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 JUNE 30, 2005

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	(IRS Employer Identification No.)
of incorporation or organization)

3540 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054-2704
(Address of principal executive offices and Zip Code)

(408) 982-0700
(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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   þ     No   o

THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF AUGUST 3, 2005 WAS 33,573,611.

IXYS CORPORATION

FORM 10-Q
June 30, 2005

	INDEX	Page
PART I — FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
	UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS	3
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4.	CONTROLS AND PROCEDURES	31
PART II — OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	33
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	33
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	33
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	33
ITEM 5.	OTHER INFORMATION	34
ITEM 6.	EXHIBITS	34
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 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)

	June 30, 2005			March 31, 2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	70,440		$	58,144
Restricted cash		266			155
Accounts receivable, net of allowances of $2,737 at June 30, 2005 and $2,629 at March 31, 2005		35,444			41,388
Inventories		49,468			51,411
Prepaid expenses and other current assets		7,019			4,134
Deferred income taxes		6,773			6,649
Total current assets		169,410			161,881
Property, plant and equipment, net		35,078			27,814
Other assets		5,208			5,907
Deferred income taxes		2,610			2,787
Goodwill		21,502			21,502
Total assets	$	233,808		$	219,891
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	2,423		$	2,733
Loans payable to bank, current portion		806			—
Accounts payable		11,920			12,962
Accrued expenses and other current liabilities		23,587			22,123
Total current liabilities		38,736			37,818
Capitalized lease obligations, net of current portion		3,800			4,409
Loans payable to bank, net of current portion		11,439			157
Pension liabilities		11,034			12,230
Total liabilities		65,009			54,614
Commitments and contingencies (Note 9)
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; 33,769,763 issued and 33,542,761 outstanding at June 30, 2005 and 33,586,196 issued and 33,359,194 outstanding at March 31, 2005		338			336
Additional paid-in capital		154,562			153,376
Deferred compensation		(1	)		(4	)
Notes receivable from stockholders		(124	)		(355	)
Retained earnings		10,631			5,492
Less cost of treasury stock: 227,002 shares at June 30, 2005 and 227,002 shares at March 31, 2005		(1,552	)		(1,552	)
Accumulated other comprehensive income		4,945			7,984
Total stockholders’ equity		168,799			165,277
Total liabilities and stockholders’ equity	$	233,808		$	219,891

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
	June 30,
	2005			2004
	(unaudited)
Net revenues	$	63,341		$	59,954
Cost of goods sold		42,196			42,779
Gross profit		21,145			17,175
Operating expenses:
Research, development and engineering		4,156			4,552
Selling, general and administrative		9,257			9,376
Total operating expenses		13,413			13,928
Operating income		7,732			3,247
Interest income		325			234
Interest expense		(15	)		(81	)
Other income (expense), net		115			(356	)
Income before income tax		8,157			3,044
Provision for income tax		(3,018	)		(1,181	)
Net income	$	5,139		$	1,863
Net income per share—basic	$	0.15		$	0.06
Weighted average shares used in per share calculation — basic		33,416			32,952
Net income per share—diluted	$	0.14		$	0.05
Weighted average shares used in per share calculation — diluted		35,985			35,049

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 COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended
	June 30,
	2005			2004
	(unaudited)
Net income	$	5,139		$	1,863
Other comprehensive income:
Foreign currency translation adjustments		(3,039	)		(403	)
Comprehensive Income	$	2,100		$	1,460

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

5

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended
	June 30,
	2005			2004
Cash flows from operating activities:
Net income (loss)	$	5,139		$	1,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,409			2,823
Provision for receivables allowances		1,276			721
Write down of inventories		265			813
Foreign currency transactions		(608	)		(547	)
Interest forgiven on notes from shareholders		—			54
Changes in operating assets and liabilities
Accounts receivable		3,789			(6,227	)
Inventories		251			(1,882	)
Prepaid expenses and other current assets		(3,130	)		(807	)
Other assets		405			379
Accounts payable		(746	)		1,443
Accrued expenses and other liabilities		2,167			2,899
Pension liabilities		(542	)		393
Net cash provided by operating activities		10,675			1,925
Cash flows from investing activities:
Restricted cash increase		(111	)		(59	)
Purchases of plant and equipment		(9,881	)		(1,246	)
Net cash used in investing activities		(9,992	)		(1,305	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(1,043	)		(1,075	)
Collections on notes receivables from stockholders		235			50
Proceeds from loans payable to bank		12,240			—
Proceeds from issuance of common stock under the employee stock purchase plan		369			297
Proceeds from exercise of stock options		799			97
Purchase of treasury stock		—			(138	)
Net cash provided by (used in) financing activities		12,600			(769	)
Effect of foreign exchange rate fluctuations on cash and cash equivalents		(987	)		(50	)
Net increase (decrease) in cash and cash equivalents		12,296			(199	)
Cash and cash equivalents at the beginning of the period		58,144			42,058
Cash and cash equivalents at the end of the period	$	70,440		$	41,859

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 (“IXYS” or the “Company”) 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: allowance for sales returns, allowance for doubtful accounts, allowance for ship and debits, valuation of inventories, valuation of property, plant, equipment and intangible assets, revenue recognition, legal contingencies, goodwill, income tax and defined benefit plans. 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. It is recommended that the interim financial statements be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2005 contained in the Company’s 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. A reclassification has been made to the prior period’s condensed consolidated financial statements to conform to the current period’s presentation. In the reclassification, litigation expenses in the amount of $1,474,000 for the three month period ended June 30, 2004 were reclassified from other expense, net to selling, general and administrative expenses. In addition, proceeds from capital lease obligations in the amount of $74,000 for the three month period ended June 30, 2004 were reclassified on the unaudited condensed consolidated statement of cash flows to a reduction of purchases of plant and equipment. Such reclassifications had no effect on previously reported net income or retained earnings.

2. Accounting for Stock-Based Compensation

     IXYS accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of IXYS’s stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. IXYS’s policy is to grant options with an exercise price equal to the quoted market price of IXYS’s stock on the grant date. Accordingly, no compensation has been recognized for its stock option plans. IXYS provides additional pro forma disclosures as required under Statement of Financial Accounting Standards, or SFAS, No. 123, “Accounting for Stock-Based Compensation.”

     Had compensation cost for its stock plans been determined based on the fair value at the grant date for awards in the three month periods ended June 30, 2005 and 2004 consistent with the provisions of SFAS No. 123, IXYS’s net income and net income per share would have decreased to the pro forma amounts indicated below (in thousands, except per share amounts):

	Three Months Ended
	June 30,
	2005			2004
	(unaudited)
Net income, as reported	$	5,139		$	1,863
Less: Total stock-based compensation determined under fair value based methods for all awards to employees, net of tax		(494	)		(471	)
Pro forma net income	$	4,645		$	1,392
Basic net income per share:
As reported	$	0.15		$	0.06
Pro forma	$	0.14		$	0.04
Diluted net income per share:
As reported	$	0.14		$	0.05
Pro forma	$	0.13		$	0.03

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     For purposes of computing pro forma net income, we estimate the fair value of option grants and employee stock purchase plan purchase rights using the Black-Scholes option pricing model. For purposes of the pro forma disclosure for the quarter ended June 30, 2005, we utilized an expected life of 4 years, a risk free interest rate of 3.76%, expected volatility of 63% and no expected dividend rate. For the quarter ended June 30, 2004, we utilized an expected life of 4 years, a risk free interest rate of 3.49%, expected volatility of 67% and no expected dividend rate.

3. Inventories

Inventories consist of the following (in thousands):

	June 30, 2005		March 31, 2005
	(unaudited)
Raw materials	$	11,890	$	13,386
Work in process		25,223		25,304
Finished goods		12,355		12,721
Total	$	49,468	$	51,411

4. Computation of Net Income per Share

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

	Three Months Ended
	June 30,
	2005		2004
	(unaudited)
BASIC:
Weighted average shares outstanding for the period		33,416		32,952
Net income available for common stockholders	$	5,139	$	1,863
Net income available for common stockholders per share	$	0.15	$	0.06
DILUTED:
Weighted average shares outstanding for the period		33,416		32,952
Net effective dilutive stock options based on treasury stock method using average market price		2,569		2,097
Shares used in computing per share amounts		35,985		35,049
Net income available for common stockholders	$	5,139	$	1,863
Net income per share available for common stockholders	$	0.14	$	0.05
Total common stock equivalents excluded for the computation of earnings per share as their effect was anti-dilutive		827		682

5. Borrowing Arrangements

     On June 10, 2005, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed Euro 10.0 million, or about $12.2 million, from IKB Deutsche Industriebank for a term of 15 years.

     The interest rate on the loan is determined by adding the then effective 3-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 the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, the interest rate may not exceed 4.1%, and, if the Euribor rate falls below 2%, the interest rate may not be lower than 3%. Thereafter, the interest rate is recomputed annually. The interest rate at June 30, 2005 was 2.863%.

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     Each fiscal quarter during the first five years of the loan, a principal payment of Euro 167,000, or about $200,000, will be required. Thereafter, the amount of the payment will be recomputed.

     Financial covenants for a ratio of indebtedness to cash flow and a ratio of equity to total assets 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. The loan is collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.

6. Purchase of Facilities

     On May 6, 2005, IXYS purchased the 83,000 square foot facility used by its Clare, Inc. subsidiary in Beverly, Massachusetts for $9.1 million.

7. Pension Plans

     IXYS maintains 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. The Company deposits funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrues for the unfunded portion of the obligations.

     The net periodic pension expense includes the following components:

	Three Months Ended
	June 30,
	2005			2004
	(unaudited)
Service cost	$	220		$	204
Interest cost on projected benefit obligation		429			427
Expected return on plan assets		(309	)		(281	)
Curtailment or settlement (gain)		(172	)		—
Recognized actuarial loss		13			286
Net periodic pension expense	$	181		$	636

     IXYS expects to make contributions to the plans of approximately $1.1 million in the fiscal year ended March 31, 2006. This contribution is primarily contractual.

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8. Segment Information

     IXYS operates in a single industry segment and has a single reporting unit comprised of semiconductor products used primarily in power-related applications, including those in motor drives, consumer products and power conversion (among them, uninterruptible power supplies, switch mode power supplies and medical electronics), and in the telecommunications industry. IXYS’s sales by major geographic area (based on destination) were as follows:

	Three Months Ended
	June 30,
	2005		2004
	(unaudited)
North America
United States	$	20,094	$	16,824
Europe and the Middle East
Germany		6,943		6,800
Italy		1,820		1,878
United Kingdom		3,936		3,735
Other		8,616		8,147
Asia Pacific
Korea		9,107		9,732
China		5,119		4,894
Japan		1,695		1,900
Other		2,722		4,540
Rest of the World		3,289		1,504
Total	$	63,341	$	59,954

     The following table sets forth revenues for each of IXYS’s product groups for the three months ended June 30, 2005 and 2004:

	Three Months Ended
	June 30,
	2005		2004
	(unaudited)
Power Semiconductors	$	47,827	$	44,500
ICs		10,536		10,245
Systems and RF Power Semiconductors		4,978		5,209
Total	$	63,341	$	59,954

9. Commitments and Contingencies

Legal Proceedings

     IXYS currently is 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 the Company’s financial condition, results of operations and cash flows.

     On June 22, 2000, International Rectifier Corporation filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain of IXYS’s products sold in the United States infringe U.S. patents owned by International Rectifier. International Rectifier’s complaint against IXYS contended that IXYS’s alleged infringement of International Rectifier’s patents has been and continues to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of IXYS’s power MOSFETs and IGBTs infringe certain claims of each of three International Rectifier U.S. patents.

10

     In 2002, the U.S. District Court entered a permanent injunction barring IXYS from making, using, offering to sell or selling in, or importing into, the United States, MOSFETs (including IGBTs) covered by the subject patents and ruled that International Rectifier should be awarded damages of $9.1 million for IXYS’s alleged infringement of International Rectifier’s patents. In addition, the U.S. District Court ruled that IXYS had been guilty of willful infringement. Subsequently, the U.S. District Court increased the damages to a total of $27.2 million, plus attorney fees.

     IXYS appealed and on March 19, 2004 the United States Court of Appeals for the Federal Circuit reversed or vacated all findings of patent infringement previously issued against IXYS by the U.S. District Court, and vacated the permanent injunction. On August 9, 2004, the Federal Circuit Court vacated the damages award. The case was remanded to the U.S. District Court for further proceedings. The case has been set for trial to commence on September 6, 2005.

     There can be no assurance of a favorable outcome in the International Rectifier suit. In the event of an adverse outcome, damages or injunctions awarded by the U.S. District Court would be materially adverse to IXYS’s financial condition, results of operations and cash flows. Management has not accrued any amounts for damages in the accompanying balance sheets for the International Rectifier matter described above.

     On April 10, 2003, LoJack Corporation (“LoJack”) filed a suit against Clare, Inc. in the Superior Court of Norfolk County, Massachusetts claiming breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, failure to perform services and violation of a Massachusetts statute prohibiting unfair and deceptive acts and practices, all purportedly resulting from Clare’s alleged breach of a contract to develop custom integrated circuits and a module assembly.

     In its complaint, LoJack sought damages in an amount to be determined at trial, an $890,000 refund of payments it made under the contract, all work product resulting from any work prepared by Clare and its attorneys’ fees in the suit. LoJack also sought to have its damages trebled under the Massachusetts statute.

     Clare answered the complaint denying any liability and counterclaiming for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, violation of the Massachusetts statute, promissory estoppel and negligent misrepresentation. Discovery in the litigation is largely complete. Motions for summary judgment have been briefed but not yet heard. A trial date of October 11, 2005 has been set.

     There can be no assurance of a favorable outcome in the LoJack suit. In the event of an adverse outcome, damages awarded by the court could be materially adverse to the Company’s financial condition, results of operations and cash flows. Management has not accrued any amounts of damages in the accompanying balance sheets for the LoJack matter described above.

     Other Commitments and Contingencies

     The Company does not provide any product or similar guarantees or warranties. However, the Company does provide in the normal course of business indemnification to its officers, directors and selected parties.

10. Subsequent Event

     On August 9, 2005, IXYS purchased the 27,000 square foot facility used by its Clare Micronix Integrated Systems, Inc. subsidiary in Aliso Viejo, California for $5.1 million.

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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 Item 2. 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 “Risk Factors” below. 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.

Overview

     We are a multi-market integrated semiconductor company specialized in the design, development, manufacture and marketing of high power, high performance power semiconductors. Our three principal product groups are: power semiconductors; integrated circuits; and systems and 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 500 watts of power.

     We also design, manufacture and sell integrated circuits for a variety of applications. Our analog and mixed signal integrated circuits, or 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 our power semiconductors.

     Our radio frequency, or 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.

Critical Accounting Policies and Significant Management Estimates

     The discussion and analysis of our financial condition and results of operations are based upon our unaudited, condensed, 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 from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect our more significant judgments and estimates used in preparing our consolidated financial statements.

     Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 38% of our revenues in the first three months of fiscal 2006 and 37% of our revenues in the first three months of fiscal 2005 were from distributors, respectively. We provide our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a form of price protection. We recognize revenue from product sales upon shipment provided that we have received an executed purchase order, the price is fixed and determinable, the risk of loss has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Reserves for allowances are also recorded at the time of shipment. We are able to track inventory at our distributors to assist in reserve calculations. 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. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates.

     For our nonrecurring engineering, or NRE, related to engineering work performed by our Clare Micronix division to design chip prototypes that will later be used to produce required units, customers enter into arrangements with Clare Micronix to perform engineering work for a fixed fee. Clare Micronix records fixed-fee payments during the development phase from customers in accordance with Statement of Financial Accounting Standards No. 68, “Research and Development Arrangements” Amounts offset against research and development costs totaled approximately $111,000 in the first three months of fiscal 2006 and $43,000 in the first three months of fiscal 2005.

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     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 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, our actual returns and allowances have not fluctuated significantly from period to period to date, 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 to gross revenues in the calculation of net revenues on 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 the first three months of fiscal 2006 and of fiscal 2005, approximately $42,000 and $253,000, respectively, of products were returned to us under the program. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction to gross revenues in the calculation of net revenues on the statement of operations. We establish the allowance based upon maximum allowable rotations, which is consistent with our historical experience.

     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.

     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 sales discounts for inventory held. Our distributors had approximately $4.2 million in inventory of our products on hand at June 30, 2005. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to the distributor’s customer. In accordance with Staff Accounting Bulletin No. 104 Topic 13, “Revenue Recognition,” 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 receive periodic statements regarding our products held by our distributors. These procedures require the exercise of significant judgments. We believe that they enable us to make reliable estimates of future credits under the ship and debit program. 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 to gross revenues in the calculation of net revenues on the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, our estimates would be insufficient, which could significantly adversely affect 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. Sales to distributors represented 38.0% of net revenues during the three months ended June 30, 2005 as compared to 37% of net revenues during the three months ended June 30, 2004. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the three months ended June 30, 2005:

Balance March 31, 2005	$	553
Additions		521
Deductions		(570	)
Balance June 30, 2005.	$	504

     Inventories. Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. Consistent with Statement 3 of Accounting Research Bulletin 43, or ARB 43, 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. In accordance with Statement 4 of ARB 43, 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 process. 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.

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     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 over-estimated, 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. We perform an analysis of inventories and compare the sales for the preceding two years. To the extent we have inventory in excess of the greater of two years’ historical sales, twice the most recent year’s historical sales or backlog, we recognize a reserve for excess inventories. 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 make different judgments or utilize different estimates, the amount and timing of our write-down of inventories may 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 write it up. We do not physically segregate excess inventory and 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 inventory at cost (which has been fully reserved in our financial statements), including the sale of excess inventory valued at cost (in thousands):

Balance at March 31, 2005	$	21,241
Sale of excess inventory		(131	)
Scrap of excess inventory		(179	)
Additional accrual of excess inventory		578
Balance at June 30, 2005	$	21,509

     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 9,000 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, in accordance with the guidance in Statements 6 and 7 of ARB 43, our inventory is also being written down to 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 June 30, 2005, our lower of cost or market reserve was $209,000.

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

     Valuation of property, plant, equipment, and intangible assets. We regularly evaluate the recoverability of our property, plant, equipment and intangible assets in accordance with Statement of Financial Accounting Standards No. 144, or SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Actual useful lives and cash flows could be different from those estimated by our management. This could have a material effect on our operating results and financial position. Reviews are regularly performed to determine whether facts and circumstances exist indicating that the carrying amount of assets may not be recoverable or that the useful life is shorter than originally estimated. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.

     Legal contingencies. We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be

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reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position, results of operations and cash flows.

