**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 20-F**

 
| **o** | **Registration Statement Pursuant to Section 12(b) or  (g) of the Securities Exchange Act of 1934** |
|-------|--------------------------------------------------------------------------------------------------------------------|

 

or

 
| **x** | **Annual Report Pursuant to Section 13  or 15(d) of the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

Forthe fiscal year ended December 31, 2005

or

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

 

Forthe transition period from                    to                    

 

Commissionfile number: 000-51196

 

**AIXTRON Aktiengesellschaft**

(Exact Name ofRegistrant as Specified in Its Charter)

 

**Federal Republic of Germany**

(Jurisdiction ofIncorporation or Organization)

 

**Kackertstrasse 15-17**

**D-52072 Aachen**

**Federal Republic of Germany**

(Address ofPrincipal Executive Offices)

 

**Securities registered or to be registered pursuant to Section 12(b) ofthe Act:**

 

**Securities registered or to be registered pursuant to Section 12(g) ofthe Act:  None**

 

**Ordinary shares, no par value (only in connection with thelisting of****its American Depositary Shares on the NasdaqCapital Market)**

(Title of Class)

 

**Securities for which there is a reporting obligation pursuantto Section 15(d) of the Act: None**

 

The number ofoutstanding shares of each of the issuer’s classes of capital or common stockas of December 31, 2005: 89,799,397 ordinary shares, no par value.

 

Indicate by check markif the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

 

Yes  o    No  x

 

If this report is an annualor transition report, indicate by check mark if the registrant is not requiredto file reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934.

Yes  o    No  x

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes  x    No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Largeaccelerated filer  o                   Accelerated filer  x                            Non-accelerated filer  o

 

Indicate by check markwhich financial statement item the registrant has elected to follow.

Item17  o    Item18  x

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  o    No  x

 

 

 

----

 

**Table of Contents**

PART I

Item 1:  Identity of Directors, Senior Management andAdvisers

Item 2:  Offer Statistics and Expected Timetable

Item 3:  Key Information

A. Selected Financial Data

ExchangeRate Information

B. Capitalizationand Indebtedness

C. Reasons forthe Offer and Use of Proceeds

D. Risk Factors

Company-RelatedRisk

Risks Relatingto Holding AIXTRON’s ADSs and Ordinary Shares

Item 4:  Information on the Company

A. History andDevelopment of the Company

ImportantEvents

CapitalExpenditures

B. BusinessOverview

Technology

Productsand Services

Seasonality

PrincipalMarkets

Geographicalsegments

Raw Materials andManufacturing

MarketingChannels

IntellectualProperty

Strategy andCompetitive Positioning

GovernmentRegulation

C. OrganizationalStructure

D. Property, Plant andEquipment

EnvironmentalIssues

Item 4A:  Unresolved Staff Comments

Item 5:  Operating and Financial Review and Prospects

A. Operating Results

Preparation ofconsolidated financial statements under IFRS

Critical AccountingPolicies

Recently IssuedAccounting Standards

European Unionand SEC Regulations Regarding IFRS

Management’sDiscussion and Analysis of Results of Operations

Overview

SignificantFactors

Resultsof Operations

B. Liquidity andCapital Resources

C. Research andDevelopment, Patents and Licenses, etc.

D. Trend Information

E. Off-Balance SheetArrangements

Contingencies

F. TabularDisclosure of Contractual Obligations

Item 6:  Directors, Senior Management and Employees

A. Directors andSenior Management

SupervisoryBoard

ExecutiveBoard

B. Compensation

C. Board Practices

Chairman’sCommittee

AuditCommittee

Compliance withNasdaq Listing Standards on Corporate Governance

D. Employees

E. Share Ownership

 

2

----

 

EmployeeBonds and Options

Item 7:  Major Shareholders and Related PartyTransactions

A. Major Shareholders

B. Related PartyTransactions

Item 8:  Financial Information

A. ConsolidatedStatements and Other Financial Information

ExportRevenues

LegalProceedings

Policy on DividendDistributions

B. Significant Changes

Item 9:  The Offer and Listing

TradingMarkets

MarketPrice Information

Item 10:  Additional Information

A. Share Capital

B. Memorandumand Articles of Association

CorporateGovernance

Sarbanes-OxleyAct Requirements and Nasdaq Rules

C. Material Contracts

Employment contractsof current members of the Executive Board

Employmentcontracts of former members of the Executive Board

IntellectualProperty Agreements

D. Exchange Controls

E. Taxation

German Taxation

U.S.Federal Taxation

F. Dividends and PayingAgents

G. Statement by Experts

H. Documents on Display

I. Subsidiary Information

Item 11:  Quantitative and Qualitative Disclosure aboutMarket Risk

ExchangeRate Risk

ForeignCurrency Risk

InterestRate Risk

Item 12:  Description of Securities other than EquitySecurities

PART II

Item 13:  Defaults, Dividend Arrearages andDelinquencies

Item 14:  Material Modifications to the Rights ofSecurity Holders and Use of Proceeds

Item 15:  Controls and Procedures

Item 16A:  Audit Committee Financial Experts

Item 16B:  Code of Ethics

Item 16C:  Principal Accountant Fees and Services

Audit CommitteePre-Approval Policies

Item 16D:  Exemptions from Listing Standards for AuditCommittees

Item 16E:  Purchases of Equity Securities by the Issuer

PART III

Item 17:  Financial Statements

Item 18:  Financial Statements

Item 19:  Exhibits

Signatures

Report ofIndependent Registered Public Accounting Firm

ConsolidatedStatements of Income

Consolidated BalanceSheet

Consolidated CashFlow Statement

ConsolidatedStatement of Changes in Equity

Notes to theConsolidated Financial Statements

1. General principles

2. Significantaccounting policies

3. Segment reporting

 

3

----

 

4. Acquisition ofsubsidiaries

5. Research anddevelopment

6. Other operating income

7. Other operatingexpenses

8. Personnel expenses

9. Net financing costs

10. Income taxexpense/income

11. Current taxassets and liabilities

12. Property, plantand equipment

13. Intangible assets

14. Investment property

15. Other non-currentassets

16. Deferred taxassets and liabilities

17. Inventories

18. Tradereceivables and other current receivables

19. Cash and cashequivalents

20. Shareholders’ Equity

21. Earnings per share

22. Employee benefits

23. Share-based payment

24. Provisions

25. Tradepayables and other non-current liabilities

26. Convertiblebonds and options

27. Financial instruments

28. Operating leases

29. Capital commitments

30. Contingencies

31. Related parties

32. Company entities

33. Events afterthe balance sheet date

34. Fees for auditor

35. Manpower

36. Additionalinformation about the cash flow statement

38. Explanationof transition to IFRS

39. Supervisoryand Executive Boards

40.Reconciliation from IFRS to U.S. GAAP

41. AdditionalU.S. GAAP Information

 

4

----

**Presentationof Information**

In this Annual Report onForm 20-F (this “report”), unless the context otherwise requires,references to “the Company” or “AIXTRON” are to AIXTRON Aktiengesellschaft andits consolidated subsidiaries. Throughout this report, whenever a reference ismade to AIXTRON’s website, such reference does not incorporate information fromthe website by reference into this report.

The Company’s auditedConsolidated Financial Statements are prepared in accordance with InternationalFinancial Reporting Standards (“IFRS”) as adopted by the Europen Union and itsinterpretations adopted by the International Accounting Standards Board (“IASB”).

AIXTRON publishes itsaudited Consolidated Financial Statements in euros. As used in this report, “EUR”,“euro” or “€” means the single unified currency that was introduced in theFederal Republic of Germany and ten other participating member states of theEuropean Union on January 1, 1999. “U.S. dollar”, “U.S.$,” or “USD” meansthe lawful currency of the United States of America.

Except where AIXTRONotherwise attributes market or industry data to another source, all such dataincluded in this report are its own estimates. These estimates are based uponthe Company’s experience in its industry and its familiarity with the relevantmarkets. While AIXTRON believes these estimates to be reliable, the Company hasnot verified them with independent sources.

**Forward-LookingStatements**

AIXTRONbelieves that various statements in this report may constitute forward-lookingstatements. You can identify these statements by forward-looking words such as “may,”“will,” “could,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,”and “continue” or similar words. You should read statements that contain thesewords carefully because they:

 
|        | · |   | discuss future expectations;                                                    |
|--------|--------|--------|---------------------------------------------------------------------------------|
|   |   |   |                                                                            |
|   | · |   | contain projections of future results of operations  or financial condition; or |
|   |   |   |                                                                            |
|   | · |   | state other “forward-looking” information.                            |

 

AIXTRONbelieves it is important to communicate its expectations. There may be eventsin the future that AIXTRON is unable to predict accurately or over which theCompany has no control. The risk factors and cautionary language discussed inthis document provide examples of risks, uncertainties and events that maycause actual results to differ materially from the expectations described byAIXTRON in its forward-looking statements, including among other things:

 
|        | · |   | the extent to which the technologies AIXTRON offers  are demanded by the market place;                                                 |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                   |
|   | · |   | the actual number of customer orders AIXTRON  receives;                                                                                |
|   |   |   |                                                                                                                                   |
|   | · |   | the timing of final acceptance of products by  customers;                                                                              |
|   |   |   |                                                                                                                                   |
|   | · |   | the financial climate and accessibility of  financing, general conditions in the thin film equipment market and in the  macro-economy; |
|   |   |   |                                                                                                                                   |
|   | · |   | cancellations, rescheduling or delays in product  shipments;                                                                           |
|   |   |   |                                                                                                                                   |
|   | · |   | manufacturing capacity constraints;                                                                                                    |
|   |   |   |                                                                                                                                   |
|   | · |   | lengthy sales and qualification cycles;                                                                                                |
|   |   |   |                                                                                                                                   |
|   | · |   | difficulties in the production process;                                                                                                |

 

5

----

 
|        | · |   | changes in semiconductor industry growth;                        |
|--------|--------|--------|------------------------------------------------------------------|
|   |   |   |                                                             |
|   | · |   | increased competition;                                           |
|   |   |   |                                                             |
|   | · |   | exchange rate fluctuations;                                      |
|   |   |   |                                                             |
|   | · |   | availability of government funding;                              |
|   |   |   |                                                             |
|   | · |   | variability and availability of interest rates;                  |
|   |   |   |                                                             |
|   | · |   | delays in developing and commercializing new  products; and      |
|   |   |   |                                                             |
|   | · |   | general economic conditions being less favorable  than expected. |

 

You are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date of this report.

All subsequent writtenand oral forward-looking statements attributable to AIXTRON or to any personacting on its behalf are expressly qualified in their entirety by the foregoingcautionary statements. AIXTRON does not undertake and expressly disclaim anyobligation to release publicly any revisions to these forward-lookingstatements to reflect events or circumstances after the date of this report orto reflect the occurrence of unanticipated events.

 

6

----

 

# **PART I**

 

7

----

 

## **Item 1:  Identity of Directors, Senior Management andAdvisers**

Not applicable.

 

8

----

 

## **Item 2:  Offer Statistics and Expected Timetable**

Not applicable.

 

9

----

 

## **Item 3:  Key Information**

### **A.Selected Financial Data**

The table below presentsAIXTRON’s selected historical consolidated financial data as of the dates andfor the periods indicated, which are derived from the Company’s auditedConsolidated Financial Statements. The historical consolidated statement ofoperations data presented below for the fiscal years ended December 31,2005, and 2004 and the historical consolidated balance sheet data as of December 31,2005 and 2004 have been derived from AIXTRON’s historical ConsolidatedFinancial Statements included in this report and audited by Deloitte &Touche GmbH in accordance with the standards of the Public Company AccountingOversight Board (United States).

You should read theselected consolidated financial data set forth below in conjunction with “Item5 — Operating and Financial Review and Prospects” and AIXTRON’s ConsolidatedFinancial Statements included in this report. The historical results includedbelow and elsewhere in this report are not necessarily indicative of AIXTRON’sfuture performance.

 
| ** **                                                  | ** ** | **Historical  (in thousands of euro, except share and per share data)  As of or For the Year Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                                                                                                                                                                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                  | ** ** | **IFRS**                                                                                                                                                                                               | ** ** | **US GAAP** | ** ** | **IFRS** | ** ** | **US GAAP** | ** ** | **US GAAP** | ** ** | **US GAAP** | ** ** | **US GAAP** | ** ** |
| **Consolidated Statement of  Operations Data:**             | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                     |       | 139,402                                                                                                                                                                                                |       | 139,402 |   | 140,004 |   | 140,004 |   | 90,402 |   | 152,112 |   | 237,765 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income  (loss)                                    |       | (52,675                                                                                                                                                                                                | )          | (94,273 | ) | 9,674 |   | 8,097 |   | (26,606 | ) | 20,890 |   | 55,113 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income  (loss)                                          |       | (53,468                                                                                                                                                                                                | )          | (95,969 | ) | 7,681 |   | 7,146 |   | (17,838 | ) | 15,143 |   | 34,221 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  per share-basic (EUR)(1)                   |       | (0.65                                                                                                                                                                                                  | )          | (1.17 | ) | 0.12 |   | 0.11 |   | (0.28 | ) | 0.23 |   | 0.53 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  per share-diluted (EUR)(1)                 |       | (0.65                                                                                                                                                                                                  | )          | (1.17 | ) | 0.12 |   | 0.11 |   | (0.28 | ) | 0.23 |   | 0.53 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends  declared per common share (EUR)(2)               |       | 0.00                                                                                                                                                                                                   |       | 0.00 |   | 0.00 |   | 0.00 |   | 0.08 |   | 0.18 |   | 0.10 |   |
| **Consolidated Balance Sheet  Data:**                       | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                                |       | 237,317                                                                                                                                                                                                |       | 235,711 |   | 176,335 |   | 174,880 |   | 163,712 |   | 192,760 |   | 254,984 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  liabilities                                          |       | 53,718                                                                                                                                                                                                 |       | 53,718 |   | 39,368 |   | 39,476 |   | 35,261 |   | 40,770 |   | 104,303 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority  interests                                         |       | 0                                                                                                                                                                                                      |       | 0 |   | 0 |   | 0 |   | 159 |   | 359 |   | 271 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’  equity                                  |       | 183,599                                                                                                                                                                                                |       | 181,993 |   | 136,967 |   | 135,404 |   | 128,292 |   | 151,631 |   | 150,410 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Subscribed  capital                                         |       | 87,797                                                                                                                                                                                                 |       | 87,797 |   | 64,832 |   | 64,832 |   | 64,832 |   | 64,832 |   | 64,829 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other  Data:**                                            | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Adjusted weighted average  number of shares outstanding** | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| - basic                                                     |       | 82,111,081                                                                                                                                                                                             |       | 82,111,081 |   | 64,831,512 |   | 64,831,512 |   | 64,831,512 |   | 64,828,872 |   | 64,693,389 |   |
|                                                        |       |                                                                                                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| - diluted                                                   |       | 82,111,081                                                                                                                                                                                             |       | 82,111,081 |   | 65,165,246 |   | 64,856,952 |   | 64,831,512 |   | 64,854,312 |   | 64,867,920 |   |

 

----

 
| (1)    |   | Gives effect to the increases in stated share  capital of 2:1 and 2:1 in 2000 and 2001, respectively, resulting in  respective cumulative conversion factors of 1:2 in 2000 and 1:1 in 2001 when  compared to results as reported in those periods.                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                              |
| (2)    |   | Dividends declared in each year relate to prior year  earnings. Gives effect to the increases in stated share capital of 2:1 and  2:1 in 2000 and in 2001, respectively, resulting in respective cumulative  conversion factors of 1:4 and 1:2 when compared to actual dividends paid per  share. |

 

10

----

 

#### ***Exchange Rate Information***

The following tables setforth, for the periods indicated, information concerning the exchange rates foreuros per U.S. dollar. AIXTRON has provided these rates solely for yourconvenience and you should not construe these translations as a representationthat euro amounts actually represent these U.S. dollar amounts or that the euroamounts could have been, or could be, converted into U.S. dollars at thoserates or at any other rate. AIXTRON did not use these rates in the preparationof its financial statements included elsewhere in this report. Fluctuations inthe exchange rate between the U.S. dollar and the euro will affect the U.S.dollar equivalent of the euro price of the Company’s ordinary shares traded onthe Frankfurt Stock Exchange and are likely to affect the market price of theCompany’s American Depositary Shares (“ADSs”) traded on the Nasdaq CapitalMarket.

As used in this report,the term “noon buying rate” refers to the rate of exchange for euro, expressedin U.S. dollar per euro, as announced by the Federal Reserve Bank of New Yorkfor customs purposes as the rate in The City of New York for cable transfers inforeign currencies.

The table below showsthe average noon buying rates in The City of New York for cable transfers inforeign currencies as certified for customs purposes by the Federal ReserveBank of New York for U.S. dollar per euro for AIXTRON’s fiscal years. Theaverage is computed using the noon buying rate on the last business day of eachmonth during the period indicated.

 

| Year ended December 31, | ** ** | **Average Rate** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| 2001                                   |       | 0.8909                |       |
| 2002                                   |       | 0.9495                |       |
| 2003                                   |       | 1.1411                |       |
| 2004                                   |       | 1.2478                |       |
| 2005                                   |       | 1.2400                |       |
| Quarter ended March 31, 2006      |       | 1.2074                |       |

 

The following tableshows the noon buying rates for euros in U.S. dollars for the last six months.

 

| **Month Ended**                 | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------------------------|------------|----------|------------|---------|------------|
| December 2005                   |       | 1.2041   |       | 1.1699  |       |
| January 2006                    |       | 1.2287   |       | 1.1980  |       |
| February 2006                   |       | 1.2100   |       | 1.1860  |       |
| March 2006                      |       | 1.2197   |       | 1.1886  |       |
| April 2006                      |       | 1.2624   |       | 1.2091  |       |
| May 2006                        |       | 1.2888   |       | 1.2607  |       |
| June 2006 (through June 7) |       | 1.2953   |       | 1.2799  |       |

 

11

----

 

On June 7, 2006, the noon buying rate wasU.S. $ 1.2799 per € 1.00.

### **B.Capitalization and Indebtedness**

Not applicable

### **C.Reasons for the Offer and Use of Proceeds**

Not applicable

### **D.Risk Factors**

*Any ofthe following risks could have a material adverse effect on AIXTRON’s financialposition, results of operations, liquidity and the actual outcome of mattersthat the forward-looking statements contained in this annual report refer to. Therisks described below are not the only ones the Company faces. There may beadditional risks AIXTRON is currently unaware of and risks that are common tomost companies. There may also be risks that AIXTRON now believes areimmaterial, but which may ultimately have a material adverse effect on theCompany’s financial position, results of operations, liquidity and the actualoutcome of matters that the forward-looking statements contained in this annualreport refer to. For additional information regarding forward-lookingstatements, see “Forward-looking statements notice” included in this annualreport.*

#### ***Company-Related Risk***

***The compound semiconductor and the semiconductor industriesare highly volatile and unpredictable, which may adversely affect AIXTRON’soperating results and result in significant volatility in the market price ofits ordinary shares and American Depositary Shares.***

The compoundsemiconductor and the semiconductor manufacturing equipment industry isaffected by the cyclical nature of the semiconductor industry. Althoughsemiconductors are used in many different products, the markets for thoseproducts are interrelated to various degrees. The industry has historicallyexperienced sudden changes in supply and demand for semiconductors. The timing,length and severity of these industry cycles are difficult to predict. Duringperiods of declining demand for semiconductor manufacturing equipment, AIXTRONneeds to be able to quickly and effectively align its cost structure withprevailing market conditions, to manage its inventory levels to reduce thepossibility of future inventory write-downs resulting from obsolescence, and tomotivate and retain key employees. Because a high proportion of AIXTRON’s costsare fixed in the near term, the Company’s ability to reduce expenses quickly inresponse to revenue shortfalls is limited. During periods of rapid growth,AIXTRON’s business must be able to acquire and/or develop sufficientmanufacturing capacity and inventory to meet customer demand, and to attract,hire, assimilate and retain a sufficient number of qualified people. TheCompany’s customers often accelerate or delay expenditures, as well as attemptto cancel or reschedule their orders, in reaction to variations in theirbusinesses or market conditions. As a result, AIXTRON must be able to reactquickly to these changes in supply and demand. A failure to quickly align theCompany’s cost structure and manufacturing capabilities with industryfluctuations could lead to significant losses or to fail to capitalize onincreased demand. In either event, the results of operations may be adverselyaffected, which could result in significant volatility in the market price ofthe Company’s ordinary shares and American Depositary Shares (ADSs).

 

12

----

***In order to compete, AIXTRON must attract,retain and motivate key employees, and its failure to do so could have anadverse effect on its results of operations.***

 

In order to compete,AIXTRON must attract, retain and motivate executives and other key employees,including those in managerial, technical, sales, marketing and supportpositions. Hiring and retaining qualified executives, scientists, engineers, technicalstaff and sales representatives are critical to the Company’s business, andcompetition for experienced employees in the semiconductor industry can beintense. To attract, retain and motivate qualified employees, AIXTRON reliesheavily on paying cash compensation at market-competitive rates and offeringadditional incentives and bonus payments. If such cash payments cease to beviewed as a valuable benefit by the Company’s key employees, the Company’sability to attract, retain and motivate its employees could be adverselyimpacted, which could negatively affect its results of operations and/orrequire AIXTRON to increase the amount it expends on cash and other forms ofcompensation.

***AIXTRON depends on a limited number of customers thatoperate in highly concentrated industries.***

AIXTRON’s customer baseis, has been and may in the future be highly concentrated. Orders from a relativelylimited number of customers have accounted for, and likely will continue toaccount for, a substantial portion of the Company’s revenues, which may leadcustomers to demand pricing and other terms less favorable to the Company. If aprincipal customer discontinues its relationship with AIXTRON or sufferseconomic setbacks, AIXTRON’s business, financial condition and operatingresults could be materially and adversely affected. AIXTRON’s ability toincrease revenues in the future will depend in part upon its ability to obtainorders from new customers. AIXTRON cannot be certain that it will be able to doso. In addition, because a relatively small number of large manufacturers, manyof whom are AIXTRON’s customers, dominate the industries in which they operate,it may be especially difficult for the Company to replace these customers if itloses their business. A large portion of orders in AIXTRON’s order backlog areorders from its principal customers. Furthermore, AIXTRON does not havelong-term contracts with many of its customers. As a result, the Company’sagreements with its customers do not provide any assurance of future revenuesand AIXTRON is exposed to competitive price pressure on most new orders itattempts to obtain. The Company’s failure to obtain new orders from new orexisting customers, would have a negative impact on its results of operations.

***AIXTRON’s business operates in a highly competitive industrycharacterized by increasingly rapid technological changes, and if the Companydoes not develop new products in a timely manner, it may not be able to competesuccessfully in this market.***

The introduction of newproducts and technologies occurs at a continuously increasing pace and growsincreasingly complex over time. If AIXTRON’s business does not develop andintroduce new products and technologies in a timely manner in response tochanging market conditions or customer requirements, its financial conditionand results of operations could be materially and adversely affected. AIXTRON’scompetitive advantage and future success depend on its ability to: 
|        | · |   | successfully develop new products and technologies;            |
|--------|--------|--------|----------------------------------------------------------------|
|   |   |   |                                                           |
|   | · |   | develop new markets for its products and services;             |
|   |   |   |                                                           |
|   | · |   | introduce new products to the marketplace in a  timely manner; |
|   |   |   |                                                           |
|   | · |   | qualify new products with its customers; and                   |
|   |   |   |                                                           |
|   | · |   | commence and adjust production to meet customer  demands.      |

 

***AIXTRON’s competitors may have greater resources thanAIXTRON, or may otherwise be better suited to compete in the Company’s markets,and AIXTRON’s failure to compete successfully with these companies wouldseriously harm its business.***

Some of AIXTRON’scompetitors have greater financial, engineering, manufacturing and marketingresources than the Company does. In addition, AIXTRON faces competition fromsmaller emerging equipment companies whose strategy is to provide a portion ofthe products and services that the Company’s semiconductor equipment businessoffers, using innovative technology to sell products into specialized markets. Newproduct introductions or enhancements by AIXTRON’s competitors could cause adecline in revenues or loss of market acceptance of its existing products. Increasedcompetitive pressure could also lead to intensified price competition resultingin lower margins. The Company’s failure to compete successfully with theseother companies would seriously harm its business.

 

13

----

 

***AIXTRON faces lengthy sales and qualification cycles for itsproducts and, in many cases, must invest a substantial amount of time and fundswith no assurance that these efforts or expenditures will result in revenues.***

Revenues from AIXTRON’ssystems primarily depend upon the decision of a prospective customer to upgradeits manufacturing capabilities, which typically involves a significant capitalcommitment by the customer. Customers usually place orders with AIXTRON betweenthree to nine months, or longer, after the Company’s initial contact with themregarding a particular system. AIXTRON often experiences delays in obtainingsystem orders while customers evaluate and receive internal approvals for thepurchase of these systems. These delays may include the time necessary to plan,design or complete a new or expanded semiconductor fabrication facility. Due tothese factors, the Company expends substantial funds as well as marketing andmanagement efforts to sell its semiconductor production systems. Theseexpenditures and efforts may not result in revenues.

In order to expand itsmaterials production capabilities, the Company has dedicated a number of itssystems to the manufacture of wafers and devices. Some of AIXTRON’s productsare currently being tested to determine whether they meet customer or industryspecifications. During this qualification period, AIXTRON invests significantresources and dedicates substantial production capacity to the manufacture ofthese new products, prior to any commitment to purchase by the prospectivecustomer and without generating significant revenues from the qualificationprocess. If AIXTRON was unable to meet these specifications or does not receivesufficient customer orders to profitably use the dedicated production capacity,its business, financial condition, results of operations and cash flows couldbe materially and adversely affected.

AIXTRON’s future budgetsfor operating expenses, capital expenditures, operating leases and servicecontracts are based upon the Company’s assumptions as to the anticipated marketacceptance of its products. If AIXTRON’s products do not meet the expectedcustomer demand, the Company’s business, financial condition, results ofoperations and cash flows could be materially and adversely affected.

***AIXTRON’s quarterly operating results fluctuatesignificantly, which may cause the market price of its ordinary shares and itsADSs to increase or decrease significantly.***

AIXTRONhas historically experienced significant fluctuations in its quarterlyoperating results and the Company anticipates that such fluctuations willcontinue. AIXTRON’s results may vary significantly depending on a number offactors, including:

 
|        | · |   | changes in the semiconductor market environment;                                                                      |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                  |
|   | · |   | changes in regulations affecting the semiconductor  industry;                                                         |
|   |   |   |                                                                                                                  |
|   | · |   | changes in the mix or cost of its products and  services;                                                             |
|   |   |   |                                                                                                                  |
|   | · |   | the timing of the introduction or acceptance of new  products and services offered by AIXTRON or its competitors; and |
|   |   |   |                                                                                                                  |
|   | · |   | exchange rate fluctuations, in particular between  the euro and the U.S. dollar.                                      |

 

In addition, the Companyderives a substantial portion of its revenues in any fiscal period from thesale of a relatively small number of high-priced systems. As a result, thetiming of recognition of revenue for a single transaction could have a materialeffect on total revenues and operating results for a particular reportingperiod. A delay of only a week or two can often shift the related realizationof revenues into the next quarter, which could adversely affect the Company’sability to meet expectations. In addition, customers at times attempt to cancelor reschedule orders, even when not permitted to do so under the contractualterms of the purchase order.

 

14

----

 

As stated above, AIXTRONhas experienced long and unpredictable sales cycles. The timing of an orderoften depends on the capital expenditure budget cycle of customers. Inaddition, the time it takes the Company to build a product to customerspecifications, which the Company refers to as the build cycle, typicallyranges from four to nine months, followed in certain cases by a period ofcustomer acceptance during which the customer evaluates the performance ofAIXTRON’s system and may potentially reject its system. As a result of thebuild cycle and evaluation periods, the period between a customer’s initialpurchase decision and revenue recognition on an order often varies widely, andvariations in length of this period can cause further fluctuations in operatingresults.

The factors describedabove, together with the cyclicality of the semiconductor industry, could causethe market price of AIXTRON’s ordinary shares and its ADSs to fluctuatesignificantly.

***AIXTRON’s business is exposed to the risksof operating a global business.***

AIXTRON’s business hasoperations located throughout the world to support the Company’s sales andservices to the global semiconductor industry. Managing global operationslocated throughout the world presents complex management challenges. Thesechallenges may make it more difficult for AIXTRON to implement businessstrategies and enforce centralized business processes and controls across itsenterprise.

***AIXTRON is highly dependent on international revenues,particularly revenues from Asian countries.***

Revenuesoutside of Europe accounted for 84.18% of the Company’s total revenues for theyear ended December 31, 2005, versus 90.26% of total revenues for the yearended December 31, 2004. Revenues from AIXTRON’s Asian-based customers accountedfor 73.91% of total revenues for the year ended December 31, 2005, versus77.21% of total revenues for the year ended December 31, 2004. AIXTRONanticipates that international revenues, including revenues from Asia, willcontinue to account for a significant portion of its revenues. As a result, asignificant portion of the Company’s revenues will be subject to risks,including:

 
|        | · |   | unexpected changes in foreign law or regulatory  requirements; |
|--------|--------|--------|----------------------------------------------------------------|
|   |   |   |                                                           |
|   | · |   | exchange rate volatility;                                      |
|   |   |   |                                                           |
|   | · |   | tariffs and other trade barriers;                              |
|   |   |   |                                                           |
|   | · |   | political and economic instability;                            |
|   |   |   |                                                           |
|   | · |   | military confrontation;                                        |
|   |   |   |                                                           |
|   | · |   | difficulties in accounts receivable collection;                |
|   |   |   |                                                           |
|   | · |   | extended payment terms;                                        |
|   |   |   |                                                           |
|   | · |   | difficulties in managing distributors or  representatives;     |
|   |   |   |                                                           |
|   | · |   | difficulties in staffing its subsidiaries;                     |
|   |   |   |                                                           |
|   | · |   | difficulties in managing foreign subsidiary  operations; and   |
|   |   |   |                                                           |
|   | · |   | potentially adverse tax consequences.                          |

 

Wherever currency devaluationsoccur abroad, AIXTRON’s products become more expensive for its customers inthat country. In addition, difficult economic conditions may limit capitalspending by the Company’s customers. These circumstances may also affect theability of AIXTRON’s customers to meet their payment obligations, resulting incancellations or deferrals of existing orders and the limitation of additionalorders.

 

15

----

 

***Exchange rate fluctuations, in particular between the euroand the U.S. dollar, could adversely affect AIXTRON’s ability to price itsproducts competitively and its operating results.***

AIXTRON’s operations areconducted by entities in many countries, and a substantial portion of its salesand production costs are denominated in currencies other than the euro. As aresult, fluctuations between the value of the euro and other major currencies,in particular the U.S. dollar, may affect the Company’s operating results. Ofthe equipment orders received in 2005, 76% were denominated in U.S. dollars,compared to 77% in 2004. Approximately 31% of equipment-related cost of salesin 2005 were denominated in U.S. dollars and 11% of total material cost weredenominated in pounds sterling. Moreover, some AIXTRON entities import andexport goods and services in currencies other than their own functionalcurrencies, principally the U.S. dollar. The results of such entities couldtherefore be affected by currency fluctuations arising between the transactiondates and the settlement dates for these transactions. AIXTRON has taken stepsto reduce part of these receivables-related exposures through the use offinancial instruments in the form of currency forward contracts. However,AIXTRON is not able to completely eliminate the risk that fluctuations inforeign currencies will adversely affect its operating results.

***Because AIXTRON’s operating income is subject to taxation indiffering jurisdiction, the Company is exposed to a number of different taxrisks.***

Because AIXTRON operatesin a number of countries throughout the world, including the U.S., itsoperating income is subject to taxation in differing jurisdictions and atdiffering tax rates. AIXTRON seeks to organize its affairs in a tax efficientand balanced manner, taking into account the applicable regulations of thejurisdictions in which it operates. As a result of the Company’smulti-jurisdictional operations, it is exposed to a number of different taxrisks, including tax risks related to: income tax, value added tax, payroll tax, social security tax, customsand excise duties, sales and use tax, U.S. state tax, withholding taxrequirements, tax treaty interpretation, tax credits, permanent establishments,transfer pricing on internal deliveries of goods and services (includingbenefit tests and requirements to prove the arm’s length character of internaltransactions), loss carryforwards, multi-jurisdictional double taxation,acquisitions, dispositions, reorganizations, and internal restructurings.

The tax authorities inthe jurisdictions in which AIXTRON operates may audit the Company’s tax returnsand may disagree with the positions taken in those returns. An adverse outcomeresulting from any settlement or future examination of AIXTRON’s tax returnsmay subject the Company to additional tax liabilities and may adversely affectits effective tax rate which could have a material adverse effect on itsfinancial position, results of operations and liquidity. In addition, anyexamination by the tax authorities could cause AIXTRON to incur significantlegal expenses and divert the Company’s management’s attention from theoperation of its business.

***AIXTRON is exposed to risks associated with acquisitions.***

AIXTRON has in the pastand may in the future untertake acquisitions of or significant investments in,other businesses with complementary products, services or technologies. Acquisitions,or other significant investments, involve many risks, including:
|        | · |   | difficulties in integrating the operations,  technologies, products and personnel of acquired companies;           |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                               |
|   | · |   | lack of synergies or the inability to realize  expected synergies and cost-savings;                                |
|   |   |   |                                                                                                               |
|   | · |   | revenue and expense levels of acquired entities  differing from those anticipated at the time of the acquisitions; |
|   |   |   |                                                                                                               |
|   | · |   | difficulties in managing geographically dispersed  operations;                                                     |
|   |   |   |                                                                                                               |
|   | · |   | the potential loss of key employees, customers and  strategic partners of acquired companies;                      |

 

16

----

 
|        | · |   | claims by terminated employees, shareholders of  acquired companies or other third parties related to the transaction;                                             |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                               |
|   | · |   | the issuance of dilutive securities, assumption or  incurrence of additional debt obligations or expenses, or use of substantial  portions of AIXTRON’s cash; |
|   |   |   |                                                                                                                                                               |
|   | · |   | diversion of AIXTRON’s management’s attention from  normal daily operations of the business; and                                                    |
|   |   |   |                                                                                                                                                               |
|   | · |   | the impairment of acquired intangible assets as a  result of technological advancements, or worse-than-expected performance of  acquired companies.                |

 

AIXTRON may not be successfulin addressing the risks that its past or future acquisitions may present andthe Company may fail to realize the perceived benefits of such acquisitions.

***AIXTRON is dependent on a limited number of suppliers andthe Company’s operating results could be harmed if it loses access to sourcesof materials or services.***

The systems that AIXTRONproduces are complex and require the Company to manufacture or obtain throughthird party sources many critical components. Many of these components are onlyavailable from a limited number of suppliers or, in some cases, a singlesupplier. Because of the cost of AIXTRON’s systems, the Company generally aimsto keep its inventories at minimum levels. Because AIXTRON often does notaccount for a significant part of its suppliers’ business, the Company may nothave access to sufficient capacity from these suppliers in periods of highdemand. In addition, AIXTRON risks having important suppliers terminate productlines, change business focus or even go out of business. If AIXTRON wasrequired to change any of its suppliers, it would be required to re-qualifyeach new supplier. In the near term, the Company’s supplier qualificationprocesses could prevent or delay component shipments, which could in turnprevent the Company from delivering products to its customers in a timelymanner. AIXTRON estimates that it could take approximately six to eighteenmonths to replace suppliers of certain critical components used in its systems.In addition, in connection with third-party manufacturing activities, it ispossible that AIXTRON may encounter unforeseen technical complexities that itmay be unable to resolve, or that the resolution of such complexities may leadto delays in the implementation of these third-party manufacturing activities.

Although AIXTRON has notexperienced any material delays related to its suppliers in the last threeyears, any such delays would have a negative impact on its customer acceptance,and ultimately, to its ability to generate revenues. In addition, AIXTRONgenerally does not have long-term supply agreements with many of its suppliers.Consequently, the Company could experience significant price increases and maynot be able to obtain replacement components in a timely manner or at all. Suchprice increases would increase the cost of goods which could adversely affectthe Company’s gross margins and operating results.

***AIXTRON may increase production in anticipation of customerorders that may not materialize, which would negatively affect the Company’soperating results.***

AIXTRON schedulesproduction of its systems based upon order backlog and customer commitments. Basedon the complexity of the systems that AIXTRON produces, the Company must expendconsiderable efforts in hiring, training and retaining qualified manufacturingpersonnel. AIXTRON has in the past experienced delays in customer deliveryschedules, as well as outright cancellations of orders. As a consequence, theCompany may incur significant near term expenses for manufacturing capabilitiesthat it may not be able to fully utilize, which would negatively affect itsgross margins and its profitability. Moreover, industry analysts evaluateAIXTRON’s backlog in determining the Company’s prospects. If AIXTRONexperiences significant reductions in its backlog as a result of cancellationsor the Company’s failure to obtain new bookings, it could experience negativeratings from analysts which could adversely impact the trading value of theCompany’s stock.

 

17

----

 

***The semiconductor industry and AIXTRON’s operations arecharacterized by a high percentage of costs that are fixed or otherwisedifficult to reduce in the short-term, and by product demand that is highlyvariable and is subject to significant downturns that may adversely affect theCompany’s business, results of operations and financial condition.***

The semiconductorindustry and AIXTRON’s operations are characterized by high costs, such asthose related to facility construction and equipment, research and development,and employment and training of a highly skilled workforce, that are eitherfixed or difficult to reduce in the short-term. At the same time, demand forthe Company’s products is highly variable and has experienced downturns, oftenin connection with maturing product cycles and downturns in general economicmarket conditions. These downturns have been characterized by reduced productdemand, manufacturing overcapacity, high inventory levels and decreased averageselling prices. The combination of these factors may cause AIXTRON’s revenue,gross margin, cash flow and profitability to vary significantly both in theshort-term and over the long-term.

***AIXTRON’s businesses use potentially harmful chemicals andother hazardous materials. AIXTRON is subject to environmental risks andregulations which could harm the Company’s results of operations and financialcondition.***

The research anddevelopment activities, as well as the manufacturing and demonstration ofAIXTRON’s products, in the Company’s business involve the use of potentiallyharmful chemical and other hazardous or potentially hazardous materials andradioactive compounds. AIXTRON cannot completely eliminate the risk ofcontamination or injury from the use, storage, handling or disposal of thesematerials. In the event of contamination or injury, AIXTRON could be heldliable for damages that result, and any liability could exceed the Company’sresources. AIXTRON is subject to the laws and regulations of numerousjurisdictions governing the use, storage, handling and disposal of these materialsand specified waste products. The Company’s cost of compliance with these lawsand regulations include local, state and federal fees and costs related to theinstallation and maintenance of safeguards to mitigate the risk of potentialrelease of hazardous materials (including equipment safeguards, such asscrubbers). The amounts expended in compliance with these laws and regulationsto date have not had a material effect on the Company’s capital expenditures,earnings and competitive position. However, if stricter laws were passed orapplicable environmental laws were more strictly enforced, AIXTRON may incursignificant additional capital expenditure to address compliance with suchenvironmental laws and regulations.

Failure or inability tocomply with existing or future environmental regulations could result insignificant remediation liabilities, the imposition of fines and/or thesuspension or termination of production, each of which could materially andadversely affect the Company’s business, financial condition, results ofoperations and cash flows.

***AIXTRON is exposed to the risk that third parties mayviolate the Company’s proprietary rights or accuse the Company of infringingupon their proprietary rights.***

AIXTRON’s success in themarkets in which it operates may depend on its ability to operate withoutinfringing the intellectual property rights of others and to prevent othersfrom infringing the Company’s intellectual property rights.

There has beensubstantial litigation regarding patents and other intellectual property rightsin the semiconductor industry. AIXTRON may become a party to patent litigationor proceedings to determine its patent rights with respect to third parties,including, potentially, its customers. Interference proceedings may benecessary to establish which party was the first to discover certainintellectual property. AIXTRON may also become involved in patent litigationagainst third parties to enforce the Company’s patent rights, to invalidatepatents held by third parties, or to defend against similar claims by others. Thecost to AIXTRON of any patent litigation or similar proceeding could besubstantial, and it may require significant management time. Any patentinfringement litigation may also adversely affect the Company’s ADS or ordinaryshare prices. If infringement litigation against the Company was resolvedunfavorably, AIXTRON may be enjoined from providing some of its products orservices, or the Company may be required to obtain a license from a third party.AIXTRON may not be able to obtain the requisite license on commerciallyacceptable terms at all, which could require the Company to cease selling systemsthat contain infringing technology until it can identify and implementsubsystems that do not infringe on third party technology. AIXTRON may not besuccessful in developing non-infringing solutions and may be prevented fromselling its systems, which could result in a significant reduction in theCompany’s revenues and a reduction in the value of its ordinary shares andADSs.

 

18

----

 

***The Company’s competitive position may depend on its abilityto protect its intellectual property rights and trade secrets. If AIXTRON wasunable to protect such rights and secrets, other companies may be able tocompete more effectively against it, and the Company’s business could suffer.***

AIXTRON’s success isdependent upon the protection of the Company’s proprietary rights. In thehigh-tech industry, intellectual property is an important asset that is alwaysat risk of infringement. AIXTRON incurs costs to file for patents and defendits intellectual property and AIXTRON relies upon the laws of Germany and offoreign countries in which it develops, manufactures or sells its products toprotect its proprietary rights. However, there can be no assurance that theseproprietary rights will provide competitive advantages, or that other partieswill not challenge, invalidate or circumvent these rights. Moreover, the lawsof some foreign countries may not be as protective of intellectual propertyrights as those in the United States, and mechanisms for enforcement ofintellectual property rights may be inadequate. Infringement upon the Company’sproprietary rights by a third party could result in lost market and revenueopportunities for AIXTRON.

AIXTRON relies on tradesecret protection for its confidential and proprietary information andprocedures. AIXTRON currently protects this information and these procedures astrade secrets through recognized practices, including confidentiality agreementswith employees, consultants, collaborators and customers. These confidentialityagreements may be breached, however, and AIXTRON may not have adequate remediesfor any breach. In addition, these trade secrets may otherwise become known to,or be independently discovered by, competitors. If AIXTRON’s trade secrets wereto become known to, or be independently discovered by, competitors, the Company’scompetitive position and its business may be negatively impacted.

#### ***Risks Relating to Holding AIXTRON’s ADSs and Ordinary Shares***

***You may be unable to enforce a judgment against AIXTRON ormembers of its Executive Board or Supervisory Board.***

AIXTRON is a stockcorporation organized under the laws of the Federal Republic of Germany. Onlyone of the members of its Supervisory or Executive Boards is currently acitizen or resident of the United States. Substantially all of the assets ofthese individuals and most of the assets of the Company are located outside theUnited States. As a result, it may not be possible for you to enforce againstAIXTRON judgments obtained in the United States. You may also encounterdifficulties in connection with the enforcement in Germany of liabilities basedsolely upon United States laws in original actions or in actions for the enforcementof judgments of United States courts.

***You may have less access to information about AIXTRON andless opportunity to exercise your rights as a shareholder if you hold AIXTRON’sordinary shares through its ADSs.***

Therights and terms of AIXTRON’s ADSs are designed to replicate, to the extentreasonably practicable, the rights applicable to the Company’s ordinary shares,for which there is no active trading market in the United States. However,because of aspects of German law, the Company’s Articles of Association and thecontractual terms of the deposit agreement under which AIXTRON’s ADSs areissued, your rights as a holder of ADSs will differ in various ways from ashareholder’s rights, and you may be affected in other ways, including:

 
|        | · |   | you may not be able to participate in rights  offerings or dividend alternatives;                 |
|--------|--------|--------|---------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                              |
|   | · |   | you may not receive copies of AIXTRON’s reports as  promptly as a holder of ordinary shares; |

 

19

----

 
|        | · |   | you will be able to exercise voting rights only by  instructing the depositary how to exercise the voting rights of the shares  that underlie your ADSs, and due to logistical, timing and other issues, you  may not receive the opportunity to exercise a right to vote; |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                       |
|   | · |   | the deposit agreement may be amended by the Company  and the depositary, or may be terminated by AIXTRON or the depositary,  without your consent in a manner that could prejudice your rights; and                                                                        |
|   |   |   |                                                                                                                                                                                                                                                                       |
|   | · |   | the deposit agreement limits AIXTRON’s obligations  and liabilities and those of the depositary.                                                                                                                                                                      |

 

***As a holder of AIXTRON’s ADSs you may have fewer or lesswell-defined shareholders’ rights compared to a holder of common stock of aU.S. company.***

AIXTRON’s corporateaffairs are governed by its Articles of Association (Satzung) and German law. Germanlaw is generally less specific than U.S. law in terms of governance ofcorporate operations. Under German law, as a holder of AIXTRON’s ADSs you mayhave fewer or less well-defined rights than you would as a shareholder of aU.S. company. For example, a shareholder of a U.S. corporation may institutelawsuits on behalf of the corporation and class actions. In Germany the companymust assert claims for damages against members of the Executive Board or theSupervisory Board upon a respective shareholders’ resolution requiring a simplemajority of the votes cast. Moreover, in Germany, shareholders whose sharesrepresent 1% or a proportional amount of € 100,000 of the stated share capitalof the stock corporation may apply in court for authorization to assert claimsfor damages of the Company against members of the Executive Board and/or theSupervisory Board in their own name. However, the Company may at any timeassert its claims for damages on its own behalf; in such case any pendingauthorization or court proceeding initiated by a shareholder of the Companyrelated to the same claims for damages will then be inadmissible. As a result,a shareholder of a German stock corporation may not be able to protect his orher interest in the shares as well as a shareholder of a U.S. corporationcould.

***AIXTRON may in the future be considered a passive foreigninvestment company.***

The United StatesInternal Revenue Code contains special rules relating to passive foreigninvestment companies (“PFICs”). A United States holder who owns stock in a PFICis generally subject to adverse tax consequences under these rules. These rules donot apply to non-United States holders. A company is treated as a PFIC if atleast 75% of the company’s gross income for a taxable year consists of “passiveincome,” defined generally as income from passive investments, as opposed tooperating income. A company is also treated as a PFIC if the average percentageof the value of its assets, including cash balances, that produce or are heldfor the production of passive income is at least 50%. While AIXTRON believes itis currently not a PFIC, because a company’s status as a PFIC is a complex, factualdetermination made on an annual basis, there can be no assurance that theCompany will not become a PFIC in the future. The Company will explain in moredetail the PFIC rules and their consequences to United States holdersunder “Item 10 Additional Information — Taxation.”

If AIXTRON wasclassified as a PFIC, unless a U.S. holder made a timely specific election, aspecial tax regime would apply to any “excess distribution,” which would besuch holder’s share of distributions in any year that are greater than 125% ofthe average annual distributions received by such holder in the three precedingyears or such holder’s holding period, if shorter; and any gain realized on thesale or other disposition of the ADSs. Under this regime, any excess distributionand realized gain would be treated as ordinary income and would be subject totax as if the excess distribution or gain had been realized ratably over suchholder’s holding period for the ADSs. A U.S. holder will generally be requiredto pay taxes on the amount allocated to a year at the highest marginal tax rateand pay interest on the prior year’s taxes. Such U.S. holder may be able toameliorate the tax consequences somewhat by making a mark-to-market election or“QEF election”, which is an election to have AIXTRON treated as a qualifiedelecting fund for U.S. federal income tax purposes. You should consult your taxadvisor of the consequences of AIXTRON’s classification as a PFIC.

