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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 (No fee required, effective October 7, 1996)
For the fiscal year ended March 31, 1997 or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from _________ to __________
Commission File Number: 0-21184
MICROCHIP TECHNOLOGY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 86-0629024
(State of Incorporation) (I.R.S. Employer Identification No.)
2355 W. Chandler Blvd., Chandler, AZ 85224
(Address of Principal Executive Offices, Including Zip Code)
(602) 786-7200
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value Per Share
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 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 Regulation 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 Form 10-K or any amendment
to this Form 10-K. (_)
The approximate aggregate market value of the voting stock of the
registrant beneficially owned by stockholders, other than directors, officers
and affiliates of the registrant, at April 27, 1997 was: $1,546,133,816.
Number of shares of Common Stock, $.001 par value, outstanding as of
April 27, 1997 was: 53,198,679.
Documents Incorporated by Reference
-----------------------------------
Document Part of Form 10-K
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Proxy Statement for the 1997 Annual III
Meeting of Stockholders
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PART I
Item 1. BUSINESS
Microchip Technology Incorporated, a Delaware corporation ("Microchip" or
the "Company") develops, manufactures and markets field programmable 8-bit
microcontrollers, application-specific standard products (ASSPs) and related
memory products for high-volume embedded control applications in the consumer,
automotive, office automation, communications and industrial markets. The
Company provides cost-effective field programmability for high-volume
applications and believes that its PIC(R) product family is a price/performance
leader in the worldwide 8-bit microcontroller market. Microchip's embedded
control products also offer the advantages of a small footprint and low voltage
operation along with ease of development, enabling timely and cost-effective
product integration by its customers. The Company's ASSP products include a
variety of specialized integrated circuits, including KEELOQ(R) security
products and QuickASIC(TM) gate array devices. The Company's memory products are
primarily comprised of Serial EEPROMs, which are used primarily to provide
additional memory in embedded control systems.
Except as noted below, references to the Company include the Company and
its subsidiaries. The Company's executive offices are located at 2355 West
Chandler Boulevard, Chandler, Arizona 85224-6199 and its telephone number is
(602) 786-7200.
The following discussion of the Company's business contains certain factors
that may affect future operating results. For further discussion on certain
factors that may affect the Company's future operating results, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," below.
Industry Background
Competitive pressures increasingly require manufacturers to expand product
functionality and provide differentiation while maintaining or reducing cost. To
address these requirements, manufacturers increasingly use integrated
circuit-based embedded control systems which provide an integrated solution for
application-specific control requirements. Embedded control systems enable
manufacturers to differentiate their products, replace less efficient
electromechanical control devices, add product functionality and significantly
reduce product costs. In addition, embedded control systems facilitate the
emergence of complete new classes of products. Embedded control systems have
been incorporated into thousands of products and subassemblies in a wide variety
of markets worldwide, including automotive air bag systems, remote control
devices, handheld tools, appliances, portable computers, cordless and cellular
telephones, motor controls and security systems.
Embedded control systems typically incorporate a microcontroller as the
principal active, and sometimes sole, component. A microcontroller is a
self-contained computer-on-a-chip consisting of a central processing unit,
non-volatile program memory, RAM memory for data storage and various
input/output functions. In addition to the microcontroller, a complete embedded
control system incorporates application-specific software and may include
specialized peripheral device controllers and external non-volatile memory
components, such as EEPROMs, to store additional program software.
The increasing demand for embedded control has made the market for
microcontrollers one of the largest segments of the semiconductor logic market.
Microcontrollers are currently available in 4-bit through 32-bit architectures.
Although 4-bit microcontrollers are relatively inexpensive, typically costing
under $1.00 each, they generally lack the minimum performance and features
required by today's design engineers for product differentiation and are
typically used only to provide basic functionality in products. While 16- and
32-bit architectures provide very high performance, they are prohibitively
expensive for most high-volume embedded control applications, typically costing
over $6.00 each. As a result, manufacturers of competitive, high-volume products
have increasingly found 8-bit microcontrollers, that typically cost $1.00 to
$8.00 each, to be the most cost-effective embedded control solution. For
example, a typical new automobile may include one 32-bit microcontroller for
engine control, three 16-bit microcontrollers for transmission control, audio
systems and anti-lock braking, and up to 50 8-bit microcontrollers to provide
other embedded control functions, such as door locking, automatic windows, sun
roof, adjustable seats, electric mirrors, air bags, fuel pump, speedometer, and
the security and climate control systems.
Most microcontrollers available today are ROM-based and must be programmed
by the semiconductor supplier during manufacturing, resulting in six-to-20 week
lead times for delivery of such microcontrollers. In addition to delayed product
introduction, these long lead times can result in potential inventory
obsolescence and factory shutdowns when changes to the firmware are required. To
address time-to-market constraints, some suppliers have made EPROM-, EEPROM-, or
Flash Memory-based programmable microcontrollers available for prototyping and
preproduction runs.
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However, these microcontrollers have been relatively expensive, and
manufacturers have still been required to send program code to the semiconductor
factory for ROM programming as product changes are made. As a result, the long
lead times for production volume microcontrollers have not been significantly
reduced by traditional approaches.
Products
Microchip's strategic focus is on embedded control products, primarily
including microcontrollers, ASSPs, related memory products and application
development systems.
Microcontrollers
Microchip offers a broad family of proprietary 8-bit field programmable
microcontrollers under the PIC(R) name and has shipped more than 400 million
PIC(R) microcontrollers to customers worldwide since 1990. The Company's PIC(R)
products are designed for applications requiring high performance, fast
time-to-market and user programmability. They feature low cost, low voltage and
power, small footprint and ease of use. Microchip believes this product family
is currently a price/performance leader in the 8-bit microcontroller
marketplace. Microchip's performance results from an exclusive RISC-based
architecture that provides significant speed advantages over the prevailing
8-bit CISC architectures. In addition to providing up to 33 MHz performance,
this architecture offers up to a 2:1 software compaction advantage, thereby
significantly reducing software development time. RISC architectures also have
the advantage of being more easily scaled to higher internal clock speeds in
future products. Microchip's field programmable 8-bit microcontroller prices
range from approximately $.55 to $16.00 per unit.
