<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 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: 1-10464
DALLAS SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1935715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4401 SOUTH BELTWOOD PARKWAY, DALLAS, TEXAS 75244-3292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 371-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.02 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of February 29, 2000: $2,253,353,702. For
purposes of this computation, all officers, directors and 10% beneficial owners
of the registrant are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors or 10% beneficial owners are,
in fact, affiliates of the registrant.
Number of shares outstanding of the registrant's Common Stock as of
February 29, 2000: 59,937,486.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders to be held on April 25, 2000, and to
be filed not later than 120 days after the end of the fiscal year pursuant to
Regulation 14A are incorporated by reference herein into Part III.
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, matters discussed
in the Annual Report on Form 10-K contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. In addition, other written or oral statements
which constitute forward-looking statements may be made by or on behalf of the
Company. Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," or variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions which are difficult to predict. Actual results could differ
materially from those projected in the forward-looking statements as a result of
factors set forth in this report, including, without limitation, Item 1.
"Business - The Semiconductor Industry and Competition," Item 1. "Business -
Year 2000 Disclosure," and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Although the Company believes
that the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there can be no assurance that such expectations will be
achieved. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Dallas Semiconductor Corporation (the "Company" or "Dallas Semiconductor")
designs, manufactures and markets electronic chips and chip-based subsystems.
Founded in 1984, the Company uses customer problems as an entry point to develop
products with widespread applications. The Company is committed to new product
development as a means to increase future revenues and diversify its markets,
product offerings and customers.
The Company uses its advanced technologies to gain a competitive edge over
the traditional approaches to semiconductors. Combining lithium energy cells
with low-power complimentary metal oxide silicon ("CMOS") chips can power them
for the useful life of the equipment. Direct laser writing can enhance chip
capabilities with higher levels of precision and/or unique identities. Special
packaging gives improved functionality to silicon chips.
In its sixteen-year history, Dallas Semiconductor has developed 361
proprietary base products with over 2,000 variations shipped to more than 15,000
customers worldwide. Markets served include broadband telecommunications,
wireless handsets, cellular base stations, secure Internet communications,
networking, servers, data storage and a wide variety of industrial equipment.
The Company organizes its products into product groups sharing common
technologies, markets or applications as shown below. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this report for the relative size of the Company's main product groupings. The
product groups are as follows.
Communications 1-Wire(R) & Network Computing Mixed Signal
PRODUCT DEVELOPMENT
The Company developed 35 new proprietary base products during the 1999
fiscal year. The Company's research and development expenditures for fiscal 1999
were $50 million, compared to expenditures in 1998 and 1997 of $47 million and
$46 million, respectively. Dallas Semiconductor intends to continue to commit
substantial resources to the development of new products. There can be no
assurance, however, that such products, if developed, will gain market
acceptance.
PRODUCTS
Descriptions of the Company's product groups are as follows.
COMMUNICATIONS. An emerging and rapidly growing market exists for high
capacity voice and data transmission over the existing analog telephone network.
Dallas Semiconductor has developed the detailed knowledge of the communications
protocols required for transmitting multiple channels over this network. Among
these protocols are T1/J1 and E1, designed for signal transmission on and off
the public switched telephone network. T1/J1 defines rates for America and Japan
and E1 for the rest of the world. Wired, wireless, cable, xDSL and optical - all
network technologies - must access the public switched network, using the
T1/E1's protocols.
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A set of highly integrated chips developed by Dallas Semiconductor
addresses the requirements of these protocols and provides one of the most
cost-effective solutions available in the industry while integrating more
functions, reducing cost, and creating high-density package configurations.
Customers for the Company's T1/E1 interface chips make the routers, servers and
switching equipment located at nodes in the worldwide public switched network.
The Company has expanded into T3/E3 broadband devices, which are
functionally similar to T1/E1 products; getting packets of data on and off the
public switched network with zero error. T3 supplies denser channel capacity by
multiplexing 28 T1 lines, which means the Company's T3/E3 devices must handle
data traveling from various sources through extremely dense channel
configurations at proportionately higher data rates.
The Communications group had three major product introductions in 1999. A
new generation of high-density framers (chips that provide synchronization and
signaling at T1/E1 transmission interfaces) was designed to speed upward
migration of T1/E1 lines to T3/E3 lines while preserving existing
infrastructure. The 3.3-volt Quad Transceivers were introduced to increase the
density of line cards that terminate T1/E1 lines while reducing power
consumption. The DS2148 is the first 3.3-volt T1/E1 line interface unit to offer
a long list of integrated functions that reduce external component count and
enable a single hardware design to support a variety of applications.
1-WIRE & NETWORK COMPUTING. Each product in the 1-Wire and Network
Computing group relays information at some layer of a network ranging from
standalone or isolated machine systems to the World Wide Web. This group's focus
is to create silicon, some of which sells for less than $0.25, that can
communicate information from the smallest, most basic subsystem all the way up
to the Internet.
Operating at the most basic network level are 1-Wire address chips. These
devices provide a unique electronic identity and often store pertinent
information about the product of which they are a component. The data can be
accessed externally or by the product itself. The 1-Wire technology has the
advantage of requiring just a single connection point to access this data.
1-Wire chips are installed in everything from cellular phone battery packs to
printer cartridges to industrial refrigerators. These low cost chips incorporate
a laser-engraved number that, when associated with any object or device, gives
it a guaranteed-unique digital address so that a processor can communicate with
it. If the processor happens to be an Internet server, the electronic number
becomes an IP address. Thus the 1-Wire address chip can enable networking for
almost any object, whether wired or wireless.
iButtons(TM) are steel-armored, 1-Wire chips with a mobile networking
capability. iButtons carry digital information outside a wired computer system,
then relay it instantly on contact with a computer interface. Re-usable and
practically indestructible, iButtons are the portable data front-end component
of an information system. Example iButton applications include small cash
transactions, electronic tokens for transit systems, asset tracking and access
control.
New iButton products introduced in 1999 include the DS1921 Thermochron, an
iButton that logs time and temperature for applications where product liability
depends on a secure thermal record. Also introduced in 1999, the DS1957(TM)
Java-powered crypto iButton contains a single-chip computer that generates,
stores and transfers the private key for digital signatures in secure Internet
transactions.
An example of a Network Computing product is the DS80C390 microcontroller,
which was introduced in 1999. A microcontroller typically combines a central
processing unit, data memory, program memory and input-output devices on a
single chip in order to control a wide variety of electronic systems. In
addition to the traditional serial bus interface, this product has ports using
1-Wire and CAN (Controller Area Network) protocols, which means it can network
more data in more environments. Where previous generations of microcontrollers
were limited to operating in isolated component subsystems, all new Dallas
microcontrollers will have a networking port using protocols for Internet
communication.
Currently in beta testing is another Network Computing product that will
use a networking device to take basic machine information and send it straight
to the Internet. To date, the machinery and the network have remained largely
separate entities. Embedded processors have communicated within local limits to
control lighting, heating and cooling units, doors, refrigerators, toasters, and
soda dispensers. TINI(TM) (Tiny InterNet Interface) is a board that can enable
any piece of electrical equipment to upload information to a Web browser.
MIXED SIGNAL. Mixed Signal products combine both linear and digital circuit
techniques to process information. Both the inputs and outputs of these chips
can be real world, analog signals or binary, computer-usable signals. These
products include; NV SRAM, real-time clocks, CPU supervisory circuits, delay
lines, digital potentiometers, thermal sensors and temperature-compensated
crystal oscillators (TCXOs).
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One of the Company's first products was a real time clock that replaced a
chip plus 13 external components with a single device. These mixed signal clocks
keep time through digital logic, but also require analog circuitry as well to
achieve the low power necessary to keep the 10+ years of clock life. Accurate
clock-calendar information remains in demand and, beginning from this simple
timekeeping function, the Company has developed a comprehensive line-up of
timekeepers, including more than 45 base products in both chip and module
packaging. Digital cellular phones use serial timekeepers to provide advanced
features such as clock-calendar display, talk-time, re-dial timing and power
management. Phantom and watchdog modules are used in data communications network
routers, hubs and bridges to monitor communications traffic and store the
extensive amounts of network configuration data. Serial timekeepers and bytewide
watchdog timekeepers provide solutions in industrial control and medical
equipment applications requiring extended functions including nonvolatile SRAM
and A/D conversion and temperature measurement.
Many electronic systems gather and transmit time critical data. This
information ranges from banking transactions and Internet data to remote sensing
and data logging. The time stamping of information between machines with
different Real Time Clocks ("RTC") can introduce errors between the systems.
Dallas Semiconductor has developed a 32 kHz TCXO that is used to drive the RTC
crystal input. This TCXO will enable the RTC to attain accuracies of +/- 2PPM or
1 minutes/year over the full temperature range of 0C to 40C. Previously, the
typical accuracy over the full temperature range was +/- 30 minutes per year.
Higher frequency TCXOs to address the accuracy requirements of markets like
cellular phones, data-logging and T1/E1 signal processing are in development.
Developed in 1999, the DS1615 Temperature Recorder is an example of the
combination of real-time clocks and temperature sensors. The DS1615 data-logging
device integrates a real-time clock, digital thermometer, nonvolatile memory and
control logic. Markets include high-reliability systems and thermal limit
verification for telecommunications switches, servers, and
transportation/storage.
Also during 1999, the DS1845 digital potentiometer was developed to tune
laser signals in response to analog conditions. Traditional applications for
digital potentiometers range from audio volume control to battery charging and
now are expanding into areas such as optical transceivers. Optical transceivers
operate at gigabit date rates and the laser diodes that generate the optical
signal require both calibration and temperature compensation. As with many other
products, the market force driving optical receivers is networking - the need to
transmit more data faster over local networks and the Internet.
Java is a registered trademark of Sun Microsystems, Inc.
ibutton and TINI are trademarks of Dallas Semiconductor Corp.
1-Wire is a registered trademark of Dallas Semiconductor Corp.
MANUFACTURING
The Company produces high performance CMOS integrated circuits with
sub-micron geometries at its own advanced wafer fabrication facility. This
facility processes six-inch wafers and utilizes an automated modular process
technology that provides substantial flexibility in the manufacturing process
and significantly reduces the number of persons required for operation.
Originally built in 1986, the wafer fabrication facility was physically expanded
in 1989 and again in 1994.
The Company's wafer fabrication facility produced approximately 130,000
wafers in 1999 as compared to approximately 155,000 in 1998. Virtually all of
the wafers used by the Company are processed at its own facility. In 1998, the
Company began using an outside foundry for the development of certain products.
In 1999, this foundry began supporting production requirements for six new
products. Outside foundries are expected to account for 1% of total wafer
production in 2000.
Wafer fabrication involves a highly sophisticated, complex process that is
extremely sensitive to contamination. Integrated circuit manufacturing costs are
primarily determined by circuit size because the yield of good circuits per
wafer generally increases as a function of smaller die. Other factors affecting
costs include wafer size, number of process steps, costs and sophistication of
manufacturing equipment, packaging type, process complexity and cleanliness. The
Company's manufacturing process is complex, involving a number of steps
including wafer fabrication, plastic or chip scale packaging, burn-in and final
test.
After silicon wafers have been fabricated, the Company utilizes overseas
assembly contractors to cut the wafers into individual chips and assemble them
into integrated circuit packaging. For certain products, additional wafer level
processing is performed to create a flip-chip or Chip Scale Package (CSP) for
the individual chips. A separate facility was opened in 1998 to perform a
wafer-level solder bumping process which results in a finished
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circuit no bigger than the silicon die itself, meeting industry needs for low
cost, reduced size and simplified mounting. The facility became fully functional
in the first quarter of 1999.
During 1999, the Company began shifting module assembly operations and
final testing for a significant portion of the Company's products from Dallas,
Texas to subcontractors in the Philippines. Dallas Semiconductor Philippines,
Inc. (DSPI), a wholly owned subsidiary was formed in March 1999 to coordinate
and provide technical support to primarily Philippine based subcontractors, plus
other subcontractors located in Asia. During fiscal 2000, these subcontractors
are anticipated to account for approximately 50% of the Company's module
assembly and 75% of the units tested. Previously, these functions were performed
at the Company's facilities in Dallas, Texas.
Manufacturing problems at its wafer fabrication, assembly or test
facilities could materially adversely affect the Company's results of
operations. The Company generally has been able to arrange for multiple sources
of raw materials, but the number of vendors capable of delivering certain raw
materials, such as silicon wafers, ultra-pure metals and certain chemicals and
gases is limited.
PRODUCT COMPONENTS
During fiscal 1999, the Company was able to obtain an adequate supply of
static memory circuits from multiple suppliers. These circuits are used in a
number of the Company's products, including nonvolatile SRAMs. In fiscal 2000,
the Company anticipates that, at times, supplies may not be sufficient to meet
all customer requested delivery dates for products containing these memory
circuits. As a result of these shortages, future sales and earnings from
products using these memory circuits, primarily nonvolatile SRAMs, could be
adversely affected. Additionally, any significant fluctuations in the purchase
price for these components could impact the Company's gross margins. The Company
is actively working with existing suppliers, as well as attempting to qualify
new suppliers, in order to reduce and possibly eliminate the adverse affects of
periodic shortages of these memory circuits.
SALES
Sales are made to distributors and to OEMs. For fiscal 1999, no OEM
customer accounted for more than 6% of the Company's net sales, and the
Company's top 25 OEM customers accounted for approximately 28% of net sales. The
Company sells its products to customers by utilizing its own sales force and a
global network of independent sales representative firms and distributors.
During fiscal 1999, sales to domestic distributors represented approximately 34%
of the Company's net sales, with the Company's two major domestic distributors,
Avnet and Insight, accounting for approximately 16% and 11% respectively, of net
sales.
Export sales accounted for 45% of net sales in fiscal 1999, including 18%
and 27% in Europe and Asia, respectively. The Company's export sales are billed
in United States dollars and, therefore, the Company's results of operations are
not subject to currency exchange adjustments. Although export sales are subject
to government export regulations, the Company has not experienced any
significant difficulties to date because of these regulations.
The Company recognizes revenues from sales to distributors at the time of
shipment to the distributor. As is common in the semiconductor industry, the
Company grants price protection to distributors. Under this policy, distributors
are granted credits for the difference between the price they were originally
charged for products in inventory at the time of a price reduction and the
reduced price which the Company subsequently charges distributors. From time to
time, distributors are also granted credits on an individual basis for
Company-approved price reductions to specific customers made to meet
competition. The Company also grants distributors limited rights to return
products. The Company maintains reserves against which these credits and returns
are charged.
BACKLOG
The Company's backlog, although useful for scheduling production, does not
represent actual sales and should not be used as a measure of future revenues.
Backlog orders are generally subject to cancellation without penalty at the
option of the purchaser and to changes in delivery schedules and do not reflect
adjustments made for price decreases passed on to distributors or credits for
returned products. As of January 2, 2000, the Company's backlog was
approximately $91 million, as compared to approximately $71 million at January
3, 1999. The Company includes in its backlog all released purchase orders
shippable within the next twelve months.
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THE SEMICONDUCTOR INDUSTRY AND COMPETITION
The semiconductor industry is characterized by rapid technological change,
intense competition from domestic and foreign competitors, cyclical market
patterns, price erosion, occasional shortages of materials, variations in
manufacturing yields and efficiencies and significant expenditures for capital
equipment and product development. The industry has from time to time
experienced severely depressed business conditions, as well as short-term
softness and imbalances. The Company's future operating results may also be
affected by economic conditions in the United States and international markets.
While the Company's strategy is designed to reduce its exposure to these
factors, fluctuations in operating results could occur due to one or more of
these factors. The available supply of certain memory circuits used in a number
of the Company's products has historically been unpredictable and undependable.
Shortages in the supply of these circuits could limit the Company's future sales
and earnings growth, and significant price fluctuations in the purchase price
for these circuits could impact the Company's gross margins. See "Item 1.
Business - Product Components."
The Company faces competition from major domestic and international
integrated circuit manufacturers, many of which have substantially greater
manufacturing, financial, distribution and marketing resources than the Company,
as well as from emerging companies attempting to obtain a share of the existing
market. The Company competes principally on the basis of the quality,
technological innovation, functionality and timeliness of introduction of its
products, the adaptability of such products to specific applications, and price.
The Company believes that the early recognition of market opportunities and its
willingness to invest substantial time and capital in product development,
coupled with product complexity and diversity, constitute an important
competitive advantage.
The Company's ability to compete successfully in the rapidly evolving
semiconductor industry depends on numerous factors, some of which are within the
Company's control and others of which are predominately outside of the Company's
control. These factors include general economic conditions, changes in
conditions affecting OEMs, competition, alternative technologies, the Company's
success in developing new products and process technologies, accelerated
declines in the average selling price of the Company's existing products,
changes in customer order patterns, market acceptance of the Company's new
products, distributor and sales representative performances, the ability of the
Company to continue diversifying its product line, accelerated growth of
inventory leading to excess inventory and salability and/or obsolescence
write-downs, excess production capacity, manufacturing performance,
subcontractor performance, availability and price fluctuations of components and
other raw materials, and other factors. Any of these uncertainties could cause a
severe near-term impact on the Company's orders, net sales and results of
operations.
PATENTS AND INTELLECTUAL PROPERTIES
Dallas Semiconductor has to date acquired or been granted 262 U.S. patents
and 9 foreign patents. The expiration dates of the Company's patents range from
2000 to 2018. None of the patents individually is considered material to the
Company's business. The Company has a number of patent applications pending,
although no assurance can be given that patents will ever be issued from such
applications or that any patents, if issued, will be determined to be valid. The
Company has also registered a number of its trademarks, as well as the mask
works for certain products, and has sought copyright protection for its software
and product literature. No assurance can be given, however, that such protection
will give the Company any material competitive advantage in the semiconductor
industry, due to the possibility of rapid technological obsolescence of such
patented products, trademarks, copyrights and registered mask works, and the
inherent limitations of the protection afforded under such laws.
The Company has been notified that it may be infringing certain patents
held by others. These notices are in various stages of evaluation. In the event
infringement is claimed and the Company believes that a license is necessary or
desirable, a license may be sought. The Company believes that if sought, a
license could be obtained on commercially reasonable terms, although no
assurance can be given in this regard.
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal
governmental regulations in connection with emissions, the discharge of certain
chemicals during its manufacturing process and the handling and disposal of
various substances used in manufacturing. Failure to comply with present or
future regulations could result in the suspension or cessation of the Company's
operations. In addition, such regulations could in the future restrict the
Company's ability to expand at its present location or could require the Company
to acquire significant equipment or incur other substantial expenses.
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YEAR 2000 DISCLOSURE
During 1999, the Company completed all remediation projects related to Year
2000 issues and has not experienced any material adverse impact to its mission
critical systems, including information systems and production and manufacturing
systems. Also, the Company is not aware of any third party with a Year 2000
issue that would materially impact the Company's results of operations,
liquidity, or capital resources. In addition, the Company is not currently aware
of any claims of breach of contract or warranty, potential product return issues
or impairment of assets relating to Year 2000 noncompliance that would
materially impact the Company's results of operations, liquidity, or capital
resources.
EMPLOYEES
At January 2, 2000 the Company had 1,594 employees. The Company believes
that its future success is dependent upon its ability to employ and retain
qualified technical and management personnel, particularly the highly skilled
design engineers involved in the development of new products. The competition
for such personnel is intense. During fiscal 1999, the Company continued its
practice of utilizing contract labor supplied by temporary agencies, primarily
in the manufacturing area. At January 2, 2000, the Company was utilizing the
services of 174 such temporary agency employees.
ITEM 2. PROPERTIES
The Company's headquarters are located in Dallas, Texas. As of January 2,
2000, the Company owned approximately 43 acres of land that includes
approximately 645,000 square feet of building space. The Company's property
provides space for administrative and engineering personnel, as well as wafer
fabrication, test and surface mount production areas, warehousing, distribution
facilities and assembly operations. The Company currently leases a total of
48,000 square feet of nearby building space for additional warehousing.
In addition, as of January 2, 2000, equipment with an original cost of $18
million and a net book value of $8.5 million has been consigned to
subcontractors of DSPI.
The Company currently leases small office facilities for its sales staff in
Irvine and Sunnyvale, California, Chelmsford, Massachusetts, Hoffman Estates,
Illinois, Akron, Ohio, and Dallas, Texas, under short term leases. The Company
leases a small office facility in Beaverton, Oregon, for design engineering. The
Company's subsidiaries, Dallas Semiconductor Corporation Limited, Dallas
Semiconductor Corporation (Taiwan), Dallas Semiconductor Corporation (Germany),
DSPI and DSC Asia, Ltd., lease office facilities in Birmingham, England, Taipei,
Taiwan, Munich, Germany, Manilla, Philippines and Kowloon, Hong Kong,
respectively. The Company's foreign sales corporation operates out of
Bridgetown, Barbados, W.I.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's stockholders was held on December 21,
1999. At that meeting a proposal to approve an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock from 40 million to 100 million was submitted to a vote of the
Company's stockholders. The stockholders passed the proposal with a vote for of
22,896,023 versus votes against of 2,125,346 and 1,598,859 abstaining.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following information as of March 1, 2000, is provided with respect to
each executive officer of the registrant pursuant to General Instruction G of
Form 10-K.
