10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2006

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
(State or other jurisdiction
of incorporation or organization) 77-0140882
(IRS Employer Identification No.)

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

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

Yes o           No þ

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of January 31, 2007 was 32,891,945.

IXYS CORPORATION

FORM 10-Q
December 31, 2006

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		16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 4. CONTROLS AND PROCEDURES		25
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		26
ITEM 1A RISK FACTORS		26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		38
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		38
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		38
ITEM 5. OTHER INFORMATION		38
ITEM 6. EXHIBITS		38
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,			March 31,
	2006			2006
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	61,101		$	78,192
Restricted cash		214			313
Accounts receivable, net of allowances of $3,656 at December 31, 2006 and $2,609 at March 31, 2006		43,058			42,774
Inventories		88,551			60,357
Prepaid expenses and other current assets		3,431			4,121
Deferred income taxes, net		10,263			25,049
Total current assets		206,618			210,806
Property, plant and equipment, net		46,537			40,049
Other assets		5,366			5,099
Deferred income taxes, net		16,978			16,552
Goodwill		7,481			7,481
Total assets	$	282,980		$	279,987
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	2,835		$	2,255
Current portion of loans payable		895			973
Accounts payable		24,550			20,259
Accrued expenses and other current liabilities		26,683			24,889
Litigation reserve		13,877			43,615
Total current liabilities		68,840			91,991
Capitalized lease obligations, net of current portion		4,583			3,762
Long term loans, net of current portion		11,007			10,685
Pension liabilities		14,679			13,576
Total liabilities		99,109			120,014
Commitments and contingencies (Note 11)
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; 34,847,076 issued and 32,890,045 outstanding at December 31, 2006 and 34,677,834 issued and 34,152,343 outstanding at March 31, 2006		348			347
Additional paid-in capital		164,783			161,118
Less cost of treasury stock: 1,957,031 shares at December 31, 2006 and 525,491 shares at March 31, 2006		(17,647	)		(4,454	)
Note receivable from stockholder		—			(59	)
Retained earnings/(accumulated deficit)		27,364			(614	)
Accumulated other comprehensive income		9,023			3,635
Total stockholders’ equity		183,871			159,973
Total liabilities and stockholders’ equity	$	282,980		$	279,987

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

3

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except net (loss) income per share)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
	(unaudited)						(unaudited)
Net revenues	$	72,274		$	60,336		$	211,890		$	187,062
Cost of goods sold		49,797			41,399			145,409			125,749
Gross profit		22,477			18,937			66,481			61,313
Operating expenses:
Research, development and engineering		4,890			4,960			14,919			13,199
Selling, general and administrative		10,278			8,707			33,162			27,869
Litigation provision (credit)		6,906			51,500			(29,738	)		51,500
Total operating expenses		22,074			65,167			18,343			92,568
Operating income (loss)		403			(46,230	)		48,138			(31,255	)
Other income (expense):
Interest income		647			873			2,155			1,675
Interest expense		(241	)		(85	)		(712	)		(222	)
Other (expense) income, net		(1,269	)		(47	)		(2,950	)		500
(Loss) income before income tax		(460	)		(45,489	)		46,631			(29,302	)
Benefit from (provision for) income tax		354			(1,601	)		(18,653	)		(7,104	)
Net (loss) income	$	(106	)	$	(47,090	)	$	27,978		$	(36,406	)
Net (loss) income per share—basic	$	0.00		$	(1.40	)	$	0.83		$	(1.09	)
Weighted average shares used in per share calculation — basic		33,264			33,593			33,793			33,514
Net (loss) income per share—diluted	$	0.00		$	(1.40	)	$	0.80		$	(1.09	)
Weighted average shares used in per share calculation — diluted		33,264			33,593			35,072			33,514

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

4

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2006			2005			2006		2005
	(unaudited)						(unaudited)
Net (loss) income	$	(106	)	$	(47,090	)	$	27,978	$	(36,406	)
Other comprehensive income:
Unrealized gain on available for sale investment securities, net of taxes of $160 and $421 for the three and nine months		198			—			280		—
Foreign currency translation adjustments		2,402			(678	)		5,108		(4,164	)
Total comprehensive income (loss)	$	2,494		$	(47,768	)	$	33,366	$	(40,570	)

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)

	Nine Months Ended
	December 31,
	2006			2005
	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	27,978		$	(36,406	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		7,714			6,207
Provision for receivables allowances		6,960			3,874
Movement in inventory reserves		2,007			2,876
Movement in litigation provision		(29,738	)		51,500
Stock compensation		1,574			—
Foreign currency translation on intercompany transactions		200			(283	)
Deferred income taxes		15,481			(5	)
Gain on investments		(494	)		—
(Gain) loss on disposal of fixed assets		(2	)		9
Compensation expense for notes from stockholders		—			3
Changes in operating assets and liabilities:
Accounts receivable		(5,423	)		(2,816	)
Inventories		(27,012	)		(5,358	)
Prepaid expenses and other current assets		825			(537	)
Other assets		159			1,235
Accounts payable		3,037			1,528
Accrued expenses and other liabilities		620			5,980
Pension liabilities		(242	)		(413	)
Net cash provided by operating activities		3,644			27,394
Cash flows from investing activities:
Change in restricted cash		99			(631	)
Purchase of investments		(198	)		(1,094	)
Proceeds from sale of investments		708			—
Purchase of property, plant and equipment		(8,784	)		(18,466	)
Net cash used in investing activities		(8,175	)		(20,191	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(2,562	)		(1,203	)
Proceeds from loans		—			11,892
Repayment of loans		(803	)		—
Purchase of treasury stock		(13,193	)		(2,531	)
Proceeds from equity plans		982			4,399
Collection on notes from stockholders		59			309
Net cash (used in) provided by financing activities		(15,517	)		12,866
Effect of foreign exchange rate fluctuations on cash and cash equivalents		2,957			(1,810	)
Net (decrease) increase in cash and cash equivalents		(17,091	)		18,259
Cash and cash equivalents at beginning of period		78,192			58,144
Cash and cash equivalents at end of period	$	61,101		$	76,403

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

6

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, goodwill, and intangible assets, revenue recognition, legal contingencies, income tax and pension liabilities. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. The condensed balance sheet as of March 31, 2006 has been derived from the Company’s audited balance sheet as of that date. 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, 2006 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.

2. Accounting for Stock-Based Compensation

Stock Purchase and Stock Option Plans:

Stock Options

     Stock options may be granted under the 1999 Equity Incentive Plan and the 1999 Non-Employee Directors’ Equity Incentive Plan (the “Plans”) for not less than 85% of fair market value at the time of grant. The options, once granted, expire ten years from the date of grant. Options granted to employees under the 1999 Equity Incentive Plan typically vest over four years. The initial option grants under the 1999 Non-Employee Directors’ Equity Incentive Plan typically vest over four years and subsequent annual grants vest over one year. The Board of Directors has the full power to determine the provisions of each option issued under the Plans. No options have been granted below fair market value. The Company also grants net exercise options. These options generally vest over a period of four years. In a net exercise option, the number of shares obtained by exercising the stock option is net of the number of shares subject to the option that the Company cancels to cover the aggregate exercise price.

     Since inception, the cumulative amount authorized for the 1999 Equity Incentive Plan was approximately 10.6 million shares. The 1999 Equity Incentive Plan has an evergreen feature that adds up to 1,000,000 shares to the total shares authorized each year at the discretion of the board. The 1999 Non-Employee Directors’ Equity Incentive Plan had a total of 500,000 shares authorized at its inception date.

Employee Stock Purchase Plan

     In May 1999, IXYS approved the 1999 Employee Stock Purchase Plan (“Purchase Plan”) and reserved 500,000 shares of common stock for issuance under the Purchase Plan. Under the Purchase Plan, substantially all employees may purchase the Company’s common stock at a price equal to 85% of the lower of the fair market value at the beginning or the end of each specified six-month offering period. Stock purchases are limited to 15% of an employee’s eligible compensation. During the quarter ended December 31, 2006, there were approximately 38,000 shares purchased under the Purchase Plan, leaving about 72,000 shares available for purchase under the plan in the future.

Restricted Stock Units

     On May 12, 2006, the Board of Directors of the Company amended the Company’s 1999 Equity Incentive Plan to provide for the grant of Restricted Stock Unit Awards (“RSUs”). Pursuant to an award, the Company will, in the future, deliver shares of the Company’s common stock if certain requirements, including continued performance of services, are met. RSUs granted to employees typically vest over four years. When vested, each RSU will entitle the holder of the RSU award to one share of the Company’s common stock. The Company continued issuing restricted stock units to employees and directors under the plan during the quarter ended December 31, 2006.

Stock Bonuses

     Under the Plans, IXYS may also award shares of common stock as stock bonuses.

7

Stock Compensation:

     Effective April 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123(R). SFAS No. 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award. The Company previously accounted for awards granted under its equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended. Accordingly, no share-based compensation, other than acquisition-related compensation, was recognized in the financial statements through fiscal 2006.

     Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the Company beginning in fiscal 2007 includes compensation cost for all equity incentive awards granted prior to, but not yet vested as of April 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and compensation cost for all equity incentive awards granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company uses the straight-line attribution method to recognize share-based compensation costs over the service period of the award.

     The fair value of issuances under the Company’s Purchase Plan is estimated on the issuance date by applying the principles of Financial Accounting Standards Board, or FASB, Technical Bulletin 97-1 (“FTB 97-1”), “Accounting under Statement 123 for Certain Employee Stock Purchase Plan with a Look Back Option”, and using the Black-Scholes-Merton options pricing model.

     Share-based compensation recognized in the three and nine month periods ended December 31, 2006 as a result of the adoption of SFAS No. 123(R) as well as pro forma disclosures according to the original provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123(R) use the Black-Scholes-Merton option pricing model for estimating fair value of options granted under the Plans and rights to acquire stock under the Purchase Plan.

     The following table summarizes the effects of share-based compensation recognized on our consolidated statement of income resulting from the application of SFAS No. 123(R) to options granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s employee Purchase Plan (in thousands except per share amounts):

	Three Months				Nine Months Ended
	Ended December 31,				December 31,
	2006		2005		2006		2005
	(unaudited)
Income Statement Classifications
Selling, general and administrative expenses	$	482		—	$	1,574		—
Share-based compensation effect in income before taxes		482		—		1,574		—
Income taxes 1		193		—		630		—
Net share-based compensation effects in net (loss) income	$	289		—	$	944		—
Share-based compensation effect on net (loss) income per share — basic	$	0.01		—	$	0.03		—
Share-based compensation effect on net (loss) income per share — diluted	$	0.01		—	$	0.03		—

¹ Estimated at a statutory income tax rate of 40%

     For the three and nine months ended December 31, 2006, the unaudited condensed consolidated statements of operations and the cash flow statements do not reflect any tax benefit for the tax deduction from option exercises and other awards. As of December 31, 2006, there were $2.2 million of total unrecognized compensation costs related to stock options granted under the Plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.7 years.

8

     Pro forma information required under SFAS No. 123 for periods prior to fiscal 2007, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted under the Plans and rights to acquire stock granted under the Purchase Plan, was as follows (in thousands except per share amounts):

	Three Months			Nine Months
	Ended			Ended
	December 31, 2005
	(unaudited)
Net loss, as reported	$	(47,090	)	$	(36,406	)
Less: Total stock-based compensation determined under fair value based methods for all awards to employees, net of tax		(400	)		(5,226	)
Pro forma net loss	$	(47,490	)	$	(41,632	)
Reported basic net loss per share	$	(1.40	)	$	(1.09	)
Pro forma basic net loss per share	$	(1.41	)	$	(1.24	)
Reported diluted net loss per share	$	(1.40	)	$	(1.09	)
Pro forma diluted net loss per share	$	(1.41	)	$	(1.24	)

     The weighted average estimated values of employee stock option grants and rights granted under the Purchase Plan, as well as the weighted average assumptions that were used in calculating such values during the third quarter of fiscal 2006 and 2005 and the first nine months of 2006 and 2005, were based on estimates at the date of grant as follows:

	Stock Options						Purchase Plan
	Nine months ended						Three months ended						Nine months ended
	December 31,1						December 31,						December 31,
	2006			20052			2006			20052			2006			20052
Weighted average estimated per share fair value of grant	$	4.2		$	6.7		$	2.2		$	4.1		$	2.3		$	3.6
Risk-free interest rate		4.9	%		3.9	%		4.9	%		3.2	%		4.5	%		2.4	%
Expected term (in years)		3.7			4.0			0.5			0.5			0.5			0.5
Volatility		54.0	%		63.0	%		51.0	%		57.0	%		53.0	%		57.0	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%

1	No options were granted in the quarters ended December 31, 2006 and 2005
2	Assumptions were used in the calculation of fair value according to the original provisions of SFAS No. 123.

     The Company estimates the expected term of options granted based on the historical average period over which the options are exercised by employees. The Company estimates the volatility of our common stock on historical volatility measures. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grants and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

     The Company recognizes the estimated compensation cost of restricted stock over the vesting term. The estimated compensation cost is based on the fair value of IXYS’s common stock on the date of grant. 7,000 and 158,000 restricted stock units were granted during the three and nine month periods ended December 31, 2006, respectively. The weighted average fair value of the restricted stock units granted in the three and nine month periods ended December 31, 2006 was $9.32 and $9.48, respectively.

     The Company recognizes the compensation cost relating to stock bonuses on the date of grant based on the fair value of IXYS’s common stock on the date of grant, as such stock bonuses are vested immediately. No stock bonus was granted for the quarter ended December 31, 2006. For the nine month period ended December 31, 2006, the total stock bonus granted was 10,000 shares with a weighted average fair value of $9.34.

9

     Stock compensation activity under the Company’s equity incentive plans for the nine months ended December 31, 2006 is summarized below:

	Shares			Options Outstanding							Weighted Average
	Available for			Number of			Exercise Price		Intrinsic		Exercise Price Per
	Grant			Shares			Per Share		Value1		Share
									(000)
Balances, March 31, 2006		4,136,916			4,844,492		$	1.69 - $36.24			$	8.09
New shares authorized		1,000,000
Net exercise options granted		(30,000	)		30,000		$	8.98 - $9.73			$	9.36
Options exercised					(80,253	)	$	3.625-$6.75	$	440	$	4.04
Options cancelled		24,600			(24,600	)					$	7.07
Options expired		20,847			(118,631	)	$	2.161 - $21.36			$	5.62
Total, December 31, 2006		5,152,363			4,651,008		$	1.69 - $36.24	$	11,049	$	7.96
Exercisable, December 31, 2006					4,183,783				$	10,656	$	8.16
Restricted stock units		(158,000	)		158,000			—	$	1,406
Stock bonus granted		(10,000	)		—			—
Balance, December 31, 2006		4,984,363

¹ Except for options exercised, these amounts represent the difference between the exercise price and $8.90, the closing price of IXYS stock on December 31, 2006 as reported on the Nasdaq Stock Market, for all in-the-money, outstanding and exercisable options.

     For options exercised during the nine months, this is the actual intrinsic value on the date of exercise.

     The weighted average remaining contractual life of options outstanding and options exercisable at December 31, 2006 is 5.44 years and 5.01 years, respectively.

     The restricted stock units granted to employees in the nine months ended December 31, 2006 vest over four years, and no shares were vested at that date.

3. Inventories

     Inventories consist of the following (in thousands):

	December 31, 2006		March 31, 2006
	(unaudited)
Raw materials	$	26,562	$	16,648
Work in process		42,968		28,583
Finished goods		19,021		15,126
Total	$	88,551	$	60,357

4. Other Assets

     At December 31, 2006, other assets include equity securities held as available for sale of $2.8 million, long term equity investments of $1.5 million and intangible assets of $525,000. Investments available for sale have been stated at their fair value as at December 31, 2006. The realized gain on sale of these investments for the three and nine months ended December 31, 2006 was $112,000 and $192,000, respectively. Long term equity investments are accounted for under the equity method of accounting. At March 31, 2006, other assets included $2.4 million of investments available for sale, $1.1 million of long term equity investments and intangible assets of $782,000.

10

5. 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						Nine Months Ended
	December 31,						December 31,
	2006			2005			2006		2005
	(unaudited)						(unaudited)
Net (loss) income	$	(106	)	$	(47,090	)	$	27,978	$	(36,406	)
Weighted average shares outstanding for the period		33,264			33,593			33,793		33,514
Dilutive effect of employee equity incentive plans		—			—			1,279		—
Weighted average shares outstanding for the period - assuming dilution		33,264			33,593			35,072		33,514
Net (loss) income per share — basic	$	0.00		$	(1.40	)	$	0.83	$	(1.09	)
Net (loss) income per share — diluted	$	0.00		$	(1.40	)	$	0.80	$	(1.09	)
Total common stock equivalents excluded for the computation of earnings per share as their effect was anti-dilutive		4,636			5,101			1,385		5,429

     Basic income available per common share is computed using net income and the weighted average number of common shares outstanding during the period. Diluted income per common share is computed using net income and the weighted average number of common shares outstanding, assuming dilution. Weighted average common shares outstanding, assuming dilution, includes potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of stock options, assumed vesting of restricted stock units and assumed issuance of stock under the stock purchase plan using the treasury stock method. If the exercise price of an outstanding stock option was equal to or greater than the average market value of the shares of common stock, it was excluded from the computation. These options could be included in the calculation in the future, if the average market value of the common shares increases and is greater than the exercise price of these options.

6. Borrowing Arrangements

     In fiscal 2006, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed €10.0 million, or about $12 million, from IKB Deutsche Industriebank for a term of 15 years.

     The interest rate on the loan is determined by adding the then effective three months Euribor rate to 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 December 31, 2006 was 4.47% consisting of the Euribor rate of 3.72% and a margin of 75 basis points.

     Each fiscal quarter during the first five years of the loan, a principal payment of €167,000, or about $220,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

     Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity, in each case, for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At December 31, 2006, the Company had complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.

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7. Litigation Provision

     The Company accrued $6.7 million in connection with its International Rectifier Corporation litigation and $206,000 for interest in connection with its ongoing litigation with LoJack Corporation in the quarter ended December 31, 2006. For the nine months ended December 31, 2006, the Company released a net amount of $29.7 million from the litigation provision, as the Superior Court overseeing the LoJack litigation reduced the amount of damages from $36.7 million to $4 million on July 20, 2006. For the quarter and nine months ended December 31, 2005, the Company accrued $51.5 million in connection with the LoJack litigation. See Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the current status of these litigation matters.

8. Accrued Expenses and Other Current Liabilities

     At December 31, 2006, accrued expenses and other current liabilities include uninvoiced goods and services of $6.4 million, income taxes payable of $11.9 million and other liabilities of $8.4 million. At March 31, 2006, accrued expenses and other current liabilities include uninvoiced goods and services of $5.6 million, income taxes payable of $11.0 million and other liabilities of $8.3 million.