Microchip's original market focus was in the lowest cost segment of the
8-bit microcontroller marketplace. With its baseline 8-bit products, the Company
built its current market position as a leading supplier of field programmable
microcontrollers. Over the past three years, Microchip has introduced more than
60 new 8-bit microcontrollers targeted at the mid-range and high-end segments of
the 8-bit microcontroller marketplace, as well as the lower end of the 16-bit
microcontroller market. In addition, with its 8-pin, 8-bit microcontroller,
introduced in the first quarter of fiscal 1997, the Company has also targeted a
portion of the large 4-bit microcontroller marketplace. The Company believes
that these additional segments represent a significant opportunity for future
sales growth.
Microchip has used its manufacturing experience and design and process
technology to bring additional enhancements and manufacturing efficiencies to
the development and production of its PIC(R) family of microcontroller products.
This extensive experience base has enabled the Company to develop its advanced,
low cost user programmability feature by incorporating non-volatile memory
(EPROM, EEPROM and Flash Memory) into the microcontroller in addition to masked
ROM.
Development Systems
The Company offers a comprehensive set of low cost and easy-to-learn
application development tools. These tools enable system designers to quickly
and easily program a PIC(R) microcontroller for specific applications and are a
key factor for obtaining design wins. Microchip's family of development tools
operates in the standard Windows environment on IBM-compatible hardware.
Entry-level systems, which include an assembler and programmer hardware, are
priced at less than $200. A fully configured system which also provides
in-circuit emulation hardware, performance simulators and software debuggers is
priced at approximately $3,700. Customers moving from entry-level designs to
those requiring real-time emulation are able to preserve their investment in
software tools as they migrate to future PIC(R) devices since all the product
families are assembly- and C- language compatible.
Many independent companies also develop and market application development
tools and systems which support Microchip's standard microcontroller product
architecture. The Company believes that familiarity with and adoption of the
Company's, and third-party, development systems by an increasing number of
product designers will be an important factor in the future selection of
Microchip's embedded control products. These development tools allow design
engineers to develop thousands of application-specific products from Microchip's
standard field programmable microcontrollers. Currently, there are more than 100
third-party tool suppliers world wide whose products support the Company's
proprietary microcontroller architecture.
ASSPs (Application-Specific Standard Products)
Microchip's application-specific standard products are specialized products
designed to perform specific end-user applications as opposed to the Company's
other products which are more general purpose in nature. The Company's ASSP
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device families currently include, among other specialized integrated circuit
devices, KEELOQ(R) security products and QuickASIC(TM) gate array devices.
KEELOQ(R) security products are designed for low cost, secure, uni-directional
communications and verification purposes. Applications include automotive remote
keyless entry systems, automotive immobilizer systems, automatic garage and gate
openers and smart cards. QuickASIC(TM) gate array products are targeted at the
growing FPGA conversion market opportunity.
Memory Products
Microchip's memory products consist primarily of Serial EEPROMs. The
Company sells these devices primarily into the embedded control market and is
the third largest supplier of such devices worldwide. EEPROM (electrically
erasable programmable read only memory) products are used for non-volatile
program and data storage in systems where such data must be modified frequently.
Serial EEPROMs have a very low I/O pin requirement, permitting production of
very small devices. As a result, Serial EEPROMs are widely used to supply
non-volatile memory in space-sensitive applications such as portable computers,
cellular and cordless telephones, pagers and remote control devices.
Within this market, Microchip has emphasized providing Serial EEPROMs to
customers that require features such as highly compact packaging, low operating
voltage, reduced power consumption, extended data retention and high endurance.
The Company addresses these requirements by offering products with extremely
small package sizes and very low operating voltage for both read and write
functions (1.8 volts in contrast with the industry standard of 3.3 volts),
together with a wide operating voltage range (1.8 to 5.5 volts). High
performance circuitry and microcode are also available to reduce power
consumption when a device is not in use, while permitting immediate operating
capability when required. The products also feature long data retention and high
erase/write endurance.
Microchip currently offers a complete Serial EEPROM family, which meets
three principal industry bus interface standards and are available in most
standard density, configuration and packaging alternatives. The Company's Smart
Serials(TM) line of specialized Serial EEPROMs with user-configurable
architecture and other advanced features targets applications such as cellular
telephones and data communications.
The Company's future operating results will depend to a significant extent
on its ability to continue to develop and introduce new products on a timely
basis which compete effectively on the basis of price and performance and which
address customer requirements. If the Company were unable to design, develop and
introduce competitive products on a timely basis, its future operating results
would be adversely affected.
Manufacturing
Microchip's ownership of its manufacturing resources is an important
component of its business strategy, enabling it to maintain a high level of
manufacturing control and to be one of the lowest cost producers in the embedded
control industry. By owning its wafer fabrication and the majority of its test
operations, and by employing proprietary statistical process control techniques,
the Company has been able to achieve high production yields. Direct control over
wafer fabrication also allows Microchip to shorten the Company's design and
production cycles and to capture the manufacturing and a portion of the testing
profit margin. Wafer fabrication and wafer test facilities are located in
Chandler and Tempe, Arizona. The Company performs product test at its facilities
in Kaohsiung, Taiwan and Chachoengsao, Thailand, located near Bangkok.
Wafers are produced in Class 10 fabrication modules in Chandler ("Fab 1")
and Tempe ("Fab 2") sites. Fab 1 currently contains approximately 24,000 square
feet; construction is currently underway to add additional capacity of 3,000
square feet, which is presently anticipated to be completed in July, 1997. Fab 2
occupies approximately 25,000 square feet; construction is currently underway to
add additional capacity of 20,000 square feet, which is presently anticipated to
be completed in August, 1997. Fab 1 currently produces 5-inch and 6-inch wafers,
while Fab 2 currently produce 6-inch and 8-inch wafers. Wafer sort is performed
in an 8,000 square foot, Class 10,000 clean room, equipped with automated wafer
handlers and test equipment. The two wafer fabrication sites are managed by the
same management team and utilize similar production techniques.