<TABLE>
<CAPTION>
NAME AGE CURRENT TITLE AND POSITION
---- --- --------------------------
<S> <C> <C>
C.V. Prothro 57 Chairman of the Board of Directors, President and Chief
Executive Officer
Chao C. Mai 64 Senior Vice President
Michael L. Bolan 53 Vice President - Marketing and Product Development
Alan P. Hale 39 Vice President - Finance
Jack R. von Gillern, III 41 Vice President - Sales
</TABLE>
Mr. Prothro has been Chairman of the Board since February 1984 and served
as acting President of the Company from February 1984 to November 1985. Mr.
Prothro was named Chief Executive Officer of the Company in January 1989 and
President of the Company in October 1989. Since August 1983, Mr. Prothro has
been a general partner of Southwest Enterprise Associates, L.P., a venture
capital fund. Previously, he served as Chief Executive Officer of Mostek
Corporation, a semiconductor manufacturer, during 1981-82, and as its President
and Chief Operating Officer from 1977 to 1981.
Dr. Mai joined the Company as Vice President - Engineering in February
1984. He served in such capacity until he became Vice President - Manufacturing
in November 1985 and as Vice President - Wafer Fabrication and Technology
Development from June 1988 until January 1993. Dr. Mai was named Senior Vice
President in January 1993. Previously he was employed in various capacities by
Mostek Corporation for over 13 years including the position of Vice President of
Process Research and Development beginning in 1980.
Mr. Bolan joined the Company as Director of Marketing in June 1984. He
served in that capacity until his election as Vice President - Marketing and
Product Development in November 1985. He was employed as an analyst for
Southwest Enterprise Associates, L.P. from November 1983 to June 1984. Prior to
that he was employed by Mostek Corporation from November 1978 to October 1983 in
various capacities in technical planning, product planning and marketing.
Mr. Hale joined the Company in 1987 and has been Vice President of Finance
since 1992. Mr. Hale's prior positions with the Company include Controller,
Treasurer and Accounting Manager. Previously, he spent five years as an auditor
with the Dallas office of Ernst & Young LLP. He is a CPA in the State of Texas
and has received an MBA degree from Southern Methodist University.
Mr. von Gillern joined the Company in 1990 and was appointed Vice President
of Sales in January of 1999. His prior positions with the Company include
Director of Sales, Central Area Sales Manager and Product Manager. Previously he
was involved in computer system sales for Cray Research and Control Data
Corporation.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Dallas Semiconductor's common stock is traded on the New York Stock
Exchange under the symbol DS. At January 2, 2000, there were approximately 492
holders of record of the Company's common stock. Set forth below are the high,
low and quarter-end closing prices for the Company's common stock as reported by
The Wall Street Journal during each quarterly period of the 1999 and 1998 fiscal
years and as restated for the two-for-one stock split discussed below:
<TABLE>
<CAPTION>
1998 1999
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK PRICES:
HIGH $25.00 $19.35 $17.69 $20.38 $21.00 $25.50 $27.72 $32.22
LOW 16.60 14.35 13.07 11.63 16.75 20.07 23.81 25.32
END 17.50 15.13 14.63 20.38 19.50 25.50 26.47 32.22
</TABLE>
Total dividends paid in 1999 were $0.20 per share on a pre-split basis or
$5,781,000. On January 25, 2000, the Board of Directors declared a two-for-one
stock split in the form of a 100% stock dividend on its common stock payable on
February 28, 2000 to stockholders of record on February 7, 2000. In addition,
the annual cash dividend on the Company's common stock was increased from $0.20
to $0.26 per share on a pre-split basis. The Board of Directors also declared a
quarterly cash dividend of $0.065 on each outstanding share of its common stock,
payable on February 28, 2000, to holders of record on February 7, 2000. The cash
dividend paid on February 28, 2000 will be paid on a pre-split basis. The
quarterly dividend will be $0.0325 per share when adjusted for the stock split.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollars in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Years
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING SUMMARY:
Net sales $392,351 $342,608 $368,212 $288,354 $233,274
Costs and expenses:
Cost of sales 188,651 162,418 178,441 157,056 117,615
Research and development 50,354 47,452 46,078 34,974 28,602
Selling, general and administrative 61,259 56,523 53,838 42,175 35,483
-------- -------- -------- -------- --------
Operating income 92,087 76,215 89,855 54,149 51,574
Interest income, net 7,574 5,115 4,681 2,937 3,366
-------- -------- -------- -------- --------
Income before income taxes 99,661 81,330 94,536 57,086 54,940
Provision for income taxes 31,323 25,920 29,981 18,723 18,258
-------- -------- -------- -------- --------
Net income $ 68,338 $ 55,410 $ 64,555 $ 38,363 $ 36,682
======== ======== ======== ======== ========
Net income per share, basic $ 1.18 $ 0.99 $ 1.19 $ 0.73 $ 0.71
Net income per share, diluted $ 1.11 $ 0.93 $ 1.10 $ 0.69 $ 0.66
Shares used to calculate net
income per share:
Basic 57,704 55,986 54,412 52,916 52,150
Diluted 61,768 59,914 58,914 55,980 55,524
Dividends declared per share $ 0.10 $ 0.08 $ 0.07 $ 0.06 $ 0.05
FINANCIAL POSITION AT YEAR END:
Cash and short-term investments $192,403 $127,996 $114,608 $ 70,274 $ 69,304
Additions to property, plant and equipment 69,326 75,965 58,645 60,451 49,329
Depreciation and amortization 50,244 43,736 35,789 28,379 21,344
Total assets 565,260 461,038 417,142 313,863 272,425
Total liabilities 64,518 46,286 66,085 41,125 37,443
Stockholders' equity 500,742 414,752 351,057 272,738 234,982
Book value per weighted average
share, diluted 8.11 6.92 5.96 4.87 4.23
</TABLE>
-10-
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table contains certain amounts, and the amounts as a
percentage of net sales, reflected in the Company's consolidated statements of
operations for the 1999, 1998, and 1997 fiscal years.
<TABLE>
<CAPTION>
(Dollars in Millions)
-------------------------------------------------------------
1999 % 1998 % 1997 %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $392.4 100.0 $342.6 100.0 $368.2 100.0
Cost of sales 188.7 48.1 162.4 47.4 178.4 48.5
Gross margin 203.7 51.9 180.2 52.6 189.8 51.5
Research and development 50.4 12.8 47.5 13.9 46.1 12.5
Selling, general and administrative 61.3 15.6 56.5 16.5 53.8 14.6
Operating income 92.0 23.5 76.2 22.2 89.9 24.4
Interest income, net 7.6 1.9 5.1 1.5 4.7 1.3
Provision for income taxes 31.3 8.0 25.9 7.6 30.0 8.2
Net income $ 68.3 17.4 $ 55.4 16.1 $ 64.6 17.5
</TABLE>
1999 Results of Operations Compared with 1998
Net sales in 1999 were $392.4 million, an increase of 15% as compared with
$342.6 million in 1998. The Company's revenue by product category is shown in
the table below.
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------------------
1999 1998 1997 `99-'98
Product Groups Net Sales Net Sales Net Sales Change
- -------------- --------- --------- --------- ------
<S> <C> <C> <C> <C>
Communications $ 68.2 $ 46.9 $ 40.4 45%
1-Wire & Network Computing 90.9 79.5 73.7 14%
Mixed Signal 233.3 216.2 254.1 8%
------ ------ ------ ------
$392.4 $342.6 $368.2 15%
====== ====== ====== ======
</TABLE>
Export sales accounted for 45% and 42% of total net sales in 1999 and 1998,
respectively. Export sales to Europe and Asia in 1999 were 18% and 27% of total
sales, respectively.
Cost of sales were $188.7 and $162.4 million in 1999 and 1998,
respectively. Gross margins decreased to 51.9% in 1999 from 52.6% in 1998. The
decrease in gross margins was caused by slightly higher wafer costs due to lower
wafer production in 1999 as compared to 1998. Gross margins also decreased due
to costs associated with opening a logistics center in the Philippines.
Research and development ("R&D") expenses were $50.4 million and $47.5
million or 12.8% and 13.9% of net sales in 1999 and 1998, respectively. Higher
R&D expenses resulted primarily from increased personnel costs due to increased
headcount. Increased R&D spending reflects the Company's commitment to new
product development as a means to increase future revenues and to further
diversify the Company's product offerings. The Company introduced 35 new base
products in 1999 compared with 34 new base product introductions in 1998.
Product introduction occurs when sample quantities of product are shipped to one
or more customers. The cumulative number of base products introduced by the
Company totaled 361 at fiscal year end 1999.
Selling, general and administrative ("SG&A") expenses increased to $61.3
million in 1999 from $56.5 million in 1998. SG&A expenses as a percent of sales
were 15.6% and 16.5% in 1999 and 1998, respectively. The increase in SG&A
expenses is primarily the result of increases in personnel costs due to
increased headcount.
Operating income in 1999 was $92.1 million, up 20.9% from $76.2 million in
1998. Operating income as a percentage of net sales (operating margin) increased
to 23.5% in 1999 from 22.2% in 1998. The increase resulted primarily from net
sales growing faster than operating expenses and gross margins remaining
relatively stable.
Net interest income was $7.6 and $5.1 million in 1999 and 1998,
respectively. Net interest income increased primarily due to higher average cash
balances in 1999. Any substantial change in the Company's cash and short-term
investments and changes in interest rates will continue to affect net interest
income.
The provision for income taxes was $31.3 million in 1999 and $25.9 million
in 1998. The provision for income taxes consisted of estimated federal and state
income taxes at statutory rates and a deferred tax benefit of
-11-
<PAGE> 12
$5.9 million in 1999 and $1.0 million in 1998. The Company's effective tax rate
decreased to 31.4% in 1999 from 31.9% in 1998 as a result of changes in items
affecting the difference between income for financial statement purposes and
taxable income for the two periods.
A number of uncertainties exist that may influence the Company's future
operating decisions and results, including general economic conditions, changes
in conditions affecting original equipment manufacturers, competition,
alternative technologies, the Company's success in developing new products and
process technologies, accelerated declines in the average selling price of the
Company's existing products, changes in customer order patterns, market
acceptance of the Company's new products, distributor and sales representative
performances, the ability of the Company to continue diversifying its product
line, accelerated growth of inventory leading to excess inventory and salability
and/or obsolescence write-downs, excess production capacity, manufacturing
performance, subcontractor performance, availability and price fluctuations of
components and other raw materials, and other factors. Any of these
uncertainties could cause a severe near-term impact on the Company's order
growth, net sales growth or results of operations.
1998 Results of Operations Compared with 1997
Net sales in 1998 were $342.6 million, a decrease of 7% as compared with
$368.2 million in 1997.
Export sales accounted for 42% and 43% of total net sales in 1998 and 1997,
respectively. Export sales to Europe and Asia in 1998 were 19% and 23% of total
sales, respectively.
Cost of sales were $162.4 and $178.4 million in 1998 and 1997,
respectively. Gross margins increased to 52.6% in 1998 from 51.5% in 1997. The
increase in gross margins resulted primarily from increased efficiency in
factory operations and a sales-mix shift toward higher margin products.
R&D expenses were $47.5 million and $46.1 million or 13.9% and 12.5% of net
sales in 1998 and 1997, respectively. Higher R&D expenses resulted primarily
from increased salaries and benefits. Increased R&D spending reflects the
Company's commitment to new product development as a means to increase future
revenues and to further diversify the Company's product offerings. The Company
introduced 34 new base products in 1998 compared with 25 new base product
introductions in 1997. The cumulative number of base products introduced by the
Company totaled 326 at fiscal year end 1998.
SG&A expenses increased to $56.5 million in 1998 from $53.8 million in
1997. SG&A expenses as a percent of sales were 16.5% and 14.6% in 1998 and 1997,
respectively. The increase was primarily the result of increased personnel costs
due to increased headcount.
Operating income in 1998 was $76.2 million, down 15.2% from $89.9 million
in 1997. Operating income as a percentage of net sales (operating margin)
decreased to 22.2% in 1998 from 24.4% in 1997. The decrease resulted primarily
from the decrease in net sales and increased spending.
Net interest income was $5.1 and $4.7 million in 1998 and 1997,
respectively. Net interest income increased primarily due to higher average cash
balances in 1998.
The provision for income taxes was $25.9 million in 1998 and $30.0 million
in 1997. The provision for income taxes consisted of estimated federal and state
income taxes at statutory rates and a deferred tax benefit of $1.0 million in
1998 and $6.2 million in 1997. The Company's effective tax rate increased to
31.9% in 1998 from 31.7% in 1997 as a result of anticipated changes in items
affecting the difference between income for financial statement purposes and
taxable income for the two periods.
Financial Condition
The Company's cash and short-term investments totaled $192.4 million at
January 2, 2000, compared to $128.0 million at January 3, 1999. The increase in
cash and short-term investments was primarily the result of net cash provided
from operations of $140.3 million, offset by investments in property, plant and
equipment of $69.3 million. The Company continues to invest in financial
instruments having maturities in excess of one year to obtain yields higher than
those available in the short-term market.
The current ratio at fiscal year end 1999 decreased to 5.4, compared with
5.7 at fiscal year end 1998. The Company expects to fund its 2000 capital needs
primarily with cash flows from operations, supplemented where appropriate with
existing cash and short-term investments or external financing.
-12-
<PAGE> 13
Gross capital additions to property, plant and equipment in 1999 totaled
$69.3 million, compared with $76.0 million in 1998. As of January 2, 2000, the
Company owned approximately 645,000 square feet of building space and 43 acres
of land in Dallas. Capital additions in 1999 included $18.9 million in capital
expenditures for wafer fabrication ("fab") equipment and $32.0 million for
manufacturing and test equipment.
Capital expenditures in 2000 are anticipated to be $80 million and will be
used primarily for fabrication equipment, manufacturing and test equipment, and
computer hardware and software.
As amended in 1998, the Board of Directors authorized the purchase from
time-to-time, depending on market conditions, of up to 2,000,000 shares of its
common stock. As of January 2, 2000, 1,187,902 shares at a cumulative average
price of $18.17, totaling $21,579,350, have been purchased pursuant to this
stock repurchase program and recorded using the cost method.
Total dividends paid in 1999 were $0.20 per share on a pre-split basis or
$5,781,000. On January 25, 2000, the Board of Directors declared a two-for-one
stock split in the form of a 100% stock dividend on its common stock payable on
February 28, 2000 to stockholders of record on February 7, 2000. In addition,
the annual cash dividend on the Company's common stock was increased from $0.20
to $0.26 per share on a pre-split basis. The Board of Directors also declared a
quarterly cash dividend of $0.065 on each outstanding share of its common stock,
payable on February 28, 2000, to holders of record on February 7, 2000. The cash
dividend paid on February 28, 2000 will be paid on a pre-split basis. The
quarterly dividend will be $0.0325 per share when adjusted for the stock split.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
January 2, January 3, December 28,
2000 1999 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 392,351 $ 342,608 $ 368,212
Operating costs and expenses:
Cost of sales 188,651 162,418 178,441
Research and development 50,354 47,452 46,078
Selling, general, and administrative 61,259 56,523 53,838
---------- ---------- ----------
Operating income 92,087 76,215 89,855
Interest income, net 7,574 5,115 4,681
---------- ---------- ----------
Income before income taxes 99,661 81,330 94,536
Provision for income taxes 31,323 25,920 29,981
---------- ---------- ----------
Net income $ 68,338 $ 55,410 $ 64,555
========== ========== ==========
Net income per common share, basic $ 1.18 $ 0.99 $ 1.19
Net income per common share, diluted $ 1.11 $ 0.93 $ 1.10
---------- ---------- ----------
Shares used to calculate net income
per share:
Basic 57,704 55,986 54,412
Diluted 61,768 59,914 58,914
---------- ---------- ----------
Dividends declared per share $ 0.10 $ 0.08 $ 0.07
---------- ---------- ----------
</TABLE>
See accompanying notes.
-13-
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
January 2, January 3,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 192,403 $ 127,996
Accounts receivable, less allowance for doubtful accounts of
$480 and $430 at fiscal year end 1999 and 1998, respectively 54,188 45,933
Inventories 75,518 72,390
Deferred income taxes 16,597 10,691
Other current assets 9,306 7,349
---------- ----------
Total current assets 348,012 264,359
Property, plant and equipment, at cost: 466,286 396,960
Less accumulated depreciation (256,070) (205,826)
---------- ----------
Property, plant and equipment, net 210,216 191,134
Other assets 7,032 5,545
---------- ----------
$ 565,260 $ 461,038
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 29,064 15,435
Accrued salaries and benefits 16,215 9,395
Accrued taxes other than income 4,559 4,030
Other accrued liabilities 11,608 12,613
Income taxes payable 3,072 4,813
---------- ----------
Total current liabilities 64,518 46,286
Stockholders' equity:
Preferred stock, $0.10 par value; 5,000,000 shares authorized;
no shares issued and outstanding
Common stock, $0.02 par value; 100,000,000 shares authorized; issued:
60,100,166 shares issued at January 2, 2000, and
56,666,522 shares issued at January 3, 1999 601 567
Additional paid-in capital 160,466 119,553
Retained earnings 359,446 296,889
Treasury stock shares at cost:
939,152 shares at January 2, 2000 and
216,850 shares at January 3, 1999 (19,771) (2,257)
---------- ----------
Total stockholders' equity 500,742 414,752
---------- ----------
$ 565,260 $ 461,038
========== ==========
</TABLE>
See accompanying notes.
-14-
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
January 2, January 3, December 28,
2000 1999 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 68,338 $ 55,410 $ 64,555
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 50,244 43,736 35,789
Deferred tax benefit (5,906) (1,002) (6,232)
Changes in operating assets and liabilities:
Accounts receivable (8,255) 16,404 (19,525)
Inventories (3,128) (13,259) (9,502)
Other current assets (1,957) (2,874) (684)
Accounts payable 13,629 (14,276) 7,236
Accrued salaries and benefits 6,820 (10,584) 11,338
Accrued taxes other than income 529 352 2,847
Other accrued liabilities (1,005) 4,868 4,521
Income taxes payable 21,040 9,039 6,895
---------- ---------- ----------
Net cash provided by operating activities 140,349 87,814 97,238
---------- ---------- ----------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (69,326) (75,965) (58,645)
Proceeds from disposition of assets -- 250 --
Increase in other assets (1,487) (398) (146)
---------- ---------- ----------
Net cash used in investing activities (70,813) (76,113) (58,791)
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock upon exercise of
stock options and other 18,166 6,808 9,702
Purchase of treasury stock (17,514) (639) --
Dividends paid to shareholders (5,781) (4,482) (3,815)
---------- ---------- ----------
Net cash (used in) provided by financing activities (5,129) 1,687 5,887
---------- ---------- ----------
Net increase in cash and short-term investments 64,407 13,388 44,334
Cash and short-term investments at beginning of year 127,996 114,608 70,274
---------- ---------- ----------
Cash and short-term investments at end of year $ 192,403 $ 127,996 $ 114,608
========== ========== ==========
Cash payments for income taxes $ 16,189 $ 17,883 $ 29,318
Disposition of assets $ -- $ -- $ 2,326
</TABLE>
See accompanying notes.
-15-
<PAGE> 16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Years Ended January 2, 2000
(Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury
------------ Paid-in Retained Stock
Shares Amount Capital Earnings at Cost Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1996 53,210 $ 534 $ 88,601 $ 185,221 $ (1,618) $ 272,738
Issuance of common stock 1,886 19 9,683 -- -- 9,702
Tax benefit from stock option
exercises -- -- 7,877 -- -- 7,877
Dividends declared -- -- -- (3,815) -- (3,815)
Net income -- -- -- 64,555 -- 64,555
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 28, 1997 55,096 553 106,161 245,961 (1,618) 351,057
Issuance of common stock 1,388 14 6,794 -- -- 6,808
Treasury stock (34) -- -- -- (639) (639)
Tax benefit from stock option
exercises -- -- 6,598 -- -- 6,598
Dividends declared -- -- -- (4,482) -- (4,482)
Net income -- -- -- 55,410 -- 55,410
---------- ---------- ---------- ---------- ---------- ----------
Balance at January 3, 1999 56,450 567 119,553 296,889 (2,257) 414,752
Issuance of common stock 3,433 34 18,132 -- -- 18,166
Treasury stock (722) -- -- -- (17,514) (17,514)
Tax benefit from stock option
exercises -- -- 22,781 -- -- 22,781
Dividends declared -- -- -- (5,781) -- (5,781)
Net income -- -- -- 68,338 -- 68,338
---------- ---------- ---------- ---------- ---------- ----------
Balance at January 2, 2000 59,161 $ 601 $ 160,466 $ 359,446 $ (19,771) $ 500,742
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Dallas Semiconductor Corporation (the "Company") was incorporated in
Delaware in February 1984. The Company combines proprietary fab and circuit
technologies to create innovative products that are sold to over 15,000
customers worldwide. The Company operates predominantly in one industry segment
and serves markets including broadband telecommunications, wireless handsets,
cellular base stations, secure Internet communications, networking, servers,
data storage and a wide variety of industrial equipment.
Export sales, principally to customers in Europe and Asia, represented
approximately 45%, 42%, and 43% of net sales in 1999, 1998, and 1997
respectively. Sales to domestic distributors comprised approximately 34%, 35%,
and 34% of net sales in 1999, 1998, and 1997 respectively. In 1999, two
distributors accounted for $61,207,000 or 16% and $44,645,000 or 11% of net
sales, respectively. In 1998 and 1997 one distributor accounted for $42,976,000
or 13% and $41,041,000 or 11% of net sales, respectively. No original equipment
manufacturer ("OEM") customer or other distributors accounted for 10% or more of
net sales in the years presented.