9. 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 (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
	(unaudited)						(unaudited)
Service cost	$	188		$	208		$	612		$	640
Interest cost on projected benefit obligation		478			404			1,403			1,245
Expected return on plan assets		(406	)		(291	)		(1,191	)		(897	)
Curtailment or settlement (gain)		—			—			—			(172	)
Recognized actuarial loss		12			129			33			369
Net periodic pension expense	$	272		$	450		$	857		$	1,185

     IXYS expects to make contributions to the plans of approximately $957,000 in the fiscal year ended March 31, 2007. This contribution is primarily contractual.

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10. Segment Information

     IXYS has a single operating segment. Our operating segment is 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. While the Company has separate businesses with discrete financial information, the Company has a single operating decision maker and the businesses are highly integrated and have similar economic characteristics. IXYS’s sales by major geographic area (based on destination) were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2006		2005		2006		2005
	(unaudited)				(unaudited)
United States	$	19,313	$	19,208	$	60,598	$	60,026
Europe and the Middle East
Germany		8,515		6,757		26,144		21,048
Italy		1,757		1,332		4,735		4,321
United Kingdom		5,324		3,882		16,565		12,558
Other		10,857		7,415		28,719		23,198
Asia Pacific
Korea		5,275		7,101		16,246		24,420
China		9,536		6,582		25,838		18,135
Japan		2,184		1,820		6,764		5,161
Other		5,951		3,300		16,665		8,756
Rest of the world		3,562		2,939		9,616		9,439
Total	$	72,274	$	60,336	$	211,890	$	187,062

     The following table sets forth net revenues for each of IXYS’s product groups for the three and nine month periods ended December 31, 2006 and 2005 (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2006		2005		2006		2005
	(unaudited)				(unaudited)
Power Semiconductors	$	52,815	$	45,649	$	153,306	$	141,680
ICs		13,906		10,163		42,663		30,546
Systems and RF Power Semiconductors		5,553		4,524		15,921		14,836
Total	$	72,274	$	60,336	$	211,890	$	187,062

11. Commitments and Contingencies

Legal Proceedings:

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

International Rectifier

     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 had been and continued to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of IXYS’s power MOSFETs and IGBTs infringed certain claims of each of three International Rectifier U.S. patents.

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     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. Trial commenced in the U.S. District Court on September 6, 2005. On September 15, 2005, the jury specifically found that IXYS was not guilty of willful infringement.

     International Rectifier had accused IXYS of infringing its 4,959,699 (“699”), 5,008,725 (“725”) and 5,130,767 (“767”) patents. The claims of these patents fall into two groups. The jury ruled that one of the groups of claims was infringed by the doctrine of equivalents; however, the claims in this group are minor claims and are not expected to have a material financial impact on IXYS.

     As to the other group of claims, the jury found that IXYS did not infringe the 725 and 767 patents, but did infringe the 699 patent by the doctrine of equivalents. If upheld on appeal, this finding would have a material financial impact on IXYS. However, the jury also made a specific finding that IXYS’s devices do not infringe the 725 and 767 patents because they include an “annular source region,” which we believe is inconsistent with the conclusion that the 699 patent is infringed. The jury’s verdict awarded International Rectifier $6.2 million as damages for the infringement plus 6.5% of revenues from infringing products, by implication, after September 30, 2005. The U.S. District Court entered a judgment reflecting the jury’s verdict and also issued a permanent injunction barring IXYS from selling or distributing the infringing products. Thereafter, IXYS appealed the judgment and the injunction to the Federal Circuit Court. Without addressing the substance of IXYS’s appeal, on July 14, 2006, the Federal Circuit Court vacated the judgment and the injunction and remanded the matter to U.S. District Court for “further proceedings as appropriate” in view of the United States Supreme Court’s recent decision in eBay, Inc v. MercExchange, LLC. In September 2006, The U.S. District Court again entered another judgment reflecting the jury’s determination of damages and issued a permanent injunction barring IXYS from selling or distributing the infringing products. IXYS is appealing the judgment against it and the injunction barring IXYS from selling or distributing products. Counsel to IXYS inadvertently did not file the requisite notice of appeal following the entry of judgment within the required time period. However, because IXYS’s counsel has taken timely corrective measures, IXYS believes that it is unlikely that IXYS will be precluded from pursuing its appeal. In January 2007, the Federal Circuit Court declined to issue a stay of the judgment and injunction. The judgment therefore became payable and the injunction enforceable. IXYS recognized a litigation provision of $6.7 million during the three and nine months ended December 31, 2006 in connection with this matter. There is no assurance that this amount is sufficient for any actual losses that may be incurred as a result of this litigation.

     There can be no assurance of a favorable final outcome in the International Rectifier suit. In the event of an adverse outcome, damages or the injunction awarded by the U.S. District Court would be materially adverse to IXYS’s financial condition, results of operations and cash flows.

LoJack

     On April 10, 2003, LoJack Corporation (“LoJack”) filed a suit against Clare, Inc., a subsidiary of IXYS, 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. The trial commenced on January 30, 2006. On February 8, 2006, the jury awarded LoJack $36.7 million in damages. On July 20, 2006, the Superior Court reduced LoJack’s damages to $4 million.

     Under Massachusetts law, a damage award is increased for pre-judgment interest. Pre-judgment interest was determined to be $2.1 million at the time of the entry of the judgment on July 25, 2006. In addition, the Superior Court determined the attorneys’ fees and costs payable by Clare to be $708,000. Post-judgment interest accrues on the total judgment, inclusive of the pre-judgment interest, attorneys’ fees and costs, at the rate of 12% per annum simple interest.

     In August 2006, LoJack filed a notice with the Superior Court of a motion to reconsider the judgment for the purpose of reinstating the full amount of the jury’s damage award. In September 2006, the Superior Court ruled against LoJack’s motion. LoJack and IXYS each appealed the Superior Court’s judgment. The enforcement of the judgment will be stayed pending appeal without the necessity of filing any bond. Post-judgment proceedings and/or appeals may take from several months to one or more years to conclude. Payment of an award, if ever, will only occur at the conclusion of this process.

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     IXYS released $36.4 million from the litigation provision, net of interest accrual, during the nine months ended December 31, 2006 to reflect a net accrual of $7.2 million at that date, which amount includes interest and attorneys’ fees in addition to the reduced damage award. IXYS cannot predict the outcome of the litigation. An adverse outcome would be materially adverse to its financial condition, results of operations and cash flows.

Other Commitments and Contingencies:

     The Company does not provide product guarantees or warranties. On occasion, the Company provides limited indemnification to customers against intellectual property infringement claims related to the Company’s products. To date, the Company has not experienced significant activity or claims related to such indemnifications. In the normal course of business the Company provides indemnification to its officers, directors and selected parties. The Company is unable to estimate any potential future liability, if any; therefore, no liability for these indemnification agreements has been recorded as of December 31, 2006 and 2005.

12. Subsequent Events

     In January 2007, IXYS entered into an agreement to purchase a building, to be used as its corporate offices and facility for Silicon Valley operations, for approximately $7.5 million. The transaction is expected to be completed in July 2007. A director of the Company is an executive officer of two entities in control of the partnership that owns the building.

     In January 2007, the United States Court of Appeals for the Federal Circuit denied IXYS’s motion to stay the judgment and injunction in its ongoing International Rectifier Corporation litigation. See Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the current status of this litigation.

13. Recent Accounting Pronouncements

     In June 2006, the Financial Accounting Standards Board, or FASB, ratified Emerging Issues Task Force, or EITF, Issue No. 06-03 “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation)” (“Issue No. 06-03”). Under Issue No. 06-03, a company must disclose its accounting policy regarding the gross or net presentation of certain taxes. If taxes included in gross revenues are significant, a company must disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of this Issue are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity’s activities over a period of time, such as gross receipts taxes, are not within the scope of the issue. Issue No. 06-03 is effective for the first annual or interim reporting period beginning after December 15, 2006. The adoption of EITF Issue No. 06-03 did not have a material effect on the Company’s Unaudited Condensed Consolidated Financial Statements.

     In July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertain Tax Positions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes”. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN 48 to our financial position and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards, No. 157 “Fair Value Measurements” (SFAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 157 to our financial position and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement improves financial reporting by requiring an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its

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year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. Applying SFAS 158 at March 31, 2006, the additional liability that would be recognized was approximately $1.6 million. The additional liability would be recorded with a corresponding effect, net of taxes, to accumulated other comprehensive income in stockholders’ equity.

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 Item 1A of Part II of this Form 10-Q. 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” in Item 1A of Part II of this Form 10-Q. 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. 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 200 watts of power.

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

     Our RF power semiconductors enable circuitry that amplifies or receives radio frequencies in wireless and other microwave communication applications, medical imaging applications and defense and space applications.

     Our company has recorded sequential revenue growth over the past four quarters. Over the past three quarters, our revenues from the sale of power semiconductors have increased modestly. Our revenues from sales of ICs for the nine month period ended December 31, 2006 have increased significantly in percentage terms as compared to the revenues from sales of ICs during the corresponding period in the last year. Distribution revenues increased during the past nine months as revenues shifted to applications that are traditionally bought through distributors. Selling, general and administrative expenses increased in the nine months ended December 31, 2006 as compared to the comparable period in the prior year, in large part due to professional and consultation fees for regulatory compliance, stock compensation expense pursuant to the adoption of SFAS 123(R) on April 1, 2006, as well as increased personnel expenses for regulatory compliance. We are currently experiencing limits on our production capacity for some of the products. During the past three quarters, we increased inventory, consisting primarily of raw materials and work-in-process, to become more responsive to customer demands. During the quarter ended December 31, 2006, we accrued a litigation provision of $6.7 million in connection with the International Rectifier Corporation litigation. As a consequence, we experienced a net loss of $106,000 for the quarter ended December 31, 2006.

Critical Accounting Policies and Significant Management Estimates

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

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

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     Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 47% of our revenues in the first nine months of fiscal 2007 and 42% of our revenues in the first nine months of fiscal 2006 were from distributors. We provide some of our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a sales incentive program for products previously shipped to distributors. We recognize revenue from product sales upon shipment provided that we have received 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. Our shipping terms are generally FOB shipping point. Reserves for allowances are also recorded at the time of shipment. Our management must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Our management analyzes historical returns and ship and debit transactions, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and allowances. Significant management judgments and estimates must be made and used in connection with establishing the allowances in any accounting period. Different judgments or estimates would result in material differences in the amount and timing of our revenue for any period.

     For our nonrecurring engineering, or NRE, related to design prototypes that will later be used to produce required units, customers enter into arrangements to perform engineering work for a fixed fee. We record fixed-fee payments during the development phase from customers in accordance with Statement of Financial Accounting Standards No. 68, “Research and Development Arrangements” as a reduction to our costs. Amounts offset against research and development costs totaled approximately $433,000 in the first nine months of fiscal 2007 and $249,000 in the first nine months of fiscal 2006.

     We state our revenues, net of any taxes collected from customers that are required to be remitted to the various government agencies. The amount of taxes collected from customers and payable to government is included under accrued expenses and other current liabilities.

     Allowance for sales returns. We maintain an allowance for sales returns for estimated product returns by our customers. We estimate our allowance for sales returns based on our historical return experience, current economic trends, changes in customer demand, known returns we have not received and other assumptions. If we were to make different judgments or utilize different estimates, the amount and timing of our revenue could be materially different. Given that our revenues consist of a high volume of relatively similar products, to date our actual returns and allowances have not fluctuated significantly from period to period, and our returns provisions have historically been reasonably accurate. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction 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 nine months of fiscal 2007 and 2006 approximately $1,576,000 and $559,000, 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 management’s best estimate of future returns.

     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 pricing adjustments for inventory held. Our distributors had approximately $4.8 million in inventory of our products on hand at December 31, 2006. 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

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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. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the nine months ended December 31, 2006 (in thousands):

Balance at March 31, 2006	$	453
Additions		1,536
Deductions		(1,142	)
Balance at June 30, 2006	$	847
Additions		1,053
Deductions		(1,057	)
Balance at September 30, 2006	$	843
Additions		891
Deductions		(1,007	)
Balance at December 31, 2006	$	727

     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 intended 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 processes. Effective April 1, 2006, we adopted SFAS No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 requires certain abnormal expenditures to be recognized as expenses in the current period versus being capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities. We review our standard costs on an as-needed basis but in any event at least once a year, and update them as appropriate to approximate actual costs.

     We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of our inventories is dependent on our estimate of future demand as it relates to historical sales. Recently, we increased inventory to become more responsive to customer demand. The increase in inventory increases the possibility of obsolescence. 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 and expectations for future use. 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 were to make different judgments or utilize different estimates, the amount and timing of our write-down of inventories could be materially different.

     Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to 100%. Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once we have written down inventory below cost, we do not subsequently write it up. 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.

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     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, 2006	$	19,377
Sale of excess inventory		(1,008	)
Scrap of excess inventory		(1,382	)
Additional accrual of excess inventory		2,155
Balance at June 30, 2006	$	19,142
Sale of excess inventory		(1,116	)
Scrap of excess inventory		(700	)
Additional accrual of excess inventory		1,875
Balance at September 30, 2006	$	19,201
Sale of excess inventory		(1,000	)
Scrap of excess inventory		(120	)
Additional accrual of excess inventory		1,368
Balance at December 31, 2006	$	19,449

     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 generally 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 the lower of cost or market or net realizable value. We review our inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that our selling price is lower than current cost, the inventory is marked down accordingly. At December 31, 2006, our lower of cost or market reserve was $615,000.

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

     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 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 have two reporting units for which we have a balance in goodwill. 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.

     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 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 or cash flows. We had reserves for litigation at December 31, 2006 of approximately $13.9 million comprising of reserves for our litigation with International Rectifier Corporation of $6.7 million and for LoJack Corporation of $7.2 million.

     Income tax. As part of the process of preparing our condensed 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

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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 reduce goodwill, intangible assets or income tax expense. Significant management judgment is required in determining our provision for income taxes and potential tax exposures, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish a valuation allowance, which could materially impact our financial position and results of operations. Our ability to utilize our deferred tax assets and the need for a related valuation allowance are monitored on an ongoing basis.

Recent Accounting Pronouncements

     In June 2006, the Financial Accounting Standards Board, or FASB, ratified Emerging Issues Task Force, or EITF, Issue No. 06-03 “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation)” (“Issue No. 06-03”). Under Issue No. 06-03, a company must disclose its accounting policy regarding the gross or net presentation of certain taxes. If taxes included in gross revenues are significant, a company must disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of this issue are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity’s activities over a period of time, such as gross receipts taxes, are not within the scope of the issue. Issue No. 06-03 is effective for the first annual or interim reporting period beginning after December 15, 2006. The adoption of EITF Issue No. 06-03 did not have a material effect on our Unaudited Condensed Consolidated Financial Statements.

     In July 2006, the FASB issued FASB Interpretation No. 48 “Accounting For Uncertain Tax Positions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of FIN 48 to our financial position and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS 157 to our financial position and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement improves financial reporting by requiring an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. Applying SFAS 158 at March 31, 2006, the additional liability that would be recognized was approximately $1.6 million. The additional liability would be recorded with a corresponding effect, net of taxes, to accumulated other comprehensive income in stockholders’ equity.

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Results of Operations — Three and nine months ended December 31, 2006 and 2005

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

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
			%							%
			change							change
			from							from
	2006		2005 to 2006		2005		2006			2005 to 2006		2005
	(000)				(000)		(000)					(000)
Net revenues	$	72,274		19.8%	$	60,336	$	211,890			13.3%	$	187,062
Cost of goods sold		49,797		20.3%		41,399		145,409			15.6%		125,749
Gross profit	$	22,477		18.7%	$	18,937	$	66,481			8.4%	$	61,313
Operating expenses:
Research, development and engineering	$	4,890		-1.4%	$	4,960	$	14,919			13.0%	$	13,199
Selling, general and administrative		10,278		18.0%		8,707		33,162			19.0%		27,869
Litigation provision (credit)		6,906		-86.6%		51,500		(29,738	)		-157.7%		51,500
Total operating expenses	$	22,074		-66.1%	$	65,167	$	18,343			-80.2%	$	92,568

     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.

	% of Net Revenues
	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		68.9	%		68.6	%		68.6	%		67.2	%
Gross profit		31.1	%		31.4	%		31.4	%		32.8	%
Operating expenses:
Research, development and engineering		6.8	%		8.2	%		7.0	%		7.1	%
Selling, general and administrative		14.1	%		14.4	%		15.7	%		14.9	%
Litigation provision (credit)		9.6	%		85.4	%		-14.0	%		27.5	%
Total operating expenses		30.5	%		108.0	%		8.7	%		49.5	%
Operating income (loss)		0.6	%		-76.6	%		22.7	%		-16.7	%
Other (expense) income, net		-1.2	%		1.2	%		-0.7	%		1.0	%
(Loss) profit before income tax		-0.6	%		-75.4	%		22.0	%		-15.7	%
Benefit from (provision for) income tax		0.5	%		-2.7	%		-8.8	%		-3.8	%
Net (loss) income		-0.1	%		-78.1	%		13.2	%		-19.5	%

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Net Revenues

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

Revenues

	Three Months Ended December 31,							Nine Months Ended December 31,
			% change in							% change in
			Revenues							Revenues
			from 2005 to							from 2005 to
	2006		2006			2005		2006		2006			2005
	(000)					(000)		(000)					(000)
Power Semiconductors	$	52,815		15.7	%	$	45,649	$	153,306		8.2	%	$	141,680
ICs		13,906		36.8	%		10,163		42,663		39.7	%		30,546
Systems and RF Power Semiconductors		5,553		22.7	%		4,524		15,921		7.3	%		14,836
Total	$	72,274		19.8	%	$	60,336	$	211,890		13.3	%	$	187,062

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

Average Selling Prices (ASPs)

	Three Months Ended December 31,							Nine Months Ended December 31,
			% change in							% change in
			ASP from							ASP from
	2006		2005 to 2006			2005		2006		2005 to 2006			2005
Power Semiconductors	$	1.82		-19.5	%	$	2.26	$	1.95		-16.7	%	$	2.34
ICs	$	0.43		-53.8	%	$	0.93	$	0.47		-48.9	%	$	0.92
Systems and RF Power Semiconductors	$	14.54		-10.6	%	$	16.27	$	12.94		-6.8	%	$	13.89

     Units

	Three Months Ended December 31,							Nine Months Ended December 31,
			% change in							% change in
			units from							units from
	2006		2005 to 2006			2005		2006		2005 to 2006			2005
	(000)					(000)		(000)					(000)
Power Semiconductors		28,957		43.1	%		20,238		78,780		30.3	%		60,473
ICs		32,592		199.3	%		10,890		90,185		173.1	%		33,023
Systems and RF Power Semiconductors		382		37.4	%		278		1,230		15.2	%		1,068
Total		61,931		97.2	%		31,406		170,195		80.0	%		94,564

     The 19.8% increase in net revenues in the three months ended December 31, 2006 as compared to the three months ended December 31, 2005 reflects an increase in revenues primarily from an increase in sales of power semiconductors and ICs. The increase in the sales of power semiconductors was primarily due to an increase of $7.1 million in sales of bipolar products, principally to industrial and commercial markets. The increase in the IC sales was primarily due to an increase in sales of application specific integrated circuits, or ASICs, of approximately $1.9 million, and an increase of $1.8 million in sales of ICs to the telecom market. Revenues from the sale of systems and RF power semiconductors in the three months ended December 31, 2006 as compared to the three months ended December 31, 2005 increased by $1.0 million due to an increase in revenues from the sale of subassemblies in industrial and commercial markets.