 

20

----

 

***Because AIXTRON is not obligated tocontinue to have its ADSs quoted on the Nasdaq Capital Market beyond eighteenmonths after the closing of the Genus, Inc. acquisition, your ability totrade the ADSs may be eliminated in the future, and the market prices of theCompany’s ADSs and ordinary shares may be negatively affected and it may becomemore difficult to sell the ordinary shares.***

In connection with theacquisition of Genus, Inc. (“Genus”) AIXTRON is required to use itsreasonable efforts to cause the ADSs to continue to be quoted on the NasdaqCapital Market for a period of eighteen months after the closing of theacquisition on March 10, 2005. Because AIXTRON is not obligated tocontinue to have the ADSs quoted on the Nasdaq Capital Market for a prolongedperiod, some United States holders of AIXTRON’s ADSs may be prohibited from ordisinclined to own shares of companies that may have no trading market insidethe United States. This may result in the sale of ADSs received in theacquisition of Genus or the underlying ordinary shares, which could adverselyaffect the market price for the ADSs and ordinary shares. In addition, if theADSs are no longer quoted on the Nasdaq Capital Market, there can be noassurance that a market will develop for the ADSs and it will be more difficultfor a United States holder to sell the underlying ordinary shares outside theUnited States.

***Identification of deficiencies or weaknesses in AIXTRON’s  internal control over financial reporting mayhave an adverse impact on the Company’s financial condition and results ofoperations and the trading price of its securities.***

Commencing with AIXTRON’sannual report for the fiscal year ending December 31, 2006, the Company isrequired to include a report from its management relating to its evaluation ofthe Company’s internal control over financial reporting, as required pursuantto Section 404 of the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-OxleyAct”). AIXTRON intends to take prompt measures to eliminate any identifieddeficiencies or weaknesses in the Company’s internal control structure. Suchmeasures may involve significant effort and expense. AIXTRON may also berequired to disclose deficiencies or weaknesses prior to the filing of itsannual report for the fiscal year ending December 31, 2006 and to disclosewhether or not such deficiencies or weaknesses have been eliminated. Dependingon the nature and extent of any identified deficiency or weakness, AIXTRONcould be required to restate previously issued financial statements. Any ofsuch actions may have an adverse impact on the Company’s financial conditionand results of operations and the trading price of its securities.

 

21

----

 

## **Item 4:  Information on the Company**

### **A.History and Development of the Company**

AIXTRONAktiengesellschaft was incorporated as a German limited liability corporation in1983 and converted to a stock corporation under the laws of the FederalRepublic of Germany in 1997. AIXTRON is headquartered in Aachen, Germany andhas wholly-owned subsidiaries in Germany, the United Kingdom, Japan, SouthKorea, Sweden, Taiwan and the United States. AIXTRON’s principal executiveoffice is located at Kackertstrasse 15-17, D-52072 Aachen, Germany,and the Company’s telephone number there is 011-49-241-8909-0.

#### ***Important Events***

***Acquisition ofGenus***

On July 2, 2004AIXTRON announced its intention to acquire Genus. Genus, which is based inSunnyvale, California, supplies chemical vapor deposition (“CVD”) and atomiclayer deposition (“ALD”) technologies, which are required in the production ofadvanced semiconductors and hard disk drives. At an Extraordinary Meeting ofAIXTRON’s shareholders on September 30, 2004, the Company’s shareholdersapproved the amendment of the Company’s Articles of Association. This amendmentauthorized the Executive Board, with the approval of the Supervisory Board, toincrease the capital against contribution in kind in order to effect the Genustransaction. The approval of this amendment required the affirmative vote ofmore than 75% of the Company’s ordinary shares present. Following thisshareholder meeting, four dissenters filed contestation claims with the localcourt in Aachen against adoption of the resolution. By way of a court approvedsettlement, these plaintiffs withdrew their complaints. The resolution of theextraordinary meeting of shareholders was subsequently registered in thecommercial register on January 3, 2005.

The ordinary sharesunderlying the American Depositary Shares (“ADSs”) issued in the transactionwere registered with the United States Securities and Exchange Commission (the “SEC”)on AIXTRON’s Registration Statement on Form F—4 (Regis. No. 333-122624),declared effective on February 8, 2005. On March 10, 2005, the Genusshareholders approved the merger pursuant to the laws of the State ofCalifornia through the affirmative vote of holders of more than 50% of theissued and outstanding shares of Genus.

On March 12, 2005,AIXTRON’s Executive Board resolved, with the approval of the Company’sSupervisory Board, to increase its authorized share capital by issuing24,967,885 ordinary shares against all issued and outstanding Genus shares ascontribution in kind pursuant to the merger. As a result, Genus shareholdersreceived 0.51 of the Company’s ADSs for each Genus common share. Each ADSrepresents one of AIXTRON’s ordinary shares. AIXTRON registered this capitalincrease with the commercial register on March 14, 2005. The FrankfurtStock Exchange’s admission authority authorized the registration of the newshares to the regulated securities market of the Frankfurt Stock Exchange witha resolution of March 14, 2005. See “Item 9. The Offer and the Listing —Trading Markets” and “— Market Price Information.”  Upon consummation of the transaction, AIXTRON’shistoric, pre-merger shareholders held approximately 72% and the formershareholders of Genus held approximately 28% of AIXTRON, taking intoconsideration all ADSs issued as part of the transaction. Based on the averagemarket value of the Company’s ordinary shares during a period of two daysbefore and after the merger agreement, the purchase price amounted to € 92.1million.

On March 14, 2005,4,427,929 of the new ADSs were transferred to a trust in order to serve theemployee stock option program of Genus, and to cover both convertible bonds andwarrants issued by Genus. In accordance with IRFS, AIXTRON’s financialstatements show the shares held in this property trust as its own shares, whichare deducted from the share capital. In August 2005, 2,383,920 shares wereissued to the owners of Genus’ convertible bonds. In the third quarter 2005,41,226 ADSs from this property trust were issued to employees for exercisedshare options.

AIXTRON completed theGenus merger on March 14, 2005. On March 15, 2005, the AIXTRON Group’s(defined as parent company AIXTRON AG and 14 companies, listed in Note 32 tothe Consolidated Financial Statements incorporated by reference to Item 18, inwhich AIXTRON AG has 100% direct or

 

22

----

 

indirect shareholding orwhich can be allocated to AIXTRON AG for economic purposes)  ADSs started trading on the NASDAQ in theUnited States under the ticker symbol AIXG.

***Creation of New Authorized Share Capitals 1 and 2***

At the Ordinary GeneralMeeting on May 18, 2005, AIXTRON’s shareholders approved the creation ofnew Authorized Share Capitals 1 and 2. The amendments to AIXTRON’s Articles ofAssociation were registered in the commercial register on June 15, 2005.

Under Authorized Capital1, the Executive Board, under certain conditions, may, with the approval of theSupervisory Board, increase the share capital up to € 35,919,751 on one orseveral occasions before May 17, 2010 by issuing against either cashcontribution or contribution in kind new registered no-par shares with aproportional amount of € 1.00 per share in the share capital. Among otherthings, this authorization enables the Executive Board to acquire a company oran equity interest in a company in return for shares if a suitable opportunityarises. While the Company currently has no specific plans to acquire anotherbusiness, the Executive Board believes, in order to support its strategy toleverage its core competence in complex materials deposition into new markets,it must be able to act quickly if and when appropriate opportunities arise.

Under Authorized Capital2, the Executive Board, under certain conditions, may, with the approval of theSupervisory Board, increase the share capital up to € 8,979,937 on one orseveral occasions before May 17, 2010 by issuing against cashcontributions new registered shares without par value with a proportionalamount of € 1.00 per share in the share capital. Among other things, thisauthorization enables the Executive Board to place quickly new shares in thedomestic and international capital markets in a targeted manner.

In case of any suchshare issuance, the shareholders will be granted a pre-emptive right unless theExecutive Board, with the consent of the Supervisory Board, excludes, in wholeor in part, the shareholders’ pre-emptive right.

***Research and Development***

For significant researchand development events during the financial year, see “Item 5. Operating andFinancial Review and Prospects — Research and Development, Patents andLicenses, etc.”

#### ***Capital Expenditures***

During 2005, AIXTRON had€ 12.02 million in capital expenditures, primarily related to purchases oftechnical equipment built in-house totaling € 8.32 million (includingtesting and laboratory equipment) and costs related to the acquisition of Genustotaling € 3.63 million. During 2004, AIXTRON had € 6.39 million incapital expenditures, primarily related to the acquisition of the remaininginterests of Epigress AB and AIXTRON KK totaling € 2.01 million andcapital expenditures for fixed assets and intangible assets totaling € 4.38 million.During 2003, AIXTRON had € 3.32 million in capital expenditures (as calculatedin accordance with U.S. GAAP), which were invested in intangible assets,capital equipment and facilities. AIXTRON invested primarily in capitalequipment and facilities in  itsHerzogenrath, Germany production facility, but also in connection with the setup of its Taiwanese facility in the Hsinchu science-based business park inTaiwan. All of these expenditures during 2005, 2004 and 2003 were funded out ofoperating cash flow and available cash resources.

 

23

----

 

TheAIXTRON Group’s investments in the first quarter of 2006 totaled €0.9 million and were exclusively capital expenditures for purchases ofoffice furniture and technical equipment.

**B. BusinessOverview**

#### ***Technology***

 

AIXTRON is a leadingprovider of deposition equipment to the semiconductor industry. The Company’s technologysolutions are used by a diverse range of customers worldwide to build advancedcomponents for electronic and opto-electronic applications based on compound,silicon or organic semiconductor materials. Such components are used in fiberoptic communication systems, wireless and mobile telephony applications,optical and electronic storage devices, computing, signaling and lighting,displays, as well as a range of other leading-edge technologies. More than 200customers worldwide use the Company’s technology. To date over 1,200 AIXTRONsystems have been installed worldwide.

Compound semiconductorsare complex synthetic materials composed of several chemical elements. TheCompany’s compound semiconductor systems are principally used in the growth ofperiodic table group III and group V compounds for numerous compoundsemiconductor applications, including data and telecommunications modules,mobile telephones and solar cells. The Company’s production systems are therecognized leader in growing gallium nitride-based device material structures. AIXTRON’sMetal Organic Chemical Vapor Deposition (“MOCVD”) systems are capable ofdepositing a wide variety of materials onto a substrate on an atomic scale. Thesubstrate is a primary base material on which structures are developed tocreate semiconductor devices.

In a productionenvironment, a chemical reaction takes place within a vacuum chamber, known asa reactor platform, and consequently ultra-thin chemical layers are grown in acrystalline structure on a wafer. The chemical composition and sequence of thelayers are determined by the architecture of the chip or component, which willsubsequently be produced from the compound semiconductor. The precursors usedto produce the periodic table group III and group V semiconductors by MOCVD aretypically either organometallic or hydride group V molecules combined withorganometallic group III molecules. On a heated substrate, the moleculesdecompose, often in a very complex manner, to produce compound materials neededfor formation of the desired semiconductor device. These devices can consist ofmore than 100 layers with different material composition and physicalproperties and require deposition precision control down to the atomic scale. Theability to manage the deposition of new complex, compound materials with atomiclevel accuracy is essential for the microelectronics and display industry tomeet the current trends and demands required in microelectronics andphotonics:  higher performance, higherspeed, smaller devices and lower energy consumption.

Prior to the acquisitionof Genus, AIXTRON had begun diversifying into next-generation technologies. Thesetechnologies include silicon wafer applications, such as tools employing AtomicVapor Deposition (or “AVD®”) technologyfor silicon-based semiconductors, and applications and equipment employingOrganic Vapor Phase Deposition (or “OVPD®”),involving the deposition of particularly thin organic material by means ofcondensation technology for the production of organic light emitting diodes (or“OLEDs”), which are currently being used in new high performance displayproducts and are seen to have relevance to potential future lighting and solarapplications.

Additionally, as aresult of the acquisition of Genus, AIXTRON has broadened its technologyoffering by including a comprehensive range of production-qualified depositiontechnologies for the silicon industry: Atomic Layer Deposition (“ALD”), AVD® and Chemical Vapor Deposition (“CVD”).

#### ***Products and Services***

AIXTRON’s products rangefrom customized production-scale chemical vapor deposition systems capable ofproducing up to 95 two-inch diameter wafers per single production run, to smallsystems for research and development use and small-scale production. AIXTRON alsooffers a full range of peripheral equipment and services, including productscapable of monitoring the concentration of gases in the air and of cleaning theexhaust gas from metal organic chemical vapor deposition processes. AIXTRONassists its customers in designing the production layouts of tubing andswitching devices for the gas supply to thin film deposition systems, throughto a full installation service of “clean room” laboratories (laboratories withreduced

 

24

----

 

particle counts pervolume). Additionally, AIXTRON offers its customers process technology,training and consulting services.

Demand for AIXTRON’sproducts is driven by the increasing miniaturization, increased processingspeed and efficiency, and reduced cost of ownership demands for microelectroniccomponents. The ability of AIXTRON’s products to precisely deposit thin filmmaterials and the ability to control critical surface dimensions in thesecomponents enables manufacturers to improve performance, yield, and quality inthe fabrication of advanced microelectronic devices.

Addressing threestrategic customer market applications — Compound, Silicon, and OrganicSemiconductor Materials — AIXTRON provides customers with technologies for themanufacture of a wide variety of devices:

*Compound Semiconductors:*

 
|        | · |   | LEDs for lighting, signaling, and outdoor giant  screens                                                                                                                                                                                                   |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                       |
|   | · |   | Optoelectronic devices such as photo diodes, lasers,  or modulators for telecom/datacom applications                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | · |   | Laser devices for consumer electronics such as  compact discs (“CDs”), digital versatile discs (“DVD”), including next  generation technology such as High Definition DVD (“HD DVD”) and “Blu-Ray”  DVD technology |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | · |   | High-frequency devices, such as Hetero Bipolar  Transistors (“HBTs”) and High Electron Mobility Transistors (“HEMTs”), for  wireless datacom applications                                                                              |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | · |   | Silicon Carbide (“SiC”)-based Schottky diodes for  high-power and high temperature applications                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | · |   | Solar cell technology                                                                                                                                                                                                                                      |

 

*Silicon Semiconductors:*

 
|        | · |   | Metal and oxide films for Complementary Metal-Oxide  Semiconductors (“CMOS”) gate stacks used in logic and memory Integrated  Circuits (“ICs”)     |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                   |
|   | · |   | Metal and oxide films for capacitor structures as  used in Dynamic Random Access Memory (DRAM) and Ferro-Electric Random Access  Memory (“FeRAM”) memory ICs |
|   |   |   |                                                                                                                                                                   |
|   | · |   | Silicon Germanium (“SiGe”) and Strained Silicon  epitaxial layers for high-performance CMOS logic ICs                                                        |
|   |   |   |                                                                                                                                                                   |
|   | · |   | MEMS (“Micro-Electro-Mechanical Systems”) for the  integration of mechanical elements, sensors, actuators, and electronics on a  common silicon substrate    |
|   |   |   |                                                                                                                                                                   |
|   | · |   | Thin Film Heads (“TFH”), i.e. read-write sensors  used in computer and hard disk drives                                                                      |

 

Genus, which wasacquired by AIXTRON on March 14, 2005, broadens AIXTRON’s technologycapabilities to include a comprehensive range of leading-edge depositiontechnologies for the silicon industry: Atomic Layer Deposition (ALD), AtomicVapor Deposition (AVD®), andChemical Vapor Deposition (CVD). Through the StrataGem high-volume productiontools, Genus adds production-proven ALD technology, targeted both attraditional silicon applications for the production of DRAM capacitors and atdata storage applications for the production of Thin Film Heads (TFH). Genus’ALD technology complements AIXTRON’s existing AVD® technology, providing the AIXTRON Group’sdiverse customer base with a broad portfolio of deposition technologies. Whilethe application of AVD® technology is focused on very precise planardeposition processes (for example in transistor gate stacks), ALD offersdistinct benefits in the deposition of challen­ging vertical device structures(for example in stack or trench DRAM structures). Genus’ LYNX series of metalCVD processing equipment is targeted at DRAM and

 

25

----

 

FlashIntegrated Circuits (“IC”) applications, memory devices that are used, forexample, in personal computers, digital cameras, and cellular telephones. Genus’deposition technology also enables the production of key components for thedata storage industry (e.g., hard disk thin film heads, or, “TFH”) and otheremerging industries (e.g., Micro Electro Mechanical Systems, or, “MEMS”).

 

*Organic Semiconductors:*

 
|        | · |   | OLEDs for Flat Panel and Flexible Display applications                                                                                                       |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                         |
|   | · |   | OLEDs for solid state lighting and signage  applications                                                                                                     |
|   |   |   |                                                                                                                                                         |
|   | · |   | Organic transparent thin film solar cells                                                                                                                    |
|   |   |   |                                                                                                                                                         |
|   | · |   | Electronic semiconductor structures (plastic  electronics) for applications in Flexible Displays, Radio Frequency Identification  Devices (“RFID”) |

 

Customers manufacturedevices on AIXTRON’s state-of-the-art equipment that are largely destined forend-user applications such as datacom/telecom, consumer electronics,automotive, for industrial products, and, since the Genus acquisition;computing and data storage.

AIXTRON’s Global ServiceOrganization (“GSO”) provides a full range of customer services, from theinitial customized development of an AIXTRON system through to the finalinstallation and ongoing operational support. The Company’s service centersoffer customers the following services: stocks of major spare parts, on-site service engineers trained byAIXTRON, local communication points between customers and AIXTRON, service andmaintenance contracts with customers, and service and sales support. Individualtraining programs can be carried out either at AIXTRON’s headquarters inAachen, Germany, or on-site at the customer’s facility by experienced personnel.AIXTRON’s GSO service managers, process engineers and service technicians alsoprovide systems consulting as well as installation and process support services.AIXTRON’s standard service program includes service and support for warrantywork, routine field service, expert process support, preventative maintenancecontracts, spare part stocking at various locations worldwide and a 24-hour,seven-days-a-week technical support line.

The AIXTRON Group’sonsite application laboratories in Aachen, Germany and Sunnyvale, Californiaare equipped for research and development and are utilized for the developmentof customized solutions for the Company’s customers.

The following table summarizes the systems technologies AIXTRON offersto its customers:

 
| **Material**                           | ** ** | **Compound  Semiconductors**                                                                                                                                                                                                                                                                  | ** ** | **Organic  Semiconductors**                                                                                                                                                                                                | ** ** | **Silicon  Semiconductors**                                                                                                                                                                                                                                                                            |
|----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Systems  Technology**                |       | MOCVD                                                                                                                                                                                                                                                                                         |       | OVPD®                                                                                                                                                                                                                 |       | CVD

 

ALD

 

AVD®                                                                                                                                                                                                                                                                    |
| ** **                             |       |                                                                                                                                                                                                                                                                                          |       |                                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                   |
| **Systems**                            |       | Planetary Reactor

CCS Reactor

 

SiC Reactor

                                                                                                                                                                                                                                    |       | Gen1 Prototype

Gen1 R&D Tool

 

Gen2 Production

Tool                                                                                                                                                           |       | Lynx 3 CVD

Stratagem 300 ALD

 

Stratagem R2 ALD

 

Tricent® AVD®                                                                                                                                                                                                          |
| ** **                             |       |                                                                                                                                                                                                                                                                                          |       |                                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                   |
| **Potential  Applications /  Devices** |       | LEDs

 

 

Optoelectronics (photo diodes, lasers, modulators  for Telecom/Datacom)

 

Laser devices for consumer electronics (CDs, DVDs)

 

High-Frequency devices (HBTs, HEMTs) for wireless  datacom

 

SiC based Schottky Diodes

 

 

Solar cells |       | OLEDs for displays

 

 

OLEDs for solid state lighting

 

 

Organic transparent thin film solar cells

 

Electronic semiconductor structures for flexible  displays and RFID

 

  |       | Metal and Oxide films for CMOS gate stacks

 

Metal and Oxide films for capacitor structures in  DRAMs and FeRAMS

 

SiGe and SSi expitaxial layers for CMOS

 

MEMS - Micro Electronic Mechanical Systems

 

 

TFH - Thin Film Heads for data storage hard disk  drives |

 

26

----

 

#### ***Seasonality***

AIXTRON’s business iscurrently not materially affected by seasonality.

#### ***Principal Markets***

The supply of gas phasedeposition equipment is AIXTRON’s only reporting segment. The Company marketsand sells its products worldwide, principally through its direct salesorganization and appointed agents.

The following segmentinformation has been prepared in accordance with IAS 14 “Segment Reporting.”  As the Company has only one business segment,the segment information provided relates only to the Company’s geographicalsegments — this being secondary segment information. For more information aboutAIXTRON’s segments, see Note 2(v) to the Company’s Consolidated FinancialStatements.

In presentinginformation on the basis of geographical segments, segments revenue is based onthe geographical location of customers. Segment assets are based on thegeographical location of the assets.

Segment capitalexpenditure is the total cost incurred during the period to acquire segmentassets that are expected to be used for more than one period.

The following tablesummarizes revenues for the significant geographical areas in which the Companyoperates, for each of the years ended December 31, 2005 and 2004.

27

----

#### ***Geographical segments***

| In EUR thousands             | ** ** | ** ** | ** ** | **Asia**    | ** ** | **Europe** | ** ** | **United States** | ** ** | **Consoli-  dation** | ** ** | **Group**   | ** ** |
|----------------------------------------|------------|------------|------------|-------------|------------|------------|------------|------------------------|------------|----------------------|------------|-------------|------------|
|                                   |       |       |       |        |       |       |       |                   |       |                 |       |        |       |
| Revenues realized with  third parties  |       | 2005       |       | 103,036     |       | 22,052     |       | 14,314                 |       |                 |       | 139,402     |       |
| ** **                             |       | 2004       |       | 108,097     |       | 13,642     |       | 18,265                 |       |                 |       | 140,004     |       |
| ** **                             |       |       |       |        |       |       |       |                   |       |                 |       |        |       |
| Revenues realized with  other segments |       | 2005       |       | 11,582      |       | 1,055      |       | 6,311                  |       | (18,948              | )          | 0           |       |
| ** **                             |       | 2004       |       | 4,905       |       | 1,676      |       | 11,646                 |       | (18,227              | )          | 0           |       |
| ** **                             |       |       |       |        |       |       |       |                   |       |                 |       |        |       |
| ** **                             |       |       |       |        |       |       |       |                   |       |                 |       |        |       |
| **Segment revenues**                   | ** ** | **2005**   | ** ** | **114,618** | ** ** | **23,107** | ** ** | **20,625**             | ** ** | **(18,948**          | **)**      | **139,402** | ** ** |
| ** **                             | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **             | ** ** | ** **           | ** ** | ** **  | ** ** |
| ** **                             | ** ** | **2004**   | ** ** | **113,002** | ** ** | **15,318** | ** ** | **29,911**             | ** ** | **(18,227**          | **)**      | **140,004** | ** ** |
| ** **                             | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **             | ** ** | ** **           | ** ** | ** **  | ** ** |
| ** **                             | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **             | ** ** | ** **           | ** ** | ** **  | ** ** |
| Segment assets                         |       | 2005       |       | 13,841      |       | 214,775    |       | 98,795                 |       | (127,862             | )          | 199,549     |       |
| ** **                             |       | 2004       |       | 5,798       |       | 139,087    |       | 10,340                 |       | (30,209              | )          | 125,016     |       |
| ** **                             |       |       |       |        |       |       |       |                   |       |                 |       |        |       |
| Segment capital  expenditures*         |       | 2005       |       | 308         |       | 10,213     |       | 93,262                 |       | —               |       | 103,783     |       |
| ** **                             |       | 2004       |       | 171         |       | 5,202      |       | 57                     |       | —               |       | 5,430       |       |

----

 

* Segment capital expenditures of the financial year2005 also include the additions resulting from the change in AIXTRON Groupcompanies. 

 

Revenues are shown in the following table:

 
| **in EUR thousands**   | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|
|                             |       |        |       |        |       |
| Revenues for sale of  goods*     |       | 137,306     |       | 138,592     |       |
| Revenues for service  and repair |       | 2,096       |       | 1,412       |       |
|                             |       |        |       |        |       |
|                             | ** ** | **139,402** | ** ** | **140,004** | ** ** |

----

 

* Revenues for sale of goods include revenuesfrom barter transactions in the amount of EUR 3,701,000.

 

Thesale of equipment, including upgrades, comprised approximately 81% and 83% ofAIXTRON’s revenues in the years ended December 31, 2005 and 2004,respectively, with the remaining revenue relating to sales of spare parts andservices.

 

#### ***Raw Materials and Manufacturing***

AIXTRON involvesitself principally in the final assembly stage of the production process, aswell as final equipment tuning and testing. The Company purchases most of itsproducts’ components, sub-assemblies and assemblies from third-party suppliers.Its contractors and suppliers are selected and qualified to supply both thesource material and standard components as well as partially assemble andvalidate individual equipment parts. AIXTRON typically has several suppliersfor each component of its equipment, and it carries out final assembly andproduct testing upon receipt.

AIXTRON generallypurchases these components, sub-assemblies and assemblies on a purchase orderbasis and provides rolling forecasts to the suppliers of its future needs. AIXTRONgenerally does not enter into 

 

28

----

 

contractualcommitments for future supply commitments. The Company focuses its internal manufacturingefforts on the final assembly and test procedures to ensure the highest qualitystandards. AIXTRON anticipates continued reliance upon third party suppliers toachieve and contribute to manufacturing efficiency improvements.

AIXTRON’s principalmanufacturing activities consist primarily of design, assembly, integration andtest operations. The Company has manufacturing sites in Aachen andHerzogenrath, Germany, in Sunnyvale, California, and in Cambridge, UnitedKingdom. Many of the development and production processes are computerized.

#### ***Marketing Channels***

AIXTRON sells itsproducts and services through strategically located sales and servicefacilities in Germany, the United States, the United Kingdom, Sweden, Japan,South Korea, China and Taiwan, as well as through independent sales and servicerepresentatives in India, Israel, Poland, Russia and Taiwan. The relationshipswith these independent sales and service representatives are generallyterminable at the Company’s will. These arrangements typically require thatAIXTRON reimburse the representatives for their business expenses as well aspay specified service rates or sales commissions, which vary by geographicregion.

#### ***Intellectual Property***

AIXTRON’s successdepends in part on its proprietary technology. Although AIXTRON attempts toprotect its intellectual property rights through patents, copyrights, tradesecrets and other measures, the Company cannot assure that its efforts toprotect its technology will be adequate or that competitors will not be able todevelop similar technology independently. Moreover, the success of the Company’sbusiness depends to a significant extent on its employees’ technical expertise,innovation, and experience.

AIXTRON has patents andexclusive and non-exclusive licenses to patents owned by others coveringcertain of AIXTRON’s products, which AIXTRON believes provide the Company witha competitive advantage. AIXTRON has a policy of seeking patents on inventionsconcerning new products and improvements as part of its ongoing research,development and manufacturing activities. AIXTRON is the licensee of certainpatents owned by Philips, Centre National de la Recherche Scientifique andUniversal Display Corporation which are critical to the Company’s operations inthe fields of MOCVD, AVD® and OVPD®. Under theterms of those licenses, AIXTRON sells epitaxial reactors that manage thelayering of complex materials, produced by thin film deposition processes thatenable the high precision liquid injection, evaporation and gas phasedeposition of metal organic materials required to produce photoelectric andelectronic devices. Similar principles are employed in the design of OrganicVapor Phase Deposition equipment for use in the manufacture of organic lightemitting devices. Management finds it impractical to quantify the portion ofrevenues attributable to products that incorporate the technology governed bythese agreements because all product sales can be aggregated into one groupbased upon the common technology.

AIXTRON secures itstechnology by patenting inventions and know-how, provided it is strategicallyexpedient to do so. As of December 31, 2005, 101 patent-protectedinventions were in use, of which 13 were registered in the reporting period. Patentprotection for these inventions applies, although not exclusively, in the salesmarkets relevant for AIXTRON and at its main competitors’ production locations,particularly in Europe as well as in Japan, South Korea, Taiwan and the UnitedStates. These patents are maintained and renewed annually and will expirebetween 2006 and 2025.

#### ***Strategy and Competitive Positioning***

AIXTRON is strategicallypositioned as one of the world’s leading manufacturers of state-of-the-artdeposition equipment for the production of complex materials for thesemiconductor industry:  CompoundSemiconductors (MOCVD equipment), Silicon Semiconductors (AVD®, ALD, CVD equipment) and Organic Semiconductors (OVPD® equipment).

 

29

----

 

*Systemsfor Compound Semiconductor Manufacturing*

AIXTRON’s main competitorin the market for MOCVD equipment is the Process Equipment Group of VeecoInstruments Inc./USA. AIXTRON also competes with a number of different Asianmanufacturers who operate principally within their own regional markets. Thesemanufacturers include Nippon Sanso/Japan and Nippon EMC/Japan, amongst others. Basedon market research by VLSI Research, Inc. it is estimated that the shareof the MOCVD equipment market held by AIXTRON in 2004 was approximately 63%(total market value:  U.S.$ 232 million).The Company’s strongest competitor in terms of sales, Veeco Instruments Inc.,had an estimated market share of approximately 22% for the same period. TheCompany had a share of approximately 63% in the global MOCVD market for 2005.

*Systemsfor Silicon Semiconductor Manufacturing*

In the CVD, AVD® and ALD equipmentmarkets, AIXTRON competes with a variety of other companies. These includeApplied Materials, Inc./USA, Tokyo Electron, Ltd./Japan, ASM InternationalN.V./Netherlands, Veeco Instruments Inc./USA, IPS Technology/South Korea,Jusung Engineering Co., Ltd./South Korea, Aviza Technology, Inc./USA undHitachi Kokusai Electric Co., Ltd/Japan.

Based on market researchby VLSI Research, Inc. it is estimated that in 2004 Genus (acquired byAIXTRON in March 2005) held an approximate 11% share in the developing ALDsystems market (total market value: U.S.$ 121 million), an approximate 10% share of the established marketfor tungsten silicide CVD systems (total market value:  U.S.$ 251 million) and a share of approximately28% of the tungsten silicide CVC systems sold to DRAM memory chip manufactures(total market value:  approximately U.S.$90 million).

With the availablesilicon semiconductor manufacturing technologies, AIXTRON is well positionedfor the introduction of the next generation of sub 75 nm memory and logicintegrated circuits (ICs). These technologies enable extremely high precisionin producing very thin layers and facilitates the even coating ofthree-dimensional microelectronic device structures, offering new materialcoating possibilities for the next generation of computer chips, and, inAIXTRON’s view, promising high development potential for the future.

*Systemsfor Organic Semiconductor Manufacturing*

In the market forOrganic Semiconductor equipment, AIXTRON competes with establishedmanufacturers such as Ulvac Inc./Japan, Tokki Corporation/Japan, AppliedFilms/USA and Germany, Doosan DND Co., Ltd./South Korea, and Sunic System/SouthKorea as well as a number of smaller companies. While these competitors useestablished vacuum thermal evaporation (“VTE”) technology to produce organiclight emitting diodes (OLEDs), AIXTRON offers to OLED manufacturers its ownhighly innovative organic vapor phase deposition (OVPD®) technology. As AIXTRON is currently in the market entryphase, AIXTRON market share information is not meaningful at this point. However,the acceptance of the first AIXTRON Gen2-OVPD®-system forthe mass production of OLEDs by RiTdisplay Corporation, a leading manufacturerof OLED displays, in 2005, marks a significant step forward towards marketacceptance of AIXTRON’s OVPD® technology.

In AIXTRON’s opinion,due to the superior process technology and the potential for reducingmanufacturing costs, OVPD® technology has the potential to competesuccessfully with VTE technology. AIXTRON is positioned as a key systemsupplier for next generation OLEDs, to be used in innovative, self-lumi­nousdisplays that have the potential to make today’s display technologies such asliquid crystal displays (LCDs) and plasma displays (PDPs) redundant at somepoint in the future.

#### ***Government Regulation***

Due to the nature ofAIXTRON’s products, the shipment of some products to customers in certaincountries requires the Company to obtain an export license from legal andstatutory authorities in the U.S., Germany, U.K. and Sweden, including, forexample, the Department of State and the Department of Commerce in the U.S.,the Bundesamt für Wirtschaft und Ausfuhrkontrolle (“BAFA”) in Germany, and theDepartment of Trade and Industry in the U.K. Although the applicable exportregulations have not had a material impact on the Company’s business to date,AIXTRON may experience delays in obtaining required export licenses, which inturn would cause delays in AIXTRON’s ability to sell its products and recognizerevenues from such sales.

 

30

----

 

AIXTRON is subject toenvironmental and safety regulations in connection with its business operations.Research and development activities, as well as the manufacturing anddemonstration of the Company’s products, in both the Company’s compoundsemiconductor and silicon semiconductor equipment businesses, involve the useof potentially harmful chemical and hazardous materials and radioactivecompounds. Failure or inability to comply with existing or future environmentalregulations could result in significant remediation liabilities, the impositionof fines and/or the suspension or termination of production, each of whichcould materially and adversely affect AIXTRON’s business, financial condition,results of operations and cash flows.

Because AIXTRON’ssecurities are publicly traded in the U.S., the Company is also subject to the rules andregulations promulgated by the SEC, including those promulgated under theSarbanes Oxley Act of 2002. In addition, AIXTRON is subject to the provisionsof the U.S. Foreign Corrupt Practices Act relating to the maintenance of booksand records and anti-bribery.

EU regulation requiresthat AIXTRON prepare its consolidated financial statements in accordance withInternational Financial Reporting Standards (“IFRS”). Notes 38 and 40 to theCompany’s Consolidated Financial Statements for fiscal year 2005 containexplanations of the transition to IFRS from U.S. GAAP. See also “Item 5.Operating and Financial Review and Prospects — Operating Results — EuropeanUnion Regulation Regarding IFRS” below.

### **C.Organizational Structure**

The following tablelists AIXTRON’s significant subsidiaries:

 

**Significant Subsidiaries of AIXTRON AG (direct and indirect)as of May 1, 2006**

 

| **Name**                               | ** ** | **Jurisdiction of Incorporation** | ** ** | **Ownership Interest** |
|----------------------------------------|------------|-----------------------------------|------------|------------------------|
|                                   |       |                              |       |                   |
| Thomas Swan  Scientific Equipment Ltd. |       | England and  Wales                |       | 100%                   |
| Epigress AB                            |       | Sweden                            |       | 100%                   |
| AIXTRON cshs                           |       | South Korea                       |       | 100%                   |
| Genus cshs                             |       | South Korea                       |       | 100%                   |
| AIXTRON KK                             |       | Japan                             |       | 100%                   |
| AIXTRON Taiwan  Co. Ltd.               |       | Taiwan                            |       | 100%                   |
| AIXTRON, Inc.*                    |       | California, USA                   |       | 100%                   |

----

 

*trading asGenus, Inc.

31

----

 

### **D. Property, Plantand Equipment**

 

Asof March 31, 2006, AIXTRON’s headquarters and principal manufacturing,research and development and sales and service facilities, as well as theapproximate size and the uses of such facilities, were:

 
| **Owned Facility Location** | ** ** | **Approximate Size  (sq. m.)** | ** ** | **Mortgaged** | ** ** | **Use**                                                       |
|-----------------------------|------------|--------------------------------|------------|---------------|------------|---------------------------------------------------------------|
| Aachen, Germany             |       | 7,260                          |       | No            |       | Headquarters, Manufacturing, Sales, Research and  Development |
| Herzogenrath, Germany       |       | 12,457                         |       | No            |       | Manufacturing, Sales and Service, Engineering                 |

 

AIXTRONleases certain office and plant facilities. Most of the lease commitmentscontain options to renew the leasing contracts. These leases typically run fora period between one to fifteen years. None of the leases include contingentrentals.

 
| **Leased Facility Location** | ** ** | **Approximate Size  (sq. m.)** | ** ** | **Lease Expires**        | ** ** | **Use**                                                                  |
|------------------------------|------------|--------------------------------|------------|--------------------------|------------|--------------------------------------------------------------------------|
|                         |       |                           |       |                     |       |                                                                     |
|                         |       |                           |       |                     |       |                                                                     |
| Cambridge, UK                |       | 2,180                          |       | September 13,  2014 |       | Manufacturing, Sales and Service, Engineering                            |
| Lund, Sweden                 |       | 449                            |       | December 31,  2008  |       | Engineering, Service                                                     |
| Sunnyvale, CA, USA           |       | 9,300                          |       | December 31,  2012  |       | Manufacturing, Sales and Service, Engineering,  Research and Development |
| Seoul, South Korea           |       | 1,032                          |       | August 31,  2010    |       | Sales and Service                                                        |
| Shanghai, China              |       | 145                            |       | December 31,  2006  |       | Sales and Service                                                        |
| Hsinchu, Taiwan              |       | 1,000                          |       | December 31,  2008  |       | Sales and Service                                                        |
| Tokyo, Japan                 |       | 311                            |       | March 31,  2008     |       | Sales and Service                                                        |

 

AIXTRON believes thatits current facilities are in good condition and are adequate to meet therequirements of its present and foreseeable future operations.

#### ***Environmental Issues***

The research anddevelopment activities, as well as the manufacturing and demonstration ofAIXTRON’s products conducted in some of its facilities, involve the use ofpotentially harmful chemical and other

 

32

----

 

hazardous or potentiallyhazardous materials and radioactive compounds. Failure or inability to complywith existing or future environmental regulations could result in significantremediation liabilities, the imposition of fines and/or the suspension ortermination of production.

 

33

----

 

## **Item4A:  Unresolved Staff Comments**

None.

 

34

----

## **Item 5:  Operating and Financial Review and Prospects**

You should read thefollowing operating and financial review of AIXTRON’s results of operations andfinancial condition together with AIXTRON’s Consolidated Financial Statementsprepared in accordance with IFRS included elsewhere in this report. Areconciliation of the Company’s 2004 and 2005 results in accordance with IFRS asadopted by the European Union to AIXTRON’s 2004 and 2005 results in accordancewith U.S. GAAP is provided in Notes 38 and 40, respectively, to the Company’sConsolidated Financial Statements.

The followingdiscussions include “forward-looking statements” that involve risks anduncertainties that are discussed more fully in “Risk Factors” and “Forward-lookingstatements notice” included in this annual report. Actual results could differmaterially from future results expressed or implied by the forward-lookingstatements.

### **A.Operating Results**

#### ***Preparation of consolidated financial statements under IFRS***

In compliance with theEuropean Parliament and Council Regulation on the application of IFRS adoptedin July 2002, listed European Union companies are generally required toprepare their consolidated financial statements in accordance with IFRS forfiscal years ending on or after December 31, 2005. Accordingly, AIXTRONhas prepared its Consolidated Financial Statements in accordance with IFRS asadopted by the European Union and its interpretations adopted by theInternational Accounting Standards Board (the “IASB”) for the fiscal years endingon December 31, 2005 and on December 31, 2004. These are the Company’sfirst consolidated financial statements under IFRS. The impact of the adoptionof IFRS is discussed in Notes 38 and 40 to the Company’s Consolidated FinancialStatements.

#### ***Critical Accounting Policies***

The preparation ofAIXTRON’s Consolidated Financial Statements requires the Company to makecertain estimates, judgments and assumptions that the Company believes arereasonable based upon the information available. These estimates and assumptionsaffect the reported amounts of assets and liabilities at the date of theCompany’s Consolidated Financial Statements and the reported amounts ofrevenues and expenses during the periods presented. The significant accountingpolicies that AIXTRON believes are the most critical to aid in fullyunderstanding and evaluating its reported financial results include thefollowing:

*Revenue Recognition*

Revenue is generatedfrom the sale and installation of equipment, spare parts and maintenanceservices.  Revenues from the sale ofequipment are recognized upon shipment to the customer if (1) suchequipment has been demonstrated to meet product specification requirements, (2) afull customer acceptance test has been successfully completed at the AIXTRONproduction facility and (3) the customer has not otherwise negotiatedspecific rights of return. The portion of the contract revenue relating to theinstallation of the equipment at the customer site, however, is deferred untilthe installation at the customer site is complete. Such deferred revenue isdetermined based on the higher of the fair value of the installation servicesor the portion of the contract amount that is due and payable upon completionof the installation. Fair value of the installation services is determinedbased on an estimate by management of the materials and time required tocomplete the installation. The Company bases such estimates on previousexperience.

*GoodwillValuation*

All businesscombinations are accounted for by applying the purchase method. Goodwill isstated at cost less any accumulated impairment loss. Goodwill is allocated tocash-generating units and is tested annually for impairment.

 

35

----

 

Goodwill purchased aspart of a business acquisition is tested annually for impairment, irrespectiveof whether there is any indication of impairment. For impairment test purposes,the goodwill is allocated to cash-generating units. Impairment losses arerecognized to the extent that the carrying amount exceeds the net realizablevalue or the value in use (recoverable amount) of the cash-generating unit.

In assessing value inuse, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments and therisks associated with the asset.

In estimating thediscounted future cash flows, management makes significant assumptions. Theseinclude determining the appropriate discount rate, projected sales growth,projected research and development costs and projected capital expenditures. Inmaking these assumptions, AIXTRON considers current and anticipated marketconditions and technological changes.

*Valuation of Inventories*

Inventories are statedat the lower of cost and the net realizable value. The net realizable value isthe estimated selling price in the ordinary course of business, less theestimated cost of completion and selling expenses.

Allowance for slowmoving, excess and obsolete, and otherwise unsalable inventory is recordedbased primarily on either the Company’s estimated forecast of product demandand production requirement for the next twelve months or historical trailingtwelve month usage. This evaluation is inherently judgmental and requiresmaterial estimates, including both forecasted product demand and pricingenvironment, both of which may be susceptible to significant change. As of December 31,2005, total inventory was € 33.1 million. When there has been no usage of aninventory item during a period of twelve months, the Company writes down suchinventories based on previous experience. This policy is designed to reflectthe rapid technology and market changes affecting the Company’s business whichmay make such inventories on hand obsolete or excess.

In future periods,write-downs of inventory may be necessary due to (1) reduced demand in themarkets in which the Company operates, (2) technological obsolescence dueto rapid developments of new products and technological improvements, or (3) changesin economic or other events and conditions that impact the market price for theCompany’s products. These factors could result in adjustment to the valuationof inventory in future periods, and significantly impact the Company’s futureoperating results.

*Accounting for Income Taxes*

Deferred tax assets andliabilities are recorded for all temporary differences between tax andcommercial balance sheets and for losses brought forward for tax purposes aswell as for tax credits of the companies included in consolidation. Thedeferred taxes are calculated based on tax rates applicable at the balancesheet date or in the future. Effects of changes in tax rates on the deferredtax assets and liabilities are recognized upon adoption of the amended law.

A deferred tax asset isrecognized only to the extent that it is probable that future taxable profits,as estimated by the Company, can be set off against tax credits and tax losscarryforwards. Deferred tax assets are reduced to the extent that it is nolonger probable that the related tax benefit can be realized.

#### ***Recently Issued Accounting Standards***

The following surveyshows IFRS Standards and Amendments to IFRS not compulsory and applicable forreporting periods ending on December 31, 2005. These standards were notapplied earlier than required. AIXTRON is currently analyzing the impact of thenew standards on the consolidated financial statements. AIXTRON does not expectthe adoption of these standards to have a material impact on its ConsolidatedFinancial Statements.

 

36

----

 
| **IFRS 7**        | * * | *Financial Instruments: Disclosures*                                                                            |
|-------------------|----------|-----------------------------------------------------------------------------------------------------------------|
|              |     | Issued: August 2005                                                                                        |
|              |     |                                                                                                            |
| **IFRIC 4**       | * * | *Determining whether an Arrangement contains a  Lease*                                                          |
|              |     | Issued: December 2004                                                                                      |
|              |     |                                                                                                            |
| **IFRIC 5**       | * * | *Rights to Interests arising from Decommissioning,  Restoration and Environmental Rehabilitation Funds*         |
|              |     | Issued: December 2004                                                                                      |
|              |     |                                                                                                            |
| **IFRIC 6**       | * * | *Liabilities arising from participating in a  specific market — waste electrical and electronic equipment* |
|              |     | Issued: September 2005                                                                                     |
|              |     |                                                                                                            |
| **IFRIC 7**       | * * | *Applying the Restatement Approach under IAS 29  Financial Reporting in Hyperinflationary Economies*            |
|              |     | Issued: November 2005                                                                                      |
|              |     |                                                                                                            |
| **Amendment to**  | * * | *Capital Disclosures*                                                                                           |
| **to IAS 1**      |     | Issued: August 2005                                                                                        |
| ** **        |     |                                                                                                            |
| **Amendment to**  | * * | *Actuarial Gains and Losses, Group Plans and  Disclosures*                                                      |
| **to IAS 19**     |     | Issued: December 2004                                                                                      |
| ** **        |     |                                                                                                            |
| **Amendment to**  | * * | *Net Investment in a Foreign Operation*                                                                         |
| **to IAS 21**     |     | Issued: December 2005                                                                                      |
| ** **        |     |                                                                                                            |
| **Amendment to**  | * * | *Cash Flow Hedge Accounting of Forecast  Intra-group Transactions*                                              |
| **to IAS 39**     |     | Issued: April 2005                                                                                         |
| ** **        |     |                                                                                                            |
| **Amendment to**  | * * | *The Fair Value Option*                                                                                         |
| **to IAS 39**     |     | Issued: June 2005                                                                                          |
| ** **        |     |                                                                                                            |
| **Amendment to**  | * * | *Financial Guarantee Contracts*                                                                                 |
| **to IAS 39 and** |     | Issued: August 2005                                                                                        |
| **IFIFRS 4**      |     |                                                                                                            |

 

#### ***European Union and SEC Regulations Regarding IFRS***

Until 2004, AIXTRONprepared its Consolidated Financial Statements under generally acceptedaccounting principles in the U.S. (“U.S. GAAP”). As required by a EuropeanUnion (“EU”) regulation, from 2005 onwards the Company’s Consolidated FinancialStatements are prepared in accordance with IFRS as adopted by the EU. Allstandards issued by the IASB effective for 2005 and all interpretations issuedby the International Financial Reporting Interpretations Committee (the “IFRIC”)effective for 2005 have been adopted by the EU.

The SEC allows foreignprivate issuers that are IFRS first-time adopters to file only one year ofcomparative information in the 2005 annual report on Form 20-F,instead of the generally required two years. IFRS requires comparativeinformation for one year in the annual report. Consequently, the Company’stransition date to IFRS was January 1, 2004, which was the start of thefiscal year 2004.