The Company is continuing the process of transitioning products to smaller
geometries and to larger wafer sizes. Eight-inch wafer production commenced at
Fab 2 in early fiscal 1998. In addition, the Company will continue the
transition of products to its 0.7 micron process and has commenced development
of its next generation technology. Other companies in the industry have
experienced difficulty in effecting transitions to smaller geometry processes
and to larger wafers and, consequently, have experienced reduced manufacturing
yields or delays in product deliveries. The Company believes that its transition
to smaller geometries and to larger wafers will be important for the Company to
remain competitive and operating results could be adversely affected if the
Company's transition is substantially delayed or inefficiently implemented.
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<PAGE>
Microchip currently employs proprietary design and manufacturing processes
in developing its microcontroller and memory products. The Company believes its
processes afford it both cost-effective designs in existing and derivative
products and greater functionality in new product designs. While many of the
Company's competitors develop and optimize separate processes for their logic
and memory product lines, Microchip uses a common process technology for both
microcontroller and non-volatile memory products. This allows Microchip to more
fully absorb its process research and development costs and to deliver new
products to market more rapidly. Microchip engineers utilize advanced CAD tools
and software to perform circuit design, simulation and layout. The Company's
in-house photomask and wafer fabrication facilities enable it to rapidly verify
design techniques by processing test wafers quickly and efficiently.
Over the last several years, Microchip shifted its assembly operations from
Company-owned facilities to third-party contractors in order to meet increased
product shipment requirements. At March 31, 1997, all assembly was conducted by
third-party contractors. During the third quarter of fiscal 1997, the Company
commenced final test operations at its wholly-owned Chachoengsao test facility.
Currently, the Chachoengsao test facility has the capacity to handle up to one
million units per day. If required, the Chachoengsao facility could be expanded
in the future to more than double its current capacity. The Company will
continue to use third-party contractors to provide a majority of its assembly
services. Reliance on third parties involves some reduction in the Company's
level of control over the assembly and test portion of its business. While the
Company reviews the quality, delivery and cost performance of these third-party
contractors, there can be no assurance that increased reliance on third-party
contractors will not adversely impact results in future reporting periods if any
third-party contractor is unable to maintain assembly and test yields and costs
at approximately their current levels. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Gross Profit",
below.
The Company's Taiwan and Thailand subsidiaries test the majority of the
products produced in Fab 1 and Fab 2. The 88,700 square foot Kaohsiung facility
has a monthly capacity of 19 million plastic packages; the 150,000 square foot
Chachoengsao facility has a monthly capacity of 30 million units. Final test and
burn-in functions are handled by advanced automated equipment. The Company uses
third-party contractors in Bangkok, Thailand to assemble a significant portion
of its products. The balance of Microchip's assembly and test requirements are
fulfilled by several third-party assembly and test contractors in Thailand, the
Philippines, People's Republic of China, and several other countries in Asia and
the Pacific Rim.
The Company's reliance on facilities in Taiwan, Thailand, the Philippines
and other foreign countries, and maintenance of substantially all of its
finished goods inventory overseas, entails certain political and economic risks,
including political instability and expropriation, supply disruption, currency
controls and exchange fluctuations, as well as changes in tax laws, tariff and
freight rates. Microchip currently employs the Alphatec Electronics Public
Company Limited group of companies ("Alphatec") headquartered in Bangkok,
Thailand for a significant portion of its product assembly volume and a portion
of its product final test capacity. While Alphatec's assembly and test
operations have performed reliably for the Company for several years, Alphatec
has recently experienced difficulty in obtaining financing in connection with
some of its unrelated joint ventures involving semiconductor fabrication
facilities in Thailand. Such financing difficulties have not impacted Alphatec's
assembly and test facilities nor its provision of services to the Company.
However, there can be no assurance that assembly and test operations will not be
affected in the future. Microchip currently has second sources for product
assembly and test for most of its package types and can shift its wafer output
to other factories, if necessary, however, there can be no assurance that such
action would not result in short-term disruption including possible temporary
product shortages. The Company has not experienced any significant interruptions
in its foreign business operations to date. Nonetheless, the Company's business
and operating results could be adversely affected if foreign operations or
international air transportation were disrupted.
Due to the high fixed cost inherent in semiconductor manufacturing,
increased manufacturing yields can have significant positive effects on gross
profits and overall operating results. During fiscal 1997, the Company continued
to focus on manufacturing productivity, and maintained average wafer fab line
yields in excess of 90%. The yields are primarily driven by a comprehensive
implementation of statistical process control, extensive employee training and
selective upgrading of the Company's manufacturing facilities and equipment.
Maintenance of manufacturing productivity and yields are important factors in
the achievement of the Company's operating results. As is typical in the
semiconductor industry, the Company has from time to time experienced lower than
anticipated manufacturing yields. The Company's operating results would be
adversely affected if it were unable to maintain yields at approximately the
current levels.
The raw materials and equipment used in the production of the Company's
integrated circuits currently are available from a number of suppliers, and the
Company is not materially dependent on any single source of supply. Although the
Company has not experienced any material difficulty to date in obtaining raw
materials or equipment, the interruption of certain components or ingredients of
certain raw materials could reduce the availability or increase the cost of raw
materials used by the Company. The manufacture and assembly of integrated
circuits, particularly non-volatile, erasable CMOS
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memory and logic devices such as those produced by the Company, is a highly
complex process and sensitive to a wide variety of factors, including the level
of contaminants in the manufacturing environment, impurities in the materials
used and the performance of the fabrication equipment.
Research and Development
The Company's current research and development activities focus on the
design of new microcontroller and memory products, ASSPs, new development
systems, and software and application-specific software libraries. The Company
is also developing new design and process technology to achieve further cost
reductions and performance improvements in existing products. As of April 27,
1997, 243 employees were engaged in research and development. In fiscal 1997,
1996 and 1995, the Company's research and development expenses were $32.1
million, $27.5 million and $20.7 million, respectively. The Company expects that
it will continue to spend substantial funds on research and development
activities.