     Goodwill. We regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill and, in any event, we conduct such evaluation at least annually as of December 31. In the quarter, we had no such trigger events or circumstances. In determining whether there is an impairment of goodwill, we calculate the estimated implied fair value of our company by comparing the fair value of the reporting unit with its carrying amount, including goodwill. Then, if the carrying amount of the reporting unit exceeds its fair value, we perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. We believe that we operate as a single business unit. We have one reporting unit. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. We determine the implied fair value of goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, we report the excess as an impairment loss. We believe the methodology we use in testing impairment of goodwill provides us with a reasonable basis in determining whether an impairment charge should be taken. To date, our goodwill has not been considered to be impaired based on the results of our analysis.

     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 we will not realize all or a portion of our remaining deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine 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, the related portion of the valuation allowance will be released to income as a credit to 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.

     Defined benefit plans. We maintain pension plans covering certain of our employees in foreign locations. For financial reporting purposes, net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increase for plan employees. Our assumptions are derived from actuarial projections and actual market data. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of our pension plans.

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Recent Accounting Pronouncements

     In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which addresses the accounting for share-based payment transactions. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using APB No. 25, and generally requires instead that such transactions be accounted and recognized in the statement of income based on their fair value. SFAS No. 123R will be effective for public companies as of the first fiscal year that begins after June 15, 2005. We will adopt SFAS No. 123R for our fiscal year beginning April 1, 2006. SFAS No. 123R offers us alternative methods of adopting this standard. At the present time, we have not yet determined which alternative method we will use and the resulting impact on our financial position or results of operations. We do not expect this accounting change to materially affect our liquidity, as equity-based compensation is a non-cash expense. The effect of expensing stock options on our results of operations and earnings per share using the Black-Scholes model is presented on a pro forma basis in the accompanying Note 2 to the Condensed Consolidated Financial Statements.

     In March 2005, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 107, or SAB No. 107, “Share-Based Payment” , which expresses views of the Staff regarding the interaction between SFAS No. 123R, or SFAS No. 123R, Share-Based Payment and certain SEC rules and regulations. SAB No. 107 also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. We will evaluate the requirements of SAB No. 107 in connection with our adoption of SFAS No. 123R.

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154 for our fiscal year beginning April 1, 2006.

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Results of Operations — Three months Periods Ended June 30, 2005 and 2004

     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
	June 30,
				% increase from
	2005			2004 to 2005			2004
		(000	)					(000	)
Net revenues	$	63,341			5.6	%	$	59,954
Cost of goods sold		42,196			(1.4	%)		42,779
Gross profit	$	21,145			23.1	%	$	17,175
Operating expenses:
Research, development and engineering	$	4,156			(8.7	%)	$	4,552
Selling, general and administrative		9,257			(1.3	%)		9,376
Total operating expenses	$	13,413			(3.7	%)	$	13,928

     The following table sets forth certain financial 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.

	Three Months Ended
	June 30,
	2005			2004
	% of Net			% of Net
	Revenues			Revenues
Net revenues		100.0	%		100.0	%
Cost of goods sold		66.6	%		71.4	%
Gross profit		33.4	%		28.6	%
Operating expenses:
Research, development and engineering		6.6	%		7.6	%
Selling, general and administrative		14.6	%		15.6	%
Total operating expenses		21.2	%		23.2	%
Operating income		12.2	%		5.4	%
Other income (expense), net		0.7	%		(.3	%)
Income before income tax		12.9	%		5.1	%
Provision for income tax		4.8	%		2.0	%
Net income		8.1	%		3.1	%

     Net Revenues.

     The 5.6% increase in net revenues in the three months ended June 30, 2005 as compared to the three months ended June 30, 2004 reflects increased sales in power semiconductors. The increase in the power semiconductor group was due principally to an increase of $4.2 million in sales of power MOSFETs, partially offset by a net decline in the sales of other products. Revenues from the sale of integrated circuits and systems and RF power semiconductors in the three months ended June 30, 2005 as compared to the three months ended June 30, 2004 were relatively flat, with integrated circuits increasing by $291,000 and systems and RF power semiconductors decreasing by $231,000.

     For the quarter ended June 30, 2005, sales to customers in the United States represented approximately 31.7% and sales to international customers represented approximately 68.3% of our net revenues. Of our international sales, approximately 49.3% were

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derived from sales in Europe and the Middle East, approximately 43.1% were derived from sales in Asia and approximately 7.6% were derived from sales in the rest of the world. By comparison, for the quarter ended June 30, 2004, sales to customers in the United States represented approximately 28.1% and sales to international customers represented approximately 71.9% of our net revenues. Of our international sales, approximately 47.7% were derived from sales in Europe and the Middle East, approximately 48.8% were derived from sales in Asia and approximately 3.5% were derived from sales in the rest of the world. Revenues increased in the United States in quarter ended June 30, 2005, as compared to the comparable period of the prior year, because of an increase in sales to the medical market.

     In each of the periods, 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.

     The following tables set forth the revenue, average selling prices, or ASPs, and units for each of our product groups for the fiscal periods indicated:

	Three Months Ended June 30,
			% change in
			Revenues
Revenues	2005		2004 to 2005			2004
		(000)					(000)
Power Semiconductors	$	47,827		7.5	%	$	44,500
Integrated Circuits		10,536		2.8	%		10,245
Systems and RF Power Semiconductors		4,978		(4.4	%)		5,209
Total Revenues	$	63,341				$	59,954

	Three Months Ended June 30,
			% change in
			ASP from 2004
Average Selling Prices (ASPs)	2005		to 2005			2004
Power Semiconductors	$	2.40		3.0	%	$	2.33
Integrated Circuits	$	0.93		3.3	%	$	0.90
Systems and RF Power Semiconductors	$	11.58		(18.2	%)	$	14.15

	Three Months Ended June 30,
			% change in
			units from 2004
Units	2005		to 2005			2004
		(000)					(000)
Power Semiconductors		19,895		4.1	%		19,111
Integrated Circuits		11,388		0.3	%		11,350
Systems and RF Power Semiconductors		430		16.8	%		368
Total Units		31,713					30,829

     The increases in the ASPs of power semiconductors and integrated circuits and the decrease in the ASP of systems and RF power semiconductors primarily occurred as a result of changes in the mix of products sold. Comparing the quarter ended June 30, 2004 to the quarter ended June 30, 2005, units increased principally due to increased shipments of semiconductors for plasma display panels; however, comparing the quarter ended March 31, 2005 to the quarter ended June 30, 2005, shipments of semiconductors for plasma display panels declined.

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     Gross Profit.

     Gross profit margin increased to 33.4% in the three months ended June 30, 2005 from 28.6% in the three months ended June 30, 2004, principally because of the changes in the product mix and improved economies of scale. The increase in gross profit expressed in dollars in the three months ended June 30, 2005 as compared to the three months ended June 30, 2004 is primarily the result of a shift towards products with higher gross margins, particularly in the medical market, and an increase in units sold.

     In each of the periods, our gross profit and gross profit margin were increased by the sale of excess inventory, which had previously been written-down. See “Critical Accounting Policies and Significant Management Estimates — Inventories” elsewhere in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Research, Development and Engineering.

     For the three months ended June 30, 2005 as compared to the three months ended June 30, 2004, research, development and engineering expenses decreased by $396,000, principally due to a 16% decline in research, development and engineering headcount from 58 people to 49 people.

     Selling, General and Administrative.

     For the three months ended June 30, 2005 as compared to the three months ended June 30, 2004, selling, general and administrative expenses were relatively flat in dollar terms but declined as a percentage of net revenues principally as a result of our continuing efforts to control costs.

     Other Income (Expense), Net.

     Other income, net in the quarter ended June 30, 2005 was $425,000, as compared to $203,000 of other expense, net in the quarter ended June 30, 2004. Other income, net during the quarter ended June 30, 2005 consisted principally of interest income, net. Other expense, net during the quarter ended June 30, 2004 consisted principally of gains and losses associated with changes in foreign currency rates.

     Provision for Income Tax.

     In the quarter ended June 30, 2005, the provision for income tax reflected an effective tax rate of 37.0%, as compared to an effective tax rate of 38.8% in the quarter ended June 30, 2004. The reduction in the effective tax rate is primarily the result of an increase in research and development credits.

Liquidity and Capital Resources

     At June 30, 2005, cash and cash equivalents of $70.4 million were 21.1% greater than the $58.1 million at March 31, 2005. This was due to net cash provided by operating and financing activities, partially offset by net cash used in investing activities.

     Net cash provided by operating activities in the three months ended June 30, 2005 was $10.7 million, as compared to $1.9 million in the three months ended June 30, 2004. Net accounts receivable declined $5.9 million, or 14.4%, from March 31, 2005 to June 30, 2005, primarily due to lower revenues and an improvement in collections resulting in lower days sales outstanding. Our net inventories at June 30, 2005 decreased $1.9 million, or 3.8%, from March 31, 2005.

     We used $10.0 million in net cash for investing activities during the three months ended June 30, 2005, as compared to $1.3 million during the three months ended June 30, 2004. During the three months ended June 30, 2005, we spent $9.9 million in capital expenditures, including $9.0 million for the purchase of the Clare facility.

     For the three months ended June 30, 2005, net cash provided by financing activities was $12.6 million as compared to $769,000 used in financing activities in the three months ended June 30, 2004.

     On June 10, 2005, IXYS Semiconductor GmbH, our German subsidiary, borrowed Euro 10.0 million, or about $12.2 million, from IKB Deutsche Industriebank for a term of 15 years. The interest rate on the loan is determined by adding the then effective 3-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 the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, the interest rate may not exceed 4.1%, and, if the Euribor rate falls below 2%, the interest rate may not be lower than 3%. Thereafter, the interest rate is recomputed annually. The interest rate at June 30, 2005 was 2.863%. Each fiscal quarter during the first five years of the loan, a principal payment of Euro 167,000, or about $200,000, will be required. Thereafter, the amount of the payment will be recomputed.

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     In addition to cash flow from operations, another potential source of liquidity is borrowings under existing lines of credit. At June 30, 2005, we had available credit of $5.1 million.

     At June 30, 2005, our debt, consisting of capital lease obligations and loans payable, was $18.5 million, representing 26.2% of our cash and cash equivalents and 10.9% of our stockholders equity.

     We believe that our cash and cash equivalents, together with cash generated from operations and our line of credit, 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, the need to invest in new product development or one or more acquisitions. 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.

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.

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 negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly. For example, in comparing fiscal 2002 to fiscal 2001, net revenues fell by 25.6% and net income fell by 85.7%. 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;

• 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.

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     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 is characterized by:

• alternating periods of overcapacity and production shortages;

• cyclical demand for semiconductors;

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

• 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.

   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 higher average unit costs and lower gross margins. Increased competition and other factors may lead to price erosion, lower revenues and lower gross margins for us in the future.

   IXYS could be harmed by litigation involving patents and other intellectual property rights.

     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 and are currently defending against a number of such claims. For example, we have been sued by International Rectifier for purportedly infringing some of its patents covering power MOSFETs. After trial, the U.S. District Court awarded damages to International Rectifier of $27.2 million plus attorney fees and issued a permanent injunction against IXYS, effectively barring us from selling or distributing the allegedly infringing products. The United States Court of Appeals for the Federal Circuit vacated those rulings and remanded the litigation to the U.S. District Court for further action consistent with the opinion of the Federal Circuit. The litigation is expected to continue at the U.S. District Court and could result in another damages award and injunction. We continue to contest International Rectifier’s claims vigorously but the outcome of this litigation remains uncertain.

     Additionally, in the future, we could be accused of infringing the intellectual property rights of International Rectifier or other 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, could harm our business.

     In the event of any adverse ruling in any intellectual property litigation, including the pending power MOSFET litigation with International Rectifier, 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 by us. An adverse decision in the International Rectifier power MOSFET litigation would, and in any other infringement action could, materially and adversely affect our financial condition, results of operations and cash flows.

     Any litigation relating to the intellectual property rights of third parties, whether or not determined in our favor or settled by us, is costly and may divert the efforts and attention of our management and technical personnel from our core business operations.

   We are dependent upon the success of our customers’ products.

     Our semiconductors are incorporated into our customers’ products, and the demand for our semiconductors is dependent upon the demand for our customers’ products. Demand for our customers’ products may level or decline due to technological change in our customers’ industries, price or quality of their products or other competitive factors. If sales of our customers’ products level or fall,

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our sales of semiconductors intended for such products will also likely level or decline. We have recently sold more semiconductors for inclusion in consumer products than was our historical practice. We believe that consumer products are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than the products of many of our other 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.

     In particular, in recent years we have sold semiconductors for inclusion in the plasma display panels of a small number of manufacturers. Plasma display panels are one of several technologies for visual display in television. Should competition among the various visual display technologies for television adversely affect the sales of plasma display panels, our operating results could be adversely affected. Moreover, our operating results could be adversely affected if those plasma display panel manufacturers that have selected our semiconductors for inclusion in their products are not successful in their competition against other manufacturers of plasma display panels. As plasma display panels cycle into next generation products, we must achieve new design wins for our semiconductors to be included in the next generation plasma display panels. New design wins may not occur.

   Our international operations expose us to material risks.

     During fiscal 2005, our product sales by region were approximately 31.7% in the United States, approximately 33.7% in Europe and the Middle East, approximately 29.4% in Asia and approximately 5.2% in Canada and the rest of the world. We expect revenues from foreign markets to continue to represent a significant portion of total revenues. IXYS maintains significant operations in Germany and the United Kingdom and contracts with suppliers and manufacturers in South Korea, Japan and elsewhere in Europe and Asia. Some of the risks inherent in doing business internationally are:

• foreign currency fluctuations;

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

• trade restrictions;

• longer payment cycles;

• challenges in collecting accounts receivable;

• cultural and language differences;

• employment regulations;

• limited infrastructure in emerging markets;

• transportation delays;

• seasonal reduction in business activities;

• work stoppages;

• 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 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 and Euros. Fluctuations in the value of the Euro and the British pound against the U.S. dollar could have a significant 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.

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We have material weaknesses in our internal control over financial reporting that could result in a material misstatement of our financial condition, results of operations and cash flows.

     Our management assessed our internal control over financial reporting and concluded that five material weaknesses existed as of March 31, 2005:

• deficiencies in the number of accounting personnel trained in applying United States generally accepted accounting principles, or US GAAP, and in reporting financial information in accordance with the requirements of the Securities and Exchange Commission, or SEC;

• deficiencies in our control over costing and valuation of inventory;

• deficiencies in our control over the use of spreadsheets in our operations;

• deficiencies in the review of the consolidation process; and

• inadequate segregation of duties in the purchasing cycle.

     The deficiencies in the number of accounting personnel have resulted in a number of designed controls not operating properly. The deficiencies in the number of accounting staff during the initial year of Sarbanes-Oxley compliance placed an extra burden upon the existing division controllers and their accounting staff, which led to controls not being performed properly.

     The material weakness related to the costing and valuation of inventory resulted from the incorrect calculation of inventory yields and overhead absorption, causing erroneous production variances, at our facility in Lampertheim, Germany, errors in capitalized variances at our facilities in Chippenham, England and Lampertheim, Germany and errors in calculating inventory reserves in our facility in Fremont, California. The net effect of the corrections of these errors on our financial statements for the year ended March 31, 2005 was an increase in cost of goods sold on our statement of operations of $624,000, a decrease in inventory of $122,000 and $502,000 distributed over a number of other accounts.

     The material weakness related to spreadsheets occurred when division controllers made modifications to the template spreadsheets for periodic reporting sent to them by corporate accounting personnel, and the modifications and the impact of the modifications were not identified by corporate accounting personnel when accounting information was submitted by the divisions. As a result of these items, reported income taxes and miscellaneous other matters changed approximately $105,000 and $332,000, respectively. In addition, the spreadsheets used to compute key financial statement items did not have adequate validation controls.

     In part because a financial analyst resigned without notice, our controls relating to review of consolidations, inputs, foreign currency translations and recurring journal entries did not function properly. As a consequence of the unexpected departure of the financial analyst, our senior financial analyst, who is responsible for our consolidation process, had to do her work as well as that of the departed financial analyst. Thus, a layer of control in the consolidation process was eliminated. Due to a lack of personnel resources, supervisory review of the senior financial analyst’s work was inadequate. As a result of these deficiencies, our auditors found differences in our reports requiring a reduction in deferred tax assets and income tax payable of approximately $8.2 million and adjustments to foreign exchange totaling $145,000. These deficiencies were assessed to be a material weakness.

     We have determined that a number of duties have not been segregated properly within our cycle of activities whereby we purchase and pay for goods and services. In particular, at several of our facilities, the same individual was able to update vendor files, control purchase orders and process vendor invoices. These deficiencies in segregation of duties constituted a material weakness. The material weakness arises from the limited number of accounting personnel at a number of our facilities and our historical practice of only having accounting personnel perform traditional accounting functions.

     These material weaknesses were not remediated at June 30, 2005. Existence of these or other material weaknesses in our internal control could result in a material misstatement of our financial condition, results of operations and cash flows. Whether or not a misstatement occurs, the existence of one or more material weaknesses could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our controls over financial reporting, which ultimately could negatively impact the market price of our shares.

     Our management determined that, as of June 30, 2005, our disclosure controls and procedures were not effective. See “Item 4 of Part I. Controls and Procedures,” elsewhere in this Quarterly Report on Form 10-Q.

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     Our efforts to correct the deficiencies in our disclosure and internal controls have required, and will continue to require, the commitment of significant financial and managerial resources. In addition, we anticipate the costs associated with the testing and evaluation of our internal controls will be significant and material in fiscal year 2006 and may continue to be material in future fiscal years as these controls are maintained and continually evaluated and tested.

   We may not be successful in our acquisitions.

     We have in the past made, and may in the future make, acquisitions. 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 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;

• 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 you 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.

     In the normal course of business, we frequently engage in discussions with parties relating to possible acquisitions. As a result of such transactions, 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 in fiscal 2005, 43% came from wafers manufactured for us by external foundries, respectively. 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’s facility in Kiheung, South Korea is our principal external foundry.

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     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 additional foundry capacity as required, our relationships with our customers could be harmed and our revenues could be reduced or their growth limited. Moreover, even if we are able to secure additional 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 on time or increase our costs.

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

     The semiconductor industry has been characterized by periodic limitations on production capacity. 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.

   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 independent 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, as 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.

   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;

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• 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.

   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 you 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 you 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.

   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.

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 which 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.

   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.

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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;

• breadth of product line;

• design and introduction of new products;

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

• technical support and service.

     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 Advanced Power Technology, Fairchild Semiconductor, Fuji, Infineon, International Rectifier, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics, Siemens and Toshiba. Our IC products compete principally with those of Agere Systems, Legerity, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices and RF Monolithics. 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 you 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.

     A substantial majority of our products are sold to distributors and 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.

     At March 31, 2005, no distributor accounted for greater than 10% of our outstanding receivables. Nonetheless, 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.

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 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.

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Growth 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. Consequently, in our accounting, we perform many manual reconciliations and other manual steps, which result in a high risk of errors. For a further discussion of issues relating to spreadsheets, see Item 4 of Part I “Controls and Procedures.”