As required by IFRS 1 “First-timeAdoption of International Financial Reporting Standards,” separatereconciliations and explanatory narratives are included in these ConsolidatedFinancial Statements on shareholders’ equity as of January 1, 2004 and December 31,2004 under IFRS and 2004 IFRS consolidated net income, as compared to theCompany’s consolidated equity under U.S. GAAP as of those dates and

 

37

----

 

2004 U.S. GAAPconsolidated net income, as reported in the 2004 consolidated financialstatements. In addition, these Consolidated Financial Statements include reconciliationsbetween U.S. GAAP and IFRS for the condensed consolidated balance sheet as of December 31,2004 and the condensed consolidated statement of operations for 2004. Detailedinformation regarding the transition from U.S. GAAP to IFRS is included in Note38.

#### ***Management’s Discussion and Analysis of Results of Operations***

#### ***Overview***

AIXTRON is a leadingprovider of deposition equipment to the semiconductor industry. The Company’stechnology solutions are used by customers worldwide to build advanced componentsfor electronic and opto-electronic applications based on compound, silicon ororganic semiconductor materials. Such components are used in fiber opticcommunication systems, wireless and mobile telephony applications, optical andelectronic storage devices, computing, signaling and lighting, displays and arange of other technologies.

AIXTRON’s products rangefrom customized production-scale chemical vapor deposition systems to smallsystems for research and development use and small-scale production. Throughthe acquisition of Genus in March 2005, the Company’s technology offeringwas broadened to include a range of production-qualified depositiontechnologies for the silicon industry. The supply of gas phase depositionequipment is the Company’s only reporting segment. Equipment sales andinstallation generated 81 percent and 83 percent of the Company’s revenues in2005 and 2004, respectively. The remaining revenues were generated by the saleof spare parts and by providing maintenance services.

AIXTRON’s principalmanufacturing facilities locations are in Germany, the U.S. and the U.K. TheCompany sells its products and services principally through its direct salesorganization using facilities in eight counties, as well as through independentsales and service representatives.

Demand for the Company’sproducts is driven by the increasing miniaturization, increased processingspeed and efficiency, and reduced cost of ownership demands for microelectroniccomponents. The ability of the Company’s products to precisely deposit thinfilm materials and the ability to control critical surface dimensions in thesecomponents, enables manufacturers to improve performance, yield, and quality inthe fabrication of advanced microelectronic devices.

#### ***Significant Factors***

While world real grossdomestic product grew by an estimated 3.4 percent and semiconductor industryrevenues rose by an estimated 6.9 percent, spending on wafer front end (“WFE”)equipment declined year over year by an estimated 8.8 percent in 2005.

WFEequipment spending, which includes spending on deposition tools supplied byAIXTRON, was, amongst other things, negatively affected by:

 
|        | · | the delayed introduction of innovative materials in  the silicon semiconductor industry,                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                           |
|   | · | price pressure and industry consolidation in the  compound semiconductor industry, and                                                         |
|   |   |                                                                                                                                           |
|   | · | a general equipment spending downturn driven by  lower-than-expected end user market demand, especially for electronic  consumer applications. |

 

Dueto low customer capital spending, an ongoing consolidation of the LEDmanufacturing industry in Asia, and delays in the introduction of a number ofnew LED end market applications (e.g., LED based LCD TV backlighting and mobilephone LED camera flash), the total MOCVD equipment market size declined in2005.

 

38

----

 

However, AIXTRON’sestimates indicate that overall demand in the LED manufacturing industry, whichrepresents a significant market for AIXTRON’s compound semiconductor depositionequipment, grew modestly in 2005.

Similarly, manufacturersof laser diodes, another potential customer group for AIXTRON’s compoundsemiconductor equipment, saw the introduction of a new industry standard forDVD blue lasers delayed by the two competing formats, Sony’s Blu-Ray standardand Toshiba’s HD DVD standard.

The siliconsemiconductor industry, another major target market for AIXTRON’s depositionequipment, is proving equally fluid in the estimated timings on theintroduction of new materials and technologies for the mass production ofnext-generation integrated circuit (“IC”) devices. Additionally, weaker demandfor Dynamic Random Access Memory (“DRAM”) devices in 2005 negatively affectedAIXTRON’s CVD equipment business acquired from Genus, as DRAM manufacturersadjusted to accommodate industry overcapacities and anticipated further pricecorrections.

In 2005, AIXTRONexperienced a slight year-over-year reduction in revenues. Including revenuesgenerated by Genus since March 14, 2005 (totaling € 29.9 million, or 21%of revenues), AIXTRON revenues for 2005 decreased slightly compared to 2004 to €139.4 million (previous year:  € 140.0million).

Largely due to theconsolidation of Genus, lower revenues generated from the compoundsemiconductor business as well as € 30.3 million in certain asset impairments,accruals expensing and certain tax effects, the Company reported a net loss of €53.5 million for 2005 (previous year: net income of € 7.7 million).

Equipment order intakeincreased compared to 2004 by 2 percent to € 113.6 million in 2005 and included€ 85.7 million in order intake denominated in U.S.$, converted into € at anexchange rate of 1.35 U.S.$/1 € for reporting purposes.

Total 2005 equipmentorder intake included € 37.1 million in orders received for siliconsemiconductor equipment of which almost all was contributed by Genus. Thesesilicon semiconductor equipment-related orders included orders € 36.3 millionin order intake denominated in U.S.$, converted into € at an exchange rate of 1.35U.S.$/1 € for reporting purposes.

The reduced demand forAIXTRON’s core compound semiconductor equipment was the single largest factorcontributing to the decline in revenues and order intakes. However, thisdecline was partially offset by additional revenues and equipment order intakegenerated from AIXTRON’s silicon semiconductor equipment business.

Genus, a specializedmanufacturer of silicon semiconductor equipment, which was acquired by AIXTRONAG on March 14, 2005, contributed significantly to AIXTRON’s 2005semiconductor equipment business. In the view of the Company’s Executive Board,this development highlights the critical importance of AIXTRON’s currentstrategy to further diversify into new silicon end application markets.

Through the acquisitionof Genus, AIXTRON has gained production-proven deposition technology for thesilicon industry and consequently has inherited commercial relationships withsome of the world’s leading silicon semiconductor and data storage companies. Genusbroadens AIXTRON’s technology capabilities to include a comprehensive range ofleading-edge deposition technologies for the silicon industry.

#### ***Results of Operations***

*FiscalYear Ended December 31, 2005 Compared with Fiscal Year Ended December 31,2004*

*Revenues*

Despite theconsolidation of Genus into the AIXTRON Group, the Company’s revenues declinedfrom € 140.0 million in 2004 to € 139.4 million in 2005. Thisrevenue decline was largely due to weak demand for compound semiconductorequipment, whereas revenues from AIXTRON’s silicon business interests rosesignificantly due to the consolidation of Genus into the AIXTRON Group, as canbe seen from the following table:

 

39

----

 
| ** **                                                                                                | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|----------|------------|------------|------------|
| Total Revenues                                                                                            |       | 139.4    |       |       |       | 140.0    |       |       |       |
| Revenues from  sale of silicon semiconductor equipment (ALD, CVD)                                         |       | 32.7     |       | 23         | %          | 1.5      |       | 1          | %          |
| Revenues from sale of  compound semiconductor equipment (MOCVD) and other equipment (OVPD®, SiC-CVD) |       | 80.7     |       | 58         | %          | 115.1    |       | 82         | %          |

 

Equipment sales andinstallation generated 81 percent of revenues in 2005, compared to 83 percentin 2004. The remaining revenues were provided by spare parts sales andmaintenance services.

TheCompany’s revenues in 2005 continued to be largely generated in Asia, as can beseen from the following table:

*Regional Revenue Split.*

* *
| ** ** | ** ** | **2005**                | ** ** | **2004** | ** ** | **Change**              | ** ** |
|------------|------------|-------------------------|------------|----------|------------|-------------------------|------------|
| ** ** | ** ** | **million €** | ** ** | **%**    | ** ** | **million €** | ** ** | **%** | ** ** | **million €** | ** ** | **%** | ** ** |
|       |       |                    |       |     |       |                    |       |   |   |   |   |   |   |
| Asia       |       | 103.0                   |       | 74       |       | 108.1                   |       | 77 |   | (5.1 | ) | (5 | ) |
|       |       |                    |       |     |       |                    |       |   |   |   |   |   |   |
| Europe     |       | 22.1                    |       | 16       |       | 13.6                    |       | 10 |   | 8.5 |   | 63 |   |
|       |       |                    |       |     |       |                    |       |   |   |   |   |   |   |
| USA        |       | 14.3                    |       | 10       |       | 18.3                    |       | 13 |   | (4.0 | ) | (22 | ) |
|       |       |                    |       |     |       |                    |       |   |   |   |   |   |   |
| **Group**  | ** ** | **139.4**               | ** ** | **100**  | ** ** | **140.0**               | ** ** | **100** | ** ** | **(0.6** | **)** | **0** | ** ** |

 

AIXTRON anticipates thatinternational revenues, including revenues from Asia, will continue to accountfor a significant portion of its revenues in the future.

*GrossProfit*

Based on a decrease inrevenues and an increase in the cost of sales, AIXTRON’s gross margin totaled € 34.7million 2005 (24.9% of revenues), as compared to € 52.4 million in 2004 (37.4%of revenues).

Due to an increase inscheduled depreciation charges resulting from the Genus acquisition as well as € 7.5million in restructuring accruals and impairment charges on inventories andintangible assets, the Company’s cost of sales increased from € 87.6million in 2004 to € 104.7 million in 2005.

*Selling,General and Administrative Expenses*

Selling, general andadministrative (“SG&A”) expenses totaled € 45.8 million for 2005,as compared to € 31.5 million for 2004. € 2.3 million of the SG&Aexpenses in 2005 were attributable to impairment charges and restructuringaccruals. € 10.7 million of the SG&A expenses in 2005 were largelyattributable to the consolidation of Genus into the AIXTRON Group. Due to theacquisition of Genus in 2005 both the variety of products and the number ofsales channels have increased, leading to an increase in the complexity ofAIXTRON’s sales and administrative structure.

Personnel expenses were €41.1 million in 2005, an increase of 28% compared to 2004. This increaseprimarily reflected the consolidation of Genus into the AIXTRON Group. In 2005,the Company implemented a number of cost reduction measures, including thetermination of certain employee labor contracts and the implementation of ageneral hiring freeze.

*Researchand Development Costs*

Research and developmentexpenses in 2005 were € 30.5 million, compared to € 20.4 million in suchexpenses for 2004. The AIXTRON Group’s Research and Development (R&D)expenses in 2005 included  depreciationcharges totaling € 6.2 million on assets for the development of emergingmarkets technologies, such as OVPD® and Tricent®, as well ason assets for the development of the established MOCVD technology.

 

40

----

 

*OtherOperating Income and Expense*

Other operating incomein 2005 was € 5.6 million, as compared to € 9.9 million in 2004. Theoperating income included the receipt of research and development fundingtotaling € 2.9 million in 2005 and € 2.6 million in 2004. Otheroperating expenses of € 2.9 million in 2005 mainly resulted from foreigncurrency exchange losses of € 2.1 million.

*Impairmentof Goodwill*

In connection withtesting goodwill for impairment at December 31, 2005, AIXTRON concludedthat goodwill for its subsidiary Genus, Sunnyvale, California was impaired inlight of reduced market expectations and the Company recorded a charge of €13.8 million in 2005. The Company did not record any goodwill impairmentcharges in 2004.

*Net Interest Income*

Net interest incomedeclined to € 0.5 million in 2005, from € 0.8 million in 2004. The reduction inthe net interest income was the result of the reduced amount of interestreceived from bank balances due to lower bank balances in 2005.

*IncomeTaxes*

AIXTRON recorded a € 1.3million tax expense in 2005, compared to a tax expense of € 2.8 million in 2004.The change in income taxes reflects profitable operations in 2004 compared tolosses on operations in 2005. As of December 31, 2005, AIXTRON haddeferred tax assets totaling € 6.3 million of which € 5.5 millionwere related to tax loss carry-forwards.

*Reconciliation to U.S. GAAP*

The Company’sConsolidated Financial Statements have been prepared in accordance with IFRS,which differs in certain significant respects from U.S. GAAP. For 2005, theCompany’s net loss for the year after taxes under IFRS was € 53.5 million andfor 2004, net income under IFRS was € 7.6 million, compared to a consolidatednet loss under U.S. GAAP of € 96.0 million in 2005 and a consolidated netincome under U.S. GAAP of € 7.1 million in 2004.

The most significantitems in reconciling net income (loss) under IFRS to net income (loss) underU.S. GAAP in 2005 was the higher impairment charge related to Genus, and in2004 it was the accounting treatment of inventories.

The most significantitems in reconciling the Company’s consolidated equity under IFRS toconsolidated equity under U.S. GAAP as of December 31, 2005 was theimpairment charge related to the Genus acquisition, and both as of December 31,2005 and December 31, 2004 it was the accounting treatment ofinventories.

Please refer to Note 40to the Company’s Consolidated Financial Statements for a reconciliation ofAIXTRON’s equity and net loss in accordance with IFRS to U.S. GAAP.

### **B.Liquidity and Capital Resources**

*Cash Flows*

Due to cash outflowsfrom business investments and operating activities, AIXTRON’s cash and cashequivalents decreased from € 45.5 million as of December 31, 2004 to €31.4 million as of December 31, 2005. There are currently no restrictionson the Company’s use of cash resources, and there are no current restrictionsthat would limit the Company from raising debt financing in the future.

 

41

----

 

Due to the challengingmarket conditions in 2005 and AIXTRON’s resulting net loss of € 53.5 million,AIXTRON used € 12.2 million in cash for operating activities in 2005. Incomparison, during 2004, AIXTRON generated cash flows from operating activitiesof € 6.8 million. Net cash used in investing activities was € 3.0 million,including purchases of fixed assets (€ 8.3 million) as well as capitalizedacquisition payments related to the Genus acquisition (€ 3.6 million), lesscash acquired from Genus (€ 9.0 million). In comparison, net cash used ininvesting activities in 2004 totaled € 6.4 million, including € 3.8 millionof capital expenditures in property, plant, and equipment as well asacquisition cost of a minority interest in AIXTRON KK of € 2.0 million.No net cash was used in financing activities in 2005, as compared to net cashused in financing activities totaling € 0.1 million in 2004,constituting a change in minority interest.

*Financing Activities*

As of December 31,2005, five banks, Deutsche Bank AG, Dresdner Bank AG, Commerzbank AG, HSBCTrinkaus & Burkhardt KGaA and Sparkasse Aachen, have provided bankguarantees to AIXTRON totaling € 11.9 million (December 31, 2004:  € 8.7 million).

As part of theacquisition of Genus, Inc., the Company assumed the obligation of Genus, Inc.’sconvertible bonds, which had a total par value of € 4,807,000 (US$ 6,450,000)and an interest rate of 7%. The convertible bonds matured in August 2005. Theholders of the notes had the option to either convert the note into shares ofGenus common stock. This option was changed as of the date of the Genus acquisitioninto a right to convert into AIXTRON ADSs. For this purpose the requiredAIXTRON ADSs were contributed into the trust property as part of theacquisition. For more information about the contribution, see Note 20 to theCompany’s Consolidated Financial Statements. In August 2005, theconvertible bonds and the interest accrued since March 13, 2005 weresettled in full by way of conversion into AIXTRON ADSs. In this conversion,2,383,920 ADSs from the trust property were issued to the holders of theconvertible bonds. As a result no liability from the Genus convertible bondexists at the balance sheet date of December 31, 2005. For moreinformation about these convertible bonds, see Note 26 to the Company’sConsolidated Financial Statements.

AIXTRON AG providesloans and other financial security to its subsidiaries where necessary toenable operations to continue efficiently. The Company has granted no securityinterest in its own land and buildings.

In order to support thedevelopment of future equipment technology, the Company continuously exploresand assesses additional funding opportunities available in the market.

Due to the nature of itsbusiness, AIXTRON believes that the business should be financed primarily, butnot exclusively, by equity and not by debt. As a result, the Company’s Articlesof Association provide for the potential offering of equity and equity-linkednotes (convertible bonds).

*Assessmentof Liquidity and Capital Resources*

The Company’s liquidity is affected by many factors, some of which arerelated to its ongoing operations and others which are related to the nature ofthe semiconductor equipment industry and to the economies of the countries inwhich the Company operates. Although the cash requirements fluctuate based onthe timing and extent of these factors, the Company believes that the liquidityprovided by existing cash resources and financing arrangements, as well as theability to raise equity capital, will be sufficient to fund working capital,capital expenditures and other ongoing business requirements for at least thenext twelve months. If the duration of the current downturn and the uncertaineconomic environment continues, lower customer demand for the Company’sproducts and services and continued fixed costs could result in cash generatedby operations to be lower than forecasted and not to be sufficient. In such asituation, the Company might need to pursue accessing short-term creditfacilities or additional equity financing offerings. See “Item 3. Key Information— Risk Factors” for more information about risks facing the Company.

 

42

----

 

### **C. Researchand Development, Patents and Licenses, etc.**

As a high-technologycompany, AIXTRON maintains a strong research and development (R&D)infrastructure, with significant resources devoted to R&D projects. AIXTRON’sR&D activities are critical for the Company’s long-term strategy toposition itself as one of the world’s leading provider of nano depositionequipment for the manufacture of complex device structures for thesemiconductor industry.

AIXTRON’s R&Dorganization works closely with its own global sales and service organizationto develop systems, tailored to customers’ individual needs.

AIXTRON maintains itsown R&D laboratories in Aachen, Germany and in Sunnyvale, California. Thesein-house laboratories are equipped with AIXTRON systems for researching newequipment and processes, as well as for producing reference samples of semiconductormaterials. As part of the R&D efforts employed, AIXTRON regularlycollaborates with well-known universities and research centers worldwide andparticipates in numerous government and European Union-funded developmentprojects.

The following tablesummarizes key R&D information:

 
| **million €**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **Change %** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|--------------|------------|
|                                                      |       |     |       |     |       |         |       |
| R&D expenses                                          |       | 30.5     |       | 20.4     |       | 50           | %          |
| R&D  expenses, % of sales                             |       | 22       | %          | 15       | %          |         |       |
|                                                      |       |     |       |     |       |         |       |
| R&D  employees (annual average)                       |       | 188      |       | 147      |       | 28           | %          |
| R&D employees, % of  total headcount (annual average) |       | 33       | %          | 35       | %          |         |       |

 

The increase in R&Dexpenses in 2005 compared to 2004 was largely due to amortization chargestotaling € 5.3 million. Additionally, the consolidation of Genus into theAIXTRON Group added € 5.6 million in R&D expenses to the AIXTRONR&D expenses since the date of acquisition (March 14, 2005).

On November 7,2005, AIXTRON announced that RiTdisplay Corporation, a leading manufacturer ofOLED displays, had signed the system acceptance of the first AIXTRON Gen2 OVPD® system for the massproduction of OLEDs. The engineering teams of RiTdisplay and AIXTRON qualifiedOVPD® technology for the planned manufacture of OLEDdevices for full color display applications. The β-testing co-operationhad previously yielded OLED device structures that were seen to perform betterthan devices previously manufactured with conventional technology (VTE).

In AIXTRON’s opinion,the customer qualification of AIXTRON’s Gen2 manufacturing tool is an importantstep towards market acceptance of AIXTRON’s OVPD® technology.

In the reporting period,the AIXTRON Group completed the installation and hardware qualification of anAIXTRON Gen1 OVPD® R&D and pilot production tool at PhilipsLighting, Aachen, Germany. AIXTRON, Philips and Merck-Covion utilize this toolfor the development of large-area OLEDs, targeted specifically at futurelighting applications, within a joint research project, funded by the GermanFederal Ministry of Education and Research.

Additionally, in 2005the AIXTRON Group completed the hardware installation and process qualifi­cationof a 200/300 mm multi-chamber Tricent® tool at IMEC, a world-leading independentresearch center in nanotechnology. The installation of this tool, whichutilizes the Company’s Atomic Vapor Deposition (AVD®)technology, marks an important milestone in IMEC’s research efforts to developinnovative gate electrodes for sub-45 nanometer CMOS transistors. Followingthe successful tool start-up, the AIXTRON Group and IMEC’s other industrialproject partners such as Intel, Samsung, ST Microelectronics, Matsushita,Philips, and Texas Instruments will focus on further research into thedeposition of novel high-k and metal materials for the next generation of transistorstructures. Due to a delay in anticipated market adoption, the patents andprocess know-how acquired from this joint development project were written down.

 

43

----

 

### **D.Trend Information**

For information abouttrends, see “Item 5. Operating and Financial Review and Prospects — Overview,” “—Significant Factors,” “ —Operating Results,” and “ —Liquidity and Capitalresources.”

*Future Strategic Positioning*

The development ofdeposition technology for highly complex materials is expected to remain theCompany’s core competency and competitive advantage, upon which AIXTRON plansto further establish its expanded product portfolio in the period of 2006-2007.

AIXTRON expects tomaintain its market leadership and strong competitive positioning in the marketfor MOCVD systems over the coming years. However, the relatively small marketsize and the high market concentration on just two internationally operatingMOCVD system providers may be detrimental to future expansion objectives of itsmarket leadership.

AIXTRON expects that theprincipal market driver for silicon semiconductor applications will be thedemand for new complex material solutions, such as high-k dielectrics, thatcould potentially replace materials currently used in silicon semiconductorapplications. The combined AIXTRON and Genus strengths in silicon semiconductorequipment technologies position as well in the silicon systems market nichesthe Company addresses (tungsten silicide CVD, ALD, and AVD® systems for theproduction of specialized applications such as gate stacks and capacitors).

Based on acceptance ofthe first AIXTRON Gen2-OVPD®-system forthe mass production of OLEDs by RiTdisplay Corporation in 2005, AIXTRON plansto drive forward its strategy to introduce its OVPD® technology to a broader OLED display andlighting market, with the goal to achieve revenue contributions in 2007. Aswith all emerging technologies, there is an element of risk associated with thetiming of AIXTRON’s OVPD® technology being adopted by the market.

### **E.Off-Balance Sheet Arrangements**

As of December 31,2005, the Company had entered into purchase commitments with suppliers in theamount of € 10.7 million (last year: € 7.8 million) for purchases within thenext 12 months. Commitments for capital expenditures at December 31, 2005were € 0 thousand (last year: € 0 thousand) as of December 31, 2005.

#### ***Contingencies***

The Company is involvedin various legal proceedings, none of which management believes are material. TheCompany grants some customers advance payment guarantees, which are for alimited period of time. Management does not expect that such matters will havea material effect on the Company’s net assets, results of operations andfinancial position.

See also “Item 5.Operating and Financial Review and Prospects — Tabular Disclosure ofContractual Obligations”.

### **F.Tabular Disclosure of Contractual Obligations**

In the ordinary courseof business, AIXTRON’s primary contractual obligations regarding cash involvepurchase commitments, operating lease commitments and capital expenditures.

 

44

----

 

The following tablesummarizes contractual obligations for future cash outflows as of December 31,2005:

 
| ** **                     | ** ** | **Payments Due by Period (in millions of EUR)** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Total**                                                                          | ** ** | **Less than  1 year** | ** ** | **1-3  years** | ** ** | **3-5  years** | ** ** | **More  than 5  years** | ** ** |
| Long-Term Debt  Obligations    |       | 0                                                                                  |       | 0 |   | 0 |   | 0 |   | 0 |   |
| Finance lease  commitments     |       | 0                                                                                  |       | 0 |   | 0 |   | 0 |   | 0 |   |
| Operating lease  commitments   |       | 12.23                                                                              |       | 1.89 |   | 3.61 |   | 3.29 |   | 3.43 |   |
| Purchase commitments           |       | 10.74                                                                              |       | 10.75 |   | 0 |   | 0 |   | 0 |   |
|                           |       |                                                                               |       |   |   |   |   |   |   |   |   |
| Total  contractual obligations |       | 22.97                                                                              |       | 12.64 |   | 3.61 |   | 3.29 |   | 3.43 |   |

 

At December 31,2005, the Company’s commitments for capital expenditures were € 0.

The Company outsources asubstantial portion of the manufacturing of its operations to third partysuppliers. As the Company’s products are technologically complex, the leadtimes for purchases from its suppliers can vary up to six months. Principally,but not exclusively, contractual commitments are made for specific customerorders or forecast orders. In some circumstances, where contractual commitmentsto suppliers for multiple modules or systems reduce the Company’s purchaseprices per module or system, purchase commitments may be made againstanticipated demand. For the majority of purchase commitments, the Company hasflexible delivery schedules depending on the market conditions, which allow theCompany, to a certain extent, to delay delivery beyond originally planneddelivery schedule estimates, if necessary.

The Company leasescertain office and plant facilities, office furniture and motor vehicles undervarious operating leases. Regarding most of the lease commitments for officeand plant facilities the Company has options to renew the leasing contracts. Theleases typically run for a period between one and 15 years. None of the leasesincludes contingent rentals.

 

45

----

## **Item 6:  Directors, Senior Management and Employees**

### **A.Directors and Senior Management**

In compliance withGerman law — the German Stock Corporation Act (Aktiengesetz) — governing astock corporation such as the Company, AIXTRON has a Supervisory Board (Aufsichtsrat)and an Executive Board (Vorstand). The two boards are separated and noindividual may simultaneously be a member of both boards. The Executive Boardis responsible for managing the Company’s business in accordance withapplicable laws, AIXTRON’s Articles of Association and the Bylaws of theExecutive Board. It represents the Company in its dealings with third parties. TheSupervisory Board appoints and removes the members of the Executive Board. TheSupervisory Board is responsible for overseeing AIXTRON’s management policy,practice and decisions taken, but is not permitted by law to participate insuch decisions.

In carrying out theirduties, members of both the Supervisory Board and the Executive Board mustexercise the standard of care of a diligent and prudent business person. Incomplying with this standard of care, board members must take into account abroad range of considerations, in particular, the interests of the Company. Themembers of the Supervisory Board and the Executive Board may also be personallyliable for violations by AIXTRON under the German Stock Corporation Act.

The Executive Board isrequired to respect the rights of shareholders to be treated on an equal basisand receive equal information. The Executive Board is also required to ensurethat appropriate risk management mechanisms are established and that internalmonitoring systems are employed.

#### ***Supervisory Board***

The principal functionof AIXTRON’s Supervisory Board is to supervise the activities and actions ofthe Executive Board without being involved in the conduct of day-to-daytransactions. The Supervisory Board has comprehensive monitoring functions andis also responsible for appointing and removing the members of the ExecutiveBoard. Although the Supervisory Board may not make management decisions,certain types of transactions require its prior consent. The rules ofprocedure of the Executive Board, which were approved by the Supervisory Board,provide that some affairs, operations and major transactions, such as largecapital expenditure items, require the prior consent of the Supervisory Board. TheExecutive Board is required to additionally regularly report to the SupervisoryBoard on current business operations and future business planning. The Chairmanof the Supervisory Board and the respective chairman of the Supervisory Boardcommittees participate in numerous conference calls and personal meetings withthe Executive Board to keep abreast of the Company’s business and thecommercial activities.

All of the Company’spresent Supervisory Board members were elected by its shareholders. Theshareholders may remove any member of the Supervisory Board they have electedin a general meeting by a simple majority of the votes cast by the shareholdersin a general meeting.

The members of theSupervisory Board are each elected for a term expiring at the end of the annualgeneral shareholders’ meeting after the fourth fiscal year following the yearin which the Supervisory Board was elected. Supervisory Board members may bere-elected and are not subject to a compulsory retirement age. The Company’sArticles of Association establish the compensation of the Supervisory Boardmembers. For further details, see “— Compensation.”

The Supervisory Boardmet six times during 2005:  on March 8,29, and 30; on May 17; on September 6; and on December 2.

AIXTRON’sSupervisory Board consists of the following individuals:

 
|  | · |   | **Dipl.-Kfm. Kim Schindelhauer** (Chairman): Mr. Schindelhauer  is a businessman. He joined AIXTRON in 1992. From 1997 to 2002,  Mr. Schindelhauer was the Joint Chief Executive Officer of AIXTRON, and  a member of its Executive Board. From 2002 to the present,  Mr. Schindelhauer has been the Chairman of AIXTRON’s Supervisory Board.  Mr. Schindelhauer is a member of the supervisory board of MEDION AG,  Essen, Germany, and chairman of the supervisory board of |
|--|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

46

----

 
|        |   |   | Deutsches Aktieninstitut e.V., Frankfurt/Main,  Germany.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | · |   | **Dr. Holger Jürgensen**  (Deputy Chairman): Dr. Jürgensen is a physicist and was one of AIXTRON’s  founders. From 1997 to 2002, Dr. Jürgensen was the President and Joint  Chief Executive Officer of AIXTRON, and a member of its Executive Board. From  2002 to the present, Dr. Jürgensen has been the Deputy Chairman of  AIXTRON’s Supervisory Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | · |   | **Prof. Dr. Wolfgang Blättchen**  (Chairman of the Audit Committee): Since 1998, Prof. Dr. Blättchen has  been a member of AIXTRON’s Supervisory Board. He is a member of the Board of  Management of Blättchen & Partner AG, Leonberg/Munich, Germany.  Prof. Dr. Blättchen is also a member of the supervisory board of Gardena  AG, Ulm, Germany; chairman of the supervisory board of Marc O’Polo AG,  Stephanskirchen, Germany; a member of the supervisory board of APCOA Parking AG,  Stuttgart, Germany; deputy chairman of the supervisory board of HAUBROK AG,  Düsseldorf, Germany; and a deputy chairman of the supervisory board of  Horváth AG, Stuttgart, Germany.                                                                                                                                                                                                                     |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | · |   | **Karl-Hermann Kuklies**: Since 1997, Mr. Kuklies has  been a member of AIXTRON’s Supervisory Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | · |   | **Prof. Dr. Rüdiger von Rosen**:  Since 2002, Prof. Dr. von Rosen has been a member of AIXTRON’s  Supervisory Board. He is managing director of Deutsches Aktieninstitut e.V.;  deputy chairman of the supervisory board of Mader Capital resources AG; and a  member of the supervisory board of PriceWaterhouseCoopers AG, Frankfurt/Main,  Germany.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | · |   | **Dipl.-Kfm. Joachim Simmroß**: Mr. Simmroß is a businessman.  Since 1997, Mr. Simmroß has been a member of AIXTRON’s Supervisory  Board. Mr. Simmroß is also chairman of the supervisory board of  technotrans AG, Sassenberg, Germany; a member of the supervisory board of  WeHaCo Unternehmensbeteiligungs-Aktiengesellschaft, Hanover, Germany; a  member of the advisory committee of BAG-Biologische Analysensystem GmbH,  Lich, Germany; a member of the advisory committee of MTS Mikrowellen  Technologie und Sensoren GmbH, Ottobrunn, Germany; a member of the advisory  board of KAPPA opto-electronics GmbH, Gleichen, Germany; a member of the  supervisory board of Commerz Unternehmensbeteiliungs-Aktiengesellschaft,  Frankfurt/Main, Germany; a member of the supervisory board of GBK  Beteiligungen AG, Hamburg Germany; and a member of the advisory board of  Hannover Finanz GmbH, Hanover, Germany. |

 

No member of AIXTRON’sSupervisory Board serves as a director of an SEC-reporting company in theUnited States.

The Supervisory Board’sbusiness address is Kackertstrasse 15-17, D-52072 Aachen, Germany.

#### ***Executive Board***

The Supervisory Boardappoints and removes the members of the Executive Board, who may serve for amaximum term of five years. The Executive Board is responsible for managingAIXTRON’s day-to-day business according to the German Stock Corporation Act,AIXTRON’s Articles of Association and the rules of procedure for theconduct of the affairs of the Executive Board, which are approved by theSupervisory Board. The rules of procedure of the Executive Board describethe allocation of responsibilities of the Executive Board members and provide alist of important issues and matters that require the Supervisory Board’s priorconsent, such as borrowing or lending of material amounts, participating injoint ventures, making investments in other enterprises and establishingsubsidiaries.

The Executive Board mustrespect the rights of shareholders to be treated on an equal basis and receiveequal information. The Executive Board must also ensure the establishment ofappropriate risk management mechanisms and the use of internal monitoringsystems.

 

47

----

 

Asof March 31, 2006 AIXTRON’s Executive Board consisted of the followingindividuals:

 
|        | · |   | **Paul Hyland** (Chairman  of the Executive Board, President and Chief Executive Officer):  Mr. Hyland has been the President and Chief Executive Officer and a  member of the Executive Board of AIXTRON since April 1, 2002. His  term will expire on March 31, 2010. From 2000 to 2002, prior to his  appointment to the Executive Board, Mr. Hyland was Managing Director of  Thomas Swan Scientific Equipment Limited, an acquired subsidiary of AIXTRON.  Mr. Hyland was born on October 20, 1953.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | · |   | **Dr. Bernd Schulte**  (Member of the Executive Board, Executive Vice President and Chief Operating  Officer): Dr. Schulte has been Executive Vice President, Chief Operating  Officer and a member of the Executive Board of AIXTRON since April 1,  2002. His term will expire on March 31, 2010. Dr. Schulte joined  AIXTRON in 1993, and he served as Director, Sales and Marketing, from 2001 to  2002. Dr. Schulte was born on August 22, 1962.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | · |   | **Wolfgang Breme** (Member  of the Executive Board, Executive Vice President and Chief Financial  Officer): Mr. Breme has been Chief Financial Officer and Executive Vice  President and a member of the Executive Board of AIXTRON since  April 1, 2005. His term will expire on March 31, 2008.  From May 3, 2002 until he joined AIXTRON, Mr. Breme was a  member of the executive board and chief financial officer of technotrans AG.  Mr. Breme was the chief executive officer of Sempell AG from 1999 to  2001, and their chief financial officer from 1996 to 1999. Mr. Breme was  born on May 15, 1960.                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | · |   | **Dr. William W.R. Elder**  (Member of the Executive Board, Executive Vice President): Dr. Elder has  been Executive Vice President and a member of the Executive Board of AIXTRON  since July 1, 2005. His term will expire on June 30, 2008. Prior  to joining AIXTRON, Dr. Elder was Chairman of the Board, President and  Chief Executive Officer of Genus, Inc. since May 1998.  Dr. Elder served as Chairman of the Board of Genus, Inc. from  October 1996 to April 1998, as Chairman and CEO of Genus, Inc.  from April 1990 to September 1996, and as President and CEO of  Genus, Inc from November 1981 to April 1990. Dr. Elder  was born on October 24, 1938. Dr. Elder has been a director of  Aehr Test Systems Inc., Freemont, California, an SEC-reporting company in the  United States, since 1989. He has been a member of the Board of Directors of  Maskless Lithography Inc., San Jose, California, since June 2005. |

 

Dr. Elder is theonly member of AIXTRON’s Executive Board that serves as a director of anSEC-reporting company in the United States.

The Executive Board’sbusiness address is Kackertstrasse 15-17, D-52072 Aachen, Germany.

### **B.Compensation**

In a resolution passedduring the annual general meeting on May 18, 2005 and following therespective amendment of the Company’s bylaws, AIXTRON modified the SupervisoryBoard’s compensation, in accordance with the German Corporate Governance Code.

Individual members ofthe Supervisory Board receive € 18,000. The Chairman receives € 54,000, and theDeputy Chairman receives € 27,000. Supervisory Board members receive in theaggregate a variable compensation of 1% of the Company’s retained earnings,less an amount corresponding to 4% of the paid-in contributions to the sharecapital. The Chairman receives 6/17, the Deputy Chairman 3/17, and each othermember of the Supervisory Board 2/17 of the variable compensation. The Companylimits variable compensation to four times the fixed compensation perSupervisory Board member. In addition, Supervisory Board members receive anattendance fee of € 1,500 for attending committee meetings, with the Chairmanreceiving twice that amount. The total annual attendance fee per SupervisoryBoard member is limited to one and a half times that person’s fixedcompensation.

The Executive Board’sremuneration includes a fixed remuneration, a variable component and acomponent with a long-term-incentive effect. The basis of assessing thevariable component is AIXTRON’s Group net income, adjusted by additions to orwithdrawals from revenue reserves (“modified Group net income”), generated in agiven financial year. In case of net income generated, each Executive Boardmember will be paid 1.5% of AIXTRON’s modified Group net income as a bonus. ThePresident and Chief Executive Officer will receive 3.0% of net income.

 

48

----

 

AIXTRONand its affiliates paid € 1.42 million aggregate cash compensation during the2005 fiscal year to seven members of the Executive Board for services in allcapacities and € 0.17 million to members of the Supervisory Board. The tablebelow sets forth these amounts by individual member of the Executive andSupervisory boards, respectively.

 
| ***in EUR thousands***                | ** ** | **Paul  Hyland** | ** ** | **Christopher  Charles  Dodson*+** | ** ** | **Stephen  Duane  Perry+** | ** ** | **Dr. Bernd  Schulte** | ** ** | **Timothy  McEntee+** | ** ** | **Wolfgang  Breme** | ** ** | **Dr.  William  W.R.  Elder** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------|------------|------------------|------------|------------------------------------|------------|----------------------------|------------|-----------------------------|------------|-----------------------|------------|---------------------|------------|-------------------------------|------------|-------------------------|------------|
| ***Fixed  Remuneration***                       |       | 353              |       | 304                                |       | 62                         |       | 293                         |       | 57                    |       | 196                 |       | 153                           | ** ** | **1,418**               | ** ** |
| **Variable  Remuneration**                      |       | 0                |       | 0                                  |       | 0                          |       | 0                           |       | 0                     |       | 0                   |       | 0                             | ** ** | **0**                   | ** ** |
| **Remuneration  based on long-term incentives** |       | 0                |       | 0                                  |       | 0                          |       | 0                           |       | 0                     |       | 0                   |       | 0                             | ** ** | **0**                   | ** ** |
| **Total Remuneration of Executive  Board**      |       | 353              |       | 304                                |       | 62                         |       | 293                         |       | 57                    |       | 196                 |       | 153                           | ** ** | **1,418**               | ** ** |

 
| ** **                                   | ** ** | **Kim  Schindelhauer** | ** ** | **Dr. Holger  Jürgensen** | ** ** | **Prof. Dr.  Wolfgang  Blättchen** | ** ** | **Karl-  Hermann  Kuklies** | ** ** | **Prof. Dr.  Rüdiger von  Rosen** | ** ** | **Joachim  Simmroß** | ** ** | **Consolidated  Total** | ** ** |
|----------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|---------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ***Fixed  Remuneration***                    |       | 54                     |       | 27                                  |       | 18                                           |       | 18                          |       | 18                                          |       | 18                        | ** ** | **153**                 | ** ** |
| **Variable  Remuneration**                   |       | 0                      |       | 0                                   |       | 0                                            |       | 0                           |       | 0                                           |       | 0                         | ** ** | **0**                   | ** ** |
| **Attendance  Fees**                         |       | 3                      |       | 3                                   |       | 6                                            |       | 0                           |       | 0                                           |       | 3                         | ** ** | **15**                  | ** ** |
| **Total  Remuneration of Supervisory Board** |       | 57                     |       | 30                                  |       | 24                                           |       | 18                          |       | 18                                          |       | 21                        | ** ** | **168**                 | ** ** |
| **Total Remuneration of Executive  Bodies**  | ** ** | ** **             | ** ** | ** **                          | ** ** | ** **                                   | ** ** | ** **                  | ** ** | ** **                                  | ** ** | ** **                | ** ** | **1,586**               | ** ** |

 

* The remuneration paid to Mr. Dodson inthe financial year 2005 includes both the monthly salary and a severancepayment of EUR 220 thousand.

+ Christopher C. Dodson,previously Executive Vice President and Chief Financial Officer, left theAIXTRON AG Executive Board, effective April 1, 2005. At the same time, StephenD. Perry and Timothy M. McEntee also left the Executive Board.

Remuneration of theExecutive Board is included in “personnel expenses”; remuneration of theSupervisory Board is included in “other operating expenses.”

As of December 31,2005, the four members of the Executive Board together held 414,618 options toacquire AIXTRON ordinary shares. AIXTRON has not granted the Executive Boardmembers any new options to receive AIXTRON shares in 2005. Additionally, nomember has exercised his right to receive AIXTRON shares in 2005. No options toacquire AIXTRON ordinary shares may be granted to members of the SupervisoryBoard.

As of May 11, 2006,members of the Executive Board, a group of four persons, collectively held414,618 options to acquire 423,376 AIXTRON AG shares with exercise priceslisted below. The following table sets forth individual stock option holdingsand the related shares to be acquired:

 
|                                                        | ** ** | **number of stock options  held** | ** ** | **shares to be acquired** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------|------------|
| Paul Hyland,  President and CEO                        |       | 96,350                                           |       | 100,400                                  |       |
| Wolfgang Breme,  Executive Vice President and CFO      |       | 0                                                |       | 0                                        |       |
| Berd Schulte,  Executive Vice President and COO        |       | 95,908                                           |       | 100,616                                  |       |
| Dr. William  W.R. Elder, Executive Vice President |       | 222,360                                          |       | 222,360                                  |       |
|                                                   | ** ** | **414,618**                                      | ** ** | **423,376**                              | ** ** |

 

49

----

 

Thefollowing table illustrates the exercise prices of the shares as of May 11,2006:

 
| **Exercise price per share (EUR)** | ** ** | ** ** | ** ** | **Outstanding  Shares** | ** ** | **Exercisable  Shares** | ** ** | **Expiration  Date** | ** ** |
|--------------------------------------------------------|------------|------------|------------|-------------------------|------------|-------------------------|------------|----------------------|------------|
| 3.10                                                   | ** ** | 55,000     | ** ** | 13,750                  |       | November 2013      |       |
| 6.17                                                   | ** ** | 70,000     | ** ** | —                  | ** ** | **—**              | ** ** |
| 7.48                                                   | ** ** | 55,000     | ** ** | —                  | ** ** | **—**              | ** ** |
| 18.70                                                  | ** ** | 2,976      | ** ** | 2,976                   |       | November 2014      |       |
| 26.93                                                  | ** ** | 10,000     | ** ** | —                  | ** ** | **—**              | ** ** |
| 67.39                                                  | ** ** | 8,040      | ** ** | 2,010                   |       | November 2015      |       |
|                                                   | ** ** | 201,016    | ** ** | 18,736                  |       |                    |       |

 
| **Exercise  price per share (USD)** | ** ** | ** ** | ** ** | **Outstanding  Shares** | ** ** | **Exercisable  Shares** | ** ** | **Expiration  Date** | ** ** |
|-------------------------------------|------------|------------|------------|-------------------------|------------|-------------------------|------------|----------------------|------------|
| 8.00                                |       | 102,000    | ** ** | 63,750                  |       | October 2013       |       |
| 2.53                                | ** ** | 46,860     |       | 43,860                  |       | October 2007       |       |
| 5.02                                | ** ** | 51,000     | ** ** | 51,000                  |       | June 2007          |       |
| 4.78                                | ** ** | 25,500     |       | 25,500                  |       | March 2006         |       |
|                                | ** ** | 222,360    |       | 184,110                 |       |                    |       |

 

Two members of theSupervisory Board are entitled to a pension arrangement. The accrued amountunder such pension arrangements as of December 31, 2005, was a total of €0.98 million.

### **C.Board Practices**

See “Item 6. Directors,Senior Management and Employees — Supervisory Board” and “— Executive Board.”

No additional benefitsare generally paid to the Company’s Executive Board Members upon termination oftheir employment contracts. However, if the employment contract of any of theCompany’s Executive Board Members is terminated without notice for good causeon the part of the Executive Board Member and for which he has to bearresponsibility, the entitlement to the profit sharing bonus lapses from thetime that the termination becomes effective.

See “Item 10. AdditionalInformation — Material Contracts” as well as Exhibits 4.4, 4.6, 4.7, and 4.9 tothis report for further details of the Company’s directors’ employment contracts.

#### ***Chairman’s Committee***

By way of a resolutiondated March 8, 2005, AIXTRON dissolved the Chairman’s Committee of theSupervisory Board due to significant overlapping of its activities with theAudit Committee. The Chairman’s Committee advised and supported the ExecutiveBoard in its decisions regarding the Company’s strategic orientation, and inparticular with regard to technology, product and market issues. This expertconsultation continues even after the dissolution of the Chairman’s Committee. Ifnecessary, the Executive Board consults the Supervisory Board members withrespective expertise in one-on-one meetings.

 

50

----

 

#### ***Audit Committee***

According to Article 16.1of AIXTRON’s Articles of Association, the Supervisory Board is authorized and,if prescribed by law, required to form committees of its members.

The Audit Committeeprimarily deals with matters such as accounting, the conversion to IFRS, riskmanagement, the auditors’ mandate, identification of areas to be audited, andauditors’ fee arrangements, while at the same time ensuring the necessaryindependence of the auditors. The Chairman of the Committee regularly reportsto the Supervisory Board with regard to the work performed.

Set forth in the tablebelow are the current members of the Audit Committee.

| Committee       | ** ** | **Members**                                                                                                                                           |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| Audit Committee |       | Prof. Dr. Wolfgang Blättchen (Chairman),  Dr. Holger Jürgensen, Dipl.-Kfm. Kim Schindelhauer and Dipl.-Kfm.  Joachim Simmroß |

 

#### ***Compliance with Nasdaq Listing Standards on Corporate Governance***

For information aboutthe Company’s compliance with the Nasdaq listing Standards on corporategovernance, see “Item 10. Additional Information — Memorandum and Articles ofAssociation — Sarbanes-Oxley Requirements and Nasdaq Rules.”

### **D.Employees**

AIXTRON’sacquisition of Genus increased significantly the proportion of U.S. employees. TheCompany implemented a number of cost reduction measures, including terminationsof employee labor contracts in the United States and closures on existingfixed-term employee labor contracts in Germany. As a result, the globalheadcount decreased by fifty-four employees between March 31 and December 31,2005. As of December 31, 2005, the majority of AIXTRON’s worldwideemployees was based in Europe. The following table illustrates the division ofAIXTRON’s employees by category of activity and geographic region at December 31for each of the years shown:

 

| ** **                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
|                      |       |     |       |     |       |     |       |
| Sales and  Services       |       | 171      |       | 112      |       | 96       |       |
| Research and  Development |       | 187      |       | 161      |       | 110      |       |
| Manufacturing             |       | 130      |       | 111      |       | 125      |       |
| Administration            |       | 82       |       | 59       |       | 54       |       |
|                      |       |     |       |     |       |     |       |
| Total                     |       | 570      |       | 443      |       | 385      |       |
|                      |       |     |       |     |       |     |       |
| Europe                    |       | 381      |       | 381      |       | 336      |       |
| Asia                      |       | 70       |       | 34       |       | 26       |       |
| United States             |       | 119      |       | 28       |       | 23       |       |
|                      |       |     |       |     |       |     |       |
| Total                     |       | 570      |       | 443      |       | 385      |       |

 

Duringthe last three years, AIXTRON has not experienced any major labor disputesresulting in work stoppages.