Sales and Distribution
The Company markets its products worldwide through a direct sales
organization and through distributors. In fiscal 1997, the Company derived
approximately 40% of its net sales from direct sales to OEM customers and 60%
from sales through distributors.
The Company's direct sales force, currently consisting of 159 people,
focuses on four geographical markets: the Americas, Europe, Asia/Pacific and
Japan. In the Americas, the Company currently has Technical Support Centers in
San Jose, Los Angeles, Dallas, Dayton, Chicago, Atlanta, Boston, New York and
Toronto. Microchip also maintains Technical Support Centers in Tokyo, London,
Munich, Paris, Milan, Taipei, Seoul, Singapore, Hong Kong, Shanghai, and
Bangalore, India. Microchip's direct sales force is augmented by a worldwide
network of national distributors and regional distributors in North and South
America. Microchip's distribution effort also includes a network of
manufacturer's representatives in North America and Europe.
Microchip believes that a strong technical service presence is essential to
the continued development of the embedded control market. The majority of
Microchip's field sales engineers (FSEs), field application engineers (FAEs) and
sales management have technical degrees and have been previously employed in an
engineering environment. The Company believes the technical knowledge of its
sales force is a key competitive advantage in the sale of field programmable
products. Currently, Microchip has at least one dedicated application engineer
in every Technical Support Center. The primary mission of the FAE team is to
provide technical assistance to OEM customers, conduct periodic training
sessions for FSEs, manufacturer's representatives and distributor sales teams.
The FAEs also conduct frequent technical seminars in major cities around the
world. FAEs also work closely with the Company's distributors and manufacturer's
representatives to provide technical assistance in end-user support and to
assist in the sales process.
As is common in the semiconductor industry, the Company grants price
protection to distributors. Under this policy, distributors receive a credit for
the difference, at the time of a price reduction, between the price they were
originally charged for products in inventory and the reduced price which the
Company subsequently charges distributors. From time to time, distributors also
receive credit on an individual basis for Company-approved price reductions on
specific transactions. The Company also grants some distributors limited rights
to return products. The Company defers recognition of net sales and profit on
sales to distributors that have rights of return and price protection until
those distributors have resold the products to end-customers.
Foreign sales, primarily in Asia/Pacific, Japan and Europe, represented
approximately 66%, 65% and 65% of consolidated net sales in the years ended
March 31, 1997, 1996 and 1995, respectively. International sales are
predominately billed in U.S. Dollars. Although foreign sales are subject to
certain government export restrictions, the Company has not experienced any
material difficulties as a result of export restrictions to date.
The Company's policy is to hedge its net foreign currency positions in the
normal course of business to reduce its exposure to fluctuations in foreign
exchange rates. Foreign exchange gains and losses have not been material during
fiscal years 1995 through 1997.
Backlog
As of April 27, 1997, the Company's backlog was approximately $93.7 million
as compared to $116.6 million as of April 26, 1996. The Company includes in its
backlog all purchase orders scheduled for delivery within the subsequent 12
months.
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Microchip produces standard products that can be shipped from inventory
within a short time after receipt of an order. The Company's business and, to a
large extent, that of the entire semiconductor industry is characterized by
short-term orders and shipment schedules. Orders constituting the Company's
current backlog are subject to changes in delivery schedules or to cancellation
at the option of the purchaser without significant penalty. Accordingly,
although useful for scheduling production, backlog as of any particular date may
not be a reliable measure of sales for any future period. Turns orders (orders
received in a quarter for shipment in that quarter) have become an increasingly
important component of the Company's quarterly operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Net Sales," below.
Competition
The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change and foreign
competition with respect to many products. The Company competes with major
domestic and international semiconductor companies, many of which have greater
market recognition and substantially greater financial, technical, marketing,
distribution and other resources than the Company with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also increasing their participation in the market for
embedded control applications. The Company's overall average selling prices for
its microcontroller products have remained relatively constant while average
selling prices of its non-volatile products have declined gradually over time.
During fiscal 1997, the Company experienced increased pricing pressure on its
non-volatile memory products due primarily to a worldwide industry inventory
correction and the less proprietary nature of these products. There can be no
assurance that average selling prices for the Company's microcontroller or other
products will not experience increased pricing pressure in the future. An
increase in pricing pressure could adversely affect the Company's operating
results. In addition, the Company's ability to compete successfully depends on a
number of factors both within and outside its control, including the quality,
performance, reliability, features, ease of use, pricing and diversity of its
products; the quality of its customer service and its ability to address the
needs of its customers; its success in designing and manufacturing new products
including those implementing new technologies; efficiency of production,
adequate sources of raw materials and other supplies at acceptable prices;
protection of the Company's products and processes by effective utilization of
intellectual property laws; the rate at which customers incorporate the
Company's products into their own products; product introductions by the
Company's competitors; the number, nature and success of its competitors in a
given market; and general market and economic conditions. Furthermore, capacity
in the semiconductor industry is increasing over time and such increased
capacity or improved product availability could adversely affect the Company's
competitive position.
The Company currently competes principally on the basis of the technical
innovation and performance of its embedded control products, including their
speed, functionality, density, power consumption, reliability and packaging
alternatives, as well as on price and product availability. The Company believes
that other important competitive factors in the embedded control market include
ease of use, functionality of application development systems and technical
service and support. The Company believes that it competes favorably with other
companies on all of these factors, although there is no assurance that the
Company will continue to be able to compete successfully in the future.
Patents, Licenses and Trademarks
The Company's success depends in part on its ability to obtain patents,
licenses and other intellectual property rights covering its products and
manufacturing processes, and to protect its proprietary information. As of March
31, 1997, the Company owned 46 U.S. patents and eight foreign patents, expiring
on various dates between 1997 and 2015, and had an additional 49 U.S. patent
applications and 44 foreign patent applications pending. The Company intends to
continue to seek patents on its inventions used in its products and
manufacturing processes. However, the Company believes that its continued
success depends primarily on such factors as the technological skills and
innovative abilities of its personnel rather than on its patents. There can be
no assurance the Company's existing patents or any new patents that are issued
will be of sufficient scope or strength to provide meaningful protection or
other commercial advantage to the Company.