     If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed. Our ability to successfully implement our goals and comply with regulations, including 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 requires, 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 and evolution of our current business.

   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.

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

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

• reduced control over delivery schedules and quality;

• the potential 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;

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

• potential 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 experiences financial, operational, production or quality assurance difficulties, we could experience a reduction or interruption in supply. Although we believe alternative subcontractors are available, our operating results could temporarily suffer until we engage one or more of those alternative subcontractors.

Our operating expenses are relatively fixed, and we may order materials in advance of anticipated customer demand. Therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls.

     Our operating expenses are relatively fixed, and, therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls. Consequently, our operating results will be harmed if our revenues do not meet our revenue projections.

     We also 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 substantially. From time to time, in response to anticipated long lead times to obtain inventory and materials from our external suppliers and foundries, we may order materials or production in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize.

   We depend on a limited number of suppliers for our wafers.

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

   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 assurances that we will continue to have access to the capital markets on favorable terms.

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Geopolitical instability, war, terrorist attacks, 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 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 occurs, 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. Our failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.

   Our tax liability has been in dispute from time to time.

     From time to time, we have received notices of tax assessments from certain governments of countries in which we operate. These governments or other government entities may serve future notices of assessments on us and the amounts of these assessments or our failure to favorably resolve such assessments may have a material adverse effect on our financial condition or results of operations.

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 10.1% of our net revenues in fiscal 2005 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 replacement, recall or product liability costs to us.

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

     Nathan Zommer, Ph.D., our president and chief executive officer, beneficially owned, as of August 3, 2005, approximately 20% 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, possible changes in control of IXYS, which may reduce the market price of our common stock.

   Regulations may adversely affect our ability to sell our products.

     Power semiconductors with operating voltages above 40 volts are subject to regulations intended to address the safety, reliability and quality of the products. These regulations relate to processes, design, materials and assembly. For example, in the United States some high voltage products are required to pass Underwriters Laboratory recognition for voltage isolation and fire hazard tests. Sales of power semiconductors outside of the United States are subject to international regulatory requirements that vary from country to country. The process of obtaining and maintaining required regulatory clearances can be lengthy, expensive and uncertain. The time required to obtain approval for sale internationally may be longer than that required for U.S. approval, and the requirements may differ.

     In addition, approximately 10.1% of our revenues in fiscal 2005 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

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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.

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 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.

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, 2005, except in respect of our borrowing on June 10, 2005 of Euro 10.0 million, or about $12.2 million. A decline of the U.S. dollar against the Euro will cause an increase in our obligation when expressed in U.S. dollars. The loan proceeds are currently held in Euros. So long as the loan proceeds are held in Euros, the net effect of exchange rate fluctuations on net income is immaterial. However, we may convert the loan proceeds to U.S. dollars at any time. If any portion of the loan proceeds is converted to U.S. dollars and a decline of the U.S. dollar against the Euro occurs, an adverse impact on our net income will occur.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

     An evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act) as of June 30, 2005. This evaluation included various processes that were carried out in an effort to ensure that information required to be disclosed in our Securities and Exchange Commission, or SEC, reports is recorded, processed, summarized and reported within the time periods specified by the SEC. In this evaluation, the Chief Executive Officer and the Chief Financial Officer considered whether our disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. This evaluation also included consideration of certain aspects of our internal controls and procedures for the preparation of our financial statements. Our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2005, our disclosure controls and procedures were not effective. Material weaknesses in internal control over financial reporting that led to the conclusion are discussed below.

Material Weaknesses

     In conducting its assessment of the effectiveness of our internal control over financial reporting as of March 31, 2005, our management concluded that five material weaknesses existed as of March 31, 2005:

• deficiencies in the number of accounting personnel trained in applying US GAAP and in reporting financial information in accordance with the requirements of the SEC;

• deficiencies in our control over costing and valuation of inventory;

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• deficiencies in our control over the use of spreadsheets in our operations;

• deficiencies in the review of the consolidation process; and

• inadequate segregation of duties in the purchasing cycle.

These material weaknesses were not remedied at June 30, 2005.

     The deficiencies in the number of accounting personnel have resulted in a number of designed controls not operating properly. The deficiencies in the number of accounting staff during the initial year of Sarbanes-Oxley compliance placed an extra burden upon the existing division controllers and their accounting staff, which led to controls not being performed properly.

     The material weakness related to the costing and valuation of inventory resulted from the incorrect calculation of inventory yields and overhead absorption, causing erroneous production variances, at our facility in Lampertheim, Germany, errors in capitalized variances at our facilities in Chippenham, England and Lampertheim, Germany and errors in calculating inventory reserves in our facility in Fremont, California. The net effect of the corrections of these errors on our financial statements for the year ended March 31, 2005 was an increase in cost of goods sold on our statement of operations of $624,000, a decrease in inventory of $122,000 and $502,000 distributed over a number of other accounts.

     The material weakness related to spreadsheets occurred when division controllers made modifications to the template spreadsheets for periodic reporting sent to them by corporate accounting personnel, and the modifications and the impact of the modifications were not identified by corporate accounting personnel when accounting information was submitted by the divisions. As a result of these items, reported income taxes and miscellaneous other matters changed approximately $105,000 and $332,000, respectively. In addition, the spreadsheets used to compute key financial statement items did not have adequate validation controls.

     In part because a financial analyst resigned without notice, our controls relating to review of consolidations, inputs, foreign currency translations and recurring journal entries did not function properly. As a consequence of the unexpected departure of the financial analyst, our senior financial analyst, who is responsible for our consolidation process, had to do the work of the departed financial analyst as well as her own. Thus, a layer of control in the consolidation process was eliminated. Due to a lack of personnel resources, supervisory review of the senior financial analyst’s work was inadequate. As a result of these deficiencies, our auditors found differences in our reports requiring a reduction in deferred tax assets and income tax payable of approximately $8.2 million and adjustments to foreign exchange totaling $145,000. These deficiencies were assessed to be a material weakness.

     We have determined that a number of duties have not been segregated properly within our cycle of activities whereby we purchase and pay for goods and services. In particular, at several of our facilities, the same individual was able to update vendor files, control purchase orders and process vendor invoices. These deficiencies in segregation of duties constituted a material weakness. The material weakness arises from the limited number of accounting personnel at a number of our facilities and our historical practice of only having accounting personnel perform traditional accounting functions.

     Our Audit Committee is aware of these material weaknesses.

Changes in Internal Control over Financial Reporting

     We plan to remedy the deficiencies in the number of accounting personnel by filling a number of positions, some of which are newly designated. We plan to hire an accountant trained in US GAAP at both our European and Fremont, California facilities. We intend to employ a compliance manager at the corporate level who will be responsible for guiding the application of US GAAP and our SEC reporting. We also intend to hire a corporate controller. We employed another financial analyst as a replacement for the individual who resigned. We have engaged a professional to oversee and further implement our internal control over financial reporting. We believe that the material weakness will be remediated when these positions are filled and the new personnel are properly trained in their duties. We will seek to fill these positions and complete training by December 31, 2005.

     Regarding the inventory material weakness, we have addressed the yield calculation error in Lampertheim, Germany by changing the procedure to calculate yield, and by the end of December 2005, we intend to conduct a thorough review of the standard costs in Lampertheim, Germany to verify that proper United States accounting practices are followed. In addition, one of the accounting personnel hired will be based in our Fremont facility and will provide additional resources for the preparation of inventory costing and valuation. His work will allow time for more supervisory review by the division controller. We have issued a financial policy regarding inventory valuation to all of our operating entities. We plan to review and possibly supplement this policy by the end of the third quarter of fiscal year 2006. We expect that the implementation of the foregoing will remediate the inventory material weakness. It is our objective to complete these remediation activities by December 31, 2005.

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     In June 2005, we concluded that a material weakness in our control over the use of spreadsheets existed at March 31, 2005. Our information technology steering committee is currently reviewing alternatives to address the material weakness. We have yet to determine the actions to be undertaken to mitigate or remediate this material weakness. Consequently, we are not yet able to assess when the material weakness will be adequately addressed.

     In remediation of the material weakness in our consolidation process, we hired a new financial analyst, and we expect to hire a new corporate controller and a compliance manager for SEC reporting and GAAP accounting. When these personnel are hired, we will have the people necessary for appropriate review of the consolidation process. We also expect to review the design of our consolidation process controls for adequacy. Our goal is to complete these remediation activities by December 31, 2005.

     We expect to address our material weakness in segregation of duties in our purchasing cycle through the aforementioned hiring of additional accounting personnel, the redistribution of duties among existing accounting personnel and the assignment of some duties to non-accounting personnel. We expect that controls will be redesigned to reflect the redistribution of duties and the involvement of non-accounting personnel. Our objective is to finish the actions in remediation of this material weakness by December 31, 2005.

     Our Audit Committee is currently reviewing our need to establish an internal audit function, in part to enhance our monitoring of remediation of these material weaknesses. The Audit Committee intends to complete its review of internal audit requirements by December 31, 2005.

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 error 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 and instances of fraud, if any, have been detected.

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, including the matters described by reference below, 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.

     The information set forth in Note 9 of Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 hereof is hereby incorporated by reference into this Item 1 of Part II.

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.

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ITEM 5. OTHER INFORMATION

     On August 10, 2005, the Compensation Committee of the Board of Directors accelerated the vesting of all outstanding stock options with vesting remaining and with exercise prices greater than the closing price on that date, $9.85, causing such stock options to be fully vested. The vesting was accelerated to avoid future accounting charges under SFAS No. 123R. As a consequence of the action, the following executive officers were vested in the right to purchase shares of our common stock earlier than they otherwise would have been:

	Number of
Name	Shares Vested		Exercise Price
Peter Ingram		30,000	$	14.37
Kevin McDonough		20,800	$	14.37
Uzi Sasson		75,000	$	14.37
Nathan Zommer		100,000	$	15.81

     Stockholder recommendations for directors must be in writing and sent by U.S. mail to: General Counsel, IXYS Corporation, 3540 Bassett Street, Santa Clara, California 95054. The General Counsel will forward any recommendation to the members of the Nominating and Corporate Governance Committee of the Board of Directors.

ITEM 6. EXHIBITS

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

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SIGNATURES

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

	IXYS CORPORATION
	By: /s/ Uzi Sasson
	Uzi Sasson, Vice President of Finance and
	Chief Financial Officer (Principal Financial Officer)
Date: August 12, 2005

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EXHIBIT INDEX

Exhibit
No.	Description
10.1	Purchase and Sale Agreement dated April 29, 2005 by and between John J. Flatley and Gregory D. Stoyle, Trustees of the Flatley Family Trust under Declaration of Trust dated September 27, 1993 and Clare, Inc.
10.2	Loan Agreement dated June 2, 2005 by and between IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG.
10.3	Collateral Agreement dated July 14, 2005 by and among IXYS Corporation, IXYS Semiconductor GmbH and IKB Deutsche Inidustriebank AG.
10.4	Agreement for Purchase of Real Estate dated June 17, 2005 by and between Clare Micronix Integrated Systems, Inc. and 145 Family Limited Partnership.
10.5	Bonus Criteria for Nathan Zommer for the fiscal year ended March 31, 2006.
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

PURCHASE AND SALE AGREEMENT

This 29 day of April, 2005 (the “Effective Date”).

1.	SELLER or Seller:	John J. Flatley and Gregory D. Stoyle, Trustees of the 1993 Flatley Family Trust under Declaration of Trust dated September 27, 1993, and recorded with Essex South District Registry of Deeds in Book 12576, Page 107.
	ADDRESS:	50 Braintree Hill Office Park, Braintree MA
		Attn: Thomas J. Flatley, President
	FAX	781-849-4455
2.	PURCHASER, BUYER or Buyer:	Clare, Inc., a Massachusetts corporation
	ADDRESS:	78 Cherry Hill Drive, Beverly, MA
		Attn: Dennis Ryan, Controller
	FAX	978-524-4700

In consideration of the mutual covenants and provisions herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:

The Seller agrees to sell and the Purchaser agrees to purchase, upon the terms and conditions hereinafter set forth, the following described Premises or Property:

3. PREMISES DESCRIPTION:

A certain parcel of land with an office, light industrial building known as 78 Cherry Hill Drive, Beverly, Massachusetts, and containing approximately 9.64 acres of land, the owner of which is the Seller. For Seller’s title see Essex South District Registry of Deeds Book 13453, Page 594 and Certificate of Title No. 67566. The sale shall include all right, title and interest of Seller in and to any easements, benefits, privileges or rights of way appurtenant to the land; all warranties, guaranties, licenses, permits, guaranties of leases, and service and maintenance contracts (to the extent Buyer agrees to assume the same) (hereinafter, “Assignable Agreements”); and the fixtures, machinery, equipment and personal property owned by Seller and attached to or located on the property.

4. NO REPRESENTATIONS:

The Purchaser acknowledges that Purchaser has not been influenced to enter into this transaction in any way nor has Purchaser relied upon any warranties or representations made by either Seller or any Broker not set forth or incorporated in this Agreement.

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5. TITLE DEED:

(a) The Premises are to be conveyed by a good and sufficient quitclaim deed running to the Purchaser or its nominee, which deed shall convey a good and clear record and marketable title thereto, free from encumbrances and claimed rights of third parties, except:

(i)	Provisions of federal, state and local laws, ordinances, by-laws and rules regulating the use of land, including, but not limited to, environmental, building, zoning, and health laws, if any, applicable as of the date of this Agreement, but not in violation thereof;
(ii)	Real estate taxes for the then current fiscal year which are not yet due and payable on the date of the delivery of such deed;
(iii)	Any liens for municipal betterments assessed after the date of the Closing;
(iv)	Easements, restriction and reservations of record, if any, so long as the same do not prohibit or materially interfere with the current use of the Premises as an office building.

(b) Any matter or practice arising under or relating to this Agreement which is the subject of a title or practice standard of the Real Estate Bar Association for Massachusetts shall be governed by such standard to the extent applicable, so long as the title insurance company issuing the title policy to the Buyer or Buyer’s lender agrees not to take any exception.

6. PLANS:

If the deed refers to a plan necessary to be recorded therewith, or if a plan is required in order that the deed may be recorded, the Seller shall at the Closing deliver and record such plan duly endorsed, if necessary, by the Beverly Planning Board and/or as may otherwise be required, in form adequate for registration or recording.

7. REGISTERED TITLE:

In addition to the foregoing, if any portion of the title to the Premises is registered, the deed shall be in form sufficient to entitle the Purchaser to a Certificate of Title of the Premises, and the Seller shall deliver with the deed all instruments, if any, necessary to enable the Purchaser to obtain such Certificate of Title.

8.	PURCHASE PRICE:
	The agreed purchase price for the Premises is:	$9,000,000.00
	The following has been paid as a deposit as of this date:	$250,000.00
	The following amount is to be paid at the
	time of the delivery of the deed; by Bank
	check, wire transfer, certified check or attorney’s IOLTA
	check:	$8,750,000.00
	Total Purchase Price:	$9,000,000.00

9. DEPOSIT:

All deposits made hereunder shall be held in escrow by Marsh, Moriarty, Ontell & Golder, P.C., as “Escrow Agent,” subject to the terms of this agreement and shall be duly accounted for at the time for performance of this agreement. The Escrow Agent shall not be liable for any loss suffered by the parties as a result of any action or inaction taken by the Escrow Agent in good faith pursuant to this Agreement, other than gross negligence or willful misconduct. In the event of a dispute relating to the deposit held by Escrow Agent,

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the Escrow Agent shall have the right to retain the deposit pending receipt of written instructions agreed to and signed by Buyer and Seller, or of a court order directing the distribution of such deposit. In the alternative, Escrow Agent may resign at any time by transferring the deposit to a successor escrow agent reasonably agreed upon by Buyer and Seller, which successor agrees to act in writing as Escrow Agent. Buyer and Seller shall jointly and severally indemnify and hold Escrow Agent harmless for any and all costs and expenses, including reasonably attorneys’ fees, incurred in connection with any such dispute.

10. THE CLOSING:

The deed is to be delivered and the balance of the Purchase Price, subject to adjustment as set forth hereunder, paid at the following Date and Time of Closing and at the following Place of Closing:

Time of Closing:	10:00 o’clock A.M.
Date of Closing:	May 6, 2005
Place of Closing:	18 Tremont Street, Suite 900, Boston, MA 02108, or at Purchaser’s election, at the office of Purchaser’s counsel or Purchaser’s Lender’s counsel upon notice to Seller at least three(3) days prior to the Closing.

Whenever in this Agreement reference is made to the Closing, or the Date of Closing, such reference shall be to the date set forth hereinabove in this Paragraph, as the same may be extended pursuant to the provisions of this Agreement. It is agreed that time is of the essence of this Agreement.

Unless the Closing takes place at the appropriate Registry of Deeds, all documents and funds are to be delivered in escrow subject to prompt rundown of title and recording, which term shall include registration in the case of registered land, and the Purchase Price shall not be released from escrow until confirmation that such rundown and recording has occurred and that no matters affect title other than as permitted hereunder.

11. POSSESSION AND CONDITION OF PREMISES:

Purchaser currently occupies the Premises as the sole tenant. Purchaser acknowledges that Seller is selling, the Premises in an “AS IS” condition and with “ALL FAULTS” without any warranty or representation by Seller, its employees, directors, officers, agents, consultants or brokers whatsoever relating to the Premises or this transaction, except such warranties or representations expressly set forth in this Agreement. Purchaser is fully aware of the condition of the Premises as well as all facts, circumstances and information which may affect the use and operation of the Premises, and has relied on its own due diligence investigation in determining to purchase the Premises rather than any information that may have been provided by Seller. The Purchaser shall not cancel or delay the closing, except as to title matters or in connection with the exercise of Buyer’s rights expressly set forth herein. At the Closing, the Premises shall be in compliance with the provisions of any instrument referenced in Section 5 above.

12. EXTENSION TO PERFECT TITLE OR MAKE PREMISES CONFORM:

If the Seller shall be unable to convey title, as required hereunder, or if at the Time of Closing the Premises do not conform with the provisions hereof, then the Seller shall use reasonable efforts to remove any defects in title or to make the Premises conform to the provisions hereof, as the case may be, and the time for performance hereof, as set forth in Paragraph 10 hereinabove, shall be extended for a period of thirty (30) days; provided, however, the Seller shall not be obligated to expend more than $25,000 to

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remove defects in title, (exclusive of the amounts necessary to clear financial encumbrances), deliver possession or make the Premises conform to the provisions hereof.

13. FAILURE TO PERFECT TITLE OR MAKE PREMISES CONFORM:

If at the expiration of any such extended time the Seller shall have failed so to remove any defects in title, or deliver possession, or make the Premises conform, as the case may be, all as herein agreed, then, at the Purchaser’s option, any payments made under this Agreement shall be forthwith refunded and all other obligations of all parties hereto shall cease and this Agreement shall be void and without recourse to the parties hereto.

