			(2,513	)
Net increase (decrease) in cash and cash equivalents		31,055			(2,610	)
Cash and cash equivalents at beginning of period		55,441			56,614
Cash and cash equivalents at end of period	$	86,496		$	54,004

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Unaudited Condensed Consolidated Financial Statements

     The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of IXYS Corporation and its wholly-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most difficult judgments include, but are not limited to, revenue reserves, inventory valuation, accounting for income taxes, allocation of purchase price in business combinations and restructuring costs. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. The condensed balance sheet as of March 31, 2009 has been derived from our audited balance sheet as of that date. It is recommended that the interim financial statements be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2009 contained in our Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year.

     We have evaluated subsequent events through the date that the financial statements were issued on February 5, 2010.

2. Accounting Changes and Recent Accounting Pronouncements

     On July 1, 2009, the Financial Accounting Standards Board, or FASB, officially launched the FASB Accounting Standards Codification^TM, or Codification, which has become the single official source of authoritative, nongovernmental U.S. Generally Accepted Accounting Principles, or GAAP. The Codification, which is effective for interim and annual periods ending on or after September 15, 2009, is organized into approximately 90 accounting topics. Going forward, U.S. GAAP will no longer be issued in the form of an “accounting standard,” but as an update to the applicable “topic” or “subtopic” within the Codification. As such, accounting guidance will be classified as either “authoritative” or “non-authoritative” based on its inclusion in or exclusion from the Codification. We adopted the Codification starting with the quarter ended September 30, 2009.

     In the quarter ended June 30, 2009, we adopted the authoritative guidance issued by the FASB on business combinations. The guidance generally requires an entity to recognize the assets acquired, liabilities assumed, contingencies, and contingent consideration at their fair value on the acquisition date. In circumstances where the acquisition-date fair value for a contingency cannot be determined during the measurement period and it is concluded that it is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The guidance is applicable to business combinations on a prospective basis, and applied to the acquisition of assets from Leadis Technology Inc., or Leadis, in the quarter ended September 30, 2009. See Note 3, “Business Combination” for further information regarding the acquisition.

     In the quarter ended June 30, 2009, we adopted the authoritative guidance issued by the FASB on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption did not have a significant impact on our unaudited consolidated financial statements.

     In the quarter ended June 30, 2009, we adopted the authoritative guidance issued by the FASB that changes the accounting and reporting for noncontrolling interests. The guidance establishes accounting and reporting standards to improve the relevance, comparability and transparency of financial information that a reporting entity provides in its consolidated financial statements. The guidance is not presently applicable to us.

     In the quarter ended June 30, 2009, we adopted the authoritative guidance issued by the FASB on determining fair value when the volume and level of activity for an asset or liability has significantly decreased, and on identifying transactions that are not orderly. Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value. The adoption did not have any impact on our unaudited condensed consolidated financial statements.

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     In December 2008, the FASB issued authoritative guidance on employers’ disclosures about postretirement benefit plan assets. The guidance requires more detailed annual disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. The guidance does not change the accounting treatment for postretirement benefits plans and is effective for us for the fiscal year ended March 31, 2010, or fiscal 2010.

     In the quarter ended June 30, 2009, we adopted the authoritative guidance issued by the FASB on recognition and presentation of other-than-temporary impairment. The guidance amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments in the financial statements. The guidance also clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. The adoption did not have any impact on our unaudited condensed consolidated financial statements.

     In the quarter ended June 30, 2009, we adopted the authoritative guidance issued by the FASB on interim disclosure about fair value of financial instruments. The guidance requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. Additionally, the guidance requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of methods and significant assumptions from prior periods. The guidance does not change the accounting treatment for these financial instruments and the adoption did not have significant impact on our unaudited condensed consolidated financial statements.

     In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities. The guidance eliminates a required quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis. It requires an ongoing reassessment of whether an entity is the primary beneficiary. The guidance is effective for us beginning in the quarter ending June 30, 2010. We are currently evaluating the impact that the adoption of the guidance will have on our condensed consolidated financial statements.

     In the quarter ended September 30, 2009, we adopted the authoritative guidance issued by FASB on fair value measurements and disclosures. The guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain defined valuation techniques. The adoption of the guidance did not have significant impacts on our unaudited condensed consolidated financial statements.

3. Business Combination

     Leadis Technology Inc.

     On September 14, 2009, we completed the acquisition of the assets and certain associated intellectual property of the LED driver and display driver businesses of Leadis. The acquisition was intended to expand our market opportunity in the LED market.

     The total consideration for the acquisition was $3.5 million, of which $2.6 million was paid in cash. The balance of the consideration, $875,000, net of adjustments arising after the closing date, is included in our accounts payable balance and will be paid in March 2010. We also purchased inventory for cash consideration of $569,000. The following table represents the preliminary purchase price allocation of assets acquired on the closing date of the acquisition (in thousands):

	Preliminary		Estimated
	Purchase Price		Useful Life
	Allocation		(in months)
Intangible assets:
Existing technology	$	1,200		24
Customer relationships		210		24
Contract backlog		1,170		12
Non-compete agreement		20		24
Trade name		210		24
Total intangible assets		2,810
Goodwill		690
Total purchase price	$	3,500

     Goodwill represents the excess of purchase price of an acquired business over the fair value of the underlying intangible assets. Since these assets were acquired by an entity with a favorable tax ruling, goodwill will not result in any effective tax benefit. The primary item that generated the goodwill is the value of the synergies between the acquired businesses and our previously existing

7

business, which does not qualify as an amortizable intangible asset. The fair value of the amortizable intangible assets was determined using the income approach, royalty savings approach and cost approach. As of December 31, 2009, we have incurred $134,000 in legal and consulting costs related to the acquisition. The costs incurred have been fully expensed and are included in “Selling, general and administrative expenses” on our unaudited condensed consolidated statements of operations.

     The consolidated financial statements include the operating results of the acquired businesses from the date of acquisition. The earnings and the pro-forma financial information have not been presented because the effect of this acquisition was not material to our financial results.

Zilog Inc.

     On December 5, 2009, we entered into a definitive agreement to acquire Zilog Inc., or Zilog, a supplier of application specific, embedded microcontroller units that are system-on-chip solutions for industrial and consumer markets. See Note 16, “Commitments and Contingencies” for further information regarding the acquisition.

4. Restructuring Charges

     In the quarter ended September 30, 2009, we initiated plans to restructure our European manufacturing and assembly operations to align them to current market conditions. The plans primarily involved the termination of employees and centralization of certain positions. Costs related to termination of employees represented severance payments and benefits. The restructuring charges recorded in conjunction with the plans represented severance costs and have been included under “Restructuring charges” in our unaudited condensed consolidated statements of operations. The restructuring accrual as of December 31, 2009 was included under “Accrued expenses and other current liabilities” on our unaudited condensed consolidated balance sheets.

     Restructuring activity as of and for the three and nine months ended December 31, 2009 was as follows (in thousands):

	Severance and
	Related Benefits
Charges	$	1,010
Cash payments		(176	)
Currency translation adjustment		2
Balance at September 30, 2009	$	836
Charges		32
Cash payments		(46	)
Currency translation adjustment		(11	)
Balance at December 31, 2009	$	811

     We anticipate that the remaining restructuring obligations of $811,000 as of December 31, 2009 will be substantially paid by June 30, 2010.

5. Fair Value

     We account for certain assets and liabilities at fair value. In determining fair value, we consider its principal or most advantageous market and the assumptions that market participants would use when pricing, such as inherent risk, restrictions on sale and risk of nonperformance. The fair value hierarchy is based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:

Level 1	—	Quoted prices for identical instruments in active markets.
Level 2	—	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
Level 3	—	Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

     Assets measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of December 31, 2009 and March 31, 2009 (in thousands):

8

	December 31, 2009 (1)								March 31, 2009 (1)
				Fair Value Measured at								Fair Value Measured at
				Reporting Date Using								Reporting Date Using
	Total			Level 1		Level 2			Total			Level 1		Level 2
				(unaudited)								(unaudited)
Assets
Marketable equity securities (2)	$	216		$	216	$	—		$	525		$	525	$	—
Derivative contract (3)		(170	)		—		(170	)		(124	)		—		(124	)
Total assets measured at fair value	$	46		$	216	$	(170	)	$	401		$	525	$	(124	)

(1)	We did not have any assets whose fair value was measured using significant unobservable inputs.
(2)	Included in other assets on our unaudited condensed consolidated balance sheets.
(3)	Included in prepaid expenses and other current assets on our unaudited condensed consolidated balance sheets.

     We measure our marketable securities and derivative contracts at fair value. Marketable securities are valued using the quoted market prices and are therefore classified as Level 1 estimates.

     We use derivative instruments to manage exposures to changes in foreign currency exchange rates and interest rates, and the fair values of these instruments are recorded on the balance sheets. We have elected not to designate these instruments as accounting hedges. The changes in the fair value of these instruments are recorded in the current period’s income statement and are included in other income (expense), net. All of our derivative instruments are traded on over-the-counter markets where quoted market prices are not readily available. For those derivatives, we measure fair value using prices obtained from the counterparties with whom we have traded. The counterparties price the derivatives based on models that use primarily market observable inputs, such as yield curves and option volatilities. Accordingly, we classify these derivatives as Level 2. See Note 9, “Borrowing Arrangements” for further information regarding the terms of the derivative contract. We did not enter into any new derivative contracts in the three and nine months ended December 31, 2009.

     Cash and cash equivalents are recognized and measured at fair value in our consolidated financial statements. Accounts receivable and prepaid expenses and other current assets are financial assets with carrying values that approximate fair value. Accounts payable and accrued expenses and other current liabilities are financial liabilities with carrying values that approximate fair value.

     Long term loans, which primarily consist of notes from banks, approximate fair value as the interest rates either adjust according to the market rates or the interest rates approximate the market rates at December 31, 2009. See Note 10, “Pension Plans” for a discussion of pension liabilities.

6. Inventories

     Inventories consist of the following (in thousands):

	December 31,		March 31,
	2009		2009
	(unaudited)
Raw materials	$	14,206	$	14,431
Work in process		34,135		39,916
Finished goods		17,037		21,254
Total	$	65,378	$	75,601

7. Other Assets

     Other assets consist of the following (in thousands):

9

	December 31,		March 31,
	2009		2009
	(unaudited)
Available-for-sale investment securities	$	216	$	525
Long term equity investment		4,739		4,183
Goodwill		690		—
Intangible assets, net		2,466		256
Advance to vendors and other items		1,491		1,764
Total	$	9,602	$	6,728

     Other assets include goodwill and intangible assets acquired from Leadis in September 2009. See Note 3, “Business Combination” for further information regarding the acquisition, goodwill, intangible assets and the estimated useful life of these assets.

8. Accrued Expenses and Other Liabilities

     Accrued expenses and other liabilities consist of the following (in thousands):

	December 31,		March 31,
	2009		2009
	(unaudited)
Uninvoiced goods and services	$	5,671	$	5,755
Compensation and benefits		4,203		5,916
Restructuring accrual		811		—
Commission, royalties, deferred revenue and other		3,004		3,671
Total	$	13,689	$	15,342

9. Borrowing Arrangements

   Bank of the West

     On November 13, 2009, we entered into a credit agreement, for a revolving line of credit with Bank of the West, or BOW, under which we may borrow up to $15.0 million. Borrowings may be repaid and re-borrowed during the term of the credit agreement. The obligations are guaranteed by two of our subsidiaries. All amounts owed under the credit agreement are due and payable on October 31, 2011. On November 16, 2009, we borrowed $15.0 million pursuant to the credit agreement.

     The credit agreement provides different interest rate alternatives under which we may borrow funds. We may elect to borrow based on LIBOR plus a margin, an alternative base rate plus a margin or a floating rate plus a margin. The margin can range from 1.5% to 3.25%, depending on interest rate alternatives and on our leverage of liabilities to effective tangible net worth.

     For the initial period, we chose a six-month LIBOR commitment, resulting in an interest rate, inclusive of BOW’s margin, of 3.0625% per annum. During the quarter ended December 31, 2009, monthly interest of approximately $40,000 was paid to BOW.

     The credit agreement is subject to a set of financial covenants, including minimum effective tangible net worth, the ratio of cash, cash equivalents and accounts receivable to current liabilities, profitability beginning with the quarter ended June 30, 2010, maximum losses in the fiscal quarters before such quarter, a ratio of EBITDA to interest expense and a minimum amount of U.S. domestic cash on hand. At December 31, 2009, we complied with the financial covenants.

     The credit agreement also includes a $3.0 million letter of credit subfacility commencing April 1, 2010. See Note 16, “Commitment and Contingencies” for further information regarding the terms of the subfacility.

     IKB Deutsche Industriebank

     On June 10, 2005, IXYS Semiconductor GmbH, our German subsidiary, borrowed €10.0 million, or about $12.2 million at the time, from IKB Deutsche Industriebank for a term of 15 years. The outstanding balance at December 31, 2009 was €7.0 million, or $10.0 million.

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     The interest rate on the loan is determined by adding the then effective three month Euribor rate and a margin. The margin can range from 70 basis points to 125 basis points, depending on the calculation of a ratio of indebtedness to cash flow for our German subsidiary.

     We have entered into an interest rate swap to economically hedge the interest rate risk. Under the swap arrangement, during the first five years of the loan, if the Euribor rate exceeds 3.75%, then the Euribor rate for the purposes of the loan shall be 4.1%, and, if the Euribor rate falls below 2.0%, then the Euribor rate for the purposes of the loan shall be 3.0%. The effective interest rate at December 31, 2009 was 3.7%. The swap agreement expires on June 30, 2010 and is not designated as a hedge in the financial statements. See Note 5, “Fair Value” for further information regarding the derivative contract.

     During each fiscal quarter, a principal payment of €167,000, or about $239,000, and a payment of accrued interest are required.

     Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At December 31, 2009, we complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.

LaSalle Bank National Association

     On August 2, 2007, IXYS Buckeye, LLC, a subsidiary of our company, entered into an Assumption Agreement with LaSalle Bank National Association, trustee for Morgan Stanley Dean Witter Capital I Inc., for the assumption of a loan of $7.5 million in connection with the purchase of property in Milpitas, California. The loan carries a fixed annual interest rate of 7.455%. Monthly payments of principal and interest of $56,000 are due under the loan. In addition, monthly impound payments aggregating $14,000 are to be made for items such as real property taxes, insurance and capital expenditures. The loan is due and payable on February 1, 2011. At maturity, the remaining balance on the loan will be approximately $7.1 million. The loan is secured by a guarantee from our company and collateralized by a security interest in the property acquired. Aggregate loan costs of $93,000 incurred in connection with the loan are amortized over the loan period and the unamortized balance is netted against the loan liability.

Note payable issued on acquisition

     On September 10, 2008, we issued a note payable with a face value of $2.0 million in connection with the purchase of real property and the acquisition of the shares of Reaction Technology Incorporated, or RTI. The note is repayable in 60 equal monthly installments of $38,666, which includes interest at an annual rate of 6.0%. The note is collateralized by a security interest in the property acquired and the current assets of RTI.

10. Pension Plans

     We maintain two defined benefit pension plans: one for United Kingdom employees and one for German employees. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. We deposit funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies or trustees and/or accrue for the unfunded portion of the obligations. The measurement date for the projected benefit obligations and the plan assets is March 31. Both plans have been curtailed. As such, the plans are closed to new entrants and no credit is provided for additional periods of service.

     The net periodic pension expense includes the following components (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(unaudited)						(unaudited)
Service cost	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation		497			507			1,458			1,734
Expected return on plan assets		(257	)		(377	)		(759	)		(1,300	)
Recognized actuarial loss		31			20			91			69
Net periodic pension expense	$	271		$	150		$	790		$	503

     We expect to contribute approximately $625,000 to the plans in the fiscal year ending March 31, 2010. This contribution is primarily contractual.

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11. Employee Equity Incentive Plans

     Stock Purchase and Stock Option Plans

     On June 5, 2009, the Board of Directors approved the adoption of the 2009 Equity Incentive Plan, or the 2009 Plan, under which 900,000 shares of our common stock are reserved for the grant of stock options. On September 10, 2009, our stockholders approved the 2009 Plan.

     Employee Stock Purchase Plan

     In May 1999, the Board of Directors approved the 1999 Employee Stock Purchase Plan, or the Purchase Plan, and reserved 500,000 shares of common stock for issuance under the Purchase Plan. Under the Purchase Plan, all eligible employees may purchase our common stock at a price equal to 85% of the lower of the fair market value at the beginning of the offer period or the semi-annual purchase date. Stock purchases are limited to 15% of an employee’s eligible compensation. On July 31, 2007, the Board of Directors amended the Purchase Plan and reserved an additional 350,000 shares of common stock for issuance under the Purchase Plan. During the three and nine months ended December 31, 2009, there were 45,306 and 86,668 shares purchased under the Purchase Plan, leaving approximately 148,000 shares available for purchase under the plan in the future.