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     The increase of 13.3 % in net revenues in the nine months ended December 31, 2006 as compared to the comparable period of the prior year was principally due to a 39.7% increase in revenues from ICs. The increase in ICs was comprised primarily of an increase of $6.9 million in the sale of ASICs and an increase of $5.3 million in the sale of ICs to the telecom market. Revenues from power semiconductors increased by 8.2% for the nine months ended December 31, 2006 as compared to the comparable period of the prior fiscal year, primarily due to an increase of $12.3 million in the sale of bipolar products to the industrial and commercial market and an increase of $1.5 million in the sale of MOS products. The increase of 7.3% in revenues from systems and RF power semiconductors in the nine months ended December 31, 2006 compared to the nine months ended December 31, 2005 resulted primarily from an increase of $1.1 million in the sale of subassemblies in industrial and commercial markets.

     The decrease in the ASPs of our products in the three and nine months ended December 31, 2006 as compared to the comparable period of the prior fiscal year was primarily due to a decline in the prices of our products for consumer markets. Comparing the three and nine months ended December 31, 2006 to the comparable periods of the prior fiscal year, the units increased principally due to increased shipments of ASICs for the consumer products market and power semiconductors for the industrial and commercial market.

     For the quarter ended December 31, 2006, sales to international customers represented approximately 73.3%, of our net revenues. Of our international sales, approximately 49.9% were derived from sales in Europe and the Middle East, approximately 43.3% were derived from sales in Asia and approximately 6.8% were derived from sales in the rest of the world. By comparison, for the quarter ended December 31, 2005, sales to international customers represented approximately 68.2% of our net revenues. Of our international sales, approximately 47.1% were derived from sales in Europe and the Middle East, approximately 45.7% were derived from sales in Asia and approximately 7.2% were derived from sales in the rest of the world.

     For the nine month period ended December 31, 2006, sales to international customers represented approximately 71.4% of our net revenues. Of our international sales, approximately 50.3% were derived from sales in Europe and the Middle East, approximately 43.3% were derived from sales in Asia and approximately 6.4% were derived from sales in the rest of the world. By comparison, for the nine months ended December 31, 2005, sales to international customers represented approximately 67.9% of our net revenues. Of our international sales, approximately 48.1% were derived from sales in Europe and the Middle East, approximately 44.5% were derived from sales in Asia and approximately 7.4% were derived from sales in the rest of the world.

     For the three and nine months ended December 31, 2006, the revenues in the United States moderated and revenues in Asia increased because of the continuing shift by our U.S. based customers to manufacturing overseas. Revenues in Europe increased because of increased sales to the industrial and commercial market.

Gross Profit.

     Gross profit margin decreased marginally to 31.1% in the three months ended December 31, 2006 from 31.4% in the three months ended December 31, 2005. Gross profit margin decreased to 31.4 % in the nine months ended December 31, 2006 from 32.8% in the nine months ended December 31, 2005, principally because of the changes in the product mix, as sales to the higher margin medical market decreased slightly and sales to the consumer and industrial and commercial market increased. The increase in gross profit expressed in dollars in the three and nine months ended December 31, 2006 as compared to the same period of the prior year was primarily the result of a significant increase in number of units sold, although at a lower gross profit margin.

Research, Development and Engineering.

     For the three months ended December 31, 2006 as compared to the comparable period of the prior year, research, development and engineering expenses were largely unchanged, showing a decline of $70,000, or 1.4%. For the nine months ended December 31, 2006 as compared to the nine months ended December 31, 2005, research, development and engineering expenses increased by $1.7 million, or by 13%. The increase is principally due to increased spending on the development of new IC products.

Selling, General and Administrative.

     For the three months ended December 31, 2006 as compared to the three months ended December 31, 2005, selling, general and administrative expenses increased by $1.6 million. The increase was primarily due to stock option compensation of $482,000, effective with the adoption of SFAS 123(R) on April 1, 2006, an increase in external regulatory compliance costs of $331,000, and an increase in both external and internal personnel and administrative costs. For the nine months ended December 31, 2006 as compared to nine months ended December 31, 2005, selling, general and administrative expenses increased by $5.3 million. The increase primarily resulted from stock option compensation of $1.6 million, effective with the adoption of SFAS 123(R) on April 1, 2006, an increase of $2.1 million in professional and consulting fees for regulatory compliance and an increase in both internal and external personnel and administrative costs.

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Litigation Provision.

     For the quarter ended December 31, 2006, we accrued $6.7 million on our ongoing litigation against International Rectifier Corporation and $206,000 of interest on the LoJack matter. For the nine months ended December 31, 2006 we released a net amount of $29.7 million, from our litigation provision, as the Superior Court reduced the amount of damages from $36.7 million to $4 million on July 20, 2006. See Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the current status of these litigation matters.

Interest Income/Expense and Other (Expense) Income, Net.

     Other expense, net for the quarter ended December 31, 2006 was $863,000 as compared to other income, net of $741,000 for the three months ended December 31, 2005. Other expense, net incurred for the nine months ended December 31, 2006 was $1.5 million as compared to other income, net of $2.0 million for nine months ended December 31, 2005. The expense in the three and nine months ended December 31, 2006 were primarily due to losses associated with changes in foreign currency rates, partially offset by interest income; whereas for the comparable period of the last fiscal year, other income, net was primarily interest income.

Provision for Income Tax.

     In the quarter ended December 31, 2006, the benefit from income tax reflected an effective tax rate of 77% for the period as compared to a provision for income tax rate of 3.5% in the quarter ended December 31, 2005. The effective tax rates for the quarter ended December 31, 2006 and December 31, 2005 were markedly affected by the litigation provision. In the nine months ended December 31, 2006, the provision for income tax reflected an effective tax rate of 40.0% as compared to an effective tax rate of 24.2% in the nine months ended December 31, 2005. The change in the effective tax rate for the three months ended December 31, 2006 is largely due to the accrual in litigation provision of $6.7 million for our International Rectifier matter and to movement in the valuation allowance. The increase in the effective tax rate for the nine month period ended December 31, 2006 is largely due to a reduction in research and development and other tax credits available.

Liquidity and Capital Resources

     At December 31, 2006, cash and cash equivalents of $61.1 million were 21.9 % less than the $78.2 million at March 31, 2006.

     Net cash provided by operating activities in the nine months ended December 31, 2006 was $3.6 million, as compared to $27.4 million in the nine months ended December 31, 2005. Our net inventories at December 31, 2006 increased $28.2 million, or 46.7%, from March 31, 2006, in order to be more responsive to our customers’ demands. Net accounts receivable were largely unchanged from March 31, 2006 to December 31, 2006 and increased by $284,000, or 0.7%. Our accounts payable at December 31, 2006 increased by $4.3 million, or 21.2%, from accounts payable at March 31, 2006, primarily because of the increase in inventories. Accrued expenses and other current liabilities increased by $1.8 million, or 7.2%, from March 31, 2006 to December 31, 2006, primarily due to an increase in income tax liabilities.

     We used $8.2 million in net cash for investing activities during the nine months ended December 31, 2006, as compared to $20.2 million during the nine months ended December 31, 2005. The principal use of cash for investing activities is capital expenditures. During the nine months ended December 31, 2006, we spent $8.7 million on capital expenditures to increase our capacity and replace older equipment. During the nine months ended December 31, 2005, we spent $18.5 million in capital expenditures, including $14.2 million for the purchase of the Clare and Micronix facilities.

     For the nine months ended December 31, 2006, net cash used for financing activities was $15.5 million as compared to net cash provided by financing activities of $12.9 million in the nine months ended December 31, 2005. During the nine months ended December 31, 2006, the cash was used principally to purchase $13.2 million of treasury stock. In June 2005, we borrowed approximately $12 million. We borrowed these funds to improve our liquidity in light of the funds spent to purchase our Clare and Micronix facilities.

     In addition to cash flow from operations, assets acquired through capital leases were $1.3 million and $3.4 million for the three and nine month periods ended December 31, 2006, respectively. In the comparable period of the prior fiscal year assets, acquired through capital leases were $903,000 and $1.3 million for the three and nine months, respectively. Another potential source of liquidity is borrowings under existing lines of credit. At December 31, 2006, we had available credit of $2.1 million.

     At December 31, 2006, our debt, consisting of short term and long term capital lease obligations and loans payable, was $19.3 million, representing 31.6% of our cash and cash equivalents and 10.5% of our stockholders equity.

     As of December 31, 2006, we had $61.1 million in cash and cash equivalents. In January 2007, IXYS entered into an agreement to purchase a building, to be used as its corporate offices and facility for Silicon Valley operations, for approximately $7.5 million. The transaction is expected to be completed in July 2007. We believe that our cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash requirement 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, one or more acquisitions or the payment of damages and related interest and attorneys’ fees, including $6.7 million payable to International Rectifier and the potential loss of $7.2 million or more in the LoJack litigation. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our market risk has not changed materially from the market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

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 December 31, 2006. 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 December 31, 2006, our disclosure controls and procedures were not effective. A material weakness in internal control over financial reporting that led to the conclusion is discussed below.

Material Weaknesses

     In conducting its assessment, our management concluded that one material weakness existed as of March 31, 2006 as a result of the absence of a financial accounting professional with sufficient skills and experience to make estimates and judgments about non-routine transactions consistent with accounting principles generally accepted in the United States of America (“US GAAP”) during the closing process. This material weakness was not remedied at December 31, 2006.

     During the closing process, we were unable to support some of our estimates and judgments about non-routine transactions with appropriate analysis. Our initial analysis of goodwill under SFAS 142 was not sufficiently robust to support our conclusions. We drew an inappropriate conclusion regarding the presentation of a non-cash related item of $15.3 million in the cash flow from operating activities of our consolidated statements of cash flows. In connection with the settlement of litigation after the end of a period but prior to filing financial statements with the SEC, we inappropriately concluded that aspects of the settlement should be recorded in a future period, as opposed to being accounted for as a subsequent event that should be reflected in the current period financial statements. As a result of the errant judgment, we understated our accounts payable at March 31, 2006 by $560,000 and overstated our income before income taxes for the quarter ended March 31, 2006 by $560,000.

Changes in Internal Control over Financial Reporting

     To remedy the material weakness at March 31, 2006, we have recently engaged a financial accounting firm with the requisite skills and experience to make estimates and judgments about non-routine transactions consistent with US GAAP during the closing process. We expect to continue to evaluate our experience with the firm to determine whether the material weakness has been remedied. We continue to search for an appropriate individual to fill the role, as well. In the interim, we intend to mitigate the material weakness by implementing internal controls for additional secondary reviews of key estimates and judgments relating to non-routine transactions.

Inherent Limitations on Effectiveness of Controls

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

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We currently are involved in a variety of legal matters that arise in the normal course of business. 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 11 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 1A. RISK FACTORS

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

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

     Given the nature of the markets in which we participate, we cannot reliably predict future revenues and profitability, and unexpected changes may cause us to adjust our operations. Large portions of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in revenues could seriously negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly from quarter to quarter and year to year. For example, comparing fiscal 2002 to fiscal 2001, net revenues fell by 25.6% and net income fell by 85.7%. Further, from fiscal 2002 to fiscal 2003 and from fiscal 2005 to fiscal 2006, net income in one year shifted to net loss in the next year. Some of the factors that may affect our quarterly and annual results are:

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

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

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

• loss of key customers;

• the cyclical nature of the semiconductor industry;

• competitive pressures on selling prices;

• damage awards or injunctions as the result of litigation;

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

• fluctuations in our manufacturing yields and significant yield losses;

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

• the availability of production capacity;

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

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

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

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

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

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  IXYS could be harmed by litigation.

     As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. We have been sued on occasion for purported patent infringement and are currently defending such a claim. For example, we were sued by International Rectifier for purportedly infringing some of its patents covering power MOSFETs. The U.S. District Court awarded damages to International Rectifier of $6.2 million plus 6.5% of revenues from infringing products and interest. In addition, a permanent injunction against IXYS, effectively barring us from selling or distributing the allegedly infringing products, was issued by the U.S. District Court. We are appealing the damage award and the injunction. Our counsel inadvertently did not file the requisite notice of appeal following the entry of judgment within the required period. Although we believe that it is unlikely that we will be precluded from pursuing our appeal, we could be denied the opportunity to pursue our appeal. In January 2007, the Federal Circuit Court declined to issue a stay of the damage award and injunction. The judgment therefore became payable and the injunction enforceable. We cannot predict the final outcome of this litigation matter. An adverse outcome would materially and adversely affect our financial condition, results of operations and cash flows. There can be no assurance that our accrual of $6.7 million is sufficient for any actual losses that may be incurred as a result of this litigation.

     Additionally, in the future, we could be accused of infringing the intellectual property rights of third parties. We also have certain indemnification obligations to customers and suppliers with respect to the infringement of third party intellectual property rights by our products. We could incur substantial costs defending ourselves and our customers and suppliers from any such claim. Infringement claims or claims for indemnification, whether or not proven to be true, may divert the efforts and attention of our management and technical personnel from our core business operations and could otherwise harm our business.

     In the event of an adverse outcome 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 outcome 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.

     In addition, our subsidiary, Clare, Inc. was sued in a Superior Court in the state of Massachusetts in 2003 over a dispute between it and LoJack Corporation relating to a contract for the design, development and purchase of application specific integrated circuits and assemblies. On February 8, 2006, the jury found that Clare was liable for damages in the amount of $36.7 million. On July 20, 2006, the Superior Court reduced the damages award to $4 million.

     Under Massachusetts law, a jury’s award is increased for pre-judgment interest. Pre-judgment interest was determined to be $2.1 million at the time of the entry of judgment on July 25, 2006. In addition, the Superior Court determined the attorney’s fees and costs payable by Clare to be $708,000. Post-judgment interest accrues on the total judgment, inclusive of the pre-judgment interest, attorneys fees and costs, at the rate of 12% per annum simple interest.

     In August 2006, LoJack filed a notice with the Superior Court of motion to reconsider the judgment for the purpose of reinstating the full amount of the jury’s damage award. In September 2006, the Superior Court ruled against LoJack’s motion. LoJack and we have each appealed. The enforcement of the judgment will be stayed pending appeal without the necessity of filing any bond. Post-judgment proceedings and/or appeals may take several months or even years to conclude. Payment of an award, if ever, will only occur at the conclusion of this process.

     We cannot predict the final outcome of this litigation matter. An adverse outcome would materially and adversely affect our financial condition, results of operations and cash flows. There can be no assurance that our accrual of $7.2 million is sufficient for any actual losses that may be incurred as a result of this litigation.

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

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

     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 used for visual display in television. Should competition among the various visual display technologies for television adversely affect the sales of plasma display panels that incorporate our products, 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.

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  Our operating expenses are relatively fixed, and we order materials and commence production 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 we 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 significantly. In response to anticipated long lead times to obtain inventory and materials, we order materials and 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. This risk has increased in recent periods. As our customers have increasingly demanded “just-in-time” deliveries that cannot be accommodated in the time required for a normal production cycle, we have increased our inventory produced in expectation of future orders. If anticipated demand fails to materialize, we may have to write down excess inventory, which would hurt our financial results.

  Our international operations expose us to material risks.

     During the nine months ended December 31, 2006, our product sales by region were approximately 28.6% in the United States, approximately 35.9% in Europe and the Middle East, approximately 31.0% in Asia and approximately 4.5% in 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.

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     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.

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

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

  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. We are currently experiencing limits on production capacity for some of our products. 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 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.

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

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

• 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.

  We have a material weakness 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 a material weakness existed as of March 31, 2006 as a result of the absence of a financial accounting professional with sufficient skills and experience to make estimates and judgments about non-routine transactions consistent with accounting principles generally accepted in the United States of America during the closing process.

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     During the closing process, we were unable to support some of our estimates and judgments about non-routine transactions with appropriate analysis. Our initial analysis of goodwill under SFAS 142 was not sufficiently robust to support our conclusions. We drew an inappropriate conclusion regarding the presentation of a non-cash related item of $15.3 million in the cash flow from operating activities of our consolidated statements of cash flows. In connection with the settlement of litigation after the end of a period but prior to filing financial statements with the Securities and Exchange Commission, or SEC, we inappropriately concluded that aspects of the settlement should be recorded in a future period, as opposed to being accounted for as a subsequent event that should be reflected in the current period financial statements. As a result of the errant judgment, we understated our accounts payable at March 31, 2006 by $560,000 and overstated our income before income taxes for the quarter ended March 31, 2006 by $560,000.

     We have not concluded that this material weakness was remediated at December 31, 2006. Existence of this material weakness 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 further determined that our disclosure controls and procedures were not effective as of December 31, 2006. See Item 4 of Part I, “Controls and Procedures,” in this Quarterly Report on Form 10-Q.

     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 2007 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 of other companies and technologies. These acquisitions involve numerous risks, including:

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

• disruption of our ongoing business;

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

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

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

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

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

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

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

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

• failure to retain key personnel of the acquired business;

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

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

• adverse effects on our relationships with suppliers;

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

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

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

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     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.

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

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

     Of our revenues for the nine months ended December 31, 2006, 39% came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We currently have arrangements with a number of wafer foundries, three of which produce the wafers for power semiconductors that we purchase from external foundries. Samsung Electronics’ facility in Kiheung, South Korea is our principal external foundry.

     Our relationships with our external foundries do not guarantee prices, delivery or lead times, or wafer or product quantities sufficient to satisfy current or expected demand. These foundries manufacture our products on a purchase order basis. We provide these foundries with rolling forecasts of our production requirements; however, the ability of each foundry to provide wafers to us is limited by the foundry’s available capacity. At any given time, these foundries could choose to prioritize capacity for their own use or other customers or reduce or eliminate deliveries to us on short notice. If growth in demand for our products occurs, these foundries may be unable or unwilling to allocate additional capacity to our needs, thereby limiting our revenue growth. Accordingly, we cannot be certain that these foundries will allocate sufficient capacity to satisfy our requirements. In addition, we cannot be certain that we will continue to do business with these or other foundries on terms as favorable as our current terms. If we are not able to obtain 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.

  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.

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

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

     The markets for our products are characterized by:

• changing technologies;

• changing customer needs;

• frequent new product introductions and enhancements;

• increased integration with other functions; and

• product obsolescence.

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

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

  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 that may last an additional nine months or longer. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.

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  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.

  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 Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, 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. 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 and other personnel and our failure to attract retain and motivate personnel could have an adverse effect on our results of operations.

     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

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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.

  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. Manual steps also increase the probability of control deficiencies and material weaknesses.

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

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

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

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• 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.

  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.

  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 assurance 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 currently experiencing political instability. Additionally, our principal external foundry is located in South Korea.

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

     Our operations and those of our suppliers are vulnerable to interruption by fire, earthquake and other natural disasters, as well as power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan and do not have backup generators. Our facilities in California are located near major earthquake faults and have experienced earthquakes in the past. If any of these events 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.

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

     Approximately 13% of our net revenues in the nine months ended December 31, 2006 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.