14. PURCHASER’S ELECTION TO ACCEPT TITLE:

The Purchaser shall have the election, at either the original or any extended time for performance, to accept such title as the Seller can deliver to the Premises in their then condition and to pay therefor the purchase price without deduction, in which case the Seller shall convey such title, except that in the event of such conveyance in accord with the provisions of this clause, if the said premises shall have been damaged by fire or casualty insured against, then the SELLER shall, unless the SELLER has previously restored the premises to their former condition, either

(a) pay over or assign to the BUYER, on delivery of the deed, all amounts recovered or recoverable on account of such insurance, less any amounts reasonably expended by the SELLER for any partial restoration, or

(b) if a holder of a mortgage on said premises shall not permit the insurance proceeds or a part thereof to be used to restore the said premises to their former condition or to be so paid over or assigned, give to the BUYER a credit against the purchase price, on delivery of the deed, equal to said amounts so recovered or recoverable and retained by the holder of the said mortgage less any amounts reasonably expended by the SELLER for any partial restoration, or

(c) at Buyer’s election, upon notice to Seller from Buyer of Buyer’s election to terminate and cancel this Agreement, any payments made under this Agreement shall be forthwith refunded and all other obligations of all parties hereto shall cease and this Agreement shall be void and without recourse to the parties hereto.

15. ACCEPTANCE OF DEED:

The acceptance of a deed by the Purchaser or his nominee as the case may be, shall be deemed to be a full performance and discharge of every agreement and obligation herein contained or expressed, except such as are, by the terms hereof, to be performed after the Closing.

16. USE OF PURCHASE MONEY TO CLEAR TITLE:

To enable the Seller to make conveyance as herein provided, the Seller may, at the Closing, use the purchase money or any portion thereof to clear the title of any or all encumbrances or interests, provided that all instruments necessary for this purpose are recorded by and at the expense of Seller at the Time of Closing or, with respect to discharges of mortgages from insurance companies, banks and credit unions for which Seller delivers pay-off letters from such insurance company, bank or credit union (in form and substance reasonably satisfactory to Buyer, or its counsel or title insurer), by and at the expense of Seller with proof thereof to Buyer, within a reasonable time after the recording of the deed in accordance with customary conveyancing practice.

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17. ADDITIONAL DOCUMENTS:

At the Closing Seller shall execute (as applicable) and deliver:

a)	Evidence as to the authority of Seller to deliver the deed and any ancillary documents to the Purchaser;
b)	Customary affidavits and indemnities as reasonably required by Buyer’s title insurer, including, without limitation, with respect to parties in possession and mechanic’s liens to induce Purchaser’s title insurance company to issue lender’s and owner’s policies of title insurance without exception for those matters;
c)	An affidavit, satisfying the requirements of Section 1445 of the Internal Revenue Code and regulations issued thereunder, which states, under penalty of perjury, the Seller’s United States taxpayer identification number, that the Seller is not a foreign person, and the Seller’s address;
d)	Internal Revenue Service Form W-8 or Form W-9, as applicable, with Seller’s tax identification number, and an affidavit furnishing the information required for the filing of Form 1099S with the Internal Revenue Service and stating Seller is not subject to back-up withholding;
e)	a blanket assignment to Purchaser of all of the Seller’s right, title and interest in and to all Assignable Agreements, permits, documents, licenses, consents authorizations, variances, waivers, applications and approvals, building plans, surveys and engineering studies, and all other similar or comparable documents, (the “Plans and Permits”) duly executed and acknowledged by Seller, together with any originals of such instruments in Seller’s possession or control insofar as not previously delivered;
f)	a settlement statement;
g)	a bill of sale; and
h)	such other reasonable documents as are contemplated by the transaction described in this Agreement.

18. ADJUSTMENTS:

Real estate taxes, base rent, operating costs and any additional rent due under the Lease, as hereinafter defined, for the then current year, shall be apportioned as of the Date of Closing and the net amount thereof shall be added to or deducted from, as the case may be, the Purchase Price payable by the Purchaser at the Closing. All references to the “then current year” and like references with respect to real estate taxes payable in respect of the Premises shall be construed to mean the then current fiscal tax period within which such taxes are payable.

19. ADJUSTMENT OF UNASSESSED AND ABATED TAXES:

If the amount of real estate taxes is not known at the Time of Closing, they shall be apportioned on the basis of the taxes assessed for the preceding year, with a reapportionment, at the request of either party, as soon as the new tax rate and valuation can be ascertained; and, if the taxes which are to be apportioned shall thereafter be reduced by abatement, the amount of such abatement, less the reasonable cost of obtaining the same, shall be apportioned between the parties, provided that neither party shall be obligated to institute or prosecute proceedings for an abatement unless herein otherwise agreed. The terms of this Section shall survive the Closing.

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20.(a) PURCHASER’S DEFAULT; DAMAGES:

If the Purchaser shall fail to fulfill the Purchaser’s agreements herein, all deposits made hereunder by the Purchaser and all interest accrued thereon shall be retained by the Seller as liquidated damages, and this shall be the Seller’s sole and exclusive remedy for any default of Purchaser hereunder.

(b) SELLER’S DEFAULT; DAMAGES:

If the Seller shall fail to fulfill the Seller’s agreements herein, Buyer at its option shall have the right, as its sole and exclusive remedies, to either: (i) receive the return of all deposits made hereunder by Buyer, whereupon the parties shall be released from all further obligations and liabilities under this Agreement, except those obligations and liabilities which by their terms survive termination hereof; or, alternatively, (ii) seek specific performance of Seller’s obligations hereunder and/or any other equitable remedies, without thereby waiving damages.

21. NOTICES:

Whenever, by the terms of this Agreement, notice shall or may be given to Seller or to Purchaser, such notice shall be in writing and shall be delivered in hand or sent by Federal Express or other recognized overnight delivery service or by registered or certified mail, postage prepaid to the respective addresses set forth in Paragraphs 1 and 2 hereinabove, or to such other address or addresses as may from time to time hereafter be designated by like notice, or notice may be given by facsimile transmission in which proof of transmission is recorded. A copy of any such notice to Seller shall likewise be sent to Robert J. Moriarty, Jr., Esq., at Marsh, Moriarty, Ontell & Golder, P.C., 18 Tremont Street, Boston, MA 02108 or fax 617-720-2565. A copy of any such notice to Purchaser shall likewise be sent to Elizabeth A. Garner, Esq., Torpy & Garner, LLC, One Washington Mall, 15^th Floor, Boston, MA 02108, fax 617-227-6617. Any such notice shall be deemed given when so delivered in hand or, if sent by Federal Express or other recognized overnight delivery service, on the next business day after deposit with said delivery service, or, if so mailed, five (5) business days after deposit with the U.S. Postal Service, however in all events shall be timely given if delivered during the applicable Environmental Inspection Period in hand to the other party or to Federal Express or other recognized overnight delivery service. Any notice by facsimile transmission shall be deemed given one business day following confirmation of receipt.

22. LIABILITY OF TRUSTEE, SHAREHOLDER, BENEFICIARY:

If the Seller or Purchaser executes this Agreement in a representative or fiduciary capacity, only the principal or the estate represented shall be bound, except to the extent the Seller is also a beneficiary, and neither the Seller or Purchaser so executing, nor any shareholder or beneficiary of any trust, shall be personally liable for any obligation, express or implied hereunder, except for misrepresentations.

23. POST CLOSING ADJUSTMENTS:

If any errors or omissions are found to have occurred in any calculations or figures used in the settlement statement signed by the parties (or would have been included if not for any such error or omission) and notice thereof is given within two months of the Closing Date to the party to be charged, then such party agrees to make a payment to correct the error or omission.

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24. TITLE INSURANCE PROVISION:

Purchaser’s performance hereunder is conditioned upon title to the premises being insurable for the benefit of Purchaser on a standard ALTA form insurance policy by a title insurance company licensed to do business in the Commonwealth of Massachusetts at normal premium rates without exception for any matter except as permitted hereunder.

25. NO RECORDING:

Purchaser agrees not to record this Agreement or any notice hereof with the Registry of Deeds.

26. CONSTRUCTION OF AGREEMENT:

This instrument, executed in multiple counterpart copies is to be construed as a Massachusetts contract, is to take effect as a sealed instrument, sets forth the entire contract between the parties, is binding upon and enures to the benefit of the parties hereto and their respective heirs, devisees, executors, administrators, successors and assigns, and may be canceled, modified or amended only by a written instrument executed by both the Seller and the Purchaser. All offers and agreements made prior to this Agreement are hereby discharged and all further obligations of the parties are contained only in this Agreement. If two or more persons are named herein as either Seller or Purchaser their obligations hereunder shall be joint and several. The captions are used only as a matter of convenience and are not to be considered a part of this Agreement or to be used in determining the intent of the parties to it. Seller and Buyer warrant and represent that the signatories of this agreement for the Seller and Buyer are duly authorized to execute and deliver same, and to bind the applicable party.

INSURANCE:

Until the delivery of the deed, the SELLER shall maintain insurance on said premises as follows:

Type of Insurance	Amount of Coverage
(a) Fire and Extended Coverage	*$           As presently insured.

28. AUTHORITY:

Seller represents that Seller is a Massachusetts trust, duly formed and validly existing under the laws of the Commonwealth of Massachusetts, this Agreement has been and all documents executed by Seller which are to be delivered at Closing will be duly authorized, executed, and delivered, and the execution and delivery of this Agreement and the performance by Seller of its obligations hereunder do not conflict with and will not cause a breach of, any terms and conditions of any other agreement to which Seller is a party.

[The Balance of This Page is Intentionally Blank]

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SELLER:

John J. Flatley and Gregory D. Stoyle, Trustees of the 1993 Flatley Family Trust under Declaration of Trust dated September 27, 1993, and recorded with Essex South District Registry of Deeds in Book 12576, Page 107

By:	/s/Gregory D. Stoyle
Name:	Gregory D. Stoyle
Title:	as Trustees, not individually

PURCHASER: CLARE, INC.

By:	/s/Arnold P. Agbayani
Name:	Arnold P. Agbayani
Title:	Vice President

ESCROW AGENT (for purposes of Section 9 only)
Marsh, Moriarty, Ontell & Golder, P.C.,

By: _______________________________

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RIDER A TO PURCHASE AND SALE AGREEMENT
BETWEEN
JOHN J. FLATLEY AND GREGORY D. STOYLE, TRUSTEES OF THE 1993 FLATLEY FAMILY TRUST UNDER DECLARATION OF TRUST DATED SEPTEMBER 27, 1993, AND RECORDED WITH ESSEX SOUTH DISTRICT REGISTRY OF DEEDS IN BOOK 12576, PAGE 107 (THE “SELLER”)
AND
CLARE, INC. (THE “BUYER”)
FOR PREMISES LOCATED AT
78 CHERRY HILL DRIVE, BEVERLY, MASSACHUSETTS (THE “PREMISES”)

1. General Conditions. By signing at the end of this Rider A, the parties hereto agree that:

(a)	if any of the terms and conditions of this Rider shall conflict in any way with the form Purchase & Sale Agreement to which this Rider is attached (“P&S”), then the terms and conditions of this Rider shall control;
(b)	the P&S, together with the Exhibits and Riders referenced therein, are collectively referred to herein as the “Agreement”;
(c)	whenever in this Agreement the expiration of a specified number of days or other period of time giving rise to certain rights or obligations falls on a Saturday, Sunday or legal holiday, such expiration shall automatically be deemed extended to the next regular business day;
(d)	this Agreement shall not be binding upon Buyer, and no funds held as a deposit hereunder shall be negotiated, until Buyer has received a copy of this Agreement fully executed by Seller. Buyer may cancel this Agreement at any time prior to Buyer’s full receipt of a fully executed copy of this Agreement. A facsimile transmission of the executed Agreement, and any subsequent amendments hereto, shall be effective as an original;
(e)	this Agreement may be executed in any number of original counterparts, all of which evidence only one Agreement, but only one of which need be produced for any purpose;

8. [add at the end of Paragraph 8] Unless paid by Seller by separate check, there shall be deducted from the balance due to the Seller at the Closing, the following:

(a)	Massachusetts and any county deed excise tax;
(b)	Balance of any brokerage fees due from Seller;
(c)	Cost of recording discharges and releases of monetary encumbrances and any title curative documents;
(d)	Amounts required to discharge outstanding mortgages as of the next business day after the later of the Closing or the day that the deed to Buyer is recorded; and
(e)	Buyer’s counsel’s fees for procuring discharges of outstanding mortgages.

24. [add at the end of paragraph 24.]

Premises Compliance. Notwithstanding any contrary provision of this Agreement, the Premises shall not be considered to be in compliance with the provisions of this Agreement relating to title unless:

9

(a)	all buildings, structures and improvements, including, without limitation, any driveways, garages, septic systems and leaching fields, and all means of access to the Premises shall be located completely within the boundary lines of the Premises and any applicable setback lines or other applicable dimensional zoning requirements, and shall not encroach upon or under the property of any other person or entity;
(b)	no building, structure or improvement of any kind belonging to any other person or entity shall encroach upon or under the Premises;
(c)	the Premises shall abut and have access to a public way, duly laid out or accepted as such by the city or town in which said Premises are located, or there is appurtenant to the Premises, the perpetual right and easement of record to use (i) the way on which the Premises front, and (ii) any and all other roads leading to the nearest public way, for all purposes for which streets and ways are now used in said town or city, including without limitation access on foot or in motor vehicles thereon and installation and use thereon and therein of utility service lines for water, electricity, sewer, cable television and telephone service;
(d)	title to the Premises is insurable for the benefit of the Buyers in a fee owner’s policy of title insurance by a national title insurance company at normal premium rates in the American Land Title Association form currently in use, subject only to those printed exceptions to title normally included in the “jacket” to such form and those encumbrances expressly permitted under this Agreement; and
(e)	the Premises are not within any HUD flood hazard area requiring the Buyer’s purchase of HUD flood insurance or within any locally designated wetlands area.

     Additional Provisions:

29. Lease. Seller represent and warrants that the only tenancy affecting the Premises is pursuant to that certain Lease between Seller, as landlord, and Buyer, as tenant, dated October 31, 1995 (the “Buyer Lease”). Effective as of the Closing, the Buyer Lease is terminated.

30. Representations of Seller.

(a) Seller represents, warrants and agrees as follows:

(i)	Seller has not received written notice, and has no knowledge of, any pending condemnation, eminent domain or similar proceeding affecting all or any portion of the Premises and has no knowledge that any such proceeding is contemplated;
(ii)	Seller has not received written notice from the holder of any mortgage on the Premises, any insurance company that has issued a policy with respect to the Premises, or any board of fire underwriters (or other body exercising similar

10

	functions) claiming, and is not otherwise aware of, any outstanding defect or deficiency in, or requesting the performance of any repairs, alterations or other work to, the Premises;
(iii)	There are no leases, management, service, equipment, supply, labor, maintenance or similar agreements with respect to or affecting all or any portion of the Premises which shall be binding upon the Buyer subsequent to the delivery of the deed:
(iv)	To the extent the lack of payment of the following would cause a lien to arise encumbering the Premises, Seller has paid or will pay in full prior to the Closing all outstanding bills and invoices for utility charges, labor, goods, materials and services of any kind relating to the Premises except to the extent that such payment is the responsibility of Buyer, as tenant under the Lease;
(v)	Seller has no knowledge of any action, suit, proceeding or investigation pending against the Seller with respect to this Agreement, the transactions contemplated hereby, all or any portion of the Premises or the ownership thereof, in any court or before or by any federal, state, county or municipal department, commission, board, bureau, or agency or other governmental instrumentality;
(vi)	Seller has not received written notice of, and has no knowledge of, any outstanding violation of any federal, state, county or municipal laws, ordinances, orders, codes, rules, regulations, or requirements affecting all or any portion of the Premises, or of the presence or suspected presence in or under the Premises for which the Premises of any materials which might be classified as hazardous or toxic pursuant to applicable law (other than cleaning solvents and other commercially packaged supplies);
(vii)	Seller has not received written notice of, and is not otherwise aware of, any proposed or pending governmental betterment or assessments for public improvements to or for the benefit of the Premises; and
(viii)	Seller has no knowledge of any underground storage tanks at or servicing the Premises.

(b) It shall be a condition of Buyer’s obligation to close under this Agreement that all warranties and representations made by Seller hereunder shall be materially true (subject to exceptions thereto approved by Buyer in writing, such approval to be in Buyer’s sole discretion) as of the time of Closing, and Seller shall deliver to Buyer at the time of closing a certificate to that effect reasonably satisfactory in form and substance to Buyer. In the event any warranty or representation made herein shall not be materially true at the time of Closing, then, at Buyer’s option, Buyer shall either (i) waive Seller’s failure to so deliver such certificate and close as otherwise contemplated hereunder, or (ii) pursue its remedies under Paragraph 20 of this Agreement.

(c) All covenants, agreements and representations made by Seller under this Agreement shall survive the Closing for no longer than six (6) months and written notification of any claim arising

11

therefrom must be received in writing by Seller within seven (7) months of the Closing or such claims shall be forever barred and Seller shall have no liability with respect thereto.

31.	Brokers. Buyer and Seller each warrant and represent to the other that they have not contracted with or used the services of any real estate firm or broker in connection with this transaction, and each agrees to indemnify and hold the other harmless of and from any claims of any brokers claiming a brokerage commission or fee in connection with this transaction as a result of dealings with the indemnifying party. The provisions of this paragraph shall survive the Closing hereunder.
32.	BUYER INSPECTIONS. Notwithstanding any contrary provision of this Agreement, Buyer, at its sole cost and expense, shall have the right to have the Premises (and to investigate the condition of neighboring properties) inspected to ascertain whether the Premises is free of environmental contamination or any risk thereof by conducting a Phase I environmental site assessment. If the results of such inspections and reviews are not acceptable to Buyer in its sole discretion, the Buyer shall have the right to terminate the Agreement by giving written notice to the Seller on or before the Closing Date, whereupon all deposits made under this Agreement shall be forthwith refunded, all other obligations of the parties under this Agreement shall cease, and this Agreement shall be void without recourse to the Buyer or the Seller.
33.	BUYER SURVEY. Seller has delivered to Buyer a copy of an “As Built Plan of Land” showing the Premises (“Survey”) prepared by The Russell A. Wheatley Co., Inc. and dated May 8, 1997. Buyer, at its sole cost and expense, shall have the right on or before the Closing Date to update and recertify the Survey to Buyer and its title insurance company in order to remove the so-called survey exception from Buyer’s title insurance policy (the “New Survey”). If the changes in from the Survey to the New Survey are not acceptable to Buyer in its reasonable discretion, the Buyer shall have the right to terminate the Agreement by giving written notice to the Seller on or before the Closing Date, whereupon all deposits made under this Agreement shall be forthwith refunded, all other obligations of the parties under this Agreement shall cease, and this Agreement shall be void without recourse to the Buyer or the Seller.