 

51

----

 

### **E.Share Ownership**

Thefollowing table sets forth certain information known to AIXTRON regardingbeneficial ownership of the Company’s ordinary shares and options to acquireits equity securities as of May 11, 2006 by (i) each of the Company’sSupervisory and Executive Board members, (ii) each of the Company’sexecutive officers, (iii) all directors and executive officers of AIXTRONas a group, (iv) each person known by AIXTRON to beneficially own morethan 5% of its shares, and (v) the percentage of the Company’s shares heldby U.S. holders:

 
| **Name And Address of Beneficial Owner **** | ** ** | **Number of  Shares (1)** | ** ** | **Percent of  Class (2)** | ** ** | **Number of  Options to  Acquire  AIXTRON  Equity  Securities** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------------------------------|------------|
| Prof.  Dr. Wolfgang Blättchen                                   |       | 294                                 | (3)        | *                                   |       | 0                                                                         |       |
| Wolfgang Breme                                                            |       | 0                                   |       | *                                   |       | 0                                                                         |       |
| Dr. William  W.R. Elder                                              |       | 121,747                             | (4)        | *                                   |       | 222,360                                                                   | (11)       |
| Paul Hyland                                                               |       | 0                                   |       | *                                   |       | 96,350                                                                    | (11)       |
| Dr. Holger  Jürgensen                                           |       | 10,037,108                          | (5)        | 11.18                               | %          | 0                                                                         |       |
| Karl-Hermann  Kuklies                                                     |       | 3,600                               | (6)        | *                                   |       | 0                                                                         |       |
| Prof.  Dr. Rudiger von Rosen                                         |       | 1,100                               | (7)        | *                                   |       | 0                                                                         |       |
| Kim  Schindelhauer                                                        |       | 1,039,604                           | (8)        | 1.16                                | %          | 0                                                                         |       |
| Dr. Bernd  Schulte                                                   |       | 0                                   |       | *                                   |       | 95,908                                                                    | (11)       |
| Joachim Simmroß                                                      |       | 27,000                              | (9)        | *                                   | %          |                                                                      |       |
| All Supervisory  and Executive Board members as a group.                  |       | 11,230,453                          |       | 12.51                               | %          | 414,618                                                                   |       |
| Approximate percent  held by U.S. holders (ADSs outstanding)              |       | 13,038,381                          | (10)       | 14.52                               | %          |                                                                      |       |

 

----

 
| *      |   | Less than 1%.                                                                                                                                                                                                                                                                                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| **     |   | Except as indicated otherwise, the address is: c/o  AIXTRON Aktiengesellschaft, Kackertstrasse 15-17, D-52072 Aachen,  Germany.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (1)    |   | Except as otherwise indicated in the footnotes to  this table and pursuant to applicable community property laws, the persons  named in the table have sole voting and investment power with respect to all  shares of common stock shown as beneficially owned by them.                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (2)    |   | Applicable percentage ownership is based on  89,799,397 shares of common stock outstanding as of May 11, 2006  together with applicable options for such shareholder. Beneficial ownership  is determined in accordance with the rules of the SEC, based on factors  including voting and investment power with respect to shares. |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (3)    |   | Consists of 294 shares owned by Prof.  Dr. Blättchen’s wife.                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (4)    |   | Equivalent to 121,747 ADSs. Dr. William W.R.  Elder, beneficially owns 121,747 ADSs, of which 47,735 were held directly,  55,398 were held indirectly through the Elder family trust and 18,614 were  held through his sons.                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (5)    |   | Dr. Jürgensen, directly or indirectly,  beneficially owns 10,037,108 shares through his ownership stake in CAMMA  GmbH.                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (6)    |   | Includes 1,900 shares owned by his wife and 1,700  shares owned by his daughter.                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (7)    |   | Consists of 1,100 shares owned by Prof. Dr. von  Rosen’s child.                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                         |
| (8)    |   | Mr. Schindelhauer, directly or indirectly,  beneficially owns 1,039,604 shares through his ownership stake in SBG  Beteiligung GmbH.                                                                                                                                                                                                    |

 

52

----

 
| (9)    |   | Includes 17,000 shares owned directly, and 10,000  owned indirectly by Mr. Simmroß’s wife.                                                                                            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                 |
| (10)   |   | Equivalent to 13,038,381 ADSs outstanding as a  percentage of total shares outstanding, assuming that all ADSs are held by  U.S. beneficial holders. Source: JPMorgan. Data as of May 11, 2006. |
|   |   |                                                                                                                                                                                                 |
| (11)   |   | Mr. Hyland and Mr. Schulte hold options to  acquire AIXTRON ordinary shares; Dr. Elder holds options to acquire  AIXTRON ADSs.                                                        |

 

As of May 11, 2006,members of the Company’s Supervisory Board, a group of six persons, indirectlyor directly, held 11,108,706 AIXTRON ordinary shares.

Pursuant to Section 15aof the German Securities Trading Act (WpHG), in effect during the reportingperiod, members of the Executive and Supervisory Boards were required todisclose significant purchases or sales of shares of AIXTRON. In fiscal year2005, no significant purchases of AIXTRON shares were reported.

#### ***Employee Bonds and Options***

*EmployeeBonds*

In November 1997,the Company issued 6% convertible bonds to employees, due November 2007,with a principal amount of EUR 320 thousand, interest payable annually inarrears. The bonds are nontransferable and must be repurchased at par if theemployee leaves the Company. The notes are convertible, at the option of theholder, into shares of common stock, initially at a conversion rate of 480shares (after the effects of share splits) of common stock for each EUR 51.13principal amount of notes plus payment of an additional EUR 971.45, subject toadjustment in certain circumstances. Holders of these bonds have the right toexercise the conversion option in respect of 50% of notes held at the earliesttwo years after the initial offering and in respect of 100% of notes held afterthree years from the date of the initial offering. The right to convert expiresat the end of the life of the bond. The conversion feature was not deemed to bebeneficial at issuance.

Prior to January 1,2002, an aggregate of EUR 315 thousand convertible bonds had been convertedinto 2,592,960 shares of common stock, after adjusting for share splits duringthe years ended December 31, 2001 and 2000. During the year ended December 31,2002, convertible bonds worth EUR 0.3 thousand were converted into 2,880 sharesof common stock. No bonds were converted to common stock during 2003 and 2004.AIXTRON had also taken back convertible bonds amounting to EUR 2 thousand atface value.

The remainingoutstanding convertible bonds as of December 31, 2005, amounting to EUR 3thousand can be converted, at the option of the holders, into 25,440 shares ofcommon stock through November 2007.

*StockOption Plans*

The Company hasdifferent fixed option plans which reserve shares of common stock and AIXTRONAmerican Depository Shares (“ADSs”) to be granted to members of the ExecutiveBoard, management and employees of the Company. Each AIXTRON ADS represents thebeneficial ownership in one AIXTRON common share. The following is adescription of these plans:

*AIXTRONstock option plan 1999*

In May 1999,options were authorized to purchase 3,000,000 shares of common stock (aftergiving effect to capital increases, stock splits, and the EURO conversion). Theoptions become in equal installments of 25% per year after the secondanniversary of the date of grant, subject to certain conditions exercisable.Vested options are only permitted to be exercised when the performance of theAIXTRON stock exceeds the performance of the Technology AS Price Index(formerly the New Market Index) by at least 5% in the reference period or whenthe turnover reported by AIXTRON rises by at least 25% per year and theprofit/revenue ratio is at least 12%. Regardless of fulfillment of theseconditions, the stock options can be exercised when 15 years have elapsed.Under the terms of the 1999 plan, options are granted at prices equal to theaverage closing price over the last 20 trading days on the Frankfurt StockExchange before the grant date. All options are settled by physical delivery ofshares. Under this plan 2,087,956 options were outstanding for the purchase ofcommon shares.

 

53

----

 

In 2002, options weregranted with the exercise price slightly less than fair market value. Fairmarket value is determined based upon the closing trading price on grant date.

*AIXTRONstock option plan 2002*

In May 2002,options were authorized to purchase 3,511,495 shares of common stock. Theoptions become exercisable in equal installments of 25% per year after thesecond anniversary of the date of grant, subject to certain conditions exercisable.Options expire ten years from date of grant. Under the terms of the 2002 plan,options are granted at prices equal to the average closing price over the last20 trading days on the Frankfurt Stock Exchange before the grant date, plus apremium of 20% over the average closing price. No grants were issued with astrike price less than fair market value. All options are settled by physicaldelivery of shares. A total of 1,844,545 options to purchase common stock wereoutstanding under this plan as of December 31, 2005.

*Genusstock option plan 2000*

Within the scope of theacquisition of Genus, Inc., the Company adopted the Genus Incentive StockOption Plan 2000. At the date of acquisition options were authorized topurchase 3,948,014 Genus shares of common stock under this plan. At the date ofacquisition these options were converted into options to purchase 2,013,487AIXTRON ADS. Options granted before May 18, 2003 vest over athree-year-period and expire five years from the date of grant. Options grantedafter May 18, 2003 vest over a four-year-period and expire in ten yearsfrom the date of grant. A total of 1,365,076 options to purchase AIXTRON ADSwere outstanding under this plan as of December 31, 2005.

See Note 23 to AIXTRON’SConsolidated Financial Statements for more information on AIXTRON’s employeestock option plans.

 

54

----

 

## **Item 7:  Major Shareholders and Related PartyTransactions**

### **A.Major Shareholders**

Dr. HolgerJürgensen, one of the Company’s founders and Deputy Chairman of the Company’sSupervisory Board, directly or indirectly, beneficially owns 11.18% of AIXTRON’sordinary shares through his ownership stake in Camma GmbH. See also “Item 6.Directors, Senior Management and Employees — Share Ownership”.

In a public filing inaccordance with Section 21, paragraph 1 of the German Securities TradingAct (WpHG) J.P. Morgan Services Inc., Newark, as the depositary of AIXTRON’sADSs, reported to AIXTRON that as of March 23, 2005 they held 24.91%(or 22,369,030 ordinary shares) of AIXTRON’s ordinary shares outstanding,represented by the same number of ADSs. As of May 11, 2006, J.P.Morgan Services Inc., Newark, held 13,038,381 ordinary shares, represented by13,038,381 ADSs, or 14.52% of AIXTRON’s shares outstanding.

To the Company’sknowledge and based on public filings, there is no other single natural orlegal person that may be considered a beneficial owner of 5% or more of AIXTRON’soutstanding shares.

As of May 11, 2006,AIXTRON had approximately 74,000 shareholders, based on the number of mailingsof invitations for the annual general meeting in accordance with Section 125of the German Corporation Law (AktG). As of May 11, 2006, 145 registeredADS holders (excluding DTC) held 2,195,817 ADSs representing 2.45% of totalshares outstanding. A significant number of such registered ADS holders may beU.S. beneficial ADS holders, estimated to be 7,083 in total, based on thenumber of mailings of proxy cards for the annual general meeting. See also “Item6. Directors, Senior Management and Employees — Share Ownership”.

The Company’s majorshareholders do not have voting rights that are different from any othershareholder.

### **B.Related Party Transactions**

Related parties of theCompany are subsidiaries, directors, executive officers and members of theSupervisory Board. See “Item 6. Directors, Senior Management and Employees —Compensation” for information relating to the compensation of AIXTRON’sExecutive Board members and Supervisory Board members.

 

55

----

## **Item 8:  Financial Information**

### **A.Consolidated Statements and Other Financial Information**

See “Item 5. Operatingand Financial Review and Prospects” and “Item 18. Financial Statements.”

#### ***Export Revenues***

Revenues outside ofEurope accounted for € 117.3 million or 84.14% of AIXTRON’s total revenues forthe year ended December 31, 2005 and € 126.4 million or 90.26% of AIXTRON’stotal revenues for the year ended December 31, 2004.  Revenues to AIXTRON’s Asian-based customersaccounted for € 103 million or 73.89% of the Company’s total revenues for theyear ended December 31, 2005 and € 108.1 million or 77.12% of the Company’stotal revenues for the year ended December 31, 2004.

#### ***Legal Proceedings***

In the normal course ofbusiness, the Company is subject to various legal proceedings and claims. TheCompany believes that the matters the Company is aware of are not likely tohave a material adverse effect on its financial condition or results ofoperations. The Company is not aware of any unasserted claims that may have amaterial adverse effect on its financial condition or results of operation.

#### ***Policy on Dividend Distributions***

The maximum amount ofdividends available for distribution to shareholders is based on the level ofearnings (Bilanzgewinn), as determined in accordance with the German CommercialCode (Handelsgesetzbuch) and the German Stock Corporation Act (Aktiengesetz). Alldividends must be approved by the Company’s shareholders. Based on a netaccumulated loss of € 0 million for 2005 (net of a transfer of € 16.3 millionfrom retained earnings) recorded by AIXTRON AG, the requirements fordistributing a dividend were not met in 2005. Consequently, the ordinaryshareholders’ meeting held May 11, 2006, did not authorize a dividend forthe year 2005. Subject to market conditions, the Company currently intends toretain future earnings for investment in the development and expansion of itsbusiness.

### **B.Significant Changes**

See Note 33 (“EventsAfter the Balance Sheet Date”) to AIXTRON’s Consolidated Financial Statementsand “Item 4. Information on the Company — History and Development of theCompany — Important Events”.

 

56

----

 

## **Item 9:  The Offer and Listing**

 

Items9.A.1. through A.3., Items 9.A.5. through A.7., and Items B., D., E. and F. arenot applicable.

 

#### ***Trading Markets***

 

Theprincipal trading market for AIXTRON’s ordinary shares is the Frankfurt StockExchange, where the shares trade under the symbol “AIX”. AIXTRON’s ADRs, eachevidencing one ADS, which represents one ordinary share, trade on the NasdaqCapital Market under the symbol “AIXG”.

 

OnMarch 12, 2005, the Company’s Executive Board resolved, with the approvalof the Company’s Supervisory Board, to increase its authorized share capital bythe issuance of 24,967,885 ordinary shares against contribution in kind of theshares of Genus pursuant to the merger with Genus. This capital increase wasregistered with the commercial register on March 14, 2005. The admissionauthority of the Frankfurt Stock Exchange authorized the registration of thenew shares to the regulated securities market of the Frankfurt Stock Exchangewith a resolution of March 14, 2005 with additional sequentialobligations (Prime Standard).

 

#### ***Market Price Information***

 

*Frankfurt Stock Exchange*

 

Thetable below sets forth, for the calendar periods indicated, the high and lowXETRA closing sales prices on the Frankfurt Stock Exchange for AIXTRON’sordinary shares. See the discussion under “Item 3. Key Information — ExchangeRate Information” for information with respect to rates of exchange between theU.S. dollar and the euro applicable during the periods set forth below.

 
|                                  | ** ** | **XETRA Closing price per** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **ordinary share***                   | ** ** |
| ** **                       | ** ** | **(in euro)**                         | ** ** |
| ** **                       | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **High**                                   | ** ** | **Low** | ** ** |
|                             |       |                                       |       |   |   |
| **Annual**                       | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| 2001 (1)                         |       | 59.50                                      |       | 15.12 |   |
| 2002                             |       | 29.45                                      |       | 4.25 |   |
| 2003                             |       | 5.68                                       |       | 2.09 |   |
| 2004                             |       | 7.08                                       |       | 3.05 |   |
| 2005                             |       | 3.95                                       |       | 2.36 |   |
| **Quarterly**                    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| 2003                             |       |                                       |       |   |   |
| First quarter                    |       | 5.09                                       |       | 2.09 |   |
| Second quarter                   |       | 4.67                                       |       | 2.51 |   |
| Third quarter                    |       | 5.68                                       |       | 3.67 |   |
| Fourth quarter                   |       | 5.55                                       |       | 4.44 |   |
| 2004                             |       |                                       |       |   |   |
| First quarter                    |       | 7.08                                       |       | 4.88 |   |
| Second quarter                   |       | 6.01                                       |       | 4.52 |   |
| Third quarter                    |       | 5.82                                       |       | 4.71 |   |
| Fourth quarter                   |       | 4.33                                       |       | 3.05 |   |
| 2005                             |       |                                       |       |   |   |
| First quarter                    |       | 3.95                                       |       | 3.25 |   |
| Second quarter                   |       | 3.22                                       |       | 2.36 |   |
| Third quarter                    |       | 3.19                                       |       | 2.67 |   |
| Fourth quarter                   |       | 2.93                                       |       | 2.39 |   |
| 2006                             |       |                                       |       |   |   |
| First quarter                    |       | 3.88                                       |       | 2.46 |   |
| **Monthly**                      | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| 2005                             |       |                                       |       |   |   |
| December                         |       | 2.82                                       |       | 2.42 |   |
| 2006                             |       |                                       |       |   |   |
| January                          |       | 2.81                                       |       | 2.46 |   |
| February                         |       | 3.35                                       |       | 2.73 |   |
| March                            |       | 3.88                                       |       | 3.15 |   |
| April                            |       | 4.01                                       |       | 3.30 |   |
| May                              |       | 3.86                                       |       | 2.71 |   |
| June (through  June 7) |       | 2.79                                       |       | 2.66 |   |

----

 

**Source:  Bloomberg*

 
| (1) |   | The 2000 ordinary shareholders’ meeting resolved to  increase the stated share capital of AIXTRON out of retained earnings by  issuing new shares. In effect, each share with a proportionate value of € 2  per share in the stated share capital was replaced by two shares, each with a  proportionate value of € 1 per share in the stated share capital. The numbers  in the chart reflect this increase. The 2001 ordinary shareholders’ meeting  resolved to increase the stated share capital of AIXTRON out of retained  earnings by issuing new shares. In effect, each share with a proportionate  value of € 2 per share in the stated share capital was replaced by two  shares, each with a proportionate value of € 1 per share in the stated share  capital. The numbers in the chart reflect this increase. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

57

----

 

OnJune 7, 2006, the XETRA last price per ordinary share was € 2.66.

 

*Nasdaq Market*

 

Officialtrading of AIXTRON’s ADSs on the Nasdaq Capital Market commenced on March 11,2005.

 

Thefollowing table sets forth, for the calendar periods indicated, the high andlow closing sales prices per ADS as reported on the Nasdaq Capital Market:

 
|                                  | ** ** | **Price per** | ** ** |
|----------------------------------|------------|--------------------|------------|
| ** **                       | ** ** | **ADS***           | ** ** |
| ** **                       | ** ** | **(in $)**    | ** ** |
| ** **                       | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **High**           | ** ** | **Low** | ** ** |
|                             |       |               |       |   |   |
| **Annual**                       | ** ** | ** **         | ** ** | ** ** | ** ** |
| 2001                             |       | na                 |       | na |   |
| 2002                             |       | na                 |       | na |   |
| 2003                             |       | na                 |       | na |   |
| 2004                             |       | na                 |       | na |   |
| 2005                             |       | 4.86               |       | 2.78 |   |
| **Quarterly**                    | ** ** | ** **         | ** ** | ** ** | ** ** |
| 2003                             |       |               |       |   |   |
| First quarter                    |       | na                 |       | na |   |
| Second quarter                   |       | na                 |       | na |   |
| Third quarter                    |       | na                 |       | na |   |
| Fourth quarter                   |       | na                 |       | na |   |
| 2004                             |       |               |       |   |   |
| First quarter                    |       | na                 |       | na |   |
| Second quarter                   |       | na                 |       | na |   |
| Third quarter                    |       | na                 |       | na |   |
| Fourth quarter                   |       | na                 |       | na |   |
| 2005                             |       |               |       |   |   |
| First quarter                    |       | 4.86               |       | 4.16 |   |
| Second quarter                   |       | 4.05               |       | 2.97 |   |
| Third quarter                    |       | 3.81               |       | 3.21 |   |
| Fourth quarter                   |       | 3.43               |       | 2.78 |   |
| 2006                             |       |               |       |   |   |
| First quarter                    |       | 4.57               |       | 2.95 |   |
| **Monthly**                      | ** ** | ** **         | ** ** | ** ** | ** ** |
| 2005                             |       |               |       |   |   |
| December                         |       | 3.27               |       | 2.79 |   |
| 2006                             |       |               |       |   |   |
| January                          |       | 3.36               |       | 2.95 |   |
| February                         |       | 3.94               |       | 3.20 |   |
| March                            |       | 4.57               |       | 3.69 |   |
| April                            |       | 4.92               |       | 4.02 |   |
| May                              |       | 4.82               |       | 3.44 |   |
| June (through  June 7) |       | 3.56               |       | 3.43 |   |

----

 

**Source:  Bloomberg*

 

OnJune 7, 2006, the closing sales price per ADS on the Nasdaq Capital Marketwas $ 3.43.

 

58

----

 

## **Item 10:  Additional Information**

Items 10.A., 10.F.,10.G. and 10.I. are not applicable.

### **A.Share Capital**

Not applicable.

### **B.Memorandum and Articles of Association**

Copies of the Company’sArticles of Association are publicly available from the commercial register(Handelsregister) of the local court (Amtsgericht) in Aachen, Germany, underthe entry number HRB 7002. An English translation of the Company’s Articles ofAssociation as of May 11, 2006 can be found in exhibit no. 1.1.

According to article 2of AIXTRON’s Articles of Association, the purpose of the Company is the manufactureand sale of products, as well as research and development and services for theimplementation of semiconductor technologies and other physicochemicaltechnologies, particularly those bearing the AIXTRON trademark. The Company isauthorized to conduct all transactions suitable for promoting the Company’spurpose indirectly and directly. The Company may establish branch offices inGermany and abroad, may acquire equity interests in other companies in Germanyand abroad, as well as purchase or establish such companies. The Company mayoutsource all or part of its operations to affiliates.

With respect to Items10.B.2. through 10.B.10, see “Description of the AIXTRON Ordinary Shares” and “Descriptionof the American Depositary Shares” in the Registration Statement on Form F-4(Reg. No. 333-122624) filed on February 8, 2005. Regarding the “Descriptionof the AIXTRON Ordinary Shares, incorporated by reference, please note thatmeanwhile (i) the acquisition of Genus has been completed and (ii) inparticular the following additional changes have occurred:

The amount of the statedshare capital of AIXTRON has changed and now amounts to € 89,799,397. It isdivided into 89,799,397 no-par value bearer shares. Shareholders are notentitled to be issued a share certificate representing their share(s).

At the AIXTRON ordinarygeneral meeting on May 18, 2005, the Company’s stockholders approved thecreation of new Authorized Capitals 1 and 2.

Under Authorized Capital1, the Executive Board, under certain conditions, has been authorized, with theapproval of the Supervisory Board, to increase the share capital on one orseveral occasions in the period to May 17, 2010 by up to a total of €35,919,751 against cash and/or non-cash contributions by issuing a total of35,919,751 new ordinary bearer shares. Among other things, the authorization isintended to enable the Executive Board to acquire a company or an equityinterest in a company in return for shares if a suitable opportunity arises. Inthis case AIXTRON’s Executive Board is also authorized to exclude, with theapproval of the Supervisory Board, the preemptive rights (Bezugsrechte) of theexisting shareholders.

While the Company currentlyhas no specific plans to acquire another business, the Executive Boardbelieves, in order to support its strategy to leverage its core competence incomplex materials deposition into new markets, it is important to be able toact quickly if and when appropriate opportunities arise.

Under Authorized Capital2, the Executive Board, under certain conditions, has been authorized, with theapproval of the Supervisory Board, to increase the share capital on one orseveral occasions in the period to May 17, 2010 by up to a total of €8,979,937 against cash contributions by issuing a total of 8,979,937 newordinary bearer shares. Among other things, the authorization is intended toenable the Executive Board to quickly place new shares in the domestic andinternational capital markets in a targeted manner. Under certaincircumstances, AIXTRON’s Executive Board is also authorized to exclude, in eachcase with the approval of the Supervisory Board, the preemptive rights(Bezugsrechte) of the existing shareholders.

59

----

 

As a result of changesof the German Stock Corporation Act (Aktiengesetz) and changes of the Articlesof Association which were resolved by the stockholders at the general meetingon May 11, 2006, the participation at the general meeting no longerrequires deposit (Hinterlegung) of ordinary shares, but a timely submission ofspecial proof of possession of the ordinary shares (Nachweis desAnteilsbesitzes) on a certain date.

According to the GermanStock Corporation Act, the notice requirements provided for in the German StockCorporation Act do not apply to listed companies as defined in the GermanSecurities Trading Act (Wertpapierhandelsgesetz). For such companies only thenotice requirements provided for in the German Securities Trading Act(Wertpapierhandelsgesetz) apply.

See also Item 6. “Directors,Senior Management and Employees — Supervisory Board” and “— Executive Board”for further information about the Supervisory Board and the Executive Board.

#### ***Corporate Governance***

AIXTRON’s Declaration ofCompliance with the recommendations of the Government Commission of the GermanCorporate Governance Code (Regierungskommission Deutscher Corporate GovernanceKodex) dated June 2, 2005 and published by the Federal Ministry ofJustice (Bundesministerium der Justiz) in the official section of theelectronic Federal Gazette is posted in the “Investor Relations” section ofAIXTRON’s website at www.aixtron.com and updated as appropriate. The Companyvoluntarily complies with all of the non-obligatory provisions of such GermanCorporate Governance Code.

#### ***Sarbanes-Oxley Act Requirements and Nasdaq Rules***

AIXTRON’s AmericanDepositary Shares were listed for trading on the Nasdaq Capital Market inconnection with the Genus transaction in March 2005. As a result, AIXTRONis subject to various requirements under the U.S. Securities Exchange Act of1934, as amended (the “Exchange Act”) and the rules of the Nasdaq CapitalMarket (the “Nasdaq Rules”).

To facilitate theCompany’s compliance with the Sarbanes-Oxley Act, the Exchange Act and theNasdaq Rules, AIXTRON has taken various steps, including the establishment of aDisclosure Committee that is responsible for reviewing and approving its publicdisclosures, and a review of its Audit Committee policies. AIXTRON has alsointroduced procedures to provide the senior management certifications mandatedby the Sarbanes-Oxley Act. These procedures and certifications are a basis onwhich AIXTRON’s Chief Executive Officer and Chief Financial Officer may providesuch certifications. AIXTRON has also implemented procedures for handlingcomplaints related to accounting practices and introduced a Code of Ethics.

Commencing with theCompany’s annual report for the year ending December 31, 2006, it will berequired to include a report from its management relating to its evaluation ofthe Company’s internal control over financial reporting, as required pursuantto Section 404 of the U.S. Sarbanes-Oxley Act, with an “attestation”report from its independent auditors regarding such management report.

Companies listed on Nasdaqare subject to the provisions of Nasdaq Marketplace Rule 4350 (“NasdaqMarketplace Rule 4350”), among other Nasdaq Rules.

In general, pursuant toNasdaq Marketplace Rule 4350(a)(1), as amended, a “foreign private issuer”such as AIXTRON may follow its home country law and practice in lieu of thecorporate governance requirements of Nasdaq. A foreign private issuer thatelects to follow home country practice in lieu of Nasdaq Marketplace Rule 4350must provide a written statement from an independent counsel in the issuer’shome country certifying that the non-conforming practices are not prohibited bythe home country’s law. AIXTRON provided such a written statement in connectionwith its March 2005 listing application.

A foreign private issuerthat follows a home country practice in lieu of one or more provisions ofNasdaq Marketplace Rule 4350 is also required to disclose in its annualreports filed with the SEC each requirement of Nasdaq Marketplace Rule 4350that it does not follow and describe the home country practice followed by theissuer in lieu of such requirement.

 

60

----

 

AIXTRONintends generally to comply with applicable German corporate governancepractice rather than certain of the requirements of Nasdaq Marketplace Rule 4350.The requirements of Rule 4350 that AIXTRON is not following and itsnon-conforming practices in lieu thereof are as follows:

 
|        | · |   | Rule 4350(b)(1)(A) requires distribution  to shareholders of copies of an annual report containing audited financial  statements of the company and its subsidiaries. The report shall be  distributed to shareholders a reasonable period of time prior to the  company’s annual meeting of shareholders and shall be filed with Nasdaq at  the time it is distributed to shareholders. Under the German Stock  Corporation Act (Aktiengesetz) annual and interim reports are not  automatically distributed to shareholders by a company. However, AIXTRON is  required to make its annual reports available to the shareholders at the  Company’s offices and to mail such reports to shareholders upon request.  AIXTRON files its annual reports with the Securities and Exchange Commission.  In addition, under the deposit agreement relating to AIXTRON’s ADSs, the  Company has agreed to provide annual reports to the depositary bank (JPMorgan  Chase Bank) so that the depositary bank may arrange for distribution of such  information to holders of AIXTRON’s ADSs;                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(c) requires, among other things,  that a majority of a company’s board of directors must be comprised of  independent directors (as defined in Nasdaq Marketplace Rule 4200) and  sets forth certain voting and independence requirements with respect to the  nomination of board members and the determination of compensation of  officers. Under the German Stock Corporation Act (Aktiengesetz) members of  the Executive Board are elected by the Supervisory Board. The Executive Board  manages the company under its own responsibility, i.e., the Executive Board  is not bound by orders of third parties. Neither the general meeting nor the  Supervisory Board may issue orders to the Executive Board. The Executive  Board is obligated to comply with the statutory regulations, the provisions  of the articles of association and the rules of procedure of the  Executive Board relating to the competencies within the company, namely the  competencies of the Supervisory Board and the general meeting. Furthermore  the Supervisory Board is responsible for the compensation agreements with the  members of Executive Board. When concluding these compensation agreements  with the individual members of the Executive Board the Supervisory Board is  obligated to ensure that the overall remuneration for the individual members  of the Executive Board is reasonable in relation to their duties and the situation  of the company; |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(d) sets forth certain  requirements with respect to a company’s audit committee (including committee  charter, composition, responsibilities and authority). The Nasdaq  Rules require the creation of several specified board committees  composed of independent directors and operating pursuant to written charters  that set forth their tasks and responsibilities. AIXTRON currently has an  Audit Committee. Nevertheless, German law precludes certain responsibilities  from being delegated to a committee, such as the selection of the independent  auditors, who are required by German law to be elected at the shareholders’  meeting. The independence of the members of AIXTRON’s Supervisory Board  committees is governed by the independence standards applicable to  Supervisory Board members. Collectively, AIXTRON’s Supervisory Board is  responsible for many of the same functions as the committees required under  Nasdaq Marketplace Rule 4350;                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(f) requires that a company’s by-laws  provide for a quorum for any meeting of the holders of common stock of at  least 33 1/3% of the outstanding shares of the company’s voting stock.  Neither German law nor the rules and regulations promulgated by the  Frankfurt Stock Exchange require a specific quorum for annual general  meetings; therefore, AIXTRON’s Articles of Association do not provide for a  quorum. Such a requirement would be contrary to generally accepted business  practice in Germany and the absence of a quorum requirement in AIXTRON’s  Articles of Association is consistent with German law;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(g) requires a company to solicit  proxies and provide proxy statements for all meetings of shareholders and to  provide copies of such proxy solicitation to Nasdaq. Under German law, the  voting right may be exercised by a proxy. There are no restrictions regarding  the person of the proxy. AIXTRON offers to its shareholders to exercise their  voting rights in the general meeting through proxies appointed by the  Company. The proxies appointed by AIXTRON are obliged to vote in accordance  with the instructions of the represented shareholder. In such case, AIXTRON  provides proxy statements which contain recommendations for the exercise of  the voting right on each item of the agenda. In accordance with the  requirements of the German Stock Corporation Act (Aktiengesetz), AIXTRON  keeps the declarations of such proxies available for inspection for a period  of three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

61

----

 
|        |   |   | Under the deposit agreement pertaining to AIXTRON’s  ADSs, JPMorgan Chase Bank as AIXTRON’s depositary bank mails to holders of  ADSs a notice stating inter alia that each holder of ADSs is entitled to  instruct the depositary bank as to the exercise of the voting rights. Each  shareholder who desires to exercise or to give instructions for the exercise  of voting rights must execute and return a document provided by the  depositary bank that instructs the depositary bank as to how the number of  the shares represented by such holders’ ADSs are to be voted; and                                                                                                                                  |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | · |   | Rule 4350(i) generally requires U.S.  domestic companies to obtain shareholder approval of all equity-compensation  plans (including stock option plans) and any material revisions to them. In  lieu of the requirements of Rule 4350(i), AIXTRON follows the German  Stock Corporation Act (Aktiengesetz), which requires that the adoption of  stock option plans and any material revisions thereto be approved by the  Company’s shareholders insofar as the issuance of shares and/or stock options  under authorized or contingent capital authorizations requires shareholder  approval. This approval requires consideration of the key elements of the  applicable option plan or relevant modifications. |

Othersignificant differences between AIXTRON’s governance practices and those ofU.S. domestic Nasdaq-listed companies are as follows:

*Two-Tier Board*

The German StockCorporation Act requires AIXTRON to have a two-tier board structure consistingof an Executive Board and a Supervisory Board, which is not comparable to theone-tier or unitary board system in the U.S. The two-tier system provides astrict separation of management and supervision. Roles and responsibilities ofeach of the two boards are clearly defined by law.

*Independence*

Under this two-tierboard system, except as described above, AIXTRON’s methods for determining andensuring the independence of its Supervisory Board differ from those of NasdaqMarketplace Rule 4350, which generally contemplates a U.S.-style, one-tiersystem. In contrast to the Nasdaq Rules, which require the board toaffirmatively determine the independence of the individual directors withreference to specific tests of independence, German law does not require theSupervisory Board to make such affirmative findings on an individual basis. Atthe same time, the Bylaws of AIXTRON’s Supervisory Board contain severalprovisions to help ensure the independence of the Supervisory Board’s adviceand supervision. Furthermore, the members of AIXTRON’s Supervisory andExecutive Boards are strictly independent from one another. A member of oneboard is legally prohibited from being concurrently active on the other. SupervisoryBoard members have independent decision making authority and are legallyprohibited from following the direction or instruction of any affiliated party.Moreover, Supervisory Board members may not enter into advisory, service orcertain other contracts with AIXTRON, unless approved by the Supervisory Board.

*Compliance with the requirementsof Nasdaq Marketplace Rule 4350 applicable to foreign private issuers*

UnderNasdaq Marketplace Rule 4350(a)(1), as amended, however, even a foreignprivate issuer such as AIXTRON is still required to comply with NasdaqMarketplace Rule 4350(b)(1)(B)(relating to disclosure of “going concern”qualifications), Nasdaq Marketplace Rule 4350(j)(relating to execution ofNasdaq form listing agreements) and Nasdaq Marketplace Rule 4350(m)(relatingto issuer notices to Nasdaq of material noncompliance with Nasdaq Marketplace Rule 4350);and to have an audit committee that satisfies Nasdaq Marketplace Rule 4350(d)(3)(regardingcompliance with U.S. Exchange Act Rule 10A-3) and to ensure thatsuch audit committee’s members meet the independence requirement in NasdaqMarketplace Rule 4350(d)(2)(A)(ii)(regarding independence required underExchange Act Rule 10A-3).

 

62

----

 

AIXTRON’s SupervisoryBoard has determined that as of June 7, 2006, the Company is in compliancewith the aforementioned requirements applicable to foreign private issuerspursuant to Nasdaq Marketplace Rule 4350.

*CorporateGovernance Guidelines*

AIXTRON has adopted acode of ethics that applies to the members of its Supervisory and ExecutiveBoards, principal executive officer, principal financial officer, principalaccounting officer and controller, and each of AIXTRON’s employees performingsimilar functions, as well as to the Company’s other employees.

Various documentspertaining to AIXTRON’s corporate governance, including its Articles ofAssociation and the report on the Company’s fulfillment of the requirements ofthe German Corporate Governance Code, may be found on AIXTRON’s internetwebsite at www.aixtron.com. The information available on AIXTRON’s website isnot incorporated by reference into this report.

### **C.Material Contracts**

#### ***Employment contracts of current members of the Executive Board.***

The Company’s employmentcontract with **Paul K. Hyland**,effective as of April 1, 2002 and amended as of October 20, 2004,provides for a base salary of € 310,700 per year and a bonus in accordancewith the employment contract (3% of AIXTRON’s annual Group net income adjustedby additions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”)). The total amount available to be paid as a bonus to allExecutive Board members as a group is limited to € 6.5 million, or10% of the modified annual AIXTRON Group net income. For the purposes of apension scheme, the Company pays Mr. Hyland € 40,000 per year as thepremium for a life insurance of his choice to be taken out or as an additionalcomponent of his gross salary. In addition, the Company pays Mr. Hylandthe employer’s contribution to the compulsory health insurance or the sameamount to an alternative insurance with waiver. Mr. Hyland’s employmentcontract will expire on March 31, 2010.

The Company’s employmentcontract with **Wolfgang Breme**,effective as of April 1, 2005, provides for a base salary of € 230,100per year and a bonus in accordance with the employment contract (1.5% ofAIXTRON’s annual Group net income adjusted by additions to and withdrawals fromrevenue reserves (“modified annual AIXTRON Group net income”)). The totalamount available to be paid as a bonus to all Executive Board members as agroup is limited to € 6.5 million, or 10% of the modified annualAIXTRON Group net income. For the purposes of a pension scheme, the Companypays Mr. Breme € 25,000 per year in the first year of employment and €40,000 per year in the following employment years, as the premium for a lifeinsurance of his choice to be taken out or as an additional component of hisgross salary. In addition, the Company pays Mr. Breme the employer’scontribution to the compulsory health insurance or the same amount to analternative insurance with waiver. Mr. Breme’s employment contract willexpire on March 31, 2008.

The Company’s employmentcontract with **Dr. Bernd Schulte**,effective April 1, 2002 and amended as of October 20, 2004,provides for a base salary of € 260,000 per year and a bonus in accordance withthe employment contract (1.5% of AIXTRON’s annual Group net income adjusted byadditions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”)). The total amount available to be paid as a bonus to allExecutive Board members as a group is limited to € 6.5 million, or10% of the modified annual AIXTRON Group net income. For the purposes of apension scheme, the Company pays Dr. Schulte € 40,000 per year, asthe premium for a life insurance of his choice to be taken out or as anadditional component of his gross salary. In addition, the Company pays Dr. Schultethe employer’s contribution to the compulsory health insurance or the sameamount to an alternative insurance with waiver. Dr. Schulte’s employmentcontract will expire on March 31, 2010.

The Company’s employmentcontract with **Dr. William W.R. Elder**,effective July 1, 2005 and amended as of May 11, 2006, providesfor a base salary of U.S.$ 360,000 per year and a bonus in accordance withthe employment contract (1.0% of AIXTRON’s annual Group net income adjusted byadditions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”)). The total amount available to be paid as bonus to allExecutive Board members as a group is limited to € 6.5 million, or10% of the modified annual AIXTRON Group net income. A Company pension plan isnot part of the contract. Dr. Elder’s employment contract will expire onJune 30, 2008.

 

63

----

 

#### ***Employment contracts of former members of the Executive Board.***

The Company’s employmentcontract with **Steven D. Perry**,effective April 1, 2002, amended as of May 2004, and expired on March 31, 2005,provided for a base salary of € 210,600 per year and a bonus in accordance withthe employment contract (8% of AIXTRON’s annual Group net income adjusted byadditions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”), divided by the number of Executive Board members. The totalamount available to be paid as a bonus to all Executive Board members as agroup was limited to € 1.0 million of the modified annual AIXTRONGroup net income). For the purposes of a pension scheme, the Company paid Mr. Perry€ 25,000 per year, as the premium for a life insurance of his choice to betaken out or as an additional component of his gross salary. In addition, theCompany paid Mr. Perry the employer’s contribution [to the compulsoryhealth insurance or the same amount to an alternative insurance with waiver.

The Company’s employmentcontract with **Christopher C. Dodson**,effective April 1, 2002, amended as of May 11, 2004, and expiredon March 31, 2005 provided for a base salary of € 210,600 peryear and a bonus in accordance with the employment contract (8% of AIXTRON’sannual Group net income adjusted by additions to and withdrawals from revenuereserves (“modified annual AIXTRON Group net income”), divided by the number ofExecutive Board members. The total amount available to be paid as a bonus toall Executive Board members as a group was limited to € 1.0 millionof the modified annual AIXTRON Group net income). For the purposes of a pensionscheme, the Company paid Mr. Dodson € 25,000 per year, as the premiumfor a life insurance of his choice to be taken out or as an additionalcomponent of his gross salary. In addition, the Company paid Mr. Dodsonthe employer’s contribution to the compulsory health insurance or the sameamount to an alternative insurance with waiver. Upon leaving AIXTRON, Mr. Dodsonreceived a severance payment of € 220,000.

The Company’s employmentcontract with **Timothy McEntee**,effective November 15, 2002, amended as of December 3, 2003 andas of May 11, 2004, and expired on November 14, 2005 providedfor a base salary of € 210,600 per year and a bonus in accordance with theemployment contract (8% of AIXTRON’s annual Group net income adjusted byadditions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”), divided by the number of Executive Board members. The totalamount available to be paid as a bonus to all Executive Board members as agroup was limited to € 1.0 million of the modified annual AIXTRONGroup net income). For the purposes of a pension scheme, the Company paid Mr. McEntee€ 25,000 per year, as the premium for a life insurance of his choice to betaken out or as an additional component of his gross salary. In addition, theCompany paid Mr. McEntee the employer’s contribution [to the compulsoryhealth insurance or the same amount to an alternative insurance with waiver.

The following summary isqualified in its entirety by reference to the agreements, copies of which havebeen filed with the SEC as exhibits to the AIXTRON Form F-4/ARegistration Statement (File No. 333-122624).

#### ***Intellectual Property Agreements***

Certain information,such as fees and royalties, in the manufacturing license and technical servicesagreement with Laboratoires D’Electronique Philips (“LEP”) dated August 10,1989 (the “LEP Agreement”) and in the exclusive patent and know-how licenseagreement with Centre National de la Recherche Scientifique (“CNRS”) and theInstitut National Polytechnique de Grenoble (“INPG”) executed December 17,2002 (the “CNRS Agreement”) is confidential and has been redacted from thecopies of the LEP Agreement and the CNRS Agreement AIXTRON filed with the SEC.

The LEP Agreementprovides AIXTRON a license and technical information and support in regard toLEP’s MOVPE reactor prototype (the “Planetary Reactor Prototype”). Theworldwide license granted by LEP to AIXTRON is a non-transferable and exclusivelicense to use the technical information related to the Planetary ReactorPrototype to develop, manufacture, use, sell or otherwise market planetaryreactors.

 

64

----

 

AIXTRON shall notsublicense or transfer the technical information to third parties, except as todisclosures necessary for the manufacture, operations or maintenance ofplanetary reactors.

The CNRS Agreement dealswith the system for injection of precursors into a vacuum vapor depositionchamber (the “Product”). CNRS and INPG grant AIXTRON an exclusive license todevelop, manufacture, use, sell the Product and exploit the patents andknow-how in the entire world with the right to grant certain sub-licenses. Exceptfor the specified sub-license grants, the CNRS Agreement is personal, notassignable and non-transferable. The CNRS Agreement remains in force during thelife of the patents unless it is terminated by any of the parties to thisagreement.

### **D.Exchange Controls**

At present, Germany doesnot restrict the movement of capital between Germany and other countries orindividuals except certain persons, entities and countries subject to embargoesin accordance with German law and applicable resolutions adopted by the UnitedNations and the European Union.

For statisticalpurposes, with certain exceptions, every corporation or individual residing inGermany must report to the German Central Bank any payment received from ormade to a non-resident corporation or individual if the payment exceeds €12,500 (or the equivalent in a foreign currency). Additionally, corporationsand individuals residing in Germany must report to the German Central Bank anyclaims of a resident against, or liabilities payable to, a non-residentcorporation or individual exceeding an aggregate of € 5 million (or theequivalent in a foreign currency) at the end of any calendar month. Residentcorporations and individuals are also required to report annually to the GermanCentral Bank any stakes of 10% or more they hold in the equity of non-residentcorporations with total assets of more than € 3 million. Corporations residingin Germany with assets in excess of € 3 million must report annually to theGerman Central Bank any stake of 10% or more in the company held by anindividual or a corporation located outside Germany.

### **E.Taxation**

#### ***German Taxation***

The following discussionis a summary of certain material German tax consequences for beneficial ownersof AIXTRON’s ordinary shares or ADSs:

(1) who are notGerman residents for German income tax purposes (i.e., persons whose residence,habitual abode, statutory seat or place of effective management and control isnot located in Germany), and

(2) whose shares orADSs do not form part of the business property of a permanent establishment orfixed base in Germany. Throughout this section such owners are referred to as “Non-GermanHolders.”

The discussion is basedon tax laws of Germany as in effect on the date of this annual report,including the Convention between the United States of America and the FederalRepublic of Germany for the Avoidance of Double Taxation and the Prevention ofFiscal Evasion With Respect to Taxes on Income and Capital and to Certain OtherTaxes (the “Treaty”). Such laws are subject to change. The discussion is alsobased in part upon the representations of the Depositary and assumes that eachobligation in the Deposit Agreement and any related agreement will be performedin accordance with its terms.

The following discussiondoes not purport to be a comprehensive discussion of all German taxconsequences that may be relevant for Non-German Holders. AIXTRON’s discussiondoes not address all aspects of German taxation that may be relevant to you inlight of your particular circumstances. You should consult your tax advisorregarding the German federal, state and local tax consequences of the purchase,ownership and disposition of AIXTRON’s shares or ADSs and the procedures tofollow to obtain a refund of German taxes withheld from dividends.

*Taxationof the Company in Germany*

* *

65

----

 

German corporations aresubject to a corporate income tax rate of 25%. The solidarity surcharge of 5.5%on the net assessed corporate income tax has been retained, so that thecorporate income tax and the solidarity surcharge, in the aggregate, amount toa tax rate of 26.375%.

In addition, profits ofa German resident corporations are subject to a municipal profit-related tradeincome tax. The exact amount of this trade income tax depends on themunicipality in which the corporation maintains its business establishment(s) andvaries between 9% and 20%. Trade tax on income is a deductible item in computingthe corporation’s tax base for corporate income tax purposes. Therefore, theoverall tax rate for companies operating in Germany ranges between 33% to 41%.

The deduction for ataxable loss carryforward for the fiscal year is unlimited for the threshold ofEUR 1,000,000 but exceeding taxable income can only be reduced by 60%. Thetemporary loss carryforward is unchanged and remains unlimited.

*WithholdingTax on Dividends*

For dividenddistributions made by AIXTRON, the Company is generally required to withholdtax of 20%. A solidarity surcharge of 5.5% on the withholding tax has beenretained, resulting in a surcharge amount to 1.1 % (5.5% x 20%), and a totaleffective withholding tax rate from dividends of 21.1%. For many Non-GermanHolders, the withholding tax rate is reduced under applicable income taxtreaties. Under most income tax treaties to which Germany is a party, the rateof dividend withholding tax is reduced to 15%. To reduce the withholding to theapplicable treaty rate of 15%, a Non-German Holder must apply for a refund ofwithholding taxes paid. Therefore you may apply for a refund of Germanwithholding tax in an amount equal to 6.1% of the gross amount of the dividendyou received (21.1% aggregate German withholding tax rate minus 15% Income TaxTreaty withholding tax rate). The application for refund must be filed with theGerman Federal Tax Office. The relevant forms can be obtained from the GermanFederal Tax Office or from German embassies and consulates.

*SpecialTax Rules for U.S. Shareholders*

Under the Treaty, thewithholding tax rate generally is reduced to 15% of the gross amount of thedividends. Dividend payments to an eligible U.S. holder made by AIXTRON will besubject to a 15% general withholding tax rate under the Treaty.

