-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HlOv5PQPIMBuwUI8Aozh8BZvvkNeB41j5ePKwoLR6VZ6Gi3cJJ9kMQ7Mdib/MRTB 1BiVWF5ENRuEuUcD8FodBA== /in/edgar/work/0000950147-00-500081/0000950147-00-500081.txt : 20001115 0000950147-00-500081.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950147-00-500081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROCHIP TECHNOLOGY INC CENTRAL INDEX KEY: 0000827054 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 860629024 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21184 FILM NUMBER: 764149 BUSINESS ADDRESS: STREET 1: 2355 W CHANDLER BLVD CITY: CHANDLER STATE: AZ ZIP: 85224-6199 BUSINESS PHONE: 4807867200 MAIL ADDRESS: STREET 1: 2355 WEST CHANDLER BLVD CITY: CHANDLER STATE: AZ ZIP: 85224-6199 10-Q 1 e-5668.txt QUARTERLY REPORT FOR THE QTR ENDED 9/30/00 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________to ____________. Commission File Number: 0-21184 MICROCHIP TECHNOLOGY INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Delaware 86-0629024 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2355 W. Chandler Blvd., Chandler, AZ 85224-6199 (480) 792-7200 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the issuer's common stock, as of November 3, 2000: COMMON STOCK, $.001 PAR VALUE: 119,260,574 SHARES MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION. Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 2000 and March 31, 2000...........................3 Condensed Consolidated Statements of Income - Three and Six Months Ended September 30, 2000 and September 30, 1999..........................................4 Condensed Consolidated Statements of Cash Flows - Six Months Ended September 30, 2000 and September 30, 1999......5 Notes to Condensed Consolidated Financial Statements..............6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................9 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......16 PART II. OTHER INFORMATION. Item 4. Submission of Matters to a Vote of Security Holders..............16 Item 6. Exhibits and Reports on Form 8-K.................................18 SIGNATURES ...................................................................19 2 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands except share amounts)
September 30, March 31, 2000 2000 --------- --------- ASSETS (Unaudited) Cash and cash equivalents $ 117,088 $ 188,112 Accounts receivable, net 84,736 75,911 Inventories 62,849 59,461 Prepaid expenses 4,905 3,523 Deferred tax asset 41,961 35,549 Other current assets 1,728 2,257 --------- --------- Total current assets 313,267 364,813 Property, plant and equipment, net 652,300 439,030 Other assets 8,242 8,568 --------- --------- Total assets $ 973,809 $ 812,411 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Short-term lines of credit $ -- $ 9,000 Accounts payable 84,366 67,861 Accrued liabilities 59,345 36,879 Deferred income on shipments to distributors 65,523 54,760 --------- --------- Total current liabilities 209,234 168,500 Pension accrual 866 918 Deferred tax liability 19,066 18,697 Stockholders' equity: Preferred Stock, $.001 par value; authorized 5,000,000 shares; no shares issued or outstanding. -- -- Common Stock, $.001 par value; authorized 300,000,000 shares; issued 121,233,019 and outstanding 119,196,721 shares at September 30, 2000; 121 121 issued 121,233,019 and outstanding 118,361,330 shares at March 31, 2000; Additional paid-in capital 347,040 318,301 Retained earnings 445,519 366,325 Less shares of common stock held in treasury at cost; 2,036,298 shares at September 30, 2000 and 2,871,689 shares at March 31, 2000. (48,037) (60,451) --------- --------- Net stockholders' equity 744,643 624,296 Total liabilities and stockholders' equity $ 973,809 $ 812,411 ========= =========
(Shares and per share amounts have been restated to reflect a 3-for-2 stock split effected September 26, 2000.) See accompanying notes to condensed consolidated financial statements. 3 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands except share amounts)
Three Months Ended Six Months Ended September 30, September 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- (Unaudited) (Unaudited) Net sales $ 176,310 $ 118,021 $ 334,047 $ 225,731 Cost of sales 79,149 57,244 151,322 110,199 --------- --------- --------- --------- Gross profit 97,161 60,777 182,725 115,532 Operating expenses: Research and development 16,933 10,652 31,751 20,959 Selling, general and administrative 24,213 19,076 46,925 35,942 --------- --------- --------- --------- 41,146 29,728 78,676 56,901 Operating income 56,015 31,049 104,049 58,631 Other income (expense): Interest income 1,944 418 4,415 660 Interest expense (176) (206) (315) (468) Other, net 209 365 335 472 --------- --------- --------- --------- Income before income taxes 57,992 31,626 108,484 59,295 Income taxes 15,658 8,538 29,290 16,008 --------- --------- --------- --------- Net income $ 42,334 $ 23,088 $ 79,194 $ 43,287 ========= ========= ========= ========= Basic net income per share $ 0.36 $ 0.20 $ 0.67 $ 0.38 ========= ========= ========= ========= Diluted net income per share $ 0.33 $ 0.19 $ 0.63 $ 0.36 ========= ========= ========= ========= Weighted average common shares outstanding 118,854 114,271 118,627 114,478 ========= ========= ========= ========= Weighted average common and potential common shares outstanding 126,738 121,311 126,466 121,145 ========= ========= ========= =========
(Shares and per share amounts have been restated to reflect a 3-for-2 stock split effected September 26, 2000.) See accompanying notes to condensed consolidated financial statements. 4 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Six Months Ended September 30, ------------------------ 2000 1999 --------- --------- Cash flows from operating activities: (Unaudited) Net income $ 79,194 $ 43,287 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 870 222 Provision for inventory valuation 3,589 1,120 Provision for pension accrual 93 193 Depreciation and amortization 47,323 31,178 Amortization of purchased technology 1,529 150 Deferred income taxes (6,043) 1,134 Tax benefit from exercise of stock options 13,545 6,435 Increase in accounts receivable (9,695) (7,350) (Increase) decrease in inventories (6,977) 4,582 Increase in accounts payable and accrued liabilities 38,971 16,462 Change in other assets and liabilities 8,562 3,763 --------- --------- Net cash provided by operating activities 170,961 101,176 --------- --------- Cash flows from investing activities: Capital expenditures (260,593) (74,999) --------- --------- Net cash used in investing activities (260,593) (74,999) --------- --------- Cash flows from financing activities: Repayment of lines of credit (9,000) (26,509) Payments on long-term debt -- (1,403) Payments on capital lease obligations -- (305) Proceeds from sale of stock and put options 27,608 15,157 --------- --------- Net cash provided by (used in) financing activities 18,608 (13,060) --------- --------- Net (decrease) increase in cash and cash equivalents (71,024) 13,117 Cash and cash equivalents at beginning of year 188,112 30,826 --------- --------- Cash and cash equivalents at end of year $ 117,088 $ 43,943 ========= ========= See accompanying notes to condensed consolidated financial statements 5 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of Microchip Technology Incorporated and its wholly-owned subsidiaries (the "Company"). All intercompany balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. In the Company's opinion, the accompanying condensed consolidated financial statements include all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2000. The results of operations for the six months ended September 30, 2000 and 1999 are not necessarily indicative of the results to be expected for the full fiscal year. (2) ACCOUNTS RECEIVABLE Accounts receivable consists of the following (amounts in thousands): September 30, March 31, 2000 2000 -------- -------- (unaudited) Trade accounts receivable $ 88,011 $ 77,945 Other 372 703 -------- -------- 88,383 78,648 Less allowance for doubtful accounts 3,647 2,737 -------- -------- $ 84,736 $ 75,911 ======== ======== (3) INVENTORIES The components of inventories are as follows (amounts in thousands): September 30, March 31, 2000 2000 -------- -------- (unaudited) Raw materials $ 10,198 $ 7,724 Work in process 34,227 35,914 Finished goods 27,818 22,873 -------- -------- 72,243 66,511 Less allowance for inventory valuation 9,394 7,050 -------- -------- $ 62,849 $ 59,461 ======== ======== 6 (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (amounts in thousands): September 30, March 31, 2000 2000 ---------- --------- (unaudited) Land $ 11,545 $ 11,545 Building and building improvements 130,678 90,069 Machinery and equipment 624,520 479,509 Projects in process 164,674 100,293 ---------- --------- 931,417 681,416 Less accumulated depreciation and amortization 279,117 242,386 ---------- --------- $ 652,300 $ 439,030 ========== ========= (5) LINES OF CREDIT On May 31, 2000, the Company entered into a new unsecured revolving credit facility with a syndicate of banks totaling $100.0 million, bearing interest at LIBOR plus 0.625%. We can elect to increase the facility to $150.0 million, subject to certain conditions set forth in the credit agreement. This facility has a termination date of May 31, 2003. There were no borrowings against this line of credit as of September 30, 2000. We are required to achieve certain financial ratios and operations results to maintain this line of credit. Our ability to fully utilize this credit facility is dependent on our being in compliance with such covenants and ratios. The Company was in compliance with these covenants as of September 30, 2000. At March 31, 2000, and through May 31, 2000, the Company had an unsecured line of credit with a syndicate of U.S. banks for up to $90,000,000, bearing interest at LIBOR plus 0.325%. The Company had utilized $9,000,000 of this line of credit as of March 31, 2000. The agreement between the Company and the syndicate of banks required the Company to achieve certain financial ratios and operating results. The Company was in compliance with these covenants as of March 31 and May 31, 2000, respectively. The Company has an additional unsecured line of credit with various Asian financial institutions for up to $34,600,000 (U.S. Dollar equivalent). These borrowings are predominantly denominated in U.S. Dollars, bearing interest at the Singapore Interbank Offering Rate (SIBOR) 6.76% at September 30, 2000 plus 0.648% (average) and expiring on various dates through March 31, 2001. There were no borrowings against this line of credit as of September 30, 2000, but an allocation of $1,045,000 of the available line was made, relating to import guarantees associated with the Company's business in Thailand. There were no borrowings against this line of credit as of March 31, 2000, but an allocation of $1,934,000 of the available line was made, relating to import guarantees associated with the Company's business in Thailand. (6) STOCKHOLDERS' EQUITY During the six months ended September 30, 2000 and September 30, 1999, the Company received 184,893 shares and 2,540,466 shares, respectively, in connection with its net shares settled forward contract. During the six months ended September 30, 2000, the Company received $17,008,000 in connection with 7 its net shares settled forward contract. The net shares settled forward contract could obligate the Company to purchase shares of the Company's Common Stock in the future if the price of the Company's Common Stock is below the strike price of the instruments. The expiration date of this transaction is May 2001, with quarterly interim settlement dates. (7) NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share (in thousands except per share amounts):
Three Months Ended Six Months Ended September 30, September 30, (Unaudited) (Unaudited) --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income $ 42,334 $ 23,088 $ 79,194 $ 43,287 ======== ======== ======== ======== Weighted average common shares outstanding 118,854 114,271 118,627 114,478 -------- -------- -------- -------- Dilutive effect of stock options 7,884 7,040 7,839 6,667 -------- -------- -------- -------- Weighted average common and potential common shares outstanding 126,738 121,311 126,466 121,145 ======== ======== ======== ======== Basic net income per share $ 0.36 $ 0.20 $ 0.67 $ 0.38 ======== ======== ======== ======== Diluted net income per share $ 0.33 $ 0.19 $ 0.63 $ 0.36 ======== ======== ======== ========
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain operational data as a percentage of net sales for the periods indicated: Three Months Ended Six Months Ended September 30, September 30, ---------------- --------------- 2000 1999 2000 1999 ----- ----- ----- ----- Net sales ........................... 100.0% 100.0% 100.0% 100.0% Cost of sales ....................... 44.9% 48.5% 45.3% 48.8% ----- ----- ----- ----- Gross profit ........................ 55.1% 51.5% 54.7% 51.2% Research and development ............ 9.6% 9.0% 9.5% 9.3% Selling, general and administrative . 13.7% 16.2% 14.1% 15.9% ----- ----- ----- ----- Operating income .................... 31.8% 26.3% 31.1% 26.0% ===== ===== ===== ===== RECENT DEVELOPMENT On October 26, 2000, we entered into an Agreement and Plan of Reorganization (the "Merger Agreement") with TelCom Semiconductor, Inc., a provider of a broad spectrum of high performance linear and mixed-signal integrated circuit solutions, to merge with TelCom in a stock-for-stock transaction. The merger is intended to qualify as a pooling of interests for accounting purposes. Completion of the acquisition is contingent upon approval by TelCom stockholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Anti-trust Improvements Act, and other customary conditions. We expect this transaction to be completed during the first calendar quarter of 2001. We filed a current report on Form 8-K on October 30, 2000 relating to this transaction. A copy of the Merger Agreement was filed as Exhibit 2.1 to such Form 8-K. Under the terms of the definitive merger agreement, if the average closing price of our common stock for the ten trading days preceding the closing of the transaction is between $28.30 and $32.61, we will issue a number of shares of our common stock for each outstanding share of TelCom equal to $15.00 divided by such 10 day average price. If our ten day average closing price prior to the merger is less than $28.30, then each TelCom stockholder will receive .53 shares of our Common Stock, and if the ten day average price is greater than $32.61, then each TelCom stockholder will receive .46 shares of our Common Stock. THE FOREGOING STATEMENT RELATED TO THE EXPECTED CLOSING OF THE MERGER WITH TELCOM IS A FORWARD LOOKING STATEMENT. THIS STATEMENT INVOLVES RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING BUT NOT LIMITED TO FAILURE OF THE TRANSACTION TO CLOSE DUE TO THE FAILURE TO OBTAIN REQUIRED REGULATORY OR STOCKHOLDER APPROVALS. 9 NET SALES Microchip's net sales for the quarter ended September 30, 2000 were $176.3 million, an increase of 49% over sales of $118.0 million for the corresponding quarter of the previous fiscal year, and an increase of 12% from the previous quarter's sales of $157.7 million. Our microcontroller and analog product lines represent the largest component of our total net sales. Microcontrollers, associated application development systems and analog products accounted for 70% of our net sales for the three months ended September 30, 2000 and 81% of our total net sales in the three months ended September 30, 1999. A related component of our product sales consists primarily of Serial EEPROM memories which accounted for 30% of our total net sales in the three months ended September 30, 2000 and 19% of total net sales in the three months ended September 30, 1999. Our net sales in any given quarter depend upon a combination of orders received in that quarter for shipment in that quarter, which we refer to as turns orders, and shipments from backlog. Turns orders were 20% of our net sales for the three months ended September 30, 2000 and 45% of our net sales for the three months ended September 30, 1999. The percentage of turns orders has fluctuated over the last three years between 20% and 65%. In order to achieve our projected net sales for the current quarter, we need to achieve turns orders of approximately 23%, which is near the low point of the historical range for net sales requirements. Over the next several quarters, we expect the level of turns orders to return to historical normal levels of approximately 35% to 45%. Despite the current low turns orders requirement for our business, turns orders are difficult to predict, and we may not experience the combination of turns orders and shipments from backlog in any quarter that would be sufficient to achieve anticipated growth in net sales. If we do not achieve a sufficient level of turns orders in a particular quarter, our revenues and operating results would be adversely affected. Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. The overall average selling prices of our microcontroller products have remained relatively constant, while average selling prices of our memory products had declined through the end of fiscal 2000. However, during the quarter ended June 30, 2000, prices for our memory products increased due primarily to the dynamics of the supply and demand environment. During the quarter ended September 30, 2000, both microcontroller and memory product pricing remained relatively constant. We have experienced, and expect to continue to experience, pricing pressure in certain microcontroller product lines, due primarily to competitive conditions. We have been able to maintain average selling prices by continuing to introduce new products with more features and higher prices, thereby offsetting price declines in older products. We may be unable to maintain average selling prices for our microcontroller and memory products as a result of increased pricing pressure in the future, which would reduce our operating results. THE FOREGOING STATEMENTS REGARDING TURNS ORDERS, AVERAGE SELLING PRICES, MEMORY PRODUCT PRICING AND PRICING PRESSURES ARE FORWARD LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: THE LEVEL OF ORDERS THAT ARE RECEIVED AND CAN BE SHIPPED IN A QUARTER; INVENTORY MIX AND TIMING OF CUSTOMER ORDERS; COMPETITION AND COMPETITIVE PRESSURES ON PRICING AND PRODUCT AVAILABILITY; CUSTOMERS' INVENTORY LEVELS, ORDER PATTERNS AND SEASONALITY; THE CYCLICAL NATURE OF BOTH THE SEMICONDUCTOR INDUSTRY AND THE MARKETS ADDRESSED BY OUR PRODUCTS; MARKET ACCEPTANCE OF OUR PRODUCTS AND THOSE OF OUR CUSTOMERS; DEMAND FOR THE COMPANY'S PRODUCTS; FLUCTUATIONS IN PRODUCTION YIELDS, PRODUCTION EFFICIENCIES AND OVERALL CAPACITY UTILIZATION; CHANGES IN PRODUCT MIX; AND ABSORPTION OF FIXED COSTS, LABOR AND OTHER FIXED MANUFACTURING COSTS. 