-16-
<PAGE> 17
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal year. The Company operates on a 52- or 53-week fiscal year ending on
the Sunday nearest December 31. Fiscal year 1999, a 52-week year, ended January
2, 2000. Fiscal year 1998, a 53-week year ended January 3, 1999 and fiscal year
1997, a 52-week year, ended December 28, 1997.
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Cash and short-term investments. The Company classifies its cash
equivalents and short-term investments as current. Cash and short-term
investments consist of corporate notes, municipal bonds and money market funds.
At January 2, 2000, January 3, 1999 and December 28, 1997, cash and short-term
investments which had a maturity of greater than 90 days when purchased were
$182,291,000, $123,779,000 and $107,214,000, respectively. At January 2, 2000,
$63,861,000 of the total short-term investments is scheduled to mature within
one year. Such investments are carried at amounts which approximate their fair
market value based on quoted market prices. The Company places its investments
only in high credit quality financial instruments, and limits the amount
invested in any one institution or in one instrument.
Inventories. Inventories are stated at the lower of standard cost, which
approximates actual cost (first-in, first-out), or market.
Property, plant and equipment. Property, plant and equipment are stated at
cost. Depreciation is calculated based on the straight-line method over the
estimated useful lives of the related assets, generally forty years for
buildings, five to ten years on building improvements and two to nine years for
computer hardware, software, and machinery and equipment.
Revenue recognition. Sales are recognized upon shipment to distributors and
to OEM customers. Sales to domestic distributors are made under distributor
agreements that provide the distributor certain price reduction and return and
allowance rights. Such sales are reduced for estimated future price reductions
and returns.
Research and development. Research and development costs are charged to
operations when incurred.
Income taxes. Taxes are reported under Statement of Financial Accounting
Standards (SFAS) No. 109 and, accordingly, deferred taxes are recognized using
the liability method, whereby tax rates are applied to cumulative temporary
differences based on when and how they are expected to affect the tax return.
Deferred tax assets and liabilities are adjusted for tax rate changes.
Concentration of credit risk. The Company markets its products for sale to
OEMs and distributors primarily in the United States, Europe, and Asia. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and historically such losses have been within management's expectations.
Stock Options. The Company measures and recognizes compensation costs under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". In addition, the Company discloses pro forma
information related to its stock plans according to SFAS No. 123, "Accounting
for Stock Based Compensation".
Use of Estimates. The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
-17-
<PAGE> 18
3. BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
(Thousands) Fiscal Years Ended
------------------
January 2, January 3,
2000 1999
---------- ----------
<S> <C> <C>
Inventories:
Raw materials $ 8,760 $ 7,181
Work-in-process 54,065 49,883
Finished goods 12,693 15,326
---------- ----------
$ 75,518 $ 72,390
========== ==========
Property, plant and equipment:
Land and land improvements $ 8,775 $ 8,770
Building and improvements 82,991 74,890
Machinery and equipment 374,520 313,300
---------- ----------
$ 466,286 $ 396,960
========== ==========
Accrued salaries and benefits:
Salaries, benefits and other $ 11,245 $ 2,951
Sales commissions 4,970 6,444
---------- ----------
$ 16,215 $ 9,395
========== ==========
Accrued taxes other than income:
Ad Valorem taxes $ 3,952 $ 3,530
Other 607 500
---------- ----------
$ 4,559 $ 4,030
========== ==========
</TABLE>
4. STOCKHOLDERS' EQUITY
Authorized Shares. On December 21, 1999, the Company's stockholders
approved an amendment to the Company's Certificate of Incorporation to increase
the number of shares of common stock, par value $.02 per share, that the Company
is authorized to issue from 40 million to 100 million.
Stock Split. On January 25, 2000, the Company declared a two-for-one common
stock split in the form of a 100% stock dividend, payable on February 28, 2000,
to stockholders of record as of February 7, 2000. All share and per share
information included in the accompanying consolidated financial statements and
related notes have been restated to reflect this stock split.
Shareholders' Rights Plan. During 1999, the Company adopted a Shareholders'
Rights Agreement and under this agreement distributed one Preferred Stock
Purchase Right ("Right") for each outstanding share of common stock to
stockholders of record on September 21, 1999. The Rights will become exercisable
only if a person or group announces a tender offer to acquire, or acquires, 15%
or more of the Company's common stock.
Employee Stock Purchase Plan. During 1999, the Company implemented and is
authorized to issue up to 400,000 shares of its common stock under its 1999
Employee Stock Purchase Plan (Purchase Plan). This Purchase Plan is subject to
stockholder approval at the Company's annual meeting to be held on April 25,
2000. The purchase price of the stock is 85% of the lower of the closing price
at the beginning or at the end of each biannual offering period. All employees
are eligible to have up to 20% of base earnings withheld to purchase the
Company's common stock under the plan.
Stock Repurchase. As amended in 1998, the Board of Directors authorized the
purchase, from time-to-time, depending on market conditions, of up to 2,000,000
shares of its common stock. As of January 2, 2000, 1,187,902 shares at a
cumulative average price of $18.17, totaling $21,579,350 have been purchased
pursuant to this stock repurchase program and recorded using the cost method.
Stock options. In February 1987, the Company adopted the 1987 Stock Option
Plan (the "1987 Plan") under which, as amended, an aggregate of 14,186,288
shares of common stock has been reserved for issuance. On April 23, 1996, the
1987 Plan was amended to provide for an annual increase, on and as of January
1st of each calendar year, of 1% of the number of shares of common stock
outstanding on December 31st of the preceding year. Under this 1987 Plan
provision, 591,610, 564,496 and 550,966 shares were reserved for issuance on
January 1st 2000, 1999, and 1998, respectively. In October 1999, an additional
1,700,000 shares were authorized for the 1987
-18-
<PAGE> 19
Plan. These shares are reflected in the option table below. All options have
been granted at no less than 100% of the fair market value of the stock on the
date of grant.
In 1998, 499,000 outstanding options from the 1987 Plan, with exercise
prices in excess of $11.88, were canceled and re-granted at the then market
price of $11.88 per share. The new options maintain the vesting schedule of the
canceled options.
Options generally are nontransferable and expire no later than ten years
from date of grant. Options generally are exercisable upon grant. Shares of
common stock issuable and/or exercised under the 1987 Plan vest based upon years
of service, generally four years. Upon termination of a participant's
employment, the Company reserves the right to repurchase the nonvested portion
of the stock held by the employee, at the original option price.
On April 26, 1994, the 1993 Officer and Director Stock Option Plan (the
"1993 Plan") was approved by the stockholders under which an aggregate of
8,381,892 shares of common stock has been reserved for issuance. The 1993 Plan
provided for an annual increase, on and as of January 1st of each calendar year,
of 1% of the number of shares of common stock outstanding on December 31st of
the preceding year beginning on January 1st 1994. Under the 1993 Plan provision,
591,610, 564,496 and 550,966 shares were reserved for issuance on January 1st,
2000, 1999, and 1998, respectively. These shares are reflected in the
outstanding options table below in the year authorized. On January 25, 2000 an
additional 2,000,000 shares were authorized for the 1993 Plan, subject to
stockholder approval.
As of January 2, 2000, total shares reserved for future issuance upon
exercise of options are 11,936,616. Additional information with respect to stock
options under the 1987, and 1993 Plans is as follows.
<TABLE>
<CAPTION>
Outstanding Options
-------------------
Options
Available Number of Aggregate
for Grant Shares Price
------------- ------------- -------------
<S> <C> <C> <C>
December 29, 1996 1,568,222 11,960,802 $ 73,998,349
Options authorized 1,101,932 -- --
Options granted (538,700) 538,700 9,647,819
Options exercised -- (1,885,954) (9,700,388)
Options canceled 222,816 (222,816) (1,930,118)
------------- ------------- -------------
December 28, 1997 2,354,270 10,390,732 72,015,662
Options authorized 1,128,992 -- --
Options granted (2,952,100) 2,952,100 35,820,375
Options exercised -- (1,386,954) (6,808,432)
Options canceled 643,122 (643,122) (11,469,956)
------------- ------------- -------------
January 3, 1999 1,174,284 11,312,756 89,557,649
Options authorized 2,883,220 -- --
Options granted (2,958,470) 2,958,470 73,858,381
Options exercised -- (3,433,644) (18,166,437)
Options canceled 135,192 (135,192) (1,967,324)
------------- ------------- -------------
January 2, 2000 1,234,226 10,702,390 $ 143,282,269
============= ============= =============
</TABLE>
-19-
<PAGE> 20
A summary of stock options outstanding at January 2, 2000 is shown in the
following table.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- --------------------
Weighted Average Weighted
Remaining Average Weighted
Range of Number Contractual Life Exercise Number Average
Exercise Prices Outstanding (in years) Price Exercisable Exercise Price
--------------- ----------- ---------------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 2.25 - $ 7.38 3,566,196 3.37 $6.92 3,566,196 $6.92
7.57 - 11.38 1,586,314 6.62 9.00 1,131,232 8.98
11.88 2,603,960 8.61 11.88 676,090 11.88
12.63 - 29.94 2,945,920 9.66 24.91 9,650 20.86
</TABLE>
Under SFAS No. 123, the Company is required to estimate the fair value of
each option on the date of the grant. The Company believes that the value of
unvested options is indeterminable by reason of the vagaries of the stock market
and other factors and opposes any requirement to place a value on an option
grant. However, to comply with the disclosure provisions of SFAS No. 123, the
Company used the Black-Scholes option pricing model to estimate the fair value
of each option at the date of grant. The following weighted-average assumptions
were used for 1999, 1998 and 1997: dividend yields of 0.40%, risk-free interest
rate of 6% (5% in 1998), expected volatility of 40%, and expected lives of 6
years.
The effects on pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of the effects on pro forma disclosures of future
years, since it is applicable only to options granted subsequent to December 31,
1995. If compensation cost for the Company's stock-based compensation plans had
been determined in accordance with SFAS No. 123, the Company's net income and
net income per share would have been reduced to the pro forma amounts shown in
the following table.
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
January 2, January 3, December 28,
2000 1999 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (in thousands):
As reported $ 68,338 $ 55,410 $ 64,555
Pro forma 62,306 52,813 62,906
Net income per common share:
Basic As reported $ 1.18 $ 0.99 $ 1.19
Pro forma 1.08 0.95 1.16
Diluted As reported $ 1.11 $ 0.93 $ 1.10
Pro forma 1.01 0.89 1.08
</TABLE>
-20-
<PAGE> 21
5. INCOME TAXES
The provision for income taxes differs from the amount computed by applying
the U.S. federal statutory income tax rate to income before income taxes as
follows (in thousands).
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
January 2, January 3, December 28,
2000 1999 1997
---------- ---------- ----------
<S> <C> <C> <C>
Provision at statutory rate $ 34,881 $ 28,466 $ 33,088
State taxes, net of federal benefit 792 1,249 1,335
Tax exempt foreign sales corporation income (792) (1,290) (1,998)
Research and Development tax credit (1,627) (1,475) (1,344)
Tax exempt income (1,238) (1,351) (1,031)
Other (693) 321 (69)
---------- ---------- ----------
Provision for income taxes $ 31,323 $ 25,920 $ 29,981
========== ========== ==========
</TABLE>
The components of the provision for income taxes are as follows (in
thousands).
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
January 2, January 3, December 28,
2000 1999 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current provision $ 37,229 $ 26,922 $ 36,213
Deferred benefit (5,906) (1,002) (6,232)
---------- ---------- ----------
Provision for income taxes $ 31,323 $ 25,920 $ 29,981
========== ========== ==========
</TABLE>
Current state amounts included in the provision for income taxes include
$1,750,000, $2,050,000, and $2,590,000 for the years ended 1999, 1998, and 1997,
respectively.
The components of the net deferred tax assets are as follows (in
thousands).
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
January 2, January 3,
2000 1999
---------- ----------
<S> <C> <C>
Sales and inventory reserves $ 16,815 $ 12,852
Accrued expenses and other 12,541 8,011
Valuation allowance (3,973) (3,973)
---------- ----------
Deferred tax assets 25,383 16,890
Deferred tax liability (8,786) (6,199)
---------- ----------
Net deferred tax asset $ 16,597 $ 10,691
========== ==========
</TABLE>
-21-
<PAGE> 22
6. NET INCOME PER SHARE
For fiscal years ended December 28, 1997, January 3, 1999 and January 2,
2000, "Net income per share, basic" and "Net income per share, diluted" are
calculated as follows (in thousands).
<TABLE>
<CAPTION>
Per Share
Net Income Shares Amounts
---------- ---------- ----------
<S> <C> <C> <C>
As of December 28, 1997:
Net income per share, basic $ 64,555 54,412 $ 1.19
==========
Dilutive effect of stock options -- 4,502
---------- ----------
Net income per share, diluted $ 64,555 58,914 $ 1.10
========== ========== ==========
As of January 3, 1999:
Net income per share, basic $ 55,410 55,986 $ 0.99
==========
Dilutive effect of stock options -- 3,928
---------- ----------
Net income per share, diluted $ 55,410 59,914 $ 0.93
========== ========== ==========
As of January 2, 2000:
Net income per share, basic $ 68,338 57,704 $ 1.18
==========
Dilutive effect of stock options -- 4,064
---------- ----------
Net income per share, diluted $ 68,338 61,768 $ 1.11
========== ========== ==========
</TABLE>
-22-
<PAGE> 23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders:
We have audited the accompanying consolidated balance sheets of Dallas
Semiconductor Corporation and subsidiaries as of January 2, 2000 and January 3,
1999, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three fiscal years in the period ended January 2,
2000. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dallas
Semiconductor Corporation and subsidiaries at January 2, 2000 and January 3,
1999, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended January 2, 2000, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Dallas, Texas
January 13, 2000
-23-
<PAGE> 24
SUPPLEMENTARY FINANCIAL DATA
(Unaudited) (Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Years
1998 and 1999 by Fiscal Quarter
-------------------------------
1998 1999
----------------------------------------------- -----------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Summary:
Net sales $ 87,448 $ 87,029 $ 83,099 $ 85,032 $ 88,560 $ 94,015 $101,572 $108,204
Cost of sales 41,498 41,338 39,433 40,149 42,401 45,221 48,978 52,051
Operating income 18,734 19,314 18,553 19,614 20,414 21,644 23,950 26,079
Income before
income taxes 19,871 20,611 19,682 21,166 22,064 23,281 25,690 28,626
Net income 13,512 14,015 13,384 14,499 15,180 16,017 17,675 19,466
Net income per share,
basic $ 0.25 $ 0.25 $ 0.24 $ 0.26 $ 0.27 $ 0.28 $ 0.31 $ 0.33
Net income per share,
diluted $ 0.23 $ 0.24 $ 0.23 $ 0.24 $ 0.25 $ 0.26 $ 0.29 $ 0.31
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Election of Directors" of the Company's definitive
Proxy Statement for the Company's Annual Meeting of Stockholders to be held
April 25, 2000, and to be filed not later than 120 days after the end of the
fiscal year pursuant to Regulation 14A, is incorporated herein by reference.
Additional information with respect to executive officers of the Company is
found in Part I hereof under the heading "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Director Compensation" and "Executive Compensation"
of the Company's definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held April 25, 2000, and to be filed not later than 120 days
after the end of the fiscal year pursuant to Regulation 14A, (other than the
subsections entitled "Report of Compensation Committee on Executive
Compensation" and "Comparison of Five Year Cumulative Total Return Among the
Company, S&P 500 Index and S&P Semiconductor Index"), are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Certain Beneficial Owners" and "Election of
Directors" of the Company's definitive Proxy Statement for the Company's Annual
Meeting of Stockholders to be held April 25, 2000, and to be filed not later
than 120 days after the end of the fiscal year pursuant to Regulation 14A, are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsection entitled "Executive Compensation -- Compensation Committee
Interlocks and Insider Participation" of the Company's definitive Proxy
Statement for the Company's Annual Meeting of Stockholders to be held April 25,
2000, and to be filed not later than 120 days after the end of the fiscal year
pursuant to Regulation 14A, is incorporated herein by reference.
-24-
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedule
Index to Consolidated Financial Statements and Consolidated Financial Statement
Schedule
<TABLE>
<CAPTION>
The following consolidated financial statements of Dallas Semiconductor Pages in this Annual
Corporation are included in Item 8 of this Annual Report on Form 10-K. Report on Form 10-K
- ---------------------------------------------------------------------- -------------------
<S> <C>
Consolidated Statements of Income
for each of the three fiscal years in the period ended January 2, 2000 ....... 13
Consolidated Balance Sheets at January 2, 2000 and January 3, 1999 ............. 14
Consolidated Statements of Cash Flows
for each of the three fiscal years in the period ended January 2, 2000 ....... 15
Consolidated Statements of Stockholders' Equity
for each of the three fiscal years in the period ended January 2, 2000 ....... 16
Notes to Consolidated Financial Statements ..................................... 16 - 22
Report of Ernst & Young LLP, Independent Auditors .............................. 23
</TABLE>
The following consolidated financial statement schedule of Dallas Semiconductor
Corporation is included on the page set forth below.
<TABLE>
<CAPTION>
Page in this Annual
Report on Form 10-K
-------------------
<S> <C>
Schedule II. Valuation Qualifying Accounts .................................... S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted as they are either not required, not applicable or the required
information is included in the financial statements or notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended January 2,
2000.
(c) Exhibits
<TABLE>
<CAPTION>
Previously Filed*
-----------------------------------
Exhibit With File Number As Exhibit Description
- ------- ---------------- ---------- -----------
<S> <C> <C> <C>
3(a)-1 33-16924 3(a)-3 Restated Certificate of Incorporation of the Registrant
3(a)-2 Amdt. No. 2 to Form 3(a)-4 Amendment to Restated Certificate of Incorporation of the Registrant
10 0-16170
3(b) Amdt. No. 2 to Form 3(b)-1 Bylaws of the Registrant, as amended
10 0-16170
+3(i) Amended and Restated Certificate of Incorporation of the Registrant
4(a) 1989 10-K 1-10464 4(a) Specimen form of Certificate for Common Stock of the Registrant
4(b) 33-16924 4 Specimen form of Certificate for Common Stock of the Registrant
4(c) 1999 8-K 1-10464 4.1 Shareholder Rights Agreement
**10(a)-1 33-16924 10(a) 1984 Stock Option Plan of the Registrant, as amended
</TABLE>
-25-
<PAGE> 26
<TABLE>
<CAPTION>
Previously Filed*
-----------------------------------
Exhibit With File Number As Exhibit Description
- ------- ---------------- ---------- -----------
<S> <C> <C> <C>
**10(a)-2 33-24372 4.3.1 Form of Incentive Stock Option Agreement relating to 1984 Stock Option
Plan, as amended
**10(a)-3 33-24372 4.3.2 Form of Non-Qualified Stock Option Agreement relating to 1984 Stock
Option Plan, as amended
**10(b)-1 1991 10-K 1-10464 10(b)-1 Amended and Restated 1987 Stock Option Plan of the Registrant
**10(b)-2 33-24372 4.4.1 Form of Incentive Stock Option Agreement relating to options granted
to employees under the 1987 Stock Option Plan, as amended
**10(b)-3 33-24372 4.4.2 Form of Non-Qualified Stock Option Agreement relating to options
granted to employees under the 1987 Stock Option Plan, as amended
**10(b)-4 1988 10-K 0-16170 10(b)-5 Form of Non-Qualified Stock Option Agreement relating to 1987 Stock
Option Plan, as amended (as granted on October 20, 1988)
**10(b)-5 1989 10-K 1-10464 10(b)-6 Forms of Non-Qualified Stock Option Agreements relating to options
granted to employees under the 1987 Stock Option Plan (as approved by
the Compensation Committee of the Board of Directors of the Registrant
on March 27, 1989)
**10(b)-6 1989 10-K 1-10464 10(b)-7 Forms of Non-Qualified Stock Option Agreements relating to options
granted to director-level employees and officers of the Registrant
under the 1987 Stock Option Plan (as approved by the Compensation
Committee of the Board of Directors of the Registrant on March 27,
1989)
**10(b)-7 1989 10-K 1-10464 10(b)-8 Forms of Incentive Stock Option Agreements relating to options granted
to director-level employees and officers of the Registrant under the
1987 Stock Option Plan (as approved by the Compensation Committee of
the Board of Directors of the Registrant on March 27, 1989)
**10(c)-1 1989 10-K 1-10464 10(b)-9 Form of Special Option entered into by and between the Registrant and
certain non-employee director optionees
**10(d)-1 1988 10-K 0-16170 10(c)-2 Form of Shareholder's Agreement between the Registrant and employee
stockholders
**10(d)-2 1989 10-K 1-10464 10(c)-2 Forms of Shareholder's Agreement between the Registrant and employee
stockholders
**10(d)-3 1989 10-K 1-10464 10(c)-3 Form of Amendment to Shareholder's Agreement between the Registrant
and employee stockholders
**10(e) 1992 10-K 1-10464 10(e) Officer and Key Employee Compensation Plan
**10(f)-1 1993 10-K 1-10464 10(f)-1 1993 Officer and Director Stock Option Plan of the Registrant
**10(f)-2 1993 10-K 1-10464 10(f)-2 Form of Stock Option Agreement relating to options granted to
non-employee directors of the Registrant under the 1993 Officer and
Director Stock Option Plan
**10(f)-3 1993 10-K 1-10464 10(f)-3 Form of Stock Option Agreement relating to options granted to officers
and employee directors of the Registrant under the 1993 Officer and
Director Stock Option Plan
**10(g) 1993 10-K 1-10464 10(g) Executive Bonus Plan
10(h) 33-16924 10(h) Form of Indemnification Agreement between the Registrant and its
officers and directors
10(i) 1992 10-K 1-10464 10(i) Lease Agreement by and between O.B. English, as Landlord, and the
Registrant, as Tenant, dated November 3, 1992 (4352 North Beltwood
Parkway)
**10(iii) (A) 1998 10-K 1-10464 Executive Deferred Compensation Plan
**10(iii) (A) 1998 10-K 1-10464 Executive Deferred Compensation Plan Trust
+**10(iii) (A) Amended 1987 Stock Option Plan
+**10(iii) (B) Amendment to Executive Bonus Plan
**10(iii) (A) 333-89945 4.3 Employee Stock Purchase Plan
+**10(iii) (C) Agreement between the Registrant and C.V. Prothro, dated May 20, 1999
+**10(iii) (D) Agreement between the Registrant and Chao C. Mai, dated May 20, 1999
+**10(iii) (E) Agreement between the Registrant and Michael L. Bolan, dated May 20,
1999
+**10(iii) (F) Agreement between the Registrant and Alan P. Hale, dated May 20, 1999
21 1990 10-K 1-10464 22 Subsidiaries of the Registrant
+23 Consent of Independent Auditors
+27 Financial Data Schedule
</TABLE>
- --------------
*Incorporated herein by reference. Abbreviations used are as follows: Admt.