Dividend distributionsmade by the Company are subject to a 20% withholding tax plus a solidaritysurcharge of 5.5% on the withholding tax resulting in an aggregate Germanwithholding tax of 21.1% of the declared dividend, and eligible U.S. holders(as defined below under “U.S. Taxation”) are entitled to receive a payment fromthe German tax authorities equal to 6.1% of the declared dividend.

Accordingly, for adeclared dividend of 100, an eligible U.S. holder initially will receive 78.9(100 minus the 21.1% withholding tax). The eligible U.S. holder is thenentitled to a refund from the German tax authorities of 6.1 and will, as aresult, effectively receive a total of 85 (i.e., 85% of the declared dividend).

*WithholdingRefund Procedure for U.S. Shareholders*

For shares and ADSs keptin custody with The Depository Trust Company in New York or one of itsparticipating banks, the German tax authorities have introduced a collectiveprocedure for the refund of German dividend withholding tax and the solidaritysurcharge thereon on a trial basis. Under this procedure, The Depository TrustCompany may submit claims for refunds payable to eligible U.S. holders underthe Treaty collectively to the German tax authorities on behalf of theseeligible U.S. holders.

The German Federal TaxOffice will pay the refund amounts on a preliminary basis to The DepositoryTrust Company, which will redistribute these amounts to the eligible U.S.holders according to the regulations governing the procedure. The GermanFederal Tax Office may review whether the refund was made in accordance withthe law within four years after making the payment to The Depository TrustCompany. Details of this collective procedure are available from The DepositoryTrust Company. Individual claims

 

66

----

 

for refunds may be madeon a special German form which must be filed with the German Federal Tax Office(Bundeszentralamt für Steuern, Dienstsitz Bonn, An der Küppe 1, 53225 Bonn,Germany). Copies of this form can be downloaded from the following website:

http://www.bzst.bund.de/003_menue_links/008_kapertragsteuer/084_ausl_antragsteller/843_vordruck/004_E_USA.pdf

or can be obtained fromthe Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W.,Washington, D.C. 20007-1998. Claims must be filed within a four-yearperiod from the end of the calendar year in which the dividend was received.

As part of theindividual refund claim, an eligible U.S. holder must submit to the German taxauthorities the original bank voucher (or a certified copy thereof) issued bythe paying agent documenting the tax withheld, and an official certification onIRS Form 6166 of its last United States federal income tax return. IRS Form 6166may be obtained by filing a request with the Internal Revenue Service Center inPhiladelphia, Pennsylvania, Foreign Certification Request, P.O. Box 16347,Philadelphia, PA 19114-0447. Requests for certification must include theeligible U.S. holder’s name, Social Security or Employer Identification Number,tax return form number, and tax period for which the certification is requested.Requests for certifications can include a request to the Internal RevenueService to send the certification directly to the German tax authorities. If nosuch request is made, the Internal Revenue Service will send a certification onIRS Form 6166 to the eligible U.S. holder, who then must submit thisdocument with his refund claim.

*Taxationof Capital Gains*

The Income Tax Treatyprovides that the German capital gains tax does not apply to gains on the sale orother disposition of ADSs or Ordinary shares.

*Inheritanceand Gift Tax*

The Estate Tax Treatyprovides that an individual whose domicile is determined to be in the UnitedStates for purposes of such Treaty will not be subject to German inheritanceand gift tax (the equivalent of the United States federal estate and gift tax)on the individual’s death or making of a gift unless the ADSs or OrdinaryShares (1) are part of the business property of a permanent establishmentlocated in Germany or (2) are part of the assets of a fixed base of anindividual located in Germany and used for the performance of independentpersonal services. An individual’s domicile in the United States, however doesnot prevent imposition of German inheritance and gift tax with respect to anheir, donee, or other beneficiary who either is or is deemed to be resident inGermany at the time the individual died or the gift was made.

The Estate Tax Treatyalso provides a credit against U.S. federal estate and gift tax liability forthe amount of inheritance and gift tax paid to Germany, subject to certainlimitations, in a case where the ADSs or Ordinary Shares are subject to Germaninheritance or gift tax and U.S. federal estate or gift tax.

*OtherTaxes*

No German transfer,stamp or similar taxes apply to the purchase, sale or other disposition ofshares or ADSs by Non-German Holder. Currently, net worth tax is not levied inGermany.

#### ***U.S. Federal Taxation***

The following is asummary of the principal U.S. federal income tax consequences that may berelevant with respect to the acquisition, ownership and disposition of AIXTRON’sshares or ADSs. This summary addresses only the U.S. federal income taxconsiderations of holders that hold shares or ADSs as capital assets. Thissummary does not address tax considerations applicable to holders that may besubject to special tax rules, such as:

 

67

----

 
| · |   | financial institutions;                                                                                                                                                                         |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                            |
| · |   | insurance companies;                                                                                                                                                                            |
|   |   |                                                                                                                                                                                            |
| · |   | real estate investment trusts;                                                                                                                                                                  |
|   |   |                                                                                                                                                                                            |
| · |   | regulated investment companies;                                                                                                                                                                 |
|   |   |                                                                                                                                                                                            |
| · |   | grantor trusts;                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                            |
| · |   | dealers or traders in securities or currencies;                                                                                                                                                 |
|   |   |                                                                                                                                                                                            |
| · |   | tax-exempt entities;                                                                                                                                                                            |
|   |   |                                                                                                                                                                                            |
| · |   | persons that received shares or ADSs as compensation  for the performance of services;                                                                                                          |
|   |   |                                                                                                                                                                                            |
| · |   | persons that will hold shares or ADSs as part of a  “hedging” or “conversion” transaction or as a position in a “straddle” for  U.S. federal income tax purposes; |
|   |   |                                                                                                                                                                                            |
| · |   | certain former citizens or long-term residents of  the United States;                                                                                                                           |
|   |   |                                                                                                                                                                                            |
| · |   | persons that have a “functional currency” other than  the U.S. dollar; or                                                                                                             |
|   |   |                                                                                                                                                                                            |
| · |   | holders that own (or are deemed to own) 10% or more  (by voting power or value) of AIXTRON’s shares or ADSs.                                                                               |

 

Moreover, this summarydoes not address the U.S. federal estate and gift or alternative minimum taxconsequences of the acquisition, ownership and disposition of AIXTRON’s sharesor ADSs. This summary is based on (1) the federal tax laws of the UnitedStates as in effect and available on the date of this annual report, includingthe Internal Revenue Code of 1986, as amended, judicial decisions,administrative pronouncements, and currently effective and proposed U.S.Treasury Regulations, each as available on the date hereof, and (2) therepresentations and covenants of the Depositary and the assumption that eachobligation in the Deposit Agreement and any related agreement will be performedin accordance with its terms. All of the foregoing is subject to change, whichchange could apply retroactively and could affect the tax consequencesdescribed below.

For purposes of thissummary, a “U.S. Holder” is a beneficial owner of AIXTRON’s shares or ADSsthat, for U.S. federal income tax purposes, is: (1) a citizen or residentof the U.S., (2) a partnership or corporation created or organized in orunder the laws of the United States or any state thereof (including theDistrict of Columbia), (3) an estate, the income of which is subject toU.S. federal income taxation regardless of its source or (4) a trust ifsuch trust validly elects to be treated as a U.S. person for U.S. federalincome tax purposes or if (a) a court within the U.S. is able to exerciseprimary supervision over its administration and (b) one or more U.S.persons have the authority to control all of the substantial decisions of thetrust. A “Non-U.S. Holder” is a beneficial owner of AIXTRON’s shares or ADSsthat is not a U.S. Holder.

If a partnership (or anyother entity treated as a partnership for U.S. federal income tax purposes)holds AIXTRON’s shares or ADSs, the tax treatment of such partnership and apartner in such partnership generally will depend on the status of the partnerand the activities of the partnership. Such a partnership or partner shouldconsult its own tax advisor as to its consequences.

Each prospectivepurchaser should consult his/her own tax advisor with respect to the U.S.federal, state, local and foreign tax consequences of acquiring, owning ordisposing of AIXTRON’s shares or ADSs.

*Ownership of ADSs in general*

 

68

----

For U.S. federal incometax purposes, a holder of ADSs generally will be treated as the owner of theshares represented by such ADSs. The U.S. Treasury Department has expressedconcern that depositaries for ADSs, or other intermediaries between the holdersof shares of an issuer and the issuer, may be taking actions that areinconsistent with the claiming of U.S. foreign tax credits by U.S. Holders ofsuch receipts or shares. Accordingly, the analysis regarding the availabilityof a U.S. foreign tax credit for German taxes and sourcing rules describedbelow could be affected by future actions that may be taken by the U.S.Treasury Department.

*Distributions*

Subject to thediscussion below under “— Passive Foreign Investment Company Considerations,”the gross amount of any distribution the Company makes of cash or property(other than certain distributions, if any, of shares distributed pro rata toall AIXTRON shareholders, including holders of ADSs) with respect to shares orADSs, before reduction for any German taxes withheld therefrom, will beincludible in income by a U.S. Holder as dividend income to the extent suchdistributions are paid out of the Company’s current or accumulated earnings andprofits as determined under U.S. federal income tax principles. Non-corporateU.S. Holders may be taxed on any such dividends received in a taxable yearbeginning on or before December 31, 2010 at the lower tax rate applicableto long-term capital gains (i.e., gains from the sale of capital assets heldfor more than one year). In order to qualify for the preferential rate oftaxation, certain requirements must be met, including certain holding periodrequirements and the absence of certain risk reduction transactions withrespect to the shares or ADSs. However, such dividends will not be eligible forthe dividends received deduction generally allowed to corporate U.S. Holders. Tothe extent, if any, that the amount of any distribution AIXTRON makes exceedsits current and accumulated earnings and profits as determined under U.S.federal income tax principles, it will be treated first as a tax-free return ofthe U.S. Holder’s adjusted tax basis in the shares or ADSs and thereafter ascapital gain. AIXTRON does not maintain calculations of its earnings andprofits under U.S. federal income tax principles.

Any such dividend paidin euros will be included in the gross income of a U.S. Holder in an amountequal to the U.S. dollar value of the euros on the date of receipt, which inthe case of ADSs, is the date they are received by the depositary. The amountof any distribution of property other than cash will be the fair market valueof such property on the date of distribution. A U.S. Holder may elect to deductin computing his/her taxable income or, subject to certain complex limitationson foreign tax credits generally, credit against its U.S. federal income taxliability German withholding tax at the rate applicable to such U.S. Holder. Asdiscussed under “German Taxation—Special Tax Rules for U.S. Shareholders”above in this Item 10 under the Treaty, dividends paid by AIXTRON to a U.S.Holder generally will be subject to a German withholding tax rate of 15%. Suchreduced rate of withholding will apply only if such U.S. Holder is treated as aresident of the U.S. for purposes of such Treaty and otherwise is entitled tothe benefits of such treaty and the dividends are not effectively connectedwith a permanent establishment or fixed base of such U.S. Holder that issituated in Germany.

For purposes ofcalculating the U.S. foreign tax credit, dividends paid by AIXTRON generallywill constitute passive income, or in the case of certain U.S. Holders,financial services income. U.S. Holders should note, however, that the “financialservices income” category will be eliminated for taxable years beginning after December 31,2006, and the foreign tax credit limitation categories after such time will belimited to “passive category income” and “general category income.”  U.S. Holders should consult their taxadvisors regarding the availability of, and limitations on, any such foreigntax credit.

Subject to thediscussion under “Backup Withholding Tax and Information Reporting Requirements”below in this section, a Non-U.S. Holder of shares or ADSs generally will notbe subject to U.S. federal income or withholding tax on dividends received onshares or ADSs, unless such income is effectively connected with the conduct bysuch Non-U.S. Holder of a trade or business in the United States.

*Sale or exchange of shares orADSs*

Subject to the discussionbelow under “— Passive Foreign Investment Company Considerations,” a U.S.Holder generally will recognize gain or loss on the sale or exchange of sharesor ADSs equal to the difference between the amount realized on such sale orexchange and the U.S. Holder’s adjusted tax basis in

 

69

----

 

the shares or ADSs. Suchgain or loss will be capital gain or loss. In the case of a non-corporate U.S.Holder, the maximum marginal U.S. federal income tax rate applicable to suchgain will be lower than the maximum marginal U.S. federal income tax rateapplicable to ordinary income (other than certain dividends) if such U.S.Holder’s holding period for such shares or ADSs exceeds one year. Gain or loss,if any, recognized by a U.S. Holder generally will be treated as U.S. sourceincome or loss for U.S. foreign tax credit purposes. The deductibility ofcapital losses is subject to limitations.

A U.S. Holder’s initialtax basis in shares or ADSs will be the U.S. dollar value of the eurodenominated purchase price determined on the date of purchase. If the shares orADSs are treated as traded on an “established securities market,” a cash basisU.S. Holder, or, if it elects, an accrual basis U.S. Holder, will determine thedollar value of the cost of such shares or ADSs by translating the amount paidat the spot rate of exchange on the settlement date of the purchase. If a U.S.Holder converts U.S. dollars to euros and immediately uses that currency topurchase shares or ADSs, such conversion generally will not result in taxablegain or loss to such U.S. Holder. With respect to the sale or exchange ofshares or ADSs, the amount realized generally will be the U.S. dollar value ofthe payment received determined on (1) the date of receipt of payment inthe case of a cash basis U.S. Holder and (2) the date of disposition inthe case of an accrual basis U.S. Holder. If the shares or ADSs are treated astraded on an “established securities market,” a cash basis taxpayer, or, ifhe/she elects, an accrual basis taxpayer, will determine the U.S. dollar valueof the amount realized by translating the amount received at the spot rate ofexchange on the settlement date of the sale.

Subject to thediscussion under “Backup Withholding Tax and Information Reporting Requirements”below in this section, a Non-U.S. Holder of shares or ADSs generally will notbe subject to U.S. federal income or withholding tax on any gain realized onthe sale or exchange of such shares or ADSs unless (1) such gain iseffectively connected with the conduct by such Non-U.S. Holder of a trade orbusiness in the U.S. or (2) in the case of any gain realized by anindividual Non-U.S. Holder, such holder is present in the U.S. for 183 days ormore in the taxable year of such sale or exchange and certain other conditions aremet.

*PassiveForeign Investment Company Considerations*

A Non-U.S. corporationwill be classified as a “passive foreign investment company,” or a PFIC, forU.S. federal income tax purposes in any taxable year in which, after applyingcertain look-through rules, either:  (i) atleast 75 percent of its gross income is “passive income;” or (ii) at least50 percent of the average value of its gross assets is attributable to assetsthat produce passive income or are held for the production of passive income. Passiveincome for this purpose generally includes dividends, interest, royalties,rents and gains from commodities and securities transactions.

Based on certainestimates of the Company’s gross income and gross assets and the nature of theCompany’s business, AIXTRON does not believe it was a PFIC for the taxable yearending December 31, 2005. AIXTRON’s status in future years will depend onits assets and activities in those years. AIXTRON has no reason to believe thatits assets or activities will change in a manner that would cause the Companyto be classified as a PFIC, but there can be no assurance that AIXTRON will notbe considered a PFIC for any taxable year. If AIXTRON was a PFIC, U.S. Holdersgenerally would be subject to imputed interest charges and otherdisadvantageous tax treatment with respect to any gain from the sale orexchange of, and certain distributions with respect to, shares or ADSs.

If AIXTRON was a PFIC,you could make a variety of elections that may alleviate certain taxconsequences referred to above, and one of these elections may be maderetroactively. However, it is expected that the conditions necessary for makingcertain of such elections will not apply in the case of AIXTRON’s shares andthe ADSs. You should consult your own tax advisor regarding the taxconsequences that would arise if AIXTRON were to be treated as a PFIC.

*Backup withholding tax andinformation reporting requirements*

U.S. backup withholdingtax and information reporting requirements generally apply to certain paymentsto certain non-corporate holders of stock. Information reporting generally willapply to payments of dividends on, and to proceeds from the sale or redemptionof, shares or ADSs made within the United States, or by a

 

70

----

 

U.S. payor or U.S.middleman to a holder of shares or ADSs (other than an “exempt recipient” whichis a payee, including a corporation, a payee that is not a U.S. person thatprovides an appropriate certification, and certain other persons). A payor willbe required to withhold backup withholding tax from any payments of dividendson, or the proceeds from the, sale or redemption of, shares or ADSs within theUnited States to a holder, or by a U.S. payor or U.S. middleman (other than an “exemptrecipient”) if such holder fails to furnish its correct taxpayer identificationnumber or otherwise fails to comply with, or establish an exemption from, suchbackup withholding tax requirements. The backup withholding rate is 28% fortaxable years through 2010.

In the case of suchpayments made within the U.S. to a foreign simple trust, a foreign grantortrust or a foreign partnership (other than payments to a foreign simple trust,a foreign grantor trust or a foreign partnership that qualifies as a “withholdingforeign trust” or a “withholding foreign partnership” within the meaning of theapplicable U.S. Treasury Regulations and payments to a foreign simple trust, aforeign grantor trust or a foreign partnership that are effectively connectedwith the conduct of a trade or business in the U.S.), the beneficiaries of theforeign simple trust, the persons treated as the owners of the foreign grantortrust or the partners of the foreign partnership, as the case may be, will berequired to provide the certification discussed above in order to establish anexemption from backup withholding tax and information reporting requirements. Moreover,a payor may rely on a certification provided by a payee that is not a U.S.person only if such payor does not have actual knowledge or a reason to knowthat any information or certification stated in such certificate is incorrect.

The above summary is notintended to constitute a complete analysis of all tax consequences that may berelevant to the acquisition, ownership and disposition of shares or ADSs, anddoes not address state, local, foreign or other tax laws. Holders of shares orADSs should consult their own tax advisors concerning the tax consequences oftheir particular situations.

### **F.Dividends and Paying Agents**

Not applicable.

### **G.Statement by Experts**

Not applicable.

### **H.Documents on Display**

AIXTRON is subject tothe informational requirements of the U.S. Exchange Act. In accordance withthese requirements, AIXTRON files reports and other information with the SEC. Thesematerials, including this report and the exhibits thereto, may be inspected andcopied at the SEC’s Public Reference Room at 100 F Street, N.E.,Washington, D.C. 20549. Copies of the materials may be obtained from the SEC’sPublic Reference Room at prescribed rates. The public may obtain informationon the operation of the SEC’s Public Reference Room by calling the SEC inthe United States at 1-800-SEC-0330. AIXTRON’s filings,including this report, are also available on the SEC’s website at www.sec.gov.

### **I.Subsidiary Information**

Not applicable.

 

71

----

 

## **Item 11:  Quantitative and Qualitative Disclosure aboutMarket Risk**

The global nature ofAIXTRON’s businesses exposes the Company to market risks resulting from changesin foreign currency exchange rate and interest rates. Accordingly, changes inforeign currency exchange rates and interest rates may adversely affect itsoperating results and financial condition. AIXTRON is also exposed to commodityprice risks. AIXTRON seeks to manage and control these market risks primarilythrough monitoring of its operating and financial activities and the use ofderivative financial instruments.

#### ***Exchange Rate Risk***

*TransactionRisk and Currency Risk Management*

The global nature ofAIXTRON’s businesses exposes its operations and reported financial results andcash flows to the risks arising from fluctuations in the exchange rates of thedollar, the euro and other world currencies. AIXTRON’s businesses is exposed totransaction risk whenever the Company has revenues in a currency that isdifferent from the currency in which it incurs the costs of generating thoserevenues. When AIXTRON converts the revenues into the currency in which itincurs the costs, the value of the revenues may have declined in the interimrelative to the currency in which the Company incurred the costs. These risksprimarily affect the Company’s business in Europe, which generates a part ofAIXTRON’s system revenues in foreign currencies, primarily U.S. dollars, andincurs manufacturing costs primarily in euros.

*Effectsof Currency Translation*

Most of AIXTRON’ssubsidiaries are located outside the euro zone. Since the Company’s financialreporting currency is the euro, AIXTRON translates the income statements ofthese subsidiaries into euros so that the Company can include their financialresults in its Consolidated Financial Statements. Period-to-period changes inthe average exchange rate for a particular country’s currency can significantlyaffect the translation of both revenues and operating income denominated inthat currency into euros. Unlike the effect of exchange rate fluctuations ontransaction exposure, the exchange rate transaction risk does not affect localcurrency cash flows.

AIXTRON has assets andliabilities outside the euro zone. These assets and liabilities are denominatedin local currencies and reside primarily at AIXTRON’s subsidiaries in theUnited States and the United Kingdom.

When AIXTRON convertsnet asset values into euros, currency fluctuations result in period-to-periodchanges in those net asset values. The Company’s equity position reflects thesechanges in net asset values. AIXTRON generally does not hedge against this typeof risk.

#### ***Foreign Currency Risk***

The Company is exposedto foreign currency risk on sales and purchases that are denominated in acurrency other than the euro. The currencies giving rise to this risk areprimarily pounds sterling and U.S. dollars.

Of the equipment ordersreceived in 2005, 76% were denominated in U.S. dollars, compared to 77% in 2004.Approximately 31% of equipment-related cost of sales in 2005 were denominatedin U.S. dollars.

The Company uses forwardexchange contracts and options to hedge the impact of the fluctuations inexchange rates on cash flows from forecasted and agreed sales transactionsdenominated in foreign currencies. The Company typically hedges less than 100%of the forecasted sales contracts. Forward exchange contracts have typicallymaturities of less than one year after the balance sheet date.

 

72

----

 

#### ***Interest Rate Risk***

The Company is subjectonly to minor interest rate fluctuations relating to interest rate influencedcash and cash equivalents, short term investments, bank loans and convertiblebonds.

See Note 27 to theCompany’s Consolidated Financial Statements (“Financial Instruments”) for moreinformation on the credit, interest rate, and currency risks arising in AIXTRON’snormal course of business.

 

73

----

 

## **Item 12:  Description of Securities other than EquitySecurities**

Not applicable.

 

74

----

# ** **

# **PART II**

 

75

----

 

## **Item 13:  Defaults, Dividend Arrearages andDelinquencies**

Not applicable.

 

76

----

 

## **Item 14:  Material Modifications to the Rights ofSecurity Holders and Use of Proceeds**

Not applicable.

 

77

----

 

## **Item 15:  Controls and Procedures**

 

Disclosure controls andprocedures are defined by Rules 13a-15(e) and 15d-15(e) ofthe Exchange Act as controls and other procedures that are designed to ensurethat information required to be disclosed by AIXTRON in reports filed with theSEC under the Exchange Act is recorded, processed, summarized and reportedwithin the required time periods. Disclosure controls and procedures are alsodesigned to ensure that the information is accumulated and communicated to theCompany’s management, including the Company’s Chief Executive Officer and ChiefFinancial Officer, to allow timely decisions regarding required disclosure.

There are inherentlimitations to the effectiveness of any system of disclosure controls andprocedures, including the possibility of human error and the circumvention oroverriding of such controls and procedures. Accordingly, even effectivedisclosure controls and procedures can only provide reasonable assurance ofachieving their control objectives. Acknowledging this, AIXTRON has designedits disclosure controls and procedures to provide such reasonable assurance. Managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

The Company’s ChiefExecutive Officer, Paul Hyland, and its Chief Financial Officer, WolfgangBreme, with the participation of management, have performed an evaluation ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures as of December 31, 2005. In connection with thisevaluation, the Company’s Chief Executive Officer and its Chief FinancialOfficer have concluded that such disclosure controls and procedures wereeffective.

AIXTRON is currentlyrequired to comply with the requirements of Section 404 of theSarbanes-Oxley Act of 2002, including those relating to internal controls overfinancial reporting, with respect to the Company’s annual report for the fiscalyear 2006. AIXTRON expects to make changes in its internal controls overfinancial reporting to comply with Section 404 of the Sarbanes-Oxley Act. AsAIXTRON implements changes in its internal controls over financial reporting,it may identify deficiencies that will require remedial efforts.

There were no changes inthe Company’s internal controls over financial reporting that occurred duringthe fiscal year ended December 31, 2005 that have materially affected, orare reasonably likely to materially affect, AIXTRON’s internal controls overfinancial reporting.

 

78

----

 

## **Item 16A:  Audit Committee Financial Experts**

As of May 18, 2005AIXTRON’s Supervisory Board has determined that Prof. Dr. Blättchen is an “auditcommittee financial expert.”  TheSupervisory Board has determined that the “audit committee expert” is “independent”as set forth in Rule 10A-3 of the Securities Exchange Act of 1934,as amended (the “Exchange Act”).

 

79

----

 

## **Item 16B:  Code of Ethics**

AIXTRON has adopted acode of ethics that applies to its principal executive officer, principalfinancial officer, principal accounting officer and controller, as well as toall of its employees performing similar functions in and outside Germany and toall other senior management. All of these officers and members of seniormanagement have agreed to abide by this code of ethics. The application of thecode of ethics to all other employees remains subject to the approval of theworkers council of the Company, which has not yet been obtained. AIXTRON’s codeof ethics, which is incorporated by reference to Exhibit 11.1 to theCompany’s annual report on Form 20-F, dated June 25, 2005 (FileNo. 000-51196), is consistent with the requirements of the GermanCode of Corporate Governance and the Nasdaq Capital Market and is filed as anexhibit to this report.

 

80

----

 

## **Item 16C:  Principal Accountant Fees and Services**

Fees related to auditservices and other services rendered by AIXTRON’s independent principalaccountant, Deloitte & Touche worldwide, for the years 2005 and 2004were as follows:

 

|                            | ** ** | **Year ended  December 31,** | ** ** |
|----------------------------|------------|----------------------------------------|------------|
| **Type of Fees** | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                 | ** ** | **(EUR in millions)**        | ** ** |
| Audit Fees                 |       | 1.15                                   |       | 2.96 |   |
| Audit-Related  Fees        |       | 0.03                                   |       | 0.08 |   |
| Tax Fees                   |       | 0.07                                   |       | 0.04 |   |
| All Other Fees             |       | 0.02                                   |       | 0.00 |   |
|                       |       |                                   |       |   |   |
| Total                      |       | 1.27                                   |       | 3.08 |   |

 

In the above table, “auditfees” are the aggregate Deloitte & Touche fees for professionalservices in connection with the audit of the Company’s Consolidated FinancialStatements, reviews of interim financial statements, as well as audits ofstatutory financial statements of AIXTRON and its subsidiaries. Also includedin “audit fees” are amounts for attestation services in relation to regulatoryfilings and other compliance requirements. “Audit-related fees” are fees foraccounting advice on actual or contemplated transactions, due diligenceengagements related to acquisitions, attestation regarding compliance withcertain agreements and other agreed-upon procedures. “Tax fees” are fees fortax advice on actual or contemplated transactions, tax compliance andexpatriate employee tax services. “All Other Fees” are miscellaneous items.

#### ***Audit Committee Pre-Approval Policies***

In accordance withGerman law, AIXTRON’S independent auditors are appointed at the AnnualShareholders’ Meeting based on a recommendation of the Company’s SupervisoryBoard. The Audit Committee of the Supervisory Board prepares the Board’srecommendation on the selection of the independent auditors. Subsequent to theauditors’ appointment, the Supervisory Board awards the contract and in itssole authority approves the terms and scope of the audit and all auditengagement fees, as well as monitors the auditors’ independence. On May 11,2006, at the Annual General Meeting of Shareholders, Deloitte & ToucheGmbH Wirtschaftsprüfungsgesellschaft, Hanover, Germany was appointed to serveas the Company’s independent auditors for the year ending December 31,2006.

In order to assure theintegrity of independent audits, AIXTRON’s Audit Committee established a policyto approve all audit and permissible non-audit services provided by the Company’sindependent auditors prior to the auditors’ engagement. As part of this approvalprocess, the Audit Committee adopted pre-approval policies and procedurespursuant to which the Audit Committee annually pre-approves certain types ofservices to be performed by AIXTRON’s independent auditors. Under the policies,the Company’s independent auditors are not allowed to perform any non-auditservices which may impair the auditors’ independence under the rules ofthe SEC. In fiscal year 2005 the Supervisory Board pre-approved 100% of theperformance by Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft,Hanover, Germany of the above specified audit and permitted non-audit services.

 

81

----

 

## **Item 16D:  Exemptions from Listing Standards for AuditCommittees**

Not applicable.

 

82

----

 

## **Item 16E:  Purchases of Equity Securities by the Issuer**

Not applicable.

 

83

----

# ** **

# **PART III**

 

84

----

 

## **Item 17:  Financial Statements**

Not applicable.

 

85

----

 

## **Item 18:  Financial Statements**

See pages F-1to F-34, incorporated herein by reference.

 

86

----

 

## **Item 19:  Exhibits**

 
| Exhibit  Number  | ** ** | **Description  of Exhibit**                                                                                                                                                                                                                                                                                     |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                            |
|   1.1  |       | Articles of Association*(Satzung)* as of May 11,  2006. (English translation)                                                                                                                                                                                                                              |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.1  |       | Agreement in Principle (incorporated by reference to  Exhibit 10.1 to Form F-4, dated February 8, 2005, File  No. 333-122624). This agreement relates to the acquisition of Genus, Inc.                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.2  |       | Manufacturing License and Technical Services  Agreement, dated as of August 10, 1989, between AIXTRON  Aktiengesellschaft and Laboratoires D’Electronique Philips (incorporated by  reference to Exhibit 10.2 to Form F-4, dated February 8,  2005, File No. 333-122624).         |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.3  |       | Exclusive Patent and Know-How License  Agreement among AIXTRON Aktiengesellschaft, Centre National de la Recherche  Scientifique and the Institut National Polytechnique de Genoble (incorporated  by reference to Exhibit 10.3 to Form F-4, dated  February 8, 2005, File No. 333-122624). |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.4  |       | Contract between AIXTRON AG and Mr. Paul K.  Hyland, effective April 1, 2002. (English translation)                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.5  |       | Amendment to contract between AIXTRON AG and  Mr. Paul K. Hyland, dated October 20, 2004. (English  translation)                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.6  |       | Contract between AIXTRON AG and Mr. Wolfgang  Breme, effective April 1, 2005. (English translation)                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.7  |       | Contract between AIXTRON AG and Dr. Bernd  Schulte, effective April 1, 2002. (English translation)                                                                                                                                                                                                    |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.8  |       | Amendment to contract between AIXTRON AG and  Dr. Bernd Schulte, dated October 20, 2004.                                                                                                                                                                                                              |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.9  |       | Contract between AIXTRON AG and Dr. William  W.R. Elder, effective July 1, 2005. (English translation)                                                                                                                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.10 |       | Amendment to contract between AIXTRON AG and  Dr. William W.R. Elder, dated May 11, 2006.                                                                                                                                                                                                        |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.11 |       | Contract between AIXTRON AG and Steven D. Perry,  effective April 1, 2002. (English translation)                                                                                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.12 |       | Amendment to contract between AIXTRON AG and Steven  D. Perry, dated March 11, 2005. (English translation)                                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.13 |       | Contract between AIXTRON AG and Christopher C.  Dodson, effective April 1, 2002. (English translation)                                                                                                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.14 |       | Amendment to contract between AIXTRON AG and  Christopher C. Dodson, dated March 11, 2004. (English translation)                                                                                                                                                                                      |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.15 |       | Contract between AIXTRON AG and Timothy McEntee,  effective November 15, 2002. (English translation)                                                                                                                                                                                                       |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.16 |       | Amendment to contract between AIXTRON AG and Timothy  McEntee, dated December 3, 2003. (English translation)                                                                                                                                                                                               |
|             |       |                                                                                                                                                                                                                                                                                                            |
|   4.17 |       | Amendment to contract between AIXTRON AG and Timothy  McEntee, dated May 11, 2004. (English translation)                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                            |

 

87

----

 
|   8.1 |   | List of Subsidiaries (incorporated by reference to  the list of significant subsidiaries set forth in this report under the  caption “Item 4. Information on the Company — Organizational Structure.”) |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                  |
| 11.1            |   | Code of Ethics (incorporated by reference to  Exhibit 11.1 to Form 20-F, dated June 25, 2005, File  No. 000-51196)                                                                                |
|            |   |                                                                                                                                                                                                                  |
| 12.1            |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|            |   |                                                                                                                                                                                                                  |
| 12.2            |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|            |   |                                                                                                                                                                                                                  |
| 13.1            |   | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                            |
|            |   |                                                                                                                                                                                                                  |
| 14.1            |   | Consent of Deloitte & Touche GmbH  Wirtschaftsprüfungsgesellschaft.                                                                                                                                     |

 

88

----

 

## **Signatures**

 

The registrant herebycertifies that it meets all of the requirements for filing on Form 20-Fand that it has duly caused and authorized the undersigned to sign this annualreport on its behalf.

 

Date:  June 22, 2006

 
|        |   | AIXTRON  AKTIENGESELLSCHAFT                                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                       |
|   |   | /s/                    PAUL HYLAND     |
|   |   | Name:                                                                                                                                      |                 Paul  Hyland |
|   |   | Title:                                                                                                                                     |    President and Chief Executive  Officer |
|   |   |                                                                                                                                       |
|   |   | /s/                    WOLFGANG  BREME |
|   |   | Name:                                                                                                                                      |                   Wolfgang  Breme |
|   |   | Title:                                                                                                                                     |       Executive Vice  President and Chief Financial

                              Officer |

 

89

----

## ** **

## **Reportof Independent Registered Public Accounting Firm**

ToThe Supervisory Board

AIXTRONAG

Aachen,Germany

 

We have audited theaccompanying consolidated balance sheets of AIXTRON Aktiengesellschaft andsubsidiaries (“AIXTRON”) as of December 31, 2005 and 2004, and the relatedconsolidated statements of income, changes in stockholders’ equity, and cashflows for each of the years in the two-year period ended December 31,2005. These consolidated financial statements are the responsibility of AIXTRON’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. AIXTRON is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the AIXTRON’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of AIXTRON Aktiengesellschaft and subsidiaries as ofDecember 31, 2005 and 2004, and the results of their operations and their cashflows for each of the years in the two-year period ended December 31, 2005, inconformity with International Financial Reporting Standards as adopted by theEuropean Union. 

International FinancialReporting Standards as adopted by the European Union vary in certainsignificant respects from accounting principles generally accepted in theUnited States of America. The application of the latter would have affected thedetermination of net income for each of the two years in the period ended December 31,2005, and the determination of stockholders’ equity and financial position at December 31,2005 and 2004, to the extent summarized in Note 40.
| /s/ Deloitte & Touche GmbH |
|-------------------------------------|
| Deloitte & Touche GmbH     |

 

 

Hanover,Germany

March 9,2006 except for notes 40 and 41, as to which the date is June 20, 2006

 

90

----

 

**ConsolidatedStatements of Income**

*** ***
| ** **                                                                        | ** **   | **Note**     | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------------------------------|--------------|--------------|------------|-------------|------------|------------|------------|
| *in EUR thousands*                                                                | ** **   | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
|                                                                              |         |         |       |        |       |       |       |
| Revenues                                                                          |         |         |       | 139,402     |       | 140,004    |       |
| Cost of sales                                                                     |         |         |       | 104,676     |       | 87,604     |       |
| **Gross  profit**                                                                 | * *     | * *     | ** ** | **34,726**  | ** ** | **52,400** | ** ** |
|                                                                              | * *     | * *     |       |        |       |       |       |
| Selling expenses                                                                  | * *     | * *     |       | 27,766      |       | 18,297     |       |
| General administration expenses                                                   | * *     | * *     |       | 18,004      |       | 13,240     |       |
| Research and development costs                                                    | * *     | *5*          |       | 30,514      |       | 20,407     |       |
| Other operating income                                                            | * *     | *6*          |       | 5,565       |       | 9,939      |       |
| Other operating expenses                                                          | * *     | *7*          |       | 2,900       |       | 721        |       |
| Impairment of goodwill                                                            | * *     | * *     |       | 13,782      |       | 0          |       |
| **Operating  result**                                                             | * *     | * *     | ** ** | **(52,675** | **)**      | **9,674**  | ** ** |
|                                                                              | * *     | * *     |       |        |       |       |       |
| Interest income                                                                   | * *     | * *     |       | 693         |       | 786        |       |
| Interest expense                                                                  | * *     | * *     |       | 233         |       | 2          |       |
| **Net  interest**                                                                 | * *     | *9*          | ** ** | **460**     | ** ** | **784**    | ** ** |
| **Result  before taxes**                                                          | * *     | * *     | ** ** | **(52,215** | **)**      | **10,458** | ** ** |
|                                                                              | * *     | * *     |       |        |       |       |       |
| Taxes on income                                                                   | * *     | *10*         |       | 1,253       |       | 2,829      |       |
| **Net  loss/income for the year (after taxes)**                                   | *** *** | *** *** |       | (53,468     | )          | 7,629      |       |
| ** **                                                                        | *** *** | *** *** |       |        |       |       |       |
| loss  attributable to miniority interests (after taxes)                           | * *     | * *     |       | 0           |       | (52        | )          |
| loss/profit  attributable to the shareholders of the parent company (after taxes) | * *     | * *     | ** ** | **(53,468** | **)**      | **7,681**  | ** ** |
| ** **                                                                        | * *     | * *     |       |        |       |       |       |
| Basic earnings  per share (EUR)                                                   | * *     | *21*         |       | (0.65       | )          | 0.12       |       |
| Diluted earnings per  share (EUR)                                                 | * *     | *21*         |       | (0.65       | )          | 0.12       |       |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-1

----

 

**ConsolidatedBalance Sheet**

*** ***
| ***in EUR thousands***                 | ** ** | **Note**   | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------|------------|------------|------------|-----------------------------|------------|-----------------------------|------------|
| *** ***                                     | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Assets                                           |       |       |       |                        |       |                        |       |
| Property, plant  and equipment                   | * *   | *12*       |       | 42,179                      |       | 37,070                      |       |
| Goodwill                                         | * *   | *13*       |       | 71,002                      |       | 13,633                      |       |
| Other intangible  assets                         | * *   | *13*       |       | 19,766                      |       | 4,295                       |       |
| Investment  property                             | * *   | *14*       |       | 4,908                       |       | 4,908                       |       |
| Other  non-current assets                        | * *   | *15*       |       | 499                         |       | 5,820                       |       |
| Deferred tax  assets                             | * *   | *16*       |       | 6,331                       |       | 5,822                       |       |
| Total non-current  assets                        | * *   | * *   | ** ** | **144,685**                 | ** ** | **71,548**                  | ** ** |
| Inventories                                      | * *   | *17*       |       | 33,113                      |       | 37,276                      |       |
| Trade  receivables                               | * *   | *18*       |       | 24,209                      |       | 16,008                      |       |
| less allowance kEUR 445  (2004: kEUR 355)        | * *   | * *   |       |                        |       |                        |       |
| Current tax  assets                              | * *   | *11*       |       | 0                           |       | 63                          |       |
| Other current  assets                            | * *   | *18*       |       | 3,875                       |       | 5,942                       |       |
| Cash and cash  equivalents                       | * *   | *19*       |       | 31,435                      |       | 45,498                      |       |
| Total current  assets                            | * *   | * *   | ** ** | **92,632**                  | ** ** | **104,787**                 | ** ** |
| Total assets                                     | * *   | * *   | ** ** | **237,317**                 | ** ** | **176,335**                 | ** ** |
|                                             | * *   | * *   |       |                        |       |                        |       |
|                                             | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Liabilities and  shareholders’ equity       | * *   | * *   | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Subscribed  capital                              | * *   | * *   |       | 87,797                      |       | 64,832                      |       |
| Number of shares:  87.796.614 (2004: 64.831.512) | * *   | * *   |       |                        |       |                        |       |
| Additional  paid-in capital                      | * *   | * *   |       | 95,951                      |       | 28,803                      |       |
| Retained  earnings                               | * *   | * *   |       | (9,264                      | )          | 44,204                      |       |
| Accumulated  other comprehensive income          | * *   | * *   |       | 9,115                       |       | (872                        | )          |
| Total  shareholders’ equity                 | * *   | *20*       | ** ** | **183,599**                 | ** ** | **136,967**                 | ** ** |
| Provisions for  pensions                         | * *   | *22*       |       | 978                         |       | 703                         |       |
| Other non-current  liabilities                   | * *   | * *   |       | 176                         |       | 104                         |       |
| Other  non-current accruals and provisions       | * *   | *24*       |       | 3,122                       |       | 0                           |       |
| Total  non-current liabilities                   | * *   | * *   | ** ** | **4,276**                   | ** ** | **807**                     | ** ** |
| Trade payables                                   | * *   | *25*       |       | 17,479                      |       | 13,901                      |       |
| Advance payments  from customers                 | * *   | * *   |       | 11,845                      |       | 13,529                      |       |
| Other current  accruals and provisions           | * *   | *24*       |       | 14,032                      |       | 7,063                       |       |
| Other current  liabilities                       | * *   | *25*       |       | 3,949                       |       | 2,137                       |       |
| Current tax  liabilities                         | * *   | *11*       |       | 1,404                       |       | 83                          |       |
| Convertible  bonds                               | * *   | *26*       |       | 3                           |       | 3                           |       |
| Deferred  revenues                               | * *   | * *   |       | 730                         |       | 1,845                       |       |
| Total current  liabilities                       | * *   | * *   | ** ** | **49,442**                  | ** ** | **38,561**                  | ** ** |
| Total  liabilities                               | * *   | * *   | ** ** | **53,718**                  | ** ** | **39,368**                  | ** ** |
| Total liabilities and  shareholders’ equity |       |       | ** ** | **237,317**                 | ** ** | **176,335**                 | ** ** |

 

The accompanying notesare an integral part of these consolidated financial statements.

F-2

----

 

**Consolidated CashFlow Statement**

*** ***
| ***in EUR thousands***                                                           | ** **   | **Note** | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|----------------------------------------------------------------------------------|--------------|----------|------------|-------------|------------|------------|------------|
| ** **                                                                       | * *     | * * |       |        |       |       |       |
| **Cash inflow/outflow from operating activities**                                | * *     | * * |       |        |       |       |       |
| Net loss/income for the year (after taxes)                                       | * *     | * * |       | (53,468     | )          | 7,681      |       |
| Reconciliation between profit and cash inflow/outflow from operating  activities | * *     | * * |       |        |       |       |       |
|  Expense from share-based payments                                          | * *     | * * |       | 1,801       |       | 1,041      |       |
|  Impairment expense                                                         | * *     | * * |       | 26,630      |       | 0          |       |
|  Depreciation and amortization expense                                      | * *     | * * |       | 10,406      |       | 5,986      |       |
|  Result from disposal of property, plant and  equipment                     | * *     | * * |       | 484         |       | 370        |       |
|  Deferred income taxes                                                      | * *     | * * |       | (509        | )          | 1,700      |       |
|                                                                             | * *     | * * |       |        |       |       |       |
| **Cash inflow/outflow prior to changes in assets  and liabilities**              | * *     | * * | ** ** | **(14,656** | **)**      | **16,778** | ** ** |
|                                                                             | * *     | * * |       |        |       |       |       |
| **Change in**                                                                    | * *     | * * |       |        |       |       |       |
| Inventories                                                                      | * *     | * * |       | 8,738       |       | (4,265     | )          |
| Trade receivables                                                                | * *     | * * |       | (5,316      | )          | (6,513     | )          |
| Other assets                                                                     | * *     | * * |       | 328         |       | (4,624     | )          |
| Trade payables                                                                   | * *     | * * |       | (560        | )          | 2,157      |       |
| Provisions and other liabilities                                                 | * *     | * * |       | 1,138       |       | 4,130      |       |
| Deferred revenues                                                                | * *     | * * |       | (1,280      | )          | (1,243     | )          |
| Non-current liabilities                                                          | * *     | * * |       | 1,091       |       | (20        | )          |
| Advance payments from customers                                                  | * *     | * * |       | (1,684      | )          | 432        |       |
| **Cash inflow/outflow from operating activities**                                | * *     | * * | ** ** | **(12,201** | **)**      | **6,832**  | ** ** |
|                                                                             | * *     | * * |       |        |       |       |       |
| **Cash inflow/outflow from investing activities**                                | * *     | * * |       |        |       |       |       |
| Cash from acquisition of Genus, Inc.                                        | * *     | * * |       | 9,049       |       | 0          |       |
| Cost related to the Genus acquisition                                            | * *     | * * |       | (3,628      | )          | 0          |       |
| Capital expenditures in property, plant and equipment                            | * *     | * * |       | (8,323      | )          | (3,763     | )          |
| Capital expenditures in intangible assets                                        | * *     | * * |       | (64         | )          | (618       | )          |
| Acquisition of minority interests                                                | * *     | * * |       | 0           |       | (2,011     | )          |
| Proceeds from the sale of property, plant and equipment                          | * *     | * * |       | 0           |       | 3          |       |
| **Cash inflow/outflow from investing activities**                                | * *     | * * | ** ** | **(2,966**  | **)**      | **(6,389** | **)**      |
| ** **                                                                       | * *     | * * |       |        |       |       |       |
| **Cash inflow/outflow from financing activities**                                | * *     | * * |       |        |       |       |       |
| Change in minority interests                                                     | * *     | * * |       | 0           |       | (52        | )          |
| **Cash inflow/outflow from financing activities**                                | * *     | * * | ** ** | **0**       | ** ** | **(52**    | **)**      |
| ** **                                                                       | * *     | * * | ** ** | ** **  | ** ** | ** ** | ** ** |
| Effect of changes of exchange rates on cash and cash equivalents                 | * *     | * * |       | 1,104       |       | (196       | )          |
| Net change in cash and cash equivalents                                          | * *     | * * |       | (14,063     | )          | 195        |       |
| Cash and cash equivalents at the beginning of the period                         | * *     | * * |       | 45,498      |       | 45,303     |       |
| **Cash and cash equivalents at the end of the  period**                          | *** *** | ***19*** | ** ** | **31,435**  | ** ** | **45,498** | ** ** |
|                                                                             |         |     |       |        |       |       |       |
| Cash paid for Interest                                                           |         |     |       | (38         | )          | (2         | )          |
| Cash received for interest                                                       |         |     |       | 691         |       | 806        |       |
| Cash paid for income taxes                                                       |         |     |       | (506        | )          | (240       | )          |
| Cash received from Income taxes                                                  |         |     |       | 23          |       | 934        |       |

 

Additional informationabout the consolidated capital flow statement is provided in note 36 of thenotes to the consolidated financial statements.

The accompanying notesare an integral part of these consolidated financial statements.