     As of December 31, 2006, Nathan Zommer, Ph.D., our President and Chief Executive Officer, owned, directly or indirectly, approximately 21% of the outstanding shares of our common stock. As a result, Dr. Zommer can exercise significant control over all matters requiring stockholder approval, including the election of the board of directors. His holdings could result in a delay of, or serve as a deterrent to, any change in control of IXYS, which may reduce the market price of our common stock.

  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 13% of our net revenues in the nine months ended December 31, 2006 were derived from the sale of products included in medical devices that are subject to extensive regulation by numerous governmental authorities in the United States and internationally, including the U.S. Food and Drug Administration, or FDA. The FDA and certain foreign regulatory authorities impose numerous requirements for medical device manufacturers to meet, including adherence to Good Manufacturing Practices, or GMP, regulations and similar regulations in other countries, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by federal and state agencies, including the FDA, and by comparable agencies in other countries. Our failure to comply with applicable regulatory requirements could prevent our products from being included in approved medical devices.

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     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.

  If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.

     Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in stock price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined resulting in an impact on our results of operations.

  Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

     Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in tax laws or the interpretation of tax laws, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities.

  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.

  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.

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

ISSUER PURCHASES OF EQUITY SECURITIES

						(c) Total Number of
						Shares (or Units)
	(a) Total Number of		(b) Average			Purchased as Part of		(d) Maximum Number (or Approximate Dollar
	shares (or Units)		Price Paid per			Publicly Announced		Value) of Shares (or Units) that May Yet Be
Period	Purchased		Share (or Unit)			Plans or Programs		Purchased Under the Plans or Programs
October 1, 2006 – October 31, 2006		—		(1	)		—		1,355,300	(2)
November 1, 2006 – November 30, 2006		489,400		9.58			489,400		865,900
December 1, 2006 – December 31, 2006		297,440		9.37			297,440		568,460
Total		786,840		9.50			786,840

(1)	Not applicable
(2)	The current stock purchase program was approved on May 12, 2006 and will expire on June 15, 2007. The purchase of up to 2,000,000 shares of common stock was approved.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

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

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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: February 7, 2007

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EXHIBIT INDEX

Exhibit
No.	Description
10.1	Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California dated January 31, 2007 by and between Barber Lane Associates L.P. and IXYS Corporation
31.1	Certificate of Chief Executive Officer required under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification required under Section 906 of the Sarbanes-Oxley Act of 2002. (1)

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

EX-10.1

Exhibit 10.1

AGREEMENT FOR PURCHASE AND SALE

OF

1590 Buckeye Drive

Milpitas, California

January 31, 2007

Table Of Contents

	PAGE
ARTICLE I BASIC DEFINITIONS		1
ARTICLE II PURCHASE AND SALE		5
Section 2.1 Purchase and Sale		5
Section 2.2 Purchase Price		5
Section 2.3 Buyer’s Review and Seller’s Disclaimer		5
Section 2.4 Permitted Title Exceptions		7
ARTICLE III CONDITIONS PRECEDENT		7
Section 3.1 Conditions		7
Section 3.2 Failure or Waiver of Conditions Precedent		8
ARTICLE IV COVENANTS, WARRANTIES AND REPRESENTATIONS		9
Section 4.1 Seller’s Warranties and Representations		9
Section 4.2 Seller’s Covenants		9
Section 4.3 Buyer’s Covenants, Warranties and Representations		10
Section 4.4 Limitations		11
ARTICLE V DEPOSIT		11
ARTICLE VI ESCROW AND CLOSING		12
Section 6.1 Escrow Arrangements		12
Section 6.2 Closing		13
Section 6.3 Prorations		14
Section 6.4 Other Closing Costs		15
Section 6.5 Further Documentation		15
ARTICLE VII MISCELLANEOUS		15
Section 7.1 Damage or Destruction		16
Section 7.2 Brokerage Commissions and Finder’s Fees		16
Section 7.3 Successors and Assigns		16
Section 7.4 Notices		17
Section 7.5 Time		17
Section 7.6 Possession		17
Section 7.7 Incorporation by Reference		17
Section 7.8 No Deductions or Off-Sets		18
Section 7.9 Attorneys’ Fees		18
Section 7.10 Construction		18

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Table Of Contents
(continued)

	PAGE
Section 7.11 Governing Law		18
Section 7.12 Damages		18
Section 7.13 Counterparts		18
Section 7.14 Tax Deferred Exchange		18
Section 7.15 Entire Agreement		19

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An extra section break has been inserted above this paragraph. Do not delete this section break if you plan to add text after the Table of Contents/Authorities. Deleting this break will cause Table of Contents/Authorities headers and footers to appear on any pages following the Table of Contents/Authorities.

AGREEMENT FOR PURCHASE AND SALE
OF
1590 Buckeye Drive, Milpitas, California

     This Agreement For Purchase And Sale is made and entered into as of January 31, 2007 (the “Contract Date”) by and between Barber Lane Associates L.P., a California limited partnership (“Seller”), and IXYS Corporation, a Delaware corporation (“Buyer”).

Recitals

     A. Seller is the record title holder of certain improved real property situated at 1590 Buckeye Drive, in the City of Milpitas, County of Santa Clara, State of California, together with associated tangible and intangible personal property.

     B. Buyer desires to purchase from Seller and Seller desires to sell to Buyer, subject to the terms and conditions contained in this Agreement, the foregoing real property and any and all associated tangible and intangible personal property owned by Seller.

Agreement

     Now, Therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller do hereby agree as follows:

ARTICLE I

BASIC DEFINITIONS

     All Cash Notice of Election to Proceed. The term “All Cash Notice of Election to Proceed” shall mean a written notice in the precise form attached to this Agreement as Exhibit A.

     Assignment of Management Contracts. The term “Assignment of Management Contracts” shall mean that certain Assignment of Management Contracts executed by Seller in favor of Wells, dated December 21, 2000.

     Assumption and Indemnity Agreement. The term “Assumption and Indemnity Agreement” shall mean an assumption and indemnity agreement in the form of Exhibit B-1 attached hereto (or in the form of Exhibit B-2 attached hereto if IXYS Corporation assigns its rights under this Agreement to another party or is not the grantee under the Deed), pursuant to which IXYS Corporation assumes for Seller’s (and its affiliates’) benefit all obligations of Seller and its affiliates under the Loan Documents (except that with respect to debt service payments, such assumption shall apply only to such obligations accruing from and after the Closing Date), and indemnify, defend, and hold harmless Seller and its affiliates from and against any liability or obligation arising in connection with the Loan Documents (except that with respect to debt service payments, such indemnity shall apply only to such obligations accruing from and after the Closing Date).

     Certificates and SNDAs. The term “Certificates and SNDAs” shall mean all certificates, letters, estoppels, affidavits, and Subordination, Non-Disturbance, and Attornment Agreements executed by Seller or its members or affiliates in connection with the Loan.

     Closing Date. The term “Closing Date” shall mean July 18, 2007, or any earlier date approved in writing by Buyer and Seller for the close of escrow with respect to the purchase and sale of the Property.

     Contract Period. The term “Contract Period” shall mean the period from the Contract Date through and including the Closing Date.

     Deed. The term “Deed” has the meaning assigned to it in Section 6.1(a)(i) below.

     Deed of Trust. The term “Deed of Trust” shall mean that certain Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement (and Fixture Filing) executed by Seller in favor of Wells, dated as of December 21, 2000, and recorded on January 12, 2001 in the Official Records as Document No. 15525418.

     Defeasance. The term “Defeasance” shall mean the defeasance of the Loan in accordance with and pursuant to the Loan Documents.

     Defeasance Collateral Cost. The term “Defeasance Collateral Cost” shall mean the cost to acquire the securities necessary to complete the Defeasance.

     Defeasance Costs. The term “Defeasance Costs” shall mean all costs and fees incurred or payable in order to accomplish and complete the Defeasance (including but not limited to the Defeasance Fee, the Defeasance Collateral Cost, and all costs and fees of Lender).

     Defeasance Fee. The term “Defeasance Fee” shall mean the one percent (1%) fee required by the Loan Documents in connection with the Defeasance.

     Disclosure Statement. The term “Disclosure Statement” shall mean the statement set forth as Exhibit C to this Agreement.

     Guarantor. The term “Guarantor” shall mean IXYS Corporation in the event IXYS Corporation assigns its rights under this Agreement to another party or is not the grantee under the Deed.

     Guaranty. The term “Guaranty” shall mean that certain Limited Guaranty executed by MELLC in favor of Wells and dated as of December 21, 2000.

     Inspection Period. The term “Inspection Period” shall mean the period commencing on the Contract Date, and ending at 4:59 p.m. California time on the date which is sixty (60) days after the Contract Date.

     Intangible Property. The term “Intangible Property” shall mean Seller’s rights and interests in: (a) any and all transferable or assignable permits, building plans and specifications, certificates of occupancy, operating permits, sign permits, development rights and approvals, certificates, licenses, warranties and guarantees, trade names, service marks, engineering, soils, pest control and other reports relating to the Property, tenant lists, advertising materials, and telephone exchange numbers identified with the Property; (b) maintenance, service and other operating contracts, equipment leases and other arrangements or agreements to which Seller is a party affecting the ownership, repair, maintenance, management, leasing or operation of the Property; and (c) all other transferable intangible property, miscellaneous rights, benefits or privileges of any kind or character with respect to the Property.

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     Leases. The term “Leases” shall mean all leases, rental agreements or other agreements (including all amendments or modifications thereto) binding on Seller which entitle any person to the occupancy or use of any portion of the Property.

     Lender. The term “Lender” shall mean the holder of the Promissory Note and/or the servicer of the Loan, if applicable.

     Loan. The term “Loan” shall mean the loan evidenced by the Promissory Note.

     Loan Approval. The term “Loan Approval” shall mean a written notice from Lender to Seller indicating that Lender has approved the Loan Assumption.

     Loan Assumption. The term “Loan Assumption” shall mean the assumption of the Loan by Buyer and the concurrent release of Seller and all Seller affiliates from all liability under the Loan Documents (except that with respect to debt service payments, such release need apply only to such debt service obligations accruing from and after the Closing Date).

     Loan Assumption Costs. The term “Loan Assumption Costs” shall mean all costs and fees incurred or payable in order to accomplish and complete the Loan Assumption (including but not limited to the Loan Assumption Fee, all costs and fees of Lender, and reasonable attorneys’ fees incurred by Seller in connection with the Loan Assumption).

     Loan Assumption Fee. The term “Loan Assumption Fee” shall mean the one percent (1%) assumption fee required by the Loan Documents in connection with the Loan Assumption.

     Loan Assumption Notice of Election to Proceed. The term “Loan Assumption Notice of Election to Proceed” shall mean a written notice from Buyer to Seller in the precise form attached to this Agreement as Exhibit D, pursuant to which Buyer approves the Loan Documents, agrees to comply with the Lender’s requirements for the Loan Assumption, and reconfirms that it will perform its obligations under Section 4.3 below.

     Loan Assumption Proration Amount. The term “Loan Assumption Proration Amount” shall have the meaning set forth in Section 6.3(a)(ii) below.

     Loan Documents. The term “Loan Documents” shall mean the Promissory Note, the Deed of Trust, the Assignment of Management Contracts, the Certificates and SNDAs, the Guaranty, and all other documents governing or securing the Loan.

     Loan Transfer Documents. The term “Loan Transfer Documents” shall mean the documents required by the Lender that Lender, Buyer, Guarantor, and/or Seller are obligated to execute and/or have recorded in connection with the Loan Assumption, and in any event the Assumption and Indemnity Agreement in the form of either (a) Exhibit B-1 attached hereto, if IXYS Corporation does not assign its rights under this Agreement to another party and the grantee under the Deed is IXYS Corporation, or (b) Exhibit B-2 attached hereto, if IXYS Corporation assigns its rights under this Agreement to another party or the grantee under the Deed is not IXYS Corporation (in either case (a) or (b) whether or not required by Lender).

     MELLC. The term “MELLC” shall mean Menlo Equities LLC, a California limited liability company.

     Wells. The term “Wells” shall mean Wells Fargo Bank, National Association.

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     Official Records. The term “Official Records” shall mean official recording office of Santa Clara County, California.

     Personal Property. The term “Personal Property” shall mean all furniture, furnishings, trade fixtures, building systems and equipment (including, without limitation, HVAC, security and life safety systems) and other tangible personal property owned by Seller that is located at and used in connection with the operation of the Real Property, and all furniture, furnishings, trade fixtures, building systems and equipment listed on Schedule 1 attached to the Bill of Sale (to the extent owned by Seller).

     Promissory Note. The term “Promissory Note” shall mean that certain Promissory Note Secured by Deed of Trust dated December 21, 2000, in the original principal amount of $8,000,000, executed by Seller in favor of Wells, and which is secured by the Deed of Trust.

     Property. The term “Property” shall mean the Real Property, the Personal Property, and the Intangible Property.

     Property Documents. The term “Property Documents” shall mean the items listed on Attachment 1 hereto to the extent in Seller’s possession or within its reasonable control.

     Real Property. The term “Real Property” shall mean that certain real property (including, without limitation, any and all other improvements thereon) situated at 1590 Buckeye Drive, in the City of Milpitas, County of Santa Clara, State of California. The land component of the Real Property is legally described in Exhibit E attached to this Agreement.

     Remaining Defeasance Costs. The term “Remaining Defeasance Costs” shall mean the Defeasance Costs which Seller elects (pursuant to Section 4.3(d)(ii) below) to receive from Buyer in reimbursement rather than having Buyer pay directly to the persons charging for the same. In no event shall the Remaining Defeasance Costs include the Defeasance Fee or the Defeasance Collateral Cost, which shall be paid by Buyer directly and not to Seller, notwithstanding any election made by Seller pursuant to Section 4.3(d) below.

     Remaining Loan Assumption Costs. The term “Remaining Loan Assumption Costs” shall mean the Loan Assumption Costs which Seller elects (pursuant to Section 4.3(a)(v)(B) below) to receive from Buyer in reimbursement rather than having Buyer pay directly to the persons charging for the same. In no event shall the Remaining Loan Assumption Costs include the Loan Assumption Fee, which shall be paid by Buyer directly to Lender notwithstanding any election made by Seller pursuant to Section 4.3(a)(v) below.

     Reserve Amount. The term “Reserve Amount” shall mean the total amount of all impounds, reserves, and other monies held by Lender (or by any third party for the benefit of Lender) on the Closing Date pursuant to the Loan Documents.

     Seller-Approved Requirements. The term “Seller-Approved Requirements” shall have the meaning set forth in Section 2.4 below.

     Title Company. The term “Title Company” shall mean First American Title Guaranty Company whose address for this transaction is as follows:

First American Title Insurance Company
1737 North First Street
San Jose, California 95112
Attn: Dian Blair
Fax No. (408) 451-7836.

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ARTICLE II

PURCHASE AND SALE

     Section 2.1 Purchase and Sale. Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property upon all of the terms, covenants and conditions set forth in this Agreement.

     Section 2.2 Purchase Price. The purchase price for the Property (the “Purchase Price”) shall be equal to the outstanding principal amount of the Loan as calculated as of the Closing Date.

          (a) If the Loan Assumption Notice of Election to Proceed has been timely delivered to Seller pursuant to and in accordance with Section 3.1(a)(vi) below and has not been rescinded pursuant to and in accordance with Section 3.1(b)(iv)(C) below, then the Purchase Price shall, upon the assumption of the Loan by Buyer on the close of escrow in accordance with the Loan Transfer Documents, be deemed paid by Buyer.

          (b) If the All Cash Notice of Election to Proceed has been timely delivered to Seller pursuant to and in accordance with Section 3.1(a)(vi) below, then the Purchase Price shall be payable in cash on or before the Closing Date (as specified in Section 6.1 below) through the escrow described in Section 6.1 below.

     Section 2.3 Buyer’s Review and Seller’s Disclaimer.

          (a) Subject to the provisions of subsection 2.3(c) below, during the Inspection Period Buyer shall be permitted to make a complete review and inspection of the physical, legal, economic and environmental condition of the Property, including, without limitation, any leases and contracts affecting the Real Property, books and records maintained by Seller or its agents relating to the Property, boundary and other survey-related issues relating to the Real Property, pest control matters, asbestos, PCB, hazardous waste, toxic substance or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, plans and specifications, structural, life safety, HVAC and other building system and engineering characteristics, traffic patterns and all other information pertaining to the Property. Without representation or warranty, Seller shall cooperate in Buyer’s review and upon request provide Buyer with the opportunity to review and copy all leases, financial reports, survey and other third party inspection reports and similar non-proprietary or non-confidential materials in Seller’s possession relating to the Property. Seller agrees to deliver to Buyer copies of the Property Documents within five (5) days after the Contract Date. Buyer acknowledges (i) that Buyer has entered into this Agreement with the intention of making and relying upon its own investigation of the physical, environmental, economic and legal condition of the Property, and (ii) that Buyer is not relying upon any representations and warranties, other than those specifically set forth in Section 4.1 below, made by Seller or anyone acting or claiming to act on Seller’s behalf concerning the Property. Buyer further acknowledges that it has not received from Seller any accounting, tax, legal, architectural, engineering, property management or other advice with respect to this transaction and is relying solely upon the advice of its own accounting, tax, legal, architectural, engineering, property management and other advisors. Buyer specifically undertakes and assumes all risks associated with the matters disclosed by Seller on the Disclosure Statement. All costs of Buyer’s tests and inspections are to be paid by Buyer. If Buyer disapproves any of the physical aspects of the Property pursuant to any reports or inspections made or received by it, Buyer shall notify Seller of the items disapproved within ten (10) days prior to the expiration of the Inspection Period if Buyer desires, in it sole and absolute

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discretion, that Seller repair and correct such disapproved items. Seller shall have five (5) days after receipt of such notice to elect, in its sole discretion, whether or not to repair and correct such disapproved items prior to the close of escrow. Seller’s failure to provide notice to Buyer within such five (5) day period as to any disapproved item shall be deemed an election by Seller not to repair and correct such disapproved item. On or before the expiration of the Inspection Period, Buyer shall elect by giving written notice to Seller to either (i) proceed with the purchase of the Property pursuant to the terms of this Agreement subject to Seller’s obligation, if any, to repair any physical condition that it has agreed to repair as set forth above, if applicable, (ii) waive such disapproved items and proceed with the purchase of the Property pursuant to the terms of this Agreement, or (iii) terminate this Agreement and all of its obligations, in which event Buyer shall be entitled to the immediate return of Buyer’s Deposit and all interest accrued thereon while in escrow. If Buyer fails to make such election prior to the expiration of the Inspection Period, then this Agreement shall automatically terminate without the need for either party to give any notice or to take any action of any kind; provided, however, that within three (3) days after the later of Buyer’s receipt of the Deposit and Seller’s written request of confirmation of termination, Buyer shall confirm such termination in writing. Provided that (A) Seller has not both (1) breached or defaulted in the performance of any material covenant, agreement or obligation on its part required under this Agreement, and (2) failed to cure the same, and (B) all express conditions precedent to Buyer’s obligation to perform hereunder set forth in Section 3.1(a) below have been satisfied or waived within the time limits and in the manner required in this Agreement, then Buyer shall purchase the Property in its “as is” condition, with all faults on the Closing Date and shall assume the risk that adverse physical, environmental, economic or legal conditions may not have been revealed by its investigation.