No. 2 to Form 10 is the Registrant's Amendment No. 2 on Form 8, dated May 9,
1988, to its Registration Statement on Form 10, File No. 0-16170; 7/3/88 10-Q is
the Registrant's Quarterly Report on Form 10-Q for the period ended July 3,
1988, File No. 0-16170; 1988 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1989, File No. 0-16170; 1989 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
-26-
<PAGE> 27
1989, File No. 1-10464; 1990 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1990, File No. 1-10464; 1991 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 29,
1991, File No. 1-10464; 1992 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1993, File No. 1-10464; 1993 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1994, File No. 1-10464; 1994 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1995, File No. 1-10464; 1995 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File No. 1-10464; 1996 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 29, 1996, File No. 1-10464; 1997 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 28,
1997, File No. 1-10464; 1998 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1999, File No. 1-10464.
+Filed herewith.
**Management contract or compensation plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 7, 2000
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ C.V. Prothro
--------------------------------------------------
C.V. Prothro, Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ C.V. Protho Chairman of the Board of Directors, March 7, 2000
- ------------------------------------------ President and Chief Executive Officer
C.V. Prothro
/s/ Alan P. Hale Vice President - Finance March 7, 2000
- ------------------------------------------
Alan P. Hale
/s/ Chao C. Mai Senior Vice President and Director March 7, 2000
- ------------------------------------------
Chao C. Mai
/s/ Michael L. Bolan Vice President - Marketing and Product March 7, 2000
- ------------------------------------------ Development and Director
Michael L. Bolan
/s/ Richard L. King Director March 7, 2000
- ------------------------------------------
Richard L. King
/s/ M.D. Sampels Director March 7, 2000
- ------------------------------------------
M.D. Sampels
/s/ Carmelo J. Santoro Director March 7, 2000
- ------------------------------------------
Carmelo J. Santoro
</TABLE>
-27-
<PAGE> 28
SCHEDULE II
DALLAS SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended
December 28, 1997, January 3, 1999 and January 2, 2000
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Classification of Period Expenses Deductions of Period
- -------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997 $ 373,000 $ 8,600 $ 1,600 $ 380,000
1998 $ 380,000 $ 1,805,000 $ 1,755,000 $ 430,000
1999 $ 430,000 $ 77,000 $ 27,000 $ 480,000
Distributor returns and allowances:
1997 $15,893,000 $59,420,000 $58,230,000 $17,083,000
1998 $17,083,000 $61,417,000 $63,262,000 $15,248,000
1999 $15,248,000 $89,161,000 $83,882,000 $20,527,000
</TABLE>
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Description
Exhibit -----------
No. With File Number As Exhibit
- ------- ---------------- ----------
<S> <C> <C> <C>
3(a)-1 33-16924 3(a)-3 Restated Certificate of Incorporation of the Registrant
3(a)-2 Amdt. No. 2 to Form 3(a)-4 Amendment to Restated Certificate of Incorporation of the Registrant
10 0-16170
3(b) Amdt. No. 2 to Form 3(b)-1 Bylaws of the Registrant, as amended
10 0-16170
+3(i) Amended and Restated Certificate of Incorporation of the Registrant
4(a) 1989 10-K 1-10464 4(a) Specimen form of Certificate for Common Stock of the Registrant
4(b) 33-16924 4 Specimen form of Certificate for Common Stock of the Registrant
4(c) 1999 8-K 1-10464 4.1 Shareholder Rights Agreement
**10(a)-1 33-16924 10(a) 1984 Stock Option Plan of the Registrant, as amended
**10(a)-2 33-24372 4.3.1 Form of Incentive Stock Option Agreement relating to 1984 Stock Option
Plan, as amended
**10(a)-3 33-24372 4.3.2 Form of Non-Qualified Stock Option Agreement relating to 1984 Stock
Option Plan, as amended
**10(b)-1 1991 10-K 1-10464 10(b)-1 Amended and Restated 1987 Stock Option Plan of the Registrant
**10(b)-2 33-24372 4.4.1 Form of Incentive Stock Option Agreement relating to options granted
to employees under the 1987 Stock Option Plan, as amended
**10(b)-3 33-24372 4.4.2 Form of Non-Qualified Stock Option Agreement relating to options
granted to employees under the 1987 Stock Option Plan, as amended
**10(b)-4 1988 10-K 0-16170 10(b)-5 Form of Non-Qualified Stock Option Agreement relating to 1987 Stock
Option Plan, as amended (as granted on October 20, 1988)
**10(b)-5 1989 10-K 1-10464 10(b)-6 Forms of Non-Qualified Stock Option Agreements relating to options
granted to employees under the 1987 Stock Option Plan (as approved by
the Compensation Committee of the Board of Directors of the Registrant
on March 27, 1989)
**10(b)-6 1989 10-K 1-10464 10(b)-7 Forms of Non-Qualified Stock Option Agreements relating to options
granted to director-level employees and officers of the Registrant
under the 1987 Stock Option Plan (as approved by the Compensation
Committee of the Board of Directors of the Registrant on March 27,
1989)
**10(b)-7 1989 10-K 1-10464 10(b)-8 Forms of Incentive Stock Option Agreements relating to options granted
to director-level employees and officers of the Registrant under the
1987 Stock Option Plan (as approved by the Compensation Committee of
the Board of Directors of the Registrant on March 27, 1989)
**10(c)-1 1989 10-K 1-10464 10(b)-9 Form of Special Option entered into by and between the Registrant and
certain non-employee director optionees
**10(d)-1 1988 10-K 0-16170 10(c)-2 Form of Shareholder's Agreement between the Registrant and employee
stockholders
**10(d)-2 1989 10-K 1-10464 10(c)-2 Forms of Shareholder's Agreement between the Registrant and employee
stockholders
**10(d)-3 1989 10-K 1-10464 10(c)-3 Form of Amendment to Shareholder's Agreement between the Registrant
and employee stockholders
**10(e) 1992 10-K 1-10464 10(e) Officer and Key Employee Compensation Plan
**10(f)-1 1993 10-K 1-10464 10(f)-1 1993 Officer and Director Stock Option Plan of the Registrant
**10(f)-2 1993 10-K 1-10464 10(f)-2 Form of Stock Option Agreement relating to options granted to
non-employee directors of the Registrant under the 1993 Officer and
Director Stock Option Plan
**10(f)-3 1993 10-K 1-10464 10(f)-3 Form of Stock Option Agreement relating to options granted to officers
and employee directors of the Registrant under the 1993 Officer and
Director Stock Option Plan
**10(g) 1993 10-K 1-10464 10(g) Executive Bonus Plan
10(h) 33-16924 10(h) Form of Indemnification Agreement between the Registrant and its
officers and directors
10(i) 1992 10-K 1-10464 10(i) Lease Agreement by and between O.B. English, as Landlord, and the
Registrant, as Tenant, dated November 3, 1992 (4352 North Beltwood
Parkway)
**10(iii)(A) 1998 10-K 1-10464 Executive Deferred Compensation Plan
**10(iii)(A) 1998 10-K 1-10464 Executive Deferred Compensation Plan Trust
+**10(iii)(A) Amended 1987 Stock Option Plan
+**10(iii)(B) Amendment to Executive Bonus Plan
**10(iii)(A) 333-89945 4.3 Employee Stock Purchase Plan
+**10(iii)(C) Agreement between the Registrant and C.V. Prothro, dated May 20, 1999
+**10(iii)(D) Agreement between the Registrant and Chao C. Mai, dated May 20, 1999
+**10(iii)(E) Agreement between the Registrant and Michael L. Bolan, dated May 20,
1999
+**10(iii)(F) Agreement between the Registrant and Alan P. Hale, dated May 20, 1999
21 1990 10-K 1-10464 22 Subsidiaries of the Registrant
+23 Consent of Independent Auditors
+27 Financial Data Schedule
</TABLE>
- ----------
*Incorporated herein by reference. Abbreviations used are as follows: Admt.
No. 2 to Form 10 is the Registrant's Amendment No. 2 on Form 8, dated May 9,
1988, to its Registration Statement on Form 10, File No. 0-16170; 7/3/88 10-Q
is the Registrant's Quarterly Report on Form 10-Q for the period ended July 3,
1988, File No. 0-16170; 1988 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1989, File No. 0-16170; 1989 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1989, File No. 1-10464; 1990 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30 1990; File No. 1-10464; 1991 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 29,
1991, File No. 1-10464; 1992 10-K is the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1993, File No. 1-10464; 1993 10-K is the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1994, File No. 1-10464; 1994 10-K is the Registrant's Annual Report on Form
10-K for the fiscal year ended January 1, 1995, File No. 1-10464; 1995 10-K is
the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, File No. 1-10464; 1996 10-K is the Registrant's Annual Report on Form
10-K for the fiscal year ended December 29, 1996, File No. 1-10464; 1997 10-K
is the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997, File No. 1-10464; 1998 10-K is th Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1999, File No. 1-10464.
+ Filed herewith
** Management contract or compensation plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c).
<PAGE> 1
EXHIBIT 3(i)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DALLAS SEMICONDUCTOR CORPORATION
DALLAS SEMICONDUCTOR CORPORATION, a corporation organized and existing
under the laws of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Dallas Semiconductor Corporation. The
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on February 1, 1984.
2. This Amended and Restated Certificate of Incorporation restates and
integrates the provisions of the Corporation's Certificate of Incorporation as
heretofore amended and further amends the Certificate of Incorporation of this
Corporation as follows:
Article Fourth of this Corporation is amended to increase the
number of authorized shares of Common Stock from 40 million to 100
million and, as amended, Section (a) of Article fourth of the
Corporation's Certificate of Incorporation shall be and read as
follows:
"FOURTH: (a) The total number of shares of stock
which the Corporation shall have authority to issue is one
hundred five million (105,000,000), of which one hundred
million (100,000,000) shares of the par value of Two Cents
($.02) each, amounting in the aggregate to two million dollars
($2,000,000), shall be Common Stock, and of which five million
(5,000,000) shares of the par value of Ten Cents ($.10) each,
amounting in the aggregate to five hundred thousand dollars
($500,000), shall be Preferred Stock."
3. The text of the Certificate of Incorporation as amended heretofore
is further amended hereby to read as herein set forth in full:
FIRST: The name of the Corporation is Dallas Semiconductor
Corporation.
SECOND: The address of the registered office of the
Corporation in the State of Delaware is Corporation Trust Center, 1209
Orange Street, Wilmington, County of New Castle, Delaware. The name of
the registered agent of the Corporation at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or actions for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of stock which the
Corporation shall have authority to issue is one hundred five million
(105,000,000), of which one hundred million
<PAGE> 2
(100,000,000) shares of the par value of Two Cents ($.02) each,
amounting in the aggregate to two million dollars ($2,000,000), shall
be Common Stock, and of which five million (5,000,000) shares of the
par value of Ten Cents ($.10) each, amounting in the aggregate to five
hundred thousand dollars ($500,000), shall be Preferred Stock.
(b) Shares of Preferred Stock may be issued in one or
more series at such time or times and for such consideration or
considerations as the Board of Directors may determine. Authority is
hereby expressly granted to the Board of Directors to fix from time to
time, by resolution or resolutions providing for the issue of any
series of Preferred Stock, the designation of such series and the
powers, preferences and rights of the shares of such series, and the
qualifications, limitations or restrictions thereof, including the
following:
(i) The distinctive designation and number of shares
comprising such series, which number may (except where
otherwise provided by the Board of Directors in creating such
series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by like action of
the Board of Directors;
(ii) The dividend rate or rates on the shares of such
series and the preferences, if any, over any other series (or
of any other series over such series) with respect to
dividends, the terms and conditions upon which dividends shall
be payable, whether and upon what conditions such dividends
shall be cumulative and, if cumulative, the date or dates from
which dividends shall accumulate;
(iii) Whether or not the shares of such series shall
be redeemable, the price or prices, limitations and
restrictions, and any other terms and conditions with respect
to such redemptions;
(iv) The rights to which the holders of such series
shall be entitled, and the preferences, if any, over any other
series (or of any other series over such series), upon the
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
(v) Whether or not the shares of such series shall be
subject to the operation of a purchase, retirement or sinking
fund, and, if so, whether and upon what conditions such
purchase, retirement or sinking fund shall be cumulative or
noncumulative, the extent to which and the manner in which
such fund shall be applied to the purchase or redemption of
the shares of such series for retirement or to other corporate
purposes and the terms and provisions relative to the
operations thereof;
(vi) Whether or not the shares of such series shall
be convertible into or exchangeable for shares of stock of any
other class or classes, or of any other series of the same
class and, if so convertible or exchangeable, the price or
prices or the rate or rates of conversion or exchange and
method, if any, of adjusting the same, and any other terms and
conditions of such conversion or exchange;
2
<PAGE> 3
(vii) The voting powers, if any, of the shares of
such series; and whether or not and under what conditions the
shares of such series shall be entitled to vote separately as
a single class for the election of one or more additional
directors of the Corporation in case of dividend arrearages or
other specified events, or upon other matters;
(viii) Any other preferences, privileges and powers,
and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions of such
series, as the Board of Directors may deem advisable and as
shall not be inconsistent with the provisions of this
Certificate of Incorporation.
(c) Shares of Preferred Stock which have been
redeemed or converted, or which have been issued and reacquired in any
manner and retired, shall have the status of authorized and unissued
Preferred Stock without designation and may be redesignated by the
Board of Directors as shares of the same or any other series, unless
otherwise provided with respect to any series in the resolution of the
Board of Directors creating such series.
FIFTH: (a) The business and affairs of the Corporation shall
be managed by the Board of Directors. The election of Directors need
not be by written ballot.
(b) Any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which
may be taken at any annual or special meeting of such stockholders or
otherwise, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of all of the outstanding stock
of the Corporation.
SIXTH: In furtherance and not in limitation of the power
conferred by the laws of the State of Delaware, the Board of Directors
hall have the power to adopt, amend and repeal the By-laws of the
Corporation (except so far as By-laws of the Corporation adopted by the
stockholders shall otherwise provide). Any By-laws adopted by the
directors under the power conferred hereby may be amended or repealed
by the directors or by the stockholders. Notwithstanding the foregoing
and anything contained in this Certificate of Incorporation to the
contrary, the provisions of Sections 2.09, 3.02, 3.03, 3.04 and 3.05 of
the By-laws shall not be amended or repealed and no provision
inconsistent therewith shall be adopted without either (a) the
favorable recommendation of a majority of the Disinterested Directors
and the affirmative vote of the holders of at least a majority of the
capital stock of the Corporation that may vote in the election of
directors, or (b) the affirmative vote of (i) the holders of 80% of
more of the outstanding shares of capital stock, voting together as a
single class, and (ii) the holders of at least a majority of the shares
of the capital stock of the Corporation which are not beneficially
owned by an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder, voting together as a single class. Capitalized
terms used herein shall have the same meaning defined for such terms in
Article Eighth herein.
3
<PAGE> 4
SEVENTH: (a) The Corporation may, to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as
the same exists or may hereafter be amended, indemnify all persons whom
it may indemnify pursuant thereto, and to the fullest extent otherwise
permitted by applicable law.
(b) To the fullest extent permitted by the General
Corporation Law of Delaware as the same exists or may hereafter be
amended, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. If the General Corporation Law of
Delaware is amended after approval by the stockholders of this
provision to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director
of the Company shall be eliminated or limited to the fullest extent
permitted by such law.
(c) No repeal or modification of this Article Seventh
by the stockholders of the Corporation shall adversely affect any right
or protection of a director or other person lawfully indemnified by the
Corporation existing at the time of such repeal or modification or with
respect to events occurring prior to such time.
EIGHTH:
SECTION 1. Vote Required for Certain Business Combinations
A. Description of Transactions. In addition to any affirmative
vote required by law or this Certificate of Incorporation (and
regardless of whether or not a vote of stockholders is otherwise
required), and except as otherwise expressly provided in Section 2 of
this Article Eighth:
1. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) or Associate
(as hereinafter defied) of an Interested Stockholder or the
merger or consolidation of any such corporation into the
Corporation or any Subsidiary; or
2. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions) to or with any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any
4
<PAGE> 5
Subsidiary to any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder in exchange for cash,
securities or other property (or any combination thereof); or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or any
Subsidiary proposed by or on behalf of an Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholders; or
5. any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any of
its Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder;
shall require (i) the affirmative vote of the holders of at least 80%
of the then outstanding shares of capital stock of the Corporation,
voting together as a single class, and (ii) the affirmative vote of the
holders of at least a majority of the shares of the capital stock of
the Corporation which are not beneficially owned by an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder,
voting together as a single class (it being understood that for purpose
of this Article Eighth, each share of the capital stock shall have the
number of votes granted to it pursuant to this Certificate of
Incorporation). Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage may
be specified, by law or in any agreement with any national securities
exchange or otherwise.
B. Definition. The term "Business Combination" as used in this
Article Eighth shall mean any transaction which is referred to in any
one or more of subparagraphs (1) through (5) of Paragraph A of this
Section 1.
SECTION 2. When Higher Vote is Not Required. The provisions of
Section 1 of this Article Eighth shall not be applicable to any
particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as is required by law and
any other provision of this Certificate of Incorporation, if the
Business Combination shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined).
SECTION 3. Other Conditions to a Business Combination. In the
event any Business Combination is approved by the stockholders of the
Corporation in accordance with the provisions of Section 1 of this
Article Eighth, such transaction shall not be consummated unless all of
the following conditions shall have been met:
5
<PAGE> 6
A. Consideration for Common Stock. The aggregate amount of the
cash and the Fair Market Value (as hereinafter defined) as of the date
of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the highest of the
following:
1. the Highest Per Share Price (as hereinafter
defined) (including the brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Interested
Stockholder or any of its Affiliates or Associates for any
shares of Common Stock acquired by it; or
2. the Fair Market Value per share of Common Stock on
the date of the first public announcement of the proposal of
the Business Combination (the "Announcement Date") or on the
date on which the Interested Stockholder became an Interested
Stockholder (the "Determination Date"), whichever is higher;
or
3. the aggregate Earnings Per Share (as hereinafter
defined) of the Common Stock during the four full fiscal
quarters immediately preceding consummation of the Business
Combination, multiplied by the highest Price/Earnings Ratio
(as hereinafter defined) of the Common Stock at the conclusion
of trading in the public market on any day within the three
(3) years preceding the consummation of such Business
Combination.
B. Consideration For Other Than Common Stock. The aggregate
amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other than
cash to be received per share by holders of shares of any class (or
series thereof) outstanding of capital stock other than Common Stock
shall be at least equal to the highest of the following (it being
intended that the requirements of this subparagraph B shall be required
to be met with respect to every such class (and series thereof) of
outstanding capital stock, whether or not the Interested Stockholder
has previously acquired any shares of a particular class (or series) of
capital stock):
1. the Highest Per Share Price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder or any of its
Affiliates or Associates of any shares of such class (or
series) of such capital stock acquired by it; or
2. the Fair Market Value per share of such class (or
series) of such capital stock on the Announcement Date or on
the Determination Date, whichever is higher; or
3. (if applicable) the highest preferential amount
per share to which the holders of shares of such class (or
series) of such capital stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
6
<PAGE> 7
C. Form of Consideration. The consideration to be received by
holders of a particular class (or series) of outstanding capital stock
of the Corporation (including Common Stock) shall be paid in cash or,
at the election of each such holder, in the same form as the Interested
Stockholder has previously paid for shares of such class (or series) of
capital stock. If the Interested Stockholder has paid for shares of any
class (or series) of capital stock with varying forms of consideration,
the form of consideration for such class (or series) of capital stock
shall be cash or, at the election of such holder, the form used to
acquire the largest number of shares of such class (or series) of
capital stock previously acquired by the Interested Stockholder.