F-3

----

 

**ConsolidatedStatement of Changes in Equity**

*** ***
| ** **                                         | ** ** | ** **                                  | ** ** | ** **           | ** ** | ** ** | ** ** | ** **                                   | **Other comprehensive  income** | ** **                      | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|----------------------|------------|------------|------------|----------------------------------------------|--------------------------------------|---------------------------------|------------|
| ** **                                         | ** ** | **Subscribed  capital under HGB** | ** ** | **Treasury  shares** | ** ** | ** ** | ** ** | **Subscribed  capital under IFRS** | ** **                           | **Additional  paid-in-capital** | ** ** | **Currency  translation** | ** ** | **Derivative  financial  instruments** | ** ** | **Retained  Earnings** | ** ** | **Minority  interests** | ** ** | **Shareholders’ Equity** | ** ** |
| ** **                                         | ** ** | ** **                                  | ** ** | ** **           | ** ** | ** ** | ** ** | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ***in EUR thousands***                   | ** ** | ** **                                  | ** ** | ** **           | ** ** | ** ** | ** ** | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance  at January 1, 2004**               | ** ** | **64,832**                                  | ** ** | ** **           | ** ** |       |       | **64,832**                                   | ** **                           | **27,762**                      | ** ** | **(2,244** | **)** | **1,469** | ** ** | **36,524** | ** ** | **159** | ** ** | **128,502** | ** ** |
| **Net  income for the period**                | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | **7,680** | ** ** | **(52** | **)** | **7,628** | ** ** |
| **Accrued  expense for stock options**             | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | **1,041**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **1,041** | ** ** |
| **Currency  translation**                          | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | **48** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **48** | ** ** |
| **Acquisition  minority interests**                | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(107** | **)** | **(107** | **)** |
| **Derivative  financial instruments**              | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | **(145** | **)** | ** ** | ** ** | ** ** | ** ** | **(145** | **)** |
| **Balance  at December 31, 2004**             | ** ** | **64,832**                                  | ** ** | ** **           | ** ** |       |       | **64,832**                                   | ** **                           | **28,803**                      | ** ** | **(2,196** | **)** | **1,324** | ** ** | **44,204** | ** ** | **0** | ** ** | **136,967** | ** ** |
| ** **                                         | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance  at January 1, 2005**               | ** ** | **64,832**                                  | ** ** | ** **           | ** ** |       |       | **64,832**                                   | ** **                           | **28,803**                      | ** ** | **(2,196** | **)** | **1,324** | ** ** | **44,204** | ** ** | **0** | ** ** | **136,967** | ** ** |
| **Net loss  for the period**                       | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | **(53,468** | **)** | ** ** | ** ** | **(53,468** | **)** |
| **Capital  increase against contribution in kind** | ** ** | **24,968**                                  | ** ** | **(4,428**           | **)**      |       |       | **20,540**                                   | ** **                           | **62,161**                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **82,701** | ** ** |
| **Accrued  expense for stock options**             | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | **1,801**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **1,801** | ** ** |
| **Exercise**                                       | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **-  convertible bonds**                           | ** ** | ** **                                  | ** ** | **2,384**            | ** ** |       |       | **2,384**                                    | ** **                           | **3,142**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **5,526** | ** ** |
| **- stock  options**                               | ** ** | ** **                                  | ** ** | **41**               | ** ** |       |       | **41**                                       | ** **                           | **44**                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **85** | ** ** |
| **Currency  translation**                          | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | **11,616** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **11,616** | ** ** |
| **Derivative  financal instruments**               | ** ** | ** **                                  | ** ** | ** **           | ** ** |       |       | ** **                                   | ** **                           | ** **                      | ** ** | ** ** | ** ** | **(1,629** | **)** | ** ** | ** ** | ** ** | ** ** | **(1,629** | **)** |
| **Balance at December 31,  2005**             | ** ** | **89,800**                                  | ** ** | **(2,003**           | **)**      |       |       | **87,797**                                   | ** **                           | **95,951**                      | ** ** | **9,420** | ** ** | **(305** | **)** | **(9,264** | **)** | **0** | ** ** | **183,599** | ** ** |
|                                                    |            |                                             |            |                      |            |            |            |                                              |                                      |                                 |            |  |  |  |  |  |  |  |  |  |  |  |

 

See note 20 foradditional disclosures.

The accompanying notesare an integral part of these consolidated financial statements.

 

F-4

----

 

**Notes to theConsolidated Financial Statements**

**1. Generalprinciples**

AIXTRON AG (“AIXTRON AG”)is incorporated as a stock corporation (“Aktiengesellschaft”) under the laws ofthe Federal Republic of Germany. The Company is domiciled in Aachen,Kackertstraße 15-17, 52072 Aachen. AIXTRON AG is registered in thecommercial register of the District Court (“Amtsgericht”) of Aachen under HRB7002.

The consolidatedfinancial statements of AIXTRON AG and its subsidiaries (“AIXTRON” or “Company”)have been prepared in accordance with International Financial ReportingStandards (IFRS) and its interpretations adopted by the InternationalAccounting Standards Board (IASB). These are the Company’s first consolidatedfinancial statements under IFRS and IFRS 1 has been applied.

An explanation of howthe transition from US GAAP to IFRS has impacted the reported financialposition, financial performance and cash flows of the Company is provided innote 38.

AIXTRON is a leadingprovider of deposition equipment to the semiconductor and compoundsemiconductor industry. The Company’s technology solutions are used by adiverse range of customers worldwide to build advanced components forelectronic and opto-electronic applications based on compound, silicon, ororganic semiconductor materials. Such components are used in fiber opticcommunication systems, wireless and mobile telephony applications, optical andelectronic storage devices, computing, signaling and lighting, displays, aswell as a range of other leading-edge technologies.

These consolidatedfinancial statements have been prepared by the Executive Board and weresubmitted to the Supervisory Board for its meeting held on March 9, 2006.

**2. Significantaccounting policies**

**(a) Companies included in consolidation**

Companiesincluded in consolidation are the parent company, AIXTRON AG, and 14 companies, in which AIXTRON AG has a100% direct or indirectshareholding or which can be allocated to AIXTRON AG for economic purposes. The balance sheet date of allconsolidated companies is December 31. A list of all consolidatedcompanies is shown in note 32.

**(b) Basis of accounting**

Theconsolidated financial statements are presented in Euro (EUR). The amounts arerounded to the nearest (kEUR). Some items in the balance sheet and incomestatement have been combined under one heading to improve the clarity ofpresentation. Such items are disclosed and commented on individually in thenotes.

Thepreparation of financial statements in conformity with IFRS requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosures of contingent assets and liabilities on thebalance sheet date and the reported amounts of income and expenses during thereported period. Actual results may differ from these estimates.

Theestimates and underlying assumptions are reviewed on an ongoing basis. Revisionsto accounting estimates are recognized in the period in which the estimate isrevised if this revision affects only that period, or in the period of therevision and future periods if the revision affects both current and futureperiods.

In thecalculation of provisions the Company made assumptions and estimates in respectof the amount of the related transactions as well as in respect of the probabilitythat such transactions might occur. For the calculation of the fair values ofintangible assets. AIXTRON assumed future revenues and cash flows to determinethe respective assets. These assumptions are based on experiences of themanagement and on external sources, such as market studies. As to thecalculation of provisions for warranties, the Company also uses estimatedvalues derived from previous experience.

Theaccounting policies set out below have been applied consistently to all periodspresented in these

F-5

----

 

consolidatedfinancial statements and in preparing an IFRS opening balance sheet at January 1,2004 for the purpose of the transition to IFRS.

Theaccounting policies have been applied consistently by the Company entities.

**(c) Bases of consolidation**

**(i) ****Subsidiaries**

Entities on which AIXTRONAG has a controlling influence are treated as subsidiaries (see note 32). Controllinginfluence exists when the Company has the power, directly or indirectly, togovern the financial and operating policies of an entity so as to obtainbenefits from its activities. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date thatcontrolling influence commences.

**(ii) Transactions eliminated on consolidation**

All intercompany profits,transactions and balances have been eliminated in the consolidation.

**(d) Foreign currency**

Theconsolidated financial statements have been prepared in Euro (EUR). In thetranslation of financial statements of subsidiaries outside the Euro Zone thelocal currencies are used as functional currencies of these subsidiaries. Assetsand liabilities of these subsidiaries are translated to EUR at the exchangerate ruling at balance sheet date. Revenues and expenses are translated to EURat average exchange rates for the year/at average exchange rates for the periodbetween the inclusion in the consolidated financial statements and the balancesheet date. Net equity is translated at historical rates. The differencesarising on translation are disclosed in other comprehensive income.

Exchangegains and losses resulting from fluctuations in exchange rates in the case offoreign currency transactions are recognized in the income statement in “otheroperating income” or “other operating expenses”.

**(e) Derivative financial instruments**

AIXTRONuses derivative financial instruments in the form of forward exchange contractsand options to hedge fluctuations in exchange rates in respect of cash flowsfrom planned and agreed sales transactions denominated in foreign currencies.

Hedgeaccounting as defined in IAS 39 is not applied to all derivative financialinstruments concluded to hedge sales transactions. In accordance with theCompany’s treasury policy, it does not hold or issue derivative financial instrumentsfor trading purposes.

Derivativefinancial instruments are recognized initially at cost. Subsequent to initialrecognition, derivative financial instruments are stated at fair value at thebalance sheet date (market assessment). The fair value of forward exchangecontracts is their quoted market price at the balance sheet date, being thepresent value of the quoted forward price.

Gains andlosses resulting from the market assessments for forward exchange contracts andoptions at the balance sheet date and to which no hedge accounting is applied,are recognized in the income statement. However, where derivatives qualify forhedge accounting, recognition of any resultant gain or loss depends on thenature of the item being hedged.

**(i) Cash flow hedges**

If hedge accounting, asdefined in IAS 39, is applied to a derivative financial instrument to hedge thevariability in cash flows from planned transactions, the gain and loss arisingon the market assessment is recognized in equity (other comprehensive income). Thisgain/loss is recognized in equity until the underlying transaction affects theincome statement. Where a cash flow hedge does not meet the criteria of hedgeaccounting, the ineffective part will be recognized immediately in the incomestatement.

F-6

----

 

**(ii) Fair value hedges**

Foreign currency forwardcontracts concluded to hedge firmly committed sales transactions denominated inforeign currencies do not meet all the criteria of IAS 39 in order to apply forhedge accounting. Consequently, all gains and losses arising from these forwardexchange contracts are recognized directly in the income statement.

**(f) Property, plant andequipment**

**(i) Acquisition or manufacturing cost**

Items of property, plantand equipment are stated at cost, plus additional charges, less accumulateddepreciation (see below) and impairment losses (see accounting policy (l)).

Costs of internallygenerated assets include not only costs of material and personnel, but also theshare of overhead costs.

Where parts of an item ofproperty, plant and equipment have different useful lives, they are accountedfor as separate items of property, plant and equipment.

Third party interest isexpensed as incurred.

**(ii) Subsequent costs**

The Company recognizes inthe carrying amount of an item of property, plant and equipment the cost ofreplacing components or extension of such an item when that cost is incurred ifit is probable that the future economic benefits embodied in the item will flowto the Company and the cost of the item can be measured reliably. All othercosts such as repairs and maintenance are expensed in the income statement asincurred.

**(iii) Government grants**

Government grants relatedto the acquisition or manufacture of owned assets are deducted from originalcost at date of capitalization.

**(iv) Depreciation**

Depreciation is chargedon a straight-line basis over the estimated useful lives of each part of anitem of property, plant and equipment. The estimated useful lives are asfollows:

| Buildings                                  |   | 25 years     |   |
|--------------------------------------------|--------|--------------|--------|
| Machinery and  equipment                   |   | 3 - 10 years |   |
| Other plant, factory  and office equipment |   | 3 - 8 years  |   |

 

**(g) Intangible assets**

**(i) Goodwill**

All business combinationsare accounted for by applying the purchase method. In respect of businessacquisitions that have occurred since January 1, 2004, goodwill representsthe difference between the cost of the acquisition and the fair value of thenet identifiable assets acquired. In respect to acquisitions prior to thisdate, goodwill is included on the basis of its deemed cost, representing theamount recorded under previous GAAP which was US GAAP. The classification andaccounting treatment of business combinations that occurred prior to January 1,2004 has not been reconsidered in preparing the Company’s opening IFRS balancesheet at January 1, 2004 (see note 38).

Goodwill is stated atcost less any accumulated impairment loss. Goodwill is allocated tocash-generating units and is tested annually for impairment (see accountingpolicy (l)).

**(ii) Research and development**

Expenditure on researchactivities, undertaken with the prospect of gaining new scientific or technicalknowledge and understanding, is recognized in the income statement as anexpense as incurred.

Expenditure ondevelopment comprises costs incurred with the purpose of using theoreticalknowledge technically and commercially. As not all criteria of IAS 38 are metor are only met at a very late point within the development process, AIXTRONdid not capitalize such costs for reasons of materiality.

F-7

----

 

**(iii) Other intangible assets**

Other intangible assetsthat are acquired by the Company are stated at cost less accumulatedamortization (see below) and impairment losses (see accounting policy (I)).

In connection with theacquisition of Genus, Inc. Sunnyvale, California (“Genus”) intangibleassets were, as part of the allocation of the purchase price, stated at theirfair value at the date of purchase (see note 4).

Expenditure on internallygenerated goodwill, trademarks and patents is expensed in the income statementas incurred.

**(iv) Subsequent expenditure**

Subsequent expenditure oncapitalized intangible assets is capitalized only when it increases the futureeconomic benefits embodied in the specific asset to which it relates. All otherexpenditure is expensed as incurred.

**(v) Amortization**

Amortization is chargedon a straight-line basis over the estimated useful lives of intangible assets,except for goodwill. Such intangible assets are annually tested in respect oftheir actual values. Other intangible assets are amortized from the date theyare available for use. The estimated useful lives are as follows:

| Software                    |   | 2 - 3 years  |   |
|-----------------------------|--------|--------------|--------|
| Patents and similar  rights |   | 5 - 18 years |   |

 

**(h) Investment property**

Investmentproperties are stated at cost.

**(i) Trade receivables and otherreceivables**

Tradereceivables and other receivables are stated at their fair value. Allowance forpotential risks from bad debt losses in individual cases is estimated based onprevious experience.

**(j) Inventories**

Inventoriesare stated at the lower of cost and net realizable value. Net realizable valueis the estimated selling price in the ordinary course of business, less theestimated cost of completion and selling expenses.

The costincludes expenditures incurred in acquiring the inventories and bringing themto their existing location and condition. In the case of work in progress andfinished goods, cost includes direct material and production labor cost, aswell as an appropriate share of overheads based on normal operating capacity.

Allowancefor slow moving, excess and obsolete, and otherwise unsaleable inventory isrecorded based primarily on either the Company’s estimated forecast of productdemand and production requirement for the next twelve months or historical trailingtwelve month usage. When there has been no usage of an inventory item during aperiod of twelve months, the Company writes down such inventories based onprevious experience. This policy is designed to reflect the rapid technologyand market changes affecting the Company’s business which may make suchinventories on hand obsolete or excess.

**(k) Cash and cash equivalents**

Cash andcash equivalents comprise cash on hand, current deposits with creditinstitutions and short-term notes with a remaining maturity of three months orless at the date of acquisition.

**(l) Impairment for property, plant and equipment andintangible assets**

Goodwillpurchased as part of a business acquisition is tested annually for impairment,irrespective of whether there is any indication of impairment. For impairmenttest purposes, the goodwill is allocated to cash-generating units. Impairmentlosses are recognized to the extent that the carrying amount exceeds the netrealizable value or the value in use (recoverable amount) of thecash-generating unit.

Property,plant and equipment as well as other intangible assets are tested forimpairment, when any

F-8

----

 

indicationexist that might require impairment. Impairment losses on such assets will berecognized, to the extent that the carrying amount exceeds the net realizablevalue that would be obtainable from a sale in an arm’s length transaction, orthe value in use.

Inassessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current marketassessments and the risks associated with the asset.

Afterdepreciation impairment losses are reversed if there has been a change in theestimates used to determine the recoverable amount. Reversals are made only tothe extent that the carrying amount of the asset does not exceed the carryingamount that would have been determined if no impairment loss had beenrecognized.

Animpairment loss in respect of goodwill is not reversed.

**(m) Earnings per share**

Basicearnings per share are computed by dividing net income (loss) by the weightedaverage number of issued common shares and AIXTRON ADS (see note 21) for theyear. Diluted earnings per share reflect the potential dilution that couldoccur if options issued under the Company’s stock option plan were exercisedand convertible bonds were converted, unless such conversion had ananti-dilutive effect.

**(n) Convertible bonds**

Convertiblebonds that can be converted to share capital at the option of the holder, wherethe number of shares issued does not vary with changes in their fair value, areaccounted for as compound financial instruments. Transaction costs that relateto the issue of a compound financial instrument are allocated to the liabilityand equity components in proportion to the allocation of proceeds. The equitycomponent of the convertible bonds is calculated as the excess of the issueproceeds over the present value of the future interest and principal payments,discounted at the market rate of interest applicable to similar liabilitiesthat do not have a conversion option. The interest expense recognized in theincome statement is calculated using the effective interest rate method.

**(o) Employee benefits**

**(i) Defined contribution plans**

Obligations forcontributions to defined contribution pension plans are recognized as anexpense in the income statement as incurred.

**(ii) Defined benefit plans**

The obligation iscalculated by estimating the amount of future benefit that employees haveearned in return for their service in prior periods, that benefit is discountedto determine its present value. The calculation is performed by a qualifiedactuary using the projected unit credit method.

Since January 1,2005, actuarial gains and losses have been recognized in the income statementat each balance sheet date.

**(iii) Share-based payment transactions**

The stock option programallows members of the Executive Board, management and employees of the Companyto acquire shares/ADS (see note 23) of the Company. These stock option programsare accounted for by AIXTRON according to IFRS 2 in the business year and prioryear respectively. The fair value of options granted after November 7,2002 is recognized as an employee expense with a corresponding increase in theadditional paid-in capital. The fair value is calculated at grant date andspread over the period during which the employees become unconditionallyentitled to the options. The fair value of the options granted is measuredusing a binomial lattice model, taking into account the terms and conditionsupon which the options were granted. In the calculation of the personnelexpense options forfeited are considered.

**(p) Provisions**

A provision is recognizedin the balance sheet when the Company has a present legal or constructive obligationas a result of a past event, and it is probable that an outflow of economicbenefits will be

F-9

----

 

required to settle thisobligation. If the effect is material, provisions are determined by discountingthe expected future cash flows at a pre-tax interest rate that reflects currentmarket assessments of the time value of money and, where appropriate, the risksassociated with the liability.

**(i) Warranties**

The Company offers one totwo year warranties on all of its products. The warranty generally providescost of labor, material and material related overhead necessary to repair aproduct free of charge during the warranty period. The specific terms andconditions of those warranties may vary depending on the equipment sold, theterms of the contract and the locations to which they are sold. The Companyestablishes the costs that may be incurred under its warranty obligations andrecords a liability in the amount of such costs at the time revenue isrecognized. Factors that affect the Company’s warranty liability include thehistorical and anticipated rates of warranty claims and cost per claim.

The Company accruesmaterial and labor warranty for systems shipped based upon historicalexperience. The Company periodically assesses the adequacy of its recorded warrantyprovisions and adjusts the amounts as necessary.

**(ii) Onerous contracts**

A provision for onerouscontracts is recognized when the expected benefits to be derived by the Companyfrom a contract are lower than the unavoidable cost of meeting its obligationsunder the contract.

**(q) Trade payables and otherpayables**

Tradepayables and other payables are stated at their repayment values. Outstandinginvoices relating to other accounting periods are recognized in trade payables.

**(r) Revenue**

Revenueis generated from the sale and installation of equipment, spare parts andmaintenance services. The sale of equipment involves a customer acceptance testat AIXTRON ́s production facility. After successful completion of this test, theequipment is dismantled and packaged for shipment. Upon arrival at the customersite the equipment is reassembled and installed, which is a service generallyperformed by AIXTRON engineers. AIXTRON gives no general rights of return,discounts, credits or other sales incentives within its terms of sale. However,occasionally some customers of AIXTRON have specifically negotiated to includesome of these terms.

Revenuesfrom the sale of products that have been demonstrated to meet productspecification requirements are recognized upon shipment to the customer, if afull customer acceptance test has been successfully completed at the AIXTRONproduction facility. Revenue relating to the installation of the equipment atthe customer site is deferred until the installation at the customer site iscomplete. The portion of the contract revenue deferred until completion of theinstallation services is determined based on the higher of the fair value ofthe installation services or the portion of the contract amount that is due andpayable upon completion of the installation. Fair value of the installationservices is determined based on an estimate of the materials and time requiredto complete the installation.

Revenuerelated to products where meeting the product specification requirements has notyet been demonstrated, or where specific rights of return have been negotiated,is recognized only upon final customer acceptance.

Revenuerelating to the installation of the equipment at the customer site is deferreduntil installation is completed and the final customer acceptance has beenconfirmed. The portion of the contract revenue deferred is determined based onthe higher of the fair value of the installation services or the portion of thecontract amount payable upon completion of the installation. Fair value of theinstallation services is determined based on an estimate of the materials andtime required to complete the installation.

Revenueon the sale of spare parts is recognized when title and risk of loss passes tothe customer, generally upon shipment. This condition is generally met at thedate of shipment. Revenue from maintenance services is recognized as theservices are completed.

F-10

----

 

**(s) Expenses**

**(i) Cost of sales**

Cost of sales includessuch direct costs as materials, labor and related production overheads.

**(ii) Research and development**

Research and developmentcosts are expensed as incurred. Project funding received from the Government(e.g. state funding) and the European Union is recorded in other operatingincome, if the research and development costs are incurred and provided thatany conditions for the funding have been met.

**(iii) Operating lease payments**

Payments made underoperating leases are recognized as expense on a straight-line basis over theterm of the lease.

**(t) Other operating income**

**Governmentgrants**

Governmentgrants awarded for project funding are recorded in “Other operating income” ifthe Research and Development costs are incurred and provided that anyconditions for the funding have been met.

**(u) Deferred tax**

Deferredtax assets and liabilities are recorded for all temporary differences betweentax and commercial balance sheets and for losses brought forward for taxpurposes as well as for tax credits of the companies included in consolidation.The deferred taxes are calculated, based on tax rates applicable at the balancesheet date or in the future. Effects of changes in tax rates on the deferredtax assets and liabilities are recognized upon adoption of the amended law.

A deferred tax asset isrecognized only to the extent that it is probable that future taxable profitscan be set off against tax credits and tax loss carryforwards. Deferred taxassets are reduced to the extent that it is no longer probable that the relatedtax benefit can be realized.

**(v) Segment reporting**

Abusiness segment is a distinguishable component of the Company that is engagedin providing products or services which are subject to similar risks andrewards. AIXTRON is acting on worldwide markets. The risks and rates of returnare basically affected by project and services, its primary format for thereporting of segment information shall be business segments with the secondaryinformation reported geographically.

Theinternally reported product lines are combined for group reporting in one businesssegment as defined in IAS 14.34, as they show only insignificant differences asto long term profit forecasts and as they are materially similar in theassessment of the criteria used to distinguish the individual business segmentsas defined in IAS 14.9 (nature of products and services, nature of productionprocesses, customers and ways of distribution).

Accountingstandards applied in segment reporting are in accordance with generalaccounting policies as explained in this section. The disclosed revenues earnedwith other segments are at arm’s length.

**(w) Recently issued accountingstandards**

Thefollowing survey shows IFRS Standards and Amendments to IFRS not compulsory andapplicable for reporting periods ending on December 31, 2005. These standardswere not applied earlier than required. AIXTRON is currently analyzing theimpact of the new standards on the consolidated financial statements. TheCompany does not expect the adoption of these standards to have a materialimpact on consolidated financial statements.

F-11

----

 
| **IFRS 7**                           | * * | *Financial Instruments: Disclosures*                                                                             |
|--------------------------------------|----------|------------------------------------------------------------------------------------------------------------------|
|                                 |     | Issued: August 2005                                                                                         |
| **IFRIC 4**                          | * * | *Determining whether an  Arrangement contains a Lease*                                                           |
| ** **                           | * * | Issued: December 2004                                                                                       |
| **IFRIC 5**                          |     | *Rights to Interests arising  from Decommissioning, Restoration and Environmental Rehabilitation Funds*          |
| ** **                           |     | Issued: December 2004                                                                                       |
| **IFRIC 6**                          | * * | *Liabilities arising from  participating in a specific market — waste electrical and electronic  equipment* |
| ** **                           | * * | Issued September 2005                                                                                       |
| **IFRIC 7**                          | * * | *Applying the Restatement  Approach under IAS 29 Financial Reporting in Hyperinflationary Economies*             |
| ** **                           | * * | Issued: November 2005                                                                                       |
| **Amendment  to IAS 1**              | * * | *Capital Disclosures*Issued: August 2005                                                                    |
| **Amendment  to IAS 19**             | * * | *Actuarial Gains and Losses,  Group Plans and Disclosures*Issued: December 2004                             |
| **Amendment  to IAS 21**             | * * | *Net Investment in a Foreign  Operation*Issued: December 2005                                               |
| **Amendment  to IAS 39**             | * * | *Cash Flow Hedge Accounting of  Forecast Intra-group Transactions*Issued: April 2005                        |
| **Amendment  to IAS 39**             | * * | *The Fair Value Option*Issued: June 2005                                                                    |
| **Amendment  to IAS 39 and  IFRS 4** |     | *Financial Guarantee Contracts*Issued: August 2005                                                          |

 

**3. Segmentreporting**

The following segmentinformation has been prepared in accordance with IAS 14 “Segment Reporting”. AsAIXTRON has only one business segment (see note 2 (v)), the segment informationprovided relates only to the Company’s geographical segments, this beingsecondary segment information.

The Company markets andsells the majority of its products in Asia, Europe and the United States,mainly through its direct sales organization and cooperation partners.

In presentinginformation on the basis of geographical segments, segments revenue is based onthe geographical location of customers. Segment assets are based on thegeographical location of the assets.

Segment capitalexpenditure is the total cost incurred during the period to acquire segmentassets that are expected to be used for more than one period.

 

F-12

----

**Geographical segments**
| ***in EUR thousands***            | ** ** | ** ** | ** ** | **Asia**    | ** ** | **Europe** | ** ** | **USA**    | ** ** | **Consolidation** | ** ** | **Group**   | ** ** |
|---------------------------------------------|------------|------------|------------|-------------|------------|------------|------------|------------|------------|-------------------|------------|-------------|------------|
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
| Revenues realized  with third parties  |       | 2005       |       | 103,036     |       | 22,052     |       | 14,314     |       |              |       | 139,402     |       |
|                                        |       | 2004       |       | 108,097     |       | 13,642     |       | 18,265     |       |              |       | 140,004     |       |
| Revenues realized  with other segments      |       | 2005       |       | 11,582      |       | 1,055      |       | 6,311      |       | (18,948           | )          | 0           |       |
|                                        |       | 2004       |       | 4,905       |       | 1,676      |       | 11,646     |       | (18,227           | )          | 0           |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
| **Segment  revenues**                       | ** ** | **2005**   | ** ** | **114,618** | ** ** | **23,107** | ** ** | **20,625** | ** ** | **(18,948**       | **)**      | **139,402** | ** ** |
| ** **                                  | ** ** | **2004**   | ** ** | **113,002** | ** ** | **15,318** | ** ** | **29,911** | ** ** | **(18,227**       | **)**      | **140,004** | ** ** |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
| Segment assets                              |       | 2005       |       | 13,841      |       | 214,775    |       | 98,795     |       | (127,862          | )          | 199,549     |       |
|                                        |       | 2004       |       | 5,798       |       | 139,087    |       | 10,340     |       | (30,209           | )          | 125,016     |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
|                                        |       |       |       |        |       |       |       |       |       |              |       |        |       |
| Segment capital  expenditures *             |       | 2005       |       | 308         |       | 10,213     |       | 93,262     |       | —            |       | 103,783     |       |
|                                        |       | 2004       |       | 171         |       | 5,202      |       | 57         |       | —            |       | 5,430       |       |

 

*Segmentcapital expenditures of the financial year 2005 also include the additionsresulting from the change in group companies.

Revenues are shown in the following table:

 
| ***in EUR thousands*** | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|
|                             |       |        |       |        |       |
| Revenues for  sale of goods      |       | 137,306     |       | 138,592     |       |
| Revenues for  service and repair |       | 2,096       |       | 1,412       |       |
|                             | ** ** | **139,402** | ** ** | **140,004** | ** ** |

 

Revenues for sale of goods include revenues frombarter transactions in the amount of kEUR 3,701.

**4. Acquisition ofsubsidiaries**

All acquisitionsdescribed below were accounted for using the purchase method of accounting.

On July 2, 2004,AIXTRON announced its intention to acquire Genus, Inc. Genus is a supplierof Atomic Layer Deposition and Chemical Vapor Deposition technology, which isrequired in the production of advanced semiconductors and hard disk drives. AIXTRONacquired all issued and outstanding shares of Genus, Inc. with effect fromMarch 14, 2005.

The United StatesSecurities and Exchange Commission (SEC) declared the F-4 registrationstatement of AIXTRON AG effective on February 8, 2005. On March 10,2005, the extraordinary meeting of shareholders of Genus, Inc. took place.The shareholders of Genus approved the merger pursuant to the 

F-13

----

laws of the State ofCalifornia through the affirmative vote of holders of more than 50% of theissued and outstanding shares.

As part of theacquisition of Genus, Inc. by AIXTRON, all Genus, Inc. shares wereexchanged for AIXTRON American Depositary Shares (ADS) in a stock-for-stocktransaction. The shareholders of Genus, Inc. received 0.51 AIXTRON ADS inexchange for each Genus, Inc. common share. Each AIXTRON ADS representsthe beneficial ownership in one AIXTRON common share.

In the context of theacquisition, AIXTRON issued additional ADS for the holders of employee stockoptions, other options and convertible bonds existing at the date ofacquisition. These ADS were transferred to a trust at the date of acquisitionthat keeps the ADS until they are granted to the holders of the options and theconvertible bonds. Upon consummation of the transaction, the historicshareholders of AIXTRON AG held approximately 72% and the former shareholdersof Genus approximately 28% of AIXTRON AG taking into consideration all ADS issuedas part of the transaction (see note 20).

The total purchase pricefor the acquisition of Genus, Inc. comprises the following:

 
| *in EUR thousands*                                              | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|
|                                                                      |       |       |       |
| Fair value of an AIXTRON  share of common stock as of March 14, 2005 |       |       |       |
| (20.539.956 shares at 3.72 €  per share)                             |       | 76,409     |       |
| Fair value of  the stock options granted by Genus, Inc.              |       | 2,494      |       |
| Fair value of the  convertible bond issued by Genus, Inc.            |       | 3,799      |       |
| Acquisition-related  costs                                                |       | 9,403      |       |
|                                                                           | ** ** | **92,105** | ** ** |

 

The fair value of sharesgranted by AIXTRON AG was calculated at the quoted share prices at the transferdate.

The following tablesummarizes the effect of the fair value adjustments on the assets acquired andliabilities assumed at the date of acquisition. This preliminary purchase priceallocation may be adjusted within one year of the purchase date when furthernecessary information regarding the fair value of assets acquired andliabilities assumed is available:

 
| ***in EUR thousands***      | ** ** | **Carrying amount** | ** ** | **Fair value adjustment** | ** ** | **Acquisition cost** | ** ** |
|---------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|---------------------------|------------|
|                                  |       | * *                 | * *   | * *                            | * *   | * *                  | * *   |
| Current assets                        |       | 28,435                   |       | (6,761                              | )          | 21,674                    |       |
| Property, plant  and equipment        |       | 9,918                    |       | (5,684                              | )          | 4,234                     |       |
| Other intangible  assets              |       | 0                        |       | 24,316                              |       | 24,316                    |       |
| Other assets                          |       | 580                      |       | (412                                | )          | 168                       |       |
| **Acquired  assets**                  |       | **38,933**               | ** ** | **11,459**                          | ** ** | **50,392**                | ** ** |
| Current  liabilities                  |       | 15,399                   |       | 5,778                               |       | 21,177                    |       |
|                                  |       |                     |       |                                |       |                      |       |
| **Acquired  assets less liabilities** |       | **23,534**               | ** ** | **5,681**                           | ** ** | **29,215**                | ** ** |
| Goodwill arising  on acquisition      |       |                     |       |                                |       | 62,890                    |       |
| Total purchase price                  |       |                     |       |                                |       | 92,105                    |       |

 

The intangible assetsacquired were classified according to the following categories

 
| *in EUR millions*      | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
|                             |       |       |       |
| Customer  relations              |       | 9.2        |       |
| Product and  technology know how |       | 15.1       |       |
|                             |       | 24.3       |       |

 

F-14

----

 

Goodwill has arisen onacquisition of Genus, Inc. because of customer relationships that did notmeet the criteria for recognition as a separate intangible asset at the date ofacquisition. In the financial year 2005, the carrying amount of this goodwilldeveloped as follows:

 
| *in EUR thousands*                      | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------|------------|
|                                              |       |       |       |
| Addition as of  March 14, 2005               |       | 62,890     |       |
| Impairment                                        |       | 13,705     |       |
| Effect from  currency translation                 |       | 7,847      |       |
| **Carrying amount as of  December 31, 2005** | ** ** | **57,032** | ** ** |

 

The following tablesummarizes pro forma financial information assuming the Genus, Inc.acquisition had occurred on January 1, 2005. This pro forma financialinformation does not necessarily represent what would have occurred if thetransaction had taken place on the date presented and should not be taken asrepresentative of our future consolidated results of operation or financialposition.

 
| *in EUR thousands* | ** ** | **January 1 – December 31, 2005** | ** ** |
|------------------------------|------------|-----------------------------------------------------------------|------------|
|                         |       |                                                            |       |
| Revenues                     |       | 143,381                                                         |       |
| Net loss                     |       | (60,255                                                         | )          |
| Earnings per share           |       |                                                            |       |
| – basic                 |       | (0.73                                                           | )          |
| – diluted               |       | (0.73                                                           | )          |

 

The consolidated incomefor the year includes a net loss of kEUR -30,722, arisen in the originalGenus group since the acquisition.

In May 2004,AIXTRON purchased the remaining 10% interest in AIXTRON KK, for an aggregateamount of kEUR 238 in cash including costs directly attributable to thebusiness combination. The excess paid above the purchased net assets wasaccounted for as goodwill of kEUR 127. The subsidiary is a distribution andservice company of AIXTRON products in Japan.

In October 2004,AIXTRON purchased the remaining 30.08% in Epigress AB for an aggregate amountof kEUR 1,773 in cash including cost directly attributable to the businesscombination. The excess paid above the purchased net assets was accounted foras goodwill of kEUR 551. Epigress AB focuses primarily on Research andDevelopment activities and on the sale and marketing of MOCVD equipment forsilicon carbide (SiC).

**5. Research anddevelopment**

Research and developmentcosts, before deducting project funding received, were kEUR 30,541 and kEUR20,407 for the years ended December 31, 2005 and 2004 respectively.

After deducting projectfunding received and not repayable, net expenses for research and developmentwere kEUR 27,627 and kEUR 17,856 for the years ended December 31, 2005 and2004 respectively.

F-15

----

 

**6. Other operatingincome**
| *in EUR thousands*                                       | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|--------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                               |       |      |       |      |       |
| Research and  development funding                                  |       | 2,887     |       | 2,551     |       |
| Income from  resolved contract obligations                         |       | 720       |       | 2,965     |       |
| Income from the  reversal of provisions and the write-off of debts |       | 837       |       | 756       |       |
| Other grants,  reimbursements and costs passed on                  |       | 369       |       | 0         |       |
| Compensation  payments                                             |       | 69        |       | 235       |       |
| Rental income                                                      |       | 22        |       | 216       |       |
| Foreign exchange  gains                                            |       | 9         |       | 2,900     |       |
| Other                                                              |       | 652       |       | 316       |       |
|                                                               | ** ** | **5,565** | ** ** | **9,939** | ** ** |

 

**7. Other operatingexpenses**
| *in EUR thousands*                                        | ** ** | **2005**  | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------|------------|-----------|------------|----------|------------|
|                                                                |       |      |       |     |       |
|                                                                |       |      |       |     |       |
| Exchange losses                                                     |       | 2,063     |       | 25       |       |
| Losses form the  disposal of items of property, plant and equipment |       | 217       |       | 374      |       |
| Addition to  allowance on receivables/write-off of receivables      |       | 102       |       | 204      |       |
| Other                                                               |       | 518       |       | 118      |       |
|                                                                | ** ** | **2,900** | ** ** | **721**  | ** ** |

 

**8. Personnelexpenses**
| *in EUR thousands*                                             | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                     |       |       |       |       |       |
| Wages and  salaries                                                      |       | 34,633     |       | 24,991     |       |
| Social insurance  contributions                                          |       | 4,236      |       | 3,436      |       |
| Increase in the  obligation from defined benefit plans                   |       | 276        |       | 35         |       |
| Increase in the  obligation from contribution defined contribution plans |       | 151        |       | 0          |       |
| Expenses for  stock options                                              |       | 1,801      |       | 1,041      |       |
|                                                                     | ** ** | **41,097** | ** ** | **29,503** | ** ** |

 

**9. Net financingcosts**
| ***in EUR thousands*** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Interest income                  |       | 693      |       | 786      |       |
| Interest expense                 |       | (233     | )          | (2       | )          |
| Net interest                     | ** ** | **460**  | ** ** | **784**  | ** ** |

 

F-16

----

 

**10. Income taxexpense/income**

The following tableshows income tax expense/income recognized in the consolidated incomestatement:
| ***in EUR thousands***                               | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|----------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                           |       |       |       |       |       |
| **Current tax expense**                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| for current year                                               |       | 282        |       | 1,096      |       |
| adjustment for  prior years                                    |       | 433        |       | 45         |       |
| **Total  current tax expense**                                 | ** ** | **715**    | ** ** | **1,141**  | ** ** |
|                                                           |       |       |       |       |       |
| **Deferred tax expense  (+)/deferred tax income (-)**          | ** ** | ** ** | ** ** | ** ** | ** ** |
| from temporary  differences                                    |       | (1,441     | )          | 1,325      |       |
| from write-downs  and reversals                                |       | 1,979      |       | 363        |       |
| **Total  deferred tax expense**                                | ** ** | **538**    | ** ** | **1,688**  | ** ** |
| ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total income tax expense in  consolidated income statement** | ** ** | **1,253**  | ** ** | **2,829**  | ** ** |

 

The Company’s effectivetax rate is different from the German statutory tax rate of currently 39.45%(last year: 39.28%) which is based on the German corporate income tax rate(including solidarity surcharge and trade tax).

The following tableshows the reconciliation from the expected to the reported tax expense:

 
| ***in EUR thousands***                         | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|----------------------------------------------------------|------------|-------------|------------|------------|------------|
|                                                     |       |        |       |       |       |
| Net result  before taxes                                 | ** ** | **(52,215** | **)**      | **10,458** | ** ** |
| Income tax  expense (domestic tax rate)                  |       | (20,599     | )          | 4,108      |       |
| Effect from  differences to foreign tax rates            |       | 1,494       |       | (48        | )          |
| Non-deductible  expenses                                 |       | 224         |       | 78         |       |
| Non-consideration  of tax claims from loss carryforwards |       | 10,467      |       | 33         |       |
| Allowance of  deferred tax assets                        |       | 1,979       |       | 363        |       |
| Other                                                    |       | 644         |       | (77        | )          |
| Effect from the  use of loss carryforwards               |       | (157        | )          | (91        | )          |
| Effect from  permanent differences                       |       | 7,201       |       | (1,537     | )          |
| **Income  tax expense in consolidated income statement** | ** ** | **1,253**   | ** ** | **2,829**  | ** ** |
| **Effective tax rate**                                   | ** ** | **(2.4**    | **)%**     | **27.1**   | **%**      |

 

**11. Current taxassets and liabilities**

The current taxliabilities, i.e. those actually incurred in the current period or in priorperiods because the amount of tax paid was either too low or too high, are kEUR1,404 (last year:  kEUR 83). In the lastyear current tax assets of kEUR 63 were recognized.

 

F-17

----

**12. Property,plant and equipment**

**Development of property, plantand equipment**

 
| ***in EUR thousands***      | ** ** | **Land and  buildings** | ** ** | **Technical  equipment and  machinery** | ** ** | **Other plant,  factory and  office equipment** | ** ** | **Assets under  construction** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------|------------|------------|------------|
| **Cost**                              |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| Balance at January 1,  2004      |       | 30,089                       |       | 17,968                                       |       | 9,551                                                          |       | 111                                 | ** ** | **57,719** | ** ** |
| Other additions                       |       | 377                          |       | 219                                          |       | 742                                                            |       | 2,796                               | ** ** | **4,134**  | ** ** |
| Disposals                             |       | 346                          |       | 29                                           |       | 158                                                            |       | 0                                   | ** ** | **533**    | ** ** |
| Transfers                             |       | 0                            |       | (7                                           | )          | 7                                                              |       | 0                                   | ** ** | **0**      | ** ** |
| Effect from currency  translation     |       | 0                            |       | (6                                           | )          | (52                                                            | )          | 0                                   | ** ** | **(58**    | **)**      |
| Balance at December 31,  2004    | ** ** | **30,120**                   | ** ** | **18,145**                                   | ** ** | **10,090**                                                     | ** ** | **2,907**                           | ** ** | **61,262** | ** ** |
|                                  |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| Balance at January 1,  2005      |       | 30,120                       |       | 18,145                                       |       | 10,090                                                         |       | 2,907                               | ** ** | **61,262** | ** ** |
| Change in consolidated  companies     |       | 328                          |       | 2,609                                        |       | 299                                                            |       | 998                                 | ** ** | **4,234**  | ** ** |
| Other additions                       |       | 989                          |       | 2,817                                        |       | 745                                                            |       | 3,846                               | ** ** | **8,397**  | ** ** |
| Disposals                             |       | 195                          |       | 580                                          |       | 1,231                                                          |       | 589                                 | ** ** | **2,595**  | ** ** |
| Transfers                             |       | (207                         | )          | 3,347                                        |       | 207                                                            |       | (3,347                              | )          | **0**      | ** ** |
| Effect from currency  translation     |       | 78                           |       | 390                                          |       | 304                                                            |       | 134                                 | ** ** | **906**    | ** ** |
| Balance at December 31,  2005    | ** ** | **31,113**                   | ** ** | **26,728**                                   | ** ** | **10,414**                                                     | ** ** | **3,949**                           | ** ** | **72,204** | ** ** |
|                                  |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| **Accumulated depreciation**          |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| Balance at January 1,  2004      |       | 5,902                        |       | 7,378                                        |       | 6,077                                                          |       | 0                                   | ** ** | **19,357** | ** ** |
| Depreciation charged  during the year |       | 1,359                        |       | 2,438                                        |       | 1,299                                                          |       | 0                                   | ** ** | **5,096**  | ** ** |
| Disposals                             |       | 40                           |       | 8                                            |       | 153                                                            |       | 0                                   | ** ** | **201**    | ** ** |
| Transfers                             |       | 0                            |       | (8                                           | )          | 8                                                              |       | 0                                   | ** ** | **0**      | ** ** |
| Effect from currency  translation     |       | (3                           | )          | (6                                           | )          | (51                                                            | )          | 0                                   | ** ** | **(60**    | **)**      |
| Balance at December 31,  2004    | ** ** | **7,218**                    | ** ** | **9,794**                                    | ** ** | **7,180**                                                      | ** ** | **0**                               | ** ** | **24,192** | ** ** |
|                                  |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| Balance at January 1,  2005      |       | 7,218                        |       | 9,794                                        |       | 7,180                                                          |       | 0                                   | ** ** | **24,192** | ** ** |
| Depreciation charged  during the year |       | 1,409                        |       | 3,361                                        |       | 1,355                                                          |       | 0                                   | ** ** | **6,125**  | ** ** |
| Impairments during the  year          |       | 0                            |       | 1,012                                        |       | 0                                                              |       | 589                                 | ** ** | **1,601**  | ** ** |
| Disposals                             |       | 3                            |       | 556                                          |       | 991                                                            |       | 589                                 | ** ** | **2,139**  | ** ** |
| Transfers                             |       | (70                          | )          | 0                                            |       | 70                                                             |       | 0                                   | ** ** | **0**      | ** ** |
| Effect from currency  translation     |       | 16                           |       | 72                                           |       | 158                                                            |       | 0                                   | ** ** | **246**    | ** ** |
| Balance at December 31,  2005    | ** ** | **8,570**                    | ** ** | **13,683**                                   | ** ** | **7,772**                                                      | ** ** | **0**                               | ** ** | **30,025** | ** ** |
|                                  |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| **Carrying amounts**                  |       |                         |       |                                         |       |                                                           |       |                                |       |       |       |
| January 1, 2004                  |       | 24,187                       |       | 10,590                                       |       | 3,474                                                          |       | 111                                 | ** ** | **38,362** | ** ** |
| December 31, 2004                | ** ** | **22,902**                   | ** ** | **8,351**                                    | ** ** | **2,910**                                                      | ** ** | **2,907**                           | ** ** | **37,070** | ** ** |
|                                  |       |                         |       |                                         |       |                                                           |       |                                | ** ** | ** ** | ** ** |
| January 1, 2005                  |       | 22,902                       |       | 8,351                                        |       | 2,910                                                          |       | 2,907                               | ** ** | **37,070** | ** ** |
| December 31, 2005                | ** ** | **22,543**                   | ** ** | **13,045**                                   | ** ** | **2,642**                                                      | ** ** | **3,949**                           | ** ** | **42,179** | ** ** |

 

F-18

----

**Impairments**

Impairments of kEUR1,601 for the financial year are attributable to the complete write-down ofowned assets. Such assets were constructed for the further development ofAIXTRON technology in the semiconductor industry (especially silicon germaniumapplications for Telecom/Datacom components). Due to changed market conditionsthe manufacturing cost exceeds the current value in use. This was the reasonfor the impairment.

The impairment lossesare recognized in the item “research and development” of the income statement.

**Government grants**

In 2005, the cost formachinery and equipment decreased by kEUR 1,070, as a result of governmentgrants. Of this amount kEUR 648 have been accrued as receivable and kEUR 422was paid in cash.

**Construction in progress**

Construction in progressprimarily relates to self-built equipment for internal use.