          (b) Except with respect to any claims arising out of (i) any breach of covenants, representations or warranties set forth in Section 4.1 below, or (ii) fraud by Seller, or (iii) any breach by Seller of any obligations under this Agreement that survive the Closing hereunder, Buyer, for itself and its agents, affiliates, successors and assigns, hereby releases and forever discharges Seller, its agents, affiliates, successors and assigns (collectively, the “Released Parties”) from any and all rights, claims and demands at law or in equity, whether known or unknown at the time of this Agreement, which Buyer has or may have in the future, arising out of the physical, environmental, economic or legal condition of the Property, including, without limitation, any claim for indemnification or contribution arising under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601, et. seq.) or any similar federal, state or local statute, rule or ordinance relating to liability of property owners for environmental matters; provided, however, that while Buyer is releasing Seller and the Released Parties from Environmental Claims (as defined below), nothing stated herein shall be construed or interpreted as creating an obligation on Buyer to assume any environmental obligations or liabilities of Seller or to indemnify, defend or hold harmless Seller or any of the Related Parties from or against any claims, liabilities, losses, damages, demands, actions, causes of action, judgments, costs or expenses (including, without limitation, attorneys’ fees) arising from or related to the environmental condition of the Property or any other condition or circumstance existing prior to the Closing (“Environmental Claims”). For the foregoing purposes, Buyer hereby specifically waives the provisions of Section 1542 of the California Civil Code and any similar law of any other state, territory or jurisdiction. Section 1542 provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

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     Buyer hereby specifically acknowledges that Buyer has carefully reviewed this subsection and discussed its import with legal counsel and that the provisions of this subsection are a material part of this Agreement.

NZ US Buyer

Notwithstanding the foregoing, the releases set forth above do not excuse Seller’s breach of its express obligations under this Agreement. If the purchase and sale transaction contemplated by this Agreement occurs, Buyer (i) is agreeing that, subject only to the provisions of Section 4.1 of this Agreement, it will be purchasing the Property in its as is condition, with all faults, on the Closing Date and will be assuming the risk that adverse physical, environmental, economic or legal conditions may not have been revealed by its investigation, and (ii) shall be deemed for all purposes to have remade as of the Closing Date, all of the statements set forth in this Section 2.3(b).

          (c) Buyer’s exercise of the rights of review and inspection set forth in subsection (a) shall be subject to the following limitations: (i) any entry onto the Real Property by Buyer, its agents or representatives, shall be during normal business hours, following reasonable prior notice to Seller and delivery to Seller of satisfactory evidence of Buyer’s general liability insurance (in the amount of at least One Million Dollars ($1,000,000) per occurrence, Three Million Dollars ($3,000,000) aggregate, and with Seller named as an additional insured), and, at Seller’s discretion, accompanied by a representative of Seller; (ii) Buyer shall not conduct any drilling, test borings or other disturbance of the Real Property for review of soils, compaction, environmental, structural or other conditions without Seller’s prior written consent, not to be unreasonably withheld, conditioned or delayed; (iii) any discussions or interviews with any tenants of the Real Property or their personnel shall be conducted in the presence of Seller or its representatives; (iv) Buyer shall exercise reasonable diligence not to disturb the use or occupancy of any occupant of the Property; (v) Buyer shall restore this Property to its condition prior to Buyer’s, Buyer’s agents, employees, consultants, or invitees entry on the Property, and (vi) Buyer shall indemnify, defend and hold Seller harmless from all loss, cost, and expense relating to any personal injury, property damage, or mechanics’ liens resulting from any entry or inspections performed by Buyer, its agents or representatives, provided, however, that Buyer shall have no liability to Seller for any loss, cost or expense to the extent resulting from (a) Seller’s negligence or willful misconduct, (b) any pre-existing dangerous or defective condition existing in, on or under the Property, or (c) Buyer’s discovery of any pre-existing hazardous or toxic materials on or about the Property in connection with its investigation of the Property.

     Section 2.4 Permitted Title Exceptions. Within five (5) days from the Contract Date, Seller shall cause the Title Company to deliver to Buyer a current preliminary title report with respect to the Real Property, together with all documents and information pertaining to the exceptions to title listed in such report, and shall review the same. In addition, Buyer shall, at its expense, obtain during the Inspection Period any survey of the Real Property desired by Buyer or update an existing survey, if any, required by Title Company as a condition to the issuance of the Title Policy described in Section 3.1(a)(ii) below (the “Survey”). Buyer may advise Seller in writing and in reasonable detail, not later than ten (10) business days prior to the close of the Inspection Period, what exceptions to title, if any, listed in then current preliminary report or disclosed on the Survey are not acceptable to Buyer in its sole and absolute discretion (the “Title Objections”). Buyer shall, prior to notifying Seller of any Title Objections, endeavor in good faith to cause Title Company to modify and update the preliminary report to reflect requested corrections and revisions. Seller shall have five (5) business days after receipt of Buyer’s Title Objections to give Buyer notice that (a) Seller will remove any Title Objections from title (or afford the Title Company necessary information or certifications to permit it to insure over such exceptions) or (b)

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Seller elects not to cause such Title Objections to be removed. Seller’s failure to provide notice to Buyer within such five (5) business day period as to any Title Objection shall be deemed an election by Seller not to remove the Title Objection. If Seller so notifies or is deemed to have notified Buyer that Seller shall not remove any or all of the Title Objections, Buyer shall elect by giving written notice to Seller on or before the expiration of the Inspection Period to either (i) proceed with the purchase of the Property pursuant to the terms of this Agreement subject to Buyer’s election to remove any Title Objections, if applicable, (ii) waive its objections and proceed with the purchase of the Property pursuant to the terms of this Agreement and take the Property subject to such Title Objections, or (iii) terminate this Agreement and all of its obligations, in which event Buyer shall be entitled to the immediate return of Buyer’s Deposit and all interest accrued thereon while in escrow. If Buyer fails to make such election prior to the expiration of the Inspection Period, then this Agreement shall automatically terminate without the need for either party to give any notice or to take any action of any kind, in which event Buyer shall be entitled to the immediate return of the Deposit and all interest accrued thereon while in escrow; provided, however, that within three (3) days after the later of Buyer’s receipt of the Deposit and Seller’s written request of confirmation of termination, Buyer shall confirm such termination in writing. “Permitted Exceptions” shall include and refer to any and all exceptions to title, excepting solely Title Objections that have been timely identified by Buyer and that Seller has notified Buyer pursuant to this Section that Seller is willing to remove. If this Agreement is not terminated pursuant to this Section 2.4, then on or prior to the date which is four (4) business days prior to the expiration of the Inspection Period, Buyer shall (x) obtain from the Title Company a commitment for title insurance reflecting the state of title determined by the foregoing process (the “Title Commitment”), and (y) deliver a copy thereof to Seller. On the date which is three (3) business days after receipt of the Title Commitment, Seller shall notify Buyer in writing of any “Requirements” in the Title Commitment which Seller agrees to satisfy on or prior to Closing (the “Seller-Approved Requirements”). Failure of Seller for any reason (including but not limited to late receipt of the Title Commitment) to so notify Buyer prior to the end of the Inspection Period shall not be a default by Seller and shall be deemed Seller’s election not to satisfy any of the “Requirements” in the Title Commitment.

ARTICLE III

CONDITIONS PRECEDENT

     Section 3.1 Conditions.

          (a) Notwithstanding anything in this Agreement to the contrary, Buyer’s obligation to purchase the Property shall be subject to and contingent upon the satisfaction or waiver of the following conditions precedent:

               (i) Buyer’s inspection and approval in its sole and absolute discretion, within the Inspection Period, of the feasibility for Buyer’s intended purpose of, and all physical, environmental, economic and legal matters relating to, the Property, pursuant to and in accordance with Section 2.3 above;

               (ii) The willingness of Title Company to issue effective as of the Closing Date, upon the sole condition of the payment of its regularly scheduled premium, its American Land Title Association extended coverage Owner’s Policy of Title Insurance [1992 Form] (the “Title Policy”) in the amount of the Purchase Price, with such coverage (including endorsements) and subject to such exceptions as are set forth in the Title Commitment; provided, however, that if the Title Company is unwilling to issue the Title Policy due to the failure any of the Buyer requirements set forth in the Title Commitment, the condition set forth in this Section 3.1(a)(iii) shall be deemed to have been satisfied;

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               (iii) (A) Seller’s performance of all of its material obligations under this Agreement within the applicable time periods set forth herein for performance of such obligations and (B) the truth and correctness of Seller’s express representations and warranties as of the Closing Date;

               (iv) (A) Lender’s approval, within the Inspection Period, of Buyer for purposes of becoming the owner of the Property and the borrower under the applicable Loan Documents, if Buyer has delivered the Loan Assumption Notice of Election to Proceed, or (B) the completion of the Defeasance, if Buyer has delivered the All Cash Notice of Election to Proceed;

               (v) Buyer shall have notified Seller in writing prior to the expiration of the Inspection Period that Buyer’s Board of Directors and/or applicable standing committees has approved Buyer’s purchase of the Property pursuant to this Agreement;

               (vi) Buyer shall have delivered to Seller within the Inspection Period of either but not both (except as provided below in Section 3.1(b)(iv)(c)) of the All Cash Notice of Election to Proceed or the Loan Assumption Notice of Election to Proceed; and

               (vii) At or prior to the Close of Escrow, Seller shall not have received any written notice of any threatened or pending litigation against Seller which would materially and adversely affect the Real Property or Seller’s capacity to perform under this Agreement.

          (b) Notwithstanding anything in this Agreement to the contrary, Seller’s obligation to sell the Property shall be subject to and contingent upon the satisfaction or waiver of the following conditions precedent:

               (i) (A) Buyer’s performance of all of its material obligations under this Agreement within the applicable time periods set forth herein for performance of such obligations and (B) the truth and correctness of Buyer’s express representations and warranties as of the Closing Date;

               (ii) The satisfaction of the conditions set forth in (1) subparagraph (a)(i) above, and (2) subparagraph (a)(ii) above, within the time periods set forth in such sections; provided, however, that if the condition set forth in subparagraph (a)(ii) above is not satisfied due to the failure of any of the Seller-Approved Requirements to be satisfied, the condition set forth in this Section 3.1(b)(ii)(2) shall not be a condition precedent to Seller’s obligation to sell the Property;

               (iii) Buyer shall have notified Seller in writing prior to the expiration of the Inspection Period that Buyer’s Board of Directors and/or applicable standing committees has approved Buyer’s purchase of the Property pursuant to this Agreement; and

               (iv) (A) Receipt by Seller within the Inspection Period of either but not both (except as provided below) of the All Cash Notice of Election to Proceed or the Loan Assumption Notice of Election to Proceed, duly signed by Buyer.

                    (B) If Buyer timely delivers the All Cash Notice of Election to Proceed, then the completion of the Defeasance on or prior to the Close of Escrow shall also be a condition to Seller’s obligation to sell the Property.

                    (C) If Buyer timely delivers the Loan Assumption Notice of Election to Proceed, then the following shall also be conditions to Seller’s obligation to sell the Property: (1) Seller’s written approval in its reasonable discretion of the Loan Transfer Documents within five (5) days after receipt thereof; and (2) Seller’s receipt of the Loan Approval on or before the Closing Date.

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Notwithstanding the foregoing, if Buyer initially delivers the Loan Assumption Notice of Election to Proceed, but thereafter determines in its sole discretion that it desires to defease the Loan, then Buyer may elect at any time at least sixty (60) days prior to the Closing Date to rescind the Loan Assumption Notice of Election to Proceed and simultaneously deliver the All Cash Notice of Election to Proceed, and the parties shall then proceed as if only the All Cash Notice of Election to Proceed had been delivered, provided that (A) Buyer shall pay all additional out-of-pocket costs incurred by Seller in connection with proceeding with the All Cash Notice of Election to Proceed (in which event Buyer shall pay all third party costs and fees directly to each applicable lender or other vendor within ten (10) days after receipt of an invoice showing such costs and fees actually incurred, it being agreed that all such lender(s) and other vendors are intended to be third party beneficiaries of such payment obligation of Buyer), and (B) there shall be no delay in the Closing Date (it being agreed that if Seller in its sole discretion, for any reason or no reason, does not agree to an extension or delay of the Closing Date, and all of Buyer’s conditions set forth in Section 3.1(a), except the condition set forth in Section 3.1(a)(iv), shall have been satisfied or waived, then Buyer shall be deemed to have materially breached this Agreement, in which event Seller may elect to terminate this Agreement and retain the Deposit as liquidated damages in accordance with Section 5.4 below). Further, if Buyer initially delivers the Loan Assumption Notice of Election to Proceed and does not receive Seller’s approval of the Loan Transfer Documents within five (5) days after Seller’s receipt thereof, then Buyer may elect on or prior to the later of (i) the date which is six (6) days after Seller’s receipt of the Loan Transfer Documents (or one (1) day after Buyer’s receipt of Seller’s disapproval of the Loan Transfer Documents, if earlier), or (ii) the expiration of the Inspection Period, to either (x) terminate this Agreement and all of its obligations, in which event Buyer shall be entitled to the immediate return of the Deposit, or (y) deliver the All Cash Notice of Election to Proceed, and the parties shall then proceed as if only the All Cash Notice of Election to Proceed had been delivered, provided that there shall be no delay in the Closing Date.

     Section 3.2 Failure or Waiver of Buyer’s Conditions Precedent. If the conditions in Sections 3.1(a)(i), 3.1(a)(iv)(A) if applicable, 3.1(a)(v), and 3.1(a)(vi), are not satisfied (or waived in writing by Buyer) at or prior to the end of the Inspection Period, then this Agreement shall automatically terminate, all rights, obligations and liabilities of Seller and Buyer under this Agreement (except those that expressly survive termination of this Agreement) shall cease and the Deposit made by Buyer hereunder, together with all interest accrued thereon while held in escrow, shall be promptly refunded to Buyer. Notwithstanding any contrary provision of this Agreement, the condition set forth in Section 3.1(a)(i) above shall be deemed to have failed and Buyer shall be deemed to have terminated this Agreement, unless Buyer delivers to Seller written notice of the satisfaction or waiver of such condition on or prior to the close of the Inspection Period. If the conditions set forth in Section 3.1(a)(ii), 3.1(a)(iii)(B), 3.1(a)(iv)(B) (if applicable), and 3.1(a)(vii) above are not satisfied on or before the Closing Date (or waived in writing by Buyer), then this Agreement shall automatically terminate without the need for either party to give any notice or to take any action of any kind and, in the event of such termination, all rights, obligations and liabilities of Seller and Buyer under this Agreement (except those that expressly survive termination of this Agreement) shall cease and the Deposit made by Buyer hereunder, together with all interest accrued thereon while held in escrow, shall be promptly refunded to Buyer; provided, however, if any such condition set forth in Section 3.1(a)(ii), 3.1(a)(iii)(B), and, if applicable, 3.1(a)(iv)(B), above, fails as a result of a breach or default by Seller hereunder, then the provisions of Section 4.4 shall apply. In the event a breach or default by Seller causes the condition described in Section 3.1(a)(iii)(A) to be unsatisfied and the same is not waived in writing by Buyer, and such condition continues to be unsatisfied for a period of more than five (5) days following written notice from Buyer to Seller (except no such written notice shall be required if Buyer fails to close escrow on the Closing Date), then, in addition to its rights and remedies described in Section 4.4 below, Buyer shall have the right to terminate this Agreement upon written notice to Seller and, in the event of such termination, the Deposit made by Buyer hereunder, together with all interest accrued thereon while held in escrow, shall be promptly refunded to Buyer.

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     Section 3.3 Failure or Waiver of Seller’s Conditions PrecedentIf the conditions in Sections 3.1(b)(iii) and 3.1(b)(iv)(A) are not satisfied (or waived in writing by Seller) at or prior to the end of the Inspection Period, then this Agreement shall automatically terminate, all rights, obligations and liabilities of Seller and Buyer under this Agreement (except those that expressly survive termination of this Agreement) shall cease and the Deposit made by Buyer hereunder, together with all interest accrued thereon while held in escrow, shall be promptly refunded to Buyer. If the conditions set forth in Section 3.1(b)(ii), 3.1(b)(iv)(B), and 3.1(b)(iv)(C), as applicable, are not satisfied on or before the dates specified in each such condition (or waived in writing by Seller), then this Agreement shall automatically terminate without the need for either party to give any notice or to take any action of any kind and, in the event of such termination, all rights, obligations and liabilities of Seller and Buyer under this Agreement (except those that expressly survive termination of this Agreement) shall cease and the Deposit made by Buyer hereunder, together with all interest accrued thereon while held in escrow, shall be promptly refunded to Buyer; provided, however, if any such condition fails as a result of a breach or default by Buyer hereunder, then the provisions of Section 4.4 shall apply. In the event a breach or default by Buyer causes the condition described in Section 3.1(b)(i)(A) to be unsatisfied and the same is not waived in writing by Seller, and such condition continues to be unsatisfied for a period of more than five (5) days following written notice from Seller to Buyer (except no such written notice shall be required if Seller fails to close escrow on the Closing Date), then, in addition to its rights and remedies described in Section 4.4 below, Seller shall have the right to terminate this Agreement upon written notice to Buyer and, in the event of such termination, the Deposit made by Buyer hereunder, together with all interest accrued thereon while held in escrow, shall be retained by Seller as liquidated damages as provided in Article V below.

ARTICLE IV

COVENANTS, WARRANTIES AND REPRESENTATIONS

     Section 4.1 Seller’s Warranties and Representations. Seller hereby makes the following representations and warranties to Buyer as of the Contract Date; provided that each of such representations and warranties shall be deemed to be modified by any contrary or qualifying information contained in any reports, schedules or other informational materials delivered or made available to Buyer pursuant to this Agreement or set forth on the Disclosure Statement:

          (a) Seller has full power and lawful authority to enter into and carry out the terms and provisions of this Agreement and to execute and deliver all documents which are contemplated by this Agreement, and all actions of Seller necessary to confer such power and authority upon the persons executing this Agreement (and all documents which are contemplated by this Agreement) on behalf of Seller have been taken;

          (b) The list of Leases attached to this Agreement as Exhibit F is a complete and accurate list of all of the Leases presently in effect with respect to the Real Property, the copies of the Leases and related correspondence that have been (or will be) delivered or made available to Buyer are true and correct, each such Lease is in full force and effect, and Seller has not received written notice (i) of any default by the tenant or Seller under the Lease, or (ii) that the tenant under the Lease has exercised any option to extend the current term of the Lease. In the event that the term of any tenants’ Leases will continue after the Closing Date, Seller shall deliver to Buyer at least five (5) business days prior to the expiration of the Inspection Period, an estoppel certificate from all of the tenants under such Leases in the form of attached to such Leases.