10 Distributors accounted for 62% of our net sales to customers in the three months ended September 30, 2000 and 61% in the three months ended September 30, 1999. Our largest distributor accounted for 14% of our total net sales for the three months ended September 30, 2000 and 13% of our total net sales for the three months ended September 30, 1999. Generally, we do not have long-term agreements with our distributors and our distributors may terminate their relationship with us with little or no advanced notice. The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns. Sales to foreign customers represented 69% of our net sales in each of the three months ended September 30, 2000 and September 30, 1999. Our sales to foreign customers have been predominantly in Asia and Europe, which we attribute to the manufacturing strength in those areas for automotive, communications, computing, consumer and industrial control products. The majority of our foreign sales are U.S. Dollar denominated. We enter into hedging transactions from time to time to minimize exposure to currency rate fluctuations. Although none of the countries in which we conduct significant foreign operations have had a highly inflationary economy in the last five years, there is no assurance that inflation rates or fluctuations in foreign currency rates in countries where we conduct operations will not adversely affect our operating results in the future. Our quarterly operating results are affected by a wide variety of factors that could reduce our net sales and profitability, many of which are beyond our control. Some of the factors that may affect our operating results include: * the level of orders that are received and can be shipped in a quarter (turns orders) * market acceptance of both our products and our customers' products * customer order patterns and seasonability * availability of manufacturing capacity and fluctuations in manufacturing yield * the availability and cost of raw materials, equipment and other supplies, and * economic, political and other conditions in the worldwide markets served by us. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and that you should not rely upon any comparisons as indications of future performance. In future periods, our operating results may fall below the expectations of public market analysts and investors, which would likely have a negative effect on the price of our Common Stock. GROSS PROFIT In the three months ended September 30, 2000, our gross profit was $97.2 million, and our gross profit was $60.8 million in the three months ended September 30, 1999. In the six months ended September 30, 2000, our gross profit was $182.7 million, and our gross profit was $115.5 million in the six months ended June 30, 1999. Gross profit as a percent of sales was 55.1% for the quarter ended September 30, 2000, and 51.5% in quarter ended September 30, 1999. The most significant factors affecting gross profit percentage were increased 8-inch wafer production levels, continued cost reductions in wafer fabrication and assembly and test manufacturing, and a stable pricing market for microcontroller and memory products. We continue to transition products to smaller geometries and to larger wafer sizes to reduce future manufacturing costs. We continue to increase our manufacturing capacity for 8-inch wafers and to transition products to our 0.7 micron and 0.5 micron processes. We anticipate that gross product margins will fluctuate over time, driven primarily by the product mix of microcontroller products and related memory products, manufacturing yields, fixed cost absorption, wafer fab loading levels and competitive and economic conditions. 11 We believe that expansion of our manufacturing capacity is important to enable us to respond to increased sales opportunities and maintain satisfactory delivery schedules. Our business could suffer if the expansion of manufacturing capacity is delayed or inefficiently implemented. Other companies in the industry have experienced difficulty in expanding manufacturing capacity, resulting in reduced yields or delays in product deliveries. We may experience manufacturing yield or delivery problems in the future, which could harm our operating results. THE FOREGOING STATEMENTS RELATING TO ANTICIPATED GROSS PRODUCT MARGINS, THE TRANSITION TO HIGHER YIELDING MANUFACTURING PROCESSES AND THE EXPANSION OF OUR MANUFACTURING CAPACITY ARE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: FLUCTUATIONS IN PRODUCTION YIELDS, PRODUCTION EFFICIENCIES AND OVERALL CAPACITY UTILIZATION; COST AND AVAILABILITY OF RAW MATERIALS; ABSORPTION OF FIXED COSTS, LABOR AND OTHER DIRECT MANUFACTURING COSTS; THE ABILITY TO INCREASE MANUFACTURING CAPACITY AS NEEDED; THE TIMING AND SUCCESS OF MANUFACTURING PROCESS TRANSITION; DEMAND FOR OUR PRODUCTS; COMPETITION AND COMPETITIVE PRESSURE ON PRICING; CHANGES IN PRODUCT MIX; AND OTHER ECONOMIC CONDITIONS. Currently, the majority of our assembly operations, and a portion of our test requirements, are performed by third-party contractors located throughout Asia. Our reliance on third parties involves some reduction in our level of control over these portions of our business. While we review the quality, delivery and cost performance of these third-party contractors, there can be no assurance that reliance on third-party contractors will not adversely impact results in future reporting periods if any third-party contractor is unable to maintain assembly and test yields and costs at approximately their current levels. Third-party assembly and test companies are experiencing high demand and utilization of their current capacity which could lead to capacity shortages in the industry. Accordingly, we have implemented in-house assembly operations and have shifted a portion of our assembly operations from third-party contractors to fill this capacity. Approximately 31% of our assembly requirements were being performed in our Thailand facility during the three months ended September 30, 2000. We are dependent on third-party contractors for the balance of our requirements. THE FOREGOING STATEMENTS RELATED TO CAPACITY AT THIRD-PARTY ASSEMBLY AND TEST COMPANIES ARE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: AVAILABILITY OF SUFFICIENT CAPACITY OF THIRD-PARTIES; SUPPLY DISRUPTION; LABOR UNREST; CHANGES IN PRODUCT MIX; COMPETITIVE PRESSURES ON PRICES; AND OTHER ECONOMIC CONDITIONS. Our reliance on foreign operations, and maintenance of substantially all of our finished goods in inventory in foreign locations exposes us to foreign political and economic risks, including: * political, social and economic instability * trade restrictions and changes in tariffs * import and export license requirements and restrictions * difficulties in staffing and managing international operations * disruptions in international transport or delivery * fluctuations in currency exchange rates * difficulties in collecting receivables, or * potentially adverse tax consequences. To date, we have not experienced any significant interruptions in our foreign business operations. If any of these risks materialize, our sales could decrease and our operations performance could suffer. 12 RESEARCH AND DEVELOPMENT We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technology. We believe these investments are significant factors in maintaining our competitive position. We increased our level of research and development costs to $16.9 million in the current quarter as compared to $10.7 million in the corresponding quarter of the previous fiscal year and $14.8 million in the immediately preceding quarter. The primary reason for the dollar increase in research and development costs relates to labor and recruitment costs associated with expanding our technical resources. Research and development in the current quarter increased by 59.0% as compared to the corresponding quarter of the previous fiscal year, and increased by 14.3% from the previous quarter. Our future operating results will depend to a significant extent on our ability to develop and introduce new products on a timely basis which can compete effectively on the basis of price and performance and which address customer requirements. The success of new product introductions depends on various factors, including: * proper new product selection * timely completion and introduction of new product designs * development of support tools and collateral literature that make complex new products easy for engineers to understand and use, and * market acceptance of our customers' end products. Because our products are complex, we have experienced delays from time to time in completing development of new products. In addition, our new products may not receive or maintain substantial market acceptance. We may be unable to design, develop and introduce competitive products on a timely basis, which could reduce our future operating results. Our future success also depends upon our ability to develop and implement new design and process technologies. Semiconductor design and process technologies are subject to rapid technological change and require large research and development expenditures. Other companies in the industry have experienced difficulty in effecting transitions to smaller geometry processes and to larger wafers and, consequently, have suffered reduced manufacturing yields or delays in product deliveries. We believe that our transition to smaller geometries and to larger wafers is important for us to remain competitive. Our future operating results could be reduced if the transition is substantially delayed or inefficiently implemented. SELLING, GENERAL AND ADMINISTRATIVE We increased our level of selling, general and administrative costs to $24.2 million in the current quarter as compared to $19.1 million in the corresponding quarter of the previous fiscal year and $22.7 million in the immediately preceding quarter. The primary reason for the dollar increase in selling, general and administrative costs relates to labor and recruitment costs associated with expanding our employment base to support the growth of our business. Selling, general and administrative costs represented 13.7% of sales in the current fiscal quarter as compared to 16.2% of sales in the corresponding quarter of the previous fiscal year and 14.4% of sales in the immediately preceding quarter. We expect selling, general and administrative costs to rise over time as we continue to invest in incremental worldwide sales and technical support resources to promote our embedded control products. 13 OTHER INCOME (EXPENSE) Interest income in the three months ended September 30, 2000 increased from the corresponding periods of the previous fiscal year as a result of higher invested cash balances due primarily to our secondary offering completed in March 2000. Interest expense in the three and six months ended September 30, 2000 decreased from the corresponding periods of the previous fiscal year as a result of lower borrowing levels of our credit facilities. The net of our interest income and expense will decrease over the remaining quarters of this fiscal year as our invested cash balances decrease to fund our capital expansion. Other income represents numerous immaterial non-operating items. PROVISION FOR INCOME TAXES Provisions for income taxes reflect tax on foreign earnings and federal and state tax on U.S. earnings. We had an effective tax rate of 27.0% for the six months ended September 30, 2000 and 27.0% for the six months ended September 30, 1999, due primarily to lower tax rates at our foreign locations. We believe that our tax rate for the foreseeable future will be approximately 27%. THE FOREGOING STATEMENT REGARDING OUR ANTICIPATED FUTURE TAX RATE IS A FORWARD-LOOKING STATEMENT. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: CURRENT TAX LAWS AND REGULATIONS; TAXATION RATES IN GEOGRAPHIC REGIONS WHERE WE HAVE SIGNIFICANT OPERATIONS; AND CURRENT TAX HOLIDAYS AVAILABLE IN FOREIGN LOCATIONS. EURO CONVERSION ISSUES We operate in the European Market and currently generate approximately one third of our total net sales from customers located in Europe. Our commercial headquarters in Europe are located in the United Kingdom, which is not currently one of the 11 member states of the European Union converting to a common currency. We currently conduct 97.8% of our business in Europe in U.S. Dollars and 0.5% of our business in Europe in Pounds Sterling. The balance of our net sales is conducted in currencies which will eventually be replaced by the Euro. We will monitor the potential commercial impact of converting a portion of our current business to the Euro, but we do not currently anticipate any material impact to our business based on this transition. We do not currently anticipate any material impact to our business related to Euro matters from information technology, derivative transactions, tax issues and accounting software issues. LIQUIDITY AND CAPITAL RESOURCES We had $117.1 million in cash and cash equivalents at September 30, 2000, a decrease of $71 million from the March 31, 2000 balance. We maintain an unsecured revolving credit facility with a syndicate of banks totaling $100.0 million. We can elect to increase the facility to $150.0 million, subject to certain conditions set forth in the credit agreement. This facility has a termination date of May 31, 2003. There were no borrowings against this line of credit as of September 30, 2000. We are required to achieve certain financial ratios and operations results to maintain this line of credit. We also maintain an unsecured short-term line of credit totaling $34.6 million with certain foreign banks. There were no borrowings under the foreign line of credit as of September 30, 2000. There are no covenants related to the foreign line of credit. At September 30, 2000, an aggregate of $133.6 million of our credit facilities were available, subject to financial covenants and ratios with which we were in compliance. Our ability to fully utilize our credit facilities is dependent on our remaining in compliance with such covenants and ratios. 14 During the six months ended September 30, 2000, we generated $171.0 million of cash from operating activities, an increase of $69.8 million from the six months ended September 30, 1999. The increase in cash flow from operations was primarily due to increased profitability and the impact of changes in accounts payable and accrued liabilities, depreciation and other assets and liabilities. Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the six months ended September 30, 2000 were $260.6 million, as compared to $75.0 million for the six months ended September 30, 1999. Capital expenditures were primarily for the expansion of production capacity, including the purchase of the Puyallup, Washington semiconductor manufacturing complex, and the addition of research and development equipment in each of these periods. We currently intend to spend approximately $425 million during the next 12 months for additional capital, including: * equipment to increase capacity at our existing wafer fabrication facilities * facilitization and start-up of the Puyallup, Washington semiconductor manufacturing complex * expansion of product test operations * development of in-house assembly capability, and * incremental infrastructure to support the growth of the business. We expect to finance capital expenditures through our cash flows from operations, available debt arrangements and other sources of financing including issuance of equity and debt securities depending on market conditions. We believe that the capital expenditures anticipated to be incurred over the next 12 months will provide sufficient additional manufacturing capacity to meet our currently anticipated needs. THE FOREGOING STATEMENTS REGARDING THE ANTICIPATED LEVEL OF CAPITAL EXPENDITURES OVER THE NEXT 12 MONTHS AND THE FINANCING OF SUCH CAPITAL EXPENDITURES ARE FORWARD LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE MARKETS ADDRESSED BY OUR PRODUCTS; MARKET ACCEPTANCE OF OUR PRODUCTS AND OF OUR CUSTOMERS' PRODUCTS; DEMAND FOR OUR PRODUCTS; UTILIZATION OF CURRENT MANUFACTURING CAPACITY; THE AVAILABILITY AND COST OF RAW MATERIALS, EQUIPMENT AND OTHER SUPPLIES; AND THE ECONOMIC, POLITICAL AND OTHER CONDITIONS IN THE WORLDWIDE MARKETS SERVED BY US. Net cash provided by financing activities was $18.6 million for the six months ended September 30, 2000. Net cash used in financing activities was $13.1 million for the six months ended September 30, 1999. Proceeds from sale of stock and put options were $27.6 million, including $17.0 million related to our net shares settled forward contract, in the six months ended September 30, 2000 and $15.2 million for the six months ended September 30, 1999. Payments on long-term debt and capital lease obligations were $1.7 million for the six months ended September 30, 1999. Repayments on lines of credit were $9.0 million for the six months ended September 30, 2000 and $26.5 million for the six months ended September 30, 1999. We have outstanding a net shares settled forward contract and received 184,893 shares in the six months ended September 30, 2000 and 2,540,466 shares in the six months ended September 30, 1999 in connection with this transaction. During the six months ended September 30, 2000, we received $17.0 million in connection with our net shares settled forward contract. See Note 6 to "Condensed Consolidated Financial Statements." The net shares settled forward contract could obligate us to purchase shares of our Common Stock in the future if the price of the our Common Stock is below the strike price of the instruments. 15 We believe that our existing sources of liquidity combined with cash generated from operations will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months. However, the semiconductor industry is capital intensive. In order to remain competitive, we must continue to make significant investments in capital equipment for both production and research and development. We may seek additional equity or debt financing during the next 12 months for the capital expenditures required to maintain or expand our wafer fabrication and product assembly and test facilities, or other purposes. The timing and amount of any such capital requirements will depend on a number of factors, including demand for our products, product mix, changes in industry conditions and competitive factors. There can be no assurance that such financing will be available on acceptable terms, and any additional equity financing could result in additional dilution to existing investors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our investment portfolio, consisting of fixed income securities, was $119.6 million as of September 30, 2000, and $189.6 million as of March 31, 2000. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. If market rates were to increase immediately and uniformly by 10% from the levels of September 30, 2000 and March 31, 2000, the decline in the fair value of our investment portfolio would not be material. Additionally, we have the ability to hold our fixed income investments until maturity and, therefore, we would not expect to recognize an adverse impact in income or cash flows. We have international operations and are thus subject to foreign currency rate fluctuations. To date, our exposure related to exchange rate volatility has not been significant. If the foreign currency rates fluctuate by 15% from the rates at September 30, 2000 and March 31, 2000, the effect on our financial position and results of operation would not be material. During the normal course of our business, we are routinely subjected to a variety of market risks, examples of which include, but are not limited to, interest rate movements and foreign currency fluctuations, as we discuss in this Item 3, and collectability of accounts receivable. We constantly assess these risks and have established policies and procedures to protect against the advserse affects of these other potential exposures. Although we do not anticipate any material losses in these risk areas, no assurance can be made that material losses will not be incurred in these areas in the future. We believe that our market risk, as discussed in this Item 3, has not materially changed from March 31, 2000. 