F-19

----

** **

**13. Intangible assets**

**Development of intangibleassets**
| ***in EUR thousands***      | ** ** | **Goodwill** | ** ** | **Patents and  similar rights** | ** ** | **Total**   | ** ** |
|---------------------------------------|------------|--------------|------------|-------------------------------------------|------------|-------------|------------|
| **Cost**                              |       |         |       |                                      |       |        |       |
|                                  |       |         |       |                                      |       |        |       |
| Balance at  January 1, 2004      |       | 19,252       |       | 8,618                                     |       | **27,870**  | ** ** |
| Change in  consolidated companies     |       | 0            |       | 0                                         |       | **0**       | ** ** |
| Other additions                       |       | 678          |       | 618                                       |       | **1,296**   | ** ** |
| Effect from  currency translation     |       | (2           | )          | 0                                         |       | **(2**      | **)**      |
| Balance at  December 31, 2004    | ** ** | **19,928**   | ** ** | **9,236**                                 | ** ** | **29,164**  | ** ** |
|                                  |       |         |       |                                      |       |        |       |
| Balance at  January 1, 2005      |       | 19,928       |       | 9,236                                     | ** ** | **29,164**  | ** ** |
| Change in  consolidated companies     |       | 62,890       |       | 24,316                                    | ** ** | **87,206**  | ** ** |
| Other additions                       |       | 77           |       | 3,869                                     | ** ** | **3,946**   | ** ** |
| Disposals                             |       | 0            |       | 301                                       | ** ** | **301**     | ** ** |
| Effect from  currency translation     |       | 8,885        |       | 3,323                                     | ** ** | **12,208**  | ** ** |
| Balance at  December 31, 2005    | ** ** | **91,780**   | ** ** | **40,443**                                | ** ** | **132,223** | ** ** |
|                                  |       |         |       |                                      |       |        |       |
| **Accumulated  amortization**         |       |         |       |                                      |       |        |       |
|                                  |       |         |       |                                      |       |        |       |
| Balance at January 1,  2004      |       | 6,295        |       | 4,060                                     |       | **10,355**  | ** ** |
| Amortization  charged during the year |       | 0            |       | 890                                       |       | **890**     | ** ** |
| Effect from  currency translation     |       | 0            |       | (9                                        | )          | **(9**      | **)**      |
| Balance at  December 31, 2004    | ** ** | **6,295**    | ** ** | **4,941**                                 | ** ** | **11,236**  | ** ** |
|                                  |       |         |       |                                      |       |        |       |
| Balance at  January 1, 2005      |       | 6,295        |       | 4,941                                     | ** ** | **11,236**  | ** ** |
| Amortization  charged during the year |       | 0            |       | 4,281                                     | ** ** | **4,281**   | ** ** |
| Impairments  during the year          |       | 13,782       |       | 11,247                                    | ** ** | **25,029**  | ** ** |
| Disposals                             |       | 0            |       | 273                                       | ** ** | **273**     | ** ** |
| Effect from  currency translation     |       | 701          |       | 481                                       | ** ** | **1,182**   | ** ** |
| Balance at  December 31, 2005    | ** ** | **20,778**   | ** ** | **20,677**                                | ** ** | **41,455**  | ** ** |
|                                  |       |         |       |                                      |       |        |       |
| **Carrying  amounts**                 |       |         |       |                                      |       |        |       |
| January 1,  2004                 | ** ** | **12,957**   | ** ** | **4,558**                                 | ** ** | **17,515**  | ** ** |
| December 31,  2004               | ** ** | **13,633**   | ** ** | **4,295**                                 | ** ** | **17,928**  | ** ** |
|                                  | ** ** | ** **   | ** ** | ** **                                | ** ** | ** **  | ** ** |
| January 1,  2005                 | ** ** | **13,633**   | ** ** | **4,295**                                 | ** ** | **17,928**  | ** ** |
| December 31, 2005                | ** ** | **71,002**   | ** ** | **19,766**                                | ** ** | **90,768**  | ** ** |

** **

**Additionsthrough business combinations**

The additions through businesscombinations in 2005 include the assets acquired from Genus, Inc. Theseintangible assets are amortized over a period of six to seven years. Furtherdetails are given in note 4.

F-20

----

**Amortizationand impairment of other intangible assets**

Amortization andimpairment expenses on other intangible assets are recognized in the incomestatement as follows:
|                                  | ** ** | **2005**         | ** ** | **2004**       | ** ** |
|----------------------------------|------------|------------------|------------|----------------|------------|
| ***in EUR thousands*** | ** ** | **Amortization** | ** ** | **Impairment** | ** ** | **Amortization** | ** ** | **Impairment** | ** ** |
| Cost of sales                    |       | 2,215            |       | 5,680          |       | 306 |   | 0 |   |
| Selling expenses                 |       | 1,414            |       | 1,866          |       | 10 |   | 0 |   |
| General  administration expenses |       | 195              |       | 0              |       | 127 |   | 0 |   |
| Research and  development costs  |       | 457              |       | 3,701          |       | 447 |   | 0 |   |
|                             | ** ** | **4,281**        | ** ** | **11,247**     | ** ** | **890** | ** ** | **0** | ** ** |

 

In the financial year2005, amortization of kEUR 3,701 was charged on intangible assets. It relatesto additions to patents and production methods in the financial year 2005. Dueto changed market conditions in respect of these intangible assets it is notpossible to reliably determine the economic benefit received in future periods.As a result an impairment loss was recognized.

Furthermore, marketstudies indicate that the sales markets for specific AIXTRON technologies maybe available to the Company only at a later date. Considering this, AIXTRONperformed an impairment test for developed technologies. On the basis of thesetests an impairment of kEUR 5,680 to the lower value in use was recognized.

Furthermore, AIXTRONcalculated an amortization of kEUR 1,866 on the customer base acquired fromGenus, Inc. as the flows of economic benefit attributable to thesecustomers at the balance sheet date no longer reflect the original planning atthe date of acquisition.

Reversals needed be madeneither in the financial year 2005 nor in the financial year 2004.

**Comments on impairment ofgoodwill**

The goodwill of thefollowing entities show material carrying amounts at the balance sheet date.
| *in EUR thousands*           | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|
| Genus, Inc.                       |       | 57,032     |       | 0          |       |
| Thomas Swan  Scientific Equipment Ltd. |       | 11,992     |       | 11,655     |       |
| Epigress AB                            |       | 1,791      |       | 1,791      |       |
| AIXTRON KK                             |       | 187        |       | 187        |       |
|                                   | ** ** | **71,002** | ** ** | **13,633** | ** ** |

 

The impairment test forcash generating units is based on projections of cash flows on the basis of afive year business plan, taking account of a perpetual annuity. To examine theactual value, AIXTRON estimated the cash inflows also for the period followingthe planning period by carrying forward a constant growth rate for thefollowing years. The value in use for each cash generating unit was calculated,using a discounted cash flow method. A pre-tax discount rate of 13% and 15%respectively was applied in discounting the projected cash flows. In a furtherstep, the value in use determined was compared to the carrying amount of thecash generating unit.

F-21

----

The comparison of thecarrying amount with the value in use showed that the impairment required forthe Genus, Inc. goodwill was kEUR 13,705. Impairments in respect of thegoodwill of Thomas Swan Scientific Equipment Ltd. Epigress AG or of AIXTRON KKwere not necessary.

**14. Investmentproperty**
| *in EUR thousands*                  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|
| Balance at  January 1                    |       | 4,908     |       | 4,938     |       |
| Subsequent  acquisition or manufacturing cost |       | 0         |       | 10        |       |
| Disposals                                     |       | 0         |       | (40       | )          |
| Balance at December 31                   | ** ** | **4,908** | ** ** | **4,908** | ** ** |

 

This relates toundeveloped land held for a purpose not yet determined. It can be used for apossible extension of the production capacity. The carrying amount isdetermined under the cost model. The fair value is equal to the carrying amount.The fair value of the land was demonstrated on the basis of the relatedstandard land values and of external confirmations.

**15. Othernon-current assets**

Other non-current assetstotaling kEUR 499 (last year:  kEUR5,820) include mainly rent deposits for buildings. In 2004 transaction costs ofkEUR 5,775 for the acquisition of Genus, Inc. were included.

**16. Deferred taxassets and liabilities**

**Recognized deferred tax assetsand liabilities**

Deferred tax assets andliabilities are attributable to the following:
| ** **                                   | ** ** | **Assets** | ** ** | **Liabilities** | ** ** | **Net**  | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------|------------|----------|------------|
| ***in EUR thousand***              | ** ** | **2005**   | ** ** | **2004**        | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Property, plant  and equipment               |       | 25         |       | 0               |       | 0        |       | 0 |   | 25 |   | 0 |   |
| Trade  receivables                           |       | 0          |       | 209             |       | (30      | )          | (12 | ) | (30 | ) | 197 |   |
| Inventories                                  |       | 763        |       | 218             |       | 0        |       | 0 |   | 763 |   | 218 |   |
| Employee  benefits                           |       | 167        |       | 62              |       | 0        |       | 0 |   | 167 |   | 62 |   |
| Deferred  revenues                           |       | 155        |       | 1,748           |       | 0        |       | 0 |   | 155 |   | 1,748 |   |
| Currency  translation differences            |       | 0          |       | 44              |       | 0        |       | 0 |   | 0 |   | 44 |   |
| Provisions and  other liabilities            |       | 0          |       | 6               |       | (209     | )          | (394 | ) | (209 | ) | (388 | ) |
| Customer  advances                           |       | 27         |       | 0               |       | 0        |       | (460 | ) | 27 |   | (460 | ) |
| Other                                        |       | 18         |       | 317             |       | (150     | )          | (343 | ) | (132 | ) | (26 | ) |
| Tax loss  carryforwards                      |       | 5,481      |       | 5,458           |       | 0        |       | 0 |   | 5,481 |   | 5,458 |   |
| Derivative  financial instruments            |       | 84         |       | 0               |       | 0        |       | (1,031 | ) | 84 |   | (1,031 | ) |
| **Deferred tax assets (+)  liabilities (-)** | ** ** | **6,720**  | ** ** | **8,062**       | ** ** | **(389** | **)**      | **(2,240** | **)** | **6,331** | ** ** | **5,822** | ** ** |

 

Deferred tax assets arerecognized at the level of individual consolidated companies, in which a losswas realized in the financial year, only to the extent that the realization infuture periods is probable based on previous experiences or forecasts. Deferredtaxes for deductible temporary differences in the amount of some kEUR 5,400were not considered.

F-22

----

Deferred taxes of kEUR170,000 (last year:  kEUR 5,023) on taxloss carryforwards and tax credits available at the balance sheet date were notconsidered. Some kEUR 129,000 of this amount relates to the acquired Genus, Inc.At the balance sheet date, Genus, Inc. has research credit carryforwardsof approximately kEUR 1,000 and loss carryforwards of kEUR 128,000 for federaland state income tax purposes. If not utilized, the federal carryforward willexpire beginning in 2005 up to 2015. The carryforward at state level and thecredit carryforwards will expire, in partial amounts, beginning in 2005 up to2025.

Under current taxlegislation, other loss carry forwards can be used in the group indefinitely.

The following table shows the development of temporarydifferences during the financial year:
| ***in EUR thousands***  | ** ** | **Balance at  January 1,  2004** | ** ** | **Recognized in  income  statement** | ** ** | **Directly  recognized in  equity** | ** ** | **Balance at  December 31,  2004** | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------|------------|
| Trade  receivables                |       | (34                                        | )          | 231                                       |       | 0                                        | ** ** | **197**                                      | ** ** |
| Inventories                       |       | (1,100                                     | )          | 1,318                                     |       | 0                                        | ** ** | **218**                                      | ** ** |
| Provisions for  pensions          |       | 58                                         |       | 4                                         |       | 0                                        | ** ** | **62**                                       | ** ** |
| Deferred  revenues                |       | 3,332                                      |       | (1,584                                    | )          | 0                                        | ** ** | **1,748**                                    | ** ** |
| Currency  adjustment item         |       | 47                                         |       | 0                                         |       | -3                                       | ** ** | **44**                                       | ** ** |
| Provisions and  other liabilities |       | (202                                       | )          | (186                                      | )          | 0                                        | ** ** | **(388**                                     | **)**      |
| Customer  advances                |       | (504                                       | )          | 44                                        |       | 0                                        | ** ** | **(460**                                     | **)**      |
| Other                             |       | 0                                          |       | (26                                       | )          | 0                                        | ** ** | **(26**                                      | **)**      |
| Derivative  financial instruments |       | (1,050                                     | )          | (144                                      | )          | 163                                      | ** ** | **(1,031**                                   | **)**      |
| Tax loss  carryforward            |       | 6,975                                      |       | (1,517                                    | )          | 0                                        | ** ** | **5,458**                                    | ** ** |
|                              | ** ** | **7,522**                                  | ** ** | **(1,860**                                | **)**      | **160**                                  | ** ** | **5,822**                                    | ** ** |

 
| ***in EUR thousands***  | ** ** | **Balance at  January 1,  2005** | ** ** | **Recognized in  income  statement** | ** ** | **Directly  recognized in  equity** | ** ** | **Balance at   December 31,  2005** | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|
| Property, plant  and equipment    |       | 0                                          |       | 25                                        |       | 0                                        | ** ** | **25**                                             | ** ** |
| Trade  receivables                |       | 197                                        |       | (227                                      | )          | 0                                        | ** ** | **(30**                                            | **)**      |
| Inventories                       |       | 218                                        |       | 545                                       |       | 0                                        | ** ** | **763**                                            | ** ** |
| Provisions for  pensions          |       | 62                                         |       | 105                                       |       | 0                                        | ** ** | **167**                                            | ** ** |
| Deferred  revenues                |       | 1,748                                      |       | (1,593                                    | )          | 0                                        | ** ** | **155**                                            | ** ** |
| Currency  adjustment item         |       | 44                                         |       | 0                                         |       | (44                                      | )          | **0**                                              | ** ** |
| Provisions and  other liabilities |       | (388                                       | )          | 179                                       |       | 0                                        | ** ** | **(209**                                           | **)**      |
| Customer  advances                |       | (460                                       | )          | 487                                       |       | 0                                        | ** ** | **27**                                             | ** ** |
| Other                             |       | (26                                        | )          | (106                                      | )          | 0                                        | ** ** | **(132**                                           | **)**      |
| Derivative  financial instruments |       | (1,031                                     | )          | 251                                       |       | 864                                      | ** ** | **84**                                             | ** ** |
| Tax loss  carryforwards           |       | 5,458                                      |       | 23                                        |       | 0                                        | ** ** | **5,481**                                          | ** ** |
|                              | ** ** | **5,822**                                  | ** ** | **(311**                                  | **)**      | **820**                                  | ** ** | **6,331**                                          | ** ** |

 

F-23

----

**17. Inventories**
| ***in EUR thousand***           | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------|------------|------------|------------|------------|------------|
| Raw materials and  supplies               |       | 13,075     |       | 9,470      |       |
| Work in process                           |       | 14,953     |       | 21,772     |       |
| Finished goods and  services completed    |       | 3,029      |       | 3,697      |       |
| Inventories at customer’s  locations |       | 2,056      |       | 2,337      |       |
|                                      | ** ** | **33,113** | ** ** | **37,276** | ** ** |

 
| ***in  EUR thousand***                                    | ** ** | **2005** | ** ** | **2004** | *** *** |
|-----------------------------------------------------------|------------|----------|------------|----------|--------------|
| Write-down on  inventories during the year                |       | 3,685    |       | 4,542    |         |
| Inventories measured at  net realizable value             |       | 1,308    |       | 15,831   |         |
| Inventories recognized  as an expense during the period   |       | 78,487   |       | 70,127   |         |
| Reversals during the year recognized in cost of materials |       | 89       |       | 1,114    |         |

 

Inventory alreadyshipped to customers still waiting for final customer acceptance is presentedas inventory at customer’s locations.

Due to changes in thepossible use of inventories, write-downs of kEUR 89 (last year:  kEUR 1,114) on inventories were reversed andrecognized in income in the financial year.

**18. Tradereceivables and other current receivables**
| ***in EUR thousands***                    | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|
| **Trade receivables**                               | ** ** | **24,209** | ** ** | **16,008** | ** ** |
|                                                |       |       |       |       |       |
| Prepaid expenses                                    |       | 1,067      |       | 508        |       |
| Repayment of research &  development costs |       | 648        |       | 523        |       |
| Advances on inventories                             |       | 403        |       | 329        |       |
| VAT refund claims                                   |       | 253        |       | 934        |       |
| Other assets                                        |       | 1,499      |       | 718        |       |
| Fair values of  financial derivatives               |       | 5          |       | 2,930      |       |
| ** **                                          | ** ** | **3,875**  | ** ** | **5,942**  | ** ** |
|                                                | ** ** | **28,084** | ** ** | **21,950** | ** ** |

 

F-24

----

** **

**19. Cash and cashequivalents**
| ***in EUR thousands***                                   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Cash-in-hand                                                       |       | 6          |       | 2          |       |
| Short term  securities                                             |       | 5,032      |       | 4,981      |       |
| Bank balances                                                      |       | 26,397     |       | 40,515     |       |
| Cash and cash  equivalents in the consolidated cash flow statement | ** ** | **31,435** | ** ** | **45,498** | ** ** |

 

**20. Shareholders’Equity**

**SubscribedCapital**
| ** **                                          | ** ** | **2005**       | ** ** | **2004**       | ** ** |
|-----------------------------------------------------|------------|----------------|------------|----------------|------------|
| January 1                                      |       | 64,831,512     |       | 64,831,512     |       |
| Capital increase  as part of Genus acquisition      |       | 20,539,956     |       | 0              |       |
| Shares for  conversion of Genus convertible bonds   |       | 2,383,920      |       | 0              |       |
| Shares for  exercise of stock options               |       | 41,226         |       | 0              |       |
| **Issued  capital at December 31, under IFRS** | ** ** | **87,796,614** | ** ** | **64,831,512** | ** ** |
|                                                |       |           |       |           |       |
| Treasury shares                                     |       | 2,002,783      |       | 0              |       |
| **Stated share capital at  December 31**       | ** ** | **89,799,397** | ** ** | **64,831,512** | ** ** |

 

The stated share capitalof the company consists of no-par shares and was fully paid-up during thebusiness year and last year respectively. Each share represents a portion ofthe stated share capital in the amount of EUR 1.00.

On March 14, 2005,AIXTRON AG increased its share capital (based on part of its Authorized ShareCapital I) by issuing to the former shareholders of Genus, Inc. newordinary shares (20,539,956) in the form of American Depositary Shares (ADS)against all issued shares of Genus, Inc. common shares as contribution inkind. Each ADS represents the economic ownership in an ordinary share ofAIXTRON AG. All issued and outstanding shares of Genus, Inc. werecontributed into AIXTRON AG. On March 14, 2005, 4,427,929 ADS were alsocontributed into a trust property to pay the obligation of Genus, Inc.existing at that date and resulting from share options and convertible bonds aswell as from warranties. An AIXTRON common share was deposited for each ADScontributed into the trust property.

AIXTRON AG cannotdispose of the trust property. Contrary to the rules under GermanyCommercial Code and Company Law, the rules of IFRS (SIC 12) do not permitthe trust property to be allocated to AIXTRON AG. In the IFRS financialstatements the shares held in this property trust are therefore shown as ownshares and deducted from the share capital.

In August 2005,2,383,920 shares were issued to the owners of the convertible bonds of Genus, Inc.In the third quarter 2005, 41,226 ADS from this property trust were issued toemployees for exercised share options.

By a resolution of May 18,2005, the extraordinary meeting of the shareholders authorized the cancellationof the Authorized Share Capital I and of the Authorized ShareCapital II. At the same time, they authorized the creation of a newAuthorized Share Capital I and of a new Authorized Share Capital II. Theamendment 

F-25

----

to the Company’sarticles of association was registered in the commercial register on June 15,2005. According to § 4 of the articles of association, an AuthorizedCapital of EUR 44,899,688.00 exists.

The general meeting ofthe shareholders authorized AIXTRON AG’s Executive Board
| - |   | to increase, with the consent of the Supervisory  Board, AIXTRON’s stated share capital at any time or from time to time on or  before May 17, 2010 by up to EUR 35,919,751.00 by issuing against either  cash contribution or contribution in kind new registered no-par shares with a  proportional amount of EUR 1.00 per share in the share capital (Authorized  Share Capital I). In this case, the shareholders must be granted a  pre-emptive right. However, the Executive Board is authorized, with the  consent of the Supervisory Board, to exclude, in whole or in part, the  shareholders’ pre-emptive right. |
|---|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| - |   | to increase, with the consent of the Supervisory  Board, AIXTRON’s stated share capital at any time or from time to time on or  before May 17, 2010 by up to EUR 8,979,937.00 by issuing against cash  contributions new registered shares without par value with a proportional  amount of EUR 1.00 per share in the share capital (Authorized Capital II). In  this case, the shareholders must be granted a pre-emptive right. However, the  Executive Board is authorized, with the consent of the Supervisory Board, to  exclude, in whole or in part, the shareholders’ pre-emptive right.                           |

 

The Executive Board isalso authorized, with the consent of the Supervisory Board, to define therights embodied in a share and the other conditions and terms of the issuanceof shares.

**Paid-in capital**

Paid-in capital mainlyincludes the premium on increases of subscribed capital as well as accruedstock option expense.

**AccumulatedOther Comprehensive Income**
| ***in EUR thousands***                | ** ** | **Currency  translation** | ** ** | **Derivative  financial  instruments** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|-----------|------------|
| Balance at  January 1, 2004                |       | (2,244                    | )          | 1,469                                  |       | (775      | )          |
| Change in  currency translation                 |       | 48                        |       |                                   |       | 48        |       |
| Change in unrealized  gains/losses before taxes |       |                      |       | (308                                   | )          | (308      | )          |
| Deferred taxes                                  |       |                      |       | 163                                    |       | 163       |       |
| **Balance  at December 31, 2004**          | ** ** | **(2,196**                | **)**      | **1,324**                              | ** ** | **(872**  | **)**      |
| Change in  currency translation                 |       | 11,616                    |       |                                   |       | 11,616    |       |
| Change in  unrealized gains/losses before taxes |       |                      |       | (2,493                                 | )          | (2,493    | )          |
| Deferred taxes                                  |       |                      |       | 864                                    |       | 864       |       |
| **Balance at December 31,  2005**          | ** ** | **9,420**                 | ** ** | **(305**                               | **)**      | **9,115** | ** ** |

 

The foreign currencytranslation adjustment comprises all foreign exchange differences arising fromthe translation of the financial statements of foreign subsidiaries whosefunctional currency is not the EUR.

The item “derivativefinancial instruments” comprises the effective portion of the cumulative netchange in the fair value of cash flow hedging instruments related to hedgedtransactions that have not yet occurred.

**21. Earnings pershare**

**Basic earnings per share**

The calculation of thebasic earnings per share at December 31, 2005, is based on theweighted-average number of common shares outstanding during the reportingperiod. The weighted-average number of issued commons shares and ADS was82,111,081 (last year: 64,831,512).

F-26

----

**Dilutedearnings per share**

The calculation of thediluted earnings per share at December 31, 2005 is based on theweighted-average number of outstanding common shares and ADS and of commonshares and ADS with a possible dilutive effect resulting from share optionsbeing exercised under the share option plan and in connection with theconversion of issued convertible bonds and other options.

Weighted number ofshares (diluted) as follows:

 
| ** **                                                                            | ** ** | **2005**       | ** ** | **2004**       | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------|------------|----------------|------------|
| Weighted average  number of common shares and ADSs at December 31 (basic)   |       | 82,111,081     |       | 64,831,512     |       |
| Dilutive effect  of convertible bonds                                                 |       | 0              |       | 25,440         |       |
| Dilutive effect  of share options                                                     |       | 0              |       | 308,294        |       |
| **Weighted average number of  commons shares and ADSs at December 31 (diluted)** | ** ** | **82,111,081** | ** ** | **65,165,246** | ** ** |

 

The following securitiesissued were not included in the computation of the diluted earnings per share,as their effect would be antidilutive:
| ***Number of shares*** | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|----------------------------------|------------|---------------|------------|---------------|------------|
| Share options                    |       | 5,357,986     |       | 3,377,161     |       |
| Convertible  bonds               |       | 25,440        |       | 0             |       |
|                             | ** ** | **5,383,426** | ** ** | **3,377,161** | ** ** |

 

**22. Employeebenefits**

**Defined contribution plan**

The Genus, Inc. 401(k) Plan (“Genus Plan”) adopted in the context of the acquisition of Genus, Inc.provides retirement and incidental benefits for eligible employees. The GenusPlan provides for contributions (as determined by the Executive Board) that maynot exceed 6% of the aggregate salaries of those employees eligible forparticipation. In 2005, Genus, Inc. contributed kEUR 151. Included in thisamount is an amount of kEUR 4 that was contributed for a member of theExecutive Board.

**Defined benefit plan**

The Company’s netobligation in respect of defined benefit pension plans reflects commitments totwo former members of the Executive Board of AIXTRON AG.

F-27

----

Development ofprovisions for pensions as follows:
| ***in EUR thousands***                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Present value of  net obligations at January 1              |       | 703      |       | 736      |       |
| Expense  recognised in consolidated income statement (see below) |       | 275      |       | 37       |       |
| Present value of  net obligations at December 31            |       | 978      |       | 773      |       |
| Actuarial gains  and losses not recognised                       |       | 0        |       | (70      | )          |
| **Total provisions for pensions  at December 31**           | ** ** | **978**  | ** ** | **703**  | ** ** |

 

The expense for pensionsdeveloped as follows:
| ***in EUR thousands*** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Interest expense                 |       | 38       |       | 37       |       |
| Actuarial gains  and losses      |       | 237      |       | 0        |       |
| * *                         | ** ** | **275**  | ** ** | **37**   | ** ** |

 

In the income statement,the expense of kEUR 275 (last year:  kEUR37) is recognized in general administration expense. The following table showsthe principal actuarial assumptions:

**Biometrical calculation assumptions**
| ** **                         | ** ** | **2005**                        | ** ** | **2004**                        | ** ** |
|------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **Heubeck  Richttafeln  2005G** | ** ** | **Heubeck-  Richttafeln  1998** | ** ** |
| Interest rate at  December 31 |       | 4.35                            | %          | 5.0                             | %          |
| Expected salary  increase          |       | 0.0                             | %          | 0.0                             | %          |
| Expected pension  increase         |       | 1.5                             | %          | 1.5                             | %          |

 

**23. Share-basedpayment**

The Company hasdifferent fixed option plans which reserve shares of common stock and AIXTRONAmerican Depositary Shares/ADS) for the issuance to members of the ExecutiveBoard, management and employees of the Company. Each AIXTRON ADS represents thebeneficial ownership in one AIXTRON common share. The following is adescription of these plans:

**AIXTRONstock option plan 1999**

In May 1999,options were authorized to purchase 3,000,000 shares of common stock (aftergiving effect to capital increases, stock splits, and the EURO conversion). Theoptions become in equal installments of 25% per year after the secondanniversary of the date of grant, subject to certain conditions exercisable. Vestedoptions are only permitted to be exercised when the performance of the AIXTRONstock exceeds the performance of the Technology AS Price Index (formerly theNew Market Index) by at least 5% in the reference period or when the turnoverreported by AIXTRON rises by at least 25% per year and the profit/revenue ratiois at least 12%. Regardless of fulfillment of these conditions, the stockoptions can be exercised when 15 years have elapsed. Under the terms of the1999 plan, options are granted at prices equal to the average closing priceover the last 20 trading days on the Frankfurt Stock Exchange before the grantdate. All options are settled by physical delivery of shares. Under this plan2,087,956 options were outstanding for the purchase of commons shares.

 

F-28

----

 

In 2002, options weregranted with the exercise price slightly less than fair market value. Fairmarket value is determined based upon the closing trading price on grant date.

**AIXTRONstock option plan 2002**

In May 2002,options were authorized to purchase 3,511,495 shares of common stock. Theoptions become exercisable in equal installments of 25% per year after thesecond anniversary of the date of grant, subject to certain conditionsexercisable. Options expire ten years from date of grant. Under the terms ofthe 2002 plan, options are granted at prices equal to the average closing priceover the last 20 trading days on the Frankfurt Stock Exchange before the grantdate, plus a premium of 20% over the average closing price. No grants wereissued with a strike price less than fair market value. All options are settledby physical delivery of shares. A total of 1,844,545 options to purchase commonstock were outstanding under this plan as of December 31, 2005.

**Genusstock option plan 2000**

Within the scope of theacquisition of Genus, Inc. the company adopted the Genus Incentive StockOption Plan 2000. At the date of acquisition options were authorized topurchase 3,948,014 Genus shares of common stock under this plan. At the date ofacquisition these options were converted into options to purchase 2,013,487AIXTRON ADS. Options granted before May 18, 2003 vest over athree-year-period and expire five years from the date of grant. Options grantedafter May 18, 2003 vest over a four-year-period and expire in ten yearsfrom the date of grant. No further vesting conditions exist. A total of1,365,076 options to purchase AIXTRON ADS were outstanding under this plan asof December 31, 2005.

The stock optiontransactions are summarized as follows:
| ** **                           | ** ** | **AIXTRON share options** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|
| ** **                           | ** ** | **Number of  shares**          | ** ** | **Average  exercise price  (EUR)** | ** ** | **Number of  shares** | ** ** | **Average  exercise price  (EUR)** | ** ** |
| ** **                           | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| Balance at  January 1           |       | 4,254,331                           |       | 16.12 |   | 3,278,725 |   | 19.91 |   |
| Granted during  the year             |       | 0                                   |       | 0 |   | 1,180,005 |   | 6.17 |   |
| Exercised during  the year           |       | 0                                   |       | 0 |   | 0 |   | 0.00 |   |
| Expired during  the year             |       | 0                                   |       | 0 |   | 0 |   | 0.00 |   |
| Forfeited during  the year           |       | 321,830                             |       | 11.99 |   | 204,399 |   | 19.45 |   |
| **Outstanding  at December 31** | ** ** | **3,932,501**                       | ** ** | **16.46** | ** ** | **4,254,331** | ** ** | **16.12** | ** ** |
| **Exercisable at December 31**  | ** ** | **716,480**                         | ** ** | **21.85** | ** ** | **523,032** | ** ** | **29.51** | ** ** |

 
| ** **                           | ** ** | **Genus share options** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|
| ** **                           | ** ** | **Number of  shares**        | ** ** | **Average  exercise  price  (USD)** | ** ** |
| ** **                           | ** ** | **2005**                          | ** ** |
| Balance at  January 1           |       | 0                                 |       | 0.00 |   |
| Addition Genus  options              |       | 2,013,487                         |       | 6.19 |   |
| Granted during  the year             |       | 0                                 |       | 0.00 |   |
| Exercised during  the year           |       | 41,226                            |       | 2.53 |   |
| Expired during  the year             |       | 178,413                           |       | 13.11 |   |
| Forfeited during  the year           |       | 428,772                           |       | 5.95 |   |
| **Outstanding  at December 31** | ** ** | **1,365,076**                     | ** ** | **5.47** | ** ** |
| **Exercisable at December 31**  | ** ** | **938,036**                       | ** ** | **5.37** | ** ** |

 

F-29

----

 

The weighted-averageshare price of the options exercised was US$ 3.32.

The employees of Genus, Inc.held 2,676,620 stock options representing the right to receive 1,365,076 ADS ofAIXTRON AG as of December 31, 2005. As part of the Genus, Inc.transaction, a trust for the employee stock options of Genus, Inc. was setup, into which ADS of AIXTRON AG were deposited after the capital increase on March 14,2005.

AIXTRON stock options asof December 31, 2005

 
| **Exercise price  (EUR)** | ** ** | **Outstanding** | ** ** | **Exercisable** | ** ** | **Average option  life (in years)** | ** ** |
|--------------------------------|------------|-----------------|------------|-----------------|------------|----------------------------------------------------|------------|
|  3.10                     |       | 797,670         |       | 199,418         |       | 7.5                                                |       |
|  6.17                     |       | 1,046,875       |       | 0               |       | 8.5                                                |       |
|  7.48                     |       | 767,880         |       | 0               |       | 11.5                                               |       |
| 18.70                          |       | 406,824         |       | 406,824         |       | 8.5                                                |       |
| 26.93                          |       | 472,300         |       | 0               |       | 10.5                                               |       |
| 67.39                          |       | 440,952         |       | 110,238         |       | 9.5                                                |       |
| ** **                     | ** ** | **3,932,501**   | ** ** | **716,480**     | ** ** | ** **                                         | ** ** |

 

Genus stock options asof December 31, 2005

 
| **Margin of exercise  prices(USD)** | ** ** | **Average exercise  price (USD)** | ** ** | **Outstanding** | ** ** | **Exercisable** | ** ** | **Average option  life (in years)** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|-----------------|------------|-----------------|------------|----------------------------------------------------|------------|
| 2,10 to  3,13                            |       | 2.58                                        |       | 168,572         |       | 168,572         |       | 1.7                                                |       |
| 3,45 to  4,84                            |       | 3.90                                        |       | 445,711         |       | 232,595         |       | 6.4                                                |       |
| 5,00 to  6,90                            |       | 5.19                                        |       | 305,966         |       | 275,233         |       | 2.7                                                |       |
| 7,20 to  9,41                            |       | 8.06                                        |       | 394,847         |       | 218,592         |       | 7.9                                                |       |
| 9,90 to 12,73                                 |       | 10.45                                       |       | 49,980          |       | 43,044          |       | 2.6                                                |       |
| ** **                                    | ** ** | ** **                                  | ** ** | **1,365,076**   | ** ** | **938,036**     | ** ** | ** **                                         | ** ** |

 

Fair value of stockoptions and valuation assumptions used to determine the personnel expenses isas follows:

The fair value ofservices received in return for stock options granted is measured by referenceto the fair value of the stock options granted. The fair value of the stockoptions is determined on the basis of a binomial lattice model. In accordancewith the rules of IFRS 2 the measurement includes only options, which weregranted after November 7, 2002 and had not yet vested on January 1,2005.

In 2005 personnelexpenses resulting from exercising stock options totaling EUR 1,801 thousand(previous year EUR 1,041 thousand) were incurred.

F-30

----

 
| ** **                  | ** ** | **AIXTRON share options  granted** | ** ** |
|-----------------------------|------------|----------------------------------------------|------------|
| ** **                  | ** ** | **in 2003**                             | ** ** | **in 2004** | ** ** |
| Fair value on  grant date   |       | 1.78                                         | €     | 3.08 | € |
| Price per share             |       | 2.79                                         | €     | 4.84 | € |
| Exercise price              |       | 3.10                                         | €     | 6.17 | € |
| Expected  volatility        |       | 73.76                                        | %          | 73.54 | % |
| Option life                 |       | 10.5 years                                   |       | 10.5 years |   |
| Expected  dividend payments |       | 0.00                                         | €     | 0.00 | € |
| Risk-free interest rate     |       | 4.40                                         | %          | 4.38 | % |

 
| ** **                          | ** ** | **Genus share options  granted** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **in 2005**                      | ** ** | **in 2004** | ** ** | **before 2004** | ** ** |
| Average fair  value on grant date   |       | 1.30                             | $          | 1.65 | $ | 2.68 | $ |
| Average price  per share            |       | 2.04                             | $          | 2.51 | $ | 3.97 | $ |
| Average exercise  price             |       | 2.04                             | $          | 2.51 | $ | 3.97 | $ |
| Average expected  volatility        |       | 91.76                            | %          | 95.38 | % | 104.20 | % |
| Average option  life                |       | 10 years                         |       | 10 years |   | 9.53 years |   |
| Average expected  dividend payments |       | 0.00                             | $          | 0.00 | $ | 0.00 | $ |
| Average risk-free  interest rate    |       | 4.11                             | %          | 4.27 | % | 4.18 | % |

 

The expected volatilityis based on historic volatility.

F-31

----

###  

**24. Provisions**

Development andbreakdown of provisions:

 
| ***in EUR thousands*** | ** ** | **January 01,  2005** | ** ** | **Exchange  rate  differences** | ** ** | **Changes in  companies  included in  consolidation** | ** ** | **Use**    | ** ** | **Reversal** | ** ** | **Addition**           | ** ** | **December 31,  2005** | ** ** | **thereof  short  term** | ** ** |
|----------------------------------|------------|----------------------------|------------|---------------------------------|------------|-----------------------------------------------------------------|------------|------------|------------|--------------|------------|------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Provisions for  pensions         |       | 703                        |       | 0                               |       | 0                                                               |       | 0          |       | 0            |       | 275                    |       | 978                         |       | 0                        |       |
| Provisions for  personnel        |       | 2,588                      |       | 34                              |       | 1,442                                                           |       | 3,933      |       | 88           |       | 1,842                  |       | 1,885                       |       | 1,885                    |       |
| Warranties                       |       | 1,426                      |       | 12                              |       | 518                                                             |       | 775        |       | 0            |       | 1,014                  |       | 2,195                       |       | 2,195                    |       |
| Onerous contracts                |       | 0                          |       | 0                               |       | 2,598                                                           |       | 0          |       | 0            |       | 1,342                  |       | 3,940                       |       | 1,486                    |       |
| Provisions for  commissions      |       | 902                        |       | 12                              |       | 175                                                             |       | 785        |       | 12           |       | 974                    |       | 1,266                       |       | 1,266                    |       |
| Hedges                           |       | 0                          |       | 0                               |       | 0                                                               |       | 0          |       | 0            |       | 1,567                  |       | 1,567                       |       | 1,567                    |       |
| Other                            |       | 2,147                      |       | 113                             |       | 8,631                                                           |       | 7,746      |       | 124          |       | 3,280                  |       | 6,301                       |       | 5,633                    |       |
| **Total**                        | ** ** | **7,766**                  | ** ** | **171**                         | ** ** | **13,364**                                                      | ** ** | **13,239** | ** ** | **224**      | ** ** | **10,294**             | ** ** | **18,132**                  | ** ** | **14,032**               | ** ** |
| ** **                       | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** **   | ** ** | **thereof  long term** | ** ** | **4,100**                   | ** ** |
| ** **                       | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** **   | ** ** | ** **             | ** ** | ** **                  | ** ** | **18,132**               | ** ** |

 

**Provisions for pensions**The provisions for pensions are commented on in note 22.

**Provisions for personnelexpenses**These include mainly provisions for holiday not yet taken and bonuses.

**Provisions for onerouscontracts**These include provisions for contracts connected with obligations, includinge.g. rent payable and contract risks.

**Provisions for hedgetransactions**For further details on the provisions for hedge transactions, please see note27.

F-32

----

###  

**25. Trade payablesand other non-current liabilities**

The liabilities consistof the following:

 
| ***in EUR thousands***                       | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| **Trade  payables**                                    | ** ** | **17,479** | ** ** | **13,901** | ** ** |
| Other  liabilities from grants                         |       | 1,427      |       | 0          |       |
| Wage and church  tax due,social security contributions |       | 839        |       | 865        |       |
| VAT due                                                |       | 1,329      |       | 12         |       |
| Other liabilities                                      |       | 354        |       | 1,260      |       |
|                                                   |       | 3,949      |       | 2,137      |       |
|                                                   | ** ** | **21,428** | ** ** | **16,038** | ** ** |

 

The trade payables alsoinclude accrued expenses for outstanding invoices for inventory and property,plant and equipment.

**26. Convertiblebonds and options**

As in the last year, theliabilities from convertible bonds are still kEUR 3.

In November 1997,the Company issued 6% convertible bonds to employees, due November 2007,with a principal amount of kEUR 320, interest payable annually in arrears. Thebonds are not transferable and must be repurchased at par if the employeeleaves the Company. The notes are convertible, at the option of the holder,into shares of common stock, initially at a conversion rate of 480 shares(after the effects of share splits) of common stock for each EUR 51.13 principalamount of notes plus payment of an additional EUR 971.45, subject to adjustmentin certain circumstances. Holders of these bonds have the right to exercise theconversion option in respect of 50% of notes held at the earliest two yearsafter the initial offering and in respect of 100% of notes held after threeyears from the date of the initial offering. The right to convert expires atthe end of the life of the bond. The conversion feature was not deemed to bebeneficial at issuance.

Prior to January 1,2002, an aggregate of kEUR 315 convertible bonds had been converted into2,592,960 shares of common stock, after adjusting for share splits during theyears ended December 31, 2001 and 2000. During the year ended December 31,2002, convertible bonds worth kEUR 0.3 were converted into 2,880 shares ofcommon stock. No bonds were converted to common stock during 2003, 2004, and2005. AIXTRON had also taken back convertible bonds amounting to kEUR 2 at facevalue.

The remainingoutstanding convertible bonds as of December 31, 2005, amounting to kEUR 3can be converted, at the option of the holders, into 25,440 shares of commonstock through November 2007.

As part of theacquisition of Genus, Inc, the Company assumed liabilities from convertiblebonds at total par value of kEUR 4,807 (kUS$ 6,450) and at an interest rate of7%. The convertible bonds were issued by Genus, Inc. in August 2002and had a maturity term of three years. The interest was due every six monthsin February and in August and could be paid, at the option of Genus, Inc.either in cash or in shares of common stock. The holder of the notes had theoption to either convert the note into shares of Genus common stock at aconversion rate of one Genus share for each USD 1.42 principal amount of notes,or to demand that there be a repayment in cash at the due date in August 2005.The option of conversion into Genus stock shares was changed, at the date ofthe Genus acquisition, into a right to convert each Genus stock share into a0.51 AIXTRON ADS. For this purpose the required AIXTRON ADS were contributedinto the trust property as part of the acquisition (see note 20).

In August 2005, theconvertible bonds and the interest incurred since March 13, 2005 werecompletely settled by way of conversion into AIXTRON ADS. In this conversion2,383,920 ADS from the trust

F-33

----

 

property were issued tothe holder of the convertible bonds. As a result no liability from the Genusconvertible bond exists at the balance sheet date.

As part of theacquisition of Genus, Inc. additional options for 60,409 ADS were assumed.These options were still outstanding as of December 31, 2005. The optionsare held by unrelated third parties. The options will expire on May 13,2006. Their weighted-average exercise price is US$ 9.95 per ADS. The fair valueof the options was measured at kEUR 0 in preparing the opening balance sheet ofGenus as of March 14, 2005. They were not accounted for in theconsolidated financial statements. As there are no specific conditions for theexercise of the options, they are fully exercisable.

**27. Financialinstruments**

Exposure to credit,interest rate and currency risks arises in the normal course of the Company’sbusiness. Derivative financial instruments are used to hedge exposure tofluctuations in foreign exchange rates.

**Credit risks**

Financial instrumentsgenerally exposed to a credit risk are trade receivables and cash and cashequivalents. Management has a credit policy in place and the exposure to creditrisk is monitored on an ongoing basis.

Due to the worldwidespread of risks, there is a diversification of the credit risk for tradereceivables. Generally, the Company demands no securities for financial assets.However, a credit rating takes place for customers whose debts exceed aspecific amount. In accordance with usual business practice, irrevocableletters of credit are requested from customers in Asia after award of thecontract. Allowances are recognized for the risk of bad debt losses. In theopinion of the management, the risk of further bad debt losses from customercontracts is low.

The Company’s cash andcash equivalents are kept with banks which have a good reputation.

**Interest rate risk**

The Company is subjectonly to minor interest rate fluctuations relating to interest rate influencedcash and cash equivalents, short term investments, bank loans and convertiblebonds.

**Foreign currency risk**

The Company is exposedto foreign currency risk on sales and purchases that are denominated in acurrency other than the EUR. The currencies giving rise to this risk areprimarily Pounds Sterling and U.S. Dollars.

The Company uses forwardexchange contracts and options to hedge the impact of the fluctuations inexchange rates on cash flows from forecasted and agreed sales transactionsdenominated in foreign currencies. The Company typically hedges less than 100%of the forecasted sales contracts. Forward exchange contracts have typicallymaturities of less than one year after the balance sheet date.

**Hedging**

**Cash flow hedges**

The fair value of thecash flow hedges classified as effective was kEUR -377 (last year: 2,116)as of December 31, 2005 and was recognized in other comprehensive income. Thefollowing table shows the development of the fair values, taking into accountdeferred taxes.

 

F-34

----

 
| ***in EUR thousands***          | ** ** | **2005** | ** ** | **2004**  | ** ** |
|-------------------------------------------|------------|----------|------------|-----------|------------|
|                                      |       |     |       |      |       |
| Par value of  forward exchange contracts  |       | 5,419    |       | 32,911    |       |
| Fair value of  forward exchange contracts |       | 5,796    |       | 30,795    |       |
|                                      |       | (377     | )          | 2,116     |       |
| Deferred taxes                            |       | 72       |       | (792      | )          |
| Losses/gains included  in                 |       |     |       |      |       |
| other comprehensive income                | ** ** | **(305** | **)**      | **1,324** | ** ** |

 

The unrealized gains(kEUR 2,116) included in other comprehensive income as of December 31,2004 were fully reversed and recognised in income statement at maturity date ofthe contract in the business year 2005. The gains actually realized in 2005were kEUR 1,156.

The losses (kEUR 258)from the ineffective part of the cash flow hedges existing as of December 31,2005 were recognized in the income statement. The face value of the forwardexchange contracts was kEUR 6,325 at the balance sheet date.

The face value of thecash flow hedges to which no hedge accounting was applied at the balance sheetdate was kEUR 12,101. The losses from the market assessment which are recordedin other operating expenses as of December 31, 2005, were kEUR 522.

**Fair value hedges**

The losses existing atthe balance sheet date, i.e. those arising on the measurement of forwardexchange contracts concluded to hedge agreed sales transactions (face valuekEUR 6,135), are kEUR 410 and are recorded in other operating expenses. Furthermore,gains of kEUR 5 arose from forward exchange contracts with a face value of kEUR1,335. These gains were also recognized in the income statement.

**Fair values**

The fair values and thecarrying amounts of the financial instruments shown in the balance sheet are asfollows:

** **
| ** **                        | ** ** | **Carrying  amount** | ** ** | **Fair value** | ** ** | **Carrying  amount** | ** ** | **Fair value** | ** ** |
|-----------------------------------|------------|----------------------|------------|---------------------|------------|----------------------|------------|---------------------|------------|
| ***in EUR thousands***  | ** ** | **2005**             | ** ** | **2005**            | ** ** | **2004**             | ** ** | **2004**            | ** ** |
|                              |       |                 |       |                |       |                 |       |                |       |
| Cash and cash  equivalents        |       | 31,435               |       | 31,435              |       | 45,498               |       | 45,498              |       |
| Other  non-current assets         |       | 499                  |       | 499                 |       | 5,820                |       | 5,820               |       |
| Trade  receivables                |       | 24,209               |       | 24,209              |       | 16,008               |       | 16,008              |       |
| Other current  assets             |       | 3,875                |       | 3,875               |       | 2,993                |       | 2,993               |       |
| Other current  liabilities        |       | 176                  |       | 176                 |       | 104                  |       | 104                 |       |
| Forward exchange  contracts       |       | (1,562               | )          | (1,562              | )          | 2,949                |       | 2,949               |       |
| Trade payables                    |       | 17,479               |       | 17,479              |       | 13,901               |       | 13,901              |       |
| Deferred and  current liabilities |       | 15,794               |       | 15,794              |       | 15,666               |       | 15,666              |       |
| Deferred  revenues                |       | 730                  |       | 730                 |       | 1,845                |       | 1,845               |       |
| Current tax  liabilities          |       | 1,404                |       | 1,404               |       | 83                   |       | 83                  |       |
| Convertible  bonds                |       | 3                    |       | 3                   |       | 3                    |       | 3                   |       |
| **Gains/losses not recognized**   | ** ** | ** **           | ** ** | **0**               | ** ** | ** **           | ** ** | **0**               | ** ** |

 

F-35

----

**Estimation****of fair values**

The following summarizesthe major methods and assumptions used in estimating the fair values offinancial instruments reflected in the table.

**Derivatives**

The fair value offorward exchange contracts is estimated on the basis of listed market prices.

**Convertible bonds**

The fair value is basedon quoted market prices, if available.

**Trade receivables/payables**

For tradereceivables/payables due within less than one year, the fair value is toreflect the face value. All other receivables/payables are discounted todetermine the fair value.

**28. Operatingleases**

**Leases as lessee**Non-cancelable operating lease rentals are payable as follows:

 
| ***in EUR thousands*** | ** ** | **2005**   | ** ** | **2004**  | ** ** |
|----------------------------------|------------|------------|------------|-----------|------------|
|                             |       |       |       |      |       |
| within less than  one year       |       | 1,898      |       | 655       |       |
| between one and  five years      |       | 6,901      |       | 1,444     |       |
| after more than  five years      |       | 3,430      |       | 1,179     |       |
|                             |       | **12,229** | ** ** | **3,278** | ** ** |

 

The Company leasescertain office and plant facilities, office furniture and motor vehicles undervarious operating leases. Regarding most of the lease commitments for officeand plant facilities the Company has options to renew the leasing contracts. Theleases typically run for a period between one to 15 years. None of the leasesincludes contingent rentals.