          (c) The list of service and equipment contracts attached to this Agreement as Exhibit G is a complete and accurate list of all of the service and equipment contracts presently in effect with respect to the Real Property to which Seller is a party, the copies of such contracts that have been (or will

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be) delivered or made available to Buyer are true, correct and complete, and each such contract is in full force and effect;

          (d) To Seller’s knowledge, Seller has received no written notice from any governmental authorities that eminent domain proceedings for the condemnation of the Real Property are pending;

          (e) To Seller’s knowledge, Seller has received no written notice of any threatened or pending litigation against Seller which would materially and adversely affect the Real Property or Seller’s capacity to perform under this Agreement;

          (f) Seller has delivered or, within five (5) days following the Contract Date, Seller shall have delivered, to Buyer all of the reports and studies in its possession or reasonable control that both (i) are related to or dealing with the Property, or applicable portion thereof, and (ii) Seller believes to be currently applicable, as described and subject to the limitations set forth in Section 2.3(a); and

          (g) Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code.

     As used herein, the term “Seller’s knowledge” or words of similar effect shall mean the current, actual, subjective knowledge of Henry Bullock, Richard Holmstrom, Alan Webber, and Lyn Barshay, without any duty of inquiry. Seller represents and warrants to Buyer that Alan Webber and Lyn Barshay are the representatives of Seller or its affiliated property management company most likely to know the truth and accuracy of the representations made by Seller herein. Neither Henry Bullock nor Richard Holmstrom nor Alan Webber nor Lyn Barshay, nor any party other than Seller, shall bear responsibility for any breach of any representation or warranty.

     Section 4.2 Seller’s Covenants. Seller hereby covenants and agrees as follows:

          (a) during the Contract Period, Seller shall ensure that the Property is operated and maintained in a manner consistent with current practices and maintain reasonable and customary levels and coverages of insurance and Seller shall not create or acquiesce in the creation of liens or exceptions to title other than the Permitted Exceptions or voluntarily take any action (other than as may be permitted pursuant to subparagraph (b) of this Section 4.2) to render any of the representations or warranties of Seller set forth in Section 4.1 materially incorrect; and

          (b) during the Contract Period, except as provided below in this Section 4.2(b), Seller will not execute or modify any Leases or other contracts, or any amendments, modifications, extensions or renewals to or of the same, without Buyer’s prior written approval, which approval shall be deemed given if Buyer should fail to approve or disapprove any such matter in writing within 5 business days following Buyer’s receipt of written request for such action. At the request of Buyer made in writing and delivered to Seller at least 45 days prior to the Closing Date, Seller shall terminate, to the extent terminable, as of the close of escrow hereunder, any service contract, maintenance agreement or property management contract applicable to all or any portion of the Property and/or the improvements thereon as Buyer deems appropriate. Notwithstanding the foregoing, Seller shall be entitled during the Contract Period to terminate all Leases in Seller’s sole discretion, and Seller agrees to notify Buyer in writing promptly after any such termination;

          (c) during the Inspection Period Buyer shall be permitted to make a complete review and inspection of the physical, legal, economic and environmental condition of the Property, including, without limitation, any leases and contracts affecting the Real Property, books and records maintained by

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Seller or its agents relating to the Property, boundary and other survey-related issues relating to the Real Property, pest control matters, asbestos, PCB, hazardous waste, toxic substance or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, plans and specifications, structural, life safety, HVAC and other building system and engineering characteristics, traffic patterns and all other information pertaining to the Property;

          (d) if during the Contract Period Seller obtains actual knowledge that any of Seller’s representations or warranties set forth in Section 4.1 is untrue, Seller will promptly notify Buyer thereof;

          (e) during the Contract Period, Seller covenants and agrees that it will not be in default of its material obligations under the Loan Documents beyond applicable notice, grace, and cure periods, and that it will not be in default of its material obligations under the Loan Documents as of the Close of Escrow;

          (f) during the Contract Period, Seller covenants and agrees that it will reasonably and timely cooperate with Buyer (without any obligation to incur out-of-pocket costs or expenses) in Buyer’s efforts with the Defeasance or the Loan Assumption, as applicable. Such reasonable cooperation of Seller shall include the prompt execution, acknowledgment and delivery of any applications and other documents pertinent thereto as may be both (i) necessary for Buyer to initiate and complete the Defeasance or obtain the Loan Transfer Documents, and (ii) approved by Seller in Seller’s sole but good faith discretion;

          (g) to the extent (i) any amounts are payable in connection with the Loan Assumption Costs or the Defeasance Costs pursuant to this Agreement, and (ii) Seller does not make an election pursuant to Section 4.3(a)(v) or 4.3(d) below, as applicable, then Seller agrees that Buyer shall have the right to elect to pay such amounts either (i) directly to Seller, or (ii) directly to Seller’s lender(s) and other vendor(s) instead of to Seller or its partners, members or any person affiliated with such partners or members, or (iii) any combination of the foregoing. In all events Buyer shall make such payments within ten (10) days after receipt of an invoice showing such amounts actually incurred, it being agreed that all such lender(s) and other vendors are intended to be third party beneficiaries of such payment obligation of Buyer; and

          (h) Seller hereby covenants and agrees that it will satisfy the Seller-Approved Requirements prior to or upon the Close of Escrow.

     Section 4.3 Buyer’s Covenants, Warranties and Representations.

          (a) Buyer hereby covenants and agrees that if it delivers the Loan Assumption Notice of Election to Proceed, then it will utilize its best commercially reasonable efforts to satisfy the Lender’s requirements for the Loan Approval, and in this regard, Buyer agrees without limitation that it will:

               (i) provide to Lender those items required or requested by Lender in order to obtain the Loan Approval, including but not limited to financial statements or other evidence satisfactory to Lender regarding financial strength of Buyer and any guarantor, evidence of relevant real estate ownership and management experience, legal opinions, and transfer fees called for by the Loan Documents;

               (ii) assume ownership upon the close of escrow of all accounts of Seller in which Lender has a security interest, including but not limited to lockbox accounts, clearing accounts, tenant improvement reserve accounts, etc.;

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               (iii) if required by Lender, cause either (A) IXYS Corporation in the event IXYS Corporation assigns its rights under this Agreement to another party or is not the grantee under the Deed, or (B) a subsidiary of IXYS Corporation with a net worth reasonably acceptable to Lender, to agree to become the guarantor and/or indemnitor and/or surety, as applicable, under those Loan Transfer Documents requiring a guaranty, indemnitor, or surety;

               (iv) use best efforts to timely provide customary financial information to Lender and to negotiate the Loan Assumption; and

               (v) timely pay all Loan Assumption Costs, and at Seller’s election, Buyer shall pay all or a portion of such Loan Assumption Costs either (A) directly to the persons charging for the same (including but not limited to Lender, Lender’s counsel, Seller’s counsel, consultants, and other providers of good or services in connection with the Loan Assumption) rather than to Seller in reimbursement thereof, or (B) directly to Seller in reimbursement thereof.

          (b) Buyer hereby covenants and agrees that it will satisfy any Buyer requirements set forth in the Title Commitment prior to or upon the Close of Escrow.

          (c) Buyer hereby covenants and agrees that if it delivers the Loan Assumption Notice of Election to Proceed and IXYS Corporation assigns its rights under this Agreement to another party or is not the grantee under the Deed, then Buyer will cause the Guarantor to execute and deliver the Assumption and Indemnity Agreement in the form of Exhibit B-2 attached hereto prior to or upon the Close of Escrow.

          (d) Buyer hereby covenants and agrees that if it delivers the All Cash Notice of Election to Proceed, then it will pay timely all Defeasance Costs, and at Seller’s election, Buyer shall pay all or a portion of such Defeasance Costs either (i) directly to the persons charging for the same (including but not limited to Lender, Lender’s counsel, investment bankers, consultants, and other providers of good or services in connection with the Defeasance) rather than to Seller in reimbursement thereof, or (ii) directly to Seller in reimbursement thereof.

Buyer hereby represents and warrants to Seller that, subject to the satisfaction of the condition in Section 3.1(a)(v), (a) Buyer has and as of the Closing Date shall have, full power and lawful authority to enter into and carry out the terms and conditions of this Agreement and to execute and deliver all documents which are contemplated by this Agreement, (b) all actions necessary to confer such power and authority upon the persons executing this Agreement and all documents which are contemplated by this Agreement to be executed on behalf of Buyer or its assignee have been taken, (c) Buyer has received no written notice of any threatened or pending litigation which would materially and adversely affect Buyer’s capacity to perform under this Agreement, and (d) Buyer believes that, unless matters having a material adverse economic effect on the Property are discovered by Buyer during the Inspection Period, the Purchase Price as set forth in Section 2.2 above is a fair and reasonable price to pay for the Property. Buyer warrants and represents to Seller that Buyer will not attempt to renegotiate the Purchase Price unless such matters having a material adverse economic effect on the Property are discovered by Buyer during the Inspection Period.

     Section 4.4 Limitations. The parties agree that (i) Seller’s warranties and representations contained in this Agreement and in any document executed by Seller pursuant to this Agreement shall not merge with deed but shall survive Buyer’s purchase of the Property only until December 15, 2007 (the “Limitation Period”), (ii) Seller’s aggregate liability for claims arising out of such representations and warranties shall not exceed $100,000 (exclusive of legal fees unless Seller offers to settle a claim for the lesser of (a) $100,000 and (b) the amount of such claim), and (iii) if Buyer learns or is notified of a Seller

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breach of its warranties or representations, Buyer shall provide actual written notice to Seller of any such breach, and provided that Seller did not have actual knowledge of such breach as of the Contract Date, Buyer shall allow Seller five (5) days within which to cure such breach (except that such five (5) day cure period shall not be applicable to any breach by Seller of Section 4.2(a) or 4.2(b). If Seller fails to cure such breach after actual written notice and within such cure period, Buyer’s sole remedy shall be an action at law for damages as a consequence thereof, which must be commenced, if at all, within the Limitation Period; provided, however, that if within the Limitation Period Buyer gives Seller written notice of such a breach and Seller commences to cure and thereafter terminates such cure effort, Buyer shall have an additional 30 days from the date of such termination within which to commence an action at law for damages as a consequence of Seller’s failure to cure. The Limitation Period referred to herein shall apply to known as well as unknown breaches of such warranties or representations.

ARTICLE V

DEPOSIT

     Section 5.1 Upon the mutual execution of this Agreement by Buyer and Seller, Buyer shall deliver to Title Company, for deposit into the escrow described in Section 6.1 below, the sum of $500,000 (together with any interest earned thereon, the “Deposit”).

     Section 5.2 In the event that this transaction is consummated as contemplated by this Agreement, then (a) the entire amount of the Deposit shall be credited against the Purchase Price in the event that the Loan is defeased, and (b) the entire amount of the Deposit (or such lesser portion thereof equal to Buyer’s payment obligations if applicable), shall be credited against Buyer’s payment obligations in the event that the Loan is assumed (and any excess of the Deposit over such payment obligations, if applicable, shall be refunded to Buyer).

     Section 5.3 The entire amount of the Deposit, together with any interest accrued thereon, shall be returned immediately to Buyer in the event that:

          (a) (i) the conditions precedent set forth in Section 3.1(b) shall have been satisfied or waived, (ii) Buyer shall have performed fully or tendered performance of its obligations hereunder, and (iii) Seller shall be unable or fail to perform its obligations, under this Agreement; or

          (b) Buyer terminates this Agreement at any time during the Inspection Period unless Buyer is then in default (in which event a portion of the Deposit equal to the amount of Seller’s damages claim shall remain in escrow pending resolution of such claim); or

          (c) Buyer fails to deliver written notice to Seller prior to the expiration of the Inspection Period that Buyer has elected to proceed with the purchase of the Property as described in Section 3.2 above; or

          (d) Buyer becomes entitled to the refund of the Deposit pursuant to the terms set forth in Sections 3.2, 3.3 or 5.2 above, or Section 6.3 below; or

          (e) Buyer terminates this Agreement pursuant to the terms of Section 7.1(a); or

          (f) Buyer or Seller terminates this Agreement pursuant to the terms set forth Section 7.1(b).

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     Section 5.4 IN ALL EVENTS OTHER THAN THOSE SET FORTH IN SECTION 5.3 ABOVE, THE ENTIRE AMOUNT OF THE DEPOSIT, PLUS ACCRUED INTEREST, SHALL BE RETAINED BY SELLER AS LIQUIDATED DAMAGES. BUYER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT SELLER’S DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY BUYER WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF THE DEPOSIT PLUS ACCRUED INTEREST IS THE PARTIES’ BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES SELLER WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE CONTRACT DATE. BUYER AND SELLER AGREE THAT SELLER’S RIGHT TO RETAIN THE DEPOSIT PLUS ACCRUED INTEREST SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SELLER IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY BUYER. THE FOREGOING, HOWEVER, IS A LIQUIDATED MEASURE OF DAMAGES FOR THE SPECIFIED BREACH ONLY, AND SHALL NOT LIMIT BUYER’S LIABILITY UNDER SECTIONS 2.3 OR 7.9 OF THIS AGREEMENT. SELLER HEREBY WAIVES THE REMEDY OF SPECIFIC PERFORMANCE WITH RESPECT TO ANY DEFAULT OR BREACH BY BUYER OF ITS OBLIGATION TO PURCHASE THE PROPERTY.

Accepted And Agreed To:

HDB   Seller NZ US   Buyer

ARTICLE VI

ESCROW AND CLOSING

     Section 6.1 Escrow Arrangements. An escrow for the purchase and sale contemplated by this Agreement has been or will be opened by Buyer and Seller with Title Company. On or before the Closing Date, Seller and Buyer shall each deliver escrow instructions to Title Company consistent with this Article VI, and the parties shall deposit in escrow the funds and documents described below.

          (a) Seller shall deposit (or cause to be deposited):

               (i) a duly executed and acknowledged grant deed in favor of Buyer from Seller with respect to the Real Property in the form attached to this Agreement as Exhibit H (the “Deed”);

               (ii) a duly executed bill of sale with respect to the Personal Property in the form attached to this Agreement as Exhibit I (the “Bill of Sale”);

               (iii) a duly executed counterpart of an assignment and assumption of Seller’s interest in the Intangible Property in the form attached to this Agreement as Exhibit J (the “Assignment of Intangible Property”);

               (iv) a certificate from Seller certifying the information required by §§ 18662 of the California Revenue and Taxation Code and the regulations issued thereunder to establish that the transaction contemplated by this Agreement is exempt from the tax withholding requirements of such provisions (the “California Certificate”);

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               (v) a certificate from Seller certifying the information required by §1445 of the Internal Revenue Code and the regulations issued thereunder to establish, for the purposes of avoiding Buyer’s tax withholding obligations, that Seller is not a “foreign person” as defined in Internal Revenue Code § 1445(f)(3) (the “FIRPTA Certificate”);

               (vi) if Buyer has delivered the Loan Assumption Notice of Election to Proceed: counterpart originals of the Loan Transfer Documents to be executed Seller, duly executed by Seller and acknowledged, if applicable;

               (vii) if Buyer has delivered the Loan Assumption Notice of Election to Proceed: counterpart originals of the Loan Transfer Documents that Lender is obligated to execute, duly executed by Lender and acknowledged; provided, however, that Seller shall endeavor to cause Lender to execute and deliver into escrow the foregoing documents, but if Lender fails to do so, it shall not be a default by Seller; and

               (viii) if there are any unexpired Leases in effect at the Property on the Closing Date, a duly executed counterpart of an assignment and assumption of Seller’s interest in the Leases in the form attached to this Agreement as Exhibit K (the “Assignment of Leases”) and any other documentation required to assign Seller’s interest in any security deposit and/or letter of credit delivered by the tenant under such Leases; and

          (b) Buyer shall deposit:

               (i) a duly executed counterpart of the Assignment of Intangible Property;

               (ii) a duly executed counterpart of the Assignment of Leases (if applicable);

               (iii) a certificate in the form attached to this Agreement as Exhibit L, duly executed by Buyer in favor of Seller re-making the waivers, releases, and acknowledgments set forth in Sections 2.3(a) and (b) above (the “Buyer’s Closing Certificate”);

               (iv) If Buyer has delivered the All Cash Notice of Election to Proceed, immediately available funds sufficient to pay (a) the Purchase Price, plus (b) the Remaining Defeasance Costs, plus sufficient additional cash to pay Buyer’s share of all prorations, escrow costs and closing expenses, at least three (3) business days prior to the Closing Date, and in such event the Title Company (on behalf of Buyer and Seller) is authorized to utilize such amounts in order to cause the Loan to be defeased as of the Closing Date; and

               (v) If Buyer has delivered the Loan Assumption Notice of Election to Proceed:

                    (1) immediately available funds sufficient to pay (a) the Loan Assumption Proration Amount, plus (b) sufficient additional cash to pay Buyer’s share of all prorations, escrow costs, and closing expenses, at least one(1) business day prior to the Closing Date;

                    (2) counterpart originals of those Loan Transfer Documents to be executed by Buyer, duly executed by Buyer and acknowledged, if applicable; and

                    (3) an original of the Assumption and Indemnity Agreement in the form of either (a) Exhibit B-1 attached hereto signed by Buyer, if IXYS Corporation does not assign its

17

rights under this Agreement to another party and the grantee under the Deed is IXYS Corporation, or (b) Exhibit B-2 attached hereto signed by Buyer and IXYS Corporation, if IXYS Corporation assigns its rights under this Agreement to another party or the grantee under the Deed is not IXYS Corporation.

     Section 6.2 Closing. Title Company shall close escrow by:

          (a) recording in the Official Records the Deed, and then (if applicable) any Loan Transfer Documents which are to be recorded;

          (b) causing Title Company to issue the Title Policy to Buyer;

          (c) delivering to Buyer:

               (i) the Bill of Sale,

               (ii) the FIRPTA Certificate,

               (iii) the California Certificate,

               (iv) the counterparts of the Assignment of Intangible Property executed by Seller,

               (v) the counterparts of the Assignment of Leases executed by Seller, if applicable,

               (vi) a conformed copy of the Deed,

               (vii) and (if Buyer has delivered the Loan Assumption Notice of Election to Proceed): conformed copies of the recorded Loan Transfer Documents and originals of all other Loan Transfer Documents; and

          (d) delivering to Seller:

               (i) the Assumption and Indemnity Agreement in the form of either (a) Exhibit B-1 attached hereto signed by Buyer, if IXYS Corporation does not assign its rights under this Agreement to another party and the grantee under the Deed is IXYS Corporation, or (b) Exhibit B-2 attached hereto signed by Buyer and IXYS Corporation, if IXYS Corporation assigns its rights under this Agreement to another party or the grantee under the Deed is not IXYS Corporation,

               (ii) the counterparts of the Assignment of Intangible Property executed by Buyer,

               (iii) the counterparts of the Assignment of Leases executed by Buyer, if applicable,

               (iv) conformed copies of the Deed,

               (v) the Buyer’s Closing Certificate,

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               (vi) (if Buyer has delivered the Loan Assumption Notice of Election to Proceed): conformed copies of the recorded Loan Transfer Documents and originals of all other Loan Transfer Documents, and

               (vii) funds in the amount of either: (A)(1) the Purchase Price, plus (2) the Remaining Defeasance Costs (if Buyer has delivered the All Cash Notice of Election to Proceed), or (B) the Loan Assumption Proration Amount (if Buyer has delivered the Loan Assumption Notice of Election to Proceed), in either case (A) or (B), as adjusted for credits, prorations and closing costs in accordance with this Article VI.