     Stock-Based Compensation

     The following table summarizes the effects of stock-based compensation charges (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2009		2008		2009		2008
Income Statement Classifications	(unaudited)				(unaudited)
Selling, general and administrative expenses	$	702	$	753	$	2,443	$	1,925
Stock-based compensation effect in income before taxes		702		753		2,443		1,925
Provision for income taxes (1)		267		271		928		693
Net stock-based compensation effects in net income (loss)	$	435	$	482	$	1,515	$	1,232

(1) Estimated at a statutory income tax rate of 38% in fiscal year 2010 and 36% in fiscal year 2009.

     During the three and nine months ended December 31, 2009, the unaudited condensed consolidated statements of operations and cash flows do not reflect any tax benefit for the tax deduction from option exercises and other awards. As of December 31, 2009, approximately $5.6 million in stock based compensation is to be recognized for unvested stock options granted under our equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.4 years.

     The Black-Scholes option pricing model is used to estimate the fair value of options granted under our equity incentive plans and rights to acquire stock granted under our stock purchase plan. The weighted average estimated fair values of employee stock option grants and rights granted under the 1999 Employee Stock Purchase Plan, as well as the weighted average assumptions that were used in calculating such values during the three and nine months ended December 31, 2009 and 2008, were based on estimates at the date of grant as follows:

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	Stock Options									Purchase Plan
	Three months			Nine months						Three months						Nine months
	ended			ended						ended						ended
	December 31,			December 31,						December 31,						December 31,
	2008 (1)			2009			2008			2009			2008			2009			2008
Weighted average estimated fair value of grant per share	$	2.94		$	3.49		$	3.38		$	3.20		$	5.28		$	4.19		$	4.21
Risk-free interest rate		2.3	%		2.3	%		2.4	%		0.3	%		2.0	%		0.4	%		2.6	%
Expected term in years		4.6			5.0			4.6			0.5			0.5			0.5			0.5
Volatility		51.6	%		57.0	%		50.4	%		53.2	%		96.1	%		80.1	%		77.8	%
Dividend yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%

(1) No stock options were granted during the quarter ended December 31, 2009.

     Activity with respect to outstanding stock options for the nine months ended December 31, 2009 was as follows:

				Weighted
	Number of			Average Exercise		Intrinsic
	Shares			Price Per Share		Value (1)
						(000)
Balance at March 31, 2009		6,063,569		$	8.42
Options granted		100,000		$	6.88
Options exercised		(805,300	)	$	2.80	$	3,837
Options cancelled		(46,250	)	$	7.11
Options expired		(37,323	)	$	12.42
Balance at December 31, 2009		5,274,696		$	9.23
Exercisable at December 31, 2009		3,489,071		$	9.89
Exercisable at March 31, 2009		3,635,269		$	8.61

(1) Represents the difference between the exercise price and the value of IXYS stock at the time of exercise.

     Activity with respect to outstanding restricted stock units for the nine months ended December 31, 2009 was as follows:

				Weighted
	Number of			Average Grant		Aggregate
	Shares			Date Fair Value		Fair Value (1)
						(000)
Balance at March 31, 2009		64,900		$	9.58
RSUs vested (2)		(32,450	)	$	9.58	$	251
RSUs forfeited		(250	)	$	9.73	$	2
Balance at December 31, 2009		32,200		$	9.58

(1)	For RSUs, represents value of IXYS stock on the date the restricted stock unit vests.
(2)	The number of restricted stock units vested includes shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

12. Comprehensive Income

     The components of total comprehensive income (loss) and related tax effects were as follows (in thousands):

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	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(unaudited)						(unaudited)
Net income (loss)	$	399		$	(3,982	)	$	(4,699	)	$	7,561
Unrealized gain (loss) on available-for-sale investment securities, net of taxes of $4 and $22 for the three and nine months ended December 31, 2009 and net of taxes of $(30) and $(273) for the three and nine months ended December 31, 2008		7			(59	)		41			(529	)
Foreign currency translation adjustments		(1,053	)		(4,274	)		5,667			(10,912	)
Total comprehensive income (loss)	$	(647	)	$	(8,315	)	$	1,009		$	(3,880	)

     The components of accumulated other comprehensive income, net of tax, at the end of each period were as follows (in thousands):

	December 31,			March 31,
	2009			2009
	(unaudited)
Accumulated net unrealized gain (loss) on available-for-sale investments securities, net of taxes of $20 at December 31, 2009 and $(2) at March 31, 2009	$	37		$	(4	)
Unrecognized actuarial loss, net of tax of $942		(2,422	)		(2,422	)
Accumulated foreign currency translation adjustments		10,063			4,396
Total accumulated other comprehensive income	$	7,678		$	1,970

13. Computation of Net Income (Loss) per Share

     Basic and diluted earnings (loss) per share are calculated as follows (in thousands, except per share amounts):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2009		2008			2009			2008
	(unaudited)					(unaudited)
Basic:
Weighted average shares		31,100		30,979			30,893			31,238
Net income (loss)	$	399	$	(3,982	)	$	(4,699	)	$	7,561
Net income (loss) per share	$	0.01	$	(0.13	)	$	(0.15	)	$	0.24
Diluted:
Weighted average shares		31,100		30,979			30,893			31,238
Common equivalent shares from stock options		169		—			—			998
Weighted average shares used in diluted per share calculation		31,269		30,979			30,893			32,236
Net income (loss)	$	399	$	(3,982	)	$	(4,699	)	$	7,561
Net income (loss) per share	$	0.01	$	(0.13	)	$	(0.15	)	$	0.23

     Basic net income (loss) available per common share is computed using net income (loss) and the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed using net income (loss) and the weighted average number of common shares outstanding, assuming dilution, which includes potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of stock options and assumed vesting of restricted stock units using the treasury stock method. For the quarter ended December 31, 2009, we excluded 4.7 million outstanding stock options from the calculation of net income per share because the exercise price of these stock options were greater than or equal to the average market value of the common shares. These options could be included in the calculation in the future, if the average market value of the common shares increases and is greater than the exercise price of these options. Due to our net loss for the nine months ended December 31, 2009, outstanding stock options and restricted stock units to purchase 1.1 million shares of our common stock were excluded from the diluted net loss per share calculation because their inclusion would have been anti-dilutive.

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Similarly, due to our net loss for the quarter ended December 31, 2008, outstanding stock options and restricted stock units to purchase 1.4 million of our common stock were excluded from the diluted net loss per share calculation. For the nine months ended December 31, 2008, there were outstanding stock options and restricted stock units to purchase 3.9 million shares that were not included in the computation of dilutive net income per share since the exercise price of the options were greater than or equal to the average market price of the common stock.

14. Segment Information

     We have a single operating segment. This operating segment is comprised of semiconductor products used primarily in power-related applications. While we have separate legal subsidiaries with discrete financial information, we have one chief operating decision maker with highly integrated businesses. Our sales by major geographic area (based on destination) were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2009		2008		2009		2008
	(unaudited)				(unaudited)
United States	$	17,315	$	17,507	$	49,731	$	60,532
Europe and the Middle East
France		1,297		1,491		3,104		5,803
Germany		6,807		8,153		18,571		32,269
Italy		1,119		1,520		2,712		6,044
Sweden		1,178		445		2,908		3,521
United Kingdom		3,770		3,511		9,808		13,690
Other		7,000		7,597		18,251		27,657
Asia Pacific
China		14,584		6,534		32,787		25,213
Japan		3,145		1,852		7,364		7,197
Korea		2,216		1,527		5,114		5,882
Other		2,887		4,378		8,525		13,470
Rest of the World
India		1,631		2,275		4,721		9,437
Other		1,083		1,547		3,067		4,593
Total	$	64,032	$	58,337	$	166,663	$	215,308

     The following table sets forth net revenues for each of our product groups for the three and nine months ended December 31, 2009 and 2008 (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2009		2008		2009		2008
	(unaudited)				(unaudited)
Power semiconductors	$	43,662	$	45,318	$	122,999	$	170,669
Integrated circuits		15,306		7,533		29,997		24,945
Systems and RF power semiconductors		5,064		5,486		13,667		19,694
Total	$	64,032	$	58,337	$	166,663	$	215,308

     For the three and nine months ended December 31, 2009, one customer accounted for 10.4% and 11.3% of our net revenues. For the three and nine months ended December 31, 2008, no customer accounted for more than 10% of our net revenues.

15. Income Taxes

     For the three and nine months ended December 31, 2009, we recorded income tax provisions of $1.7 million and $347,000. For the three and nine months ended December 31, 2008, we recorded an income tax benefit of $1.3 million and an income tax provision of

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$4.9 million, respectively. For the three months ended December 31, 2009, the provision for income tax represented the adjustment of the income tax account to reflect a change in our estimated income taxes for the year based on nine months of experience, offset by a favorable impact on the reversal of accrued tax expenses of $350,000 following the conclusion of an audit in a foreign tax jurisdiction. The provision for income tax for the nine months ended December 31, 2009 was incurred because we had profits in certain jurisdictions and losses in jurisdictions with comparatively lower tax rates, partially offset by the release of valuation allowances. For the three and nine months ended December 31, 2008, our accounting for income tax was affected by permanent items, including the goodwill impairment, net of a valuation allowance release.

16. Commitments and Contingencies

Legal Proceedings

     We are currently involved in a variety of legal matters that arise in the normal course of business. Were an unfavorable ruling to occur, there could be a material adverse impact on our financial condition, results of operations or cash flows.

Bank of the West

     In September 2009, we entered in an agreement with BOW for a letter of credit facility of $3.0 million. The facility expires on March 31, 2010. At December 31, 2009, there was an open letter of credit with a balance of $52,000 to support inventory purchases.

     On November 13, 2009, we entered into a credit agreement with BOW. The credit agreement includes a letter of credit subfacility, under which BOW agrees to issue letters of credit of up to $3.0 million upon the expiration of the current facility on March 31, 2010. However, borrowing under this subfacility is limited to the extent of availability under the $15.0 million revolving line of credit. The credit agreement expires on October 31, 2011. See Note 9, “Borrowing Arrangements” for further information regarding the terms of the credit agreement.

Zilog Inc.

     On December 5, 2009, we entered into a definitive agreement to acquire Zilog. Under the terms of the agreement, we will acquire all of the Zilog’s outstanding common shares for $3.5858 per share in cash. Payment for shares and for stock options is expected to aggregate approximately $62.4 million. The acquisition is subject to the approval of Zilog shareholders and other customary closing conditions. The transaction is expected to be completed during the quarter ended March 31, 2010. See Note 3, “Business Combination” for further information regarding the acquisition.

Other Commitments and Contingencies

     On occasion, we provide limited indemnification to customers against intellectual property infringement claims related to our products. To date, we have not experienced significant activity or claims related to such indemnifications. We also provide in the normal course of business indemnification to our officers, directors and selected parties. We are unable to estimate any potential future liability, if any. Therefore, no liability for these indemnification agreements has been recorded as of December 31, 2009 and March 31, 2009.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including, without limitation, those described elsewhere in this Form 10-Q and, in particular, in Item 1A of Part II hereof. Actual results may differ materially from the results discussed in the forward-looking statements. For a discussion of risks that could affect future results, see “Item 1A. Risk Factors.” All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement, except as may be required by law.

Overview

     We are a multi-market integrated semiconductor company. Our three principal product groups are: power semiconductors; integrated circuits, or ICs; and systems and radio frequency, or RF, power semiconductors.

     Our power semiconductors improve system efficiency and reliability by converting electricity at relatively high voltage and current levels into the finely regulated power required by electronic products. We focus on the market for power semiconductors that are capable of processing greater than 200 watts of power.

     We also design, manufacture and sell integrated circuits for a variety of applications. Our analog and mixed signal ICs are principally used in telecommunications applications. Our mixed signal application specific ICs, or ASICs, address the requirements of the medical imaging equipment and display markets. Our power management and control ICs are used in conjunction with power semiconductors.

     Our systems include laser diode drivers, high voltage pulse generators and modulators, and high power subsystems, sometimes known as stacks, that are principally based on our high power semiconductor devices. Our RF power semiconductors enable circuitry that amplifies or receives radio frequencies in wireless and other microwave communication applications, medical imaging applications and defense and space applications.

     Over the past two quarters, our revenues from the sale of ICs have increased significantly, primarily through sales to the consumer product market, while our revenues from the sales of power semiconductors and RF power semiconductors have increased modestly. Distribution revenues increased because of the growth of sales to the consumer product market. Geographically, over the same periods, sales to all major geographic areas increased except North America. Our sales to all major market segments increased except the medical market. Our selling, general and administrative expenses, or SG&A expenses, continued to be relatively flat. In the quarter ended December 31, 2009, as compared to the immediately preceding quarter, our research, development and engineering expenses, or R&D expenses, increased as a result of the acquisition of the display driver business from Leadis Technology Inc. In future periods, both our SG&A and R&D expenses are expected to continue at approximately these levels. Because of continued economic volatility, our visibility regarding the future remains uncertain, although orders received for our products did strengthen in the quarter ended December 31, 2009.

Critical Accounting Policies and Significant Management Estimates

     The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the reasonableness of its estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies require that we make significant judgments and estimates in preparing our consolidated financial statements.

     Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 49.7% of our revenues in the nine months ended December 31, 2009 and 46.5% of our revenues in the nine months ended December 31, 2008 were from distributors. We provide some of our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a sales incentive program for products previously shipped to distributors. We recognize revenue from product sales upon shipment provided that we have received a valid purchase order, the price is fixed and determinable, the risk of loss has transferred, collection of resulting receivable is reasonable assured, there are no customer acceptance requirements and there are no remaining significant

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obligations. Our shipping terms are generally FOB shipping point. Reserves for allowances are also recorded at the time of shipment. Our management must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Our management analyzes historical returns and ship and debit transactions, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and allowances. Significant management judgments and estimates must be made and used in connection with establishing the allowances in any accounting period. We have visibility into inventory held by our distributors to aid in our reserve analysis. Different judgments or estimates would result in material differences in the amount and timing of our revenue for any period.

     Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfer, typically upon shipment from our company, at which point we have a legally enforceable right to collection under normal payment terms. Under certain circumstances, where our management is not able to reasonably and reliably estimate the actual returns, revenues and costs relating to distributor sales are deferred until products are sold by the distributors to their end customers. Deferred amounts are presented net and included under accrued expenses and other liabilities in our unaudited condensed consolidated financial statements.

     We state our revenues net of taxes collected from our customers that are required to be remitted to the various government agencies. The amount of taxes collected from customers and payable to government is included under accrued expenses and other liabilities. Shipping and handling costs are included in cost of sales.

     Allowance for sales returns. We maintain an allowance for sales returns for estimated product returns by our customers. We estimate our allowance for sales returns based on our historical return experience, current economic trends, changes in customer demand, known returns we have not received and other assumptions. If we were to make different judgments or utilize different estimates, the amount and timing of our revenue could be materially different. Given that our revenues consist of a high volume of relatively similar products, to date our actual returns and allowances have not fluctuated significantly from period to period and our returns provisions have historically been reasonably accurate. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations.

     Allowance for stock rotation. We also provide “stock rotation” to select distributors. The rotation allows distributors to return a percentage of the previous six months’ sales in exchange for orders of an equal or greater amount. In the nine months ended December 31, 2009 and 2008, approximately $1.0 million and $1.6 million, respectively, of products were returned to us under the program. We generally establish the allowance for all sales to distributors except in cases where the revenue recognition is deferred and recognized upon sale by the distributor of products to the end customer. The allowance, which is management’s best estimate of future returns, is based upon the historical experience of returns and inventory levels at the distributors. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. Should distributors increase stock rotations beyond our estimates, our financial statements would be adversely affected.

     Allowance for ship and debit. Ship and debit is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit requires a request from the distributor for a pricing adjustment for a specific part for a customer sale to be shipped from the distributor’s stock. We have no obligation to accept this request. However, it is our historical practice to allow some companies to obtain pricing adjustments for inventory held. We receive periodic statements regarding our products held by our distributors. Our distributors had approximately $3.7 million in inventory of our products on hand at December 31, 2009. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to the distributor’s customer. At the time we record sales to the distributors, we provide an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. The sales allowance requirement is based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. We believe that the analysis of these inputs enable us to make reliable estimates of future credits under the ship and debit program. This analysis requires the exercise of significant judgments. Our actual results to date have approximated our estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, our estimates might be insufficient, which could significantly adversely affect our operating results.