The Company acquired a nonexclusive, royalty-free license under certain
semiconductor patents owned by General Instrument in connection with the
acquisition and formation of the Company in 1989. The license extends for the
life of the licensed patents and is subject to early termination upon assignment
without General Instrument's consent, to any entity with annual revenues of more
than $100 million that acquires control of the Company. The Company also
acquired certain cross licenses between General Instrument and other
semiconductor patent owners.
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In October, 1991, the Company acquired a nonexclusive, nontransferable
license for certain EPROM and EEPROM patents owned by Intel Corporation. This
license extends for the life of the licensed patents. The license may require
the payment of royalties under certain circumstances.
As is typical in the semiconductor industry, the Company has from time to
time received, and may in the future receive, communications alleging possible
infringement of patents or other intellectual property rights of others. The
Company investigates all such notices and responds as it believes is
appropriate. The Company is currently in discussions with several other
companies regarding intellectual property licenses of such other companies'
semiconductor patents and technology. Based on industry practice, the Company
believes that in most cases it could obtain any necessary licenses or other
rights on commercially reasonable terms. However, no assurance can be given that
licenses would be on acceptable terms, that litigation would not ensue or that
damages for any past infringement would not be assessed. Litigation, which could
result in substantial cost to the Company and diversion of management effort,
may be necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. The failure to obtain necessary licenses or other rights or litigation
arising out of infringement claims, could have a material adverse effect on the
Company's business and results of operations.
The Company is currently in discussions with Lucent Technologies Inc.
("Lucent") regarding alleged infringement of certain of Lucent's semiconductor
patents. The Company has investigated Lucent's claims and believes it does not
infringe any of the asserted patents. Notwithstanding the Company's position,
the Company and Lucent have exchanged various proposals for a patent license,
but, to date, have been unable to reach an agreement. Although the outcome of
the discussions with Lucent is not presently determinable, the Company believes
that, should a license be necessary, the Company will be able to obtain a
license from Lucent on commercially reasonable terms. However, no assurances can
be given that a mutually satisfactory conclusion will be achieved. In such
event, the Company may be subject to litigation, which could result in
substantial cost to the Company and diversion of management effort. If
unsuccessful, the Company could be forced to pay royalties on past and future
sales. Any such litigation and/or royalty payments could have a material adverse
impact on the Company's business and operating results.
Environmental Regulation
The Company is subject to a variety of federal, state and local
governmental regulations related to the use, storage, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
processes, including the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendment and Reauthorization Act, the Clean Air Act and the Water
Pollution Control Act. The Company believes it has obtained all necessary
environmental permits to conduct its business. Although the Company believes
that its activities conform to presently applicable environmental regulations,
the failure to comply with present or future regulations could result in fines
being imposed on the Company, suspension of production or a cessation of
operations. While the Company has not experienced any materially adverse effects
on its operations from governmental regulations, there can be no assurance that
changes in such regulations will not require the Company to acquire costly
equipment or to incur other significant expenses to comply with environmental
regulations. Any failure by the Company to control the use of or adequately
restrict the discharge of hazardous substances could subject it to future
liabilities. There can be no assurance that environmental problems will not
occur in the future which could subject the Company to future costs or
liabilities.
Employees
As of April 27, 1997, the Company had 1,879 employees, including 1,330 in
manufacturing, 243 in research and development, 190 in sales and marketing and
116 in finance and administration. Approximately 42% of the Company's employees
work at the final test facilities located in Kaohsiung, Taiwan and Chachoengsao,
Thailand. No employees in the U.S. or Thailand are represented by a labor
organization. All employees in the Kaohsiung facility, except for certain
management employees, are represented by a labor organization. The Company has
never had a work stoppage and believes that its employee relations are good.
Executive Officers
The following sets forth certain information regarding the Company's
executive officers as of April 27, 1997:
7
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Steve Sanghi 41 Chairman of the Board, President and Chief Executive Officer
Timothy B. Billington 54 Vice President, Manufacturing Operations
C. Philip Chapman 43 Vice President, Chief Financial Officer and Secretary
Robert A. Lanford 55 Vice President, Worldwide Sales
George P. Rigg 57 Vice President, Advanced Microcontroller and Technology Division
Mitchell R. Little 44 Vice President, Standard Microcontroller and ASSP Division
</TABLE>
Mr. Sanghi is currently, and has been since August, 1990, President of the
Company, since October, 1991, Chief Executive Officer and since October, 1993,
Chairman of the Board of Directors. He has served as a director of the Company
since August, 1990. He served as the Company's Chief Operating Officer from
August, 1990 through October, 1991 and as Senior Vice President of Operations
from February, 1990 through August, 1990. Mr. Sanghi holds an M.S. degree in
Electrical and Computer Engineering from the University of Massachusetts and a
B.S. degree in Electronics and Communication from Punjab University, India. Mr.
Sanghi is also a director of ADFlex Solutions, Inc., a U.S. supplier of flexible
circuit-based interconnect solutions.
Mr. Billington has served as Vice President, Manufacturing Operations since
October, 1994 and was Vice President, Process Development and Manufacturing
Operations from April, 1991 until October, 1994. Prior to his appointment as
Vice President, Mr. Billington served as Director of Wafer Fabrication from
November, 1990 to April, 1991 and Wafer Fabrication Manager from June, 1989 to
November, 1990. Mr. Billington holds a B.S. degree in marketing from Abilene
Christian University.
Mr. Chapman has served as the Company's Vice President and Chief Financial
Officer since joining the Company in September, 1992 and as Secretary of the
Company since December, 1992. Prior to joining the Company, Mr. Chapman was
employed by Syntellect Inc., a telecommunication systems company, where he
served as Executive Vice President, Finance and Operations, and Chief Financial
Officer from 1988 to 1992. Mr. Chapman holds an M.B.A. from the Harvard Graduate
School of Business Administration and B.A. degrees in Accounting and Managerial
Finance from the University of California.