     Section 6.3 Prorations.

          (a)

               (i) Except as provided in Section 6.3(a)(ii) below, real estate taxes and assessments constituting a lien and allocable to the payment period that includes the Closing Date, personal property taxes, if any, rental income and all other items of income and expense with respect to the Property shall be prorated between Seller and Buyer as of the Closing Date. Income and expenses shall be prorated on the basis of a 30-day month and on the basis of the accrual method of accounting. All such items attributable to the period through and including the Closing Date shall be credited to Seller; all such items attributable to the period following the Closing Date shall be credited to Buyer. Seller shall be credited in escrow with any refundable deposits or bonds held by any utility, governmental agency or service contractor with respect to the Property. Seller shall also be credited in escrow with any prepaid real estate taxes and assessments allocable to the period after the Closing Date.

               (ii) Notwithstanding the provisions of Section 6.3(a)(i) above: (A) all rental income shall be prorated through and including July 31, 2007, as if Seller owned the property through such date, even if the Closing Date occurs prior to July 31, 2007; and (B) if the Loan Assumption Notice of Election to Proceed has been timely delivered to Seller pursuant to and in accordance with Section 3.1(a)(vi) above, then Buyer shall pay in cash on or before the Closing Date through the escrow described in Section 6.1 above, the Loan Assumption Proration Amount (as hereinafter defined); and (C) if the All Cash Notice of Election to Proceed has been timely delivered to Seller pursuant to and in accordance with Section 4.3(b) above, then the Remaining Defeasance Costs shall be payable by Buyer in cash on or before the Closing Date through the escrow described in Section 6.1 above. Regarding clause (ii)(B) above, if the Loan Assumption Notice of Election to Proceed has been timely delivered to Seller pursuant to and in accordance with Section 3.1(a)(vi) above, then Seller shall seek a return from Lender of the Reserve Amount and Buyer shall deposit with Lender an amount equal to the Reserve Amount, which deposit by Buyer may be required by Lender several days in advance of the Closing Date. If Seller in fact receives the Reserve Amount from Lender on the Closing Date, then the “Loan Assumption Proration Amount” shall mean an amount equal to the Remaining Loan Assumption Costs. If Seller does not receive the Reserve Amount from Lender on the Closing Date, then the “Loan Assumption Proration Amount” shall mean an amount equal to the Reserve Amount plus the Remaining Loan Assumption Costs. If Seller does not close escrow after the amount equal to the Reserve Amount has been delivered by Buyer for any reason other than Buyer’s default, and Buyer does not exercise its right of specific performance, Seller shall cause such amount to be returned to Buyer, and if Seller fails to do so within thirty (30) days after the Closing Date, then notwithstanding anything to the contrary in this Agreement, Buyer may elect to bring an action for damages to recover the Deposit and the amount delivered by Buyer pursuant to this Section 6.3(a)(ii);

          (b) Buyer and Seller shall cooperate to produce prior to the Closing Date a schedule of prorations (a “Prorations Schedule”) to be made on and after the Closing Date as complete and

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accurate as reasonably possible. All prorations which can be liquidated accurately or reasonably estimated as of the Closing Date shall be made in escrow on the Closing Date. All other prorations, and adjustments to initial estimated prorations, shall be made by the parties with due diligence and cooperation within 30 days following the Closing Date, or such later time as may be required to obtain necessary information for proration, by immediate cash payment to the party yielding a net credit from such prorations from the other party. In no event shall Seller receive a net proration pursuant to this Section 6.3(b) and Section 6.3(a) above in excess of $650,000, except to the extent Buyer defaults (A) in its obligation to pay the Loan Assumption Costs as directed by Seller pursuant to Section 4.3(a)(v) above, or (B) in its obligation to pay the Defeasance Costs as directed by Seller pursuant to Section 4.3(d) above. The only Defeasance Costs or Loan Assumption Costs to be included in any proration pursuant to this Section 6.3(b) or Section 6.3(a) above shall be the Remaining Defeasance Costs and the Remaining Loan Assumption Costs. Attached hereto as Exhibit M-1 is a preliminary Prorations Schedule assuming the Loan Assumption occurs, which Prorations Schedule is acknowledged by the parties to be as complete and accurate as is reasonably possible as of the Contract Date. Attached hereto as Exhibit M-2 is a preliminary Prorations Schedule assuming the Defeasance occurs, which Prorations Schedule is acknowledged by the parties to be as complete and accurate as is reasonably possible as of the Contract Date.

     Section 6.4 Other Closing Costs.

          (a) Seller shall pay (i) any county documentary transfer or transaction taxes or fees due on the transfer of the Property, (ii) fifty percent (50%) of any city documentary transfer or transaction taxes or fees due on the transfer of the Property, (iii) all escrow fees or costs charged by or reimbursable to Title Company, and fifty percent (50%) of any recording or other fees or costs charged by or reimbursable to Title Company, (iv) the CLTA portion of the title insurance premium for the Title Policy (but only for a liability amount equal to the Purchase Price), and (v) all fees and expenses of its legal counsel and other third party consultants engaged by or on behalf of Seller in connection with this transaction.

          (b) Buyer shall pay (i) balance of the premium for the Title Policy (including costs of endorsements, extended coverage and related survey costs), (ii) any sales tax determined to be payable in connection with this transaction, (iii) fifty percent (50%) of any city documentary transfer or transaction taxes or fees due on the transfer of the Property, (iv) fifty percent (50%) of any recording or other fees or costs charged by or reimbursable to Title Company, and (v) all fees and expenses of its legal counsel and other third party consultants engaged by or on behalf of Buyer in connection with this transaction.

          (c) Any costs and expenses of closing that are not expressly identified in subparagraph (a) or (b) above shall be allocated between the parties in accordance with prevailing custom in Santa Clara County.

     Section 6.5 Further Documentation. At or following the close of escrow, Buyer and Seller each shall execute any certificate or other instruments required by law or local custom or otherwise reasonably requested by the other party to effect the transaction contemplated by this Agreement.

ARTICLE VII

MISCELLANEOUS

     Section 7.1 Damage or Destruction.

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          (a) Subject to the satisfaction of the conditions in Section 3.1(a) above, Buyer shall be bound to purchase the Property for the Purchase Price as required by the terms of this Agreement without regard to the occurrence or effect of any damage to or destruction of the improvements on the Real Property or condemnation by right of eminent domain, provided that the occurrence of any damage or destruction is (i) covered by insurance (excepting deductibles paid by Seller) for the full replacement cost of such damage or destruction, or (ii) if not covered by insurance, involves repair costs of $100,000 or less. Notwithstanding the foregoing, Buyer shall have the right in its sole discretion to terminate this Agreement by written notice of its election given to Seller within ten (10) business days following the event if there occurs damage or destruction which involves repair costs in excess of $1,000,000 or all or more than three percent (3%) of the Property is taken by condemnation or eminent domain (or is the subject of a pending or contemplated taking which has not been consummated) and upon such termination, the Deposit (and all interest accrued thereon while in escrow) shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder, other than pursuant to any provision hereof which expressly survives the termination of this Agreement. If Buyer is so bound to purchase notwithstanding the occurrence of damage, destruction or condemnation, upon the close of escrow: (A) in the event of damage covered by insurance, Buyer shall receive a credit against the Purchase Price in the amount (net of collection costs) of any insurance proceeds or condemnation award collected and retained by Seller as a result of any such damage or destruction or condemnation and Seller shall assign to Buyer all rights to such insurance proceeds or condemnation awards as shall not have been collected prior to the close of escrow; and (B) in the event of damage not covered by insurance, Buyer shall receive a credit (not to exceed $100,000) in the amount of the estimated cost to repair the damage.

          (b) Buyer and Seller shall each have the right to terminate this Agreement by written notice of election given to the other party within five (5) business days following the event if there occurs damage or destruction not covered by insurance which involves repair costs in excess of $100,000, unless either (i) Seller agrees in writing to complete such repairs at Seller’s expense or (ii) Buyer waives Buyer the repairs costs in excess of $100,000 in which case Seller shall receive a credit in the amount of the estimated cost to repair the damage (not to exceed $100,000). In the event of such a termination, the Deposit shall be returned to Buyer.

     Section 7.2 Brokerage Commissions and Finder’s Fees.

          (a) Buyer warrants to Seller that no person or entity can properly claim a right to any real estate commission, real estate finder’s fee, real estate acquisition fee or other real estate brokerage-type compensation (collectively, “Real Estate Compensation”) based upon the acts of Buyer with respect to the transaction contemplated by this Agreement. Buyer hereby agrees to indemnify and defend Seller against and to hold Seller harmless from any and all loss, cost, liability or expense (including but not limited to attorneys’ fees and returned commissions) resulting from any claim for Real Estate Compensation by any person or entity based upon such acts by Buyer.

          (b) Seller warrants to Buyer that no person or entity can properly claim a right to any Real Estate Compensation based upon the acts of Seller with respect to the transaction contemplated by this Agreement. Seller hereby agrees to indemnify and defend Buyer against and to hold Buyer harmless from any and all loss, cost, liability or expense (including but not limited to attorneys’ fees and returned commissions) resulting from any claim for Real Estate Compensation by any person or entity based upon such acts by Seller.

     Section 7.3 Successors and Assigns. Buyer shall not have the right to assign its rights under this Agreement without Seller’s written consent, which consent may be withheld in Seller’s sole and absolute discretion, for any reason or no reason. The preceding notwithstanding, Buyer shall have the right, without having to obtain Seller’s consent but upon written notice to Seller, to assign this Agreement or

21

Buyer’s rights and obligations hereunder, to an affiliate or subsidiary of Buyer. No assignment by Buyer shall relieve Buyer or any other party of its or their obligations under this Agreement or any document entered into in connection with this Agreement. Subject to the limitations on assignment expressed in this Section 7.3, this Agreement shall be binding upon, and inure to the benefit of, Buyer and Seller and their respective successors and assigns.

     Section 7.4 Notices. All notices or other communications required or provided to be sent by either party shall be in writing and shall be sent by United States Postal Service, postage prepaid or certified mail, return receipt requested, by any nationally known overnight delivery service, by courier, or in person or by facsimile (with copy of such notice sent not later than the next day by mail or overnight private courier in accordance with the provisions herein). Facsimile notices shall be deemed received on the day sent if sent prior to 4:59 p.m. Pacific Time or if sent after 4:59 p.m. Pacific Time, then deemed received on the next day. All other notices shall be deemed to have been given forty-eight (48) hours following deposit in the United States Postal Service or upon personal delivery if sent by overnight delivery service, courier or personally delivered. All notices shall be addressed to the party at the address below:

To Seller:	Barber Lane Associates L.P.
	490 California Avenue
	4th Floor
	Palo Alto, California 94306
	Attn: Henry Bullock and Rick Holmstrom
	Facsimile: (650) 326-9333
with a copy to:	Goodwin | Procter LLP
	101 California Street 18th Floor
	San Francisco, California 94111
	Attn: Paul Churchill
	Facsimile: (415) 677-9041
To Buyer:	IXYS Corporation
	3540 Bassett Street
	Santa Clara, California 95054
	Attn: Uzi Sasson and General Counsel
	Facsimile: (408) 496-6104
With copy to:	Berliner Cohen
	10 Almaden Boulevard, 11th Floor
	San Jose, CA 95113
	Attn: Mark Makiewicz
	Facsimile No.: (408) 998-5388

Any address or name specified above may be changed by notice given to the addressee by the other party in accordance with this Section 7.4. The inability to deliver because of a changed address of which no notice was given, or rejection or other refusal to accept any notice, shall be deemed to be the receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept. Any notice to be given by any party hereto may be given by the counsel for such party.

     Section 7.5 Time. Time is of the essence of every provision contained in this Agreement.

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     Section 7.6 Possession. The rights of possession of the Property shall be delivered to Buyer on the Closing Date.

     Section 7.7 Incorporation by Reference. All of the exhibits attached to this Agreement or referred to herein and all documents in the nature of such exhibits, when executed, are by this reference incorporated in and made a part of this Agreement.

     Section 7.8 No Deductions or Off-Sets. Buyer acknowledges that the Purchase Price to be paid for the Property pursuant to this Agreement is a net amount and shall not be subject to any off-sets or deductions, but may be subject to a credit of up to $100,000 as provided in Section 7.1(a) above.

     Section 7.9 Attorneys’ Fees. In the event any dispute between Buyer and Seller should result in litigation, the prevailing party shall be reimbursed for all reasonable costs incurred in connection with such litigation, including, without limitation, reasonable attorneys’ fees.

     Section 7.10 Construction. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto.

     Section 7.11 Governing Law. This Agreement shall be construed and interpreted in accordance with and shall be governed and enforced in all respects according to the laws of the State of California.

     Section 7.12 Damages. Buyer agrees that any liability of Seller under any claim brought prior to the Closing Date pursuant to this Agreement or any document or instrument delivered simultaneously or in connection with, or pursuant to this Agreement, shall be limited to the amount set forth in clause (ii) of Section 4.4 above. With respect to any such claim brought following the Closing Date, any liability of Seller shall be limited to the amount set forth in clause (ii) of Section 4.4 above and Buyer’s recourse therefor shall be solely to Seller’s assets and proceeds from the sale contemplated herein. In no event shall Buyer seek satisfaction for any such obligation from any of Seller’s members or from any members, shareholders, officers, directors, trustees, beneficiaries, employees, agents, legal representatives, successors or assigns of such members, nor shall any such person or entity have any personal liability for any such obligations of Seller.

     Section 7.13 Counterparts. This Agreement may be executed in one or more counterparts. All counterparts so executed shall constitute one contract, binding on all parties, even though all parties are not signatory to the same counterpart.

     Section 7.14 Tax Deferred Exchange. Upon the request of either party (the “Requesting Party”) to this Agreement, the other party (the “Non-Requesting Party”) agrees to reasonably cooperate with the Requesting Party in consummating the sale of the Property as part of a simultaneous or non-simultaneous tax-deferred exchange (the “Exchange”) pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, provided that (i) the Non-Requesting Party shall not be required to take title to any property other than the Property, and (ii) the Closing Date shall not be delayed or extended thereby. The Requesting Party shall have the right to assign its rights and obligations hereunder to an accommodation entity (the “Intermediary”), who will cause the Closing to occur on the Requesting Party’s behalf. All of the Requesting Party’s liabilities, representations and warranties under this Agreement shall remain those of the Requesting Party and the Non-Requesting Party shall not seek recourse against the Intermediary with respect to such liabilities or for the breach of any such

23

representations or warranties. Performance by an Intermediary in effectuating an exchange will be treated as if such performance were made by the Requesting Party, and the Requesting Party shall remain the primary obligor for the full and timely performance of all obligations of the Requesting Party under this Agreement. In the event of any breach of such representations, warranties, covenants, or other obligations, the Non-Requesting Party shall proceed directly against the Requesting Party. The Non-Requesting Party shall not be required to assume any liabilities as a result of the exchange transaction that are in addition to those which would exist if the transaction were effectuated as a sale by the Requesting Party and not effectuated as an exchange. The Requesting Party hereby agrees to indemnify, defend (with counsel reasonably satisfactory to the Non-Requesting Party) and hold harmless the Non-Requesting Party from and against any and all claims, loss, cost, damage, or expense (including, without limitation, reasonable attorneys’ fees) incurred by the Non-Requesting Party and arising out of or relating to the Non-Requesting Party’s participation in the Exchange.

     Section 7.15 Specific Performance Notwithstanding any other provision of this Agreement to the contrary, in the event of a material breach by Seller under this Agreement, Buyer shall have the right of specific performance of this Agreement.

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     Section 7.16 Entire Agreement. This Agreement and the attached exhibits, which are by this reference incorporated herein, and all documents in the nature of such exhibits, when executed, contain the entire understanding of the parties and supersede any and all other written or oral understanding.

     In Witness Whereof, Seller and Buyer have executed this Agreement as of the day and year first written above.

Seller:

Barber Lane Associates L.P.
a California limited partnership

By:	Menlo Equities Associates V LLC, a California limited liability company, its General Partner
	By:	Menlo Equities LLC, a California limited liability company, its Manager
		By:	Menlo Equities, Inc. a California corporation, its Managing Member
			By:	/s/ Henry d. Bullock
				Henry D. Bullock, President

Buyer:

IXYS Corporation,
a Delaware corporation

By: /s/ Nathan Zommer
Name: Nathan Zommer
Title: President

By: /s/ Uzi Sasson
Name: Uzi Sasson
Title: Chief Financial Officer

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Exhibit A

FORM
OF
ALL CASH
NOTICE OF ELECTION TO PROCEED

[Buyer Letterhead]

                    , 2007

Barber Lane Associates L.P.
490 California Avenue, 4th Floor
Palo Alto, California 94306
Attn: Henry Bullock and Rick Holmstrom

     Re: 1590 Buckeye Drive, Milpitas, California

Gentlemen:

This notice relates to that certain Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated as of January ___, 2007, by and between Barber Lane Associates L.P., a California limited partnership, as seller, and IXYS Corporation, a Delaware corporation, as buyer (the “Purchase Agreement”). Capitalized terms used herein and not defined shall have the same meanings given such terms in the Purchase Agreement.

Buyer hereby elects to purchase the Property for cash and not to assume the Loan.

Very truly yours,

IXYS Corporation,
a Delaware corporation

By:
Name:
Title:	President
By:
Name:
Title:	Chief Financial Officer

Exhibit B-1

Form of Assumption and Indemnity

     This Assumption and Indemnity Agreement (“Agreement”) dated as of                         , 2007, is made by IXYS Corporation, a Delaware corporation (“Buyer”), and Barber Lane Associates L.P., a California limited partnership (“Seller”).

RECITALS

     A. Seller, as seller, and Buyer, as buyer, entered into that Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated as of January ___, 2007 (“Purchase Agreement”), for the purchase and sale of certain real property located at 1590 Buckeye Drive, in the City of Milpitas, County of Santa Clara, State of California, as more particularly described in the Purchase Agreement. Capitalized terms used in this Agreement and not defined shall have the meanings given such terms in the Purchase Agreement.

     B. Concurrently herewith, pursuant to the Purchase Agreement, Seller is transferring and conveying to Buyer all of Seller’s right, title and interest in and to the Property, and Buyer is accepting such transfer and conveyance. In connection therewith, Buyer desires to assume the Loan pursuant to the terms and conditions of this Agreement. Buyer is executing this Agreement in order to induce Seller to sell the Property to Buyer and cooperate with Buyer in the Loan Assumption.

     Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are acknowledged:

     1. Buyer hereby assumes and shall pay, perform and discharge, as and when due, all of the agreements and obligations of Seller under the Loan Documents (the “Assigned Obligations”), and agrees to be bound by all of the terms and conditions of the Loan Documents. Additionally, Buyer agrees to indemnify and defend Seller against, to hold Seller harmless from, and to reimburse Seller for, any and all loss, cost, liability and expense (including attorneys’ fees) arising out of or relating to any breach or alleged breach of the Assigned Obligations by Buyer.