     Additions to the ship and debit allowance are estimates of the amount of expected future ship and debit activity related to sales during the period and reduce revenues and gross profit in the period. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the nine months ended December 31, 2009 (in thousands):

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Balance at March 31, 2009	$	414
Additions		301
Deductions		(353	)
Balance at June 30, 2009	$	362
Additions		634
Deductions		(593	)
Balance at September 30, 2009	$	403
Additions		574
Deductions		(556	)
Balance at December 31, 2009	$	421

     Allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments. We evaluate our allowance for doubtful accounts based on the aging of our accounts receivable, the financial condition of our customers and their payment history, our historical write-off experience and other assumptions. If we were to make different judgments of the financial condition of our customers or the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. This allowance is reported on the balance sheet as part of the accounts receivable allowance and is included on the statement of operations as part of selling, general and administrative expense. This allowance is based on historical losses and management’s estimates of future losses.

     Inventories. Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. Our accounting for inventory costing is based on the applicable expenditure incurred, directly or indirectly, in bringing the inventory to its existing condition. Such expenditures include acquisition costs, production costs and other costs incurred to bring the inventory to its use. As it is impractical to track inventory from the time of purchase to the time of sale for the purpose of specifically identifying inventory cost, our inventory is therefore valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production processes. The authoritative guidance provided by FASB requires certain abnormal expenditures to be recognized as expenses in the current period versus being capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities. We review our standard costs on an as-needed basis but in any event at least once a year, and update them as appropriate to approximate actual costs.

     We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of our inventories is dependent on our estimate of future demand as it relates to historical sales. If our projected demand is overestimated, we may be required to reduce the valuation of our inventories below cost. We regularly review inventory quantities on hand and record an estimated provision for excess inventory based primarily on our historical sales and expectations for future use. We also recognize a reserve based on known technological obsolescence, when appropriate. However, for new products, we do not consider whether there is excess inventory until we develop sufficient sales history or experience a significant change in expected product demand, based on backlog. Actual demand and market conditions may be different from those projected by our management. This could have a material effect on our operating results and financial position. If we were to make different judgments or utilize different estimates, the amount and timing of our write-down of inventories could be materially different.

     Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to 100%. Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once we have written down inventory below cost, we do not subsequently write it up when it is subsequently sold or scrapped. We do not physically segregate excess inventory nor do we assign unique tracking numbers to it in our accounting systems. Consequently, we cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, we are unable to report the amount of gross profit resulting from the sale of excess inventory or quantify the favorable impact of such gross profit on our gross profit margin.

     The following table provides information on our excess and obsolete inventory reserve charged against inventory at cost (in thousands):

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Balance at March 31, 2009	$	34,697
Sale of excess inventory		(814	)
Scrap of excess inventory		(566	)
Additional accrual of excess inventory		4,458
Balance at June 30, 2009	$	37,775
Sale of excess inventory		(719	)
Scrap of excess inventory		(495	)
Additional accrual of excess inventory		2,313
Balance at September 30, 2009	$	38,874
Sale of excess inventory		(1,758	)
Scrap of excess inventory		(334	)
Additional accrual of excess inventory		1,262
Balance at December 31, 2009	$	38,044

     The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, we do not know whether or when all the semiconductors resulting from a lot of wafers will sell. With more than 10,000 different part numbers for semiconductors, excess inventory resulting from the manufacture of some of those semiconductors will be continual and ordinary. Because the cost of storage is minimal when compared to potential value and because our products do not quickly become obsolete, we expect to hold excess inventory for potential future sale for years. Consequently, we have no set time line for the sale or scrapping of excess inventory.

     In addition, our inventory is also being written down to the lower of cost or market or net realizable value. We review our inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that our selling price is lower than current cost, the inventory is marked down accordingly. At December 31, 2009, our lower of cost or market reserve was $652,000.

     Furthermore, we perform an annual inventory count and periodic cycle counts for specific parts that have a high turnover. We also periodically identify any inventory that is no longer usable and write it off.

     Income tax. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. A valuation allowance reduces our deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. If we determine that it is more probable than not that we will not realize all or a portion of our remaining deferred tax assets, then we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that it is likely that we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, then the related portion of the valuation allowance will reduce goodwill, intangible assets or income tax expense. Significant management judgment is required in determining our provision for income taxes and potential tax exposures, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish a valuation allowance, which could materially impact our financial position and results of operations. Our ability to utilize our deferred tax assets and the need for a related valuation allowance are monitored on an ongoing basis.

     Furthermore, computation of our tax liabilities involves examining uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on the two-step process as prescribed. The first step is to evaluate the tax position for recognition by determining if there is sufficient available evidence to indicate if it is more likely than not that the position will be sustained on an audit, including resolution of any related appeals or litigation processes. The second step requires us to measure and determine the approximate amount of the tax benefit at the largest amount that is more than 50% likely of being realized upon ultimate settlement with the tax authorities. It is inherently difficult and requires significant judgment to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reexamine these uncertain tax positions on a quarterly basis. This reassessment is based on various factors during the period including, but not limited to, changes in worldwide tax laws and treaties, changes in facts or circumstances, effectively settled issues under audit and any new audit activity. A change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

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Recent Accounting Pronouncements

     For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated condensed financial statements, see “Note 2: Accounting Changes and Recent Accounting Pronouncements” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.

Results of Operations — Three and Nine Months Ended December 31, 2009 and 2008

     The following table sets forth selected consolidated statements of operations data for the fiscal periods indicated and the percentage change in such data from period to period. These historical operating results may not be indicative of the results for any future period.

	Three Months Ended							Nine Months Ended
	December 31,							December 31,
	2009		% change			2008		2009		% change			2008
	(000)					(000)		(000)					(000)
Net revenues	$	64,032		9.8	%	$	58,337	$	166,663		-22.6	%	$	215,308
Cost of goods sold		48,321		5.8	%		45,683		128,000		-16.9	%		154,095
Gross profit	$	15,711		24.2	%	$	12,654	$	38,663		-36.8	%	$	61,213
Operating expenses:
Research, development and engineering	$	5,144		8.7	%	$	4,733	$	14,202		-8.7	%	$	15,558
Selling, general and administrative		8,817		-4.3	%		9,209		25,183		-18.0	%		30,701
Restructuring charges		32	nm				—		1,042	nm				—
Impairment charges		—		-100.0	%		3,749		—		-100.0	%		3,749
Total operating expenses	$	13,993		-20.9	%	$	17,691	$	40,427		-19.2	%	$	50,008

nm — not meaningful

     The following table sets forth selected statements of operations data as a percentage of net revenues for the fiscal periods indicated. These historical operating results may not be indicative of the results for any future period.

	% of Net Revenues						% of Net Revenues
	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		75.5	%		78.3	%		76.8	%		71.6	%
Gross profit		24.5	%		21.7	%		23.2	%		28.4	%
Operating expenses:
Research, development and engineering		8.0	%		8.1	%		8.5	%		7.2	%
Selling, general and administrative		13.8	%		15.8	%		15.1	%		14.3	%
Restructuring charges		0.0	%		—			0.6	%		—
Impairment charges		—			6.4	%		—			1.7	%
Total operating expenses		21.8	%		30.3	%		24.2	%		23.2	%
Operating income (loss)		2.7	%		-8.6	%		-1.0	%		5.2	%
Other income (expense), net		0.6	%		-0.5	%		-1.6	%		0.6	%
Income (loss) before income tax		3.3	%		-9.1	%		-2.6	%		5.8	%
(Provision for) benefit from income tax		-2.7	%		2.3	%		-0.2	%		-2.3	%
Net income (loss)		0.6	%		-6.8	%		-2.8	%		3.5	%

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Net Revenues.

     The following tables set forth the revenues for each of our product groups for the fiscal periods indicated:

	Three Months Ended December 31,							Nine Months Ended December 31,
Revenues	2009		% change			2008		2009		% change			2008
	(000)					(000)		(000)					(000)
Power semiconductors	$	43,662		-3.7	%	$	45,318	$	122,999		-27.9	%	$	170,669
Integrated circuits		15,306		103.2	%		7,533		29,997		20.3	%		24,945
Systems and RF power semiconductors		5,064		-7.7	%		5,486		13,667		-30.6	%		19,694
Total	$	64,032		9.8	%	$	58,337	$	166,663		-22.6	%	$	215,308

     The following tables set forth the average selling prices, or ASPs, and units for the fiscal periods indicated:

	Three Months Ended December 31,							Nine Months Ended December 31,
Average Selling Prices	2009		% change			2008		2009		% change			2008
Power semiconductors	$	2.38		-7.4	%	$	2.57	$	2.39		-11.2	%	$	2.69
Integrated circuits	$	0.77		0.0	%	$	0.77	$	0.76		0.0	%	$	0.76
Systems and RF power semiconductors	$	24.00		-7.3	%	$	25.88	$	21.73		-15.5	%	$	25.71

	Three Months Ended December 31,							Nine Months Ended December 31,
Units	2009		% change			2008		2009		% change			2008
	(000)					(000)		(000)					(000)
Power semiconductors		18,338		4.0	%		17,633		51,533		-18.8	%		63,496
Integrated circuits		19,926		104.1	%		9,763		39,674		21.1	%		32,759
Systems and RF power semiconductors		211		-0.5	%		212		629		-17.9	%		766
Total		38,475		39.4	%		27,608		91,836		-5.3	%		97,021

     The 9.8% increase in net revenues in the three months ended December 31, 2009 as compared to the three months ended December 31, 2008 reflected a significant increase of $7.8 million, or 103.2%, in the sale of ICs, offset by a $1.7 million, or 3.7%, decrease in the sale of power semiconductors and a $422,000, or 7.7%, decrease in the sale of systems and RF power semiconductors. The increase in revenues from the sale of ICs was primarily driven by a $6.3 million increase in the sales of our display driver ICs to the consumer products markets as a consequence of an acquisition. The decrease in power semiconductors was mainly due to a $1.6 million decrease in the sale of thyristor products, principally to the industrial and commercial market. The decline in revenues from the sale of systems and RF power semiconductors was broad based across all the major product lines.

     For the three months ended December 31, 2009 as compared to the three months ended December 31, 2008, IC unit growth was principally due to increased shipments of display driver ICs to the consumer products market, whereas in power semiconductors, the unit growth was primarily from increases in MOS products sales. The unit shipments in systems and RF power semiconductors were largely unchanged.

     The 22.6% decline in net revenues in the nine months ended December 31, 2009 as compared to the nine months ended December 31, 2008 reflected a $47.7 million, or 27.9% decrease in the sale of power semiconductors and a $6.0 million, or 30.6%, decrease in the sale of systems and RF power semiconductors, offset by an increase of $5.0 million, or 20.3%, in the sale of ICs. The decrease in power semiconductors was broad based in all the major product lines, including a $20.0 million decline in the sale of thyristor products, principally to the industrial and commercial market. The revenues from the sale of systems and RF power semiconductors decreased primarily due to a decrease of $4.9 million in the sale of subassemblies to the industrial and commercial market. The increase in revenues from ICs was principally due to a $7.2 million increase in the sale of display driver ICs, to the consumer products markets, offset by decrease in the sale of solid state relays, or SSRs, of $2.4 million, primarily to the consumer product market.

     For the nine months ended December 31, 2009 as compared to the nine months ended December 31, 2008, the decline in shipments of power semiconductors was due to reduced shipments of bipolar products, principally to the industrial and commercial market. In systems and RF power

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semiconductors, the unit decline was principally caused by reduced shipments of RF power semiconductors. In ICs, the unit growth was because of increased shipments of display driver ICs to the consumer market, offset by a decrease in the sale of SSRs.

     For the three and nine months ended December 31, 2009 as compared to the comparable periods of the previous fiscal year, the decrease in the ASPs of power semiconductor and system and RF power semiconductors was due to a change in the mix of products sold; whereas, the ASPs of ICs were unchanged.

     For the quarter ended December 31, 2009, sales to customers in the United States represented approximately 27.0% of our net revenues and sales to international customers represented approximately 73.0% of our net revenues. Of our international sales, approximately 45.3% were derived from sales in Europe and the Middle East, approximately 48.9% were derived from sales in the Asia Pacific region and approximately 5.8% were derived from sales in the rest of the world. By comparison, for the quarter ended December 31, 2008, sales to customers in the United States represented approximately 30.0% of our net revenues and sales to international customers represented approximately 70.0% of our net revenues. Of our international sales, approximately 55.6% were derived from sales in Europe and the Middle East, approximately 35.0% were derived from sales in the Asia Pacific region and approximately 9.4% were derived from sales in the rest of the world.

     For the three months ended December 31, 2009 as compared to the three months ended December 31, 2008, we experienced substantial growth in sales in China, primarily to the consumer product market, offset by declines in revenues across all the major European countries, except the United Kingdom and Sweden, and in the U.S. and India. The decline in revenues in the European countries was primarily due to the decline in revenues from the industrial and commercial market. The decline in revenues in the U.S. and India was due to reduced shipments of thyristor products to the industrial and commercial market.

     For the nine months ended December 31, 2009, sales to customers in the United States represented approximately 29.8% of our net revenues and sales to international customers represented approximately 70.2% of our net revenues. Of our international sales, approximately 47.3% were derived from sales in Europe and the Middle East, approximately 46.0% were derived from sales in the Asia Pacific region and approximately 6.7% were derived from sales in the rest of the world. By comparison, for the nine months ended December 31, 2008, sales to customers in the United States represented approximately 28.1% of our net revenues and sales to international customers represented approximately 71.9% of our net revenues. Of our international sales, approximately 57.5% were derived from sales in Europe and the Middle East, approximately 33.4% were derived from sales in the Asia Pacific region and approximately 9.1% were derived from sales in the rest of the world.

     For the nine months ended December 31, 2009 as compared to the nine months ended December 31, 2008, our sales in China increased primarily to the consumer market, offset by substantial declines in revenues across all the major European countries and in the U.S. and India. The decline in the European countries was primarily due to reduced revenues from the industrial and commercial market. The decline in the U.S. was primarily due to the decrease in revenues from the medical market and the industrial and commercial market; whereas, the decline in revenues in India was due to lower shipments of thyristor products to the industrial and commercial market.

     For the three and nine months ended December 31, 2009, one customer accounted for 10.4% and 11.3%, respectively, of our net revenues. For the three and nine months ended December 31, 2008, no customer accounted for more than 10% of our net revenues.

     Our revenues were reduced by allowances for sales returns, stock rotations and ship and debit. See “Critical Accounting Policies and Significant Management Estimates” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Gross Profit.

     Gross profit margin increased to 24.5% in the three months ended December 31, 2009 from 21.7% in the three months ended December 31, 2008. The gross profit margin increase was primarily a result of a $3.5 million reduction in inventory write-downs in the quarter ended December 31, 2009 as compared to the quarter ended December 31, 2008.

     For the nine months ended December 31, 2009, the gross profit margin decreased to 23.2%, as compared to 28.4% for the nine months ended December 31, 2008. The decline in the gross profit margin was principally due to underutilized capacity caused by decreased revenues as a result of the global economic downturn.

Research, Development and Engineering.

     R&D expenses typically consist of internal engineering efforts for product design and development. As a percentage of net revenues, our R&D expenses for the three and nine months ended December 31, 2009 were 8.0% and 8.5%, respectively, as compared to 8.1% and 7.2% for the three and nine months ended December 31, 2008. The increase in the percentage of R&D expenses for the

23

nine months ended December 31, 2009 was due to a decrease in net revenues, rather than an increase in R&D expenses. Expressed in absolute dollars, for the three months ended December 31, 2009 as compared to the same period of the prior year, our R&D expenses increased by approximately $411,000, or 8.7%. The acquisition of our display driver business in the quarter ended September 30, 2009 resulted in an increase in R&D headcount and expenses in the quarter ended December 31, 2009. For the nine months ended December 31, 2009 as compared to the same period of the prior year, our R&D expenses decreased by approximately $1.4 million, or 8.7%. The decreases in R&D expenses were mainly due to a reduction in personnel costs related to plant shutdowns.

Selling, General and Administrative.

     As a percentage of net revenues, our SG&A expenses for the three and nine months ended December 31, 2009 were 13.8% and 15.1%, respectively, as compared to 15.8% and 14.3% for the three and nine months ended December 31, 2008. Expressed in absolute dollars, SG&A expenses declined by $392,000 and $5.5 million, or 4.3% and 18.0%, respectively, for the three and nine months ended December 31, 2009 as compared to the same periods in the prior year, primarily due to lower sales and marketing expenses caused by lower commission expense, as well as lower personnel costs and freight expense.

Restructuring Charges.

     In the quarter ended September 30, 2009, we initiated plans to restructure our European manufacturing and assembly operations to align them to current market conditions. The plans primarily involved the termination of employees and centralization of certain positions. Costs related to termination of employees represented severance payments and benefits. The restructuring charges recorded in conjunction with the plan represented severance costs and have been included under “Restructuring charges” in our unaudited condensed consolidated statements of operations. The restructuring accrual as of December 31, 2009 was included under “Accrued expenses and other current liabilities” on our unaudited condensed consolidated balance sheets.

     During the three and nine months ended December 31, 2009, we incurred restructuring charges of $32,000 and $1.0 million, respectively. See “Note 4: Restructuring Charges” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.

Other Income (Expense), net.