Mr. Lanford has served as Vice President, Worldwide Sales for the Company
since April, 1991. From May, 1990 to April, 1991, Mr. Lanford was Vice
President, Marketing for Specialty Development Corporation, a distributor of
semiconductor devices and other computer peripherals. From 1987 to 1990, Mr.
Lanford served as Vice President of Sales and Marketing and a director for AIM
Technology, a computer software company. Mr. Lanford holds a B.S. degree in
Electrical Engineering from Arizona State University.
Mr. Rigg has served as Vice President, Advanced Microcontroller and
Technology Division since November, 1995. From June, 1989 to November, 1995, he
served as Vice President, Logic Products Division. From 1981 to 1989, Mr. Rigg
held a number of senior management positions with Advanced Micro Devices, Inc.,
a semiconductor company, including Vice President, Embedded Processor Division,
Managing Director of Programmable Microprocessors and Product Line Manager for
Interface and LAN. Mr. Rigg holds a B.S. degree in Physics from Manchester
University, England.
Mr. Little has served as Vice President, Standard Microcontroller and ASSP
Division since November, 1995. From September, 1993 to November, 1995, he served
as Vice President, Memory Products and ASSP Division. Prior to his appointment
as Vice President, Mr. Little served as Division Director for the Company's
Memory Products Division from July, 1991 to September, 1993, and as Director of
Memory Marketing from November, 1989 to July, 1991. Immediately prior to joining
the Company, Mr. Little was employed by SGS-Thomson Microelectronics from 1982
to 1989 where he held various positions of increasing management responsibility
for the marketing of microprocessors, microcontrollers and memory products. Mr.
Little holds a BSET from United Electronics Institute.
Item 2. PROPERTIES
The Company's current headquarters, research and development center and one
of its wafer fabrication facilities are located in three buildings totaling
approximately 242,000 square feet situated on a 77-acre parcel of land in
Chandler, Arizona. A second wafer fabrication facility of approximately 170,000
square feet is located in Tempe, Arizona. The Chandler and Tempe facilities are
owned by the Company. Company-owned final test facilities are located in Taiwan
and Thailand. The Taiwan operations are housed in a three-story, 88,700 square
foot building located in the Kaohsiung Export Processing Zone in Kaohsiung,
Taiwan, Republic of China. The Taiwan building is owned by the Company's Taiwan
subsidiary and is located on land that is leased to the Company pursuant to
leases from the Taiwan government expiring in 1998 and 2002. The Company's
Thailand final test operations are housed in a 150,000 square foot facility
located in the
8
<PAGE>
Alphatechnopolis Industrial Park in Chachoengsao, Thailand, near Bangkok. The
Thailand facility, owned by the Company's Thailand subsidiary, is situated on
land to which the Company expects to acquire title by the end of fiscal 1998, in
accordance with an agreement between the Company and the land owner. The Company
leases space for 20 Technical Support Centers in San Jose and Los Angeles,
California; Dallas, Texas; Dayton, Ohio; Chicago, Illinois; Atlanta, Georgia;
Boston, Massachusetts; New York, New York; as well as in Toronto, Tokyo, London,
Munich, Paris, Milan, Taipei, Seoul, Singapore, Hong Kong, Shanghai and
Bangalore, India. The Company's aggregate monthly rental payments for its
facilities are approximately $81,000.
The Company is in the process of making capital improvements to Fab 1 and
Fab 2 to add additional capacity. See, "Business - Manufacturing," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources." The Company currently believes that
its existing facilities, together with the additional capacity presently under
construction, will be adequate to meet its requirements for the next 12 months.
In fiscal 1996, the Company initiated planning and design of an additional
wafer fabrication facility in Chandler, Arizona ("Fab 3"). The Company has
determined that additional capital investment in Fab 1 and Fab 2 will yield
sufficient manufacturing capacity for several additional years and, thus, has
deferred the construction of Fab 3 for the present time.
Item 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is involved in a
limited number of legal actions, both as plaintiff and defendant, and could
incur an uninsured liability in any one or more of them. Although the outcome of
these actions is not presently determinable, the Company believes that the
ultimate resolution of these matters will not have a material adverse effect on
the Company's results of operations or financial condition. The Company could
also be subject to future litigation if it is unable to resolve pending
intellectual property and technology licensing discussions. See "Business -
Patents, Licenses and Trademarks," above. Litigation relating to the
semiconductor industry is not uncommon, and the Company is, and from time to
time, has been, subject to such litigation. No assurances can be given with
respect to the extent or outcome of any such litigation in the future.
The Securities and Exchange Commission is presently conducting an
investigation into matters relating to the Company's disclosure on February 26,
1996 that revenues and earnings for the quarter ended March 31, 1996 would be
lower than previously estimated. While the outcome of the investigation, and its
effect on the Company, if any, cannot be predicted at the present time, the
Company does not believe that the investigation will result in a material
adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MCHP." The Company's Common Stock has been quoted on the Nasdaq
National Market since March 19, 1993. The following table sets forth the
quarterly high and low closing prices of the Common Stock as reported by the
Nasdaq National Market for the last two years, adjusted to reflect a 3-for-2
stock split effected in November, 1995, and a 3-for-2 stock split effected in
January, 1997:
Fiscal 1996 High Low Fiscal 1997 High Low
----------- ---- --- ----------- ---- ---
First Quarter $25.50 $17.08 First Quarter $19.50 $14.67
Second Quarter 27.50 23.167 Second Quarter 25.67 14.00
Third Quarter 29.25 22.00 Third Quarter 34.84 23.34
Fourth Quarter 25.67 16.00 Fourth Quarter 39.50 25.00
On May 22, 1997, the closing sale price for the Company's Common Stock was
$33.875 per share. As of such date, there were approximately 547 holders of
record of the Company's Common Stock. This figure does not reflect beneficial
ownership of shares held in nominee names.
9
<PAGE>
The Company has not paid cash dividends on its capital stock. The Company
currently anticipates that it will retain all available funds for use in the
operations of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future.