     2. The provisions of this Assignment shall be binding upon, and shall inure to the benefit of the successors and assigns of Seller and Buyer, respectively.

     3. This Agreement may be executed in one or more counterparts, all of which when taken together shall constitute one and the same instrument.

     4. In the event that any dispute between or among the parties to this Agreement should result in litigation, or suit is brought to interpret the meaning of this Agreement, the prevailing party shall be reimbursed for all reasonable costs incurred in connection with such litigation, including, without limitation, reasonable attorneys’ fees.

     5. This Agreement shall be construed and interpreted in accordance with and shall be governed and enforced in all respects according to the laws of the State of California.

     In Witness Whereof, Seller and Buyer have executed this Agreement as of the date first set forth above.

Seller:
	a
	By:
	Its:
Buyer:
	a
	By:
	Its:

Exhibit B-2

Form of Assumption and Indemnity

     This Assumption and Indemnity Agreement (“Agreement”) dated as of                     , 2007, is made by                     , a                      (“Buyer”), IXYS Corporation, a Delaware corporation (“Guarantor”), and Barber Lane Associates L.P., a California limited partnership (“Seller”).

RECITALS

     A. Seller, as seller, and Guarantor, as buyer, entered into that Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated as of January ___, 2007 (“Purchase Agreement”), for the purchase and sale of certain real property located at 1590 Buckeye Drive, in the City of Milpitas, County of Santa Clara, State of California, as more particularly described in the Purchase Agreement. Capitalized terms used in this Agreement and not defined shall have the meanings given such terms in the Purchase Agreement.

     B. Guarantor has assigned all of its right, title, and interest in the Purchase Agreement to Buyer.

     C. Concurrently herewith, pursuant to the Purchase Agreement, Seller is transferring and conveying to Buyer all of Seller’s right, title and interest in and to the Property, and Buyer is accepting such transfer and conveyance. In connection therewith, Buyer desires to assume the Loan pursuant to the terms and conditions of this Agreement. Because of the legal relationship between Buyer and Guarantor, Guarantor will benefit by Buyer’s purchase of the Property and assumption of the Loan, and therefore Guarantor is executing this Agreement in order to induce Seller to sell the Property to Buyer and cooperate with Buyer in the Loan Assumption.

     Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are acknowledged:

     1. Buyer hereby assumes and shall pay, perform and discharge, as and when due, all of the agreements and obligations of Seller under the Loan Documents (the “Assigned Obligations”), and agrees to be bound by all of the terms and conditions of the Loan Documents. Additionally, Buyer and Guarantor each agree to indemnify and defend Seller against, to hold Seller harmless from, and to reimburse Seller for, any and all loss, cost, liability and expense (including attorneys’ fees) arising out of or relating to any breach or alleged breach of the Assigned Obligations by Buyer.

     2. The provisions of this Assignment shall be binding upon, and shall inure to the benefit of the successors and assigns of Seller, Buyer, and Guarantor, respectively. The obligations of Buyer and Guarantor hereunder shall be joint and several.

     3. This Agreement may be executed in one or more counterparts, all of which when taken together shall constitute one and the same instrument.

     4. In the event that any dispute between or among the parties to this Agreement should result in litigation, or suit is brought to interpret the meaning of this Agreement, the prevailing party shall

3

be reimbursed for all reasonable costs incurred in connection with such litigation, including, without limitation, reasonable attorneys’ fees.

     5. This Agreement shall be construed and interpreted in accordance with and shall be governed and enforced in all respects according to the laws of the State of California.

     In Witness Whereof, Seller, Buyer and Guarantor have executed this Agreement as of the date first set forth above.

Seller:
		,
	a
	By:
	Its:
Buyer:
		,
	a
	Its:
Guarantor:
		,
	a
	By:
	Its:

4

Exhibit C

DISCLOSURE STATEMENT

NONE

5

Exhibit D

FORM
OF
LOAN ASSUMPTION
NOTICE OF ELECTION TO PROCEED

[Buyer Letterhead]

                     , 2007

Barber Lane Associates L.P.
490 California Avenue, 4th Floor
Palo Alto, California 94306
Attn: Henry Bullock and Rick Holmstrom

     Re: 1590 Buckeye Drive, Milpitas, California

Gentlemen:

This notice relates to that certain Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated as of January ___, 2007, by and between Barber Lane Associates L.P., a California limited partnership, as seller, and IXYS Corporation, a Delaware corporation, as buyer (the “Purchase Agreement”). Capitalized terms used herein and not defined shall have the same meanings given such terms in the Purchase Agreement.

Buyer acknowledges and agrees that it has received, read and understood each of the Loan Documents and hereby approves such Loan Documents. Buyer further acknowledges and agrees that it can and will comply with the Lender’s requirements for the Loan Assumption. Additionally, Buyer reconfirms that it will perform each of its obligations under Section 4.3 of the Purchase Agreement.

Very truly yours,

IXYS Corporation,
a Delaware corporation

By:                                         
Name:                                    
Title: President

By:                                         
Name:                                    
Title: Chief Financial Officer

Exhibit E

PROPERTY DESCRIPTION

That certain real property located in the City of Milpitas, County of Santa Clara, State of California, more particularly described as follows:

PARCEL 2, as shown on Parcel Map filed November 4, 1998 in Book 709 of Maps, at Page(s) 41 and 42, Santa Clara County Records.

Assessor’s Parcel Number: 086-03-085.

Exhibit F

LIST OF LEASES

1. Lease dated April 14, 2000, by and between Barber Lane Associates L.P., a California limited partnership, as landlord, and REMEC, Inc., a California corporation, as tenant, as assigned by REMEC, Inc. to, and assumed by, Powerwave Technologies, Inc., a Delaware corporation, pursuant to that certain Assignment and Assumption of Lease dated as of September 2, 2005, by and between REMEC, Inc., a California corporation, as assignor, and Powerwave Technologies, Inc., a Delaware corporation, as assignee.

Exhibit G

LIST OF SERVICE AND EQUIPMENT CONTRACTS
TO WHICH SELLER IS A PARTY

Service	Service Provider
Landscaping	Vargas Gardening
Parking Lot Sweeping	Universal Maintenance
Storm Drain Filters	Kristar

Exhibit H

DEED

Assessor’s Parcel No.

RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO
(AND MAIL TAX STATEMENTS TO):

The undersigned grantor declares
Documentary transfer tax is:
(   )     computed on full value of property conveyed, or
(   )     computed on full value less value of liens and encumbrances.

GRANT DEED

FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, Barber Lane Associates L.P., a California limited partnership, HEREBY GRANTS to IXYS Corporation, a Delaware corporation, all that real property in the City of Milpitas, County of Santa Clara, State of California, described as follows:

     SEE EXHIBIT “A” ATTACHED HERETO AND BY THIS REFERENCE INCORPORATED HEREIN.

This conveyance is made subject to all liens and encumbrances of record.

Barber Lane Associates L.P.
a California limited partnership

By:	Menlo Equities Associates V LLC,
	a California limited liability company,
	its General Partner
	By:	Menlo Equities LLC,
		a California limited liability company,
		its Manager
		By:	Menlo Equities, Inc.
			a California corporation,
			its Managing Member
			By:		Date: July ___, 2007
				Henry D. Bullock, President
			MAIL TAX STATEMENTS AS DIRECTED ABOVE

STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF	)
On                     , before me,                      ,
Personally appeared                      (name of witness),

o	personally known to me
	-or-
o	proved to me on the basis of satisfactory evidence
		to be the person whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.

Witness my hand and official seal.

Signature of the Notary

CAPACITY CLAIMED BY SIGNER
Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document.
o	Individual
o	Corporate Officer(s)
o	Partner(s)	o	Limited
		o	General
o	Attorney-in-Fact
o	Trustee(s)
o	Guardian/Conservator
o	Other:
SIGNER IS REPRESENTING:
Name of person(s) or entity(ies)

This certificate must be attached	Title or Type of Document:
to the document described at right:	Number of Pages:                         Date of Document:
	Signer other than named above:

Exhibit I

BILL OF SALE

     For Valuable Consideration, the receipt and sufficiency of which are hereby expressly acknowledged, Barber Lane Associates L.P., a California limited partnership (“Seller”), hereby assigns, transfers and conveys to IXYS Corporation, a Delaware corporation (“Buyer”), Without Warranty, Express Or Implied, all of Seller’s right, title and interest in and to the Personal Property. The foregoing conveyance is made pursuant to, and is subject to the terms and conditions of, that certain Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated as of January ___, 2007, by and between Seller and Buyer (the “Purchase Agreement”). Capitalized terms used herein and not defined shall have the same meanings given such terms in the Purchase Agreement. The Personal Property specifically includes, without limitation, all furniture, furnishings, trade fixtures, building systems and/or equipment listed on Schedule I attached hereto.

     In Witness Whereof, Seller has executed this Bill of Sale as of July ___, 2007.

Seller:

Barber Lane Associates L.P.
a California limited partnership

By:	Menlo Equities Associates V LLC,
	a California limited liability company,
	its General Partner
	By:	Menlo Equities LLC,
		a California limited liability company,
		its Manager
		By:	Menlo Equities, Inc.
			a California corporation,
			its Managing Member
			By:
				Henry D. Bullock, President

Schedule 1

Personal Property

[TO BE ATTACHED PRIOR TO CLOSING DATE]

Exhibit J

ASSIGNMENT OF INTANGIBLE PROPERTY

     For Valuable Consideration, the receipt and sufficiency of which are hereby expressly acknowledged, Barber Lane Associates L.P., a California limited partnership (“Assignor”), hereby assigns, transfers and conveys to IXYS Corporation, a Delaware corporation, (“Assignee”), all of Assignor’s right, title and interest in and to the Intangible Property, as that term is defined in that certain Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated as of January ___, 2007 (the “Agreement”), entered into by and between Assignor, as “Seller,” and Assignee, as “Buyer.”

     Assignee hereby assumes all obligations of the owner of the Intangible Property arising on or after the date of this Assignment (collectively, the “Assigned Obligations”), and Assignee agrees to indemnify and defend Assignor against, to hold Assignor harmless from, and to reimburse Assignor for, any and all loss, cost, liability and expense (including attorneys’, fees) arising out of or relating to any breach or alleged breach of the Assigned Obligations occurring (or alleged to have occurred) on or after the date of this Assignment.

     In Witness Whereof, Assignor and Assignee have executed this Assignment of Intangible Property as of July ___, 2007.

Assignor:

Barber Lane Associates L.P.

a California limited partnership

By:	Menlo Equities Associates V LLC,
	a California limited liability company,
	its General Partner
	By:	Menlo Equities LLC,
		a California limited liability company,
		its Manager
		By:	Menlo Equities, Inc.
			a California corporation,
			its Managing Member
			By:
				Henry D. Bullock, President

Assignee:

IXYS Corporation,
a Delaware corporation

By:
Name:
Title:	President
By:
Name:
Title:	Chief Financial Officer

2

EXHIBIT K

ASSIGNMENT AND ASSUMPTION OF LEASES

     THIS ASSIGNMENT AND ASSUMPTION OF LEASES (the “Assignment”) is made and entered into as of this ___day of July, 2007 (“Assignment Date”), by and between Barber Lane Associates L.P., a California limited partnership (“Assignor”), and IXYS Corporation, a Delaware corporation (“Assignee”), with reference to the following facts.

RECITALS

     A. Assignor is the record owner of certain improved real property commonly referred to as 1590 Buckeye Drive, Milpitas, California (“Property”), which Property is more particularly described in Exhibit “A” attached hereto.

     B. The Property is currently subject to a certain lease (the “Lease”), a full and complete copy of which is attached hereto as Exhibit “B”.

     C. Assignee is acquiring the Property from Assignor pursuant and subject to that certain Agreement For Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated January ___, 2007, entered into by and between Assignor and Assignee (the “Purchase Agreement”).

     D. Assignor desires (concurrently with its transfer and conveyance of the Property to Assignee) to assign and transfer to Assignee its interest, as landlord, under the Lease, and Assignee desires to acquire from Assignor the interest of Assignor, as landlord, under the Lease, and to assume all of the obligations of Assignor, as landlord, under the Lease.

     NOW, THEREFORE, it is hereby agreed as follows:

     1. As of the Assignment Date, Assignor does hereby assign, transfer and convey to Assignee all of Assignor’s right, title and interest as landlord under the Lease, including, without limitation, any security deposit and/or letter of credit delivered under the Lease. Assignee hereby accepts the foregoing assignment, transfer and conveyance of Assignor’s interest as landlord under the Lease, and hereby assumes all of the obligations of Assignor as landlord under the Lease arising from and after the date hereof.

     2. This Assignment may be executed in counterparts, each of which shall be an original, but all of which shall constitute one instrument. In addition, counterpart signature pages may be (but shall not be required to be) annexed to one Assignment. It is the intent hereof that when all of the parties have executed one or more counterparts, this Assignment shall be in full force and effect.

3. In the event of any action or suit between the parties in connection with this Assignment,

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

the prevailing party in such action or suit shall be entitled to have and recover from the other party all reasonable costs and expenses of suit, including reasonable attorneys’ fees.

     In Witness Whereof, Assignor and Assignee have executed this Assignment of Lease as of July ___, 2007.

Assignor:

Barber Lane Associates L.P.
a California limited partnership

By:	Menlo Equities Associates V LLC,
	a California limited liability company,
	its General Partner
	By:	Menlo Equities LLC,
		a California limited liability company,
		its Manager
		By:	Menlo Equities, Inc.
			a California corporation,
			its Managing Member
			By:
				Henry D. Bullock, President

Assignee:

IXYS Corporation,
a Delaware corporation

By:
Name:
Title:	President
By:
Name:
Title:	Chief Financial Officer

2

EXHIBIT L

BUYER’S CLOSING CERTIFICATE

     This Certificate is executed as of the ___day of July, 2007, by IXYS Corporation, a Delaware corporation (“Buyer”), in favor of Barber Lane Associates L.P., a California limited partnership (“Seller”).

     Buyer and Seller are parties to that certain Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California, dated January ___, 2007, entered into by and between Seller and Buyer (the “Purchase Agreement”). Capitalized terms used in this Certificate and not defined herein shall have the definitions assigned to them in the Purchase Agreement.

     For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer hereby certifies as follows:

     1. Inspection Period. During the Inspection Period Buyer was permitted to make a complete review and inspection of the Property, including, without limitation, asbestos, PCB, hazardous waste, toxic substance or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, structural, life safety, HVAC and other building system and engineering characteristics, traffic patterns and all other information pertaining to the Property. Buyer acknowledges (i) that Buyer has elected to Purchase the Property having first made and relied upon its own investigation of the physical, environmental, economic and legal condition of the Property, and (ii) that Buyer is not relying upon any representations and warranties, other than those specifically set forth in Section 4.1 of the Purchase Agreement, made by Seller or anyone acting or claiming to act on Seller’s behalf concerning the Property. Buyer further acknowledges that it has not received from Seller any accounting, tax, legal, architectural, engineering, property management or other advice with respect to this transaction and is relying solely upon the advice of its own accounting, tax, legal, architectural, engineering, property management and other advisors. Buyer specifically undertakes and assumes all risks associated with the matters disclosed by Seller on the Disclosure Statement. Subject only to the provisions of Section 4.1 of the Purchase Agreement, Buyer is purchasing the Property in its AS IS CONDITION, WITH ALL FAULTS, on the Closing Date and assumes the risk that adverse physical, environmental, economic or legal conditions may not have been revealed by its investigation.

     2. Release. Except with respect to any claims arising out of (i) any breach of covenants, representations or warranties set forth in Section 4.1 of the Purchase Agreement, or (ii) fraud by Seller, or (iii) any breach by Seller of any obligations under the Purchase Agreement that survive the Closing thereunder, Buyer, for itself and its agents, affiliates, successors and assigns, hereby releases and forever discharges Seller, its agents, affiliates, successors and assigns (collectively, the “Released Parties”) from any and all rights, claims and demands at law or in equity, whether known or unknown at the time of this Agreement, which Buyer has or may have in the future, arising out of the physical, environmental, economic or legal condition of the Property, including, without limitation, any claim for indemnification or contribution arising under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601, et. seq.) or any similar federal, state or local statute, rule or ordinance relating to liability of property owners for environmental matters; provided, however, that while Buyer is releasing Seller and the Released Parties from Environmental Claims (as defined below), nothing stated herein shall be construed or interpreted as creating an obligation on Buyer to assume any environmental obligations or liabilities of Seller or to indemnify, defend or hold harmless Seller or any of the Related Parties from or against any claims, liabilities, losses, damages, demands, actions, causes of action,

judgments, costs or expenses (including, without limitation, attorneys’ fees) arising from or related to the environmental condition of the Property or any other condition or circumstance existing prior to the Closing (“Environmental Claims”). For the foregoing purposes, Buyer hereby specifically waives the provisions of Section 1542 of the California Civil Code and any similar law of any other state, territory or jurisdiction. Section 1542 provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

Buyer hereby specifically acknowledges that Buyer has carefully reviewed this subsection and discussed its import with legal counsel and that the provisions of this subsection are a material part of the Purchase Agreement.

Buyer’s Initials

Notwithstanding the foregoing, the releases set forth above do not excuse Seller’s breach of its express obligations under the Purchase Agreement.

     In Witness Whereof, Buyer has caused this Certificate to be executed as of the ___day of July, 2007.

IXYS Corporation,
a Delaware corporation

By:
Name:
Title:	President
By:
Name:
Title:	Chief Financial Officer

2

EXHIBIT M-1

PRELIMINARY PRORATIONS SCHEDULE
(Loan Assumption)

EXHIBIT M-2
PRELIMINARY PRORATIONS SCHEDULE
(Defeasance)

2

Attachment 1

LIST OF PROPERTY DOCUMENTS

The Property Documents shall mean the following documents but only to the extent in Seller’s possession or reasonable control:

1.	The original or copies of the “as-built” working architectural and engineering plans and specifications for the improvements on the Property
2.	ALTA as-built survey of the Property dated November 2000
3.	Any soils report relating to the Property.
4.	Any structural reports relating to the improvements on the Property.
5.	Copies of all permits and certificates of occupancy issued for the improvements on the Property.
6.	Copies of the most recent year’s real property tax bills for the Property.
7.	Copies of any warranty agreements covering the improvements on the Property or any equipment therein.
8.	Copies of Seller’s current rent rolls (noting any delinquent payments due) for the Property and a full and complete set of all leases, amendments, existing service contracts, warranties and other agreements which relate to or affect the Property.
9.	Phase I Environmental site assessment dated June 1998.
10.	A full and complete set of income and expense statements of the Property for the preceding three calendar years and a current year to date statement (expense detail shall include, but not be limited to, common area charges, taxes, insurance and other expenses associated with the operation of Property).

3

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Nathan Zommer, certify that:

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

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

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

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

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 7, 2007

/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: February 7, 2007

/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 December 31, 2006, 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.

Date: February 7, 2007

/s/ Nathan Zommer

Nathan Zommer
Chief Executive Officer

/s/ Uzi Sasson

Uzi Sasson
Chief Financial Officer