     In the quarter ended December 31, 2009, other income, net was $691,000 as compared to other expense, net of $109,000 in the quarter ended December 31, 2008. The other income, net in the three months ended December 31, 2009 principally consisted of $682,000 of gains associated with changes in exchange rates for foreign currency transactions. The other expense, net in the three months ended December 31, 2008 consisted principally of losses associated with changes in exchange rates for foreign currency transactions.

     Other expense, net in the nine months ended December 31, 2009 was $1.7 million, as compared to other income, net of $1.6 million in the nine months ended December 31, 2008. For the nine months ended December 31, 2009, other expense, net consisted principally of losses associated with changes in exchange rates for foreign currency transactions of $1.6 million. For the nine months ended December 31, 2008, other income, net primarily consisted of gains associated with changes in exchange rates for foreign currency transactions.

Provision for Income Tax.

     For the three and nine months ended December 31, 2009, we recorded income tax provisions of $1.7 million and $347,000. For the three and nine months ended December 31, 2008, we recorded income tax benefit of $1.3 million and an income tax provision of $4.9 million, respectively. For the three months ended December 31, 2009, the provision for income tax represented the adjustment of the income tax account to reflect a change in our estimated income taxes for the year based on nine months of experience, offset by a favorable impact on the reversal of accrued tax expenses of $350,000 following the conclusion of an audit in a foreign tax jurisdiction. The provision for income tax for the nine months ended December 31, 2009 was incurred because we had profits in certain jurisdictions and losses in jurisdictions with comparatively lower tax rates, partially offset by the release of valuation allowances. For the three and nine months ended December 31, 2008, our accounting for income tax was affected by permanent items, including the goodwill impairment, net of a valuation allowance release.

Liquidity and Capital Resources

     At December 31, 2009, cash and cash equivalents were $86.5 million as compared to $55.4 million at March 31, 2009.

     Our cash provided by operating activities for the nine months ended December 31, 2009 was $23.2 million, an increase of $6.1 million as compared to the comparable period of the prior year. Our operating cash flow improved in large part as a result of reduced

24

inventory purchasing. Our net inventories decreased by $10.2 million, or 13.5%, as compared to net inventories at March 31, 2009, primarily due to reduced inventory purchases and higher inventory reserves. Accounts receivable at December 31, 2009 decreased by $709,000, or 1.9%, as compared to the accounts receivable at March 31, 2009, primarily due to the reduction in net revenues for the nine months ended December 31, 2009. Our accounts payable at December 31, 2009 increased by $2.9 million, or 21.2%, from accounts payable at March 31, 2009, primarily because of the timing of the purchase of inventory.

     Our net cash used in investing activities for the nine months ended December 31, 2009 was $5.4 million as compared to net cash used in investing activities of $4.9 million during the nine months ended December 31, 2008. During the nine months ended December 31, 2009, our uses of cash for investing activities principally reflected $2.6 million for a business combination and $2.6 million in purchases of property and equipment. During the nine months ended December 31, 2008, we spent $7.8 million on purchases of property, plant and equipment, which was offset by proceeds of $3.9 million from sales of investments and assets.

     For the nine months ended December 31, 2009, net cash received in financing activities was $11.5 million, as compared to net cash used in financing activities of $12.4 million in the nine months ended December 31, 2008. During the nine months ended December 31, 2009, net cash provided by financing activities primarily reflected $15.0 million in proceeds borrowed under line of credit, offset by $4.2 million in principal payments on capital lease and loan obligations. During the nine months ended December 31, 2008, net cash was used primarily for principal repayments on capital lease obligations and repayments of loans, offset by proceeds from employee equity plans.

     At December 31, 2009, capital lease obligations and loans payable totaled $39.6 million. This represented 45.7% of our cash and cash equivalents and 21.6% of our stockholders’ equity.

     We are obligated on a €7.0 million, or $10.0 million, loan. The loan has a remaining term of about 11 years, ending in June 2020, and bears a variable interest rate, dependent upon the current Euribor rate and the ratio of indebtedness to cash flow for the German subsidiary. Each fiscal quarter a principal payment of €167,000, or about $239,000, and a payment of accrued interest are required. Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At December 31, 2009, we complied with the financial covenants. The loan is collateralized by a security interest in the facility in Lampertheim, Germany, which is owned by our U.S. parent.

     On August 2, 2007, we completed the purchase of a building in Milpitas, California. We moved our corporate office and a facility for operations to this location in January 2008. In connection with the purchase, we assumed a loan, secured by the building, of $7.5 million. The loan bears interest at the rate of 7.455% per annum and is due and payable in February 2011. Monthly payments of principal and interest of $56,000 are due under the loan. In addition, monthly impound payments aggregating $14,000 are to be made for items such as real property taxes, insurance and capital expenditures. The balance of the loan liability at December 31, 2009 was $7.2 million. At maturity, the remaining balance on the loan will be approximately $7.1 million.

     In September 2009, we entered into an agreement with Bank of the West, or BOW, for a letter of credit facility of $3.0 million. The facility expires on March 31, 2010. At December 31, 2009, there was an open letter of credit with a balance of $52,000 to support inventory purchases.

     On November 13, 2009, we entered into a credit agreement for a revolving line of credit with BOW, under which we may borrow up to $15.0 million. Borrowings may be repaid and re-borrowed during the term of the credit agreement. The obligations are guaranteed by two of our subsidiaries. All amounts owed under the credit agreement are due and payable on October 31, 2011. On November 16, 2009, we borrowed $15.0 million pursuant to the credit agreement. See Note 9, “Borrowing Arrangements” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding the credit agreement.

     The Agreement also includes a $3.0 million letter of credit subfacility commencing in April 2010. See Note 16, “Commitment and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding the terms of the subfacility.

     On December 5, 2009, we entered into a definitive agreement to acquire Zilog, Inc., or Zilog. Under the terms of the agreement, we will acquire all of the Zilog’s outstanding common shares for $3.5858 per share in cash and cash out its outstanding stock options for aggregate consideration of approximately $62.4 million. The acquisition is subject to the approval of Zilog shareholders and other customary closing conditions. The transaction is expected to be completed during the quarter ended March 31, 2010.

     Additionally, we maintain two defined benefit pension plans: one for the United Kingdom employees and one for German employees. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. We deposit funds for these plans, consistent with the requirements of local law, with investment

25

management companies, insurance companies, trustees or accrue for the unfunded portion of the obligations. Both plans have been curtailed. As such, the plans are closed to new entrants and no credit is provided for additional periods of service. The total pension liability accrued for these plans at December 31, 2009 was $14.4 million.

     We believe that our cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash requirements for the next 12 months. Our liquidity could be negatively affected by a decline in demand for our products, increases in the cost of materials or labor, investments in new product development or one or more acquisitions. We use derivative contracts in the normal course of business to manage our foreign currency exchange and interest rate risks. We did not have any significant open derivative contracts at December 31, 2009. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our market risk has not changed materially from the market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     Based on their evaluation as of December 31, 2009, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations. Furthermore, these controls and procedures were also effective to ensure that information required to be disclosed by us in this Quarterly Report on Form 10-Q was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Inherent Limitations on Effectiveness of Controls

     Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our procedures or our internal controls will prevent or detect all errors and all fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, have been detected.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We currently are involved in a variety of legal matters that arise in the normal course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters will have a material adverse effect on our financial condition, results of operations and cash flows. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

ITEM 1A. RISK FACTORS

     In addition to the other information in this Quarterly Report on Form 10-Q, the following risk factors should be considered carefully in evaluating our business and us. Additional risks not presently known to us or that we currently believe are not serious may also impair our business and its financial condition.

     Fluctuations in demand for our products may harm our financial results and are difficult to forecast.

     Current uncertainty in global economic conditions poses a risk to the overall economy and to our business, as our customers may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters. If demand for our products fluctuates as a result of economic conditions or otherwise, our revenues and gross margin could be harmed. Important factors that could cause demand for our products to fluctuate include:

• changes in business and economic conditions, including a downturn in the semiconductor industry and/or the overall economy;

• changes in consumer and business confidence caused by changes in market conditions, including changes in the credit market, expectations for inflation, and energy prices;

• competitive pressures, particularly pricing pressures;

• changes in customer product needs;

• changes in the level of customers’ components inventory; and

• strategic actions taken by our competitors.

     If product demand decreases, our manufacturing or assembly and test capacity could be underutilized, and we may be required to record an impairment on our long-lived assets including facilities and equipment, as well as intangible assets, which would increase our expenses. In addition, factory planning decisions may shorten the useful lives of long-lived assets, including facilities and equipment, and cause us to accelerate depreciation. These changes in demand for our products and in our customers’ product needs could have a variety of negative effects on our competitive position and our financial results and, in certain cases, may reduce our revenues, increase our costs, lower our gross margin percentage or require us to recognize impairments of our assets. In addition, if product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record underutilization charges, which would have a negative impact on our gross margin.

     Our visibility regarding the future has declined.

     As economic uncertainty has increased, our customers have reduced their advance orders and issued orders with shorter lead times. This has reduced our visibility regarding future production and shipments, and related revenues. With such reduced visibility, our understanding regarding the direction and rate of change in our product markets has declined and the risks attendant to decisions based on estimates of future orders and shipments, such as the ordering of raw materials, the commencement of production and the appropriate levels of inventory, have increased.

     The recent financial crisis could negatively affect our business, results of operations and financial condition.

     The recent financial crisis affecting the banking system and financial markets have resulted in a tightening in the credit markets and low level of liquidity for many companies. There could be a number of effects from the credit crisis on our business, including insolvency of key suppliers resulting in product delays and inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies.

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     Our operating results fluctuate significantly because of a number of factors, many of which are beyond our control.

     Given the nature of the markets in which we participate, we cannot reliably predict future revenues and profitability, and unexpected changes may cause us to adjust our operations. Large portions of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in revenues could seriously negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly from quarter to quarter and year to year. For example, comparing fiscal 2002 to fiscal 2001, net revenues fell by 25.6% and net income fell by 85.7%. Further, from fiscal 2005 to fiscal 2006 and from fiscal 2008 to fiscal 2009, net income in one year shifted to net loss in the next year. Some of the factors that may affect our quarterly and annual results are:

• the reduction, rescheduling or cancellation of orders by customers;

• fluctuations in timing and amount of customer requests for product shipments;

• changes in the mix of products that our customers purchase;

• loss of key customers;

• the cyclical nature of the semiconductor industry;

• competitive pressures on selling prices;

• damage awards or injunctions as the result of litigation;

• market acceptance of our products and the products of our customers;

• fluctuations in our manufacturing yields and significant yield losses;

• difficulties in forecasting demand for our products and the planning and managing of inventory levels;

• the availability of production capacity;

• the amount and timing of investments in research and development;

• changes in our product distribution channels and the timeliness of receipt of distributor resale information;

• the impact of vacation schedules and holidays, largely during the second and third fiscal quarters of our fiscal year; and

• the amount and timing of costs associated with product returns.

     As a result of these factors, many of which are difficult to control or predict, as well as the other risk factors discussed in this Quarterly Report on Form 10-Q, we may experience materially adverse fluctuations in our future operating results on a quarterly or annual basis.

     Our gross margin is dependent on a number of factors, including our level of capacity utilization.

     Semiconductor manufacturing requires significant capital investment leading to high fixed costs including depreciation expense. We are limited in our ability to reduce fixed costs quickly in response to any shortfall in revenues. If we are unable to utilize our manufacturing, assembly and testing facilities at a high level, the fixed costs associated with these facilities will not be fully absorbed, resulting in lower gross margins. Increased competition and other factors may lead to price erosion, lower revenues and lower gross margins for us in the future.

     We order materials and commence production in advance of anticipated customer demand. Therefore, revenue shortfalls may also result in inventory write-downs.

     We typically plan our production and inventory levels based on our own expectations for customer demand. Actual customer demand, however, can be highly unpredictable and can fluctuate significantly. In response to anticipated long lead times to obtain inventory and materials, we order materials and production in advance of customer demand. This advance ordering and production may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize. This risk has

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increased in recent periods, as economic conditions have declined. For example, additional inventory write-downs occurred in the quarter ended March 31, 2009.

     Our backlog may not result in future revenues.

     Customer orders typically can be cancelled or rescheduled without penalty to the customer. As a result, our backlog at any particular date is not necessarily indicative of actual revenues for any succeeding period. A reduction of backlog during any particular period, or the failure of our backlog to result in future revenues, could harm our results of operations.

     Our international operations expose us to material risks.

     For the nine months ended December 31, 2009, our product sales by region were approximately 29.8% in the United States, approximately 33.2% in Europe and the Middle East, approximately 32.3% in Asia Pacific and approximately 4.7% in Canada and the rest of the world. We expect revenues from foreign markets to continue to represent a significant portion of total revenues. We maintain significant operations in Germany and the United Kingdom and contracts with suppliers and manufacturers in South Korea, Japan and elsewhere in Europe and Asia Pacific. Some of the risks inherent in doing business internationally are:

• foreign currency fluctuations;

• longer payment cycles;

• challenges in collecting accounts receivable;

• changes in the laws, regulations or policies of the countries in which we manufacture or sell our products;

• trade restrictions;

• cultural and language differences;

• employment regulations;

• limited infrastructure in emerging markets;

• transportation delays;

• seasonal reduction in business activities;

• work stoppages;

• labor and union disputes;

• terrorist attack or war; and

• economic or political instability.

     Our sales of products manufactured in our Lampertheim, Germany facility and our costs at that facility are primarily denominated in Euros, and sales of products manufactured in our Chippenham, U.K. facility and our costs at that facility are primarily denominated in British pounds. Fluctuations in the value of the Euro and the British pound against the U.S. dollar could have a significant adverse impact on our balance sheet and results of operations. We generally do not enter into foreign currency hedging transactions to control or minimize these risks. Fluctuations in currency exchange rates could cause our products to become more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. If we expand our international operations or change our pricing practices to denominate prices in other foreign currencies, we could be exposed to even greater risks of currency fluctuations.

     In addition, the laws of certain foreign countries may not protect our products or intellectual property rights to the same extent as do U.S. laws regarding the manufacture and sale of our products in the U.S. Therefore, the risk of piracy of our technology and products may be greater when we manufacture or sell our products in these foreign countries.

     The semiconductor industry is cyclical, and an industry downturn could adversely affect our operating results.

     Business conditions in the semiconductor industry may rapidly change from periods of strong demand and insufficient production to periods of weakened demand and overcapacity. The industry in general is characterized by:

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• changes in product mix in response to changes in demand;

• alternating periods of overcapacity and production shortages, including shortages of raw materials;

• cyclical demand for semiconductors;

• significant price erosion;

• variations in manufacturing costs and yields;

• rapid technological change and the introduction of new products; and

• significant expenditures for capital equipment and product development.

     These factors could harm our business and cause our operating results to suffer.

     Fluctuations in the mix of products sold may adversely affect our financial results.

     Changes in the mix and types of products sold may have a substantial impact on our revenues and gross profit margins. In addition, more recently introduced products tend to have higher associated costs because of initial overall development costs and higher start-up costs. Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover our fixed costs and investments that are associated with a particular product, and as a result can negatively impact our financial results.

     Our dependence on subcontractors to assemble and test our products subjects us to a number of risks, including an inadequate supply of products and higher materials costs.

     We depend on subcontractors for the assembly and testing of our products. The substantial majority of our products are assembled by subcontractors located outside of the United States. Our reliance on these subcontractors involves the following significant risks:

• bankruptcy or insolvency of one or more of our subcontractors adversely affecting our production;

• reduced control over delivery schedules and quality;

• lack of adequate capacity during periods of excess demand;

• difficulties selecting and integrating new subcontractors;

• limited or no warranties by subcontractors or other vendors on products supplied to us;

• increases in prices due to capacity shortages and other factors;

• misappropriation of our intellectual property; and

• economic or political instability in foreign countries.

     These risks may lead to delayed product delivery or increased costs, which would harm our profitability and customer relationships.

     In addition, we use a limited number of subcontractors to assemble a significant portion of our products. If one or more of these subcontractors experience financial, operational, production or quality assurance difficulties, we could experience a reduction or interruption in supply. For example, two of our recent assembly subcontractors have either ceased operations or entered into insolvency proceedings. Although we believe alternative subcontractors are available, our operating results could temporarily suffer until we engage one or more of those alternative subcontractors. Moreover, in engaging alternative subcontractors in exigent circumstances, our production costs could increase markedly.

     Changes in our decisions about restructuring could affect our results of operations and financial condition.

     Factors that could cause actual results to differ materially from our expectations about restructuring actions include:

• timing and execution of a plan that may be subject to local labor law requirements, including consultation with appropriate work councils;

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• changes in assumptions related to severance costs;

• changes in employment levels and turnover rates; and

• changes in product demand and the business environment, including changes in global economic conditions.

     Semiconductors for inclusion in consumer products have short product life cycles.