The trading price of the Company's Common Stock has been, and in the future
could be, subject to wide fluctuations in response to quarterly variations in
operating results of the Company and other semiconductor companies, actual or
anticipated announcements of technical innovations or new products by the
Company or its competitors, changes in analysts' estimates of the Company's
financial performance, general conditions in the semiconductor industry,
worldwide economic and financial conditions and other events or factors. In
addition, the stock market has experienced significant price and volume
fluctuations which have particularly affected the market prices for many high
technology companies and which often have been unrelated to the operating
performance of such companies. These broad market fluctuations and other factors
may adversely affect the market price of the Company's Common Stock.
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the five-year period
ended March 31, 1997 should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in Item
7 of this report. The Company's consolidated statement of income data for each
of the years in the three year period ended March 31, 1997, and the balance
sheet data as of March 31, 1997 and 1996 are derived from and are qualified by
reference to the audited consolidated financial statements of the Company,
included in Item 8 of this report.
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
(in thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales............................$ 334,252 $ 285,888 $ 207,961 $ 138,742 $ 88,652
Cost of sales........................ 167,330 137,708 101,039 73,765 56,552
Research and development............. 32,073 27,517 20,746 13,840 9,114
Selling, general and administrative.. 56,248 48,903 36,975 26,933 17,420
Restructuring cost................... 5,969 --- --- --- ---
Write-off of in-process technology... 1,575 11,448 --- --- ---
Operating income .................... 71,057 60,312 49,201 24,204 5,566
Interest expense, net................ (1,852) (947) (881) (593) (1,825)
Other income, net.................... 288 569 808 522 814
Income before income taxes........... 69,493 59,934 49,128 24,133 4,555
Provision for income taxes........... 18,361 16,182 12,829 4,974 337
Net income ..........................$ 51,132 $ 43,752 $ 36,299 $ 19,159 $ 4,218
Net income per share.................$ 0.94 $ 0.80 $ 0.70 $ 0.42 $ 0.13
Shares used in per share calculations 54,683 54,533 51,641 46,155 33,420
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital......................$ 91,176 $ 55,855 $ 71,307 $ 53,584 $ 32,445
Total assets......................... 428,092 358,187 249,480 151,425 76,919
Long-term obligations, less current
portion.............................. 5,999 33,250 15,340 14,424 3,749
Stockholders' equity................. 316,584 219,632 161,825 87,864 43,834
</TABLE>
10
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain operational data as a percentage of
net sales for the years indicated:
Year Ended March 31,
1997 1996 1995
----------------------------------
Net sales............................. 100.0% 100.0% 100.0%
Cost of sales......................... 50.1 48.2 48.6
--------- ---------- --------
Gross profit.......................... 49.9 51.8 51.4
Research and development.............. 9.6 9.6 10.0
Selling, general and administrative... 16.8 17.1 17.8
Restructuring cost.................... 1.8 --- ---
Write-off of in-process technology.... 0.4 4.0 ---
Amortization of negative goodwill..... --- --- (0.1)
--------- ---------- --------
Operating income...................... 21.3% 21.1% 23.7%
========= ========== ========
Net Sales
Microchip's net sales of $334.3 million in fiscal 1997 increased by $48.4
million, or 16.9%, over fiscal 1996 and net sales of $285.9 million in fiscal
1996 increased by $77.9 million, or 37.5%, over fiscal 1995. The Company
experienced growth in sales of 8-bit microcontrollers and EEPROM memories over
these periods and a moderate decline in sales of its commodity memory and other
product categories.
The Company's family of 8-bit microcontrollers represents the largest
component of Microchip's total net sales. Microcontrollers and associated
application development systems accounted for 64%, 59% and 58% of total net
sales in fiscal 1997, 1996 and 1995, respectively. A related component of the
Company's product sales consist of serial and parallel EEPROM memories and
high-speed and low-voltage EPROMs. These products accounted for 31%, 34% and 34%
of net sales in fiscal 1997, 1996 and 1995, respectively. The remaining
component of total net sales was the Company's lower margin memory and other
miscellaneous products which accounted for 5%, 7% and 8% of net sales in fiscal
1997, 1996 and 1995, respectively. During the three year period ended March 31,
1997 the Company increased the percentage of net sales attributable to 8-bit
microcontrollers as a result of the Company's focus in this area. It is
anticipated that this trend will continue for the foreseeable future.
The Company's net sales in any given quarter are dependent upon a
combination of orders received in that quarter for shipment in that quarter
("turns orders") and shipments from backlog. The Company has emphasized its
ability to respond quickly to customer orders as part of its competitive
strategy. This strategy, combined with current industry conditions, is resulting
in customers placing orders with relatively short delivery schedules. This has
had the effect of increasing turns orders as a portion of the Company's business
in fiscal 1997 as compared to fiscal 1996, and has reduced the Company's
visibility in projecting net sales levels. Because turns orders are more
difficult to predict, there can be no assurance that the combination of turns
orders and backlog in any quarter will be sufficient to achieve growth in net
sales. If the Company does not achieve a sufficient level of turns orders in a
particular quarter, the Company's revenues and operating results would be
materially adversely affected.
In the quarter ended March 31, 1997, the Company was unable to ship
approximately $4 million of product for which it had firm scheduled orders. This
shipment delinquency was a result of inventory mix issues which were exacerbated
by the rapid growth in the Company's product offerings and the low long-term
order visibility. It is anticipated that low long-term order visibility will
continue for the foreseeable future and, as a result, the Company expects it may
have shipment delinquencies at the end of each quarter which could adversely
affect quarterly operating results.
The Company's overall average selling prices for its microcontroller
products have remained relatively constant while average selling prices of its
non-volatile memory products have declined gradually over time. During fiscal
1997, the Company experienced increased pricing pressure on its non-volatile
memory products due primarily to a worldwide industry inventory correction and
the less proprietary nature of these products. There can be no assurance that
average selling prices
11
<PAGE>
for the Company's microcontroller or other products will not experience
increased pricing pressure in the future. An increase in pricing pressure could
adversely affect the Company's operating results.