[The Balance of This Page is Intentionally Blank]

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SELLER	BUYER
John J. Flatley and Gregory D. Stoyle, Trustees of the 1993 Flatley Family Trust under Declaration of Trust dated September 27, 1993, and recorded with Essex South District Registry of Deeds in Book 12576, Page 107	Clare, Inc., a Massachusetts corporation
By: /s/Gregory D. Stoyle	By: /s/ Arnold P. Agbayani
Name: Gregory D. Stoyle	Name: Arnold P. Agbayani
As Trustees, and not individually	Title: Vice President
Date: 4/29/05	Date: 4-29-05

13

EX-10.2

Exhibit 10.2

(translated from German)

IXYS Semiconductor GmbH
Management
Edisonstr. 15
68623 Lampertheim

2 June 2005

Dear Sirs,

with reference to our conversations, we would like to offer you a loan (loan 1):

Nominal loan value	€10,000,000.00
Payout ratio	100%
Interest rate	EURIBOR (EURO Interbank Offered Rate) in addition to an initial interest rate markup of 0.75% p.a. for interest periods of 3 months.
EURIBOR	means the EURIBOR interest rate per annum published on the Reuters page Euribor 01 at 11.00 hours Brussels time two Target days prior to the beginning of the respective interest period. If the EURIBOR rate is not announced on the respective fixing day, we shall be entitled to determine the interest rate, taking appropriate account of you interests.
Target days	are days on which Target payments are performed in the TransEuropean Automated Realtime Gross Settlement System (Target). Payments cannot be performed on Saturdays, Sundays and on Target holidays. At present Target holidays are New Year’s Day, Good Friday, Easter Monday, 1 May, Christmas Day and 26 December. There are no further Target holidays at present.
Interest period	means each period of time beginning on the day of payment or on the last day of the previous interest period and expires on the day which numerically corresponds to the first day of the respective interest period in the 3rd month afterwards; however considering that

• if there is no numerically corresponding day, the interest period shall expire on the last Target day of the respective month; or

• if the respective day is no Target day, the interest period shall expire on the following Target day or on the previous Target day if the following Target day would fall into the next calendar month; and

• an interest period must not exceed the next redemption date and shall expire on that redemption date.

	The first interest period shall, notwithstanding the provision above, be selected so that an interest period shall expire on the 1st redemption date.
Redemption date	interest shall be payable subsequently on the last day of an interest period.
Interest calculation method	the actual number of calendar days elapsed divided by 360. Since the last day of an interest period is the first day of the next interest period, the last day of an interest period is not taken into account in the calculation.
Right of premature redemption	to the end of an interest period with a 10-day period of notice. In the event of termination, the outstanding loan amount shall be payable in addition to interest on the termination date.
Redemption	60 redemption installments; 59 installments in the amount of €166,666.67 and one final installment in the amount of €166,666.47, payable on the interest dates on a quarterly basis.
	first installment on 30 September 2005 last installment on 30 June 2020
Interest on defaulted payment	If payments are not received in due time, we shall charge interest for the respective amount at 5% above the applicable base interest rate p.a. in accordance with Section 247 of the German Civil Code.
Availability	The payment obligation shall expire on 30 June 2005.
Security	The loan shall be secured by:
	the land charges (Grundschulden) registered in the Land Register (Grundbuch) of Lampertheim (Local Court (Amstgericht) Lampertheim) on Sheet 16794 in Div. III under

	numbers 1 and 2 amounting to DEM 13,250,000.00 shall be assigned to us, the IKB Deutsche Industriebank Aktiengesellschaft, Düsseldorf und Berlin, by the COMMERZBANK Aktiengesellschaft, branch Mannheim situated at Mannheim in a notarized form; we presume in this context that contractual or statutory claims for deletion of the land charges do not exist.
Payment	The credit shall be paid out as soon as we receive the following:

• declaration of consent in accordance with the enclosed draft;

• opening of an account in accordance with the draft you have received;

• power of representation in accordance with the draft you have received;

• opinion on fair market value for real property at Lampertheim, Edisonstr. 15.

Conditions for granting of the loan	During the term of the loan, you shall be obliged to conduct legal transactions only in the course of ordinary business activities and not with affiliated third parties in the sense of Section 15 of the German Stock Corporations Act (AktG) at customary conditions.
	A further condition for granting of the loan is the legally binding creation of the aforementioned land charges by 15 July 2005 by submission of the following documents:

• the notarized declaration of assignment made by COMMERZBANK Aktiengesellschaft, branch Mannheim in Mannheim in favor of IKB Deutsche Industriebank Aktiengesellschaft, Düsseldorf und Berlin with respect to the amount of DEM 13,250,000.00 in accordance with the enclosed form, in addition to all copies of land charge creation deeds (Gurndschuldbestellungsurkunden) and a certified copy of the Land Register sheet made on a date after execution of the assignment in the Land Register, on which we can identify the agreed rank at the time of assignment; instead of the aforementioned copy of the Land Register sheet, we shall be satisfied with an advance confirmation by the assignor that the land charges in the rank negotiated by us shall be held in trust by us until the assignment has been executed in the Land Register; if required, a legally effective waiver of any claims for deletion shall be made; the declaration of assignment in addition to all copies of land charge creation deeds must be submitted to us by 20 June 2005, so that we can initiate the transfer of land charges by 15 July 2005; the land charge transfer costs will be invoiced separately.

• the signed and legally binding security agreement for the land charges in accordance with the enclosed draft; please sign both copies and return them to us. We will countersign the second copy and send it back to you.

• the signed and legally binding authorization to accept service in accordance with the enclosed declaration;

• confirmation by the in-house lawyer of IXYS Corporation or an American attorney with the following content:
— the IXYS Corporation has been founded in a legally effective manner;
— the persons who signed the security agreement and the authorization to accept service are authorized to affix their legally binding signature on behalf of IXYS Corporation;
— the required approvals (Board resolution) for making the aforementioned declarations were either given or not necessary in accordance with the IXYS Corporation statutes.
This confirmation may also be prepared in English.

• a letter acceptable to us by IXYS Corporation written in English, reflecting the essential content of the security agreement and authorization to accept service and confirming that the undersigning persons have understood the content of the agreements prepared in German.

Additional prerequisites for granting of the loan / right of termination / interest rate markup Our decision to grant a loan is based, among others, on the following financial key figures calculated from the preliminary annual statement as at 31 March 2005 that you have submitted to us, and we presume that the final figures as at 31 March 2005 will not deviate significantly from the preliminary figures:

1.	Equity capital quota of 39.5%
2.	Debt equity ratio of 0.5 years

The calculation and definition of these financial key figures are shown in detail in Annex 1.

The calculated debt equity ratio mentioned above results in an interest rate markup of initially 0.75% p.a.

Changes in the debt equity ratio calculated on the basis of the annual statements you are obliged to submit to us will result in the following changes of the interest rate markup:

Interest rate markup of

Debt equity ratio of

0.70 % p.a.
0.4 and less

0.75 % p.a.
0.5 to 2.5

0.90 % p.a.
2.6 to 4.7

1.25 % p.a.
4.8 and more

Upon submission of your annual statement, we will calculate the debt equity ratio and inform you about the respective interest rate markup in writing without delay. This interest rate markup shall apply starting the interest period following the interest period in which we notify you about a change of the interest rate markup based on your annual statement submitted to us.

During the term of the loan, you shall be obliged to

• maintain an equity capital quota of at least 25%, and equity capital in the amount of at least €10,000,000.00, and

• a debt equity ratio of max. 5.5 years.

Falling below the equity capital quota, the equity capital or exceeding the debt equity ratio shall each constitute good cause for termination without notice. Furthermore, the termination provisions set forth in Item 19 of our General Terms of Business shall apply.

Duty to inform / contract adaptation

During the term of the loan, you shall continue to apply the accounting principles of the annual statement as at 31 March 2004, you shall not alter the options regarding approach and valuation and maintain the profit-and-loss format (expenditure type format /cost-of-sales format) as well as the present legal structure. You shall inform us immediately in case of any deviations and stipulate an adaptation of the financial key figure calculation or the above mentioned debt equity ratio and interest rate adaptation, respectively, if we deem this to be appropriate.

Reporting dates	You must submit your annual statement including auditor’s report at the latest 5 months after the end of your fiscal year.
Further duty to inform /auditing and inspection rights	For the duration of our business relationship, you shall grant us the right to inspect your books and records as well as your business operation.
	You shall inform us about the current economic and financial situation in writing on a quarterly basis by submitting managerial analyses (including profit-and-loss statement and balance sheet) as well as an overview of loans and collaterals at the latest 6 weeks after the end of the quarter.
Further parts of the contract	our General Terms of Business as enclosed.
Data transmission within the Group	To ensure optimum service within the IKB Group, we request your consent to company-wide data access. Please sign the declaration of consent and return it to us.
Other documents to be submitted	In order to obtain the customary letters of trust, we kindly ask you to send us
	a copy of the current fire insurance policy for the building on the company premises at Lampertheim.
	In addition, we kindly request that you provide documentation of your insurance cover for the risks of business interruption and business liability by submission of copies of the respective insurance policies.
Assignment / transfer of the credit risk to third parties, disclosure of information	We may, to ease the equity capital strain or to diversify the risk, transfer the economic risk wholly or in part to third parties; this may be by means of credit derivatives, disposal of loan claims or credit subparticipation; in this context, loan claims, including the pertaining collaterals, if applicable, may also be assigned or pledged. The disposal of rights arising hereunder can also be used for refinancing purposes. We shall be permitted to disclose the information required for this purpose to the third party as well as to any persons involved in handling the transfer for technical or legal reasons, e.g. rating agencies or auditors. In this respect, you shall also release us from the banking secrecy. Moreover, we shall be allowed to transfer the economic risk arising from the granting of the loan in an anonymous form wholly or in part to an acquirer (e.g. in context with asset-backed securities transactions).
	The third party may be a member of the European system of Central Banks, a credit institution, a financial services institution, a finance company, an insurance company, a company pension system, a pension fund, an investment company or an institutional investor.

	Prior to disclosing any information, we shall require the third party or, if applicable, any other persons set forth in the first paragraph above, to enter into a confidentiality agreement, unless the obligation to confidentiality is already given due to legal or professional regulations. Confidentiality includes keeping all customer-related data and valuations secret which they become aware of on the occasion of credit risk transfer, and to only use the information transmitted to the extent this is necessary to implement the respective measures. Prior to transferring any rights hereunder or disclosing any information, we shall require the addressee of the credit risk to enter into corresponding confidentiality agreements with any further addressees.
Direct debit collection	To simplify payment procedure, we recommend direct debit collection. Please sign the direct debit authorization and return it to us.
Turnover tax information	Services rendered in context with the granting of loans are tax-exempt pursuant to Section 4 no. 8 of the German Turnover Tax Law (UStG).
Acceptance	until 20 June 2005 using the enclosed declaration of consent.

We are looking forward to establishing business contacts with you through the present loan.

Sincerely

IKB Deutsche Industriebank AG

Deselaers                    Georgiadis

Enclosures

Appendix 1

a) The Financial Covenants are calculated as follows:

Equity-Ratio =	Equity * 100
	Adjusted Balance Sheet Total
Degree of Indebtedness =	Net Indebtedness
	Cash-Flow

b) The components of the above-mentioned terms are calculated as follows:

(Basis: preliminary annual accounts per 31.03.2005 of IXYS Semiconductor GmbH)

E Q U I T Y

	Amount in TEUR
Description	per 31.03.05
+ Nominal capital (Subscribed capital; ordinary capital; capital stock; fixed capital accounts; limited liability capital)		2,556
+ Reserves (Capital reserves; legal reserve; reserves for own holdings; statutory reserves; other revenue reserves)		7,637
+ Inappropriate net income (Profit brought forward; loss carried forward)		- 1,300
+ Result for the Year (Profit/Loss for the year)		3,456
+ Minority interest third parties		—
+ Difference deriving from capital consolidation (group) > 0		—
+ Shareholder loans (Liabilities to shareholder; variable capital accounts with positive balance)		1,687
+ Profit-sharing rights outstanding		—
+ Dormant partner capital		—
+ Jouissance right capital		—
+ Special reserve item * 50%		—
./. Own shares		—
./. Not paid-in capital		—
./. Balance between intercompany financial receivables — intercompany financial liabilities excluding liabilities to IKB (positive Balance of financial liabilities is not considered)		./. 1,811

..2

E Q U I T Y

	Amount in TEUR
Description	per 31.03.2005
./. Claims on partners / shareholders (Loans to shareholders; variable capital accounts < 0)		—
./. Goodwill		—
./. Deferred taxes		—
./. Capitalized start-up and expansion expenses		—
./. Pension reserves not carried as liabilities		—
TOTAL		12,225

Adjusted  B A L A N C E   S H E E T   T O T A L

	Amount in TEUR
Description	per 31.03.2005
+ Fixed assets		1,281
+ Current assets		29,583
+ Capitalized Prepaid expenses		15
./. Own shares		—
./. Not paid-in capital		—
./. Claims on partners / shareholders (Loans to shareholders; variable capital accounts < 0)		—
./. Goodwill		—
./. Deferred taxes		—
./. Pension reserves not carried as liabilities		—
TOTAL		30,879

C A S H – F L O W

	Amount in TEUR
Description	per 31.03.2005
+ Operating and Financial Results		5,457
+ Ordinary depreciation / Amortization on all assets		345
TOTAL		5,802

..3

O P E R A T I N G   A N D   F I N A N C I A L   R E S U L T S

	Amount in TEUR
Description	per 31.03.2005
+ Profit or loss on ordinary activities (including deviations due to converted currencies)		5,457
./. Income not relating to the period under review (income from the disposal of investments; income from claims charged off; payments and reimbursements for previous years)		—
+ Expenses not related to the period under review (book loss from disposal of investments; expenses not related to the period under review)		—
+ Special depreciation on current asset items		—
+ Depreciation on current asset items		—
+ Depreciation on financial investments		—
+ Depreciation / Amortization of goodwill		—
+ Cancellation of long-term provisions		—
+ Profit & Loss statement relevant allocation to special items with provisions component		—
./. Other taxes		—
./. Profit & Loss statement relevant release of special items with provision component		—
TOTAL		5,457

N E T   I N D E B T E D N E S S

	Amount in TEUR
Description	per 31.03.2005
+ Adjusted Balance Sheet Total		30,879
./. Equity		./. 12,225
./. Balance between intercompany financial receivables — intercompany financial liabilities excluding liabilities to IKB (positive Balance of financial liabilities is not considered)		./. 1,811
./. Trade receivables		./. 8,103
./. Other assets		./. 1,426
./. Liquid Assets (Cheques / cash assets / cash in banks; cash in accounts of Deutsche Bundesbank)		./. 4,176
TOTAL		3,138

..4

Thus the Equity-Ratio per 31.03.2005 is calculated as follows:

Equity-Ratio	=	Equity * 100
		Adjusted Balance Sheet Total
	=	TEUR 12,225.* 100	=	39.5 %
		TEUR 30,879

Thus the Degree of Indebtedness per 31.03.2005 is calculated as follows:

Degree of Indebtedness	=	Net Indebtedness
		Cash-Flow
	=	TEUR 3,138	=	0.5 Years
		TEUR 5,802

Declaration of Approval

KD 161153

We do hereby confirm our approval of your commitment regarding the

     Loan no. 1 dated 02 June 2005

which shall be subject to your General Terms and Conditions which we are aware of.

Would you please be as kind as to transfer the proceeds of the loan at our expense and risk into the account specified below as soon as the conditions of payments are fulfilled:

Account no.
Sort code
Account holder

Lampertheim, 6 June 05

(Company seal,
legally binding signatures)

EX-10.3

Exhibit 10.3

Translation from the German language

IKB Deutsche Industriebank	For internal bank use/ Filing information:
Aktiengesellschaft in Düsseldorf and Berlin Mailing address: Eschersheimer Landstraße 121 60322 Frankfurt a. M.	KD 161153

Collateral agreement on a land charge with an assignment of the restitution claims

Provider of collateral (name and address)

IXYS Corporation
Bassett Street 3540
95054 Santa Clara, California
USA

Description of the land charge(s)

Land Register / “Wohnungseigentumsgrundbuch” *separate flat owners/condominium sheet of the Land Register* / “Erbbaugrundbuch” *separate hereditary leasehold sheet of the Land Register* of	of the “Amtsgericht” *Local court* of
Lampertheim	Lampertheim

			Cadastral district		Cadastral plot
Volume	Folio		*Flur*		*Flurstück*
		16794		10	2/7, 2/10

Division III,
serial no	Currency	Amount		In words:
1	DEM		1,500,000.00	German marks one million five hundred thousand
2	DEM		11,750,000.00	German marks eleven million seven hundred and fifty thousand

Owner/Beneficiary under a hereditary leasehold of the charged *or: encumbered* real estate (name and address):

IXYS Corporation, Bassett Street 3540, 95054 Santa Clara, California, USA

The above the land charge(s) — hereinafter referred to as “the land charge” — shall be subject to the following arrangements in addition to the regulations contained in the deed creating the land charge:

2

1. Purpose of collateral

The land charge, the assumption of the personal liability as well as the assignment of the claims for restitution shall serve the purpose of

þ Securing all claims to which the Bank/IKB International S.A., Luxemburg is entitled to on the basis of the loan agreement specified below, and this also in case that the agreed term of the loan should be extended.

Specification of the loan agreement

Loan 1 *Kredit 1* in the amount of EUR 10,000,000.00 granted to IXYS Semiconductor GmbH in accordance with the written loan commitment dated 02 June 2005

o Securing all existing, future and conditional claims on the side of the Bank including all its home and overseas branches as well as on the side of IKB International S.A., Luxemburg from the bank-to-customer business relationship against the provider of collateral. If the latter has assumed the liability for the payables of another customer of the Bank (for instance as a guarantor), of the land charge shall serve as collateral for the indebtedness resulting from this assumption of liability tea from the time of the due date of the debt.

2. Extension of the scope of liability by way of assignment of the claims for restitution of higher and equally ranking land charges

(1) If there are any other present or future land charges which are in a rank preceding or equivalent to the present land charge, the claims for the restitution of such higher and equally ranking land charges and land-charge parts including any interest and side entitlements, the claims for granting of an approval for deletion, the declaration of waiver, a declaration of non-statement of value date *Nichtvalutierung*, as well as the claims for the payment of the excess proceeds in case of sale are hereby assigned upon the Bank. If the claims for restitution have already been assigned to any higher ranking land charges, the claim for restitution of these claims is hereby assigned.

3

     (2) The assignment is made on condition that the Bank shall have the right to secure satisfaction out of the realisation of the collateral at the due date of the restitution claims also on the basis of the land charge to be assigned upon it at that time, with this land charge serving as a further security in addition to the land charge mentioned above. With regard to this further land charge, the provisions of the present collateral agreement shall apply analogously.