D. Benefits to Interested Stockholder. Prior to consummation
of the Business Combination, neither the Interested Stockholder or any
Affiliate or Associate of the Interested Stockholder shall have
received any benefits from the Corporation or any Subsidiary, directly
or indirectly (except proportionately as a stockholder of the
Corporation or as may be approved by a majority of the Disinterested
Directors) or shall have caused any material change in the business or
capital structure of the Corporation or any Subsidiary.
SECTION 4. Certain Definitions. For the purpose of this
Article Eighth:
A. Person. A "person" shall mean any individual, firm,
corporation or other entity. When two or more persons act as a
partnership, limited partnership, syndicate or other group (as defined
with reference to the rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as in
effect from time to time, or otherwise) for the purpose of acquiring,
holding or disposing of securities of the Corporation, such syndicate
or group shall be deemed a "person" for the purposes of this Article
Eighth.
B. Interested Stockholder. "Interested Stockholder" shall mean
any person (other than the Corporation or any Subsidiary) who or which
(i) after January 1, 1988, initially becomes (other than by virtue of
receiving the capital stock that makes such person an Interested
Stockholder through gift, inheritance, bequest or the operation of the
laws of descent and distribution), and (ii) on the date in question is:
1. the beneficial owner, directly or indirectly, of
more than ten percent (10%) of the outstanding capital stock
of the Corporation entitled to vote generally in the election
of directors or securities, rights, options or warrants
convertible or exchangeable for such stock, or any class
thereof; or
2. an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly of
ten percent (10%) or more of the then outstanding capital
stock of the Corporation entitled to vote generally in the
election of directors or securities, rights,
7
<PAGE> 8
options or warrants convertible or exchangeable for such
stock, or any class thereof; or
3. an assignee of, or has otherwise succeeded to, any
shares of capital stock of the Corporation entitled to vote
generally in the election of directors or securities, rights,
options or warrants convertible or exchangeable for such stock
which were at any time within the two-year period immediately
prior to the date in question beneficially owned by an
Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
C. Beneficial Ownership. The terms "beneficial owner,"
"beneficially owned" and "beneficial ownership" shall be defined with
reference to the rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as in effect from
time to time, provided that in addition thereto a person shall be a
"beneficial owner" of any capital stock or be considered to
"beneficially own" any capital stock:
1. which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
2. which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
3. which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of capital stock.
D. Deemed Ownership. For the purposes of determining whether a
person is an Interested Stockholder pursuant to paragraph B of this
Section 4, the number of shares of capital stock deemed to be owned
shall include the maximum number of shares issuable upon the
conversion, exchange or exercise of any securities, options, rights or
warrants and the number of shares outstanding shall be deemed to
include shares deemed owned through application of paragraph C of this
Section 4 but shall not include any other shares of capital stock which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
E. Affiliate and Associate. "Affiliate" or "Associate" shall
have the respective meanings ascribed to such terms in the rules and
regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as in effect from time to time.
8
<PAGE> 9
F. Subsidiary. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the purpose
of the definition of Interested Stockholder set forth in paragraph B of
this Section 4, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
G. Disinterested Director. "Disinterested Director" means any
member of the Board of Directors who is unaffiliated with an Interested
Stockholder and was a member of the Board of Directors prior to the
time that the Interested Stockholder became an Interested Stockholder,
and any successor of a Disinterested Director who is unaffiliated with
an Interested Stockholder and is recommended to serve as a director by
a majority of Disinterested Directors then on the Board of Directors,
or in the event no such Disinterested Directors remain on the Board of
Directors, has been designated or nominated by a Disinterested Director
to succeed a Disinterested Director.
H. Fair Market Value. "Fair Market Value" means: (1) in the
case of stock, the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such stock on
the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing
price or bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or if no such prices or quotations are
available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Disinterested Directors
in good faith, in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in shares of
such stock or any stock split or reclassification of outstanding shares
of such stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock; and (2) in the case of
property other than cash or stock, the fair market value of such
property on the date in question as determined by a majority of the
Disinterested Directors in good faith.
I. Adjustments. References to "Highest Per Share Price,"
"Earnings Per Share," "Price/Earnings Ratio" and "Price Per Share"
shall in each case with respect to any class of capital stock reflect
an appropriate adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of outstanding shares
of such capital stock into a greater number of shares of such capital
stock or any combination or reclassification of outstanding shares of
such stock into a smaller number of shares of such stock.
J. Consideration Upon Survival. In the event of any Business
Combination in which the Corporation survives, the phrase
"consideration other than cash to be received" as used in subparagraphs
A and B of Section 3 of this Article Eighth shall include the shares of
Common Stock and/or the shares of any other class of outstanding
capital stock of the Corporation retained by the holders of such
shares.
9
<PAGE> 10
SECTION 5. Powers of the Board of Directors. A majority of the
Disinterested Directors of the Corporation shall have the power and
duty to determine for the purposes of this Article Eighth, on the basis
of information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder, (b) the number of shares of
capital stock of the Corporation beneficially owned by any person, (c)
whether a person is an Affiliate or Associate of another person, (d)
Fair Market Value, Highest Price Per Share, Earnings Per Share,
Price/Earnings Ratio and Price Per share, (e) whether any transaction
has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder, and (f) whether an Interested
Stockholder and its Affiliates and Associates have received the
benefits described in subparagraph D of Section 3 of this Article
Eighth. Any such determination shall be conclusive and binding for all
purposes of this Article Eighth.
SECTION 6. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Article Eighth shall be
construed to relieve any Interested Stockholder from any fiduciary
obligation imposed by law.
SECTION 7. Amendment or Repeal. Notwithstanding any other
provisions of this Certificate of Incorporation or the By-laws of the
Corporation (and notwithstanding the fact that a lesser percentage may
be specified by law, this Certificate of Incorporation or the By-laws
of the Corporation), either (a) the favorable recommendation of a
majority of the Disinterested Directors and the affirmative vote of the
holders of at least a majority of the capital stock of the Corporation
that may vote in the election or directors, or (b) the affirmative vote
of (i) the holders of 80% or more of the outstanding capital stock of
the Corporation, voting together as a single class, and (ii) the
holders of at least a majority of the shares of the capital stock of
the Corporation which are not beneficially owned by an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder,
voting together as a single class, shall be required to amend or
repeal, or adopt any provisions inconsistent with this Article Eighth.
SECTION 8. Severability. If any one or more provisions of this
Article Eighth are held to be unenforceable under applicable law, such
provisions shall be deemed to be excluded and the balance of this
Article Eighth shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
4. That, at a meeting of the Board of Directors of the Corporation held
on October 26, 1999, at which a quorum was present and acting throughout,
resolutions were duly adopted setting forth the amendment to the Certificate of
Incorporation of the Corporation contained in this Amended and Restated
Certificate of Incorporation, declaring said amendment to be advisable and
calling for a special meeting of the stockholders of the Corporation for
consideration thereof.
10
<PAGE> 11
5. That, thereafter, a special meeting of the stockholders of the
Corporation was duly called and held on December 21, 1999, upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary number of shares as required by statute
were voted in favor of the amendment contained in this Amended and Restated
Certificate of Incorporation.
6. That said amendment and this Amended and Restated Certificate of
Incorporation were duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware.
7. That the capital of said Corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by C. V. Prothro, its
Chairman of the Board, President and Chief Executive Officer, and Marla K.
Suggs, its Secretary, this 5th day of January, 2000.
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ C. V. Prothro
-------------------------------------------
C. V. Prothro
Chairman of the Board, President and
Chief Executive Officer
/s/ Marla K. Suggs
- ----------------------------------
Marla K. Suggs, Secretary
11
<PAGE> 1
EXHIBIT 10(iii)(A)
As Amended Effective 10-26-99
DALLAS SEMICONDUCTOR CORPORATION
AMENDED 1987 STOCK OPTION PLAN
1. Purpose. The Dallas Semiconductor Corporation 1987 Stock Option Plan
(the "Plan") is intended to advance the interests of Dallas Semiconductor
Corporation, a Delaware corporation (the "Company"), and its stockholders, by
encouraging and enabling selected officers, directors, consultants, agents and
employees, upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and retain a
proprietary interest in the Company by ownership of its stock. It is intended
that options which may qualify for treatment as "incentive stock options" under
Section 422A of the Internal Revenue Code of 1986, as amended, and applicable
regulations and rulings promulgated thereunder (collectively the "Code"), as
well as options which may not so qualify, may be granted under the Plan.
2. Definitions.
(1) "Board" means the Board of Directors of the Company or a Committee
of the Board to whom its authority has been delegated.
(2) "Common Stock" means the Company's Common Stock, $.02 par value
per share.
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(3) "Date of Grant" means the date on which an Option is granted under
the Plan, which will be the date the Board authorizes the Option unless the
Board specifies a later date.
(4) "Date of Exercise" means the date on which an Option is validly
exercised pursuant to the Plan.
(5) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(6) "Fair Market Value" of the Company's Common Stock means, as long
as the Company's Common Stock is traded on the New York Stock Exchange, the
closing price of such stock on the New York Stock Exchange on such date (or
if such date is not a trading day, on the last trading day immediately
preceding such date) or, if not so traded, on the NASDAQ National Market
System or another national exchange upon which the Company's Common Stock
is traded or as otherwise determined by the Board, based on any reasonable
valuation method.
(7) "Option" means an option granted under the Plan.
(8) "Optionee" means a person to whom an Option, which has not
expired, has been granted under the Plan.
(9) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or
corporations of the Company as defined in Section 425(f) of the Code.
(10) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to
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exercise an Option by bequest or inheritance or by reason of the death of
an Optionee.
(11) "Incentive Stock Option" means an option that qualifies as an
incentive stock option under all of the requirements of the Code.
(12) "Incentive Stock Option Agreement" means the agreement between
the Company and the Optionee, in such form as may from time to time be
adopted by the Board, under which the Optionee may purchase Common Stock
pursuant to the terms of an Incentive Stock Option granted under the Plan.
(13) "Non-Qualified Stock Option" means an option to purchase Common
Stock granted pursuant to the provisions of the Plan that does not qualify
as an Incentive Stock Option.
(14) "Non-Qualified Stock Option Agreement" means the agreement
between the Company and the Optionee, in such form as may from time to time
be adopted by the Board, under which the Optionee may purchase Common Stock
pursuant to the terms of a Non-Qualified Stock Option granted under the
Plan.
3. Administration and Interpretation of Plan. The Plan shall be
administered by the Board. The Board shall have full and final authority in its
discretion, subject to the provisions of the Plan: (i) to determine the
individuals to whom, and the time or times at which, Options shall be granted
and the number of shares of Common Stock covered by each Option; (ii) to
construe and interpret
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the Plan; and (iii) to make all other determinations and take all other actions
deemed necessary or advisable for the proper administration of the Plan. All
such actions and determinations by the Board shall be final and conclusively
binding for all purposes and upon all persons.
4. Common Stock Subject to Options. The maximum number of shares of Common
Stock of the Company which may be issued upon the exercise of Options granted
under the Plan is 6,797,339, computed from the date of the adoption of the
Company's 1987 Stock Option Plan through the effective date of this amended Plan
(which number includes 850,000 shares authorized by the Board of Directors on
October 26, 1999, for issuance upon the exercise of Options under the Plan),
increased on and as of January 1 of each calendar year from and including
January 1, 2000, by a number of shares equal to one percent (1%) of the number
of shares of Common Stock outstanding on December 31 of the preceding year;
subject to appropriate adjustment by the Board to reflect any stock dividend,
stock split, reverse stock split, share combination, reorganization,
recapitalization or the like, of or by the Company. The shares of Common Stock
to be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the open market
for the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be canceled or surrendered without having been exercised
in full, the shares subject to such Option, but not purchased thereunder, shall
again be available for Options to be granted under the Plan.
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5. Participants. Options may be granted under the Plan to any person who is
an officer, director, employee or consultant of the Company or any of its
Subsidiaries.
6. Terms and Conditions of Options. Any Option granted under the Plan shall
be evidenced by either an Incentive Stock Option Agreement or a Non-Qualified
Stock Option Agreement executed by the Company and the Optionee. Such agreement
shall be subject to the following limitations and conditions:
(1) Option Price. The option price per share with respect to each
Option shall be determined by the Board but in no instance shall the option
price for an Option which is intended to qualify as an Incentive Stock
Option be less than 100% of the Fair Market Value of a share of the Common
Stock on the Date of Grant.
(2) Payment of Option Price. Full payment for shares purchased upon
exercising an Option shall be made in cash or by check, or by delivery of
previously owned shares of Common Stock, or partly in cash or by check and
partly in such stock. The value of shares of Common Stock delivered in
connection with the payment of the option price shall be the Fair Market
Value of such shares on the Date of Exercise of the Option.
(3) Term of Option. The expiration date of each Incentive Stock Option
shall not be more than ten (10) years from the Date of Grant. The
expiration date of each Non-Qualified Stock Option shall not be more than
eleven (11) years from the Date of Grant.
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(4) Vesting of Stockholder Rights. Neither an Optionee nor his
Successor shall have any of the rights of a stockholder of the Company
until the certificate or certificates evidencing the shares purchased
pursuant to the exercise of an Option are properly delivered to such
Optionee or his Successor.
(5) Exercise of an Option. Each Option shall be exercisable at any
time, and from time to time, and in no particular order if the Optionee
holds more than one Option, throughout a period commencing on or after the
Date of Grant, as specified by the Board, and ending upon the earliest of
the expiration, cancellation, surrender or termination of the Option;
provided however, that no Option shall be exercisable in whole or in part
prior to the date of stockholder approval of the Plan. Furthermore, the
exercise of each Option shall be subject to the condition that if at any
time the Company shall determine in its discretion that the satisfaction of
withholding tax or other withholding liabilities, or that the listing,
registration, or qualification of any share otherwise deliverable upon such
exercise upon any securities exchange or under any state or federal law, or
that the report to, or consent or approval of, stockholders or any
regulatory body, is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase of shares
pursuant thereto, then in any such event, such exercise shall not be
effective unless such withholding, listing,
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registration, qualification, report, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
(6) Stock Appreciation Rights. Any Option may include a Stock
Appreciation Right, either at the Date of Grant or later by amendment
approved by the Board, and provision therefor shall be included in the
stock option agreement at such time consistent with the terms hereof. Such
Stock Appreciation Right shall be subject to such terms and conditions not
inconsistent with the Plan as the Board shall impose, including the
following:
(1) It shall be exercisable only when and to the extent the
Option is exercisable and only at such time as the value of the
Company's Common Stock is equal to or greater than the option price
specified in such Option.
(2) It shall entitle the Optionee to surrender unexercised the
Option in which the Stock Appreciation Right is included (or any
portion of such Option) to the Company and to receive from the Company
in exchange therefor that number of shares of Common Stock having an
aggregate value equal to the excess of the Fair Market Value of one
share, on the day immediately preceding the date on which the Stock
Appreciation Right is exercised, over the purchase price per share
specified in such option, times the number of shares called for by the
Option, or portion thereof, which is so surrendered.
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The Company, in its discretion, shall be entitled to elect to settle
its obligation arising out of the exercise of a Stock Appreciation
Right by the payment of cash equal to the aggregate value of the
shares it would otherwise be obligated to deliver. The Company may
also elect to settle such obligation partly in cash and partly in
Common Stock. In lieu thereof, the Company shall have the right, in
its discretion, to the extent it shall deem advisable to consent to or
disapprove the election of the Optionee to receive cash in full or
partial settlement of a Stock Appreciation Right.
(3) No fractional shares shall be delivered pursuant to exercise
of a Stock Appreciation Right but in lieu thereof a cash adjustment
shall be made.
(4) Notwithstanding the other provisions hereof, to the extent
that a Stock Appreciation Right included in an Option is exercised,
such Option shall be deemed to have been exercised to the extent of
the number of shares of Common Stock called for by the Option or
portion thereof which is surrendered on exercise of the Stock
Appreciation Right, so that such shares shall no longer be reserved
for issuance upon the exercise of Options to be granted under the
Plan.
(5) The Board shall have the right, without the consent or
approval of the Optionee, at any time after the grant of a Stock
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Appreciation Right to limit the time within or extent to which such
Stock Appreciation Right may be exercisable, to limit the maximum
amount of appreciation that may be recognized in connection with the
exercise thereof or to in any other manner it, in its discretion,
shall deem advisable amend or terminate such Stock Appreciation Right.
(6) A Stock Appreciation Right granted pursuant to the Plan shall
not be exercisable unless and until the Optionee shall have completed
one (1) continuous year of full time employment with the Company
subsequent to the time of grant of such Stock Appreciation Right. For
the purposes hereof, full time employment shall be such as may be
established by the Board.
(7) The Company shall have the right at any time to amend this
provision of the Plan dealing with Stock Appreciation Rights, and the
provisions of any stock option agreement pursuant to the Plan dealing
with a Stock Appreciation Right, to the extent that it, in its
discretion, shall deem to be necessary in order to comply with the
provisions of Rule 16b-3.
(7) Non-ISO Tax Offset Bonus. The Board may grant a Tax Offset Bonus
to such Optionees and on such bases as the Board shall determine,
including, but not limited to, a Tax Offset Bonus which becomes exercisable
only upon an Optionee's being subject to the restrictions of Section 16 of
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the Exchange Act. A Tax Offset Bonus may be granted only with respect to a
Non-Qualified Stock Option under the Plan, and may be granted concurrently
with or after the grant of the Non-Qualified Stock Option. A Tax Offset
Bonus shall entitle an Optionee to receive from the Company or a Subsidiary
an amount in cash no greater than the then existing maximum statutory
Federal income tax rate (including any surtax or similar charge or
assessment) for individuals multiplied by the amount of ordinary income, if
any, realized by the Optionee for Federal income tax purposes as a result
of the exercise of the Non-Qualified Stock Option. The Board may cancel or
place a limit on the term of, or the amount payable for, any Tax Offset
Bonus at any time. The Board shall determine all other terms and provisions
of any Tax Offset Bonus grant. The Company shall not be required to fund
such Tax Offset Bonus prior to the due date for such taxes, and the
proceeds of such Tax Offset Bonus shall be advanced to the Optionee in the
form of a check payable to the Internal Revenue Service for the account of
the Optionee or such other method as the Board may determine. The Board
shall have the right to require an Optionee to present reasonable proof of
the amount of such taxes as a condition precedent to the making of such
payment. The Company shall be under no obligation of any nature to grant
any Tax Offset Bonus to any Optionee at any time.
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(8) Company Loans. The Company may make stock purchase loans in
connection with Option exercises upon the following terms and conditions:
(1) Upon the exercise by an Optionee of his Option, or any part
thereof, and the Optionee's request for a loan pursuant hereto, the
Company, upon approval by the Board, may loan said Optionee, for the
sole purpose of purchasing Common Stock from the Company pursuant to
the exercise of such Option, an amount equal to the excess of the
exercise price of the Option over the aggregate par value of the
Common Stock which the Optionee has elected to purchase pursuant to
such exercise; provided, however, that the Optionee shall execute
concurrently a promissory note in form satisfactory to the Board for
such amount payable to the order of the Company;
(2) The Company shall have no obligation to make any loan to any
Optionee at any time;
(3) The promissory note referenced hereinbefore shall provide for
interest to be payable upon the outstanding principal balance thereof
at such rate and times as the Board may determine. Such note shall
also provide that the Board may require the Optionee to secure the
payment thereof at any time with collateral deemed adequate by the
Board in its sole discretion. Such note shall mature, and all
outstanding principal and interest shall become
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immediately due and payable in installments or in lump sum at such
time or times as the Board shall provide. The note will provide for
prepayment of principal and accrued interest in whole or in part from
time to time without premium or penalty and may be extended or
modified, from time to time, at the Board's discretion. The note shall
provide for acceleration of maturity by the Company upon the happening
of any events determined appropriate by the Board, including without
limitation, any of the following events:
(1) failure of the Optionee to pay or perform any term or
provision thereof; or
(2) termination of the Optionee's employment with the
Company or a Subsidiary for any reason, except retirement,
disability or death; or
(3) if the Optionee shall execute an assignment for the
benefit of creditors, or admit in writing his ability to pay his
debts generally as they become due, or voluntarily seek the
benefit of, or have a petition filed against him seeking the
benefit of, a judgment, order or decree filed against him
pursuant to any bankruptcy, insolvency, reorganization, or
similar debtor relief law affecting the rights of creditors
generally; or
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(4) failure of the Optionee to have discharged within a
period of thirty (30) days after the commencement thereof any
attachment, sequestration, or similar proceeding against any of
the assets of the Optionee; or
(5) failure of the Optionee to pay any money judgment
against him at least thirty (30) days prior to the date on which
any of his assets may be lawfully sold to satisfy such judgment;
or
(6) failure or refusal of the Optionee to comply with any of
the terms and conditions of his stock option agreement or any
other oral or written agreement with the Company; or
(7) failure or refusal of the Optionee to provide adequate
security for payment of the promissory note immediately upon
request for collateral by the Board; or
(8) the divorce of the Optionee, unless arrangements
satisfactory to the Board are agreed to prior to the entry of the
divorce decree.