     We believe that consumer products are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than other types of products sold by our customers. Shorter product life cycles result in more frequent design competitions for the inclusion of semiconductors in next generation consumer products, which may not result in design wins for us.

     We may not be successful in our acquisitions.

     We have in the past made, and may in the future make, acquisitions of other companies and technologies. These acquisitions involve numerous risks, including:

• diversion of management’s attention during the acquisition process;

• disruption of our ongoing business;

• the potential strain on our financial and managerial controls and reporting systems and procedures;

• unanticipated expenses and potential delays related to integration of an acquired business;

• the risk that we will be unable to develop or exploit acquired technologies;

• failure to successfully integrate the operations of an acquired company with our own;

• the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;

• the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;

• the risks of entering new markets in which we have limited experience;

• difficulties in expanding our information technology systems or integrating disparate information technology systems to accommodate the acquired businesses;

• failure to retain key personnel of the acquired business;

• the challenges inherent in managing an increased number of employees and facilities and the need to implement appropriate policies, benefits and compliance programs;

• customer dissatisfaction or performance problems with an acquired company’s products or personnel;

• adverse effects on our relationships with suppliers;

• the reduction in financial stability associated with the incurrence of debt or the use of a substantial portion of our available cash;

• the costs associated with acquisitions, including in-process R&D charges and amortization expense related to intangible assets, and the integration of acquired operations; and

• assumption of known or unknown liabilities or other unanticipated events or circumstances.

     We cannot assure that we will be able to successfully acquire other businesses or product lines or integrate them into our operations without substantial expense, delay in implementation or other operational or financial problems.

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     As a result of an acquisition, our financial results may differ from the investment community’s expectations in a given quarter. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows, or stock price could be negatively impacted.

     We depend on external foundries to manufacture many of our products.

     Of our revenues for nine months ended December 31, 2009, 37.7% came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We currently have arrangements with a number of wafer foundries, three of which produce the wafers for power semiconductors that we purchase from external foundries. Samsung Electronics’ facility in Kiheung, South Korea is our principal external foundry.

     Our relationships with our external foundries do not guarantee prices, delivery or lead times or wafer or product quantities sufficient to satisfy current or expected demand. These foundries manufacture our products on a purchase order basis. We provide these foundries with rolling forecasts of our production requirements. However, the ability of each foundry to provide wafers to us is limited by the foundry’s available capacity. At any given time, these foundries could choose to prioritize capacity for their own use or other customers or reduce or eliminate deliveries to us on short notice. If growth in demand for our products occurs, these foundries may be unable or unwilling to allocate additional capacity to our needs, thereby limiting our revenue growth. Accordingly, we cannot be certain that these foundries will allocate sufficient capacity to satisfy our requirements. In addition, we cannot be certain that we will continue to do business with these or other foundries on terms as favorable as our current terms. If we are not able to obtain foundry capacity as required, our relationships with our customers could be harmed, we could be unable to fulfill contractual requirements and our revenues could be reduced or growth limited. Moreover, even if we are able to secure foundry capacity, we may be required, either contractually or as a practical business matter, to utilize all of that capacity or incur penalties or an adverse effect on the business relationship. The costs related to maintaining foundry capacity could be expensive and could harm our operating results. Other risks associated with our reliance on external foundries include:

• the lack of control over delivery schedules;

• the unavailability of, or delays in obtaining access to, key process technologies;

• limited control over quality assurance, manufacturing yields and production costs; and

• potential misappropriation of our intellectual property.

     Our requirements typically represent a small portion of the total production of the external foundries that manufacture our wafers and products. We cannot be certain these external foundries will continue to devote resources to the production of our wafers and products or continue to advance the process design technologies on which the manufacturing of our products is based. These circumstances could harm our ability to deliver our products or increase our costs.

     Our success depends on our ability to manufacture our products efficiently.

     We manufacture our products in facilities that are owned and operated by us, as well as in external wafer foundries and subcontract assembly facilities. The fabrication of semiconductors is a highly complex and precise process, and a substantial percentage of wafers could be rejected or numerous die on each wafer could be nonfunctional as a result of, among other factors:

• contaminants in the manufacturing environment;

• defects in the masks used to print circuits on a wafer;

• manufacturing equipment failure; or

• wafer breakage.

     For these and other reasons, we could experience a decrease in manufacturing yields. Additionally, if we increase our manufacturing output, we may also experience a decrease in manufacturing yields. As a result, we may not be able to cost-effectively expand our production capacity in a timely manner.

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     Our debt agreements contain certain restrictions that may limit our ability to operate our business.

     The agreements governing our debt contain, and any other future debt agreement we enter into may contain, restrictive covenants that limit our ability to operate our business, including, in each case subject to certain exceptions, restrictions on our ability to:

• incur additional indebtedness;

• grant liens;

• consolidate, merge or sell assets as an entirety or substantially as an entirety unless specified conditions are met;

• acquire other business organizations;

• make investments;

• redeem or repurchase our stock; and

• change the nature of our business.

     In addition, our debt agreements contain financial covenants and additional affirmative and negative covenants. Our ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. If we are not able to comply with all of these covenants for any reason and we have debt outstanding at the time of such failure, some or all of our outstanding debt could become immediately due and payable and the incurrence of additional debt under the credit facilities provided by the debt agreements would not be allowed. If our cash is utilized to repay any outstanding debt, depending on the amount of debt outstanding, we could experience an immediate and significant reduction in working capital available to operate our business.

     As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us, such as strategic acquisitions or joint ventures.

     Increasing raw material prices could impact our profitability.

     Our products use large amounts of silicon, metals and other materials. In recent periods, we have experienced price increases for many of these items. If we are unable to pass price increases for raw materials onto our customers, our gross margins and profitability could be adversely affected.

     Our markets are subject to technological change and our success depends on our ability to develop and introduce new products.

     The markets for our products are characterized by:

• changing technologies;

• changing customer needs;

• frequent new product introductions and enhancements;

• increased integration with other functions; and

• product obsolescence.

     To develop new products for our target markets, we must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to expand our technical and design expertise. Failure to do so could cause us to lose our competitive position and seriously impact our future revenues.

     Products or technologies developed by others may render our products or technologies obsolete or noncompetitive. A fundamental shift in technologies in our product markets would have a material adverse effect on our competitive position within the industry.

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     Our revenues are dependent upon our products being designed into our customers’ products.

     Many of our products are incorporated into customers’ products or systems at the design stage. The value of any design win largely depends upon the customer’s decision to manufacture the designed product in production quantities, the commercial success of the customer’s product and the extent to which the design of the customer’s electronic system also accommodates incorporation of components manufactured by our competitors. In addition, our customers could subsequently redesign their products or systems so that they no longer require our products. The development of the next generation of products by our customers generally results in new design competitions for semiconductors, which may not result in design wins for us, potentially leading to reduced revenues and profitability. We may not achieve design wins or our design wins may not result in future revenues.

     We could be harmed by intellectual property litigation.

     As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. We have been sued on occasion for purported patent infringement. In the future, we could be accused of infringing the intellectual property rights of third parties. We also have certain indemnification obligations to customers and suppliers with respect to the infringement of third party intellectual property rights by our products. We could incur substantial costs defending ourselves and our customers and suppliers from any such claim. Infringement claims or claims for indemnification, whether or not proven to be true, may divert the efforts and attention of our management and technical personnel from our core business operations and could otherwise harm our business. For example, in June 2000, we were sued for patent infringement by International Rectifier Corporation. The case was ultimately resolved in our favor, but not until October 2008. In the interim, the U.S. District Court entered multimillion dollar judgments against us on two different occasions, each of which was subsequently vacated.

     In the event of an adverse outcome in any intellectual property litigation, we could be required to pay substantial damages, cease the development, manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license from the third party claiming infringement with royalty payment obligations upon us. An adverse outcome in an infringement action could materially and adversely affect our financial condition, results of operations and cash flows.

     We may not be able to protect our intellectual property rights adequately.

     Our ability to compete is affected by our ability to protect our intellectual property rights. We rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and non-disclosure and licensing arrangements to protect our intellectual property rights. Despite these efforts, we cannot be certain that the steps we take to protect our proprietary information will be adequate to prevent misappropriation of our technology, or that our competitors will not independently develop technology that is substantially similar or superior to our technology. More specifically, we cannot assure that our pending patent applications or any future applications will be approved, or that any issued patents will provide us with competitive advantages or will not be challenged by third parties. Nor can we assure that, if challenged, our patents will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. We may also become subject to or initiate interference proceedings in the U.S. Patent and Trademark Office, which can demand significant financial and management resources and could harm our financial results. Also, others may independently develop similar products or processes, duplicate our products or processes or design their products around any patents that may be issued to us.

Because our products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues.

     The time from initiation of design to volume production of new semiconductors often takes 18 months or longer. We first work with customers to achieve a design win, which may take nine months or longer. Our customers then complete the design, testing and evaluation process and begin to ramp up production, a period that may last an additional nine months or longer. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.

     We may not be able to increase production capacity to meet the present and future demand for our products.

     The semiconductor industry has been characterized by periodic limitations on production capacity. From time to time, our production at external foundries has been limited by the foundries because of their production constraints, superior revenue alternatives or desire for customer diversification. Although we may be able to obtain the capacity necessary to meet present demand, if we are unable to increase our production capacity to meet possible future demand, some of our customers may seek other sources of supply or our future growth may be limited.

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     The markets in which we participate are intensely competitive.

     Certain of our target markets are intensely competitive. Our ability to compete successfully in our target markets depends on the following factors:

• proper new product definition;

• product quality, reliability and performance;

• product features;

• price;

• timely delivery of products;

• technical support and service;

• design and introduction of new products;

• market acceptance of our products and those of our customers; and

• breadth of product line.

     In addition, our competitors or customers may offer new products based on new technologies, industry standards or end-user or customer requirements, including products that have the potential to replace our products or provide lower cost or higher performance alternatives to our products. The introduction of new products by our competitors or customers could render our existing and future products obsolete or unmarketable.

     Our primary power semiconductor competitors include Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics, Toshiba and Vishay Intertechnology. Our IC products compete principally with those of Supertex, Matsushita, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices. Many of our competitors have greater financial, technical, marketing and management resources than we have. Some of these competitors may be able to sell their products at prices below which it would be profitable for us to sell our products or benefit from established customer relationships that provide them with a competitive advantage. We cannot assure that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased price competition.

     We rely on our distributors and sales representatives to sell many of our products.

     Many of our products are sold to distributors or through sales representatives. Our distributors and sales representatives could reduce or discontinue sales of our products. They may not devote the resources necessary to sell our products in the volumes and within the time frames that we expect. In addition, we depend upon the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. We believe that our success will continue to depend upon these distributors and sales representatives. If any significant distributor or sales representative experiences financial difficulties, or otherwise becomes unable or unwilling to promote and sell our products, our business could be harmed. For example, All American Semiconductor, Inc., one of our former distributors, filed for bankruptcy in April 2007.

Our future success depends on the continued service of management and key engineering personnel and our ability to identify, hire and retain additional personnel.

     Our success depends upon our ability to attract and retain highly skilled technical, managerial, marketing and finance personnel, and, to a significant extent, upon the efforts and abilities of Nathan Zommer, Ph.D., our President and Chief Executive Officer, and other members of senior management. The loss of the services of one or more of our senior management or other key employees could adversely affect our business. We do not maintain key person life insurance on any of our officers, employees or consultants. There is intense competition for qualified employees in the semiconductor industry, particularly for highly skilled design, applications and test engineers. We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of

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our business or to replace engineers or other qualified individuals who could leave us at any time in the future. If we grow, we expect increased demands on our resources, and growth would likely require the addition of new management and engineering staff as well as the development of additional expertise by existing management employees. If we lose the services of or fail to recruit key engineers or other technical and management personnel, our business could be harmed.

     Acquisitions and expansion place a significant strain on our resources, including our information systems and our employee base.

     Presently, because of past acquisitions, we are operating a number of different information systems that are not integrated. In part because of this, we use spreadsheets, which are prepared by individuals rather than automated systems, in our accounting. In our accounting, we perform many manual reconciliations and other manual steps, which result in a high risk of errors. Manual steps also increase the possibility of control deficiencies and material weaknesses.

     If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage or grow our business may be harmed. Our ability to successfully implement our goals and comply with regulations, including those adopted under the Sarbanes-Oxley Act of 2002, requires an effective planning and management system and process. We will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future.

     In improving our operational and financial systems, procedures and controls, we would expect to periodically implement new software and other systems that will affect our internal operations regionally or globally. The conversion process from one system to another is complex and could require, among other things, that data from the existing system be made compatible with the upgraded system. During any transition, we could experience errors, delays and other inefficiencies, which could adversely affect our business. Any delay in the implementation of, or disruption in the transition to, any new or enhanced systems, procedures or controls, could harm our ability to forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and record and report financial and management information on a timely and accurate basis. In addition, as we add additional functionality, new problems could arise that we have not foreseen. Such problems could adversely impact our ability to do the following in a timely manner: provide quotes; take customer orders; ship products; provide services and support to our customers; bill and track our customers; fulfill contractual obligations; and otherwise run our business. Failure to properly or adequately address these issues could result in the diversion of management’s attention and resources, impact our ability to manage our business and our results of operations, cash flows and stock price could be negatively impacted.

     Any future growth would also require us to successfully hire, train, motivate and manage new employees. In addition, continued growth and the evolution of our business plan may require significant additional management, technical and administrative resources. We may not be able to effectively manage the growth or the evolution of our current business.

     We depend on a limited number of suppliers for our substrates, most of whom we do not have long term agreements with.

     We purchase the bulk of our silicon substrates from a limited number of vendors, most of whom we do not have long term supply agreements with. Any of these suppliers could reduce or terminate our supply of silicon substrates at any time. Our reliance on a limited number of suppliers involves several risks, including potential inability to obtain an adequate supply of silicon substrates and reduced control over the price, timely delivery, reliability and quality of the silicon substrates. We cannot assure that problems will not occur in the future with suppliers.

Costs related to product defects and errata may harm our results of operations and business.

     Costs associated with unexpected product defects and errata (deviations from published specifications) due to, for example, unanticipated problems in our manufacturing processes, include the costs of:

• writing off the value of inventory of defective products;

• disposing of defective products that cannot be fixed;

• recalling defective products that have been shipped to customers;

• providing product replacements for, or modifications to, defective products; and/or

• defending against litigation related to defective products.

     These costs could be substantial and may therefore increase our expenses and lower our gross margin. In addition, our reputation with our customers or users of our products could be damaged as a result of such product defects and errata, and the demand for our products could be reduced. These factors could harm our financial results and the prospects for our business.

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We face the risk of financial exposure to product liability claims alleging that the use of products that incorporate our semiconductors resulted in adverse effects.

     Approximately 13.8% of our net revenues for the nine months ended December 31, 2009 were derived from sales of products used in medical devices, such as defibrillators. Product liability risks may exist even for those medical devices that have received regulatory approval for commercial sale. We cannot be sure that the insurance that we maintain against product liability will be adequate to cover our losses. Any defects in our semiconductors used in these devices, or in any other product, could result in significant product liability costs to us.

     We estimate tax liabilities, the final determination of which is subject to review by domestic and international taxation authorities.

     We are subject to income taxes and other taxes in both the United States and the foreign jurisdictions in which we currently operate or have historically operated. We are also subject to review and audit by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires significant judgment and estimation. The provision for income taxes can be adversely affected by a variety of factors, including but not limited to changes in tax laws, regulations and accounting principles, including accounting for uncertain tax positions, or interpretation of those changes. Significant judgment is required to determine the recognition and measurement attributes prescribed in the authoritative guidance issued by FASB in connection with accounting for income taxes. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax provision, net income or cash flows in the period or periods for which such determination is made.

     Our results of operations could vary as a result of the methods, estimates, and judgments that we use in applying our accounting policies.

     The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies and Significant Management Estimates” in Part I, Item 2 of this Form 10-Q). Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments could significantly affect our results of operations.

     We are exposed to various risks related to the regulatory environment.

     We are subject to various risks related to: (1) new, different, inconsistent or even conflicting laws, rules and regulations that may be enacted by legislative bodies and/or regulatory agencies in the countries in which we operate; (2) disagreements or disputes between national or regional regulatory agencies; and (3) the interpretation and application of laws, rules and regulations. If we are found by a court or regulatory agency not to be in compliance with applicable laws, rules or regulations, our business, financial condition and results of operations could be materially and adversely affected.

     In addition, approximately 13.8% of our net revenues for the nine months ended December 31, 2009 were derived from the sale of products included in medical devices that are subject to extensive regulation by numerous governmental authorities in the United States and internationally, including the U.S. Food and Drug Administration, or FDA. The FDA and certain foreign regulatory authorities impose numerous requirements for medical device manufacturers to meet, including adherence to Good Manufacturing Practices, or GMP, regulations and similar regulations in other countries, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by federal and state agencies, including the FDA, and by comparable agencies in other countries. Our failure to comply with applicable regulatory requirements could prevent our products from being included in approved medical devices.