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) We held our Annual Meeting of Stockholders on August 18, 2000 (the "Meeting"). (b) Steve Sanghi, Albert J. Hugo-Martinez, L.B. Day, Matthew W. Chapman and Wade F. Meyercord were elected as Directors at the Meeting. (c) The results of the vote on the matters voted upon at the Meeting were as follows: (i) ELECTION OF DIRECTORS: For Withheld/Abstain --- ---------------- Steve Sanghi 70,004,428 2,290,705 Albert J. Hugo-Martinez 70,003,274 2,291,859 L.B. Day 70,002,724 2,292,409 Matthew W. Chapman 70,004,232 2,290,901 Wade F. Meyercord 70,003,821 2,291,312 (ii) APPROVAL OF AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE (THE "COMMON STOCK") FROM 100,000,000 TO 300,000,000: For Against Withheld/Abstain Broker Non-Votes --- ------- ---------------- ---------------- 63,252,540 8,947,899 94,694 -0- (iii) APPROVAL OF AMENDMENT TO THE MICROCHIP 1993 STOCK OPTION PLAN TO EXTEND ITS TERM: For Against Withheld/Abstain Broker Non-Votes --- ------- ---------------- ---------------- 60,830,810 1,720,360 138,566 9,605,397 (iv) APPROVAL OF AMENDMENT TO THE MICROCHIP EMPLOYEE STOCK PURCHASE PLAN TO INCREASE BY 200,000 THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER: For Against Withheld/Abstain Broker Non-Votes --- ------- ---------------- ---------------- 61,520,916 1,045,135 123,685 9,605,397 (v) APPROVAL OF AMENDMENT TO THE MICROCHIP EMPLOYEE STOCK PURCHASE PLAN TO EXTEND ITS TERM: For Against Withheld/Abstain Broker Non-Votes --- ------- ---------------- ---------------- 61,299,695 1,258,639 131,402 9,605,397 (vi) RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 2001: For Against Withheld/Abstain Broker Non-Votes --- ------- ---------------- ---------------- 71,920,921 250,702 123,510 -0- The foregoing matters are described in more detail in our definitive proxy statement dated July 7, 2000 relating to the Meeting. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 2.1 Agreement and Plan of Reorganization, dated as of October 26, by and among Microchip Technology Incorporated, a Delaware Corporation, Matchbox Acquisition Corp., a Delaware Corporation, and TelCom Semiconductor, Inc., a Delaware Corporation. [Incorporated by reference to Exhibit 2.1 to registrant's Current Report on Form 8-K filed on October 30, 2000] 3.1 Certificate of Amendment to the Restated Certificate of Incorporation of Microchip Technology Incorporated. 10.1 Modification Agreement dated as of August 31, 2000 to the Credit Agreement dated as of May 31, 2000 by and among Registrant, the Banks named therein, Bank One, NA, as LC Issuer and Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent and Bank of America, N.A., as Documentation Agent. 10.2 Restated Microchip Technology Incorporated Employee Stock Purchase Plan, as amended through August 18, 2000. 10.3 Microchip Technology Incorporated 1997 Nonstatutory Stock Option Plan, as amended through August 18, 2000. 10.4 Microchip Technology Incorporated 1993 Stock Option Plan, as amended through August 18, 2000. (b) Reports on Form 8-K. We filed a current report on Form 8-K on July 26, 2000 to report the acquisition of a semiconductor manufacturing complex located in Puyallup, Washington, from Matsushita Semiconductor Corporation of America. The Purchase and Sale Agreement between Microchip Technology Incorporated and Matsushita Semiconductor Corporation of America, dated as of May 23, 2000, and the subsequent amendments, were filed as Exhibits 2.1, 2.2 and 2.3 to the current report on Form 8-K. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROCHIP TECHNOLOGY INCORPORATED Date: November __, 2000 By: /s/ Gordon Parnell --------------------- ------------------------------------ Gordon Parnell Vice President and Chief Financial Officer (Duly Authorized Officer, and Principal Financial and Accounting Officer) 19 EXHIBIT INDEX Exhibit No. - ----------- 2.1 Agreement and Plan of Reorganization, dated as of October 26, by and among Microchip Technology Incorporated, a Delaware corporation, Matchbox Acquisition Corp., a Delaware corporation, and TelCom Semiconductor, Inc., a Delaware corporation. [Incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K filed on October 30, 2000] 3.1 Certificate of Amendment to the Restated Certificate of Incorporation of Microchip Technology Incorporated 10.1 Modification Agreement dated as of August 31, 2000 to the Credit Agreement dated as of May 31, 2000 by and among Registrant, the Banks named therein, Bank One, NA, as LC Issuer and Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent and Bank of America, N.A., as Documentation Agent 10.2 Restated Microchip Technology Incorporated Employee Stock Purchase Plan, as amended through August 18, 2000 10.3 Microchip Technology Incorporated 1997 Nonstatutory Stock Option Plan, as amended through August 18, 2000 10.4 Microchip Technology Incorporated 1993 Stock Option Plan, as amended through August 18, 2000 20 EX-3.1 2 ex3_1.txt RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.1 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF MICROCHIP TECHNOLOGY INCORPORATED MICROCHIP TECHNOLOGY INCORPORATED, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: That at a meeting of the Corporation's Board of Directors, resolutions were duly adopted proposing and declaring advisable a proposed amendment to the Corporation's Restated Certificate of Incorporation, amending Article IV(A) thereof to read as follows: ARTICLE IV (A) CLASSES OF STOCK. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is three hundred and five million (305,000,000) shares. Three hundred million (300,000,000) shares shall be Common Stock, par value $0.001 per share and five million (5,000,000) shares shall be Preferred Stock, par value $0.001 per share. SECOND: That upon notice given in accordance with Section 222 of the General Corporation Law of the State of Delaware, and pursuant to a resolution of the Board of Directors, a meeting of the stockholders of the Corporation was duly called and held, at which meeting the stockholders approved said amendment. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Microchip Technology Incorporated has caused this Certificate of Amendment to be signed by Steve Sanghi, its President and attested by Mary K. Simmons, its Secretary, as of the 18th day of August, 2000. MICROCHIP TECHNOLOGY INCORPORATED By: /s/ Steve Sanghi ------------------------------------ Steve Sanghi, President ATTEST: By: /s/ Mary K. Simmons --------------------------------- Mary K. Simmons, Secretary EX-10.1 3 ex10_1.txt MODIFICATION AGREEMENT Exhibit 10.1 MODIFICATION AGREEMENT BY THIS MODIFICATION AGREEMENT (the "Agreement"), made and entered into as of the 31st day of August, 2000, MICROCHIP TECHNOLOGY INCORPORATED, a Delaware corporation, as Borrower, BANK ONE, NA, a national banking association, as Lender, LC Issuer and Administrative Agent, WELLS FARGO BANK, National Association, as Lender and Syndication Agent, Bank of America, N.A., as Lender and Documentation Agent, BANCA DI ROMA, as Lender and THE NORTHERN TRUST COMPANY, as Lender, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby confirm and agree as follows: SECTION 1. RECITALS. SECTION 1.1. Borrower and Bank One, NA, a national banking association, as Lender, LC Issuer and Administrative Agent, Wells Fargo Bank, National Association, as Lender and Syndication Agent, Bank of America, N.A., as Lender and Documentation Agent, Banca Di Roma, as Lender and The Northern Trust Company, as Lender, entered into a Credit Agreement dated as of May 31, 2000 (the "Credit Agreement"), which provided for, among other things, one or more Loans in the aggregate principal amount of $100,000,000.00, evidenced by one or more promissory notes dated May 31, 2000, executed by the Borrower (collectively, the "Notes"), all upon the terms and conditions contained therein. All undefined capitalized terms used herein shall have the meaning given them in the Credit Agreement. SECTION 1.2. Borrower, LC Issuer, Administrative Agent, Syndication Agent, Documentation Agent and Lenders desire to modify the Loan Documents as set forth herein. SECTION 2. LOAN AGREEMENT. SECTION 2.1. Section 6.10 of the Credit Agreement is hereby amended by the addition of the following subsection (iv): (iv) Indebtedness evidenced by the issuance by Borrower of convertible subordinated notes in principal amount not to exceed $250,000,000.00 (plus an additional 15% principal amount if any note purchaser's over-allotment option is exercised in full) in the aggregate, pursuant to subordination terms and conditions reasonably acceptable to the Administrative Agent. SECTION 2.2. Section 6.16 of the Credit Agreement is hereby amended by the addition of the following provision to the end of sentence set forth in such Section: , except any purchase, redemption, retirement or acquisition made with respect to (i) principal of, or interest on, any Subordinated Indebtedness at the scheduled maturity date for such payment of principal or interest, (ii) any Subordinated Indebtedness in junior securities upon the conversion of such Subordinated Indebtedness that is convertible at the option of the holder thereof (together with payments of cash in lieu of any fractional share in connection with any such conversion), or (iii) any Subordinated Indebtedness in exchange for the net proceeds of any concurrent offering of junior securities. For purposes of this Section 6.16, the term "junior securities" means (A) shares of any stock of any class of Borrower or (B) debt securities of Borrower that are subordinated in right of payment to the Obligations to substantially the same extent as, or to a greater extent than, the Subordinated Indebtedness being purchased, redeemed, retired or acquired. SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS. SECTION 3.1. All references to the Credit Agreement in the Loan Documents are hereby amended to refer to the Credit Agreement as hereby amended. SECTION 3.2. Borrower acknowledges that the indebtedness evidenced by the Notes is just and owing, that the balance thereof is correctly shown in the records of Lenders as of the date hereof, and Borrower agrees to pay the indebtedness evidenced by the Notes according to the terms thereof, as herein modified. SECTION 3.3. Borrower hereby reaffirms to Lenders each of the representations, warranties, covenants and agreements of Borrower set forth in the Notes and the Credit Agreement, with the same force and effect as if each were separately stated herein and made as of the date hereof. SECTION 3.4. Borrower hereby ratifies, reaffirms, acknowledges, and agrees that the Notes and the Credit Agreement, represent valid, enforceable and collectible obligations of Borrower, and that there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with respect to any of these documents or instruments. In addition, Borrower hereby expressly waives, releases and absolutely and forever discharges Lenders and its present and former shareholders, directors, officers, employees and agents, and their separate and respective heirs, personal representatives, successors and assigns, from any and all liabilities, claims, demands, damages, action and causes of action, of which Borrower has, or may reasonably be expected to have knowledge, that Borrower may now have, or has had prior to the date hereof, or that may hereafter arise with respect to acts, omissions or events occurring prior to the date hereof and, without limiting the generality of the foregoing, from any and all liabilities, claims, demands, damages, actions and causes of action, known or unknown, contingent or matured, arising out of, or in any way connected with, the Loans. Borrower further acknowledges and represents that no event has occurred and no condition exists that, after notice or lapse of time, or both, would constitute a default under this Agreement, the Notes or the Credit Agreement. -2- SECTION 3.5. All terms, conditions and provisions of the Notes and the Credit Agreement are continued in full force and effect and shall remain unaffected and unchanged except as specifically amended hereby. The Notes and the Credit Agreement, as amended hereby, are hereby ratified and reaffirmed by Borrower, and Borrower specifically acknowledges the validity and enforceability thereof. SECTION 4. GENERAL. SECTION 4.1. This Agreement in no way acts as a release or relinquishment of those rights securing payment of the Loans. Such rights are hereby ratified, confirmed, renewed and extended by Borrower in all respects. SECTION 4.2. The modifications contained herein shall not be binding upon Lenders until Lenders shall have received all of the following: (a) An original of this Agreement fully executed by the Borrower. (b) Such resolutions or authorizations and such other documents as Lenders may reasonably require relating to the existence and good standing of the Borrower and each Material Subsidiary and the authority of any person executing this Agreement or other documents on behalf of the Borrower. SECTION 4.3. Borrower shall execute and deliver such additional documents and do such other acts as Lenders may reasonably require to fully implement the intent of this Agreement. SECTION 4.4. Borrower shall pay all costs and expenses, including, but not limited to, reasonable attorneys' fees incurred by Lenders in connection herewith, whether or not all of the conditions described in Paragraph 4.2 above are satisfied. Lenders, at their option, but without any obligation to do so, may advance funds to pay any such costs and expenses that are the obligation of the Borrower, and all such funds advanced shall bear interest at the highest rate provided in the Notes and shall be due and payable upon demand. SECTION 4.5. Notwithstanding anything to the contrary contained herein or in any other instrument executed by Borrower or Lenders, or in any other action or conduct undertaken by Borrower or Lenders on or before the date hereof, the agreements, covenants and provisions contained herein shall constitute the only evidence of Lenders' consent to modify the terms and provisions of the Credit Agreement. Accordingly, no express or implied consent to any further modifications involving any of the matters set forth in this Agreement or otherwise shall be inferred or implied by Lenders' execution of this Agreement. Further, Lenders' execution of this Agreement shall not constitute a waiver (either express or implied) of the requirement that any further modification of the Loans or of the Notes or the Credit Agreement, shall require the express written approval of Lenders; no such approval (either express or implied) has been given as of the date hereof. -3- SECTION 4.6. Time is hereby declared to be of the essence hereof of the Loans, of the Notes and of the Credit Agreement, and Lenders require, and Borrower agrees to, strict performance of each and every covenant, condition, provision and agreement hereof, of the Notes and the Credit Agreement. SECTION 4.7. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their heirs, personal representatives, successors and assigns. SECTION 4.8. This Agreement is made for the sole protection and benefit of the parties hereto, and no other person or entity shall have any right of action hereon. SECTION 4.9. This Agreement shall be governed by and construed according to the laws of the State of Arizona. IN WITNESS WHEREOF, these presents are executed as of the date indicated above. MICROCHIP TECHNOLOGY INCORPORATED By: /s/ Gordon Parnell ------------------------------------ Name: Gordon Parnell ------------------------------------ Its: Vice President & CFO ------------------------------------ BORROWER BANK ONE, NA, Individually, as LC Issuer and as Administrative Agent By: /s/ Joseph Perdenza ------------------------------------ Title: Assistant Vice President By: /s/ Stephanie A. Mack ------------------------------------ Title: Commercial Banking Officer By: /s/ Peterine M. Svoboda ------------------------------------ Title: Vice President -4- WELLS FARGO BANK, NATIONAL ASSOCIATION, Individually and as Syndication Agent By: /s/ Brenda K. Testerman ------------------------------------ Title: Vice President BANK OF AMERICA, N.A., Individually and as Documentation Agent By: /s/ S. Manchanda ------------------------------------ Title: Vice President BANCA DI ROMA By: /s/ Richard G. Dietz ------------------------------------ Title: Vice President By: /s/ Thomas C. Woodruff ------------------------------------ Title: Vice President THE NORTHERN TRUST COMPANY By: /s/ Candelario Martinez ------------------------------------ Title: Vice President -5- EX-10.2 4 ex10_2.txt RESTATED EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.2 RESTATED MICROCHIP TECHNOLOGY INCORPORATED EMPLOYEE STOCK PURCHASE PLAN AS AMENDED THROUGH AUGUST 18, 2000 I. PURPOSE The Microchip Technology Incorporated Employee Stock Purchase Plan (the "Plan") is intended to provide eligible employees of the Company and one or more of its Corporate Affiliates with the opportunity to acquire a proprietary interest in the Company through participation in a plan designed to qualify as an employee stock purchase plan under Section 423 of the Code. II. DEFINITIONS For purposes of administration of the Plan, the following terms shall have the meanings indicated: BOARD means the Board of Directors of the Company. CODE means the Internal Revenue Code of 1986, as amended from time to time. COMPANY means Microchip Technology Incorporated, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Microchip Technology Incorporated which shall by appropriate action adopt the Plan. COMMON STOCK means shares of the Company's common stock, par value $0.001 per share. CORPORATE AFFILIATE means any parent or subsidiary corporation of the Company (as determined in accordance with Code Section 424) which is incorporated in the United States, including any parent or subsidiary corporation which becomes such after the Effective Date. EARNINGS means the sum of the following items of compensation paid to a Participant by one or more Participating Companies during such individual's period of participation in the Plan: (i) regular base salary, plus (ii) any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Company or any Corporate Affiliate plus (iii) all overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments. There shall, however, be excluded from the calculation of such Earnings any and all contributions (other than Code Section 401(k) or Code Section 125 contributions) made on the Participant's behalf by the Company or one or more Corporate Affiliates under any employee benefit or welfare plan now or hereafter established. EFFECTIVE DATE means March 17, 1993, the start date of the first offering period under the Plan. However, for any Corporate Affiliate which becomes a Participating Company in the Plan after such date, a subsequent Effective Date shall be designated with respect to participation by its Eligible Employees. ELIGIBLE EMPLOYEE means any person who is engaged, on a regularly-scheduled basis of more than twenty (20) hours per week for more than five (5) months per calendar year, in the rendition of personal services to the Company or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. ENTRY DATE means the date an Eligible Employee first joins the offering period in effect under the Plan. The earliest Entry Date under the Plan shall be the Effective Date. FAIR MARKET VALUE means the fair market value of the Common Stock on any relevant date under the Plan and shall, for any date following the initial March 17, 1993 Effective Date, be deemed to be equal to the closing selling price per share of Common Stock on the date in question, as officially quoted on the Nasdaq National Market. If there is no quoted selling price for the date in question, then the closing selling price per share of Common Stock on the next preceding day for which there does exist such a quotation shall be determinative of Fair Market Value. PARTICIPANT means any Eligible Employee of a Participating Company who is actively participating in the Plan. PARTICIPATING COMPANY means the Company and such Corporate Affiliate or Affiliates as may be designated from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. SEMI-ANNUAL ENTRY DATE means the first business day of each March and September within an offering period in effect under the Plan. However, the earliest Semi-Annual Entry Date under the Plan shall be the March 17, 1993 Effective Date. SEMI-ANNUAL PERIOD OF PARTICIPATION means each semi-annual period for which the Participant actually participates in an offering period in effect under the Plan. There shall be a maximum of four (4) semi-annual periods of participation within each offering period. Except as otherwise designated by the Plan Administrator, the first such semi-annual period (which may actually be less than six (6) months for the initial offering period) shall extend from the start date of the offering period through the last business day in August; subsequent semi-annual periods shall then be measured from the first business day of September and March thereafter to the last business day of February and August, respectively. SEMI-ANNUAL PURCHASE DATE means the last business day of each February and August within an offering period on which shares of Common Stock are automatically purchased for Participants under the Plan. 2 SERVICE means the period during which an individual performs services as an Eligible Employee and shall be measured from his or her hire date, whether that date is before or after the Effective Date of the Plan. III. ADMINISTRATION The Plan shall be administered by a committee (the "Plan Administrator") comprised of two (2) or more non-employee Board members appointed from time to time by the Board. The Plan Administrator shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Section 423 of the Code. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan. IV. OFFERING PERIODS A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Article IX. B. The Plan shall be implemented in a series of successive offering periods, each to be of a duration of twenty-four (24) months or less as designated by the Plan Administrator prior to the start date. The initial offering period will begin on the Effective Date and will end on the last business day in February 1995. The next offering period shall commence on the first business day in March 1995, and subsequent offering periods shall commence as designated by the Plan Administrator. C. Under no circumstances shall any offering period commence under the Plan, nor shall any shares of Common Stock be issued hereunder, until such time as (i) the Plan shall have been approved by the Company's stockholders and (ii) the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which shares of the Common Stock are listed and all other applicable statutory and regulatory requirements. D. The Participant shall be granted a separate purchase right for each offering period in which he/she participates. The purchase right shall be granted on the Entry Date on which such individual first joins the offering period in effect under the Plan and shall be automatically exercised in successive semi-annual installments on the last business day of each February and August within the remainder of the offering period. Accordingly, each purchase right may be exercised up to two (2) times each calendar year it remains outstanding. E. The acquisition of Common Stock through plan participation for any offering period shall neither limit nor require the acquisition of Common Stock by the Participant in any subsequent offering period. 3 V. ELIGIBILITY AND PARTICIPATION A. Each Eligible Employee of a Participating Company shall be eligible to participate in the Plan in accordance with the following provisions: - An individual who is an Eligible Employee with at least thirty (30) days of Service prior to the start date of the offering period may enter that offering period on the Semi-Annual Entry Date coincident with such start date or on any subsequent Semi-Annual Entry Date within that offering period on which he/she remains an Eligible Employee. The Semi-Annual Entry Date on which such individual first joins the offering period shall become such individual's Entry Date for the offering period, and on that date such individual shall be granted his/her purchase right for the offering period. - An individual who is not an Eligible Employee with at least thirty (30) days of Service on the start date of the offering period may subsequently enter that offering period on the first Semi-Annual Entry Date on which he/she is an Eligible Employee with thirty (30) or more days of Service or on any subsequent Semi-Annual Entry Date within that offering period on which he/she remains an Eligible Employee. The Semi-Annual Entry Date on which such individual first joins the offering period shall become such individual's Entry Date for that offering period, and on that date such individual shall be granted his/her purchase right for the offering period. B. To participate for a particular offering period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his/her scheduled Entry Date. C. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock under the Plan may be any multiple of one percent (1%) of the Earnings paid to the Participant during each Semi-Annual Period of Participation within the offering period, up to a maximum of ten percent (10%). The deduction rate so authorized shall continue in effect for the remainder of the offering period, except to the extent such rate is changed in accordance with the following guidelines: - The Participant may, at any time during a Semi-Annual Period of Participation, reduce his/her rate of payroll deduction. Such reduction shall become effective as soon as possible after the filing of the requisite reduction form with the Plan Administrator (or its designate), but the Participant may not effect more than one (1) such reduction during the same Semi-Annual Period of Participation. - The Participant may not increase his/her rate of payroll deduction following his/her Entry Date into the offering period. However, the Participant may, prior to his/her Entry Date into any new offering period, increase the rate of his/her payroll deduction by filing the appropriate form with the Plan 4 Administrator (or its designate). The new rate (which may not exceed the ten percent (10%) maximum) shall become effective as of the Participant's Entry Date into the first offering period following the filing of such form. Payroll deductions will automatically cease upon the termination of the Participant's purchase right in accordance with the provisions of Section VII below. VI. STOCK SUBJECT TO PLAN A. The Common Stock purchasable under the Plan shall, solely in the discretion of the Plan Administrator, be made available from either authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by the Company, including shares of Common Stock purchased on the open market. The total number of shares which may be issued over the term of the Plan shall not exceed 5,759,000 shares (subject to adjustment under Section VI.B below). However, not more than 2,285,000 shares may be issued under the Plan from and after March 1, 1995, subject to adjustment under Section VI.B below. B. In the event any change is made to the outstanding Common Stock by reason of any stock dividend, stock split, combination of shares or other change affecting such outstanding Common Stock as a class without the Company's receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the class and maximum number of securities issuable over the term of the Plan and from and after the March 1, 1995 effective date of this restatement, (ii) the class and maximum number of securities purchasable per Participant during any one (1) Semi-Annual Period of Participation and (iii) the class and number of securities and the price per share in effect under each purchase right at the time outstanding under the Plan. Such adjustments shall be designed to preclude the dilution or enlargement of rights and benefits under the Plan. VII. PURCHASE RIGHTS An Eligible Employee who participates in the Plan for a particular offering period shall have the right to purchase shares of Common Stock, in a series of successive semi-annual installments during such offering period, upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. PURCHASE PRICE. Common Stock shall be issuable at the end of each Semi-Annual Period of Participation within the offering period at a purchase price equal to eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per share on the Participant's Entry Date into that offering period or (ii) the Fair Market Value per share on the Semi-Annual Purchase Date on which such Semi-Annual Period of Participation ends. However, for each Participant whose Entry Date is other than the start date of the offering period, the clause (i) amount shall in no event be less than the Fair Market Value of the Common Stock on the start date of that offering period. 5 PAYMENT. Payment for the Common Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin with the first full payroll period beginning with or immediately following the Participant's Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of the offering period. The amounts so collected shall be credited to the Participant's book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from a Participant may be commingled with the general assets of the Company and may be used for general corporate purposes. NUMBER OF PURCHASABLE SHARES. The number of shares purchasable per Participant for each Semi-Annual Period of Participation during the offering period shall be the number of whole shares obtained by dividing the payroll deductions collected from the Participant during that Semi-Annual Period of Participation by the purchase price in effect for the Participant for such period. No Participant may purchase more than Twenty Thousand Two Hundred and Fifty (20,250) shares of Common Stock per Semi-Annual Period of Participation, subject to periodic adjustment under Section VI.B. Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern the termination of outstanding purchase rights: (i) A Participant may, at any time prior to the last five (5) business days of the Semi-Annual Period of Participation, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). No further payroll deductions shall be collected from the Participant with respect to the terminated purchase right, and any payroll deductions collected for the Semi-Annual Period of Participation in which such termination occurs shall, at the Participant's election, be immediately refunded or held for the purchase of shares on the next Semi-Annual Purchase Date. If no such election is made at the time the purchase right is terminated, then the deductions collected with respect to the terminated right shall be refunded as soon as possible. (ii) The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the offering period for which the terminated purchase right was granted. In order to resume participation in any subsequent offering period, such individual must re-enroll in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) on or before his/her scheduled Entry Date into the new offering period. 6 (iii) If the Participant ceases to remain an Eligible Employee while his/her purchase right remains outstanding, then such purchase right shall immediately terminate, and the payroll deductions collected from such Participant for the Semi-Annual Period of Participation in which the purchase right so terminates shall be promptly refunded to the Participant. However, in the event the Participant's cessation of Eligible Employee status occurs by reason of his/her death or permanent disability, then such individual (or the personal representative of the estate of a deceased Participant) shall have the following election, exercisable at any time prior to the last five (5) business days of the Semi-Annual Period of Participation in which such cessation of Eligible Employee status occurs: - to withdraw all of the Participant's payroll deductions for such Semi-Annual Period of Participation, or - to have such funds held for the purchase of shares on the Semi-Annual Purchase Date immediately following such cessation of Eligible Employee status. If a timely election is not made, then the payroll deductions shall be refunded as soon as possible after the close of such Semi-Annual Period of Participation. In no event, however, may any payroll deductions be made on the Participant's behalf following his/her cessation of Eligible Employee status. STOCK PURCHASE. Shares of Common Stock shall automatically be purchased on behalf of each Participant (other than Participants whose payroll deductions have previously been refunded in accordance with the Termination of Purchase Right provisions above) on each Semi-Annual Purchase Date. The purchase shall be effected by applying each Participant's payroll deductions for the Semi-Annual Period of Participation ending on such Semi-Annual Purchase Date (together with any carryover deductions from the preceding Semi-Annual Period of Participation) to the purchase of whole shares of Common Stock (subject to the limitation on the maximum number of purchasable shares set forth above) at the purchase price in effect for the Participant for such Semi-Annual Period of Participation. Any payroll deductions not applied to such purchase because they are not sufficient to purchase a whole share shall be held for the purchase of Common Stock in the next Semi-Annual Period of Participation. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable by the Participant during the Semi-Annual Period of Participation shall be promptly refunded to the Participant. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of Common Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded to such Participant. 7 RIGHTS AS STOCKHOLDER. A Participant shall have no stockholder rights with respect to the shares subject to his/her outstanding purchase right until the shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan. No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after each Semi-Annual Purchase Date, a stock certificate for the number of shares purchased on the Participant's behalf. Such certificate may, upon the Participant's request, be issued in the names of the Participant and his/her spouse as community property or as joint tenants with right of survivorship. Alternatively, the Participant may request the issuance of such certificate in "street name" for immediate deposit in a designated brokerage account. ASSIGNABILITY. No purchase right granted under the Plan shall be assignable or transferable by the Participant other than by will or by the laws of descent and distribution following the Participant's death, and during the Participant's lifetime the purchase right shall be exercisable only by the Participant. CHANGE IN OWNERSHIP. Should any of the following transactions (a "Change in Ownership") occur during the offering period: (i) a merger or other reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the State in which the Company is incorporated), or (ii) a sale of all or substantially all of the Company's assets in liquidation or dissolution of the Company, or (iii) a reverse merger in which the Company is the surviving corporation but in which more than fifty percent (50%) of the Company's outstanding voting stock is transferred to person or persons different from those who held the stock immediately prior to such merger, or then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to the effective date of such Change in Ownership by applying the payroll deductions of each Participant for the Semi-Annual Period of Participation in which such Change in Ownership occurs to the purchase of whole shares of Common Stock at eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per share of Common Stock on the Participant's Entry Date into the offering period in which such Change in Ownership occurs or (ii) the Fair Market Value per share of Common Stock immediately prior to the effective date of such Change in Ownership. However, the applicable share limitations of Articles VII and VIII shall continue to apply to any such purchase, and the clause (i) amount above shall not, for any Participant whose Entry Date for the offering period is other than the start date of that offering period, be less than the Fair Market Value per share of Common Stock on such start date. 8 The Company shall use its best efforts to provide at least ten (10)-days advance written notice of the occurrence of any such Change in Ownership, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights in accordance with the applicable provisions of this Article VII. VIII. ACCRUAL LIMITATIONS A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (I) rights to purchase Common Stock accrued under any other purchase right outstanding under this Plan and (II) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Company or any Corporate Affiliate (determined on the basis of the value of such stock on the date or dates such rights are granted the Participant) for each calendar year such rights are at any time outstanding. B. For purposes of applying such accrual limitations, the right to acquire Common Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: (i) The right to acquire Common Stock under each such purchase right shall accrue in a series of successive semi-annual installments as and when the purchase right first becomes exercisable for each such installment on the last business day of each Semi-Annual Period of Participation for which the right remains outstanding. (ii) No right to acquire Common Stock under an outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at the rate of Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of the Fair Market Value on the date or dates such rights are granted) for each calendar year those rights are at any time outstanding. (iii) If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Semi-Annual Period of Participation, then the payroll deductions which the Participant made during that Semi-Annual Period of Participation with respect to such purchase right shall be promptly refunded. C. In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. 