     (3) The Bank shall have the right to notify any assignment of restitution claims to the party being compelled to such restitution.

     (4) In the case of an unregistered land charge, the claim for a surrender of the land-charge certificate and the entitlement to request their submission with the Land Register for the creation of partial land-charge certificates is also assigned.

     (5) If so requested by the Bank, the provider of collateral will deliver all declarations as are required for the assertion of the claims and entitlements as assigned above. The Bank shall have the right to obtain information on the claims secured by the above land charges from the side of higher and equally ranking land-charge creditors.

3. Use of the collateral

     (1) The Bank shall have the right to use the land charge by way of a compulsory sale by auction if the creditor fails to make due payments on the claims secured by the and land charge despite being granted a period of grace and the Bank has the a right to terminate the secured claim by reason of the contractual agreements made or on the basis of any legal provisions. A corresponding provision shall apply if the loan should not be paid back as of the date which was agreed for the repayment.

     (2) The Bank shall have a right to file the application for sequestration if the borrower is in default with a sum corresponding to 1 per cent of the nominal amount of the land charge.

     (3) The Bank shall have the right to pursue forced collection out of the assumption of personal liability if the borrower fails to make due payments when due despite the fact of being granted a period of grace.

4

     (4) The Bank shall announce any measures of forced collection in writing with a period of one month.

4. Release of collateral

(1) After having satisfied its claims which were secured by the land charge, the Bank shall release the land charge plus be traced and other rights and privileges to the provider of the collateral. The Bank shall transfer these securities upon a third party if compelled to do so. This may, for instance, be the case if a claim for restitution of the land charge was a assigned upon a third party.

(2) Event prior to the full satisfaction of its claims secured by the land charge, the Bank shall be compelled to release the lower-ranking land charges or partial land charges upon request if, and to the extent to which, the amount of the land charge is in excess of the claims so secured.

(3) If additional securities were created for the claims secured by the land charge (for instance other land charges related to other pledged objects, ABC, claims assignments), the Bank shall — beyond its release obligation contained in section 2 — be compelled to release to the respective provider of collateral upon a corresponding request and at its discretion in whole or in part either the land charge or any other security, if the realisable value of all collateral exceeds

110%

of the secured claims of the Bank not only temporarily.

(4) In context with the selection of the collateral to be released, the Bank shall take into account the justified concerns of both the provider of collateral and the creator of the additional collateral.

5. Insurance coverage for the charged real estate and pledging of claims out of the insurance coverage taken out for appurtenances

(1) the buildings and fittings as well as the appurtenances located on the charged real estate shall — if

5

not yet done — be insured at the cost of the provider of collateral against all risks for which the bank considers insurance coverage as necessary. In particular, a fire insurance policy adequate in value shall be taken out and maintained as long as the Bank shall have any claims which are secured by the land charge. If this insurance coverage shall not be established at all, or not in a sufficient degree, the Bank itself shall have the right to take out such an insurance coverage at the cost of the provider of collateral.

(2) Any claims arising out of any insurance policy which is already existing or to be taken out in the future are hereby assigned to the Bank as a pledge for the aforementioned securing purpose. The Bank shall have the right to notify the underwriter about the pledging in the name of the policy holder.

6. Information and inspection

The Bank shall have the right to ask for the submission of all information and evidence as well as for the handing over of the documents which it requires for the administration and use of the land charge. The Bank shall have the right to obtain such a information, evidence and documentation also from authorities, underwriting companies or other third parties at the cost of the borrower. The Bank shall have the right to inspect the charged real estate, the buildings and the appurtenances is and to inspect all documents regarding the charged real estate.

7. Set-off of payments

The Bank shall set off all payments made on account of the claims which are secured by the land charge, unless such payments were made in individual cases in a justified manner on the land charge itself.

The present agreement shall be subject to German law.

Place of jurisdiction: Düsseldorf

Place, date, signature of provider of collateral

Santa Clara, July 14, 2005
IXYS Corporation  
/s/ Nathan Zommer

6

Declaration made by the owner(s)/beneficiary(ies) under a hereditary leasehold of the charged real estate, if not identical to the provider of collateral

I/We, the owner(s)/beneficiary(ies) under a hereditary leasehold of the charged real estate, do hereby approve the above declaration; I/we do particularly consent to the assignment of the claim for restitution in accordance with number 2.

Place, date, signature of the owner(s)/beneficiary(ies) under a hereditary leasehold

Place, date, signature of the borrower, if not identical to the provider of collateral

Lampertheim, (date) ...

IXYS Semiconductor GmbH

(Company seal,
legally binding
signature)

Place, date, signature of the Bank

Frankfurt, (date)

IKB Deutsche Industriebank AG

()

EX-10.4

Exhibit 10.4

STANDARD OFFER, AGREEMENT AND ESCROW
INSTRUCTIONS FOR PURCHASE OF REAL ESTATE
(Non-Residential)
AIR Commercial Real Estate Association

June 17, 2005

(Date for Reference Purposes)

1. Buyer.

            1.1 Clare Micronex Integrated Systems, Inc., a California Corporation or Assignee , ( “Buyer”) hereby offers to purchase the real property, hereinafter described, from the owner thereof (“Seller”) (collectively, the “Parties” or individually, a “Party”), through an escrow (“Escrow”) to close 30 or July 29, 2005 days after the waiver or expiration of the Buyer’s Contingencies, (“Expected Closing Date”) to be held by Stewart Title Company (“Escrow Holder”) whose address is 180 N. Riverview Drive, Suite 100, Anaheim, CA 92808, Attn: Grace Kim , Phone No. 714-685-2417, Facsimile No. 714-685-2484 upon the terms and conditions set forth in this agreement (“Agreement”). Buyer shall have the right to assign Buyer’s rights hereunder, but any such assignment shall not relieve Buyer of Buyer’s obligations herein unless Seller expressly releases Buyer.

            1.2 The term “Date of Agreement” as used herein shall be the date when by execution and delivery (as defined in paragraph 20.2) of this document or a subsequent counteroffer thereto, Buyer and Seller have reached agreement in writing whereby Seller agrees to sell, and Buyer agrees to purchase, the Property upon terms accepted by both Parties.

2. Property.

            2.1 The real property (“Property”) that is the subject of this offer consists of (insert a brief physical description) approximately 27,001 square foot two-story office/R&D building       is located in the City of Aliso Viejo, County of Orange     , State of California, is commonly known by the street address of 145 Columbia      and is legally described as: to be provided in escrow     (APN: to be provided in escrow).

            2.2 If the legal description of the Property is not complete or is inaccurate, this Agreement shall not be invalid and the legal description shall be completed or corrected to meet the requirements of Stewart Title Company      (“Title Company”), which shall issue the title policy hereinafter described.

            2.3 The Property includes, at no additional cost to Buyer, the permanent improvements thereon, including those items which pursuant to applicable law are a part of the property, as well as the following items, if any, owned by Seller and at present located on the Property: electrical distribution systems (power panel, bus ducting, conduits, disconnects, lighting fixtures); telephone distribution systems (lines, jacks and connections only); space heaters; heating, ventilating, air conditioning equipment (“HVAC”); air lines; fire sprinkler systems; security and fire detection systems; carpets; window coverings; wall coverings; and None

(collectively, the “Improvements”).

            2.4 The fire sprinkler monitor: R is owned by Seller and included in the Purchase Price, £ is leased by Seller, and Buyer will need to negotiate a new lease with the fire monitoring company, or £ ownership will be determined during Escrow.

            2.5 Except as provided in Paragraph 2.3, the Purchase Price does not include Seller’s personal property, furniture and furnishings, and None all of which shall be removed by Seller prior to Closing.

3. Purchase Price.

            3.1 The purchase price (“Purchase Price”) to be paid by Buyer to Seller for the Property shall be $ 5, 115,000.00 , payable as follows:

	(a)	Cash down payment, including the Deposit as defined in paragraph 4.3 (or if an all cash
		transaction, the Purchase Price):		$	5,115,000.00
(Strike if not
applicable)	(b)	Amount of “New Loan” as defined in paragraph 5.1, if any:		$
	(c)	Buyer shall take title to the Property subject to and/or assume the following existing deed(s) of trust (“Existing Deed(s) of Trust”) securing the existing promissory note(s) (“Existing Note(s)”):
		(i)	An Existing Note (“First Note”) with an unpaid principal balance as of the Closing of approximately:	$
			Said First Note is payable at $     per month,
(Strike if not			including interest at the rate of ___% per annum until paid, and/or the
applicable)			entire unpaid balance is due on ___).
		(ii)	An Existing Note (“Second Note”) with an unpaid principal balance as of the Closing of approximately:	$
			Said Second Note is payable at $     per month, including interest at the rate of ___% per annum until paid (and/or the entire unpaid balance is due on ___).
(Strike if not applicable)	(d)	Buyer shall give Seller a deed of trust (“Purchase Money Deed of Trust”) on the property, to secure the promissory note of Buyer to Seller described in paragraph 6 (“Purchase Money Note”) in the amount of:		$

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            3.2 If Buyer is taking title to the Property subject to, or assuming, an Existing Deed of Trust and such deed of trust permits the beneficiary to demand payment of fees including, but not limited to, points, processing fees, and appraisal fees as a condition to the transfer of the Property, Buyer agrees to pay such fees up to a maximum of 1.5% of the unpaid principal balance of the applicable Existing Note.

4. Deposits.

            4.1 £ Buyer has delivered to Broker a check in the sum of $_________, payable to Escrow Holder, to be held by Broker until both Parties have executed this Agreement and the executed Agreement has been delivered to Escrow Holder, or R Buyer shall deliver to Escrow Holder a check in the sum of $100, 000.00 when both Parties have executed this Agreement and the executed Agreement has been delivered to Escrow Holder. When cashed, the check shall be deposited into the Escrow’s trust account to be applied toward the Purchase Price of the Property at the Closing. Should Buyer and Seller not enter into an agreement for purchase and sale, Buyer’s check or funds shall, upon request by Buyer, be promptly returned to Buyer.

            4.2 Additional deposits:

            (a) Within 5 business days after the Date of Agreement, Buyer shall deposit with Escrow Holder the additional sum of $_________to be applied to the Purchase Price at the Closing.

            (b) Within 5 business days after the contingencies discussed in paragraph 9.1(a) through (k) are approved or waived, Buyer shall deposit with Escrow Holder the additional sum of $_________to be applied to the Purchase Price at the Closing.

            4.3 Escrow Holder shall deposit the funds deposited with it by Buyer pursuant to paragraphs 4.1 and 4.2 (collectively the “Deposit”), in a State or Federally chartered bank in an interest bearing account whose term is appropriate and consistent with the timing requirements of this transaction. The interest therefrom shall accrue to the benefit of Buyer, who hereby acknowledges that there may be penalties or interest forfeitures if the applicable instrument is redeemed prior to its specified maturity. Buyer’s Federal Tax Identification Number is _________. NOTE: Such interest bearing account cannot be opened until Buyer’s Federal Tax Identification Number is provided.

5. Financing Contingency. (Strike if not applicable)

            5.1 This offer is contingent upon Buyer obtaining from an insurance company, financial institution or other lender, a commitment to lend to Buyer a sum equal to at least ___% of the Purchase Price, at terms reasonably acceptable to Buyer. Such loan (“New Loan”) shall be secured by a first deed of trust or mortgage on the Property. If this Agreement provides for Seller to carry back junior financing, then Seller shall have the right to approve the terms of the New Loan. Seller shall have 7 days from receipt of the commitment setting forth the proposed terms of the New Loan to approve or disapprove of such proposed terms. If Seller fails to notify Escrow Holder, in writing, of the disapproval within said 7 days it shall be conclusively presumed that Seller has approved the terms of the New Loan.

            5.2 Buyer hereby agrees to diligently pursue obtaining the New Loan. If Buyer shall fail to notify its Broker, Escrow Holder and Seller, in writing within ___days following the Date of Agreement, that the New Loan has not been obtained, it shall be conclusively presumed that Buyer has either obtained said New Loan or has waived this New Loan contingency.

            5.3 If, after due diligence, Buyer shall notify its Broker, Escrow Holder and Seller, in writing, within the time specified in paragraph 5.2 hereof, that Buyer has not obtained said New Loan, this Agreement shall be terminated, and Buyer shall be entitled to the prompt return of the Deposit, plus any interest earned thereon, less only Escrow Holder and Title Company cancellation fees and costs, which Buyer shall pay.

6. Seller Financing. (Purchase Money Note). (Strike if not applicable)

            6.1 The Purchase Money Note shall provide for interest on unpaid principal at the rate of ___% per annum, with principal and interest paid as follows:

. 

The Purchase Money Note and Purchase Money Deed of Trust shall be on the current forms commonly used by Escrow Holder, and be junior and subordinate only to the Existing Note(s) and/or the New Loan expressly called for by this Agreement.

     6.2 The Purchase Money Note and/or the Purchase Money Deed of Trust shall contain provisions regarding the following (see also paragraph 10.3(b)):

                  (a) Prepayment. Principal may be prepaid in whole or in part at any time without penalty, at the option of the Buyer.

                  (b) Late Charge. A late charge of 6% shall be payable with respect to any payment of principal, interest, or other charges, not made within 10 days after it is due.

                  (c) Due On Sale. In the event the Buyer sells or transfers title to the Property or any portion thereof, then the Seller may, at Seller’s option, require the entire unpaid balance of said Note to be paid in full.

            6.3 If the Purchase Money Deed of Trust is to be subordinate to other financing, Escrow Holder shall, at Buyer’s expense prepare and record on Seller’s behalf a request for notice of default and/or sale with regard to each mortgage or deed of trust to which it will be subordinate.

            6.4 WARNING: CALIFORNIA LAW DOES NOT ALLOW DEFICIENCY JUDGEMENTS ON SELLER FINANCING. IF BUYER ULTIMATELY DEFAULTS ON THE LOAN, SELLER’S ROLE REMEDY IS TO FORECLOSE ON THE PROPERTY.

7. Real Estate Brokers.

            7.1 The following real estate broker(s) (“Brokers”) and brokerage relationships exist in this transaction and are consented to by the Parties (check the applicable boxes):

o		represents Seller exclusively (“Seller’s Broker”);
o		represents Buyer exclusively (“Buyer’s Broker”); or
þ	CB Richard Ellis	represents both Seller and Buyer (“Dual Agency”).

The Parties acknowledge that Brokers are the procuring cause of this Agreement. See paragraph 24 regarding the nature of a real estate agency relationship. Buyer shall use the services of Buyer’s Broker exclusively in connection with any and all negotiations and offers with respect to the Property for a period of 1 year from the date inserted for reference purposes at the tope of page 1.

            7.2 Buyer and Seller each represent and warrant to the other that he/she/it has had no dealings with any person, firm, broker or finder in connection with the negotiation of this Agreement and/or the consummation of the purchase and sale contemplated herein, other than the Brokers named in paragraph 7.1, and no broker or other person, firm or entity, other than said Brokers is/are entitled to any commission or finder’s fee in connection with this transaction as the result of any dealings or acts of such Party. Buyer and Seller do each hereby agree to indemnify, defend, protect and hold the other harmless from and against any costs, expenses or liability for compensation, commission or charges which may be claimed by any broker, finder or other similar party, other than said named Brokers by reason of any dealings or act of the indemnifying Party.

8. Escrow and Closing.

            8.1 Upon acceptance hereof by Seller, this Agreement, including any counteroffers incorporated herein by the Parties, shall constitute not only the agreement of purchase and sale between Buyer and Seller, but also instructions to Escrow Holder for the consummation of the Agreement through the Escrow. Escrow Holder shall not prepare any further escrow instructions restating or amending the Agreement unless specifically so instructed by the Parties or a Broker herein. Subject to the reasonable approval of the Parties, Escrow Holder may, however, include its standard general escrow provisions.

            8.2 As soon as practical after the receipt of this Agreement and any relevant counteroffers, Escrow Holder shall ascertain the Date of Agreement as defined in paragraphs 1.2 and 20.2 and advise the Parties and Brokers, in writing, of the date ascertained.

            8.3 Escrow Holder is hereby authorized and instructed to conduct the Escrow in accordance with this Agreement, applicable law and custom and practice of the community in which Escrow Holder is located, including any reporting requirements of the Internal Revenue Code. In the event of a conflict between the law of the state where the Property is located and the law of the state where the Escrow Holder is located, the law of the state where the Property is located shall prevail.

            8.4 Subject to satisfaction of the contingencies herein described, Escrow Holder shall close this escrow (the “Closing”) by recording a general warranty deed (a grant deed in California) and the other documents required to be recorded, and by disbursing the funds and documents in accordance with this Agreement.

            8.5 Buyer and Seller shall each pay one-half of the Escrow Holder’s charges, usual recording fees and any required documentary transfer taxes. Seller shall pay the premium for a standard coverage owner’s or joint protection policy of title insurance.

            8.6 Escrow Holder shall verify that all of Buyer’s contingencies have been satisfied or waived prior to Closing. The matters contained in paragraphs 9.1 subparagraphs (b), (c), (d), (e), (g), (i), (n), and (o), 9.4, 9.5, 12, 13, 14, 16, 18, 20, 21, 22, and 24 are, however, matters of agreement between the Parties only and are not instructions to Escrow Holder.

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            8.7 If this transaction is terminated for non-satisfaction and non-waiver of a Buyer’s Contingency, as defined in paragraph 9.2, then neither of the Parties shall thereafter have any liability to the other under this Agreement, except to the extent of a breach of any affirmative covenant or warranty in this Agreement. In the event of such termination, Buyer shall be promptly refunded all funds deposited by Buyer with Escrow Holder, less only Title Company and Escrow Holder cancellation fees and costs, all of which shall be Buyer’s obligation.

            8.8 The Closing shall occur on the Expected Closing Date, or as soon thereafter as the Escrow is in condition for Closing; provided, however, that if the Closing does not occur by the Expected Closing Date and said Date is not extended by mutual instructions of the Parties, a Party not then in default under this Agreement may notify the other Party, Escrow Holder, and Brokers, in writing that, unless the Closing occurs within 5 business days following said notice, the Escrow shall be deemed terminated without further notice or instructions.

            8.9 Except as otherwise provided herein, the termination of Escrow shall not relieve or release either Party from any obligation to pay Escrow Holder’s fees and costs or constitute a waiver, release or discharge of any breach or default that has occurred in the performance of the obligations, agreements, covenants or warranties contained therein.

            8.10 If this Escrow is terminated for any reason other than Seller’s breach or default, then at Seller’s request, and as a condition to the return of Buyer’s deposit, Buyer shall within 5 days after written request deliver to Seller, at no charge, copies of all surveys, engineering studies, soil reports, maps, master plans, feasibility studies and other similar items prepared by or for Buyer that pertain to the Property. Provided, however, that Buyer shall not be required to deliver any such report if the written contract which Buyer entered into with the consultant who prepared such report specifically forbids the dissemination of the report to others.