(9) Nontransferability of Option. Other than by will or by laws of
descent and distribution, an Option granted under the Plan shall be
transferable or assignable by an Optionee only if and under terms and
conditions approved by the Board, in its sole discretion. Subject to the
foregoing sentence, each Option shall be exercisable, during the Optionee's
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lifetime, only by him. No Option or the shares covered thereby shall be
pledged or hypothecated in any way and no Option or the shares covered
thereby shall be subject to execution, attachment, or similar process
except with the prior express written consent of the Board.
(10) Termination of Employment. Except as may otherwise be authorized
by the Board, upon termination of an Optionee's employment with the Company
or with any of its Subsidiaries for any reason other than retirement,
permanent disability or death, any and all outstanding Option(s) of such
Optionee shall immediately thereupon be null and void. Neither the adoption
of this Plan nor the grant of an Option to an eligible person shall alter
in any way the Company's or the relevant Subsidiary's rights to terminate
such person's employment or directorship at any time with or without cause
nor does it confer upon such person any rights or privileges to continued
employment, or any other rights and privileges, except as specifically
provided in the Plan.
(11) Death of Optionee. Except as may otherwise be authorized by the
Board, if an Optionee dies while in the employ of the Company or any
Subsidiary, his option privileges shall be limited to the shares which were
immediately purchasable by him at the date of death and such option
privileges shall expire unless exercised by his Successor prior to the date
of its expiration or one (1) year from the date of the Optionee's death,
whichever occurs first.
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(12) Ten Percent Stockholder. Notwithstanding anything herein to the
contrary, an Option which is intended to qualify as an Incentive Stock
Option shall be granted hereunder to any Optionee who, immediately before
such Option is granted, beneficially owns, directly or indirectly, more
than 10% of the total voting power of all classes of stock of the Company
only if both of the following conditions are met:
(1) The option price per share shall be no less than 110% of the
Fair Market Value of a share of Common Stock on the Date of Grant; and
(2) The expiration date of the Option shall be not more than five
(5) years from the Date of Grant.
(13) Other Terms. Each Incentive Stock Option Agreement or
Non-Qualified Stock Option Agreement, as the case may be, may contain such
other provisions as the Board in its discretion may determine, including,
without limitation:
(1) in the event that an Option shall be immediately exercisable,
any provision which shall provide that the shares acquired pursuant
thereto shall not be deemed to have been issued pursuant to a fully
vested stock option and thereby subject to repurchase rights (if any)
contained in the shareholder's agreement with the Optionee, entered
into pursuant to Paragraph 10 hereof;
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(2) any provision which shall condition the exercise of all or
part of an Option upon such matters as the Board may deem appropriate
(if any) such as the passage of time, or the attainment of certain
performance goals, appropriate to reflect the contribution of the
Optionee to the performance of the Company;
(3) any provision which would accelerate the exercisability of an
Option in spite of any provision contained in an Option pursuant to
clause (2) above or otherwise, under such circumstances as the Board
may deem appropriate; and
(4) the manner in which an Option is to be exercised.
7. Allotment of Shares. The grant of an Option shall not be deemed either
to entitle the Optionee to, or disqualify the Optionee from, participation in
any other grant of options under this Plan or any other stock option plan of the
Company. The number of shares allotted to each Optionee shall be determined as
follows: The Board shall, in its discretion, determine the number of shares of
Common Stock to be offered from time to time by grant of Options to officers,
key employees and consultants of the Company or its Subsidiaries; provided that
the aggregate Fair Market Value (determined as of the time the option is
granted) of the Common Stock with respect to which Options which are intended to
qualify as Incentive Stock Options are exercisable for the first time by such
Optionee during any calendar year (under all such plans of the Optionee's
employer corporation and its parent and subsidiary corporations) shall not
exceed $100,000.
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8. Adjustments. The number of shares of Common Stock covered by each
outstanding Option granted under the Plan and the option price shall be adjusted
to reflect, as deemed appropriate by the Board in its discretion, any stock
dividend, stock split, reverse stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like of or by the Company. Decisions by the Board as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive on all Optionees.
9. Designation of Incentive Stock Options. The Board shall cause each
Option granted hereunder to be clearly designated in the agreement evidencing
such Option, at the time of grant, as to whether or not it is intended to
qualify as an Incentive Stock Option.
10. Execution of Shareholder's Agreement. Options may only be exercised
hereunder by employees who have executed a Shareholder's Agreement in such form
as the Board may adopt from time to time.
11. Notices. Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Any notice
required or permitted to be delivered hereunder shall be deemed to be delivered
on the date which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United States mail,
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certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has theretofore specified by written
notice delivered in accordance herewith. The Company or an Optionee may change,
at any time and from time to time, by written notice to the other, the address
which it or he had theretofore specified for receiving notices. Until changed in
accordance herewith, the Company and each Optionee shall specify as its and his
address for receiving notices the address set forth in the option agreement
pertaining to the shares to which such notice relates.
12. Amendment or Discontinuance. The Plan and any Option outstanding
hereunder may be amended or discontinued by the Board without the approval of
the stockholders of the Company, except that the Board may not, except as
expressly provided in the Plan, increase the aggregate number of shares which
may be issued under Options granted pursuant to the Plan, materially amend the
eligibility requirements of the Plan or materially increase the benefits which
may accrue to participants under the Plan, without such approval (if any) as may
be required pursuant to applicable law or the requirements of any national stock
exchange upon which the Company's Common Stock is traded.
13. Effect of the Plan. Neither the adoption of this Plan nor any action of
the Board shall be deemed to give any officer or employee any right to be
granted an option to purchase Common Stock of the Company or any of its
Subsidiaries, or any other rights except as may be evidenced by a stock option
agreement, or any amendment thereto, duly authorized by the Board and executed
on behalf of the Company and then only to the extent and on the terms and
conditions expressly set forth therein.
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14. Grant of Incentive Stock Options. No Incentive Stock Options shall be
granted pursuant to this Plan after the expiration of ten years from the date of
the earlier of: (i) the date the Plan is adopted, or (ii) the date the Plan is
approved by the stockholders of the Company.
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EXHIBIT 10(iii)(B)
AMENDMENT NO. TWO
TO
DALLAS SEMICONDUCTOR CORPORATION
EXECUTIVE BONUS PLAN
WHEREAS, Dallas Semiconductor Corporation (the "Company") maintains the
Dallas Semiconductor Corporation Executive Bonus Plan (the "Plan") for the
benefit of certain eligible officers of the Company as set forth in the Plan;
and
WHEREAS, the Compensation Committee of the Company's Board of Directors
(the "Committee") administers the Plan, and under Section 3.1 of the Plan, may
amend the Plan; and
WHEREAS, the Committee wants to amend the Plan to change the way the
maximum annual bonus payable to a Company officer under the Plan is determined,
to amend the eligibility provision of the Plan, to clarify the specific
performance criteria that may be used to determine whether bonuses can be
payable for a fiscal year and to make certain ministerial changes; and
WHEREAS, the Committee intends for the bonuses payable under the Plan
to continue to qualify as "qualified performance-based compensation" under
section 162(m) of the Internal Revenue Code of 1986, as amended ("Code") after
these changes are effective.
NOW, THEREFORE, the Plan is amended as follows, effective January 1,
1999 but (i) only for bonuses payable for the 1999 fiscal year and thereafter
until changed and (ii) only if the Plan, as amended hereby, is approved by a
majority vote of the Company's stockholders in a manner that satisfies the
requirements of section 162(m) of the Code as in effect on the date of the vote.
1. Section 2.1 is hereby amended to as to hereafter read as
follows:
"Section 2.1 Eligibility. Officers of the Company at
the level of Vice President and above at the end of each
fiscal year of the Company, and any other key employees of the
Company selected by the Committee ("Eligible Officers"), shall
be eligible for a Bonus under this Plan."
2. Section 2.2 is deleted in its entirety, and the following is
substituted as new Section 2.2.
"Section 2.2 Determination of Maximum Bonus. Each
Eligible Officer shall be entitled to a cash bonus under this
Plan ("Bonus") for each fiscal year of the Company, commencing
with the 1999 fiscal year, in an amount not to exceed four (4)
times his or her Base Annual Salary, subject, however, to the
ability of the
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Committee in its sole discretion, for any reason, to reduce or
eliminate the amount of such bonus for any Eligible Officer in
any year. The Base Annual Salary of an Eligible Officer for
the Company's fiscal year for which a bonus is being
determined (the "Bonus Year") shall be the lesser of (i) his
or her base annual compensation in effect on the last business
day of the Bonus Year or (ii) his or her base annual
compensation in effect on the last business day of the
Company's fiscal year immediately preceding the Bonus Year,
plus seven and one-half percent (7.5%)."
3. Section 2.3 is deleted in its entirety, and the following is
substituted as new Section 2.3.
"Section 2.3 Performance Criteria. Before April 1,
1994 (with respect to the Company's 1994 fiscal year) and
within ninety (90) days after the commencement of each fiscal
year of the Company thereafter, the Committee shall identify
in writing specific performance targets relating to the annual
net sales of the Company, the earnings per share of the
Company, the return on stockholders' equity, price
appreciation, if any, of the Company's Common Stock, or any
one or a combination of such factors, upon which the amount of
the Bonus, if any, to each Eligible Officer shall be based for
the upcoming fiscal year; provided, however, that in no event
shall any formula established by the Committee result in any
Eligible Officer earning a Bonus in excess of the maximum
amount determined in accordance with Section 2.2 of this Plan.
Annual net sales, earnings per share and return on
stockholders' equity shall be determined with reference to the
annual fiscal year-end financial statements of the Company.
Price appreciation, if any, in the Company's Common Stock
shall be determined with reference to the trading values of
the Company's Common Stock."
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IN WITNESS WHEREOF, this Amendment has been executed on the 16th day of
March, 1999.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF
DALLAS SEMICONDUCTOR CORPORATION
/s/ Carmelo J. Santoro
----------------------------------
Carmelo J. Santoro, Chairman
/s/ Richard L. King
----------------------------------
Richard L. King
/s/ M. D. Sampels
----------------------------------
M. D. Sampels
/s/ E. R. Zumwalt, Jr.
----------------------------------
E. R. Zumwalt, Jr.
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EXHIBIT 10(iii)C
May 20, 1999
Mr. C. V. Prothro
Chairman of the Board, President and
Chief Executive Officer
Dallas Semiconductor Corporation
4401 South Beltwood Parkway
Dallas, Texas 75244
Dear Mr. Prothro:
Dallas Semiconductor Corporation (the "Company") considers it essential
to the best interests of its stockholders to foster the continuous employment of
key management personnel. In this connection, should the Company receive a
proposal from a third party, whether solicited by the Company or unsolicited,
concerning a possible business combination with, or the acquisition of a
substantial share of the equity or voting securities of, the Company, the Board
of Directors of the Company (the "Board") has determined that it is imperative
that it and the Company be able to rely upon your continued services without
concern that you might be distracted by the personal uncertainties and risks
that such a proposal might otherwise entail.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including you, to their assigned duties
without distraction in the face of potentially disturbing circumstances that
could arise out of a possible change in control of the Company.
In order to induce you to remain in the employ of the Company and its
subsidiaries, the Company agrees that you shall receive the benefits set forth
in this letter agreement ("Agreement") in the event of a Change in Control (as
defined in Section 1.3 hereof).
SECTION ONE -- DEFINITIONS
1.1 "Annual Compensation" shall mean the sum of: (i) your annualized
base salary, as determined by the payroll records of the Company, in effect on
the date that immediately precedes a Change in Control; plus (ii) (solely for
purposes of Section 3.1(b) the amounts payable to you under any Deferred
Compensation Plan determined as if, upon a Change in Control, you were fully
vested and entitled to payment of all deferred
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compensation earned or accrued by you under any Deferred Compensation Plan; plus
(iii) a bonus, as determined by the payroll records of the Company, equal to the
greater of (a) any bonus paid or payable to you for personal services rendered
during the Company's fiscal year in which a Change in Control occurs, or (b) the
highest annual bonus paid to you for personal services rendered for any of four
(4) fiscal years of the Company preceding the Company's fiscal year in which a
Change in Control occurs.
1.2 "Beneficiary" shall mean the person(s) described in Section 5 of
this Agreement.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not the Company is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board and any new director, whose election to the Board or
nomination for election to the Board by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, except that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 15% of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company; (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or (v) the election of any person other than C. V. Prothro as Chief Executive
Officer of the Company.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
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1.5 "Deferred Compensation Plan" shall mean any of the Company's
nonqualified deferred compensation plans, programs or arrangements in which you
are a participant upon a Change in Control.
1.6 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.7 "Stock Option Plans" shall mean, collectively, any stock option
granted to you by the Company, the Company's 1987 Stock Option Plan, the
Company's 1993 Officer and Director Stock Option Plan, and such other Company
stock option plans under which grants of options are made to you during the term
of this Agreement.
SECTION 2 -- TERM AND TERMINATION
Subject to the provisions of Section 6 below, this Agreement shall
commence on the date set forth above and shall terminate on the earlier of:
(a) the tenth (10th) anniversary of the date of execution of this
Agreement; or
(b) the date on which the Board designates as long as a Change in
Control shall not have occurred.
SECTION THREE - BENEFITS
3.1 Upon the occurrence of a Change in Control, you shall be entitled
to the benefits provided below:
(a) Compensation. No later than the tenth (10th) calendar day
following the Change in Control or such earlier date as may be approved
by the Board, the Company shall pay you (or your Beneficiary, if
applicable) your full base salary through the date immediately
preceding a Change in Control at the rate in effect at such time, plus
all other amounts to which you are entitled under any benefit or
compensation plan of the Company applicable to you, including those
benefits and compensation payable pursuant to Section 3.1(c) - (g)
below;
(b) Severance Payment. You (or your Beneficiary, if
applicable) shall receive from the Company a cash lump sum payment
equal to 299% of your Annual Compensation, payable within ten (10)
calendar days after the Change in Control or such earlier date as may
be approved by the Board. The Severance Payment shall not be reduced by
the amount of any other payment or the value of any benefit received or
to be received by you (whether payable pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company
or an affiliate, predecessor or successor of the Company or any person
whose actions result in a Change in Control of the Company or an
affiliate of such person).
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(c) Incentives and Awards.
(i) You (or your Beneficiary, if applicable) shall
own and be immediately vested in all incentives, awards and perquisites
previously made available to you by the Company. To the extent that an
incentive, award or perquisite subject to this paragraph is based upon
other than stock, you shall receive an amount in cash equal to the fair
market value, as determined by you and the Company as of the first
business day immediately preceding the Change in Control, of such
non-stock based incentive, award or perquisite determined as if such
incentive, award or perquisite were payable under the respective plan
as of the Change in Control, which amount shall be payable in a single
lump sum payment within ten (10) calendar days after the Change in
Control or such earlier date as may be approved by the Board; (or at
your sole option, you may retain all such non-cash incentives, awards
and perquisites.)
(ii) Your stock-based incentives or awards subject to
this Section 3.1(c) shall be exercisable upon the Change in Control to
the extent and manner, and within the time period, provided by the
respective Stock Options and awards;
(d) Employee Benefit Plans. Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, you (or your Beneficiary, if applicable) shall also be paid an
additional lump sum payment equal to the sum of: (1) any accrued,
unpaid vacation pay which you have earned under any of the Company's
vacation policies and (2) the amounts payable to you under the terms of
any Deferred Compensation Plan determined as if, upon the Change in
Control, you were fully vested and entitled to payment to all deferred
compensation earned or accrued by you under any Deferred Compensation
Plan. If upon the Change in Control, any Deferred Compensation Plan has
not been amended by the Company to provide for vesting and payment as
provided in this Agreement, you shall have the choice, in your sole
discretion and without objection by the Company, (A) to consider this
Agreement as having amended the respective Deferred Compensation Plan
(and related documents) to make the changes to the respective Deferred
Compensation Plan (and related documents) that are described in this
Agreement, or (B) to receive from the Company a cash lump sum payment
in lieu of any payments which he would be entitled to receive in the
future under any Deferred Compensation Plan. If an election is made
under subsection (B) above, you shall forfeit any and all of your
rights to receive payment of benefits from any Deferred Compensation
Plan, and in lieu of that forfeited right, you shall receive an amount
equal to the fair market value, as determined by the Company and you,
as of the first business day immediately preceding the Change in
Control, of the vested and earned or accrued amount thereunder, in a
cash lump sum payment payable within ten (10) calendar days after the
Change in Control or such earlier date as may be approved by the Board;
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(e) Welfare Benefit Plans and Life Insurance. From and after
the Change in Control, you (for your lifetime) and your spouse (for her
lifetime) shall, in your sole discretion, continue to participate, at
no cost to you or your spouse, in all health, dental, disability,
accident and life insurance plans or arrangements of the Company in
which you or your spouse were participating immediately prior to the
Change in Control as if you continued to be an employee of the Company;
(f) Retirement Benefit. (i) Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, and on each anniversary date of the Change in Control until you
reach the age of 85 years, the Company shall pay to you the sum of
$280,000; provided that, if you should die before reaching your 85th
birthday, said sum of $280,000 shall be paid to your Beneficiary until
the earlier of his or her death or the 85th anniversary of your
birthday; or (ii) at your sole election, made within three (3) business
days following the Change in Control, you may require the Company to
pay to you a lump sum of money equal to the actuarial equivalent of the
total annual payments provided for in subsection (f)(i) above, such
lump sum to be paid within ten (10) calendar days after such election,
if any, or such earlier date as may be approved by the Board.
(g) Legal Fees. The Company shall also pay to you all legal
fees and expenses incurred by you as a result of the Change in Control
(including all such fees and expenses, if any, incurred in seeking to
obtain or enforce any right or benefit provided by this Agreement).
(h) Mitigation. You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 3 be reduced by any compensation earned by
you as the result of employment by another employer or by retirement
benefits after the Change in Control, or otherwise except as
specifically provided in this Section 3.
3.2 Tax Liability Gross Up.
(a) In the event that any amount paid under this Agreement is
determined to be an "excess parachute payment" under section 280G of the Code
(or any successor provision), which is subject to the excise tax imposed by
section 4999 of the Code (or any successor provision) (the "Excise Tax"), the
Company agrees to pay to you an additional sum (the "Excise Tax Gross Up") in an
amount such that the net amount retained by you, after both (i) receiving all
payments under Section Three of this Agreement other than under this paragraph
("Payment") and the Excise Tax Gross Up, and (ii) paying (y) any Excise Tax on
the Payment and (z) any Federal, state and local income taxes on the Excise Tax
Gross Up, equals the amount of the Payment.
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(b) For purposes of determining the Excise Tax Gross Up, you shall be
deemed to pay Federal, state and local income taxes at the highest marginal rate
of taxation in your filing status for the calendar year in which the Payment is
to be made, based upon your domicile at the time of the Change in Control. The
determination of whether such Excise Tax is payable and the amount of such
Excise Tax shall be based upon the opinion of tax counsel selected by you and
the Company. If such opinion is not finally accepted by the Internal Revenue
Service, then appropriate adjustments shall be calculated (with an additional
Excise Tax Gross Up, if applicable) by such tax counsel based upon the final
amount of Excise Tax so determined, together with any applicable penalties and
interest.
(c) You shall not have any obligation to pay the Company any sums
allegedly due to the Internal Revenue Service by reason of excise tax or
otherwise.
SECTION FOUR -- RESTRICTIONS UPON FUNDING
4.1 The Company shall have no obligation to set aside or entrust any
money with which to pay its obligations under this Agreement. You, your
Beneficiary or any successor-in-interest to your Beneficiary shall be and remain
a general creditor of the Company.
4.2 The Company intends that this Agreement not be subject to ERISA. If
this Agreement is deemed subject to ERISA, it is intended to be an unfunded
arrangement for the benefit of a select member of management who is a highly
compensated employee of the Company, for the purpose of qualifying this
Agreement for the "top hat" plan exception under sections 201(2), 301(a)(3) and
401(a)(1) of ERISA.
4.3 Should the Company elect to purchase life insurance, mutual funds,
disability policies or annuities pursuant to this Agreement, the Company
reserves the absolute right, in its sole discretion, to terminate such
investments at any time, in whole or in part. At no time shall you have, or be
deemed to have, any lien, right, title or interest in or to any specific
investment or to any assets of the Company as a result of this Agreement;
rather, you shall remain a general unsecured creditor of the Company.
4.4 If the Company elects to invest in a life insurance, disability or
annuity policy upon your life, you shall assist the Company by freely submitting
to a physical examination and supplying such additional information necessary to
obtain such insurance or annuities.
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<PAGE> 7
SECTION FIVE -- DESIGNATION OF BENEFICIARY
5.1 Should you die prior to full payment of amounts due under Section
Three, payment shall be made to your Beneficiary. Your written designation of
one or more persons or entities as your Beneficiary shall operate to designate
your Beneficiary under this Agreement. You shall file with the Company a copy of
your Beneficiary designation on the form supplied to you by the Company. The
last such designation form received by the Company shall be controlling, and no
designation, or change or revocation of a designation shall be effective unless
received by the Company prior to your death.
5.2 If no Beneficiary designation is in effect at the time of your
death, if no designated Beneficiary survives you or if the otherwise applicable
Beneficiary designation conflicts with applicable law, your estate shall be the
Beneficiary.