9 IX. AMENDMENT AND TERMINATION A. The Board may alter, amend, suspend or discontinue the Plan following the close of any Semi-Annual Period of Participation. However, the Board may not, without the approval of the Company's stockholders: (i) materially increase the number of shares issuable under the Plan or the maximum number of shares purchasable per Participant during any one Semi-Annual Period of Participation, except that the Plan Administrator shall have the authority, exercisable without such stockholder approval, to effect adjustments to the extent necessary to reflect changes in the Company's capital structure pursuant to Section VI.B; (ii) alter the purchase price formula so as to reduce the purchase price payable for the shares issuable under the Plan; or (iii) materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for eligibility to participate in the Plan. B. The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate all outstanding purchase rights under the Plan immediately following the close of any Semi-Annual Period of Participation. Should the Company elect to exercise such right, then the Plan shall terminate in its entirety. No further purchase rights shall thereafter be granted or exercised, and no further payroll deductions shall thereafter be collected, under the Plan. X. DISPOSITION OF SHARES A. The Plan Administrator may, in its absolute discretion, impose, as a condition to the issuance of the shares of Common Stock purchased under the Plan, the requirement that each Participant provide the Company with prompt notice of any transfer or other disposition of those shares which is effected within two (2) years after Participant's Entry Date into the offering period in which the shares were purchased OR within one year after the Semi-Annual Purchase Date on which those shares were in fact purchased. The Plan Administrator may further require the certificate evidencing such shares to be endorsed with a legend indicating the existence of such notice requirement and impose appropriate stop transfer orders with respect to such certificate in the absence of such notice. B. The Company shall not record on its books of record any transfer or other disposition of the shares of Common Stock issued under the Plan which is not effected in compliance with the foregoing notice requirement. Moreover, the Company may impose, as a condition to the recordation of such transfer or disposition, the requirement that the Participant satisfy all Federal, state and local income and employment tax withholding obligations applicable to such transfer or disposition. 10 XI. GENERAL PROVISIONS A. The Plan became effective on the March 17, 1993 Effective Date. B. The March 1, 1995 restatement incorporated a series of amendments to the Plan authorized by the Board in January, 1995 to effect the following changes to the Plan: (i) allow Eligible Employees to join an offering period on any Semi-Annual Entry Date within that offering period, (ii) prohibit Participants from increasing their rate of payroll deduction under the Plan after their Entry Date into a particular offering period, (iii) obligate Participants to notify the Company of any disqualifying disposition (as defined in Code Section 423) of the shares they acquire under the Plan and (iv) and increase in the number of shares of Common Stock available for issuance over the term of the Plan. C. The Plan shall terminate upon the EARLIER of (i) the last business day in February 2013(1) or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. D. All costs and expenses incurred in the administration of the Plan shall be paid by the Company. E. Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Board or the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Company or any of its Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. F. The provisions of the Plan shall be governed by the laws of the State of Arizona without resort to that State's conflict-of-laws rules. - ---------- (1) On August 18, 2000, the stockholders approved an amendment to the Plan to extend the term of the Plan from the last business day in February 2003 to the last business day in February 2013. 11 SCHEDULE A COMPANIES PARTICIPATING IN EMPLOYEE STOCK PURCHASE PLAN AS OF AUGUST 18, 2000 Microchip Technology Incorporated 12 EX-10.3 5 ex10_3.txt 1997 NONSTATUTORY STOCK OPTION PLAN Exhibit 10.3 MICROCHIP TECHNOLOGY INCORPORATED 1997 NONSTATUTORY STOCK OPTION PLAN AS AMENDED THROUGH AUGUST 18, 2000 ARTICLE I 1.1. PURPOSES OF THE PLAN. The purposes of this Nonstatutory Stock Option Plan are: * to attract and retain the best available personnel for positions of substantial responsibility; * to provide additional incentive to Employees and Consultants, and * to promote the success of the Company's business. Options granted under the Plan will be Nonstatutory Stock Options. 1.2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or the Employee Committee as shall be administering the Plan, in accordance with Section 1.4 of the Plan. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) COMMON STOCK" means the common stock, par value $0.001 per share, of the Company. (f) "COMPANY" means Microchip Technology Incorporated, a Delaware corporation. (g) "CONSULTANT" means any person, including an advisor but not including Directors, engaged by the Company or a Parent or Subsidiary to render services to such entity. (h) "DIRECTOR" means a member of the Board. (i) "DISABILITY" means total or permanent disability as defined in Code Section 22(e)(3). (j) "EMPLOYEE" means any person, excluding Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "EMPLOYEE COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 1.4 of the Plan. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the market trading day on the date of determination or the closing sales price on the last market trading day prior to the date of determination if there is no reported closing sales price on the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "NOTICE OF GRANT" means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement. (o) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder or who is otherwise considered an "officer" under applicable NASD or stock exchange rules. (p) "OPTION" means a nonstatutory stock option granted pursuant to the Plan, that is not intended to qualify as an incentive stock option within the meaning of Code Section 422 and the regulations promulgated thereunder. (q) "OPTION AGREEMENT" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. 2 (r) "OPTIONED STOCK" means the Common Stock subject to an Option. (s) "OPTIONEE" means the holder of an outstanding Option granted under the Plan. (t) "PARENT" means "parent corporation," whether now or hereafter existing, as defined in Code Section 424(e). (u) "PLAN" means this 1997 Nonstatutory Stock Option Plan. (v) "SERVICE PROVIDER" means an Employee or Consultant. (w) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 1.3(b), 2.2 and 2.3 of the Plan. (x) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Code Section 424(f). 1.3. STOCK SUBJECT TO THE PLAN. (a) RESERVATION OF SHARES; UNPURCHASED SHARES. Subject to the provisions of Sections 1.3(b), 2.2 and 2.3 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 10,750,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock including shares repurchased by the Company on the open market. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). If Shares otherwise issuable under the Plan are withheld by the Company in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding Option, then the number of Shares available for issuance shall be reduced by the gross number of Shares for which the Option is exercised, and not by the net number of Shares actually issued to the Optionee. (b) ADJUSTMENTS FOR ORGANIC CHANGES. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, and (ii) the number and/or class of securities and price per share in effect under each Option outstanding under the Plan. Such adjustments to the outstanding Options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such Options. The adjustments determined by the Board shall be final, binding and conclusive. 1.4. ADMINISTRATION OF THE PLAN. (a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board. The Board, however, may at any time appoint a committee (the "Employee Committee") of one or more persons who are members of the Board 3 and delegate to such Employee Committee the power, in whole or in part, to administer the Plan. Unless otherwise required by law, decisions among members of an Administrator shall be by majority vote. (b) TERM ON COMMITTEE. Members of the Employee Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board at any time may terminate the functions of the Employee Committee and reassume all powers and authority previously delegated to the Employee Committee. (c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Service Providers to whom Options may be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option (subject to Section 3.1(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan as provided in Section 2.1(g); 4 (xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or previously granted by the Administrator; (xii) to determine the terms and restrictions applicable to Options; (xiii) to allow Optionees to satisfy withholding tax obligations as provided in Section 3.2; and (xiv) to make all other determinations deemed necessary or advisable for administering the Plan. (d) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. (e) INDEMNIFICATION. In addition to such other rights of indemnification as they may have, the members of each Administrator shall be indemnified and held harmless by the Company to the extent permitted under applicable law, for, from and against all costs and expenses reasonably incurred by them in connection with any action, legal proceeding to which any such member thereof may be party, by reason of any action taken or failed to be taken, under or in connection with the Plan or any rights granted thereunder, and against all amounts paid by them in settlement thereof or paid by them in satisfaction of a judgment of any such action, suit or proceeding, except a judgment based upon a finding of bad faith. 1.5. ELIGIBLE PERSONS UNDER THE PLAN. The persons eligible to participate in the Plan are Employees and Consultants. ARTICLE II OPTION GRANTS 2.1. TERMS AND CONDITIONS OF OPTIONS. (a) GENERAL. Options granted to eligible persons pursuant to the Plan shall be authorized by action of the Administrator. Each granted Option shall be evidenced by one or more instruments in the form approved by the Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. (b) OPTION PRICE. The Option price per Share shall be fixed by the Administrator and shall in no event be less than one hundred percent (100%) of the Fair Market Value of such Common Stock on the grant date. (c) PAYMENT OF OPTION PRICE. The Option price shall become immediately due upon exercise of the Option and shall be payable in one of the following alternative forms specified below: (i) full payment in cash or check drawn to the Company's order; 5 (ii) full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee (A) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Option price payable for the purchased Shares plus all applicable Federal and State income and employment taxes required to be withheld by the Company in connection with such purchase and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction. For purposes of this Section 2.1(c), the Exercise Date shall be the date on which written notice of the Option exercise is delivered to the Company. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the Option, payment of the Option price for the purchased Shares must accompany such notice. (d) TERM AND EXERCISE OF OPTIONS. Each Option granted under the Plan shall be exercisable at any time or times and during such period as is determined by the Administrator and set forth in the instrument evidencing the grant. No such Option, however, shall have a maximum term in excess of ten (10) years from the grant date. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee other than by will or by the laws of descent and distribution following the Optionee's death. (e) TERMINATION OF SERVICE. The following provisions shall govern the exercise period applicable to any outstanding Options held by the Optionee at the time of cessation of Service or death: (i) Should an Optionee cease Service for any reason (including Disability but not including death) while holding one or more outstanding Options under the Plan, then none of those Options shall (except to the extent otherwise provided pursuant to Section 2.1(f) below) remain exercisable for more than a ninety (90) day period (or such shorter or longer period determined by the Administrator and set forth in the instrument evidencing the grant, but not to exceed twelve (12) months) measured from the date of such cessation of Service. (ii) Any Option held by the Optionee under the Plan and exercisable in whole or in part on the date of said Optionee's death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the Option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such exercise, however, must occur prior to the earlier of six months following the date of Optionee's death or the specified expiration date of the Option term. Upon the occurrence of the earlier event, the Option shall terminate and cease to be outstanding. 6 (iii) Under no circumstances, however, shall any such Option be exercisable after the specified expiration date on the Option term. (iv) During the applicable post-Service exercise period, the Option shall not be exercisable for more than the number of shares (if any) in which the Optionee is vested at the time of Optionee's cessation of Service (less any Option Shares subsequently purchased by the Optionee prior to death). Upon the expiration of the limited post-Service exercise period or (if earlier) upon the specified expiration date of the Option term, each such Option shall terminate and cease to be outstanding with respect to any vested shares for which the Option has not otherwise been exercised. However, each outstanding Option shall immediately terminate and cease to be outstanding, at the time of the Optionee's cessation of Service, with respect to any shares for which the Option is not otherwise at that time exercisable or in which the Optionee is not otherwise at that time vested. (v) Should (A) the Optionee's service be terminated for misconduct (including, but not limited to, any act of dishonesty, willful misconduct, fraud or embezzlement) or (B) the Optionee make any unauthorized use or disclosure of confidential information or trade secrets of the Company or any Parent or Subsidiary, then in any such event all outstanding Options held by the Optionee under the Plan shall terminate immediately and cease to be outstanding. (f) DISCRETION TO ACCELERATE VESTING. The Administrator shall have complete discretion, exercisable either at the time the Option is granted or at any time while the Option remains outstanding, to permit one or more Options held by the Optionee under this Plan to be exercised, during the limited post-Service exercise period applicable under Section 2.1(e) above, not only with respect to the number of vested shares of Common Stock for which each such Option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more subsequent installments of vested shares for which the Option would otherwise have become exercisable had such cessation of Service not occurred. (g) DISCRETION TO EXTEND EXERCISE PERIOD. The Administrator shall also have full power and authority to extend the period of time for which the Option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under Section 2.1(e) above to such greater period of time as the Administrator shall deem appropriate. In no event, however, shall such Option be exercisable after the specified expiration date of the Option term. (h) DEFINITIONS. For purposes of the foregoing provisions of this Section 2.1 and for all other purposes under the Plan: (i) The Optionee shall (except to the extent otherwise specifically provided in the applicable Option Agreement) be deemed to remain in SERVICE for so long as such individual renders services on a periodic basis to the Company (or any Parent or Subsidiary) in the capacity of an Employee or a Consultant. 7 (ii) The Optionee shall be considered to be an Employee for so long as Optionee remains in the employ of the Company or one or more Parent or Subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. (i) STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights with respect to any Shares covered by the Option until such individual shall have exercised the Option and paid the Option price for the purchased Shares. 2.2. CORPORATE TRANSACTIONS. (a) DEFINITION. For purposes of this Plan, any of the following stockholder approved transactions to which the Company is a party shall be considered a "Corporate Transaction": (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Company is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company in complete liquidation or dissolution of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to person or persons different from those who held such securities immediately prior to such merger. (b) ACCELERATION OF OPTION. Upon the stockholder approval of a Corporate Transaction, each Option which is at the time outstanding under the Plan shall automatically accelerate so that each such Option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such Option and may be exercised for all or any portion of such shares. However, an outstanding Option under the Plan shall not so accelerate if and to the extent: (A) such Option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (B) such Option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such Option, or (C) the acceleration of such Option is subject to other limitations imposed by the Administrator at the time of the option grant. The determination of option comparability under clause (A) above shall be made by the Administrator, and its determination shall be final, binding and conclusive. (c) TERMINATION OF OPERATIONS. Upon the consummation of the Corporate Transaction, all outstanding options under the Plan shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or its parent company. 8 (d) ADJUSTMENTS ON ASSUMPTION OR CONTINUATION. Each outstanding Option under the Plan which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the Option holder, in consummation of such Corporate Transaction, had such person exercised the Option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the Option price payable per share, provided the aggregate Option price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan following the consummation of the Corporate Transaction shall be appropriately adjusted. (e) DISCRETION TO ACCELERATE. The Administrator shall have the discretion, exercisable either in advance of any actually-anticipated Corporate Transaction or at the time of an actual Corporate Transaction, to provide (upon such terms as it may deem appropriate) for the automatic acceleration of one or more outstanding Options granted under the Plan which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at the time, in the event the Optionee's Service should subsequently terminate within a designated period following the effective date of such Corporate Transaction. (f) PLAN NOT TO AFFECT COMPANY. The grant of Options under the Plan shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 2.3. CHANGE IN CONTROL. (a) DEFINITION. For purposes of this Plan, a Change in Control shall be deemed to occur in the event: (i) any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which the Board does not recommend such stockholders to accept; or (ii) there is a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. (b) DISCRETION TO ACCELERATE. The Administrator shall have the discretionary authority, exercisable either in advance of any actually anticipated Change in Control or at the time of an actual Change in Control, to provide for the automatic acceleration of one or more outstanding Options under the Plan upon the occurrence of the Change in 9 Control. The Administrator shall also have full power and authority to condition any such option acceleration upon the subsequent termination of the Optionee's Service within a specified period following the Change in Control. (c) EXERCISE RIGHTS. Any Options accelerated in connection with the Change in Control shall remain fully exercisable until the expiration or sooner termination of the Option term. ARTICLE III MISCELLANEOUS 3.1. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 3.2 TAX WITHHOLDING. (a) GENERAL. The Company's obligation to deliver Shares of Common Stock upon the exercise of Options for such Shares under the Plan shall be subject to the satisfaction of all applicable Federal, State and local income tax and employment tax withholding requirements. (b) SHARES TO PAY FOR WITHHOLDING. An Administrator may, in its discretion and in accordance with the provisions of this Section 3.2(b) and such supplemental rules as the Administrator may from time to time adopt, provide any or all holders of Options under the Plan with the right to use Shares in satisfaction of all or part of the Federal, State and local income tax and employment tax liabilities incurred by such Optionees in connection with the exercise of their Options (the "Taxes"). Such right may be provided to any such Optionee in either or both of the following formats: (i) STOCK WITHHOLDING. The Optionee may be provided with the election to have the Company withhold, from the Shares otherwise issuable upon the exercise of such Option, a portion of these Shares with an aggregate Fair Market Value equal to the percentage of the applicable Taxes (not to exceed one hundred percent (100%)) designated by the holder. (ii) STOCK DELIVERY. The Administrator may, in its discretion, provide the Optionee with the election to deliver to the Company, at the time the Option is exercised, one or more Shares previously acquired by such individual (other than pursuant to the transaction triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the 10 Taxes incurred in connection with such Option exercise (not to exceed one hundred percent (100%)) designated by the Optionee. 3.3 EFFECTIVE DATE AND TERM OF PLAN. The Plan is effective as of November 10, 1997 (the "Effective Date"). It shall continue in effect for ten (10) years, unless sooner terminated under Section 3.1 of the Plan. 3.4. USE OF PROCEEDS. Any cash proceeds received by the Company from the sale of Shares pursuant to Option grants under the Plan shall be used for general corporate purposes. 3.5. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. (c) SECURITIES REGISTRATION. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and State securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which stock of the same class is then listed. (d) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 3.6. NO EMPLOYMENT/SERVICE RIGHTS. Neither the action of the Company in establishing the Plan, nor any action taken by the Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the employ or service of the Company (or any Parent or Subsidiary) for any period of specific duration, and the Company (or any Parent or Subsidiary retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. 3.7. MISCELLANEOUS PROVISIONS. (a) ASSIGNMENT. The right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or other Option holder. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Company and its successors or 11 assigns, whether by Corporate Transaction or otherwise, and the Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. (b) CHOICE OF LAW. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of Arizona, as such laws are applied to contracts entered into and performed in such State. (c) PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive means by which the Company may issue options or warrants to acquire its shares of Common Stock, stock awards or issuances, or any other type of award or issuance. To the extent permitted by applicable law, any such other option, warrants, issuance, or awards may be issued by the Company other than pursuant to this Plan, without shareholder approval. EXECUTED as of the 18th day of August, 2000. MICROCHIP TECHNOLOGY INCORPORATED, a Delaware corporation By /s/ Steve Sanghi ------------------------------------- Steve Sanghi Its: Chairman of the Board, President and Chief Executive Officer Attested by: /s/ Mary K. Simmons - ----------------------------- Mary K. Simmons Secretary 12 EX-10.4 6 ex10_4.txt 1993 STOCK OPTION PLAN Exhibit 10.4 ================================================================================ MICROCHIP TECHNOLOGY INCORPORATED 1993 STOCK OPTION PLAN AMENDED THROUGH AUGUST 18, 2000 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN.................................................... 1 (a) Amendment......................................................... 1 (b) Purpose........................................................... 1 (c) Effective Date.................................................... 2 (d) Successor to 1989 Plan............................................ 2 (e) Parent/Subsidiaries............................................... 2 1.2 STRUCTURE OF THE PLAN.................................................. 3 (a) Stock Programs.................................................... 3 (b) General Provisions................................................ 3 1.3 ADMINISTRATION OF THE PLAN............................................. 3 (a) Bifurcation of Administration..................................... 3 (b) Affiliate Administration.......................................... 4 (c) Non-Affiliate Administration...................................... 4 (d) Term on Committee................................................. 4 (e) Authority of Plan Administrators.................................. 4 (f) Indemnification................................................... 5 1.4 ELIGIBLE PERSONS UNDER THE PLAN........................................ 5 (a) Discretionary Option Grant........................................ 5 (b) Automatic Option Grant Program.................................... 6 1.5 STOCK SUBJECT TO THE PLAN.............................................. 6 (a) Amendment......................................................... 6 (b) Available Shares.................................................. 6 (c) Adjustments for Issuances......................................... 7 (d) Adjustments for Organic Changes................................... 7 (e) Limitation on Grants to Employees................................. 8 ARTICLE II DISCRETIONARY OPTION GRANT PROGRAM 2.1 TERMS AND CONDITIONS OF OPTIONS........................................ 8 (a) General........................................................... 8 (b) Option Price...................................................... 9 (c) Payment of Option Price........................................... 9 (d) Fair Market Value................................................. 9 (e) Term and Exercise of Options...................................... 10 (f) Termination of Service............................................ 10 i TABLE OF CONTENTS continued Page ---- (g) Discretion to Accelerate Vesting.................................. 11 (h) Discretion to Extend Exercise Period.............................. 12 (i) Definitions....................................................... 12 (j) Stockholder Rights................................................ 12 (k) Repurchase Rights................................................. 12 2.2 INCENTIVE OPTIONS...................................................... 13 (a) General........................................................... 13 (b) Dollar Limitation................................................. 13 (c) 10% Stockholder................................................... 14 (d) Application....................................................... 14 (e) No Incentive Options After August 18, 2000........................ 14 2.3 CORPORATE TRANSACTIONS................................................. 14 (a) Definition........................................................ 14 (b) Acceleration of Option............................................ 15 (c) Termination and Options........................................... 15 (d) Adjustments on Assumption or Continuation......................... 15 (e) Discretion to Accelerate.......................................... 16 (f) Plan Not to Affect Corporation.................................... 16 2.4 CHANGE IN CONTROL...................................................... 16 (a) Definition........................................................ 16 (b) Discretion to Accelerate.......................................... 17 (c) Exercise Rights................................................... 17 2.5 INCENTIVE OPTIONS...................................................... 17 ARTICLE III RESERVED ARTICLE IV AUTOMATIC OPTION GRANT PROGRAM 4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS........................ 17 (a) Amount and Date of Grant.......................................... 17 (b) Exercise Price.................................................... 18 (c) Method of Exercise................................................ 18 (d) Payment Price..................................................... 19 (e) Exercise Date..................................................... 19 (f) Term of Option.................................................... 19 (g) Vesting........................................................... 20 (h) Limited Transferability........................................... 20 4.2 CORPORATE TRANSACTION.................................................. 20 ii TABLE OF CONTENTS continued Page ---- 4.3 CHANGE IN CONTROL...................................................... 21 4.4 MISCELLANEOUS PROVISIONS............................................... 21 (a) Corporation Rights................................................ 21 (b) Privilege of Stock Ownership...................................... 21 ARTICLE V MISCELLANEOUS 5.1 AMENDMENT OF THE PLAN AND AWARDS....................................... 21 (a) Board Authority................................................... 21 (b) Options Issued Prior to Stockholder Approval...................... 22 (c) Rule 16b-3 Plan................................................... 22 5.2 TAX WITHHOLDING........................................................ 22 (a) General........................................................... 22 (b) Shares to Pay for Withholding..................................... 22 (i) Stock Withholding............................................ 23 (ii) Stock Delivery............................................... 23 5.3 EFFECTIVE DATE AND TERM OF PLAN........................................ 23 (a) Effective Date.................................................... 23 (b) Incorporation of 1989 Plan........................................ 23 (c) Discretion........................................................ 23 (d) Termination of Plan............................................... 24 5.4 USE OF PROCEEDS........................................................ 24 5.5 REGULATORY APPROVALS................................................... 24 (a) General........................................................... 24 (b) Securities Registration........................................... 24 5.6 NO EMPLOYMENT/SERVICE RIGHTS........................................... 24 5.7 MISCELLANEOUS PROVISIONS............................................... 25 (a) Assignment........................................................ 25 (b) Choice of Law..................................................... 25 (c) Plan Not Exclusive................................................ 25 iii MICROCHIP TECHNOLOGY INCORPORATED 1993 STOCK OPTION PLAN AMENDED THROUGH AUGUST 18, 2000 ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN (a) AMENDMENT. On January 19, 1993, the Board of Directors (the "Board") of Microchip Technology Incorporated, a Delaware corporation (the "Corporation") adopted the 1993 Stock Option/Stock Issuance Plan. On April 23, 1993 and September 14, 1993, the Board amended the Plan authorizing additional available shares of Common Stock. On October 7, 1993, the Board amended and restated the Plan as stated herein. On April 18, 1994, the Board amended the Plan authorizing additional available shares of Common Stock, subject to stockholder approval. On January 20, and April 26, 1995, the Board amended the Plan authorizing, among other matters, additional available shares of Common Stock, subject to stockholder approval and the elimination of the stock issuance portion of the Plan. Any options outstanding under the Plan before this amendment shall remain valid and unchanged. On April 25, 1997, the Board amended the Plan authorizing, among other matters, additional available shares of Common Stock, subject to stockholder approval. On August 18, 2000 the stockholders approved an amendment to the Plan (which was adopted by the Board on May 5, 2000) to extend its term as set forth in Section 5.3(d) hereof. The Board also amended the Plan to provide that, following the approval by the stockholders of the extension of the term o the Plan, Incentive Options could no longer be granted (see Section 2.2(e)). (b) PURPOSE. This 1993 Stock Option Plan, amended through August 18, 2000 ("Plan") is intended to promote the interests of the Corporation by providing (i) key employees (including officers) of the Corporation (or its parent or subsidiary corporations) who are responsible for the management, growth and financial success of the Corporation (or its parent or subsidiary corporations), (ii) non-employee members of the Corporation's Board of Directors (the "Board") and (ii) consultants and other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations) the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the corporation as an incentive for them to remain in the service of the Corporation (or its parent or subsidiary corporations). 1 (c) EFFECTIVE DATE. The Plan became effective on the first date on which the shares of the Corporation's common stock are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is hereby designated as the Effective Date of the Plan. The effective date of any amendments to the Plan shall be as of the date of Board approval. Notwithstanding the foregoing, certain amendments referenced herein must be approved by the stockholders of the Corporation. (d) SUCCESSOR TO 1989 PLAN. This Plan shall serve as the successor to the Corporation's 1989 Stock Option Plan (the "1989 Plan"), and no further option grants or stock issuances shall be made under the 1989 Plan from and after the Effective Date of this Plan. All options outstanding under the 1989 Plan on such Effective Date are hereby incorporated into this Plan and shall accordingly be treated as outstanding options under this Plan. However, each outstanding option so incorporated shall continue to be governed solely by the express terms and conditions of the instrument evidencing such grant, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of the Corporation's common stock thereunder. All outstanding unvested share issuances under the 1989 Plan shall continue to be governed solely by the express terms and conditions of the instruments evidencing such issuances, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such unvested shares. (e) PARENT/SUBSIDIARIES. For purposes of the Plan, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: (i) Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a parent of the corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in any other corporation in such chain. (ii) Each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a subsidiary of the Corporation, provided each such corporation (other than the 2 last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in any other corporation in such chain. (f) All references herein to number of shares of Common Stock have been restated to reflect a 2-for-1 stock split of the Common Stock effected on September 14, 1993, a 3-for-2 stock split of the Common Stock effected on April 4, 1994, a 3-for-2 split of the Common Stock effected on November 8, 1994, a 3-for-2 split of the Common Stock effected on January 6, 1997, and a 3-for-2 split of the Common Stock effected on February 7, 2000. 1.2 STRUCTURE OF THE PLAN (a) STOCK PROGRAMS. The Plan shall be divided into two separate components: the Discretionary Option Grant Program specified in Article II and the Automatic Option Grant Program specified in Article IV. Under the Discretionary Option Grant Program, eligible individuals may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock in accordance with the provisions of Article II. Under the Automatic Option Grant Program, non-employee members of the Board will be automatically granted options to purchase shares of the Common Stock in accordance with the provisions of Article IV. (b) GENERAL PROVISIONS. Unless the context clearly indicates otherwise, the provisions of Articles I and V shall apply to the Discretionary Option Grant Program and the Automatic Stock Grant Program, and shall accordingly govern the interests of all individuals under the Plan. 1.3 ADMINISTRATION OF THE PLAN (a) BIFURCATION OF ADMINISTRATION. The eligible persons under the Discretionary Option Grant Program shall be divided into two groups and there shall be a separate administrator for each group. One group shall be comprised of eligible persons that are "Affiliates." For purposes of the Plan, the term "Affiliates" shall mean (i) all "executive officers" as that term is defined in Rule 16a-1(f) promulgated under the Securities and Exchange Act of 1934 as amended (the "1934 Act"), (ii) all directors of the Company, and (iii) all persons who own 10% or more of the Company's issued and outstanding common stock. The other group shall be comprised of all eligible persons under the Plan that are not Affiliates ("Non-Affiliates"). 