9. Contingencies to Closing.

            9.1 The Closing of this transaction is contingent upon the satisfaction or waiver of the following contingencies. IF BUYER FAILS TO NOTIFY ESCROW HOLDER, IN WRITING, OF THE DISAPPROVAL OF ANY OF SAID CONTINGENCIES WITHIN THE TIME SPECIFIED THEREIN, IT SHALL BE CONCLUSIVELY PRESUMED THAT BUYER HAS APPROVED SUCH ITEM, MATTER OR DOCUMENT. Buyer’s conditional approval shall constitute disapproval, unless provision is made by the Seller within the time specified therefore by the Buyer in such conditional approval or by this Agreement, whichever is later, for the satisfaction of the condition imposed by the Buyer. Escrow Holder shall promptly provide all Parties with copies of any written disapproval or conditional approval which it receives. With regard to subparagraphs (a) through (I) the pre-printed time periods shall control unless a different number of days is inserted in the spaces provided.

                  (a) Disclosure. Seller shall make to Buyer, through escrow, all of the applicable disclosures required by law (See AIR Commercial Real Estate Association (“AIR”) standard form entitled “Seller’s Mandatory Disclosure Statement”) and provide Buyer with a completed Property Information Sheet (“Property Information Sheet”) concerning the Property, duly executed by or on behalf of Seller in the current form or equivalent to that published by the AIR within 10 or ___ days following the Date of Agreement. Buyer has 10 days from the receipt of said disclosures to approve or disapprove the matters disclosed.

                  (b) Physical Inspection. Buyer has 10 or until July 29, 2005 days from the receipt of the Property Information Sheet or the Date of Agreement, whichever is later, to satisfy itself with regard to the physical aspects and size of the Property.

                  (c) Hazardous Substance Conditions Report. Buyer has 30 or until July 29, 2005 days from receipt of the Property Information Sheet or the Date of Agreement, whichever is later, to satisfy itself with regard to the environmental aspects of the Property. Seller recommends that Buyer obtain a Hazardous Substance Conditions Report concerning the Property and relevant adjoining properties. Any such report shall be paid for by Buyer. A “Hazardous Substance” for purposes of this Agreement is defined as any substance whose nature and/or quantity of existence, use, manufacture, disposal or effect, render it subject to Federal, state or local regulation, investigation, remediation or removal as potentially injurious to public health or welfare. A "Hazardous Substance Condition” for purposes of this Agreement is defined as the existence on, under or relevantly adjacent to the Property of a Hazardous Substance that would require remediation and/or removal under applicable Federal, state or local law.

                  (d) Soil Inspection. Buyer has 30 or until July 29, 2005 days from receipt of the Property Information Sheet or the Date of Agreement, whichever is later, to satisfy itself with regard to the condition of the soils on the Property. Seller recommends that Buyer obtain a soil test report. Any such report shall be paid for by Buyer. Seller shall provide Buyer copies of any soils report that Seller may have within 10 days of the Date of Agreement.

                  (e) Governmental Approvals. Buyer has 30 or until July 29, 2005 days from the Date of Agreement to satisfy itself with regard to approvals and permits from governmental agencies or departments which have or may have jurisdiction over the Property and which Buyer deems necessary or desirable in connection with its intended use of the Property, including, but not limited to, permits and approvals required with respect to zoning, planning, building and safety, fire, police, handicapped and Americans with Disabilities Act requirements, transportation and environmental matters.

                  (f) Conditions of Title. Escrow Holder shall cause a current commitment for title insurance (“Title Commitment”) concerning the Property issued by the Title Company, as well as legible copies of all documents referred to in the Title Commitment (“Underlying Documents”) to be delivered to Buyer within 10 or ___days following the Date of Agreement. Buyer has until July 29, 2005, 10 days from the receipt of the Title Commitment and Underlying Documents to satisfy itself with regard to the condition of title. The disapproval of Buyer of any monetary encumbrance, which by the terms of this Agreement is not to remain against the Property after the Closing, shall not be considered a failure of this contingency, as Seller shall have the obligation, at Seller’s expense, to satisfy and remove such disapproved monetary encumbrance at or before the Closing.

                  (g) Survey. Buyer has 30 or until July 29, 2005 days from the receipt of the Title Commitment and Underlying Documents to satisfy itself with regard to any ALTA title supplement based upon a survey prepared to American Land Title Association (“ALTA”) standards for an owner’s policy by a licensed surveyor, showing the legal description and boundary lines of the Property, any easements of record, and any improvements, poles, structures and things located within 10 feet of either side of the Property boundary lines. Any such survey shall be prepared at Buyer’s direction and expense. If Buyer has obtained a survey and approved the ALTA title supplement, Buyer may elect within the period allowed for Buyer’s approval of a survey to have an ALTA extended coverage owner’s form of title policy, in which event Buyer shall pay any additional premium attributable thereto.

                  (h) Existing Leases and Tenancy Statements. Seller shall within 10 or ___days of the Date of Agreement provide both Buyer and Escrow Holder with legible copies of all leases, subleases or rental agreements (collectively, “Existing Leases”) affecting the Property, and with a tenancy statement (“Estoppel Certificate”) in the latest form or equivalent to that published by the AIR, executed by Seller and/or each tenant and subtenant of the Property. Seller shall use its best efforts to have each tenant complete and execute an Estoppel Certificate. If any tenant fails or refuses to provide an Estoppel Certificate then Seller shall complete and execute an Estoppel Certificate for that tenancy. Buyer has 10 days from the receipt of said Existing Leases and Estoppel Certificates to satisfy itself with regard to the Existing Leases and any other tenancy issues.

                  (i) Other Agreements. Seller shall within 10 or ___days of the Date of Agreement provide Buyer with legible copies of all other agreements (“Other Agreements”) known to Seller that will affect the Property after Closing. Buyer has until July 29, 2005, 10 days from the receipt of said Other Agreements to satisfy itself with regard to such Agreements.

                  (j) Financing. If paragraph 5 hereof dealing with a financing contingency has not been stricken, the satisfaction or waiver of such New Loan contingency.

                  (k) Existing Notes. If paragraph 3.1(c) has not been stricken, Seller shall within 10 or ___days of the Date of Agreement provide Buyer with legible copies of the Existing Notes, Existing Deeds of Trust and related agreements (collectively, “Loan Documents”) to which the Property will remain subject after the Closing. Escrow Holder shall promptly request from the holders of the Existing Notes a beneficiary statement (“Beneficiary Statement”) confirming: (1) the amount of the unpaid principal balance, the current interest rate, and the date to which interest is paid, and (2) the nature and amount of any impounds held by the beneficiary in connection with such loan. Buyer has 10 or ___days from the receipt of the Loan Documents and Beneficiary Statements to satisfy itself with regard to such financing. Buyer’s obligation to close is conditioned upon Buyer being able to purchase the Property without acceleration or change in the terms of any Existing Notes or charges to Buyer except as otherwise provided in this Agreement or approved by Buyer, provided, however, Buyer shall pay the transfer fee referred to in paragraph 3.2 hereof.

                  (l) Personal Property. In the event that any personal property is included in the Purchase Price, Buyer has 10 or ___days from the Date of Agreement to satisfy itself with regard to the title condition of such personal property. Seller recommends that Buyer obtain a UCC-1 report. Any such report shall be paid for by Buyer. Seller shall provide Buyer copies of any liens or encumbrances affecting such personal property that it is aware of within 10 or ___days of the Date of Agreement.

                  (m) Destruction, Damage or Loss. There shall not have occurred prior to the Closing, a destruction of, or damage or loss to, the Property or any portion thereof, from any cause whatsoever, which would cost more than $10,000.00 to repair or cure. If the cost of repair or cure is $10,000.00 or less, Seller shall repair or cure the loss prior to the Closing. Buyer shall have the option, within 10 days after receipt of written notice of a loss costing more than $10,000.00 to repair or cure, to either terminate this transaction or to purchase the Property notwithstanding such loss, but without deduction or offset against the Purchase Price. If the cost to repair or cure is more than $10,000.00, and Buyer does not elect to terminate this transaction, Buyer shall be entitled to any insurance proceeds applicable to such loss. Unless otherwise notified in writing, Escrow Holder shall assume no such destruction, damage or loss has occurred prior to Closing.

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                  (n) Material Change. Buyer shall have 10 days following receipt of written notice of a Material Change within which to satisfy itself with regard to such change. “Material Change” shall mean a change in the status of the use, occupancy, tenants, or condition of the Property that occurs after the date of this offer and prior to the Closing. Unless otherwise notified in writing, Escrow Holder shall assume that no Material Change has occurred prior to the Closing.

                  (o) Seller Performance. The delivery of all documents and the due performance by Seller of each and every undertaking and agreement to be performed by Seller under this Agreement.

                  (p) Warranties. That each representation and warranty of Seller herein be true and correct as of the Closing. Escrow Holder shall assume that this condition has been satisfied unless notified to the contrary in writing by any Party prior to the Closing.

                  (q) Brokerage Fee. Payment at the Closing of such brokerage fee as is specified in this Agreement or later written instructions to Escrow Holder executed by Seller and Brokers (“Brokerage Fee”). It is agreed by the Parties and Escrow Holder that Brokers are a third party beneficiary of this Agreement insofar as the Brokerage Fee is concerned, and that no change shall be made with respect to the payment of the Brokerage Fee specified in this Agreement, without the written consent of Brokers.

                  9.2 All of the contingencies specified in subparagraphs (a) through (p) of paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and may be elsewhere herein referred to as "Buyer’s Contingencies.”

                  9.3 If any Buyer’s Contingency or any other matter subject to Buyer’s approval is disapproved as provided for herein in a timely manner (“Disapproved Item”), Seller shall have the right within 10 days following the receipt of notice of Buyer’s disapproval to elect to cure such Disapproved Item prior to the Expected Closing Date (“Seller’s Election”). Seller’s failure to give to Buyer within such period, written notice of Seller’s commitment to cure such Disapproved Item on or before the Expected Closing Date shall be conclusively presumed to be Seller’s Election not to cure such Disapproved Item. If Seller elects, either by written notice or failure to give written notice, not to cure a Disapproved Item, Buyer shall have the election, within 10 days after Seller’s Election to either accept title to the Property subject to such Disapproved Item, or to terminate this transaction. Buyer’s failure to notify Seller in writing of Buyer’s election to accept title to the Property subject to the Disapproved Item without deduction or offset shall constitute Buyer’s election to terminate this transaction. Unless expressly provided otherwise herein, Seller’s right to cure shall not apply to the remediation of Hazardous Substance Conditions or to the Financing Contingency. Unless the Parties mutually instruct otherwise, if the time periods for the satisfaction of contingencies or for Seller’s and Buyer’s said Elections would expire on a date after the Expected Closing Date, the Expected Closing Date shall be deemed extended for 3 business days following the expiration of: (a) the applicable contingency period(s), (b) the period within which the Seller may elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the period within which Buyer may elect to proceed with this transaction, whichever is later.

                  9.4 Buyer understands and agrees that until such time as all Buyer’s Contingencies have been satisfied or waived, Seller and/or its agents may solicit, entertain and/or accept back-up offers to purchase the Property.

                  9.5 The Parties acknowledge that extensive local, state and Federal legislation establish broad liability upon owners and/or users of real property for the investigation and remediation of Hazardous Substances. The determination of the existence of a Hazardous Substance Condition and the evaluation of the impact of such a condition are highly technical and beyond the expertise of Brokers. The Parties acknowledge that they have been advised by Brokers to consult their own technical and legal experts with respect to the possible presence of Hazardous Substances on the Property or adjoining properties, and Buyer and Seller are not relying upon any investigation by or statement of Brokers with respect thereto. The Parties hereby assume all responsibility for the impact of such Hazardous Substances upon their respective interests herein.

10. Documents Required at or before Closing:

            10.1 Five days prior to the Closing date Escrow Holder shall obtain an updated Title Commitment concerning the Property from the Title Company and provide copies thereof to each of the Parties.

            10.2 Seller shall deliver to Escrow Holder in time for delivery to Buyer at the Closing:

                  (a) Grant or general warranty deed, duly executed and in recordable form, conveying fee title to the Property to Buyer.

                  (b) If applicable, the Beneficiary Statements concerning Existing Note(s).

                  (c) If applicable, the Existing Leases and Other Agreements together with duly executed assignments thereof by Seller and Buyer. The assignment of Existing Leases shall be on the most recent Assignment and Assumption of Lessor’s Interest in Lease form published by the AIR or its equivalent.

                  (d) If applicable, Estoppel Certificates executed by Seller and/or the tenant(s) of the Property.

                  (e) An affidavit executed by Seller to the effect that Seller is not a “foreign person” within the meaning of Internal Revenue Code Section 1445 or successor statutes. If Seller does not provide such affidavit in form reasonably satisfactory to Buyer at least 3 business days prior to the Closing, Escrow Holder shall at the Closing deduct from Seller’s proceeds and remit to Internal Revenue Service such sum as is required by applicable Federal law with respect to purchases from foreign sellers.

                  (f) If the Property is located in California, an affidavit executed by Seller to the effect that Seller is not a “nonresident” within the meaning of California Revenue and Tax Code Section 18662 or successor statutes. If Seller does not provide such affidavit in form reasonably satisfactory to Buyer at least 3 business days prior to the Closing, Escrow Holder shall at the Closing deduct from Seller’s proceeds and remit to the Franchise Tax Board such sum as is required by such statute.

                  (g) If applicable, a bill of sale, duly executed, conveying title to any included personal property to Buyer.

                  (h) If the Seller is a corporation, a duly executed corporate resolution authorizing the execution of this Agreement and the sale of the Property.

            10.3 Buyer shall deliver to Seller through Escrow:

                  (a) The cash portion of the Purchase Price and such additional sums as are required of Buyer under this Agreement shall be deposited by Buyer with Escrow Holder, by federal funds wire transfer, or any other method acceptable to Escrow Holder as immediately collectable funds, no later than 2:00 P.M. on the business day prior to the Expected Closing Date.

                  (b) If a Purchase Money Note and Purchase Money Deed of Trust are called for by this Agreement, the duly executed originals of those documents, the Purchase Money Deed of Trust being in recordable form, together with evidence of fire insurance on the improvements in the amount of the full replacement cost naming Seller as a mortgage loss payee, and a real estate tax service contract (at Buyer’s expense), assuring Seller of notice of the status of payment of real property taxes during the life of the Purchase Money Note.

                  (c) The Assignment and Assumption of Lessor’s Interest in Lease form specified in paragraph 10.2(c) above, duly executed by Buyer.

                  (d) Assumptions duly executed by Buyer of the obligations of Seller that accrue after Closing under any Other Agreements.

                  (e) If applicable, a written assumption duly executed by Buyer of the loan documents with respect to Existing Notes.

                  (f) If the Buyer is a corporation, a duly executed corporate resolution authorizing the execution of this Agreement and the purchase of the Property.

            10.4 At Closing, Escrow Holder shall cause to be issued to Buyer a standard coverage (or ALTA extended, if elected pursuant to 9.1(g)) owner’s form policy of title insurance effective as of the Closing, issued by the Title Company in the full amount of the Purchase Price, insuring title to the Property vested in Buyer, subject only to the exceptions approved by Buyer. In the event there is a Purchase Money Deed of Trust in this transaction, the policy of title insurance shall be a joint protection policy insuring both Buyer and Seller.

IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN ORDER TO ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING.

11. Prorations and Adjustments.

            11.1 Taxes. Applicable real property taxes and special assessment bonds shall be prorated through Escrow as of the date of the Closing, based upon the latest tax bill available. The Parties agree to prorate as of the Closing any taxes assessed against the Property by supplemental bill levied by reason of events occurring prior to the Closing. Payment of the prorated amount shall be made promptly in cash upon receipt of a copy of any supplemental bill.

            11.2 Insurance. WARNING: Any insurance which Seller may have maintained will terminate on the Closing. Buyer is advised to obtain appropriate insurance to cover the Property.

            11.3 Rentals, Interest and Expenses. Scheduled rentals, interest on Existing Notes, utilities, and operating expenses shall be prorated as of the date of Closing. The Parties agree to promptly adjust between themselves outside of Escrow any rents received after the Closing.

            11.4 Security Deposit. Security Deposits held by Seller shall be given to Buyer as a credit to the cash required of Buyer at the Closing.

            11.5 Post Closing Matters. Any item to be prorated that is not determined or determinable at the Closing shall be promptly adjusted by the Parties by appropriate cash payment outside of the Escrow when the amount due is determined.

            11.6 Variations in Existing Note Balances. In the event that Buyer is purchasing the Property subject to an Existing Deed of Trust(s), and in the event that a Beneficiary Statement as to the applicable Existing Note(s) discloses that the unpaid principal balance of such Existing Note(s) at the closing will be more or less than the amount set forth in paragraph 3.1(c) hereof (“Existing Note Variation”), then the Purchase Money Note(s) shall be reduced or increased by an amount equal to such Existing Note Variation. If there is to be no Purchase Money Note, the cash required at the Closing per paragraph 3.1(a) shall be reduced or increased by the amount of such Existing Note Variation.

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            11.7 Variations in New Loan Balance. In the event Buyer is obtaining a New Loan and the amount ultimately obtained exceeds the amount set forth in paragraph 5.1, then the amount of the Purchase Money Note, if any, shall be reduced by the amount of such excess.

12. Representation and Warranties of Seller and Disclaimers.

            12.1 Seller’s warranties and representations shall survive the Closing and delivery of the deed for a period of 3 years, and, are true, material and relied upon by Buyer and Brokers in all respects. Seller hereby makes the following warranties and representations to Buyer and Brokers:

                  (a) Authority of Seller. Seller is the owner of the Property and/or has the full right, power and authority to sell, convey and transfer the Property to Buyer as provided herein, and to perform Seller’s obligations hereunder.

                  (b) Maintenance During Escrow and Equipment Condition At Closing. Except as otherwise provided in paragraph 9.1(m) hereof, Seller shall maintain the Property until the Closing in its present condition, ordinary wear and tear excepted. The HVAC, plumbing, elevators, loading doors and electrical systems shall be in good operating order and condition at the time of Closing.

                  (c) Hazardous Substances/Storage Tanks. Seller has no knowledge, except as otherwise disclosed to Buyer in writing, of the existence or prior existence on the Property of any Hazardous Substance, nor of the existence or prior existence of any above or below ground storage tank.

                  (d) Compliance. Seller has no knowledge of any aspect or condition of the Property which violates applicable laws, rules, regulations, codes or covenants, conditions or restrictions, or of improvements or alterations made to the Property without a permit where one was required, or of any unfulfilled order or directive of any applicable governmental agency or casualty insurance company requiring any investigation, remediation, repair, maintenance or improvement be performed on the Property.

                  (e) Changes in Agreements. Prior to the Closing, Seller will not violate or modify any Existing Lease or Other Agreement, or create any new leases or other agreements affecting the Property, without Buyer’s written approval, which approval will not be unreasonably withheld.