     Our business could also be harmed by delays in receiving or the failure to receive required approvals or clearances, the loss of previously obtained approvals or clearances or the failure to comply with existing or future regulatory requirements.

     We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act.

     Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report from management on the effectiveness of our internal controls over financial reporting and an attestation by our independent registered public accounting firm to the adequacy of management’s assessment of our internal control. Ongoing compliance with these requirements is complex, costly and time-consuming. If (1) we fail to maintain effective internal control over financial reporting; (2) our management does not timely assess the adequacy of such internal control; or (3) our independent registered public accounting firm does not timely attest to the evaluation, we could be subject to regulatory sanctions and the public’s perception of our company may decline.

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     If our long-lived assets become impaired, we may be required to record a significant charge to earnings.

     Under generally accepted accounting principles, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our long-lived assets may not be recoverable include a decline in stock price and market capitalization, future cash flows and slower growth rates in our industry.

     We invest in companies for strategic reasons and may not realize a return on our investments.

     We make investments in companies to further our strategic objectives and support our key business initiatives. Such investments include investments in equity securities of public companies and investments in non-marketable equity securities of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies whose products or technologies may directly support a product or initiative. The success of these companies is dependent on product development, market acceptance, operational efficiency, and other key business success factors. The private companies in which we invest may fail because they may not be able to secure additional funding, obtain favorable investment terms for future financings, or take advantage of liquidity events such as initial public offerings, mergers, and private sales. If any of these private companies fail, we could lose all or part of our investment in that company. If we determine that an other-than-temporary decline in the fair value exists for the equity securities of the public and private companies in which we invest, we write down the investment to its fair value and recognize the related write-down as an investment loss. Furthermore, when the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may decide to dispose of the investment even at a loss. Our investments in non-marketable equity securities of private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The occurrence of any of these events could negatively affect our results of operations.

     Our ability to access capital markets could be limited.

     From time to time, we may need to access the capital markets to obtain long term financing. Although we believe that we can continue to access the capital markets on acceptable terms and conditions, our flexibility with regard to long term financing activity could be limited by our existing capital structure, our credit ratings and the health of the semiconductor industry. In addition, many of the factors that affect our ability to access the capital markets, such as the liquidity of the overall capital markets and the current state of the economy, are outside of our control. There can be no assurance that we will continue to have access to the capital markets on favorable terms.

Geopolitical instability, war, terrorist attacks and terrorist threats, and government responses thereto, may negatively affect all aspects of our operations, revenues, costs and stock prices.

     Any such event may disrupt our operations or those of our customers or suppliers. Our markets currently include South Korea, Taiwan and Israel, which are currently experiencing political instability. Additionally, our principal external foundry is located in South Korea.

     Business interruptions may damage our facilities or those of our suppliers.

     Our operations and those of our suppliers are vulnerable to interruption by fire, earthquake and other natural disasters, as well as power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan and do not have backup generators. Our facilities in California are located near major earthquake faults and have experienced earthquakes in the past. If any of these events occur, our ability to conduct our operations could be seriously impaired, which could harm our business, financial condition and results of operations and cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.

     We may be affected by environmental laws and regulations.

     We are subject to a variety of laws, rules and regulations in the United States, England and Germany related to the use, storage, handling, discharge and disposal of certain chemicals and gases used in our manufacturing process. Any of those regulations could require us to acquire expensive equipment or to incur substantial other expenses to comply with them. If we incur substantial additional expenses, product costs could significantly increase. Failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.

     Nathan Zommer, Ph.D. owns a significant interest in our common stock.

     Nathan Zommer, Ph.D., our President and Chief Executive Officer, beneficially owned or controlled, as of January 29, 2010, approximately 22.4% of the outstanding shares of our common stock. As a result, Dr. Zommer can exercise significant control over all matters requiring stockholder approval, including the election of the board of directors. His holdings could result in a delay of, or serve as a deterrent to, any change in control of IXYS, which may reduce the market price of our common stock.

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     Our stock price is volatile.

     The market price of our common stock has fluctuated significantly to date. The future market price of our common stock may also fluctuate significantly in the event of:

• variations in our actual or expected quarterly operating results;

• announcements or introductions of new products;

• technological innovations by our competitors or development setbacks by us;

• conditions in the communications and semiconductor markets;

• the commencement or adverse outcome of litigation;

• changes in analysts’ estimates of our performance or changes in analysts’ forecasts regarding our industry, competitors or customers;

• announcements of merger or acquisition transactions or a failure to achieve the expected benefits of an acquisition as rapidly or to the extent anticipated by financial analysts;

• terrorist attack or war;

• sales of our common stock by one or more members of management, including Nathan Zommer, Ph.D., our President and Chief Executive Officer; or

• general economic and market conditions.

     In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, including semiconductor companies. These fluctuations have often been unrelated or disproportionate to the operating performance of companies in our industry, and could harm the market price of our common stock.

The anti-takeover provisions of our certificate of incorporation and of the Delaware General Corporation Law may delay, defer or prevent a change of control.

     Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control because the terms of any issued preferred stock could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction, without the approval of the holders of the outstanding shares of preferred stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders.

     Our stockholders must give substantial advance notice prior to the relevant meeting to nominate a candidate for director or present a proposal to our stockholders at a meeting. These written notice requirements could inhibit a takeover by delaying stockholder action. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. The Delaware statute makes it more difficult for us to be acquired without the consent of our board of directors and management.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

See the Index to Exhibits, which is incorporated by reference herein.

SIGNATURES

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

IXYS CORPORATION

By: /s/ Uzi Sasson Uzi Sasson, President and

Chief Financial Officer

(Principal Financial Officer)

Date: February 5, 2010

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EXHIBIT INDEX

Exhibit
No.	Description
2.1	Agreement and Plan of Merger by and among IXYS Corporation, Zanzibar Acquisition, Inc. and Zilog, Inc. dated as of December 5, 2009 (filed on December 7, 2009 as Exhibit 2.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
10.1	Credit Agreement dated as of November 13, 2009 by and between Bank of the West and IXYS Corporation.
31.1	Certificate of Chief Executive Officer required under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification required under Section 906 of the Sarbanes-Oxley Act of 2002. (1)

(1) This exhibit is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1933, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities and Exchange Act of 1993, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

EX-10.1

Exhibit 10.1

IMPORTANT INFORMATION REGARDING

OBTAINING AN EXTENSION OF CREDIT

To help the Federal government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record certain information that identifies each person/entity who obtains an extension of credit from the institution.

When you obtain an extension of credit, we will ask for your name; street address; social security number, taxpayer identification number, or alien identification number as applicable; date of birth (individual applicants or sole proprietors only); and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying document.

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CREDIT AGREEMENT

(LINE OF CREDIT)

(LETTER OF CREDIT SUB-FACILITY)

     This Agreement (the “Agreement”) is made and entered into as of November 13, 2009, by and between BANK OF THE WEST (the “Bank”) and IXYS CORPORATION (the “Borrower”), on the terms and conditions that follow:

SECTION

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DEFINITIONS

1.1 Certain Defined Terms: Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined):

1.1.1	“Advance”: shall mean an advance to the Borrower under the credit facility (ies) described in Section 2.
1.1.2	“Alternate Base Rate”: shall mean, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day or, (b) the Federal Funds Rate in effect on such day plus 0.5% or (c) the Applicable Floating Rate on such date (or, if such date is not a Business Day, the immediately preceding Business Day). Any change in the Alternate Base Rate due to a change in the Prime Rate or, the Federal Funds Rate or the Applicable Floating Rate shall be effective from and including the effective date of such change in the Prime Rate or, the Federal Funds Rate or the Applicable Floating Rate, respectively.
1.1.3	“Alternate Base Rate Advance”: shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.4	“Applicable Floating Rate”. shall mean, as of any date with respect to:

(i)

With respect to Alternate Base Rate Advances (a) the One-Month LIBOR Rate on such day multiplied by the Statutory Reserve Rate plus (b) 1.00%, where “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System with respect to the One-Month LIBOR Rate for Eurocurrency funding (currently referred to as “Eurocurrencies Liabilities” in Regulation D of the Board of Governors of the Federal Reserve System), including those reserve percentages imposed pursuant to Regulation D, adjusted automatically and as of the effective date of any change in any reserve percentage.

(ii)

With respect to Applicable Floating Rate Advances, the One-Month LIBOR Rate on such day multiplied by the Statutory Reserve Rate where “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or

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supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System with respect to the One-Month LIBOR Rate for Eurocurrency funding (currently referred to as “Eurocurrencies Liabilities” in Regulation D of the Board of Governors of the Federal Reserve System), including those reserve percentages imposed pursuant to Regulation D, adjusted automatically and as of the effective date of any change in any reserve percentage.

1.1.5	“Applicable Floating Rate Advance”: shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.6	“Applicable Margin”: means, from time to time, the following percentages per annum (expressed in basis points) based upon the Leverage Ratio as calculated based on financial statements delivered to the Bank pursuant to Section 5.1(i) and Section 5.1(ii):

			Applicable
			Margin (LIBOR		Applicable
			Advances and		Margin
			Applicable		(Alternate Base		Applicable Margin
			Floating Rate		Rate		(Unused
Tier		Leverage Ratio	Advances)		Advances)		Commitment Fee)
	1	Less than 0.50 to 1.00		250.00		150.00		25.00
	2	Greater than or equal to 0.50 to 1.00 but less than 1.00 to 1.00		275.00		175.00		37.50
	3	Greater than or equal to 1.00 to 1.00 but less than 1.50 to 1.00		300.00		200.00		50.00
	4	Greater than or equal to 1.50 to 1.00		325.00		225.00		62.50

Any increase or decrease in the Applicable Margin resulting from a change in the Leverage Ratio shall become effective as of the date that is the earlier of: (a) the last date by which the Borrower is otherwise required to deliver the financial statements in accordance with Section 5.1(i) or Section 5.1(ii) for a given period (each such date, a “calculation date”); and (b) the date that is two Business Days after the date (prior to the related calculation date) on which the Borrower actually delivers the financial statements in accordance with Section 5.1(i) or Section 5.1(ii) for such period; provided that the Applicable Margin in effect from the Closing Date to the date that is two Business Days following receipt by the Bank of the timely delivered financial statements with respect to the fiscal quarter ending December 31, 2009 shall be determined based upon Tier 1; provided further that, if any financial statements required to be delivered in accordance with Section 5.1(i) or Section 5.1(ii) for any given period is not delivered to the Bank on or before the related calculation date, then Tier 4 shall apply, effective on the related calculation date until two Business Days after such financial statements are actually received by the Bank. Notwithstanding anything in the foregoing to the contrary, in the event Borrower or Bank determines, in good faith, that the calculation of the Leverage Ratio on which any Applicable Margin for any particular period is inaccurate and as a consequence thereof any Applicable Margin as determined based thereon was lower than it would have been had the Leverage Ratio been calculated accurately, (a) Borrower shall promptly (but in any event no later than two (2) Business Days after Borrower discovers such inaccuracy or is otherwise notified by Bank of such inaccuracy), deliver to Bank corrected financial statements for such period (and if such financial statements are not accurately restated and delivered within ten (10) days after the first discovery of such inaccuracy by Borrower or such notice, as the case may be, then Tier 4 shall apply retroactively for such period until such time as the corrected financial

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statements are delivered and, from and after the delivery of such corrected financial statements to Bank, the corrected Applicable Margin shall apply for such period), (b) Bank shall determine and notify Borrower of the amount of interest that would have been due in respect of any outstanding Obligations during such period had the Applicable Margin been determined based on an accurate Leverage Ratio (or, to the extent applicable, Tier 4 if such corrected financial statements were not timely delivered as provided for herein) and (c) Borrower shall promptly pay to Bank the difference, if any, between that amount and the amount actually paid in respect of such period. The foregoing shall in no way limit the rights of Bank to impose the default interest rate specified in Section 8.2 or to exercise any other remedy available at law or as provided hereunder.

1.1.7	“Business Day”: shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California.
1.1.8	“Current Liabilities”: shall mean current liabilities as determined in accordance with generally accepted accounting principles, including any negative cash balance on the Borrower’s financial statement and Indebtedness for borrowed money under lines of credit with the Bank used by the Borrower for working capital purposes.
1.1.9	“Debt”: shall mean all liabilities of the Borrower less Subordinated Debt, if any.
1.1.10	“Domestic Cash”: shall mean the aggregate amount of all cash maintained by the Borrower in accounts located in the United States.
1.1.11	“EBITDA”: shall mean earnings before deductions for interest expense, taxes, depreciation and amortization expense and non-cash stock compensation expense.
1.1.12	“Effective Tangible Net Worth”: shall mean the Borrower’s stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, and similar intangible items including, but not limited to, investments in and all amounts due from affiliates, officers or employees).
1.1.13	“Environmental Claims”: shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.
1.1.14	“Environmental Laws”: shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code.

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1.1.15	“Environmental Permits”: shall have the meaning provided in Section 4.12 hereof.
1.1.16	“ERISA”: shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.
1.1.17	“Event of Default”: shall have the meaning set forth in Section 6.
1.1.18	“Existing Letter of Credit Facility”: shall mean that certain Letter of Credit Agreement between the Borrower and Bank, dated as of September 8, 2009, as amended by that certain First Amendment to Letter of Credit Agreement, dated as of September 10, 2009, pursuant to which Bank agreed to make an aggregate amount of $3,000,000.00 in standby and commercial letters of credit available to the Borrower.
1.1.19	“Expiration Date”: shall mean October 31, 2011, or the date of termination of the Bank’s commitment to lend under this Agreement pursuant to Section 7, whichever shall occur first.
1.1.20	“Federal Funds Rate”: shall mean, for any day, the weighted average (rounded upwards, if necessary to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Bank from three Federal funds brokers of recognized standing selected by it.
1.1.21	“Guarantor”: shall mean each of IXYS USA, INC. and CLARE, INC.
1.1.22	“Guaranty”: shall mean a continuing guaranty agreement of the Obligations, in form and substance reasonably satisfactory to the Bank.
1.1.23	“Hazardous Materials”: shall mean all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.
1.1.24	“Indebtedness”: shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss, (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss, and (iii) obligations arising under an arrangement with any person providing for the leasing by the Borrower of real or personal property that has been or is to be sold or transferred to such person or to whom funds have been or are to be advanced by such person on the security or rental obligations of the Borrower. The word “Indebtedness” also includes expenses incurred by the Bank to enforce obligations of the Borrower under this Agreement, together with interest on such amounts as provided in this Agreement, and all other obligations, debts, and liabilities of the Borrower to the Bank as well as all claims by the Bank against the Borrower that are now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated, whether the Borrower may be liable individually or jointly with others, whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations, and whether such Indebtedness may be or hereafter may become otherwise unenforceable.

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1.1.25	“Letter of Credit Facility”: shall mean the credit facility described as such in Section 2.
1.1.26	“Leverage Ratio”: shall mean, as of any date of determination, the ratio of total liabilities (excluding any outstanding letters of credit) of the Borrower to Effective Tangible Net Worth.
1.1.27	“LIBOR Advance”: shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.28	“LIBOR Interest Period”: shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.29	“LIBOR Rate”: shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.30	“Line Account”: shall have the meaning provided in Section 2.3 hereof.
1.1.31	“Line of Credit”: shall mean the credit facility described as such in Section 2.
1.1.32	“Loan Documents”: shall mean this Agreement, the Guaranties and all other documents delivered by any Loan Party to the Bank in connection herewith.
1.1.33	“Loan Parties”: shall mean, collectively, the Borrower and the Guarantors.
1.1.34	“Material Adverse Change”: shall mean any of the following: (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole; (b) a material impairment of the ability of the Borrower to perform its payment obligations under any of the Loan Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability of any Loan Document.
1.1.35	“Obligations”: shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement including, but not limited to, the unpaid principal amount of any loans or advances.
1.1.36	“One-Month LIBOR Rate”: shall mean, for any day, the rate of interest per annum that is equal to the one month LIBOR rate appearing on the REUTERS BBA Libor Rates Page 3750 (or on any successor or substitute page of such page) at approximately 11:00 a.m. London time on such day.
1.1.37	“Ordinary Course of Business”: shall mean, with respect to any transaction involving the Borrower or any of its subsidiaries or affiliates, the ordinary course of the Borrower’s business, as conducted by the Borrower in accordance with past practice and undertaken by the Borrower in good faith and not for the purpose of evading any covenant or restriction in this Agreement or in any other document, instrument or agreement executed in connection herewith.
1.1.38	“Permitted Liens”: shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges not yet due; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the Ordinary Course of Business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the Ordinary Course of Business to secure Indebtedness outstanding on the date hereof or permitted to be incurred herein; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of

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	the Borrower’s assets; and (vii) liens and security interests securing Indebtedness permitted by Section 5.11.
1.1.39	“Prime Rate”: shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its prime rate and as to which loans may be made by Bank at, above or below such rate.
1.1.40	Solvent”: shall mean, as to any Person at any time, that: (a) the fair value of the property of such Person on a going concern basis is greater than the amount of such Person’s liabilities (including contingent liabilities), as such value is established and such liabilities are evaluated for purposes of Section 101(32) of the Bankruptcy Code and, in the alternative, for purposes of the California Uniform Fraudulent Transfer Act or any similar state statute applicable to the Borrower or any Subsidiary thereof; (b) the present fair salable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including contingent liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.
1.1.41	“Subordinated Debt”: shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank.
1.1.42	“Subsidiary”: shall mean of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Borrower.