3 (b) AFFILIATE ADMINISTRATION. The power to administer the Discretionary Option Grant Program with respect to eligible persons that are Affiliates shall be vested with a committee (the "Senior Committee") of two (2) or more non-employee Board members appointed by the Board. No Board member shall be eligible to serve on the Senior Committee if such individual has, within the relevant period designated below, received an option grant or direct stock issuance under this Plan (not including any option grants made pursuant to the Automatic Option Grant Program set forth in Article IV) or any other stock plan of the Corporation (or any parent or subsidiary corporation): (i) for each of the initial members of the Committee, the period commencing with the Effective Date of the Plan and ending with the date of his or her appointment to the Senior Committee, or (ii) for any successor or substitute member, the twelve-month period immediately preceding the date of his or her appointment to the Senior Committee or (if shorter) the period commencing with the Effective Date of the Plan and ending with the date of his or her appointment to the Senior Committee. (c) NON-AFFILIATE ADMINISTRATION. The power to administer the Discretionary Option Grant Program with respect to eligible persons that are not Non-Affiliates shall be vested with the Board. The Board, however, may at any time appoint a committee (the "Employee Committee") of one or more persons who are members of the Board and delegate to such Employee Committee the power, in whole or in part, to administer the Discretionary Stock Option Grant Program with respect to the Non-Affiliates. (d) TERM ON COMMITTEE. Members of the Senior Committee and the Employee Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board at any time may terminate the functions of the Employee Committee and reassume all powers and authority previously delegated to such Committee. (e) AUTHORITY OF PLAN ADMINISTRATORS. The Board, the Employee Committee, and the Senior Committee, whichever is applicable, shall each be referred to herein as a "Plan Administrator." Each Plan Administrator shall have the authority and discretion, with respect to its administered group, to select which eligible persons shall participate in the Plan. Unless otherwise required by law, decisions among members of a Plan Administrator shall be by majority vote. With respect to each administered group, the applicable Plan Administrator shall have full power and authority (subject to the express provisions of the 4 Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Discretionary Option Grant Program and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding option grants or stock issuances thereunder as it may deem necessary or advisable. All decisions made by a Plan Administrator shall be final and binding on all parties in its administered group who have an interest in the Discretionary Option Grant Program or any outstanding option thereunder. The Plan Administrator shall also have full authority to determine, with respect to the option grants made under the Discretionary Option Program, the number of shares to be covered by each such grant, the status of the granted option as either an incentive stock option ("Incentive option") which satisfies the requirements of Section 422 of the Internal Revenue Code or a non-statutory option not intended to meet such requirements, the time or times at which each granted option is to become exercisable and the maximum term for which the option may remain outstanding. (f) INDEMNIFICATION. In addition to such other rights of indemnification as they may have, the members of each Plan Administrator shall be indemnified and held harmless by the Company, to the extent permitted under applicable law, for, from and against all costs and expenses reasonably incurred by them in connection with any action, legal proceeding to which any such member thereof may be a party, by reason of any action taken or failed to be taken, under or in connection with the Plan or any rights granted thereunder, and against all amounts paid by them in settlement thereof or paid by them in satisfaction of a judgment of any such action, suit or proceeding, except a judgment based upon a finding of bad faith. 1.4 ELIGIBLE PERSONS UNDER THE PLAN (a) DISCRETIONARY OPTION GRANT PROGRAM. The persons eligible to participate in the Discretionary Option Grant Program under Article II are as follows: (i) officers and other key employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or its parent or subsidiary corporations); (ii) non-employee members of the Board (excluding those current members of the Senior Committee); and 5 (iii) those consultants or other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations). (b) AUTOMATIC OPTION GRANT PROGRAM. The persons eligible to participate in the Automatic Option Grant Program shall be limited to non-employee Board members. A non-employee Board member shall not be eligible to participate in the Automatic Option Grant Program, however, if such individual has at any time been in the prior employ of the Corporation (or any parent or subsidiary corporation). Unless otherwise provided in the Plan, persons who are eligible under the Automatic Option Grant Program may also be eligible to receive option grants under the Discretionary Option Grant Program in effect under this Plan. 1.5 STOCK SUBJECT TO THE PLAN (a) AMENDMENT(1). Under the Plan, 9,108,341 shares were originally authorized to be issued under the Plan (constituting 8,348,966 authorized shares under the 1989 Plan and rolled over into this Plan plus 759,375 additional shares authorized by the Board on January 19, 1993). On April 23, 1993, an additional 3,290,625 shares were authorized by the Board, subject to stockholder approval at the next stockholders' meeting. At that point, the total available authorized shares was 12,398,966. On September 14, 1993, the Board authorized the number of shares of Common Stock issuable under the Plan to be increased by 3,422,250 shares. On April 18, 1994, the Board authorized the number of shares of Common Stock issuable under the Plan to be increased by 4,387,500 shares. On January 20, 1995 and April 25, 1997, the Board authorized the number of shares of Common Stock issuable under the Plan to be increased by 2,137,500 and 3,000,000 shares, respectively, subject to Stockholder approval, such that the maximum number of shares issuable for the term of the Plan shall be as set forth in Section 1.5(b) below. (b) AVAILABLE SHARES. Shares of the Corporation's common stock (the "Common Stock") shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 25,346,216 shares, subject to adjustment from time to time in accordance with the - ---------- (1) All number are as adjusted for stock splits which have occurred through February 2000. 6 provisions of this Section 1.5. To the extent one or more outstanding options under the 1989 Plan which have been incorporated into this Plan (as adjusted for the 1993 Stock Dividend) are subsequently exercised, the number of shares issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares available for issuance under this Plan. (c) ADJUSTMENTS FOR ISSUANCES. Should one or more outstanding options under this Plan (including outstanding options under the 1989 Plan incorporated into this Plan) expire or terminate for any reason prior to exercise in full, then the shares subject to the portion of each option not so exercised shall be available for subsequent option grant under the Plan. All share issuances under the Plan, whether or not the shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent option grants under the Plan. In addition, should the exercise price of an outstanding option under the Plan (including any option incorporated from the 1989 Plan) be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised, and not by the net number of shares of Common Stock actually issued to the option holder. (d) ADJUSTMENTS FOR ORGANIC CHANGES. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities and price per share in effect under each option outstanding under either the Discretionary Option Grant Program or the Automatic Option Grant Program and (iii) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from the 1989 Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Board shall be final, binding and conclusive. The amount of options granted automatically under the Automatic Option Grant Program 7 on the Annual Automatic Grant Date and on the Initial Automatic Grant Date shall not be adjusted regardless of any organic changes made to the Common Stock issuable under the Plan. (e) LIMITATIONS ON GRANTS TO EMPLOYEES. Notwithstanding any other provision herein to the contrary, the following limitations shall apply to grants of options to Employees: (i) No employee shall be granted, in any fiscal year of the Corporation, options to purchase more than six hundred seventy-five thousand (675,000) shares. (ii) In connection with his or her initial employment, an Employee may be granted options to purchase up to an additional one million one hundred twenty-five thousand 1, 125,000) shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Corporation's capitalization as described in Section 1.5(d). (iv) If an option is cancelled in the same fiscal year of the Corporation in which such option was granted (other than in connection with a transaction described in Section 1.5(d)), the cancelled option will be counted against the limit set forth in Section 1.5(e)(i). For this purpose, if the exercise price of an option is reduced, the transaction will be treated as a cancellation of the option and the grant of a new option. ARTICLE II DISCRETIONARY OPTION GRANT PROGRAM 2.1 TERMS AND CONDITIONS OF OPTIONS (a) GENERAL. Options granted to eligible persons ("Optionees") pursuant to the Discretionary Option Grant Program set forth in this Article II shall be authorized by action of the Plan Administrator and, at the Plan Administrator's discretion, may be either Incentive Options or non-statutory options. Individuals who are not Employees of the Corporation or its parent or subsidiary corporations may only be granted non-statutory options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section 2.2 hereof. 8 (b) OPTION PRICE. The option price per share shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The option price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the fair market value of such Common Stock on the grant date; and (ii) The option price per share of the Common Stock subject to a non-statutory stock option shall in no event be less than one hundred percent (100%) of the fair market value of such Common Stock on the grant date. (c) PAYMENT OF OPTION PRICE. The option price shall become immediately due upon exercise of the option and shall be payable in one of the following alternative forms specified below: (i) full payment in cash or check drawn to the Corporation's order; (ii) full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee (A) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate option price payable for the purchased shares plus all applicable Federal and State income and employment taxes required to be withheld by the Corporation in connection with such purchase and (B) shall provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. For purposes of this Section 2.1(c), the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such notice. (d) FAIR MARKET VALUE. The fair market value per share of Common Stock shall be determined in accordance with the following provisions: (i) If the Common Stock is not at the time listed or admitted to trading on any national stock exchange but is traded on the NASDAQ National 9 Market System, the fair market value shall be the closing price per share on the date in question, as such price is reported by the National Association of Securities Dealers through the NASDAQ National Market System or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of fair market value. (ii) If the Common Stock is at the time listed or admitted to trading on any national stock exchange, then the fair market value shall be the closing selling price per share on the date in question on the exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the fair market value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. (e) TERM AND EXERCISE OF OPTIONS. Each option granted under this Discretionary Option Grant Program shall be exercisable at such time or times and during such period as is determined by the Plan Administrator and set forth in the instrument evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years from the grant date. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee other than by will or by the laws of descent and distribution following the Optionee's death. (f) TERMINATION OF SERVICE. The following provisions shall govern the exercise period applicable to any outstanding options held by the Optionee at the time of cessation of Service or death: (i) Should an Optionee cease Service for any reason (including permanent disability as defined in Section 22(e)(3) of the Internal Revenue Code but not including death) while holding one or more outstanding options under this Article II, then none of those options shall (except to the extent otherwise provided pursuant to Section 2.1(g) below) remain exercisable for more than a ninety (90) day period (or such shorter or longer period determined by the Plan Administrator and set forth in the instrument evidencing the grant, but not to exceed twelve (12) months) measured from the date of such cessation of Service. 10 (ii) Any option held by the Optionee under this Article II and exercisable in whole or in part on the date of his or her death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such exercise, however, must occur prior to the earlier of (x) six months following the date of Optionee's death or (y) the specified expiration date of the option term. Upon the occurrence of the earlier event, the option shall terminate and cease to be outstanding. (iii) Under no circumstances, however, shall any such option be exercisable after the specified expiration date of the option term. (iv) During the applicable post-Service exercise period, the option shall not be exercisable for more than the number of shares (if any) in which the Optionee is vested at the time of his or her cessation of Service (less any option shares subsequently purchased by the Optionee prior to death). Upon the expiration of the limited post-Service exercise period or (if earlier) upon the specified expiration date of the option term, each such option shall terminate and cease to be outstanding with respect to any vested shares for which the option has not otherwise been exercised. However, each outstanding option shall immediately terminate and cease to be outstanding, at the time of the Optionee's cessation of Service, with respect to any shares for which the option is not otherwise at that time exercisable or in which the Optionee is not otherwise at that time vested. (v) Should (A) the Optionee's service be terminated for misconduct (including, but not limited to, any act of dishonesty, willful misconduct, fraud or embezzlement) or (B) the Optionee make any unauthorized use or disclosure of confidential information or trade secrets of the Corporation or its parent or subsidiary corporations, then in any such event all outstanding options held by the Optionee under this Article II shall terminate immediately and cease to be outstanding. (g) DISCRETION TO ACCELERATE VESTING. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the Optionee under this Article II to be exercised, during the limited post-Service exercise period applicable under Section 2.1(f) above, not only with respect to the number of vested shares of Common Stock for which each such option is exercisable at the time of the Optionee's cessation of Service 11 but also with respect to one or more subsequent installments of vested shares for which the option would otherwise have become exercisable had such cessation of Service not occurred. (h) DISCRETION TO EXTEND EXERCISE PERIOD. The Plan Administrator shall also have full power and authority to extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under Section 2.1(f) above to such greater period of time as the Plan Administrator shall deem appropriate. In no event, however, shall such option be exercisable after the specified expiration date of the option term. (i) DEFINITIONS. For purposes of the foregoing provisions of this Section 2.1 (and for all other purposes under the Discretionary Option Grant Program): (i) The Optionee shall (except to the extent otherwise specifically provided in the applicable stock option agreement) be deemed to remain in SERVICE for so long as such individual renders services on a periodic basis to the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the Board or an independent consultant or advisor. (ii) The Optionee shall be considered to be an EMPLOYEE for so long as he or she remains in the employ of the Corporation or one or more parent or subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. (j) STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights with respect to any shares covered by the option until such individual shall have exercised the option and paid the option price for the purchased shares. (k) REPURCHASE RIGHTS. The shares of Common Stock acquired upon the exercise of any Article II option grant may be subject to repurchase by the Corporation in accordance with the following provisions: (i) The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock under this Article II. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at the 12 option price paid per share. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the instrument evidencing such repurchase right. (ii) All of the Corporation's outstanding repurchase rights under this Article II shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon the occurrence of any Corporate Transaction under Section 2.3 hereof, except to the extent: (A) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (B) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. (iii) The Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of Service, to cancel the Corporation's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under this Discretionary Option Grant Program and thereby accelerate the vesting of such shares in whole or in part at any time. 2.2 INCENTIVE OPTIONS (a) GENERAL. The terms and conditions specified below shall be applicable to all incentive options ("Incentive Options") granted under this Article II pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Incentive Options may only be granted to individuals who are employees of the Corporation. Options which are specifically designated as "non-statutory" options when issued under the Plan shall NOT be subject to such terms and conditions. (b) DOLLAR LIMITATION. The aggregate fair market value (determined as of the respective date or dates of grant) of the Common Stock for which one or more Incentive Options granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or more such Incentive Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options under the federal tax laws shall be applied on the basis of the order in which such Incentive Options are granted. Should 13 the number of shares of Common Stock for which any Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then that option may nevertheless be exercised in that calendar year for the excess number of shares as a non-statutory option under the federal tax laws. (c) 10% STOCKHOLDER. If any individual to whom an Incentive Option is granted is the owner of stock (as determined under Code Section 424(d)) possessing ten percent (10%) or more of the total combined voting power of all classes of stock of the Corporation or any one of its parent or subsidiary corporations, then the option price per share shall not be less than one hundred and ten percent (110%) of the fair market value per share of Common Stock on the grant date, and the option term shall not exceed five years, measured from the grant date. (d) APPLICATION. Except as modified by the preceding provisions of this Section 2.2, the provisions of Articles I, II and V of the Plan shall apply to all Incentive Options granted hereunder. (e) NO INVENTIVE OPTIONS AFTER AUGUST 18, 2000. From and after August 18, 2000, no Incentive Options shall be granted under the Plan. 2.3 CORPORATE TRANSACTIONS (a) DEFINITION. For purposes of this Plan, any of the following stockholder approved transactions to which the Corporation is a party shall be considered a "Corporate Transaction": (i) a merger or consolidation in which the corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Corporation is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or (iii) any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to person or persons different from those who held such securities immediately prior to such merger. 