SECTION SIX -- INTERPRETATION, AMENDMENT AND TERMINATION
6.1 Prior to the occurrence of a Change in Control, the Board shall
have exclusive authority to amend, suspend or terminate this Agreement, as
determined in its sole discretion. After the occurrence of a Change in Control,
other than as provided in Section Two, this Agreement may be amended, suspended
or terminated, in whole or in part, only by a written instrument signed by both
a duly authorized officer of the Company other than you, and by you.
SECTION SEVEN -- MISCELLANEOUS
7.1 Alienability and Assignment Prohibition. Neither you, your spouse
nor any other Beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable under this Agreement
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by you or your
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
7.2 Gender. Whenever in this Agreement words are used in the masculine
or neuter gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
7.3 Effect on Other Corporate Benefit Plans. Nothing contained in this
Agreement shall affect your right to participate in or be covered by any
qualified or non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of the
Company's existing or future compensation structure.
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<PAGE> 8
7.4 Headings. Headings and subheadings in this Agreement are inserted
for reference and convenience only and shall not be deemed a part of this
Agreement.
7.5 No Employment Agreement. No provision of this Agreement shall be
deemed or construed to create specific employment rights to you or limit the
right of the Company to discharge you at any time with or without cause. In a
similar fashion, no provision shall limit your rights to voluntarily sever your
employment at any time.
7.6 Withholding of Taxes. Except as may otherwise be specifically
provided for in this Agreement, the Company shall deduct from the amount of any
payment made pursuant to this Agreement any amounts required to be paid or
withheld by the Company with respect to applicable Federal income, Federal
Insurance Contributions Act or Federal Unemployment Tax Act taxes or applicable
state taxes. By executing this Agreement, you agree to all such deductions.
7.7 Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled hereunder upon a Change in Control. As used
in this Agreement, "Company" shall mean the Company as hereinbefore defined and
any such successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
7.8 Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer with a copy to the Chief Financial Officer, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
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7.9. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior to subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. The obligations of the Company under Section 3 shall survive the
expiration of the term of this Agreement.
7.10 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
7.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Very truly yours,
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ Chao C. Mai
------------------------
Chao C. Mai
Its: Senior Vice President
/s/ C. V. Prothro
- ------------------------
C. V. Prothro
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EXHIBIT 10(iii)D
May 20, 1999
Mr. Chao C. Mai
Senior Vice President
Dallas Semiconductor Corporation
4401 South Beltwood Parkway
Dallas, Texas 75244
Dear Mr. Mai:
Dallas Semiconductor Corporation (the "Company") considers it essential
to the best interests of its stockholders to foster the continuous employment of
key management personnel. In this connection, should the Company receive a
proposal from a third party, whether solicited by the Company or unsolicited,
concerning a possible business combination with, or the acquisition of a
substantial share of the equity or voting securities of, the Company, the Board
of Directors of the Company (the "Board") has determined that it is imperative
that it and the Company be able to rely upon your continued services without
concern that you might be distracted by the personal uncertainties and risks
that such a proposal might otherwise entail.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including you, to their assigned duties
without distraction in the face of potentially disturbing circumstances that
could arise out of a possible change in control of the Company.
In order to induce you to remain in the employ of the Company and its
subsidiaries, the Company agrees that you shall receive the benefits set forth
in this letter agreement ("Agreement") in the event of a Change in Control (as
defined in Section 1.3 hereof).
SECTION ONE -- DEFINITIONS
1.1 "Annual Compensation" shall mean the sum of: (i) your annualized
base salary, as determined by the payroll records of the Company, in effect on
the date that immediately precedes a Change in Control; plus (ii) (solely for
purposes of Section 3.1(b) the amounts payable to you under any Deferred
Compensation Plan determined as if, upon a Change in Control, you were fully
vested and entitled to payment of all deferred compensation earned or accrued by
you under any Deferred Compensation Plan; plus (iii)
<PAGE> 2
a bonus, as determined by the payroll records of the Company, equal to the
greater of (a) any bonus paid or payable to you for personal services rendered
during the Company's fiscal year in which a Change in Control occurs, or (b) the
highest annual bonus paid to you for personal services rendered for any of four
(4) fiscal years of the Company preceding the Company's fiscal year in which a
Change in Control occurs.
1.2 "Beneficiary" shall mean the person(s) described in Section 5 of
this Agreement.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not the Company is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board and any new director, whose election to the Board or
nomination for election to the Board by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, except that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 15% of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company; (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or (v) the election of any person other than C. V. Prothro as Chief Executive
Officer of the Company.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Deferred Compensation Plan" shall mean any of the Company's
nonqualified deferred compensation plans, programs or arrangements in which you
are a participant upon a Change in Control.
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1.6 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.7 "Stock Option Plans" shall mean, collectively, any stock option
granted to you by the Company, the Company's 1987 Stock Option Plan, the
Company's 1993 Officer and Director Stock Option Plan, and such other Company
stock option plans under which grants of options are made to you during the term
of this Agreement.
SECTION 2 -- TERM AND TERMINATION
Subject to the provisions of Section 6 below, this Agreement shall
commence on the date set forth above and shall terminate on the earlier of:
(a) the tenth (10th) anniversary of the date of execution of this
Agreement; or
(b) the date on which the Board designates as long as a Change in
Control shall not have occurred.
SECTION THREE -- BENEFITS
3.1 Upon the occurrence of a Change in Control, you shall be entitled
to the benefits provided below:
(a) Compensation. No later than the tenth (10th) calendar day
following the Change in Control or such earlier date as may be approved
by the Board, the Company shall pay you (or your Beneficiary, if
applicable) your full base salary through the date immediately
preceding a Change in Control at the rate in effect at such time, plus
all other amounts to which you are entitled under any benefit or
compensation plan of the Company applicable to you, including those
benefits and compensation payable pursuant to Section 3.1(c) - (g)
below;
(b) Severance Payment. You (or your Beneficiary, if
applicable) shall receive from the Company a cash lump sum payment
equal to 299% of your Annual Compensation, payable within ten calendar
(10) days after the Change in Control or such earlier date as may be
approved by the Board. The Severance Payment shall not be reduced by
the amount of any other payment or the value of any benefit received or
to be received by you (whether payable pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company
or an affiliate, predecessor or successor of the Company or any person
whose actions result in a Change in Control of the Company or an
affiliate of such person).
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(c) Incentives and Awards.
(i) You (or your Beneficiary, if applicable) shall
own and be immediately vested in all incentives, awards and perquisites
previously made available to you by the Company. To the extent that an
incentive, award or perquisite subject to this paragraph is based upon
other than stock, you shall receive an amount in cash equal to the fair
market value, as determined by you and the Company as of the first
business day immediately preceding the Change in Control, of such
non-stock based incentive, award or perquisite determined as if such
incentive, award or perquisite were payable under the respective plan
as of the Change in Control, which amount shall be payable in a single
lump sum payment within ten (10) calendar days after the Change in
Control or such earlier date as may be approved by the Board; (or at
your sole option, you may retain all such non-cash incentives, awards
and perquisites.)
(ii) Your stock-based incentives or awards subject to
this Section 3.1(c) shall be exercisable upon the Change in Control to
the extent and manner and within the time period, provided by the
respective Stock Options and awards;
(d) Employee Benefit Plans. Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, you (or your Beneficiary, if applicable) shall also be paid an
additional lump sum payment equal to the sum of: (1) any accrued,
unpaid vacation pay which you have earned under any of the Company's
vacation policies and (2) the amounts payable to you under the terms of
any Deferred Compensation Plan determined as if, upon the Change in
Control, you were fully vested and entitled to payment to all deferred
compensation earned or accrued by you under any Deferred Compensation
Plan. If upon the Change in Control, any Deferred Compensation Plan has
not been amended by the Company to provide for vesting and payment as
provided in this Agreement, you shall have the choice, in your sole
discretion and without objection by the Company, (A) to consider this
Agreement as having amended the respective Deferred Compensation Plan
(and related documents) to make the changes to the respective Deferred
Compensation Plan (and related documents) that are described in this
Agreement, or (B) to receive from the Company a cash lump sum payment
in lieu of any payments which he would be entitled to receive in the
future under any Deferred Compensation Plan. If an election is made
under subsection (B) above, you shall forfeit any and all of your
rights to receive payment of benefits from any Deferred Compensation
Plan, and in lieu of that forfeited right, you shall receive an amount
equal to the fair market value, as determined by the Company and you,
as of the first business day immediately preceding the Change in
Control, of the vested and earned or accrued amount thereunder, in a
cash lump sum payment payable within ten (10) calendar days after the
Change in Control or such earlier date as may be approved by the Board;
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(e) Welfare Benefit Plans and Life Insurance. From and after
the Change in Control, you (for your lifetime) and your spouse (for her
lifetime) shall, in your sole discretion, continue to participate, at
no cost to you or your spouse, in all health, dental, disability,
accident and life insurance plans or arrangements of the Company in
which you or your spouse were participating immediately prior to the
Change in Control as if you continued to be an employee of the Company;
(f) Retirement Benefit. (i) Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, and on each anniversary date of the Change in Control until your
death, the Company shall pay to you the sum of $132,000; or (ii) at
your sole election, made within three (3) business days following the
Change in Control, you may require the Company to pay to you a lump sum
of money equal to the actuarial equivalent of the total annual payments
provided for in subsection (f)(i) above, such lump sum to be paid
within ten (10) calendar days after such election, if any, or such
earlier date as may be approved by the Board.
(g) Legal Fees. The Company shall also pay to you all legal
fees and expenses incurred by you as a result of the Change in Control
(including all such fees and expenses, if any, incurred in seeking to
obtain or enforce any right or benefit provided by this Agreement).
(h) Mitigation. You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 3 be reduced by any compensation earned by
you as the result of employment by another employer or by retirement
benefits after the Change in Control, or otherwise except as
specifically provided in this Section 3.
3.2 Tax Liability Gross Up.
(a) In the event that any amount paid under this Agreement is
determined to be an "excess parachute payment" under section 280G of the Code
(or any successor provision), which is subject to the excise tax imposed by
section 4999 of the Code (or any successor provision) (the "Excise Tax"), the
Company agrees to pay to you an additional sum (the "Excise Tax Gross Up") in an
amount such that the net amount retained by you, after both (i) receiving all
payments under Section Three of this Agreement other than under this paragraph
("Payment") and the Excise Tax Gross Up, and (ii) paying (y) any Excise Tax on
the Payment and (z) any Federal, state and local income taxes on the Excise Tax
Gross Up, equals the amount of the Payment.
(b) For purposes of determining the Excise Tax Gross Up, you shall be
deemed to pay Federal, state and local income taxes at the highest marginal rate
of taxation in your filing status for the calendar year in which the Payment is
to be made, based upon your domicile at the time of the Change in Control. The
determination of whether such
5
<PAGE> 6
Excise Tax is payable and the amount of such Excise Tax shall be based upon the
opinion of tax counsel selected by you and the Company. If such opinion is not
finally accepted by the Internal Revenue Service, then appropriate adjustments
shall be calculated (with an additional Excise Tax Gross Up, if applicable) by
such tax counsel based upon the final amount of Excise Tax so determined,
together with any applicable penalties and interest.
(c) You shall not have any obligation to pay the Company any sums
allegedly due to the Internal Revenue Service by reason of excise tax or
otherwise.
SECTION FOUR -- RESTRICTIONS UPON FUNDING
4.1 The Company shall have no obligation to set aside or entrust any
money with which to pay its obligations under this Agreement; however, the
Company shall take and maintain all actions as are necessary to insure the
payment and performance of all of the benefits and obligations provided for in
Section 3 above.
4.2 The Company intends that this Agreement not be subject to ERISA. If
this Agreement is deemed subject to ERISA, it is intended to be an unfunded
arrangement for the benefit of a select member of management who is a highly
compensated employee of the Company, for the purpose of qualifying this
Agreement for the "top hat" plan exception under sections 201(2), 301(a)(3) and
401(a)(1) of ERISA.
4.3 Should the Company elect to purchase life insurance, mutual funds,
disability policies or annuities pursuant to this Agreement, the Company
reserves the absolute right, in its sole discretion, to terminate such
investments at any time, in whole or in part. At no time shall you have, or be
deemed to have, any lien, right, title or interest in or to any specific
investment or to any assets of the Company as a result of this Agreement;
rather, you shall remain a general unsecured creditor of the Company.
4.4 If the Company elects to invest in a life insurance, disability or
annuity policy upon your life, you shall assist the Company by freely submitting
to a physical examination and supplying such additional information necessary to
obtain such insurance or annuities.
SECTION FIVE -- DESIGNATION OF BENEFICIARY
5.1 Should you die prior to full payment of amounts due under Section
Three, payment shall be made to your Beneficiary. Your written designation of
one or more persons or entities as your Beneficiary shall operate to designate
your Beneficiary under this Agreement. You shall file with the Company a copy of
your Beneficiary designation on the form supplied to you by the Company. The
last such designation form received by the Company shall be controlling, and no
designation, or change or revocation of a designation shall be effective unless
received by the Company prior to your death.
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<PAGE> 7
5.2 If no Beneficiary designation is in effect at the time of your
death, if no designated Beneficiary survives you or if the otherwise applicable
Beneficiary designation conflicts with applicable law, your estate shall be the
Beneficiary.
SECTION SIX -- INTERPRETATION, AMENDMENT AND TERMINATION
6.1 Prior to the occurrence of a Change in Control, the Board shall
have exclusive authority to amend, suspend or terminate this Agreement, as
determined in its sole discretion. After the occurrence of a Change in Control,
other than as provided in Section Two, this Agreement may be amended, suspended
or terminated, in whole or in part, only by a written instrument signed by both
a duly authorized officer of the Company other than you, and by you.
SECTION SEVEN -- MISCELLANEOUS
7.1 Alienability and Assignment Prohibition. Neither you, your spouse
nor any other Beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable under this Agreement
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by you or your
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
7.2 Gender. Whenever in this Agreement words are used in the masculine
or neuter gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
7.3 Effect on Other Corporate Benefit Plans. Nothing contained in this
Agreement shall affect your right to participate in or be covered by any
qualified or non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of the
Company's existing or future compensation structure.
7.4 Headings. Headings and subheadings in this Agreement are inserted
for reference and convenience only and shall not be deemed a part of this
Agreement.
7.5 No Employment Agreement. No provision of this Agreement shall be
deemed or construed to create specific employment rights to you or limit the
right of the Company to discharge you at any time with or without cause. In a
similar fashion, no provision shall limit your rights to voluntarily sever your
employment at any time.
7.6 Withholding of Taxes. Except as may otherwise be specifically
provided for in this Agreement, the Company shall deduct from the amount of any
payment made
7
<PAGE> 8
pursuant to this Agreement any amounts required to be paid or withheld by the
Company with respect to applicable Federal income, Federal Insurance
Contributions Act or Federal Unemployment Tax Act taxes or applicable state
taxes. By executing this Agreement, you agree to all such deductions.
7.7 Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled hereunder upon a Change in Control. As used
in this Agreement, "Company" shall mean the Company as hereinbefore defined and
any such successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
7.8 Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer with a copy to the Chief Financial Officer, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
7.9. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior to subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. The obligations of the Company under Section 3 shall survive the
expiration of the term of this Agreement.
8
<PAGE> 9
7.10 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
7.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Very truly yours,
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ C. V. Prothro
-------------------------
C. V. Prothro
Chairman of the Board, President
and Chief Executive Officer
/s/ Chao C. Mai
- ------------------------
Chao C. Mai
9
<PAGE> 1
EXHIBIT 10(iii)(E)
May 20, 1999
Mr. Michael L. Bolan
Vice President - Marketing and Product Development
Dallas Semiconductor Corporation
4401 South Beltwood Parkway
Dallas, Texas 75244
Dear Mr. Bolan:
Dallas Semiconductor Corporation (the "Company") considers it essential
to the best interests of its stockholders to foster the continuous employment of
key management personnel. In this connection, should the Company receive a
proposal from a third party, whether solicited by the Company or unsolicited,
concerning a possible business combination with, or the acquisition of a
substantial share of the equity or voting securities of, the Company, the Board
of Directors of the Company (the "Board") has determined that it is imperative
that it and the Company be able to rely upon your continued services without
concern that you might be distracted by the personal uncertainties and risks
that such a proposal might otherwise entail.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including you, to their assigned duties
without distraction in the face of potentially disturbing circumstances that
could arise out of a possible change in control of the Company.
In order to induce you to remain in the employ of the Company and its
subsidiaries, the Company agrees that you shall receive the benefits set forth
in this letter agreement ("Agreement") in the event of a Change in Control (as
defined in Section 1.3 hereof).
SECTION ONE -- DEFINITIONS
1.1 "Annual Compensation" shall mean the sum of: (i) your annualized
base salary, as determined by the payroll records of the Company, in effect on
the date that immediately precedes a Change in Control; plus (ii) (solely for
purposes of Section 3.1(b) the amounts payable to you under any Deferred
Compensation Plan determined as if, upon a Change in Control, you were fully
vested and entitled to payment of all deferred compensation earned or accrued by
you under any Deferred Compensation Plan; plus (iii) a bonus, as determined by
the payroll records of the Company, equal to the greater of (a)
<PAGE> 2
any bonus paid or payable to you for personal services rendered during the
Company's fiscal year in which a Change in Control occurs, or (b) the highest
annual bonus paid to you for personal services rendered for any of four (4)
fiscal years of the Company preceding the Company's fiscal year in which a
Change in Control occurs.
1.2 "Beneficiary" shall mean the person(s) described in Section 5 of
this Agreement.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not the Company is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board and any new director, whose election to the Board or
nomination for election to the Board by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, except that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 15% of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company; (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or (v) the election of any person other than C. V. Prothro as Chief Executive
Officer of the Company.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Deferred Compensation Plan" shall mean any of the Company's
nonqualified deferred compensation plans, programs or arrangements in which you
are a participant upon a Change in Control.
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<PAGE> 3
1.6 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.7 "Stock Option Plans" shall mean, collectively, any stock option
granted to you by the Company, the Company's 1987 Stock Option Plan, the
Company's 1993 Officer and Director Stock Option Plan, and such other Company
stock option plans under which grants of options are made to you during the term
of this Agreement.
SECTION 2 -- TERM AND TERMINATION
Subject to the provisions of Section 6 below, this Agreement shall
commence on the date set forth above and shall terminate on the earlier of:
(a) the tenth (10th) anniversary of the date of execution of this
Agreement; or
(b) the date on which the Board designates as long as a Change in
Control shall not have occurred.
SECTION THREE - BENEFITS
3.1 Upon the occurrence of a Change in Control, you shall be entitled
to the benefits provided below:
(a) Compensation. No later than the tenth (10th) calendar day
following the Change in Control or such earlier date as may be approved
by the Board, the Company shall pay you (or your Beneficiary, if
applicable) your full base salary through the date immediately
preceding a Change in Control at the rate in effect at such time, plus
all other amounts to which you are entitled under any benefit or
compensation plan of the Company applicable to you, including those
benefits and compensation payable pursuant to Section 3.1(c) - (g)
below;
(b) Severance Payment. You (or your Beneficiary, if
applicable) shall receive from the Company a cash lump sum payment
equal to 299% of your Annual Compensation, payable within ten (10)
calendar days after the Change in Control or such earlier date as may
be approved by the Board. The Severance Payment shall not be reduced by
the amount of any other payment or the value of any benefit received or
to be received by you (whether payable pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company
or an affiliate, predecessor or successor of the Company or any person
whose actions result in a Change in Control of the Company or an
affiliate of such person).
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<PAGE> 4
(c) Incentives and Awards.
(i) You (or your Beneficiary, if applicable) shall
own and be immediately vested in all incentives, awards and perquisites
previously made available to you by the Company. To the extent that an
incentive, award or perquisite subject to this paragraph is based upon
other than stock, you shall receive an amount in cash equal to the fair
market value, as determined by you and the Company as of the first
business day immediately preceding the Change in Control, of such
non-stock based incentive, award or perquisite determined as if such
incentive, award or perquisite were payable under the respective plan
as of the Change in Control, which amount shall be payable in a single
lump sum payment within ten (10) calendar days after the Change in
Control or such earlier date as may be approved by the Board; (or at
your sole option, you may retain all such non-cash incentives, awards
and perquisites.)
(ii) Your stock-based incentives or awards subject to
this Section 3.1(c) shall be exercisable upon the Change in Control to
the extent and manner and within the time period, provided by the
respective Stock Options and awards;
(d) Employee Benefit Plans. Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, you (or your Beneficiary, if applicable) shall also be paid an
additional lump sum payment equal to the sum of: (1) any accrued,
unpaid vacation pay which you have earned under any of the Company's
vacation policies and (2) the amounts payable to you under the terms of
any Deferred Compensation Plan determined as if, upon the Change in
Control, you were fully vested and entitled to payment to all deferred
compensation earned or accrued by you under any Deferred Compensation
Plan. If upon the Change in Control, any Deferred Compensation Plan has
not been amended by the Company to provide for vesting and payment as
provided in this Agreement, you shall have the choice, in your sole
discretion and without objection by the Company, (A) to consider this
Agreement as having amended the respective Deferred Compensation Plan
(and related documents) to make the changes to the respective Deferred
Compensation Plan (and related documents) that are described in this
Agreement, or (B) to receive from the Company a cash lump sum payment
in lieu of any payments which he would be entitled to receive in the
future under any Deferred Compensation Plan. If an election is made
under subsection (B) above, you shall forfeit any and all of your
rights to receive payment of benefits from any Deferred Compensation
Plan, and in lieu of that forfeited right, you shall receive an amount
equal to the fair market value, as determined by the Company and you,
as of the first business day immediately preceding the Change in
Control, of the vested and earned or accrued amount thereunder, in a
cash lump sum payment payable within ten (10) calendar days after the
Change in Control or such earlier date as may be approved by the Board;
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<PAGE> 5
(e) Welfare Benefit Plans and Life Insurance. From and after
the Change in Control, you (for your lifetime) and your spouse (for her
lifetime) shall, in your sole discretion, continue to participate, at
no cost to you or your spouse, in all health, dental, disability,
accident and life insurance plans or arrangements of the Company in
which you or your spouse were participating immediately prior to the
Change in Control as if you continued to be an employee of the Company;
(f) Retirement Benefit. (i) Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, and on each anniversary date of the Change in Control until your
death, the Company shall pay to you the sum of $90,000; or (ii) at your
sole election, made within three (3) business days following the Change
in Control, you may require the Company to pay to you a lump sum of
money equal to the actuarial equivalent of the total annual payments
provided for in subsection (f)(i) above, such lump sum to be paid
within ten (10) calendar days after such election, if any, or such
earlier date as may be approved by the Board.