1.2 Accounting Terms: All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles.

1.3 Other Terms: Other terms not otherwise defined shall have the meanings attributed to such terms in the Uniform Commercial Code as in effect on July 1, 2001 and from time to time thereafter.

SECTION

2

CREDIT FACILITIES

2.1 THE LINE OF CREDIT

2.1.1 The Line of Credit: On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed $15,000,000.00 (the “Line of Credit”). Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2.1. Proceeds of the Line of

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Credit shall be used to assist with the general working capital needs of the Borrower’s operations.

2.1.2	Making Line Advances: Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower’s written instructions. Subject to the requirements of Section 4 and provided such request is made in a timely manner as provided in Section 2.1.5 below, Advances shall be made by the Bank under the Line of Credit.
2.1.3	Repayment: On the Expiration Date, the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon.
2.1.4	Interest on Advances: Interest shall accrue from the date of each Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower below:

(i)	Alternate Base Rate Advances: Alternate Base Rate Advances shall bear interest at the Alternate Base Rate plus the Applicable Margin. Interest shall be adjusted concurrently with any change in the Alternate Base Rate. An Advance based upon the Alternate Base Rate is hereinafter referred to as an “Alternate Base Rate Advance”.
(ii)	Applicable Floating Rate Advances: Alternate Floating Rate Advances shall bear interest at the Applicable Floating Rate plus the Applicable Margin. Interest shall be adjusted concurrently with any change in the Applicable Floating Rate. An Advance based upon the Applicable Floating Rate is herein referred to as an “Applicable Floating Rate Advance”.
(iii)	LIBOR Advances: LIBOR Advances shall bear interest at the LIBOR Rate plus the Applicable Margin. As used herein, “LIBOR Rate” means a fixed rate quoted by the Bank for one, two, three or six month periods or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond Expiration Date) (the “LIBOR Interest Period”) for Advances in the minimum amount of $100,000.00. The LIBOR Rate shall be the rate determined by the Bank’s Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16%)) of the Bloomberg British Bankers Association LIBOR page as of 11:00 a.m. (London time), on that day, or, if such day is not a Business Day, on the immediately preceding Business Day prior to the first day of such period (adjusted for any and all assessments, surcharges and reserve requirements). An Advance based upon the LIBOR Rate is hereinafter referred to as a “LIBOR Advance”.
	Interest on any Advance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed.

The Borrower hereby promises and agrees to pay interest in arrears on Applicable Floating Rate Advances and LIBOR Advances on the last day of each month.

If Interest is not paid as and when it is due, it shall be added to the principal, become and be treated as a part thereof, and shall thereafter bear like interest.

2.1.5 Notice of Borrowing: Upon written or telephonic notice which shall be received by the Bank at or before 2:00 p.m. (Pacific time) on a Business Day, the Borrower may borrow under the Line of Credit Facility by requesting:

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(i)	An Alternate Base Rate Advance may be made on the day notice is received by the Bank, provided however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Alternate Base Rate Advance may, at the Bank’s option, be made on the next Business Day.
(ii)	Applicable Floating Rate Advances. An Applicable Floating Rate Advance may be made on the day notice is received by the Bank; provided, however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Applicable Floating Rate Advances may, at the Bank’s option, be made on the next Business Day.
(iii)	A LIBOR Advance. Notice of any LIBOR Advance shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower request such LIBOR Advance to be made.
In the event the Borrower makes no election at the time of any Advance, such Advance shall bear interest at the Applicable Floating Rate as determined for Alternate Base Rate Advances.

2.1.6 Notice of Election to Adjust Interest Rate: The Borrower may elect:

(i)	That interest on an Alternate Base Rate Advance shall be adjusted to accrue at the LIBOR Rate or the Applicable Floating Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests that interest be adjusted to accrue at the Applicable Floating Rate.
(ii)	That interest on an Applicable Floating Rate Advance shall be adjusted to accrue at the LIBOR Rate or Alternate Base Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests that interest be adjusted to accrue at the LIBOR Rate or Alternate Base Rate.
(iii)	That interest on a LIBOR Advance shall continue to accrue at a newly quoted LIBOR Rate or shall be adjusted to commence to accrue at the Alternate Base Rate or Applicable Floating Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the last day of the LIBOR Interest Period pertaining to such LIBOR Advance. If the Bank shall not have received notice (as prescribed herein) of the Borrower’s election that interest on any LIBOR Advance shall continue to accrue at the newly quoted LIBOR Rate, the Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Alternate Base Rate upon the expiration of the LIBOR Interest Period pertaining to such Advance.

In the event the Borrower makes no election at the time of any Advance, such Advance shall bear interest at the Applicable Floating Rate as determined for Alternate Base Rate Advances.

2.1.7 Prepayment: The Borrower may prepay any Advance in whole or in part, at any time and without penalty, provided, however, that: (i) any partial prepayment shall first be applied, at the Bank’s option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the LIBOR Rate, no prepayment shall be made except on a day which is the last day of the LIBOR Interest Period pertaining thereto. If the whole or any part of any LIBOR Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank’s request, promptly pay to and indemnify the Bank for all costs, expenses and any loss actually incurred by the Bank and any loss (including loss of profit resulting from the re-

9

employment of funds) deemed sustained by the Bank as a consequence of such prepayment.

	The Bank shall be entitled to fund all or any portion of its Advances in any manner it may determine in its sole discretion, but all calculations and transactions hereunder shall be conducted as though the Bank actually funded all Advances through the purchase of dollar deposits bearing interest at the same rate as U.S. Treasury securities in the amount of the relevant Advance and in maturities corresponding to the date of such purchase to the Expiration Date hereunder.
2.1.8	Indemnification for LIBOR Rate Costs or One-Month LIBOR Rate Costs: During any period of time in which interest on any Advance is accruing on the basis of the LIBOR Rate or One-Month LIBOR Rate, the Borrower shall, upon the Bank’s request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the LIBOR Rate or One-Month LIBOR Rate.
2.1.9	Conversion from One-Month LIBOR Rate or LIBOR Rate: In the event that the Bank shall at any time determine that the accrual of interest on the basis of the LIBOR Rate or One-Month LIBOR Rate (i) is infeasible because the Bank is unable to determine the LIBOR Rate or One-Month LIBOR Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to relevant Interest Period or (ii) is or has become unlawful or infeasible by reason of the Bank’s compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Advance bearing interest at the LIBOR Rate or the One-Month LIBOR Rate shall thereupon immediately accrue interest at the greater of the Prime Rate or Federal Funds Rate.
2.1.10	Commitment Fee: The Borrower agrees to pay to the Bank a commitment fee equal to the Applicable Margin (Unused Commitment Fee) in effect on such date computed on the basis of a 360-day year, actual days elapsed, on the average daily unused amount of the Line of Credit which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears on each December 31, March 31, June 30 and September 30, beginning on December 31, 2009.

2.2    LETTER OF CREDIT SUB-FACILITY

2.2.1 Letter of Credit Sub-Facility: From and after April 1, 2010 and so long as the Existing Letter of Credit Facility has been terminated by such date, the Bank agrees to issue commercial and/or standby letters of credit (each a “Letter of Credit”) on behalf of the Borrower of up to $3,000,000.00. At no time, however, shall the total principal amount of all Advances outstanding under the Line of Credit, together with the total face amount of all Letters of Credit outstanding, less any partial draws paid by the Bank, exceed the Line of Credit.

(i)	Upon the Bank’s request, the Borrower shall promptly pay to the Bank issuance fees and such other fees, commissions, costs and any out-of-pocket expenses charged or incurred by the Bank with respect to any Letter of Credit.
(ii)	The commitment by the Bank to issue Letters of Credit shall, unless earlier terminated in accordance with the terms of the Agreement, automatically terminate on the Expiration Date of the Line of Credit and no Letter of Credit shall expire on a date which is after the Expiration Date.

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(iii)	Each Letter of Credit shall be in form and substance satisfactory to the Bank and in favor of beneficiaries satisfactory to the Bank, provided that the Bank may refuse to issue a Letter of Credit due to the nature of the transaction or its terms or in connection with any transaction where the Bank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Letter of Credit.
(iv)	Prior to the issuance of each Letter of Credit, but in no event later than 10:00 a.m. (California time) on the day such Letter of Credit is to be issued (which shall be a Business Day), the Borrower shall deliver to the Bank a duly executed form of the Bank’s standard form of application for issuance of a Letter of Credit with proper insertions.
(v)	The Borrower shall, upon the Bank’s request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to any Letter of Credit. The Borrower shall, upon the Bank’s request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to any Letter of Credit. In addition to any fees otherwise due hereunder, the Borrower shall pay to Bank (1) a non-refundable Letter of Credit fee equal to the Applicable Margin (LIBOR Advances) in effect on the payment date referenced below computed on the basis of a 360-day year, actual days elapsed, pro-rata subject at all times, to the Bank’s standard minimum fees in effect from time to time, of the amount of any standby Letter of Credit, payable (A) at the time of issuance of such standby Letter of Credit and (B) in advance on the last day of each quarter or year thereafter, as applicable, and (2) a non-refundable Letter of Credit fee equal to the Bank’s standard minimum fees in effect from time to time upon the issuance of any commercial Letter of Credit.

	The Borrower shall immediately reimburse Bank in the event any Letter of Credit is drawn on in an amount equal to the full drawn amount together with interest thereon at the One-Month LIBOR Rate plus any Bank fees, costs and expenses relating to such drawing. In the event that the Borrower fails to reimburse any drawing under any Letter of Credit or the balances in the depository account or accounts maintained by the Borrower with Bank are insufficient to pay such drawing, without limiting the rights of Bank hereunder or waiving any Event of Default caused thereby, Bank may, and the Borrower hereby authorizes the Bank to create an Advance bearing interest at the rate or rates provided in Section 8.2 hereof to pay such drawing.
2.3	Line Account: The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facilities granted hereunder (the “Line Account”). The Bank shall provide the Borrower with a statement of the Borrower’s Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower’s receipt of any such statement which it deems to be incorrect.
2.4	Authorization to Charge Account(s): The Borrower hereby authorizes the Bank to charge, from time to time, against any or all of the Borrower’s deposit accounts with the Bank any amount so due under this Agreement, including, but not limited to, account # 184008555 maintained with the Bank. Notwithstanding this authorization, the Borrower shall be in default for nonpayment as provided in this Agreement until and unless the default is cured by payment, whether initiated by the Bank or by the Borrower.

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2.5	Payments: If any payment required to be made by the Borrower hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at then applicable rate during such extension. All payments required to be made hereunder shall be made to the office of the Bank designated for the receipt of notices herein or such other office as Bank shall from time to time designate.
2.6	Late Payment: In addition to any other rights the Bank may have hereunder, if any payment of principal or interest or any portion thereof, under this Agreement is not paid within 15 days of when due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable.
2.7	Costs and Expenses: The Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to the One Month LIBOR Rate or the LIBOR Rate, and (ii) future, supplemental, emergency or other changes in the any One Month LIBOR Rate or LIBOR Rate reserve percentages, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to the One Month LIBOR Rate or LIBOR Rate to the extent they are not included in the calculation of the One Month LIBOR Rate or LIBOR Rate. In determining which of the foregoing are attributable to any One Month LIBOR Rate or LIBOR Rate available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

SECTION

3

CONDITIONS PRECEDENT

3.1 Conditions Precedent to the Initial Extension of Credit: The obligation of the Bank to make the initial Advance or the first extension of credit, as the case may be, to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance or such first extension of credit all of the following, in form and substance satisfactory to the Bank:

(i)	Authority to Borrow. Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized.
(ii)	Guarantors. Continuing guaranties in favor of the Bank executed by the following, together with evidence that the execution, delivery and performance by any guarantor has been duly authorized: IXYS USA, INC. and CLARE, INC.
(iii)	Fees. Payment of all of the Bank’s out-of-pocket expenses (including Bank’s counsel’s fees and expenses) in connection with the preparation and negotiation of this Agreement.
(iv)	Miscellaneous. Such other evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement.

3.2 Conditions Precedent to All Extensions of Credit: The obligation of the Bank to make each Advance or each other extension of credit, as the case may be, to or on account of the Borrower

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(including the initial Advance and the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or extension of credit:

(i)	Reporting Requirements. The Bank shall have received the documents set forth in Section 5.1.
(ii)	Subsequent Approvals. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request.
(iii)	Representations and Warranties. The representations contained in Section 4 and in any other document, instrument or certificate delivered to the Bank hereunder are true, correct and complete.
(iv)	Event of Default. No event has occurred and is continuing which constitutes, or with the lapse of time or giving of notice or both, would constitute an Event of Default.

The Borrower’s acceptance of the proceeds of any loan, Advance or extension of credit or the Borrower’s execution of any document or instrument evidencing or creating any Obligation hereunder shall be deemed to constitute the Borrower’s representation and warranty that all of the above statements are true and correct.

SECTION

4

REPRESENTATIONS AND WARRANTIES

        The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing:

4.1 Status: The Borrower’s correct legal name is as stated in this Agreement and the Borrower is a corporation duly organized and validly existing under the laws of the state of Delaware and with its chief executive office in the state of California and is properly licensed and is qualified to do business and is in good standing in, and, where necessary to maintain the Borrower’s rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business.

4.2 Authority: (a) Each of the Loan Parties is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, organization or formation (subject to such changes after the date hereof as are permitted under the Loan Documents); and (b) the execution, delivery and performance by the Borrower of this Agreement, and each Loan Party of each Loan Document to which it is a party, and any instrument, document or agreement required hereunder or thereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower or such Loan Party; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower or such Loan Party is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by-laws; or violate any provision of its partnership agreement, or require any consent or approval of its members or violate any provision of its articles of organization or operating agreement, each as the case may be applicable herein.

4.3 Governmental Approvals: No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the

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	execution and delivery by the Borrower or any Loan Party of, or the performance by the Borrower or any Loan Party of its obligations under, any Loan Document to which it is a party other than such as have been obtained or made and are in full force and effect.
4.4	Legal Effect: Each Loan Document to which any Loan Party is a party constitutes the legal, valid and binding obligations of such person, enforceable against each such person in accordance with its terms.
4.5	Fictitious Trade Names: There are no fictitious trade names, fictitious trade styles, assumed business names or trade names (defined herein as “Trade Name”) used by any Loan Party in connection with their business operations other than Massachusetts Clare, Inc. The Borrower shall notify the Bank not less than 30 days prior to effecting any change in the matters described herein or prior to using any other Trade Name at any future date, indicating the Trade Name and State(s) of its use.
4.6	Financial Statements: All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no Material Adverse Change in the Borrower’s financial condition or operations has occurred which has not been fully disclosed to the Bank in writing.
4.7	Litigation: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting any Loan Party or any Loan Party’s properties before any court or administrative agency which, if determined adversely to such Loan Party could reasonably be expected to have a Material Adverse Change.
4.8	Title to Assets: Each Loan Party has good and marketable title to all of its assets and the same are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Liens.
4.9	ERISA: If any Loan Party has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA.
4.10	Taxes: Each Loan Party has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith.
4.11	Margin Stock. The proceeds of any loan or advance hereunder will not be used to purchase or carry margin stock as such term is defined under Regulation U of the Board of Governors of the Federal Reserve System.
4.12	Environmental Compliance. The operations of each Loan Party comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; each Loan Party has obtained all licenses, permits, authorizations and registrations required under any Environmental Law (“Environmental Permits”) and necessary for its ordinary course operations, all such Environmental Permits are in good standing, and each Loan Party is in compliance with all material terms and conditions of such Environmental Permits; each Loan Party and its present property or operations is not subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of any Loan Party that would reasonably be expected to give rise to Environmental Claims; provided, however, that with respect to property

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	leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition, (i) no Loan Party has any underground storage tanks that are not properly registered or permitted under applicable Environmental Laws, or that are leaking or disposing of Hazardous Materials off-site, and (ii) each Loan Party has notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws.
4.13	Regulated Entitles: No Loan Party is an “investment company” within the meaning of the Investment Company Act of 1940. The Borrower is not subject to regulation under the Federal Power Act, any state public utilities code or any other Federal or state statute or regulation limiting its ability to incur Indebtedness.
4.14	Solvency: The Borrower is Solvent and as of the date hereof the Borrower does not intend to, and does not believe that it will, incur debts beyond the Borrower’s ability to pay as such debts mature. The Borrower is not about to engage in a transaction, after giving effect to which the Borrower’s remaining property would constitute unreasonably small capital for the business conducted or transactions engaged by the Borrower.