                  (f) Possessory Rights. Seller has no knowledge that anyone will, at the Closing, have any right to possession of the Property, except as disclosed by this Agreement or otherwise in writing to Buyer.

                  (g) Mechanics’ Liens. There are no unsatisfied mechanics’ or materialmens’ lien rights concerning the Property.

                  (h) Actions, Suits or Proceedings. Seller has no knowledge of any actions, suits or proceedings pending or threatened before any commission, board, bureau, agency, arbitrator, court or tribunal that would affect the Property or the right to occupy or utilize same.

                  (i) Notice of Changes. Seller will promptly notify Buyer and Brokers in writing of any Material Change (see paragraph 9.1(n)) affecting the Property that becomes known to Seller prior to the Closing.

                  (j) No Tenant Bankruptcy Proceedings. Seller has no notice or knowledge that any tenant of the Property is the subject of a bankruptcy or insolvency proceeding.

                  (k) No Seller Bankruptcy Proceedings. Seller is not the subject of a bankruptcy, insolvency or probate proceeding.

                  (I) Personal Property. Seller has no knowledge that anyone will, at the Closing, have any right to possession of any personal property included in the Purchase Price nor knowledge of any liens or encumbrances affecting such personal property, except as disclosed by this Agreement or otherwise in writing to Buyer.

            12.2 Buyer hereby acknowledges that, except as otherwise stated in this Agreement, Buyer is purchasing the Property in its existing condition and will, by the time called for herein, make or have waived all inspections of the Property Buyer believes are necessary to protect its own interest in, and its contemplated use of, the Property. The Parties acknowledge that, except as otherwise stated in this Agreement, no representations, inducements, promises, agreements, assurances, oral or written, concerning the Property, or any aspect of the occupational safety and health laws, Hazardous Substance laws, or any other act, ordinance or law, have been made by either Party or Brokers, or relied upon by either Party hereto.

            12.3 In the event that Buyer learns that a Seller representation or warranty might be untrue prior to the Closing, and Buyer elects to purchase the Property anyway then, and in that event, Buyer waives any right that it may have to bring an action or proceeding against Seller or Brokers regarding said representation or warranty.

            12.4 Any environmental reports, soils reports, surveys, and other similar documents which were prepared by third party consultants and provided to Buyer by Seller or Seller’s representatives, have been delivered as an accommodation to Buyer and without any representation or warranty as to the sufficiency, accuracy, completeness, and/or validity of said documents, all of which Buyer relies on at its own risk. Seller believes said documents to be accurate, but Buyer is advised to retain appropriate consultants to review said documents and investigate the Property.

13. Possession.

Possession of the Property shall be given to Buyer at the Closing subject to the rights of tenants under Existing Leases.

14. Buyer’s Entry.

At any time during the Escrow period, Buyer, and its agents and representatives, shall have the right at reasonable times and subject to rights of tenants, to enter upon the Property for the purpose of making inspections and tests specified in this Agreement. No destructive testing shall be conducted, however, without Seller’s prior approval which shall not be unreasonably withheld. Following any such entry or work, unless otherwise directed in writing by Seller, Buyer shall return the Property to the condition it was in prior to such entry or work, including the recompaction or removal of any disrupted soil or material as Seller may reasonably direct. All such inspections and tests and any other work conducted or materials furnished with respect to the Property by or for Buyer shall be paid for by Buyer as and when due and Buyer shall indemnify, defend, protect and hold harmless Seller and the Property of and from any and all claims, liabilities, losses, expenses (including reasonable attorneys’ fees), damages, including those for injury to person or property, arising out of or relating to any such work or materials or the acts or omissions of Buyer, its agents or employees in connection therewith.

15. Further Documents and Assurances.

The Parties shall each, diligently and in good faith, undertake all actions and procedures reasonably required to place the Escrow in condition for Closing as and when required by this Agreement. The Parties agree to provide all further information, and to execute and deliver all further documents, reasonably required by Escrow Holder or the Title Company.

16. Attorneys’ Fees.

If any Party or Broker brings an action or proceeding (including arbitration) involving the Property whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.

17. Prior Agreements/Amendments.

            17.1 This Agreement supersedes any and all prior agreements between Seller and Buyer regarding the Property.

            17.2 Amendments to this Agreement are effective only if made in writing and executed by Buyer and Seller.

18. Broker’s Rights.

            18.1 If this sale is not consummated due to the default of either the Buyer or Seller, the defaulting Party shall be liable to and shall pay to Brokers the Brokerage Fee that Brokers would have received had the sale been consummated. If Buyer is the defaulting party, payment of said Brokerage Fee is in addition to any obligation with respect to liquidated or other damages.

            18.2 Upon the Closing, Brokers are authorized to publicize the facts of this transaction.

19. Notices.

            19.1 Whenever any Party, Escrow Holder or Brokers herein shall desire to give or serve any notice, demand, request, approval, disapproval or other communication, each such communication shall be in writing and shall be delivered personally, by messenger or by mail, postage prepaid, to the address set forth in this Agreement or by facsimile transmission.

            19.2 Service of any such communication shall be deemed made on the date of actual receipt if personally delivered. Any such communication sent by regular mail shall be deemed given 48 hours after the same is mailed. Communications sent by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed delivered 24 hours after delivery of the same to the Postal Service or courier. Communications transmitted by facsimile transmission shall be deemed delivered upon telephonic confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If such communication is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

            19.3 Any Party or Broker hereto may from time to time, by notice in writing, designate a different address to which, or a different person or additional persons to whom, all communications are thereafter to be made.

20. Duration of Offer.

            20.1 If this offer is not accepted by Seller on or before 5:00 P.M. according to the time standard applicable to the city of Newport Beach, California on the date of August 4, 2005 , it shall be deemed automatically revoked.

            20.2 The acceptance of this offer, or of any subsequent counteroffer hereto, that creates an agreement between the Parties as described in paragraph 1.2, shall be deemed made upon delivery to the other Party or either Broker herein of a duly executed writing unconditionally accepting the last outstanding offer or counteroffer.

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21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable only if initialed by both Parties).

THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO FIX, PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT. THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES PROVIDED FOR THE BUYER’S BENEFIT, BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF $100,000.00 . UPON PAYMENT OF SAID SUM TO SELLER, BUYER SHALL BE RELEASED FROM ANY FURTHER LIABILITY TO SELLER, AND ANY ESCROW CANCELLATION FEES AND TITLE COMPANY CHARGES SHALL BE PAID BY SELLER.

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22. ARBITRATION OF DISPUTES. (This Arbitration of Disputes paragraph is applicable only if initialed by both Parties.)

            22.1 ANY CONTROVERSY AS TO WHETHER SELLER IS ENTITLED TO THE LIQUIDATED DAMAGES AND/OR BUYER IS ENTITLED TO THE RETURN OF DEPOSIT MONEY, SHALL BE DETERMINED BY BINDING ARBITRATION BY, AND UNDER THE COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION (“COMMERCIAL RULES”). ARBITRATION HEARINGS SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED. ANY SUCH CONTROVERSY SHALL BE ARBITRATED BY 3 ARBITRATORS WHO SHALL BE IMPARTIAL REAL ESTATE BROKERS WITH AT LEAST 5 YEARS OF FULL TIME EXPERIENCE IN BOTH THE AREA WHERE THE PROPERTY IS LOCATED AND THE TYPE OF REAL ESTATE THAT IS THE SUBJECT OF THIS AGREEMENT. THEY SHALL BE APPOINTED UNDER THE COMMERCIAL RULES. THE ARBITRATORS SHALL HEAR AND DETERMINE SAID CONTROVERSY IN ACCORDANCE WITH APPLICABLE LAW, THE INTENTION OF THE PARTIES AS EXPRESSED IN THIS AGREEMENT AND ANY AMENDMENTS THERETO, AND UPON THE EVIDENCE PRODUCED AT AN ARBITRATION HEARING. PRE-ARBITRATION DISCOVERY SHALL BE PERMITTED IN ACCORDANCE WITH THE COMMERCIAL RULES OR STATE LAW APPLICABLE TO ARBITRATION PROCEEDINGS. THE AWARD SHALL BE EXECUTED BY AT LEAST 2 OF THE 3 ARBITRATORS, BE RENDERED WITHIN 30 DAYS AFTER THE CONCLUSION OF THE HEARING, AND MAY INCLUDE ATTORNEYS’ FEES AND COSTS TO THE PREVAILING PARTY PER PARAGRAPH 16 HEREOF. JUDGMENT MAY BE ENTERED ON THE AWARD IN ANY COURT OF COMPETENT JURISDICTION NOTWITHSTANDING THE FAILURE OF A PARTY DULY NOTIFIED OF THE ARBITRATION HEARING TO APPEAR THEREAT.

            22.2 BUYER’S RESORT TO OR PARTICIPATION IN SUCH ARBITRATION PROCEEDINGS SHALL NOT BAR SUIT IN A COURT OF COMPETENT JURISDICTION BY THE BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE UNLESS AND UNTIL THE ARBITRATION RESULTS IN AN AWARD TO THE SELLER OF LIQUIDATED DAMAGES, IN WHICH EVENT SUCH AWARD SHALL ACT AS A BAR AGAINST ANY ACTION BY BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE.

            22.3 NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION TO NEUTRAL ARBITRATION.

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23. Miscellaneous.

            23.1 Binding Effect. This Agreement shall be binding on the Parties without regard to whether or not paragraphs 21 and 22 are initialed by both of the Parties. Paragraphs 21 and 22 are each incorporated into this Agreement only if initialed by both Parties at the time that the Agreement is executed.

            23.2 Applicable Law. This Agreement shall be governed by, and paragraph 22.3 is amended to refer to, the laws of the state in which the Property is located.

            23.3 Time of Essence. Time is of the essence of this Agreement.

            23.4 Counterparts. This Agreement may be executed by Buyer and Seller in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Escrow Holder, after verifying that the counterparts are identical except for the signatures, is authorized and instructed to combine the signed signature pages on one of the counterparts, which shall then constitute the Agreement.

            23.5 Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

            23.6 Conflict. Any conflict between the printed provisions of this Agreement and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

            23.7 1031 Exchange. Both Seller and Buyer agree to cooperate with each other in the event that either or both wish to participate in a 1031 exchange. Any party initiating an exchange shall bear all costs of such exchange.

24. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

            24.1 The Parties and Brokers agree that their relationship(s) shall be governed by the principles set forth in the applicable sections of the California Civil Code, as summarized in paragraph 24.2.

            24.2 When entering into a discussion with a real estate agent regarding a real estate transaction, a Buyer or Seller should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Buyer and Seller acknowledge being advised by the Brokers in this transaction, as follows:

                  (a) Seller’s Agent. A Seller’s agent under a listing agreement with the Seller acts as the agent for the Seller only. A Seller’s agent or subagent has the following affirmative obligations: (1) To the Seller: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller. (2) To the Buyer and the Seller: a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

                  (b) Buyer’s Agent. A selling agent can, with a Buyer’s consent, agree to act as agent for the Buyer only. In these situations, the agent is not the Seller’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Seller. An agent acting only for a Buyer has the following affirmative obligations. (1) To the Buyer: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Buyer. (2) To the Buyer and the Seller: a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

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                  (c) Agent Representing Both Seller and Buyer. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Seller and the Buyer in a transaction, but only with the knowledge and consent of both the Seller and the Buyer. (1) In a dual agency situation, the agent has the following affirmative obligations to both the Seller and the Buyer: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Seller or the Buyer. b. Other duties to the Seller and the Buyer as stated above in their respective sections (a) or (b) of this paragraph 24.2. (2) In representing both Seller and Buyer, the agent may not without the express permission of the respective Party, disclose to the other Party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered. (3) The above duties of the agent in a real estate transaction do not relieve a Seller or Buyer from the responsibility to protect their own interests. Buyer and Seller should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

                  (d) Further Disclosures. Throughout this transaction Buyer and Seller may receive more than one disclosure, depending upon the number of agents assisting in the transaction. Buyer and Seller should each read its contents each time it is presented, considering the relationship between them and the real estate agent in this transaction and that disclosure. Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Agreement shall not exceed the fee received by such Broker pursuant to this Agreement; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

            24.3 Confidential Information: Buyer and Seller agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

25.      Construction of Agreement. In construing this Agreement, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Agreement. Whenever required by the context, the singular shall include the plural and vice versa. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Agreement shall mean and refer to calendar days. This Agreement shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it.

26      Additional Provisions:
Additional provisions of this offer, if any, are as follows or are attached hereto by an addendum consisting of paragraphs 26 . 1 through 26.1 . (If there are no additional provisions write “NONE”.)

26.1 1031 Exchange: Should Seller attempt to complete a 1031 Tax Deferred Exchange, Buyer agrees to cooperate with Seller and sign all required documents provided Buyer does not incur any additional liability or cost.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS AGREEMENT.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PROPERTY. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE INTEGRITY AND CONDITION OF ANY STRUCTURES AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PROPERTY FOR BUYER’S INTENDED USE.

WARNING: IF THE PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THIS AGREEMENT MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.

NOTE:

            1. THIS FORM IS NOT FOR USE IN CONNECTION WITH THE SALE OF RESIDENTIAL PROPERTY.

            2. IF THE BUYER IS A CORPORATION, IT IS RECOMMENDED THAT THIS AGREEMENT BE SIGNED BY TWO CORPORATE OFFICERS.

The undersigned Buyer offers and agrees to buy the Property on the terms and conditions stated and acknowledges receipt of a copy hereof.

BROKER:		BUYER:
CB Richard Ellis		Clare Micronex Integrated Systems, Inc., a California
		Corporation or Assignee
Attn:	Scott Kenny	By:	Uzi Sasson
Title:		Date:	8/3/2005
Address:	2125 E. Katella, Suite 100	Name Printed:	Uzi Sasson
	Anaheim, CA 92806	Title:	Vice President
Telephone:	(714) 939-2100	Telephone:	(408) 982-4362
Facsimile:	(714) 939-2170	Facsimile:	(408) 748-9788
Email: scott.kenny@cbre.com
Federal ID No.		By:	Uzi Sasson
		Date:	8/3/2005
		Name Printed:	Uzi Sasson
		Title:	Secretary
		Address:	3540 Bassett Street
			Santa Clara, CA 95054
		Telephone:	(___)
		Facsimile:	(___)
		Email:
		Federal ID No.

27. Acceptance.

            27.1 Seller accepts the foregoing offer to purchase the Property and hereby agrees to sell the Property to Buyer on the terms and conditions therein specified.

            27.2 Seller acknowledges that Brokers have been retained to locate a Buyer and are the procuring cause of the purchase and sale of the

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©2003 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM OFA-5-3/04E

Property set forth in this Agreement. In consideration of real estate brokerage service rendered by Brokers, Seller agrees to pay Brokers a real estate Brokerage Fee in a sum equal to $204, 600.00       % of the Purchase Price divided in such shares as said Brokers shall direct in writing. This Agreement shall serve as an irrevocable instruction to Escrow Holder to pay such Brokerage Fee to Brokers out of the proceeds accruing to the account of Seller at the Closing.

            27.3 Seller acknowledges receipt of a copy hereof and authorizes Brokers to deliver a signed copy to Buyer.

NOTE: A PROPERTY INFORMATION SHEET IS REQUIRED TO BE DELIVERED TO BUYER BY SELLER UNDER THIS AGREEMENT.

BROKER:		SELLER:
CB Richard Ellis		145 Family Ltd. Partnership, a Nevada Limited
		Partnership by Sierra Nevada Property Management
		Services, Inc., a Nevada corporation, General Partner
Attn:	Greg Haly
Title:	Senior Vice President
Address:	3501 Jamboree Road, Suite 100	By:	/s/Charles Chambers
	Newport Beach, CA 92660	Date:
Telephone:	(949) 725-8632	Name Printed:	Charles Chambers
Facsimile:	(949) 725-8545	Title:	President
Email:	gregg.haly@cbre.com	Telephone:	( )
Federal ID No.		Facsimile:	( )
		By:
		Date:
		Name Printed:
		Title:
			Address: 1811 S. Rainbow Blvd., #100
			Las Vegas, NV 89146
		Telephone:	(___)
		Facsimile:	(___)
		Email:
		Federal ID No.

These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.

© Copyright 2003 By AIR Commercial Real Estate Association.
AH rights reserved.
No part of these works may be reproduced in any form without permission in writing.

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INITIALS INITIALS

©2003 - AIR COMMERCIAL REAL ESTATE ASSOCIATION FORM OFA-5-3/04E

EX-10.5

Exhibit 10.5

BONUS CRITERIA FOR NATHAN ZOMMER
FOR THE FISCAL YEAR ENDED MARCH 31, 2006

On June 2, 2005, the Compensation Committee (the “Committee”) of the Board of Directors of IXYS Corporation (the “Company”) set potential bonus levels and objectives to use in determining the amount of the cash bonus payable to Dr. Nathan Zommer, the Chief Executive Officer of the Company, in respect of the fiscal year ending March 31, 2006. The Committee also established weights for the objectives, to indicate their relative importance. In doing so, the Committee considered the advice of an independent compensation consultant.

In setting the bonus levels, objectives and weights, the Committee approved the following language:

“The bonus levels and objectives, along with the weights accorded the objectives, represent guidelines for the Committee to use in evaluating the bonus to be paid to the Chief Executive Officer and for the Chief Executive Officer to use in understanding the goals of the Compensation Committee for his performance. As guidelines, the bonus levels, objectives and weights are not determinative in and of themselves of the amount of the bonus. The amount of the bonus will be determined by the Committee in light of its evaluation of the Chief Executive Officer’s performance in total and not based on the mechanical application of any formula. The Committee may decide to award additional amounts for performance in excess of an objective or award lesser amounts for partial performance of an objective. The Committee may also consider factors not set forth below in ultimately determining the amount of the bonus. Thus, the amount of the bonus to be paid is in the discretion of the Committee, to be determined after completion of the fiscal year.”

The Committee set three different potential levels for Dr. Zommer’s fiscal 2006 cash bonus as follows:

Acceptable performance: $250,000

Target bonus: $300,000

Performance above expectations: $400,000

The objectives are described below:

1. A quantitative target for net revenues for fiscal 2006;

2. A quantitative target for gross margin for fiscal 2006; and

3. Overall performance during fiscal 2006, including an evaluation of infrastructure development, the business plan and the integration of acquisitions.

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: August 12, 2005
	/s/ Nathan Zommer
	Nathan Zommer
	President, 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: August 12, 2005
	/s/ Uzi Sasson
	Uzi Sasson
	Vice President of Finance and 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 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 June 30, 2005, 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: August 12, 2005
	/s/ Nathan Zommer
	Nathan Zommer
	Chief Executive Officer
	/s/ Uzi Sasson
	Uzi Sasson
	Chief Financial Officer