(g) Legal Fees. The Company shall also pay to you all legal
fees and expenses incurred by you as a result of the Change in Control
(including all such fees and expenses, if any, incurred in seeking to
obtain or enforce any right or benefit provided by this Agreement).
(h) Mitigation. You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 3 be reduced by any compensation earned by
you as the result of employment by another employer or by retirement
benefits after the Change in Control, or otherwise except as
specifically provided in this Section 3.
3.2 Tax Liability Gross Up.
(a) In the event that any amount paid under this Agreement is
determined to be an "excess parachute payment" under section 280G of the Code
(or any successor provision), which is subject to the excise tax imposed by
section 4999 of the Code (or any successor provision) (the "Excise Tax"), the
Company agrees to pay to you an additional sum (the "Excise Tax Gross Up") in an
amount such that the net amount retained by you, after both (i) receiving all
payments under Section Three of this Agreement other than under this paragraph
("Payment") and the Excise Tax Gross Up, and (ii) paying (y) any Excise Tax on
the Payment and (z) any Federal, state and local income taxes on the Excise Tax
Gross Up, equals the amount of the Payment.
(b) For purposes of determining the Excise Tax Gross Up, you shall be
deemed to pay Federal, state and local income taxes at the highest marginal rate
of taxation in your filing status for the calendar year in which the Payment is
to be made, based upon your domicile at the time of the Change in Control. The
determination of whether such
5
<PAGE> 6
Excise Tax is payable and the amount of such Excise Tax shall be based upon the
opinion of tax counsel selected by you and the Company. If such opinion is not
finally accepted by the Internal Revenue Service, then appropriate adjustments
shall be calculated (with an additional Excise Tax Gross Up, if applicable) by
such tax counsel based upon the final amount of Excise Tax so determined,
together with any applicable penalties and interest.
(c) You shall not have any obligation to pay the Company any sums
allegedly due to the Internal Revenue Service by reason of excise tax or
otherwise.
SECTION FOUR -- RESTRICTIONS UPON FUNDING
4.1 The Company shall have no obligation to set aside or entrust any
money with which to pay its obligations under this Agreement; however, the
Company shall take and maintain all actions as are necessary to insure the
payment and performance of all of the benefits and obligations provided for in
Section 3 above.
4.2 The Company intends that this Agreement not be subject to ERISA. If
this Agreement is deemed subject to ERISA, it is intended to be an unfunded
arrangement for the benefit of a select member of management who is a highly
compensated employee of the Company, for the purpose of qualifying this
Agreement for the "top hat" plan exception under sections 201(2), 301(a)(3) and
401(a)(1) of ERISA.
4.3 Should the Company elect to purchase life insurance, mutual funds,
disability policies or annuities pursuant to this Agreement, the Company
reserves the absolute right, in its sole discretion, to terminate such
investments at any time, in whole or in part. At no time shall you have, or be
deemed to have, any lien, right, title or interest in or to any specific
investment or to any assets of the Company as a result of this Agreement;
rather, you shall remain a general unsecured creditor of the Company.
4.4 If the Company elects to invest in a life insurance, disability or
annuity policy upon your life, you shall assist the Company by freely submitting
to a physical examination and supplying such additional information necessary to
obtain such insurance or annuities.
SECTION FIVE -- DESIGNATION OF BENEFICIARY
5.1 Should you die prior to full payment of amounts due under Section
Three, payment shall be made to your Beneficiary. Your written designation of
one or more persons or entities as your Beneficiary shall operate to designate
your Beneficiary under this Agreement. You shall file with the Company a copy of
your Beneficiary designation on the form supplied to you by the Company. The
last such designation form received by the Company shall be controlling, and no
designation, or change or revocation of a designation shall be effective unless
received by the Company prior to your death.
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<PAGE> 7
5.2 If no Beneficiary designation is in effect at the time of your
death, if no designated Beneficiary survives you or if the otherwise applicable
Beneficiary designation conflicts with applicable law, your estate shall be the
Beneficiary.
SECTION SIX -- INTERPRETATION, AMENDMENT AND TERMINATION
6.1 Prior to the occurrence of a Change in Control, the Board shall
have exclusive authority to amend, suspend or terminate this Agreement, as
determined in its sole discretion. After the occurrence of a Change in Control,
other than as provided in Section Two, this Agreement may be amended, suspended
or terminated, in whole or in part, only by a written instrument signed by both
a duly authorized officer of the Company other than you, and by you.
SECTION SEVEN -- MISCELLANEOUS
7.1 Alienability and Assignment Prohibition. Neither you, your spouse
nor any other Beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable under this Agreement
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by you or your
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
7.2 Gender. Whenever in this Agreement words are used in the masculine
or neuter gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
7.3 Effect on Other Corporate Benefit Plans. Nothing contained in this
Agreement shall affect your right to participate in or be covered by any
qualified or non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of the
Company's existing or future compensation structure.
7.4 Headings. Headings and subheadings in this Agreement are inserted
for reference and convenience only and shall not be deemed a part of this
Agreement.
7.5 No Employment Agreement. No provision of this Agreement shall be
deemed or construed to create specific employment rights to you or limit the
right of the Company to discharge you at any time with or without cause. In a
similar fashion, no provision shall limit your rights to voluntarily sever your
employment at any time.
7.6 Withholding of Taxes. Except as may otherwise be specifically
provided for in this Agreement, the Company shall deduct from the amount of any
payment made pursuant to this Agreement any amounts required to be paid or
withheld by the Company
7
<PAGE> 8
with respect to applicable Federal income, Federal Insurance Contributions Act
or Federal Unemployment Tax Act taxes or applicable state taxes. By executing
this Agreement, you agree to all such deductions.
7.7 Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled hereunder upon a Change in Control. As used
in this Agreement, "Company" shall mean the Company as hereinbefore defined and
any such successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
7.8 Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer with a copy to the Chief Financial Officer, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
7.9. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior to subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. The obligations of the Company under Section 3 shall survive the
expiration of the term of this Agreement.
8
<PAGE> 9
7.10 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
7.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Very truly yours,
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ C. V. Prothro
---------------------------------
C. V. Prothro
Chairman of the Board, President
and Chief Executive Officer
/s/ Michael L. Bolan
- --------------------------------
Michael L. Bolan
9
<PAGE> 1
EXHIBIT 10(iii)F
May 20, 1999
Mr. Alan P. Hale
Vice President - Finance
Dallas Semiconductor Corporation
4401 South Beltwood Parkway
Dallas, Texas 75244
Dear Mr. Hale:
Dallas Semiconductor Corporation (the "Company") considers it essential
to the best interests of its stockholders to foster the continuous employment of
key management personnel. In this connection, should the Company receive a
proposal from a third party, whether solicited by the Company or unsolicited,
concerning a possible business combination with, or the acquisition of a
substantial share of the equity or voting securities of, the Company, the Board
of Directors of the Company (the "Board") has determined that it is imperative
that it and the Company be able to rely upon your continued services without
concern that you might be distracted by the personal uncertainties and risks
that such a proposal might otherwise entail.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including you, to their assigned duties
without distraction in the face of potentially disturbing circumstances that
could arise out of a possible change in control of the Company.
In order to induce you to remain in the employ of the Company and its
subsidiaries, the Company agrees that you shall receive the benefits set forth
in this letter agreement ("Agreement") in the event of a Change in Control (as
defined in Section 1.3 hereof).
SECTION ONE -- DEFINITIONS
1.1 "Annual Compensation" shall mean the sum of: (i) your annualized
base salary, as determined by the payroll records of the Company, in effect on
the date that immediately precedes a Change in Control; plus (ii) (solely for
purposes of Section 3.1(b) the amounts payable to you under any Deferred
Compensation Plan determined as if, upon a Change in Control, you were fully
vested and entitled to payment of all deferred compensation earned or accrued by
you under any Deferred Compensation Plan; plus (iii) a bonus, as determined by
the payroll records of the Company, equal to the greater of (a)
<PAGE> 2
any bonus paid or payable to you for personal services rendered during the
Company's fiscal year in which a Change in Control occurs, or (b) the highest
annual bonus paid to you for personal services rendered for any of four (4)
fiscal years of the Company preceding the Company's fiscal year in which a
Change in Control occurs.
1.2 "Beneficiary" shall mean the person(s) described in Section 5 of
this Agreement.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not the Company is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board and any new director, whose election to the Board or
nomination for election to the Board by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, except that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 15% of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company; (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or (v) the election of any person other than C. V. Prothro as Chief Executive
Officer of the Company.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Deferred Compensation Plan" shall mean any of the Company's
nonqualified deferred compensation plans, programs or arrangements in which you
are a participant upon a Change in Control.
2
<PAGE> 3
1.6 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.7 "Stock Option Plans" shall mean, collectively, any stock option
granted to you by the Company, the Company's 1987 Stock Option Plan, the
Company's 1993 Officer and Director Stock Option Plan, and such other Company
stock option plans under which grants of options are made to you during the term
of this Agreement.
SECTION 2 -- TERM AND TERMINATION
Subject to the provisions of Section 6 below, this Agreement shall
commence on the date set forth above and shall terminate on the earlier of:
(a) the tenth (10th) anniversary of the date of execution of this
Agreement; or
(b) the date on which the Board designates as long as a Change in
Control shall not have occurred.
SECTION THREE - BENEFITS
3.1 Upon the occurrence of a Change in Control, you shall be entitled
to the benefits provided below:
(a) Compensation. No later than the tenth (10th) calendar day
following the Change in Control or such earlier date as may be approved
by the Board, the Company shall pay you (or your Beneficiary, if
applicable) your full base salary through the date immediately
preceding a Change in Control at the rate in effect at such time, plus
all other amounts to which you are entitled under any benefit or
compensation plan of the Company applicable to you, including those
benefits and compensation payable pursuant to Section 3.1(c) - (g)
below;
(b) Severance Payment. You (or your Beneficiary, if
applicable) shall receive from the Company a cash lump sum payment
equal to 299% of your Annual Compensation, payable within ten calendar
(10) days after the Change in Control or such earlier date as may be
approved by the Board. The Severance Payment shall not be reduced by
the amount of any other payment or the value of any benefit received or
to be received by you (whether payable pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company
or an affiliate, predecessor or successor of the Company or any person
whose actions result in a Change in Control of the Company or an
affiliate of such person).
3
<PAGE> 4
(c) Incentives and Awards.
(i) You (or your Beneficiary, if applicable) shall
own and be immediately vested in all incentives, awards and perquisites
previously made available to you by the Company. To the extent that an
incentive, award or perquisite subject to this paragraph is based upon
other than stock, you shall receive an amount in cash equal to the fair
market value, as determined by you and the Company as of the first
business day immediately preceding the Change in Control, of such
non-stock based incentive, award or perquisite determined as if such
incentive, award or perquisite were payable under the respective plan
as of the Change in Control, which amount shall be payable in a single
lump sum payment within ten (10) calendar days after the Change in
Control or such earlier date as may be approved by the Board; (or at
your sole option, you may retain all such non-cash incentives, awards
and perquisites.)
(ii) Your stock-based incentives or awards subject to
this Section 3.1(c) shall exercisable upon the Change in Control to the
extent and manner and within the time period, provided by the
respective Stock Options and awards;
(d) Employee Benefit Plans. Within ten (10) calendar days of
the Change in Control or such earlier date as may be approved by the
Board, you (or your Beneficiary, if applicable) shall also be paid an
additional lump sum payment equal to the sum of: (1) any accrued,
unpaid vacation pay which you have earned under any of the Company's
vacation policies and (2) the amounts payable to you under the terms of
any Deferred Compensation Plan determined as if, upon the Change in
Control, you were fully vested and entitled to payment to all deferred
compensation earned or accrued by you under any Deferred Compensation
Plan. If upon the Change in Control, any Deferred Compensation Plan has
not been amended by the Company to provide for vesting and payment as
provided in this Agreement, you shall have the choice, in your sole
discretion and without objection by the Company, (A) to consider this
Agreement as having amended the respective Deferred Compensation Plan
(and related documents) to make the changes to the respective Deferred
Compensation Plan (and related documents) that are described in this
Agreement, or (B) to receive from the Company a cash lump sum payment
in lieu of any payments which he would be entitled to receive in the
future under any Deferred Compensation Plan. If an election is made
under subsection (B) above, you shall forfeit any and all of your
rights to receive payment of benefits from any Deferred Compensation
Plan, and in lieu of that forfeited right, you shall receive an amount
equal to the fair market value, as determined by the Company and you,
as of the first business day immediately preceding the Change in
Control, of the vested and earned or accrued amount thereunder, in a
cash lump sum payment payable within ten (10) calendar days after the
Change in Control or such earlier date as may be approved by the Board;
4
<PAGE> 5
(e) Welfare Benefit Plans and Life Insurance. From and after
the Change in Control, you (for your lifetime) and your spouse (for her
lifetime) shall, in your sole discretion, continue to participate, at
no cost to you or your spouse, in all health, dental, disability,
accident and life insurance plans or arrangements of the Company in
which you or your spouse were participating immediately prior to the
Change in Control as if you continued to be an employee of the Company;
(f) Retirement Benefit. (i) Within ten (10) calendar days
following your fifty-fifth (55th) birthday, and within ten (10)
calendar days of each successive birthday thereafter until your death,
the Company shall pay to you the sum of $65,000;
(g) Legal Fees. The Company shall also pay to you all legal
fees and expenses incurred by you as a result of the Change in Control
(including all such fees and expenses, if any, incurred in seeking to
obtain or enforce any right or benefit provided by this Agreement).
(h) Mitigation. You shall not be required to mitigate the
amount of any payment provided for in this Section 3 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 3 be reduced by any compensation earned by
you as the result of employment by another employer or by retirement
benefits after the Change in Control, or otherwise except as
specifically provided in this Section 3.
3.2 Tax Liability Gross Up.
(a) In the event that any amount paid under this Agreement is
determined to be an "excess parachute payment" under section 280G of the Code
(or any successor provision), which is subject to the excise tax imposed by
section 4999 of the Code (or any successor provision) (the "Excise Tax"), the
Company agrees to pay to you an additional sum (the "Excise Tax Gross Up") in an
amount such that the net amount retained by you, after both (i) receiving all
payments under Section Three of this Agreement other than under this paragraph
("Payment") and the Excise Tax Gross Up, and (ii) paying (y) any Excise Tax on
the Payment and (z) any Federal, state and local income taxes on the Excise Tax
Gross Up, equals the amount of the Payment.
5
<PAGE> 6
(b) For purposes of determining the Excise Tax Gross Up, you shall be
deemed to pay Federal, state and local income taxes at the highest marginal rate
of taxation in your filing status for the calendar year in which the Payment is
to be made, based upon your domicile at the time of the Change in Control. The
determination of whether such Excise Tax is payable and the amount of such
Excise Tax shall be based upon the opinion of tax counsel selected by you and
the Company. If such opinion is not finally accepted by the Internal Revenue
Service, then appropriate adjustments shall be calculated (with an additional
Excise Tax Gross Up, if applicable) by such tax counsel based upon the final
amount of Excise Tax so determined, together with any applicable penalties and
interest.
(c) You shall not have any obligation to pay the Company any sums
allegedly due to the Internal Revenue Service by reason of excise tax or
otherwise.
SECTION FOUR -- RESTRICTIONS UPON FUNDING
4.1 The Company shall have no obligation to set aside or entrust any
money with which to pay its obligations under this Agreement; however, the
Company shall take and maintain all actions as are necessary to insure the
payment and performance of all of the benefits and obligations provided for in
Section 3 above.
4.2 The Company intends that this Agreement not be subject to ERISA. If
this Agreement is deemed subject to ERISA, it is intended to be an unfunded
arrangement for the benefit of a select member of management who is a highly
compensated employee of the Company, for the purpose of qualifying this
Agreement for the "top hat" plan exception under sections 201(2), 301(a)(3) and
401(a)(1) of ERISA.
4.3 Should the Company elect to purchase life insurance, mutual funds,
disability policies or annuities pursuant to this Agreement, the Company
reserves the absolute right, in its sole discretion, to terminate such
investments at any time, in whole or in part. At no time shall you have, or be
deemed to have, any lien, right, title or interest in or to any specific
investment or to any assets of the Company as a result of this Agreement;
rather, you shall remain a general unsecured creditor of the Company.
4.4 If the Company elects to invest in a life insurance, disability or
annuity policy upon your life, you shall assist the Company by freely submitting
to a physical examination and supplying such additional information necessary to
obtain such insurance or annuities.
6
<PAGE> 7
SECTION FIVE -- DESIGNATION OF BENEFICIARY
5.1 Should you die prior to full payment of amounts due under Section
Three, payment shall be made to your Beneficiary. Your written designation of
one or more persons or entities as your Beneficiary shall operate to designate
your Beneficiary under this Agreement. You shall file with the Company a copy of
your Beneficiary designation on the form supplied to you by the Company. The
last such designation form received by the Company shall be controlling, and no
designation, or change or revocation of a designation shall be effective unless
received by the Company prior to your death.
5.2 If no Beneficiary designation is in effect at the time of your
death, if no designated Beneficiary survives you or if the otherwise applicable
Beneficiary designation conflicts with applicable law, your estate shall be the
Beneficiary.
SECTION SIX -- INTERPRETATION, AMENDMENT AND TERMINATION
6.1 Prior to the occurrence of a Change in Control, the Board shall
have exclusive authority to amend, suspend or terminate this Agreement, as
determined in its sole discretion. After the occurrence of a Change in Control,
other than as provided in Section Two, this Agreement may be amended, suspended
or terminated, in whole or in part, only by a written instrument signed by both
a duly authorized officer of the Company other than you, and by you.
SECTION SEVEN -- MISCELLANEOUS
7.1 Alienability and Assignment Prohibition. Neither you, your spouse
nor any other Beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable under this Agreement
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by you or your
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
7.2 Gender. Whenever in this Agreement words are used in the masculine
or neuter gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
7.3 Effect on Other Corporate Benefit Plans. Nothing contained in this
Agreement shall affect your right to participate in or be covered by any
qualified or non-qualified pension, profit sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of the
Company's existing or future compensation structure.
7
<PAGE> 8
7.4 Headings. Headings and subheadings in this Agreement are inserted
for reference and convenience only and shall not be deemed a part of this
Agreement.
7.5 No Employment Agreement. No provision of this Agreement shall be
deemed or construed to create specific employment rights to you or limit the
right of the Company to discharge you at any time with or without cause. In a
similar fashion, no provision shall limit your rights to voluntarily sever your
employment at any time.
7.6 Withholding of Taxes. Except as may otherwise be specifically
provided for in this Agreement, the Company shall deduct from the amount of any
payment made pursuant to this Agreement any amounts required to be paid or
withheld by the Company with respect to applicable Federal income, Federal
Insurance Contributions Act or Federal Unemployment Tax Act taxes or applicable
state taxes. By executing this Agreement, you agree to all such deductions.
7.7 Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled hereunder upon a Change in Control. As used
in this Agreement, "Company" shall mean the Company as hereinbefore defined and
any such successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
7.8 Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer with a copy to the Chief Financial Officer, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
7.9. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this
8
<PAGE> 9
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior to
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. The obligations of the Company under Section 3 shall survive the
expiration of the term of this Agreement.
7.10 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
7.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Very truly yours,
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ C. V. Prothro
------------------------------------
C. V. Prothro
Chairman of the Board, President
and Chief Executive Officer
/s/ Alan P. Hale
- --------------------------
Alan P. Hale
9
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(No. 33-24372, No. 33-36471, No. 33-40864, No. 33-48643, No. 33-68200, No.
33-80696, No. 333-29247, No. 333-85401 and No. 333-89945) on Form S-8
pertaining to the 1984 Stock Option Plan, the 1993 Officer and Director Stock
Option Plan, the 1987 Stock Option Plan, the Director Warrant Program, the
Employee Stock Purchase Plan and certain Nonemployee Director Options of Dallas
Semiconductor Corporation of our report dated January 13, 2000, with respect to
the consolidated financial statements and schedule of Dallas Semiconductor
Corporation included in the Annual Report (Form 10-K) for the year ended
January 2, 2000.
/s/ Ernst & Young LLP
Dallas, Texas
March 7, 2000
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