14 (b) ACCELERATION OF OPTION. Upon the stockholder approval of a Corporate Transaction, each option which is at the time outstanding under this Article II shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article II shall not so accelerate if and to the extent: (A) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (B) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option, or (C) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (A) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. (c) TERMINATION OF OPTIONS. Upon the consummation of the Corporate Transaction, all outstanding options under this Article II shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or its parent company. (d) ADJUSTMENTS ON ASSUMPTION OR CONTINUATION. Each outstanding option under this Article II which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder, in consummation of such Corporate Transaction, had such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the option price payable per share, provided the aggregate option price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan following the consummation of the Corporate Transaction shall be appropriately adjusted. 15 (e) DISCRETION TO ACCELERATE. The Plan Administrator shall have the discretion, exercisable either in advance of any actually-anticipated Corporate Transaction or at the time of an actual Corporate Transaction, to provide (upon such terms as it may deem appropriate) for the automatic acceleration of one or more outstanding options granted under the Plan which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time, in the event the Optionee's Service should subsequently terminate within a designated period following the effective date of such Corporate Transaction. (f) PLAN NOT TO AFFECT CORPORATION. The grant of options under this Article II shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 2.4 CHANGE IN CONTROL (a) DEFINITION. For purposes of this Plan, a Change in Control shall be deemed to occur in the event: (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or (ii) there is a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board. (b) DISCRETION TO ACCELERATE. The Plan Administrator shall have the discretionary authority, exercisable either in advance of any actually anticipated Change in Control or at the time of an actual Change in Control, to 16 provide for the automatic acceleration of one or more outstanding options under this Article II (and the termination of one or more of the Corporation's outstanding repurchase rights under this Article II) upon the occurrence of the Change in Control. The Plan Administrator shall also have full power and authority to condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent termination of the Optionee's Service within a specified period following the Change in control. (c) EXERCISE RIGHTS. Any options accelerated in connection with the Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term. 2.5 INCENTIVE OPTIONS. The exercisability as Incentive Options of any options accelerated under Sections 2.3 or 2.4 hereof in connection with a Corporate Transaction or Change in Control shall remain subject to the dollar limitation of Section 2.2 hereof. ARTICLE III RESERVED ARTICLE IV AUTOMATIC OPTION GRANT PROGRAM 4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS. (a) AMOUNT AND DATE OF GRANT. During the term of this Plan, automatic option grants (the "Automatic Option Grant") shall be made to each eligible non-employee member of the Board ("Optionee") as follows: (i) Each year on the Annual Automatic Grant Date an option to acquire 5,000 shares of Common Stock ("Option Shares") shall be granted to each eligible non-employee member of the Board for so long as there are shares of Common Stock available under Section 1.5 hereof. The "Annual Automatic Grant Date" shall be as of the first business day of the month in which the Corporation's Annual Stockholders Meeting is held. Notwithstanding the foregoing, (1) any non-Employee Member of the Board whose term ended as of such Automatic Grant Date shall not be eligible to receive any automatic option grants on that Annual Automatic Grant Date and (2) any non-Employee Member of the Board who has received an Automatic Grant pursuant to Section 4.1(a)(ii) on 17 the same date as the Annual Automatic Grant Date or within 30 days prior thereto, shall not be eligible to receive an Automatic Option Grant on that Annual Automatic Grant Date. (ii) On the Initial Automatic Grant Date, every new member of the Board who is an eligible non-Employee and has not previously been a member of the Board shall be granted an option to acquire 10,000 shares of Common Stock ("Option Shares") as long as there are shares of Common Stock available under Section 1.5 hereof. The "Initial Automatic Grant Date" shall be as of the date that the Optionee was first appointed or elected to the Board. (b) EXERCISE PRICE. The exercise price per share of Common Stock subject to each automatic option grant made under this Article IV shall be equal to 100% of the fair market value per share of the Common Stock on the applicable Automatic Grant Date, as determined in accordance with the valuation provisions of Section 2.1(d) hereof. (c) METHOD OF EXERCISE. In order to exercise an option with respect to any Option Shares for which an Automatic Option Grant is exercisable at the time, Optionee (or in the case of an exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following action: (i) execute and deliver to the Secretary of the Company a written notice of exercise; (ii) pay the aggregate Option Price in one of the alternate forms as set forth in Section 4.1(d) below; and (iii) furnish appropriate documentation that the person or persons exercising the option (if other than the Optionee) has the right to exercise such option. As soon after the Exercise Date (as defined in Section 4.1(e) hereof), as practical, the Company shall mail or deliver to or on behalf of the Optionee (or any other person or persons exercising this option in accordance herewith) a certificate or certificates representing the shares for which the option has been exercised in accordance with the provisions of this Plan. In no event may any option be exercised for any fractional shares. (d) PAYMENT PRICE. The exercise price shall be payable in one of the alternative forms specific below: 18 (i) full payment in cash or check made payable to the Corporation's order; or (ii) full payment through a sale and remittance procedure pursuant to which the non-employee Board member (A) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares and shall (B) concurrently provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. (e) EXERCISE DATE. For purposes of this Article IV, the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation, and the fair market value per share of Common Stock on any relevant date under this Article IV shall be determined in accordance with the provisions of Section 2.1(d) hereof. Except to the extent the sale and remittance procedure specified above is utilized for the exercise of the potion, payment of the option price for the purchased shares must accompany the exercise notice. (f) TERM OF OPTION. Each automatic option grant under this Article IV shall have a maximum term of ten (10) years measured from the Automatic Grant Date. Should Optionee's service as a Board member cease for any reason while an option remains outstanding and unexercised, then the option term shall immediately terminate and the option shall cease to be outstanding prior to the Expiration Date in accordance with the following provisions: (i) The option shall immediately terminate and cease to be outstanding for any shares of Common Stock for which the option was not otherwise exercisable at the time of Optionee's cessation of Board service. (ii) Should Optionee cease, for any reason other than death, to serve as a member of the Board, then Optionee shall have a six-month period measured from the date of such cessation of Board service in which to exercise the options which vested prior to the time of such cessation of Board service. In no event, however, may any option be exercised after the Expiration Date of such option. (iii) Should Optionee die while serving as a Board member or within six months after cessation of Board service, then the personal representative of the Optionee's estate (or the person or persons to whom the 19 option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have the right to exercise any option for any or all of the shares of Common Stock for which the option is, in accordance with the provisions of this Plan, exercisable at the time of the Optionee's cessation of Board service, less any shares subsequently purchased by the Optionee pursuant to the option prior to death. Such right shall cease to be exercisable and the option shall accordingly terminate with respect to all Common Stock available under such option by the earlier of (A) the expiration of the twelve-month period measured from the date of Optionee's death or (B) the Expiration Date. (g) VESTING. Each Automatic Option Grant made pursuant to Section 4.1(a)(i) shall become exercisable and vest in a series of twelve (12) equal and successive monthly installments, with the first such installment to become exercisable one month after the Annual Automatic Grant Date. Each Automatic Option Grant made pursuant to Section 4.1(a)(ii) shall become exercisable and vest in a series of 36 equal and successive monthly installments, with the first such installment to become exercisable one month after the Initial Automatic Grant Date. Each installment of an option shall only vest and become exercisable if the Optionee has not ceased serving as a Board member as of such installment date. (h) LIMITED TRANSFERABILITY. Each Automatic Option Grant shall be exercisable only by Optionee during Optionee's lifetime and shall be neither transferable nor assignable, other than by will or by the laws of descent and distribution following Optionee's death. 4.2 CORPORATE TRANSACTION In the event of stockholder approval of a Corporate Transaction (as that term is defined in Section 2.3(a)), then all options granted pursuant to this Article IV (to the extent outstanding at such time, but not otherwise fully exercisable and vested) shall automatically accelerate and immediately vest so that the option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the Option Shares at the time subject to the option and may thereafter be exercised for any or all such Option Shares. Upon the consummation of the Corporate Transaction, the option shall, to the extent not previously exercised, terminate and cease to be outstanding. 20 4.3 CHANGE IN CONTROL All options granted pursuant to an Automatic Option Agreement under this Article IV (to the extent outstanding, but not otherwise fully exercisable and vested) shall automatically accelerate in connection with a Change in Control (as that term is defined in Section 2.4(a)), so that such option shall, immediately prior to the effective date of such Change in Control, become fully exercisable for all of the Option Shares at the time subject to that option and may be exercised for any or all of such Option Shares. The option shall remain so exercisable until such option has terminated in accordance with Section 4.1(d) hereof. 4.4 MISCELLANEOUS PROVISIONS (a) CORPORATION RIGHTS. The Automatic Option Grants shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (b) PRIVILEGE OF STOCK OWNERSHIP. An Optionee shall not have any of the rights of a stockholder with respect to Option Shares until such individual shall have exercised the option and paid the option price for the Option Shares. ARTICLE V MISCELLANEOUS 5.1 AMENDMENT OF THE PLAN AND AWARDS (a) BOARD AUTHORITY. The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, no such amendment or modification shall, without the consent of the Corporation's stockholders, disqualify any option previously granted under the Plan for treatment as an Incentive Option, or adversely affect rights and obligations with respect to options at the time outstanding under the Plan, unless the Optionee or Participant consents to such amendment. In addition, the Board may not, without the approval of the Corporation's stockholders, amend the Plan to (i) materially increase the maximum number of shares issuable under the Plan, except for permissible adjustments under Section 1.5(d) or extend the term of the Plan, (ii) materially modify the eligibility requirements for plan participation or (iii) materially increase the benefits accruing to plan participants. (b) OPTIONS ISSUED PRIOR TO STOCKHOLDER APPROVAL. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant 21 Program and the Automatic Option Grant Program prior to any required stockholder approvals, provided, any shares actually issued under the Plan are held in escrow until stockholder approval is obtained. If such stockholder approval is not obtained within twelve (12) months of the meeting of the Board approving the Plan or any amendments, then (i) any unexercised options shall terminate and cease to be exercisable and (ii) the Corporation shall promptly refund the purchase price paid for any excess shares actually issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow. (c) RULE 16B-3 PLAN. With respect to persons subject to Section 16 of the 1934 Act, the Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated under the 1934 Act. To the extent any revision of the Plan or action by any Plan Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by such Plan Administrator. In addition, the Board may amend the Plan from time to time as it deems necessary in order to meet the requirements of any amendments to Rule 16b-3 without the consent of the shareholders of the Company. 5.2 TAX WITHHOLDING (a) GENERAL. The Corporation's obligation to deliver shares of Common Stock upon the exercise of stock options for such shares or the vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, State and local income tax and employment tax withholding requirements. (b) SHARES TO PAY FOR WITHHOLDING. A Plan Administrator may, in its discretion and in accordance with the provisions of this Section 5.2(b) and such supplemental rules as the Plan Administrator may from time to time adopt (including the applicable safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of non-statutory options or unvested shares under the Plan with the right to use shares of the Corporation's Common Stock in satisfaction of all or part of the Federal, State and local income tax and employment tax liabilities incurred by such holders in connection with the exercise of their options or the vesting of their shares (the "Taxes"). Such right may be provided to any such holder in either or both of the following formats: (i) STOCK WITHHOLDING. The holder of the nonstatutory option or unvested shares may be provided with the election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise 22 of such non-statutory option or the vesting of such shares, a portion of those shares with an aggregate fair market value equal to the percentage of the applicable Taxes (not to exceed one hundred percent (100%)) designated by the holder. (ii) STOCK DELIVERY. The Plan Administrator may, in its discretion, provide the holder of the non-statutory option or the unvested shares with the election to deliver to the Corporation, at the time the non-statutory option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such individual (other than pursuant to the transaction triggering the Taxes) with an aggregate fair market value equal to the percentage of the taxes incurred in connection with such option exercise or share vesting (not to exceed one hundred percent (100%)) designated by the holder. 5.3 EFFECTIVE DATE AND TERM OF PLAN (a) EFFECTIVE DATE. This Plan, as successor to the Corporation's 1989 Stock Option Plan, become effective as of the applicable Effective Date, and no further option grants or stock issuances shall be made under the 1989 Plan from and after such Effective Date. (b) INCORPORATION OF 1989 PLAN. Each option issued and outstanding under the 1989 Plan immediately prior to the Effective Date of the Discretionary Option Grant Program shall be incorporated into this Plan and treated as an outstanding option under this Plan, but each such option shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant, and nothing in this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such options with respect to their acquisition of shares of Common Stock thereunder. (c) DISCRETION. The option and vesting acceleration provisions of Article II relating to Corporate Transactions and Changes in Control may, in the Plan Administrator's discretion, be extended to one or more stock options which are outstanding under the 1989 Plan on the Effective Date of the Discretionary Option Grant Program but which do not otherwise provide for such acceleration. (d) TERMINATION OF PLAN. The Plan shall terminate upon the earlier of (i) January 19, 2013 2 or (ii) the date on which all shares available for - ---------- (2) By amendment of the stockholders approved August 18, 2000, the term of the Plan was extended from January 19, 2003 to January 19, 2013. 23 issuance under the Plan shall have been issued pursuant to the exercise of options granted under the Plan. If the date of termination is determined under clause (i) above, then all option grants and unvested stock issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. 5.4 USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants under the Plan shall be used for general corporate purposes. 5.5 REGULATORY APPROVALS (a) GENERAL. The implementation of the Plan, the granting of any option under the Plan, and the issuance of Common Stock upon the exercise or surrender of the option grants made hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it, and the Common Stock issued pursuant to it. (b) SECURITIES REGISTRATION. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and State securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which stock of the same class is then listed. 5.6 NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the employ or service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. 24 5.7 MISCELLANEOUS PROVISIONS (a) ASSIGNMENT. The right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or Participant. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Participants and Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. (b) CHOICE OF LAW. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of Arizona, as such laws are applied to contracts entered into and performed in such State. (c) PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive means by which the Corporation may issue options or warrants to acquire its shares of Common Stock, stock awards or issuances, or any other type of award or issuance. To the extent permitted by applicable law, any such other option, warrants, issuance, or awards may be issued by the Company, other than pursuant to this Plan, without shareholder approval. EXECUTED as of the 18th day of August, 2000. MICROCHIP TECHNOLOGY CORPORATION, a Delaware corporation By: /s/ Steve Sanghi ------------------------------------- Steve Sanghi Its: Chairman of the Board, President and Chief Executive Officer Attested by: /s/ Mary K. Simmons - --------------------------- Mary K. Simmons 25 EX-27 7 fds.xfd FINANCIAL DATA SCHEDULE
5 1,000 6-MOS Apr-01-2000 Mar-31-2001 Sep-30-2000 117,088 0 84,736 0 62,849 313,267 652,300 0 973,809 209,234 0 0 0 121 744,522 973,809 334,047 334,047 151,322 151,322 0 0 315 108,484 29,290 79,194 0 0 0 79,194 0.67 0.63
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