**29. Capitalcommitments**

As of December 31,2005, the Company had entered into purchase commitments with suppliers in theamount of kEUR 10,745 (last year:  kEUR7,761) for purchases within the next 12 months. Commitments for capitalexpenditures at December 31, 2005 are kEUR 0 (last year:  kEUR 0) as of December 31, 2005.

**30. Contingencies**

The Company is involvedin various legal proceedings or can be exposed to a threat of legal proceedingsin the normal course of business. The Executive Board regularly analyses thesematters, considering any possibilities of avoiding legal proceedings or ofcovering potential damages under insurance contracts and therefore recognized,where required, provisions. The Company grants to individual customers advancepayment guarantees generally existing only for a limited period of time andreflecting normal business conduct. It is not expected that such matters willhave a material effect on the Company’s net assets, results of operations andfinancial position.

F-36

----

###  

**31. Relatedparties**

**Identity of related parties**Related parties of the Company are subsidiaries, directors, executive officersand members of the Supervisory Board.

**Remuneration of Executive Boardand of Supervisory Board**The remuneration of the Supervisory and Executive Boards is as follows:

 
| ***in EUR thousands*** | ** ** | **Paul Kent  Hyland** | ** ** | **Christopher  Charles  Dodson*** | ** ** | **Stephen  Duane  Perry** | ** ** | **Dr. Bernd  Schulte** | ** ** | **Timothy  McEntee** | ** ** | **Wolfgang  Breme** | ** ** | **Dr. William  W. R.  Elder** | ** ** | **Consolidated  total** | ** ** |
|----------------------------------|------------|----------------------------|------------|-----------------------------------|------------|---------------------------|------------|-----------------------------|------------|----------------------|------------|---------------------|------------|-----------------------------------------|------------|-------------------------|------------|
| *** ***                     | ** ** | ** **                 | ** ** | ** **                        | ** ** | ** **                | ** ** | ** **                  | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                              | ** ** | ** **              | ** ** |
| **Fixed remuneration**           |       | 353                        |       | 304                               |       | 62                        |       | 293                         |       | 57                   |       | 196                 |       | 153                                     | ** ** | **1,418**               | ** ** |
| **Variable remuneration**        |       | 0                          |       | 0                                 |       | 0                         |       | 0                           |       | 0                    |       | 0                   |       | 0                                       | ** ** | **0**                   | ** ** |
| **Remuneration based on**        |       |                       |       |                              |       |                      |       |                        |       |                 |       |                |       |                                    | ** ** | ** **              | ** ** |
| **long term incentives**         |       | 0                          |       | 0                                 |       | 0                         |       | 0                           |       | 0                    |       | 0                   |       | 0                                       | ** ** | **0**                   | ** ** |
| **Remuneration of Executive**    | ** ** | ** **                 | ** ** | ** **                        | ** ** | ** **                | ** ** | ** **                  | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                              | ** ** | ** **              | ** ** |
| **Board  total**                 | ** ** | **353**                    | ** ** | **304**                           | ** ** | **62**                    | ** ** | **293**                     | ** ** | **57**               | ** ** | **196**             | ** ** | **153**                                 | ** ** | **1,418**               | ** ** |

----

*                    Theremuneration paid to Mr. Dodson in the financial year 2005 includes boththe monthly salary and a severance payment of kEUR 220.

 
| ***in EUR thousands***            | ** ** | **Kim  Schindel-  hauer** | ** ** | **Dr.  Holger  Jürgensen** | ** ** | **Prof. Dr.  Wolfgang  Blättchen** | ** ** | **Karl-  Hermann  Kuklies** | ** ** | **Prof. Dr.  Rüdiger  von Rosen** | ** ** | **Joachim  Simmroß** | ** ** | **Consolidated  total** | ** ** |
|---------------------------------------------|------------|---------------------------|------------|---------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
|                                        |       |                      |       |                            |       |                                         |       |                        |       |                                             |       |                      |       |                    |       |
| **Fixed remuneration**                      |       | 54                        |       | 27                              |       | 18                                           |       | 18                          |       | 18                                               |       | 18                        |       | **153**                 | ** ** |
| **Variable remuneration**                   |       | 0                         |       | 0                               |       | 0                                            |       | 0                           |       | 0                                                |       | 0                         |       | **0**                   | ** ** |
| **Attendance fee**                          |       | 3                         |       | 3                               |       | 6                                            |       | 0                           |       | 0                                                |       | 3                         |       | **15**                  | ** ** |
| **Remuneration of Supervisory Board total** | ** ** | **57**                    | ** ** | **30**                          | ** ** | **24**                                       | ** ** | **18**                      | ** ** | **18**                                           | ** ** | **21**                    | ** ** | **168**                 | ** ** |
| **Total  remuneration of executive bodies** |       |                      |       |                            |       |                                         |       |                        |       |                                             |       |                      |       | **1,586**               | ** ** |

 

Members of the ExecutiveBoard participate in the Company’s share option plan. In the financial year2005, share options were neither issued to the Executive Board nor were optionsexercised by the board (see note 23).

Remuneration of theExecutive Board is included in “personnel expenses” (see note 8), remunerationof the Supervisory Board is included in “other operating expenses” (see note7).

F-37

----

 

**32. Companyentities**

AIXTRON AG controls thefollowing subsidiaries:

 
| ** **                                         | ** ** | ** **   | ** ** | **Percentage holding** | ** ** |
|----------------------------------------------------|------------|--------------|------------|-----------------------------|------------|
| ** **                                         | ** ** | **Country**  | ** ** | **2005**                    | ** ** | **2004** | ** ** |
|                                               |       |         |       |                        |       |   |   |   |   |   |   |
| AIXTRON Inc.                                       |       | USA          |       |                        | 100        |   |   |   | 100 |   |   |
| Thomas Swan  Scientific Equipment Ltd. (TSSE Ltd.) |       | UK           |       |                        | 100        |   |   |   | 100 |   |   |
| AIXTRON  chu-sik-hoe-sa (AIXTRON cshs)             |       | South  Korea |       |                        | 100        |   |   |   | 100 |   |   |
| AIXTRON Taiwan  Co. Ltd. (AIXTRON Taiwan)          |       | Taiwan       |       |                        | 100        |   |   |   | 100 |   |   |
| Dotron GmbH                                        |       | Germany      |       |                        | 100        |   |   |   | 100 |   |   |
| Epigress AB                                        |       | Sweden       |       |                        | 100        |   |   |   | 100 |   |   |
| AIXTRON  Kabushiki Kaisha, (AIXTRON KK)            |       | Japan        |       |                        | 100        |   |   |   | 100 |   |   |
| Genus, Inc.                                   |       | USA          |       |                        | 100        |   |   |   | 0 |   |   |
| Genus-Japan, Inc.                             |       | Japan        |       |                        | 100        |   |   |   | 0 |   |   |
| Genus Europa  Ltd.                                 |       | UK           |       |                        | 100        |   |   |   | 0 |   |   |
| Genus GmbH                                         |       | Germany      |       |                        | 100        |   |   |   | 0 |   |   |
| Genus Korea cshs                                   |       | South  Korea |       |                        | 100        |   |   |   | 0 |   |   |
| Genus srl                                          |       | Italy        |       |                        | 100        |   |   |   | 0 |   |   |
| Genus trust                                        |       | USA          |       |                        | 0          | * |   |   | 0 |   |   |

----

*                    Sharesdeemed to be beneficial ownership, as control exists due to the trustrelationship with AIXTRON AG (see note 20).

**33. Events afterthe balance sheet date**

There is no informationof any events after the balance sheet which would result in a differentassessment of the Company’s net assets, results of operation and financialposition.

**34. Fees forauditor**

Fees expensed in theincome statement for the services of the group auditor Deloitte &Touche are as follows:

 

| *in EUR thousands*                                 | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|
|                                                         |       |       |       |
| for audit 2005                                               |       | 784        |       |
| for audit 2004  and audit of the Genus opening balance sheet |       | 369        |       |
| for other  confirmation and valuation services               |       | 29         |       |
| for tax advisory  services                                   |       | 66         |       |
| for other  services                                          |       | 24         |       |
|                                                         | ** ** | **1,272**  | ** ** |

 

Included in the totalamount of fees are fees for Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft,Hanover in the amount of kEUR 495 for audit 2005, kEUR 5 for other confirmationand valuation services, kEUR 16 for tax services and kEUR 8 for other services.

F-38

----

 

**35. Manpower**

Compared to last year,the average number of employees during the current year was as follows:

 

|                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Sale and service                 |       | 163      |       | 103      |       |
| Research &  development |       | 188      |       | 147      |       |
| Production                       |       | 129      |       | 109      |       |
| Administration                   |       | 88       |       | 57       |       |
|                             | ** ** | **568**  | ** ** | **416**  | ** ** |

 

**36. Additionalinformation about the cash flow statement**

**(i) Investing activity**

In return for the saleof a production tool, intangible assets of kEUR 3,701 were acquired.

Additional costs of kEUR5,775 already incurred last year in connection with the acquisition of Genuswere shown as other non-current assets and were therefore included in cashinflows/outflows from operating activities. In the current business year 2005,further purchase-related costs of kEUR 3,628 were capitalized. These arerecognized in cash inflows/outflows from investing activities.

The item “investments inproperty, plant and equipment” includes government grants of kEUR 422. Suchgrants were accounted for as a reduction of cost. Furthermore, grants of kEUR648 were treated as an accrued receivable and recorded in the line item “investmentin property, plant and equipment” as a transaction not affecting cash.

**(ii) Financing activity**

The liabilities fromconvertible bonds assumed as part of the acquisition of Genus, Inc. werefully settled in the business year 2005 by issuing equity instruments (ADS)(see note 26). In this context, no payments were required.

**37. Report on declaration relating to German CorporateGovernance Code** in accordance     with Section 161 of the German StockCorporation Act (Aktiengesetz)

The Executive andSupervisory Boards have rendered the declaration of compliance in accordancewith Section 161 of the German Stock Corporation Act (Aktiengesetz) andmade this permanently available to shareholders on the Company’s web sitewww.AIXTRON.com.

**38. Explanation oftransition to IFRS**

As stated in note 1,these are the Company’s first consolidated financial statements prepared inaccordance with IFRS by applying IFRS 1.

The accounting policiesset out in note 1 have been applied in preparing the financial statements forthe year ended December 31, 2005, the comparative information presented inthese financial statements for the year ended December 31, 2004 and in thepreparation of an opening IFRS balance sheet as of January 1, 2004 (theCompany’s date of transition).

In preparing its opening IFRS balance sheet, theCompany has adjusted amounts reported previously in financial statementsprepared in accordance with its old basis of accounting (U.S. GAAP). Anexplanation of how the transition from U.S. GAAP to IFRS has affected theCompany’s net assets, results of operations and financial position is given inthe following tables and notes.

F-39

----

**Reconciliation of Equity**
| ** **                                                         | ** ** | **January 1, 2004** | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| ***in EUR thousands***                                   | ** ** | ** **                    | ** ** | **US GAAP**                | ** ** | **Effects  from  transition  to IFRS** | ** ** | **IFRS** | ** ** | **US GAAP** | ** ** | **Effects  from  transition  to IFRS** | ** ** | **IFRS** | ** ** |
| **Assets**                                                         |       |                          |       |                            |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment                                     |       | 43,300                        |       | (4,938                          | )          | 38,362 |   | 41,598 |   | (4,528 | ) | 37,070 |   |
| Goodwill                                                           |       | 12,957                        |       | 0                               |       | 12,957 |   | 13,633 |   | 0 |   | 13,633 |   |
| Other intangible  assets                                           |       | 4,558                         |       | 0                               |       | 4,558 |   | 4,295 |   | 0 |   | 4,295 |   |
| Investment  property                                               |       | 0                             |       | 4,938                           |       | 4,938 |   | 0 |   | 4,908 |   | 4,908 |   |
| Other  non-current assets                                          |       | 346                           |       | 0                               |       | 346 |   | 5,820 |   | 0 |   | 5,820 |   |
| Deferred tax  assets                                               |       | 7,580                         |       | (58                             | )          | 7,522 |   | 6,922 |   | (1,100 | ) | 5,822 |   |
| **Total  non-current assets**                                      | ** ** | **68,741**                    | ** ** | **(58**                         | **)**      | **68,683** | ** ** | **72,268** | ** ** | **(720** | **)** | **71,548** | ** ** |
| Inventories                                                        |       | 33,011                        |       | 0                               |       | 33,011 |   | 35,101 |   | 2,175 |   | 37,276 |   |
| Trade  receivables                                                 |       | 9,495                         |       | 0                               |       | 9,495 |   | 16,008 |   | 0 |   | 16,008 |   |
| Curernt tax  assets                                                |       | 1,502                         |       | 0                               |       | 1,502 |   | 63 |   | 0 |   | 63 |   |
| Other current  assets                                              |       | 5,660                         |       | 0                               |       | 5,660 |   | 5,942 |   | 0 |   | 5,942 |   |
| Cash and cash  equivalents                                         |       | 45,303                        |       | 0                               |       | 45,303 |   | 45,498 |   | 0 |   | 45,498 |   |
| **Total  current assets**                                          | ** ** | **94,971**                    | ** ** | **0**                           | ** ** | **94,971** | ** ** | **102,612** | ** ** | **2,175** | ** ** | **104,787** | ** ** |
| **Total  assets**                                                  | ** ** | **163,712**                   | ** ** | **(58**                         | **)**      | **163,654** | ** ** | **174,880** | ** ** | **1,455** | ** ** | **176,335** | ** ** |
| **Shareholders’ equity and  liabilities**                     |       |                          |       |                            |       |   |   |   |   |   |   |   |   |
| Subscribed  capital                                                |       | 64,832                        |       | 0                               |       | 64,832 |   | 64,832 |   | 0 |   | 64,832 |   |
| Additional  paid-in capital                                        |       | 27,584                        |       | 178                             |       | 27,762 |   | 27,647 |   | 1,156 |   | 28,803 |   |
| Retained  earnings                                                 |       | 36,651                        |       | (126                            | )          | 36,525 |   | 43,797 |   | 407 |   | 44,204 |   |
| Other  comprehensive income                                        |       | (775                          | )          | 0                               |       | (775 | ) | (872 | ) | 0 |   | (872 | ) |
| **Equity  attributable to the shareholders of the parent company** |       | **0**                         | ** ** | **159**                         | ** ** | **159** | ** ** | **0** | ** ** | **0** | ** ** | **0** | ** ** |
| **Total  shareholders’ equity**                               | ** ** | **128,292**                   | ** ** | **211**                         | ** ** | **128,503** | ** ** | **135,404** | ** ** | **1,563** | ** ** | **136,967** | ** ** |
| **Minority  interests**                                            | ** ** | **159**                       | ** ** | **(159**                        | **)**      | **0** | ** ** | **0** | ** ** | **0** | ** ** | **0** | ** ** |
|                                                               |       |                          |       |                            |       |   |   |   |   |   |   |   |   |
| **Liabilities**                                                    |       |                          |       |                            |       |   |   |   |   |   |   |   |   |
| Provisions for  pensions                                           |       | 784                           |       | (110                            | )          | 674 |   | 811 |   | (108 | ) | 703 |   |
| Other  non-current liabilities                                     |       | 152                           |       | 0                               |       | 152 |   | 104 |   | 0 |   | 104 |   |
| **Total  non-current liabilities**                                 | ** ** | **936**                       | ** ** | **(110**                        | **)**      | **826** | ** ** | **915** | ** ** | **(108** | **)** | **807** | ** ** |
|                                                               |       |                          |       |                            |       |   |   |   |   |   |   |   |   |
| Trade payables                                                     |       | 11,744                        |       | 0                               |       | 11,744 |   | 13,901 |   | 0 |   | 13,901 |   |
| Advance payments  from customers                                   |       | 13,097                        |       | 0                               |       | 13,097 |   | 13,529 |   | 0 |   | 13,529 |   |
| Other current  accruals and provisions                             |       | 4,058                         |       | 0                               |       | 4,058 |   | 7,063 |   | 0 |   | 7,063 |   |
| Other current  liabilities                                         |       | 2,335                         |       | 0                               |       | 2,335 |   | 2,137 |   | 0 |   | 2,137 |   |
| Current tax  liabilities                                           |       | 0                             |       | 0                               |       | 0 |   | 83 |   | 0 |   | 83 |   |
| Convertible  bonds                                                 |       | 3                             |       | 0                               |       | 3 |   | 3 |   | 0 |   | 3 |   |
| Deferred  revenues                                                 |       | 3,088                         |       | 0                               |       | 3,088 |   | 1,845 |   | 0 |   | 1,845 |   |
| **Total  current liabilities**                                     | ** ** | **34,325**                    | ** ** | **0**                           | ** ** | **34,325** | ** ** | **38,561** | ** ** | **0** | ** ** | **38,561** | ** ** |
| **Total  liabilities**                                             | ** ** | **35,261**                    | ** ** | **(110**                        | **)**      | **35,151** | ** ** | **39,476** | ** ** | **(108** | **)** | **39,368** | ** ** |
| **Total shareholders’ equity and  liabilities**               | ** ** | **163,712**                   | ** ** | **(58**                         | **)**      | **163,654** | ** ** | **174,880** | ** ** | **1,455** | ** ** | **176,335** | ** ** |
|                                                                    |            |                               |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

F-40

----

**Notes to thereconciliation of equity**

The effect of the change to IFRS on the consolidatedequity is as follows:
| ***in EUR thousands***                            | ** ** | ** **  | ** ** | **January 1, 2004** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------|------------|-------------|------------|--------------------------|------------|----------------------------|------------|
| **Consolidated  capital under US-GAAP**           | ** ** | **128,292** | ** ** | **135,404**              | ** ** |
| a) Property,  plant and equipment                 |       | 0           |       | 380                      |       |
| a) Inventories                                    |       | 0           |       | 2,175                    |       |
| b) Provisions  for pensions - employee benefits   |       | 110         |       | 108                      |       |
| c) Share-based  payments                          |       | 0           |       | 0                        |       |
| d) Increase in  deferred tax liabilities          |       | (58         | )          | (1,100                   | )          |
| e) Reclassification  shares of other shareholders |       | 159         |       | 0                        |       |
| **Consolidated equity under IFRS**                | ** ** | **128,503** | ** ** | **136,967**              | ** ** |

 

The adjustment effects are attributable to thefollowing differences in accounting policies between US-GAAP and IFRS:

(a) When thecircumstances that previously caused inventories to be written down below costno longer exist or when there is clear evidence of an increase in net realizablevalue because of changed economic circumstances, the amount of the write-downis reversed (i.e. the reversal is limited to the amount of the originalwrite-down) so that the new carrying amount is the lower of the cost and therevised net realizable value. Under previous GAAP, any reversal of impairmentis prohibited. Under IFRS, there was therefore a reversal of impairment lossfor items of property, plant and equipment, amounting to kEUR 380 and areversal of a write-down on inventories, amounting to kEUR 2,175, as of December 31,2004.

(b) Under previousGAAP, the Company elected to use a “corridor” approach that left some actuarialgains and losses unrecognized. In accordance with IFRS 1.20, AIXTRON as afirst-time adopter elected to recognize all cumulative actuarial gains andlosses at the date of the transition to IFRS (January 1, 2004), even if itplans to use the corridor approach under IAS 19 with respect to later actuarialgains and losses. The gains recognized as of January 1, 2004 were kEUR 110.

(c) The Companyapplied IFRS 2 to its existing share-based payment transactions at January 1,2004 (the Company’s date of transition to IFRS). Under IFRS 2.53 the standardmust be applied to all share-based payments granted since November 7, 2002.The fair value of such share-based payment transactions is calculated inapplying the binomial lattice model and is spread, as expense, over the periodsof non-negotiability as fixed under the share option plans. Under theaccounting standards applied in the past (APB No. 25), these share-basedpayments transactions were accounted for at intrinsic value.

As the share-basedpayment transactions were accounted for at the fair value as defined in IFRS 2,an amount of kEUR 178 was recorded in the capital reserve while there was adecrease in the consolidated profit.

(d) The taxexpenses resulting from the above changes had the effect that there was adecrease in deferred tax assets in the group. At a tax rate of 39.28%, thedecrease was kEUR 58 as of January 1, 2004 and kEUR 1,100 as of December 31,2004.

(e) Under IFRS,minority interests must be shown as a component of the consolidated equity. Underaccounting standards applied in the past (US-GAAP), the minority interests wereshown on the face of the balance sheet after equity and before liabilities. Asof January 1, 2004, there were minority interests of kEUR 159 which had tobe reclassified on this basis.

F-41

----

Theeffect of the above adjustments on retained earnings is as follows:
| ***in EUR thousands***                | ** ** | ** ** | ** ** | **January 1, 2004** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------|------------|------------|------------|-------------------------------|------------|---------------------------------|------------|
| **Retained  Earnings under US-GAAP**            | ** ** | **36,651** | ** ** | **43,797**                    | ** ** |
| a) Property,  plant and equipment               |       | 0          |       | 380                           |       |
| a) Inventories                                  |       | 0          |       | 2,175                         |       |
| b) Provisions  for pensions - employee benefits |       | 110        |       | 108                           |       |
| c) Share-based  payments                        |       | (178       | )          | (1,156                        | )          |
| d) Increase in  deferred tax liabilities        |       | (58        | )          | (1,100                        | )          |
| **Retained Earnings under IFRS**                | ** ** | **36,525** | ** ** | **44,204**                    | ** ** |

 

**Reconciliation toNet Income 2004**
| ***in EUR thousands***                                                        | ** ** | ** ** | ** ** | **US GAAP** | ** ** | **Effects from  transition to IFRS** | ** ** | **IFRS** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|-----------------------------------------------------|------------|----------|------------|
| Revenues                                                                                |       | 140,004    |       | 0                |       | 140,004                                             |       |
| Manufacturing  cost                                                                     |       | 89,957     |       | (2,353)          |       | 87,604                                              |       |
| **Gross  result**                                                                       | ** ** | **50,047** | ** ** | **2,353**        | ** ** | **52,400**                                          | ** ** |
| Selling expenses                                                                        |       | 17,931     |       | 366              |       | 18,297                                              |       |
| General  administrative expenses                                                        |       | 13,088     |       | 152              |       | 13,240                                              |       |
| Research &  development costs                                                  |       | 20,149     |       | 258              |       | 20,407                                              |       |
| Other operating  income                                                                 |       | 9,939      |       | 0                |       | 9,939                                               |       |
| Other operating  expense                                                                |       | 721        |       | 0                |       | 721                                                 |       |
| **Operating  result**                                                                   | ** ** | **8,097**  | ** ** | **1,577**        | ** ** | **9,674**                                           | ** ** |
| Interest income                                                                         |       | 786        |       | 0                |       | 786                                                 |       |
| Interest expense                                                                        |       | 2          |       | 0                |       | 2                                                   |       |
| **Net  interest**                                                                       |       | 784        |       | 0                |       | 784                                                 |       |
| ** **                                                                              |       |       |       |             |       |                                                |       |
| **Income  before taxes**                                                                | ** ** | **8,881**  | ** ** | **1,577**        | ** ** | **10,458**                                          | ** ** |
|                                                                                    |       |       |       |             |       |                                                |       |
| Taxes on income                                                                         |       | 1,787      |       | 1,042            |       | 2,829                                               |       |
| loss (after  taxes) attributable to minority shareholders                               |       | (52        | )          | 0                |       | (52                                                 | )          |
|                                                                                    |       |       |       |             |       |                                                |       |
| **Net  income for the year (after taxes)**                                              | ** ** | **7,146**  | ** ** | **535**          | ** ** | **7,681**                                           | ** ** |
|                                                                                    |       |       |       |             |       |                                                |       |
| Basic earnings  per share (EUR)                                                         |       | 0.11       |       |             |       | 0.12                                                |       |
|                                                                                    |       |       |       |             |       |                                                |       |
| Diluted earnings  per share (EUR)                                                       |       | 0.11       |       |             |       | 0.12                                                |       |
|                                                                                    |       |       |       |             |       |                                                |       |
| Weighted  average number of shares 2004 which was taken as a basis for the calculation. |       |       |       |
|                                                                                    |       |       |       |             |       |                                                |       |
| Basic                                                                                   |       | 64,831,512 |       |             |       | 64,831,512                                          |       |
| Diluted                                                                                 |       | 64,856,952 |       |             |       | 65,165,246                                          |       |

 

**Presentation ofmaterial adjustments to the cash flow statement for 2004**

There are no material differences between the cashflow statement presented under IFRS and the cash flow statement presented underprevious GAAP (US-GAAP).

F-42

----

** **

**39. Supervisoryand Executive Boards**

Composition of theSupervisory Board as of December 31, 2005:

Dipl.-Kfm. KimSchindelhauer, Aachen, Germany, businessman (Chairman of the Supervisory Boardsince 2002)

·      Membershipin Supervisory Boards and controlling bodies:

·                  MEDION AG, Essen, Germany —member of the Supervisory Board

·                  Deutsches Aktieninstitute.V., Frankfurt/Main, Germany — member of the Executive Board

Dr. HolgerJürgensen, Aachen, Germany, physicist (Deputy Chairman of the Supervisory Boardsince 2002)

Prof. Dr. Rüdigervon Rosen, Frankfurt/Main, Germany businessman, Deutsches Aktieninstitut e.V.,Frankfurt/Main, Germany; Managing member of the Executive Board (member of theSupervisory Board since 2002)

·      Membershipin Supervisory Boards and other controlling bodies:

·                  PricewaterhouseCoopers AG, Frankfurt/Main, Germany — member of theSupervisory Board

Dipl.-Kfm. JoachimSimmroß, Hanover, Germany, businessman (member of the Supervisory Board since1997)

·      Membershipin Supervisory Boards and controlling bodies:

·                  technotrans AG,Sassenberg, Germany — Chairman of the Supervisory Board

·                  WeHaCo Unternehmensbeteiligungs-Aktiengesellschaft,Hanover, Germany — member of the Supervisory Board

·                  BAGBiologischeAnalysensystem GmbH, Lich, Germany — member of the Advisory Board

·                  MTS MikrowellenTechnologie und Sensoren GmbH, Ottobrunn, Germany — member of the AdvisoryBoard

·                  KAPPA opto-electronicsGmbH, Gleichen, Germany — member of the Advisory Board

·                  CommerzUnternehmensbeteiligungs-Aktiengesellschaft, Frankfurt/Main, Germany — memberof the Supervisory Board

·                  GBK Beteiligungen AG,Hamburg, Germany — member of the Supervisory Board

·                  HANNOVER Finanz GmbH,Hanover, Germany — member of the Advisory Board

Karl-Hermann Kuklies,Duisburg, Germany, businessman (member of the Supervisory Board since 1997)

Prof. Dr. WolfgangBlättchen, Leonberg, Germany, business consultant, Executive Board of Blättchen &Partner AG, Leonberg, Germany (member of the Supervisory Board since 1998 andChairman of the Audit Committee since May 17, 2005)

·      Membershipin Supervisory Boards and controlling bodies:

·                  Marc O’Polo AG, Stephanskirchen,Germany — Chairman of the Supervisory Board

·                  Horváth AG, Stuttgart,Germany — Deputy Chairman of the Supervisory Board

·                  Gardena AG, Ulm, Germany —member of the Supervisory Board

·                  tec2b AG, Plietzhausen,Germany — Chairman of the Supervisory Board

·                  APCOA Parking AG,Stuttgart, Germany — member of the Supervisory Board

·                  HAUBROK AG, Düsseldorf,Germany — Deputy Chairman of the Supervisory Board

·                  Paion AG, Aachen, Germany —member of the Supervisory Board (until October 2005)

F-43

----

The following gentlemenare members of the Company’s Executive Board:

·                  Paul Kent Hyland, Aachen,Germany, businessman, President and Chief Executive Officer

·                  Christopher CharlesDodson, Aachen, Germany, businessman, Chief Financial Officer (until March 31,2005)

·                  Timothy McEntee, Aachen,Germany, chemist, Chief Operating Officer, Semiconductor Equipment (until March 31,2005)

·                  Stephen Duane Perry,Aachen, Germany, businessman, Chief Operating Officer, Global ServiceOperations (until March 31, 2005)

·                  Dr. Bernd Schulte,Aachen, Germany, physicist, Chief Operating Officer, Compound SemiconductorTechnologies

·                  Dipl.-Kfm. Wolfgang Breme,Aachen, Germany, businessman, Chief Financial Officer (since April 1,2005)

·                  Dr. William W. R.Elder, Sunnyvale, California/USA, engineer, Chairman AIXTRON SSTS(SiliconSemiconductorTechnologies, since July 1, 2005).

F-44

----

The following notes havenot previously been reported as part of AIXTRON’s notes to the consolidatedfinancial statements in accordance with IFRS:

**40. Reconciliationfrom IFRS to U.S. GAAP**

**Reconciliation ofEquity IFRS to U.S. GAAP:**
| ***in EUR thousands***                | ** ** | ** ** | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------|------------|------------|------------|---------------------------------|------------|---------------------------------|------------|
|                                            |       |       |       |                            |       |                            |       |
| **Consolidated  equity under IFRS**             | ** ** | ** ** | ** ** | **136,967**                     | ** ** | **183,599**                     | ** ** |
| a) Property,  plant and equipment               |       |       |       | (380                            | )          | 0                               |       |
| a) Inventories                                  |       |       |       | (2,175                          | )          | (1,804                          | )          |
| b) Provisions  for pensions - employee benefits |       |       |       | (108                            | )          | 0                               |       |
| c) Share-based  payments                        |       |       |       | 0                               |       | 0                               |       |
| d) Income tax  effect                           |       |       |       | 1,100                           |       | 198                             |       |
| e) Purchase  price Genus acquisition            |       |       |       | 0                               |       | 44,227                          |       |
| f) Impairment  Genus goodwill                   |       |       |       | 0                               |       | (44,227                         | )          |
| **Consolidated equity under  US-GAAP**          | ** ** | ** ** | ** ** | **135,404**                     | ** ** | **181,993**                     | ** ** |

 
| ***in EUR thousands***                | ** ** | ** ** | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------|------------|------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | ** **                      | ** ** |
| **Consolidated  profit/loss under IFRS**        | ** ** | **7,681**  | ** ** | **(53,468**                     | **)**      |
| a) Property,  plant and equipment               |       | (380       | )          | 380                             |       |
| a) Inventories*                                 |       | (2,176     | )          | 371                             |       |
| b) Provisions for  pensions - employee benefits |       | 2          |       | 108                             |       |
| c) Share-based  payments*                       |       | 977        |       | 1,769                           |       |
| d) Income tax  effect                           |       | 1,042      |       | (902                            | )          |
| f) Impairment  Genus goodwill                   |       | 0          |       | (44,227                         | )          |
| **Consolidated profit/loss under  US-GAAP**     | ** ** | **7,146**  | ** ** | **(95,969**                     | **)**      |

 

----

* Difference due torounding +/- kEUR 1.

The adjustment effectsare attributable to the following differences in accounting policies betweenU.S. GAAP and IFRS:

a.Property, Plant, and Equipment and Inventories

 

Whenthe circumstances that previously caused inventories or property, plant, andequipment to be written down below cost no longer exist or when there is clearevidence of an increase in net realizable value because of changed economiccircumstances, the amount of the write-down is reversed under IFRS (i.e. thereversal is limited to the amount of the original write-down) so that the newcarrying amount is the lower of the cost and the revised net realizable value.Under U.S. GAAP, any reversal of impairment is prohibited. Under IFRS, therewas therefore a reversal of impairment loss for items of property, plant, andequipment amounting to kEUR 380 and a reversal of a write-down on inventoriesamounting to kEUR 2,176 as of December 31, 2004. In the course of the usage ofthese inventories additional cost were booked under IFRS in 2005 amounting tokEUR 371, and the equipment was written down in 2005, resulting in anadditional cost of kEUR 380 under IFRS.

** **

**b. Provisions for Pension – EmployeeBenefits**

** **

**Under U.S. GAAP,the Company elected to use a “corridor” approach that left some actuarial gainsand losses unrecognized. In accordance with IFRS 1.20, AIXTRON as a first-timeadopter of IFRS elected to recognize all cumulative actuarial gains and lossesat the date of the transition to IFRS (January 1, 2004), even if it the companychose to use the corridor approach under IAS 19 with respect to later actuarialgains and losses beginning at January 1, 2005. At December 31, 2005 there wastherefore no difference between IFRS and US-GAAP.**

*** ***

F-45

----

*** ***

** **

**c. Share-based Payments**

** **

**The Companyapplied IFRS 2 to its existing share-based payment transactions at January 1,2004 (the Company’s date of transition to IFRS). Under IFRS 2.53 the standardmust be applied to all share-based payments granted since November 7, 2002. Thefair value of such share-based payment transactions is calculated in applyingthe binomial lattice model and is spread, as expense, over the periods ofnon-negotiability as fixed under the share option plans.**

** **

**As theshare-based payment transactions were accounted for at the fair value asdefined in IFRS 2, in 2005 an amount of kEUR 1,801 (2004: kEUR 1,041) wasrecorded in the capital reserve while there was a decrease in the consolidatedprofit under IFRS in 2005.**

** **

**Under theaccounting standards applied under U.S. GAAP in 2005 (APB No. 25), theseshare-based payments transaction were accounted for at intrinsic value whichamounted to kEUR 32 in 2005 (2004: kEUR 63). The difference between the expenseunder IFRS and U.S. GAAP is shown in the reconciliation of profit and lossabove.**

** **

**d. Income Tax Impact of Adjustments**

** **

**The tax expensesresulting from the above changes had the effect that there was an increase indeferred tax assets from IFRS to U.S. GAAP in the group. At a tax rate of39.28%, the increase was kEUR 58 as of January 1, 2004 and kEUR 1,100 as ofDecember 31, 2004. In 2005 a write-down on deferred tax assets had to bebooked. As a result of the increase of deferred tax assets in 2004 thewrite-down of deferred tax assets under U.S. GAAP was higher than under IFRS in2005.**

** **

**e. Purchase Price Genus Acquisition**

** **

**Under IFRS theconsideration paid for an acquiree is defined at the date of acquisition. Thedate of acquisition of Genus, Inc was March 13, 2005. Therefore a share priceof 3.72 EUR was used to measure 20,539,956 AIXTRON shares. The fair value ofstock options included in the purchase price was 2,494 kEUR.**

** **

**Under U.S. GAAPthe consideration paid for an acquiree is defined at the date the transactionis announced. The merger between Genus, Inc. and AIXTRON AG was announced onJuly 2, 2004. The share price at that date was 5.60 EUR. This price was used tomeasure the shares given to the Genus shareholders. The fair value of stockoptions included in the purchase price was 4,499 kEUR.**

** **

**Further differences result from thevaluation of convertible bonds.**

** **

**In total the difference resulting fromthe Genus acquisition amounts to 44,227 kEUR as at December 31, 2005.**

** **

**f. Impairment Genus Goodwill**

** **

**The differencesin the valuation of the Genus acquisition between IFRS and U.S. GAAP (as describedunder (e)) resulted in a higher Goodwill under U.S. GAAP than under IFRS andtherefore in a higher impairment charge at the end of 2005.**

** **

**41. AdditionalU.S. GAAP Information**

**Allowancesfor Doubtful Accounts**

Tradereceivables include allowances for doubtful accounts in the amount of kEUR 445in 2005 as compared to kEUR 355 in 2004.
| ** **                                     | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------|------------|
| ***in EUR thousands***               | ** ** | ** **                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Balance at  beginning of year                  |       | 355                                         |       | 187 |   |
| Additions                                      |       | 147                                         |       | 188 |   |
| Change in  companies included in consolidation |       | 58                                          |       | 0 |   |
| Utilizations of  the allowance                 |       | 0                                           |       | 0 |   |
| Reduction of  allowance in the year            |       | (115                                        | )          | (20 | ) |
|                                           |       | **445**                                     | ** ** | **355** | ** ** |
|                                                |            |                                             |            |  |  |  |  |

 

 

F-46

----

**SFAS No. 130 “ReportingComprehensive Income”**

SFASNo. 130 “Reporting Comprehensive Income” required the reporting of allchanges in shareholders’ equity except those resulting from investments by ofdistributions to shareholders.

| *in EUR thousands*                    | ** ** | ** **  | ** ** | **2005**   | ** ** | **2004** | ** ** |
|-------------------------------------------------|------------|-------------|------------|------------|------------|----------|------------|
| **Net  loss/profit under U.S. GAAP**            | ** ** | **(95,969** | **)**      | **(7,146** | **)**      |
| Change in  currency translation adjustment      |       |        |       |       |       |
| - According to  IFRS                            |       | 11,616      |       | 48         |       |
| - reconciliation  to U.S. GAAP                  |       | 3,607       |       | 0          |       |
|                                            |       |        |       |       |       |
| Change in  unrealized gains/losses before taxes |       | (2,493      | )          | (308       | )          |
| Deferred taxes                                  |       | 864         |       | 163        |       |
|                                            |       |        |       |       |       |
| **Comprehensive income  after taxes**           | ** ** | **(82,375** | **)**      | **7,049**  | ** ** |

 

**Share-basedpayments**

As required under SFAS No. 123 amended by SFAS148 we provide additional information for the stock option plans which areaccounted for according to APB Opinion No. 25:

| *in EUR thousands*                                                          | ** ** | **2005**    | ** ** | **2004**  | ** ** |
|---------------------------------------------------------------------------------------|------------|-------------|------------|-----------|------------|
| **Net loss / profit as  reported (US-GAAP)**                                          | ** ** | **(95,969** | **)**      | **7,146** | ** ** |
|                                                                                  |       |        |       |      |       |
| Add. Stock-based  employee compensation expense determined under APB No. 25      |       | 32          |       | 63        |       |
|                                                                                  |       |        |       |      |       |
| Deduct:  Stock-based employee compensation expense determined under SFAS No. 123 |       | (3,569      | )          | (4,685    | )          |
|                                                                                  |       |        |       |      |       |
| Pro forma net  loss/profit (US-GAAP)                                                  |       | (99,506     | )          | 2,524     |       |
|                                                                                  |       |        |       |      |       |
| Earnings per  share (basic):                                                          |       |        |       |      |       |
| as reported  (EUR)                                                                    |       | (1.17       | )          | 0.11      |       |
| pro forma (EUR)                                                                       |       | (1.21       | )          | 0.04      |       |
|                                                                                  |       |        |       |      |       |
| Earnings per  share (diluted):                                                        |       |        |       |      |       |
| as reported  (EUR)                                                                    |       | (1.17       | )          | 0.11      |       |
| pro forma (EUR)                                                                       |       | (1.21       | )          | 0.04      |       |

 

F-47

----

**Deferred tax disclosures**

**Allocation ofprofit before taxes (IFRS)**

| *in EUR thousands* | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|------------------------------|------------|-------------|------------|-------------|------------|
| Germany                      |       | (20,171     | )          | 9,562       |       |
| Outside Germany              |       | (32,044     | )          | 896         |       |
| **Total**                    | ** ** | **(52,215** | **)**      | **(10,458** | **)**      |

 

**Allocation of income taxes(IFRS)**

 

| *in EUR thousands* | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|
| Germany                      |       | 372       |       | 2,277     |       |
| Outside Germany              |       | 881       |       | 552       |       |
| **Total**                    | ** ** | **1,253** | ** ** | **2,829** | ** ** |

 

**Amortization of IntangibleAssets**

 

The estimated aggregate amortization expense in each of the next fiveyears is as follows (in EUR thousands):

 

| Years ended December 31, | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|
|                                    |       |       |       |
| 2006                                    |       | 3,354      |       |
| 2007                                    |       | 3,208      |       |
| 2008                                    |       | 3,125      |       |
| 2009                                    |       | 3,125      |       |
| 2010                                    |       | 3,125      |       |

F-48

----

 

**OperatingLeases**

Further to Note 28 (“OperatingLeases”) the following table sets forth a breakdown of non-cancelable operatinglease rentals by maturity:

| *in EUR thousands* | ** ** | **2005**   | ** ** | **2004**  | ** ** |
|------------------------------|------------|------------|------------|-----------|------------|
| Due <1 year               |       | 1,898      |       | 655       |       |
| Due >1 years <2  years |       | 1,824      |       | 465       |       |
| Due >2 years <3  years |       | 1,787      |       | 397       |       |
| Due >3 years <4  years |       | 1,661      |       | 319       |       |
| Due >4 years <5  years |       | 1,629      |       | 263       |       |
| Due >5 years              |       | 3,430      |       | 1,179     |       |
|                         | ** ** | **12,229** | ** ** | **3,278** | ** ** |

 

Aggregate rental expense for operating leases was kEUR 2,075 and kEUR 746for the years ended December 31, 2005 and 2004, respectively.

**Concentrations**

Financial instrumentsthat subject the Company to concentrations of credit risk consist primarily ofcash and cash equivalents and trade accounts receivable. The Company maintainsits cash and cash equivalents with high-quality institutions. Generally, creditrisk with respect to accounts receivable is diluted due to their dispersalacross different customers throughout the world. The Company performs ongoingcredit evaluations of its customers and generally does not require collateralon accounts receivable. The Company maintains reserves for potential creditlosses and historically such losses have been within management’s expectations.

In 2005, revenues fromone customer amounted to 16.5% of total revenue. No other customer accountedfor more than 10% of total revenue in 2005. In 2004, revenues from one customeramounted to 14.6% of total revenue. No other customer accounted for more than10% of total revenue in 2004.

**Employeebenefits - defined benefit plan**

The Company’s netobligation in respect of defined benefit pension plans reflects commitments totwo former members of the Executive Board of AIXTRON AG. In fiscal year 2005AIXTRON made no pension payments. The estimated payments for the next fiveyears will amount to kEUR 0. The measurement date to determine the pensioncommitments is December 31.

F-49

----

**AdditionalNotes regarding Genus acquisition**

**Proforma disclosure**

Thefollowing table summarizes pro forma financial information assuming theGenus, Inc. acquisition had occurred on January 1, 2004. This proforma information does not necessarily represent what would have occurred ifthe transaction had taken place on the date presented and should not be takenas representative of our future consolidated results of operation or financialposition.
| ***in EUR thousands*** | ** ** | **January 1 — December 31, 2004** | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------|------------|
| Revenues                         |       | 172,552                                                         |       |
| Net loss                         |       | (10,292                                                         | )          |
| Earnings per share               |       |                                                            |       |
|  — basic               |       | (0.12                                                           | )          |
|  — diluted             |       | (0.12                                                           | )          |

 

**Intangibleassets**

The intangible assetsacquired in the Genus transaction are amortized over a weighted average periodof 6.3 years.

SeeNote 4 to the Consolidated Financial Statements for further information on theGenus transaction.

 

**Recent Accounting Pronouncements**

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004),“Share-Based Payment.” SFAS No. 123(R) requires the Company to measure allemployee stock-based compensation awards using a fair value method and recordsuch expense in its consolidated financial statements.  In March 2005, the SEC issued StaffAccounting Bulletin (SAB) 107, which provides the Staff’s views regardinginteractions between SFAS No. 123(R) and certain SEC rules and regulations andprovides interpretations of the valuation of share-based payments for publiccompanies. The adoption of SFAS No. 123(R) requires additional accountingrelated to the income tax effects and additional disclosure regarding the cashflow effects resulting from share-based payment arrangements. The Company willadopt of SFAS No. 123(R) for its  fiscalyear ending on December 31, 2006 reporting and expects to have a materialimpact on the Company’s consolidated results of operations and financialposition. 

 

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments”, an amendment of  FASBStatements No. 133, Accounting for Derivative Instruments and HedgingActivities, and No. 140, Accounting for Transfers and Servicing of Financial Assetsand Extinguishments of Liabilities. This Statement permits fair valueremeasurement for any hybrid financial instrument that contains an embeddedderivative that otherwise would require bifurcation.  The statement clarifies which interest-onlystrips and principal-only strips are not subject to the requirements ofStatement 133 and establishes a requirement to evaluate interests insecuritized financial assets to identify interests that are freestandingderivatives or that are hybrid financial instruments that contain an embeddedderivative requiring bifurcation.  Thestatement also clarifies that concentrations of credit risk in the form ofsubordination are not embedded derivatives. It amends Statement 140 to eliminate the prohibition on a qualifyingspecial-purpose entity from holding a derivative financial instrument thatpertains to a beneficial interest other than another derivative financialinstrument.  This Statement is effectivefor the Company for all financial instruments acquired or issued after July 1,2007. The adoption of SFAS No. 155 is not expected to have a material effect onthe Company’s consolidated financial position, results of operations or cashflows.

 

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes andError Corrections”, a replacement of APB Opinion No. 20, “Accounting Changes”,and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”.SFAS No. 154 changes the requirements for the accounting for and reporting of achange in accounting principle. Previously, most voluntary changes inaccounting principles required recognition via a cumulative effect adjustmentwithin net income of the period of the change. SFAS No. 154 requiresretrospective application to prior periods’ financial statements, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. SFAS No. 154 is effective for the Company for accountingchanges made in fiscal years beginning July 1, 2006; however, the Statementdoes not change the transition provisions of any existing accountingpronouncements. The adoption of SFAS No. 154 is not expected to have a materialeffect on the Company’s consolidated financial position, results of operationsor cash flows.

 

In March 2005, the FASB published FASB Interpretation No. 47,“Accounting for Conditional Asset Retirement Obligations,” which clarifies thatthe term “conditional asset retirement obligation,” as used in SFAS No. 143,“Accounting for Asset Retirement Obligations,” refers to a legal obligation toperform an asset retirement activity in which the timing and (or) method ofsettlement are conditional on a future event that may or may not be within thecontrol of the entity. The uncertainty about the timing and (or) method ofsettlement of a conditional asset retirement obligation should be factored intothe measurement of the liability when sufficient information exists. Theinterpretation also clarifies when an entity would have sufficient informationto reasonably estimate the fair value of an asset retirement obligation. Theadoption of

 

F-50

----

 

this Interpretation for the fiscal year ending on December 31,2006 willnot have a material effect on the Company’s consolidated financial position,results of operations or cash flows.

 

In December 2004, the FASB issued SFAS No. 153, Exchanges ofNonmonetary Assets, an amendment of APB Opinion No. 29. SFAS No. 153 addressesthe measurement of exchanges of nonmonetary assets and redefines the scope oftransactions that should be measured based on the fair value of the assetsexchanged. SFAS No. 153 is effective for the Company for nonmonetary assetexchanges beginning the fiscal ending on December 31, 2006.  The adoption of SFAS No. 153 is not expectedhave a material effect on the Company’s consolidated financial position,results of operations or cash flows. 

 

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, anamendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies that abnormal inventory costs such as costs ofidle facilities, excess freight and handling costs, and wasted materials(spoilage) are required to be recognized as current period charges.  The provisions of SFAS No.151 are effectivefor the fiscal year beginning July 1, 2005. The adoption of SFAS No. 151 did not have a material impact on theCompany’s consolidated financial position, results of operations and cashflows.

F-51

----