SECTION

5

COVENANTS

The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement (unless the Bank shall otherwise consent in writing), the Borrower:

5.1 Reporting and Certification Requirements: Shall deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank:

(i)	Not later than 90 days after the end of each of the Borrower’s fiscal years, a copy of the annual audited financial report on form 10K of the Borrower for such year, prepared by a firm of certified public accountants acceptable to the Bank and accompanied by an unqualified opinion of such firm.
(ii)	Not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the Borrower’s financial statement on form 10Q as of the end of such period.
(iii)	Not later than 90 days after the end of each of the Borrower’s fiscal years, a copy of the Borrower’s internally prepared financial projections for the next fiscal year.
(iv)	Promptly upon the Bank’s request, such other information pertaining to the Borrower or any Loan Party or any guarantor hereunder as the Bank may reasonably request.

For the purposes of Section 5.1(i) and Section 5.1(ii), such financial statements shall be deemed delivered when publicly available on the Borrower’s website or the website of the United States Securities and Exchange Commission.

5.2 Financial Condition: Shall maintain at all times on a consolidated basis:

(i) (a) As at the end of the fiscal quarters ending December 31, 2009 and March 31, 2010, a minimum Effective Tangible Net Worth of at least $160,000,000.00; and (b) for each fiscal quarter thereafter, a minimum Effective Tangible Net Worth of at

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least $160,000,000.00 plus 50% of the Borrower’s positive net income earned in each fiscal quarter ending on or after June 30, 2010. For the purposes of this covenant, for the fiscal quarters ending December 31, 2009 and March 31, 2010, if there is a decrease in Accumulated Foreign Exchange Currency Translation Adjustments in the Borrower’s Accumulated Other Comprehensive Income (as such terms are used in the Borrower’s 10K or 10Q, as applicable), the amount of such decrease in Accumulated Foreign Exchange Currency Translation Adjustments shall be added to the Borrower’s stated net worth in the calculation of Effective Tangible Net Worth.

(ii)	A ratio of the sum of cash, cash equivalents and accounts receivable to Current Liabilities of not less than 1.50 to 1 as at the end of each fiscal quarter, beginning with the fiscal quarter ending December 31, 2009.
(iii)	A minimum net profit after tax of at least $1.00 as at the end of each fiscal quarter, beginning with the fiscal quarter ending June 30, 2010.
(iv)	A ratio of EBITDA to interest expense of not less than 5.00 to 1 as at the end of each fiscal quarter, beginning with the fiscal quarter ending December 31, 2009.
(v)	Minimum Domestic Cash of at least $20,000,000.00 at all times.
(vi)	Maximum aggregate net losses for the fiscal quarters ending December 31, 2009 and March 31, 2010 of no greater than $10,000,000.00.

5.3 Preservation of Existence; Compliance with Applicable Laws: (i) Shall, and shall cause each of the other Loan Parties to, maintain and preserve its existence and all rights and privileges now enjoyed; and (ii) conduct its business and operations in accordance with all applicable laws, rules and regulations.

5.4 Merge or Consolidate: Shall not, and shall not suffer or permit any of the other Loan Parties to, liquidate or dissolve, merge or consolidate with or into any other business organization.

5.5 Acquisitions: Shall not, and shall not suffer or permit any of its Subsidiaries to, acquire any other business organization unless, after taking such acquisition into effect, the Borrower shall be in pro forma compliance with all financial covenants contained in Section 5.2.

5.6 Maintenance of Insurance: Shall, and shall cause each of its Subsidiaries to, maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or any Subsidiary operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank.

5.7 Payment of Obligations and Taxes: Shall, and shall cause each of its Subsidiaries to, make timely payment of all material assessments and taxes and all of its material liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith and any obligations arising under any Indebtedness of the Borrower. For purposes hereof, Borrower or any Subsidiary’s issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment.

5.8 Depository Relationships: Shall maintain its primary business depository relationship with Bank, including general, operating and administrative deposit accounts, cash management services, foreign exchange, investment and ancillary services.

5.9 Inspection Rights and Accounting Records: Shall maintain adequate books and records in accordance with generally accepted accounting principles consistently applied and in a manner otherwise acceptable to Bank, and, at any reasonable time and from time to time, permit the Bank

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	or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and each other Loan Party and discuss the business and operations of the Borrower and each other Loan Party with any employee or representative thereof. If any Loan Party shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, such Loan Party hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, all at such Loan Party’s expense, the amount of which shall be payable immediately upon demand.
5.10	Redemption or Repurchase of Stock: Shall not redeem or repurchase any class of the Borrower’s stock now or hereafter outstanding, except in an aggregate amount of up to $10,000,000.00 during the term of this Agreement.
5.11	Additional Indebtedness: Shall not, and shall not suffer or permit any of its Subsidiaries to, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness other than (i) Indebtedness owed or to be owed to the Bank, (ii) capital leases, seller or vendor carry-back notes or acquired or assumed indebtedness in an aggregate amount not to exceed $10,000,000.00 in any fiscal year, beginning with the fiscal year ending March 31, 2010, or (iii) cash-secured letters of credit.
5.12	Transfer Assets: Shall not, and shall not suffer or permit any of its Subsidiaries to, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets except (i) in the Ordinary Course of Business and, then, only for full, fair and reasonable consideration or (ii) in an aggregate amount not to exceed $5,000,000.00 in any fiscal year, beginning with the fiscal year ending March 31, 2010.
5.13	Change in Nature of Business: Shall not, and shall not suffer or permit any of its Subsidiaries to, make any material change in the nature of its business as existing or conducted as of the date hereof.
5.14	Maintenance of Jurisdiction: Shall maintain, and shall cause each of the other Loan Parties to maintain, the jurisdiction of its organization and chief executive office, or if applicable, principal residence, as set forth herein and not change such jurisdiction name or form of organization without 30 days prior written notice to Bank.
5.15	Compensation of Employees: Shall compensate, and shall cause each of its Subsidiaries to compensate, its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation.
5.16	Notice: Shall give the Bank prompt written notice of any and all (i) Events of Default; (ii) material litigation, arbitration or administrative proceedings to which the Borrower or any other Loan Party is a party; (iii) other matters which have resulted in, or might result in a Material Adverse Change.
5.17	Environmental Compliance: Shall conduct, and shall cause each of its Subsidiaries to conduct, its operations and keep and maintain all of its property in material compliance with all Environmental Laws and, upon the written request of the Bank, the Borrower shall submit to the Bank, at the Borrower’s sole cost and expense, at reasonable intervals, a report providing the status of any environmental, health or safety compliance, hazard or liability.
5.18	Liens: Shall not, and shall not permit any of the other Loan Parties to, directly or indirectly, make, create, incur, assume or suffer to exist any lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than Permitted Liens.
5.19	ERISA: Shall, and cause each of its Subsidiaries to, if the Borrower or such Subsidiary has a pension, profit sharing or retirement plan subject to ERISA, continue to fund such plan in accordance with its terms and shall ensure that such plan continues to materially comply with the requirements of ERISA.

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5.20 Further Assurances: Promptly upon the written request by Bank, the Borrower shall, and shall cause each of the other Loan Parties to, take such further acts (including the acknowledgement, execution, delivery, recordation, filing and registering of documents) as may reasonably be required from time to time to: (a) carry out more effectively the purposes of this Agreement; and (b) better assure, convey, grant, assign, transfer, preserve, protect and confirm to Bank the rights, remedies and privileges existing or granted or now or hereafter intended to be granted to such Persons under this Agreement or other document executed in connection therewith.

SECTION

6

EVENTS OF DEFAULT

    Any one or more of the following described events shall constitute an event of default (an “Event of Default”) under this Agreement:

6.1 Non-Payment: The Borrower shall fail to pay the principal amount of any Obligations when due or interest on the Obligations within 5 days of when due.

6.2 Specified Defaults Under This Agreement: The Borrower fails to perform or observe any term, covenant or agreement contained in Sections 5.2(i), 5.2(ii), 5.2(iii), 5.2(iv), 5.2(vi), 5.3(i), 5.4, 5.5, 5.10 or 5.12 of this Agreement.

6.3 Specified Defaults Under This Agreement: The Borrower fails to perform or observe any term, covenant or agreement contained in Section 5.2(v) of this Agreement and any such failure shall continue unremedied for more than 10 Business Days after written notice from the Bank to the Borrower of the existence and character of such Event of Default.

6.4 Performance Under This Agreement: Other than as set forth in Section 6.2 or 6.3 hereof, the Borrower or any other Loan Party shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement relating to this Agreement or any other document or agreement executed by the Borrower or any other Loan Party with or in favor of Bank and any such failure shall continue unremedied for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default.

6.5 Representations and Warranties; Financial Statements: Any representation or warranty made by any Loan Party under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given.

6.6 Other Agreements: If there is a default under any agreement to which the Borrower or any other Loan Party, or any material subsidiary of the Borrower, is a party with the Bank or with a third party or parties resulting in a right by the Bank or by such third party or parties, whether or not exercised, to accelerate the maturity of any material Indebtedness.

6.7 Insolvency: (a) The Borrower, measured on a consolidated basis shall become insolvent or be unable to pay its debts as they mature, or (b) the Borrower or any Subsidiary shall: (i) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (ii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iii) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (iv) become or be adjudicated a bankrupt; (v) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vi) in an involuntary proceeding, any receiver, custodian or trustee shall have been appointed for all or substantial part of the Borrower’s or such other Loan

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	Party’s properties, assets or businesses and shall not be discharged within 30 days after the date of such appointment.
6.8	Execution: Any writ of execution or attachment or any judgment lien relating to a judgment or judgments in an aggregate amount of $2,000,000 or more shall be issued against any property of any Loan Party and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien.
6.9	Suspension: The Borrower or any Subsidiary shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower’s or such Subsidiary’s business as now conducted.
6.10	Material Adverse Change: If there occurs a Material Adverse Change.
6.11	Change in Ownership: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary), or an agreement shall be entered into to do so, with respect to more than 10% of the issued and outstanding capital stock of the Borrower.
6.12	Judgments: One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against any Loan Party involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $2,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty consecutive days after the entry thereof.
6.13	Other Judgments. Any non-monetary judgment, order or decree is entered against the Borrower or any Subsidiary that does or could reasonably be expected to have a Material Adverse Change, and there shall be any period of thirty consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.

SECTION

7

REMEDIES ON DEFAULT

Upon the occurrence of any Event of Default, the Bank may, at its sole and absolute election, without demand and only upon such notice as may be required by law:

7.1 Acceleration: Declare any or all of the Borrower’s indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable.

7.2 Cease Extending Credit: Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank.

7.3 Termination: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower’s obligations to the Bank or the Bank’s rights and remedies under this Agreement or under any other document, instrument or agreement.

7.4 Letters of Credit: Require the Borrower to pay immediately to the Bank, for application against drawings under any outstanding Letters of Credit, the outstanding principal amount of any such Letters of Credit which have not expired. Any portion of the amount so paid to the Bank which is not applied to satisfy draws under any such Letters of Credit or any other obligations of the Borrower to the Bank shall be repaid to the Borrower without interest.

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7.5 Non-Exclusivity of Remedies: Exercise one or more of the Bank’s rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise.

SECTION

8

MISCELLANEOUS

8.1 Amounts Payable on Demand: If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under this Agreement in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided hereunder.

8.2 Default Interest Rate: If an Event of Default, or an event which, with notice or passage of time could become an Event of Default, has occurred or is continuing, the Borrower shall pay to the Bank interest on any Indebtedness or amount payable under this Agreement at a rate which is 5% in excess of the rate or rates then in effect under this Agreement.

8.3 Right of Setoff: To the extent permitted by applicable law, Bank reserves a right of setoff in the Borrower’s accounts with Bank (whether checking, savings, or some other account). This includes all accounts the Borrower holds jointly with someone else and all accounts the Borrower may open in the future. The Borrower authorizes Bank, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts, and, at Bank’s option, to administratively freeze all such accounts to allow Bank to protect Bank’s charge and setoff rights provided in this paragraph.

8.4 Reliance and Further Assurances: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. The Borrower agrees to execute all documents and instruments and to perform such acts as the Bank may reasonably deem necessary to confirm and secure to the Bank all rights and remedies conferred upon the Bank by this agreement and all other documents related thereto.

8.5 Attorneys’ Fees: The Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys fees, incurred by Bank in connection with the administration, enforcement, including any bankruptcy, at trial and on appeal or the enforcement of any judgment or any refinancing or restructuring of this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder.

8.6 Notices: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by facsimile delivery, or to such other address as may be specified from time to time in writing by either party to the other.

To the Borrower:	To the Bank:
IXYS CORPORATION	BANK OF THE WEST
1590 Buckeye Drive	San Jose Office (NBO)
Milpitas, CA 95035	One Almaden Boulevard
Attn: Nathan Zommer	San Jose, CA 95113

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Chief Executive Officer or	Attn: Dirk Price
Uzi Sasson	Vice President
Chief Financial Officer	FAX: (408) 292-4092
FAX: (408) 715-2503

8.7	Waiver: Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision.
8.8	Conflicting Provisions: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative.
8.9	Binding Effect; Assignment: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign their rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor.
8.10	Jurisdiction: This Agreement, any notes issued hereunder, the rights of the parties hereunder, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California without regard to conflict of law principles, to the jurisdiction of whose courts the parties hereby submit.
8.11	Waiver Of Jury Trial. THE BORROWER AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, AND THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW EACH PARTY, AFTER CONSULTING (OR HAVING THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR TRANSACTION BETWEEN THE PARTIES.
8.12	Judicial Reference Provision. In the event the above Jury Trial Waiver is unenforceable, the parties elect to proceed under this Judicial Reference Provision. With the exception of the items specified below, any controversy, dispute or claim between the parties relating to this Agreement or any other document, instrument or transaction between the parties (each, a Claim), will be resolved by a reference proceeding in California pursuant to Sections 638 et seq. of the California Code of Civil Procedure, or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to reference. Venue for the reference will be the Superior Court in the County where real property involved in the action, if any, is located, or in a County where venue is otherwise appropriate under law (the Court). The following matters shall not be subject to reference: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including without limitation set-off), (iii) appointment of a receiver, and (iv) temporary, provisional or ancillary remedies (including without limitation writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). The exercise of, or opposition to, any of the above does not waive the right to a reference hereunder.

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	The referee shall be selected by agreement of the parties. If the parties do not agree, upon request of any party a referee shall be selected by the Presiding Judge of the Court. The referee shall determine all issues in accordance with existing case law and statutory law of the State of California, including without limitation the rules of evidence applicable to proceedings at law. The referee is empowered to enter equitable and legal relief, and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision, and pursuant to CCP §644 the referee’s decision shall be entered by the Court as a judgment or order in the same manner as if tried by the Court. The final judgment or order from any decision or order entered by the referee shall be fully appealable as provided by law. The parties reserve the right to findings of fact, conclusions of law, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial if granted, will be a reference hereunder. AFTER CONSULTING (OR HAVING THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, EACH PARTY AGREES THAT ALL CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT A JURY.
8.13	Counterparts: This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument.
8.14	Headings: The headings herein set forth are solely for the purpose of identification and have no legal significance.
8.15	Entire Agreement and Amendments: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. This Agreement may be amended only by an instrument in writing signed by the Borrower and the Bank.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written.

BANK:	BORROWER:
BANK OF THE WEST	IXYS CORPORATION
BY: /s/ Dirk Price	BY: /s/ Uzi Sasson
NAME: Dirk Price, Vice President	NAME: Uzi Sasson, Chief Financial Officer and Secretary

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Nathan Zommer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IXYS Corporation;

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(s) 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 control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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: February 5, 2010

/s/ Nathan Zommer  

Nathan Zommer 

Chief Executive Officer and Chairman
(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Uzi Sasson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IXYS Corporation;

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(s) 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 control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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: February 5, 2010

/s/ Uzi Sasson  

Uzi Sasson 

President Chief Financial Officer
(Principal Financial Officer) 

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. Section 1350, as adopted) (the Sarbanes-Oxley Act of 2002), Nathan Zommer, the Chief Executive Officer of IXYS Corporation (the “Company”), and Uzi Sasson, the Chief Operating Officer and Chief Financial Officer of the Company, each hereby certifies that, to his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2009, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the periods covered by the Periodic Report and results of operations of the Company for the periods covered by the Periodic Report.

Dated: February 5, 2010

/s/ Nathan Zommer  

Nathan Zommer 

Chief Executive Officer 

/s/ Uzi Sasson  

Uzi Sasson 

President Chief Financial Officer