The foregoing statements regarding product mix, turns orders, shipment
delinquencies and pricing pressures are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the
safe harbors created thereby. Actual results could differ materially because of
the following factors, among others: the level of orders that are received and
can be shipped in a quarter; inventory mix and timing of customer orders;
competition and competitive pressures on pricing and product availability;
customers' inventory levels, order patterns and seasonality; the cyclical nature
of both the semiconductor industry and the markets addressed by the Company's
products; market acceptance of the products of both the Company and its
customers; demand for the Company's products; fluctuations in production yields,
production efficiencies and overall capacity utilization; changes in product
mix; and absorption of fixed costs, labor and other fixed manufacturing costs.
Foreign sales represented 66%, 65% and 65% of net sales in fiscal 1997,
1996 and 1995, respectively. The Company's foreign sales have been predominantly
in Asia, Europe and Japan which the Company attributes to the manufacturing
strength in those areas for consumer, automotive, office automation,
communications and industrial products. The majority of foreign sales are U.S.
Dollar denominated. The Company has entered into and, from time to time, will
enter into hedging transactions in order to minimize exposure to currency rate
fluctuations. Although none of the countries in which the Company conducts
significant foreign operations have had a highly inflationary economy in the
last five years, there is no assurance that inflation rates or fluctuations in
foreign currency rates in countries where the Company conducts operations will
not adversely affect the Company's operating results in the future.
Additional Factors Affecting Operating Results
The Company believes that future growth in net sales of its 8-bit family of
microcontroller products and related memory products will depend largely upon
the Company's success in having its current and new products designed into
high-volume customer applications. Design wins typically precede the Company's
volume shipment of products for such applications by 15 months or more. The
Company also believes that shipment levels of its proprietary application
development systems are an indicator of potential future design wins and
microcontroller sales. The Company continued to achieve a high volume of design
wins and shipped increased numbers of application development systems in fiscal
1997 compared to previous fiscal years. There can be no assurance that any
particular development system shipment will result in a product design win or
that any particular design win will result in future product sales.
The Company's operating results are affected by a wide variety of other
factors that could adversely impact its net sales and profitability, many of
which are beyond the Company's control. These factors include the Company's
ability to design and introduce new products on a timely basis, market
acceptance of products of both the Company and its customers, customer order
patterns and seasonality, changes in product mix, whether the Company's
customers buy from a distributor or directly from the Company, product
performance and reliability, product obsolescence, the amount of any product
returns, availability and utilization of manufacturing capacity, fluctuations in
manufacturing yield, the availability and cost of raw materials, equipment and
other supplies, the cyclical nature of both the semiconductor industry and the
markets addressed by the Company's products, technological changes, competition
and competitive pressures on prices, and economic, political or other conditions
in the United States, and other worldwide markets served by the Company. The
Company believes its ability to continue to increase its manufacturing capacity
to meet customer demand and maintain satisfactory delivery schedules will be an
important competitive factor. As a result of the increase in fixed costs and
operating expenses related to expanding its manufacturing capacity, the
Company's operating results may be adversely affected if net sales do not
increase sufficiently to offset the increased costs. The Company's products are
incorporated into a wide variety of consumer, automotive, office automation,
communications and industrial products. A slowdown in demand for products which
utilize the Company's products as a result of economic or other conditions in
the worldwide markets served by the Company could adversely affect the Company's
operating results.
Gross Profit
The Company's gross profit was $166.9 million, $148.2 million and $106.9
million in fiscal 1997, 1996 and 1995, respectively. Gross profit as a percent
of sales was 50%, 52% and 51% in fiscal 1997, 1996 and 1995, respectively. The
Company anticipates that its cost of sales will fluctuate over time, driven
primarily by the product mix of 8-bit microcontroller products and related
memory products, manufacturing yields, wafer fab loading levels and competitive
and economic conditions. Gross profit percentage was down from the prior years'
levels, primarily as a result of reduced 5-inch wafer production at one of the
Company's wafer fabrication facilities and increased pricing pressure on its
non-volatile memory products. The Company anticipates that its gross profit
percentage will fluctuate over time, driven primarily by
12
<PAGE>
product mix, manufacturing costs and yields, and competitive and economic
conditions. The Company is continuing the process of transitioning products to
smaller geometries and to larger wafer sizes to reduce future manufacturing
costs. Eight-inch wafer production commenced at the Tempe wafer fabrication
facility in early fiscal 1998. The Company will continue the transition of
products to its 0.7 micron process. The foregoing statements relating to
anticipated gross margins, cost of sales, and the transition to higher yielding
manufacturing processes are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbors
created thereby. Actual results could differ materially because of the following
factors, among others: fluctuations in production yields, production efficiencie
and overall capacity utilization; cost and availability of raw materials;
absorption of fixed costs, labor and other direct manufacturing costs; the
timing and success of manufacturing process transition; changes in product mix;
competitive pressures on prices; and other economic conditions in the United
States and other worldwide markets.
The Company has consistently presented its results of operations for all
periods on the last-in first-out (LIFO) method and has assessed the net
realizable value of inventory based on LIFO costs. LIFO has the effect of
matching current costs of production with sales generated during the same
period. Production costs have decreased over time due to improvements in
manufacturing productivity and yields, resulting in lower cost of sales for the
year ended March 31, 1995. Due to changes in sales and product mix which
affected production costs, cost of sales increased during the years ended March
31, 1997 and 1996. The difference in cost of sales between the LIFO and FIFO
inventory valuation methods for the reporting periods was immaterial.
All of Microchip's assembly operations and a portion of its product final
test requirements are performed by third-party contractors in order to meet
product shipment requirements. Reliance on third parties involves some reduction
in the Company's level of control over these portions of its business. While the
Company reviews the quality, delivery and cost performance of these third-party
contractors, there can be no assurance that reliance on third-party contractors
will not adversely impact results in future reporting periods if any third-party
contractor is unable to maintain assembly and test yields and costs at
approximately their current levels.
The Company owns product final test facilities in Kaohsiung, Taiwan,
Republic of China and Chachoengsao, Thailand. The Company also uses various
third-party contractors in Thailand, Taiwan, the Philippines and other locations
in Asia for product assembly and test. The Company's reliance on facilities in
these countries, and maintenance of substantially all of its finished goods
inventory overseas, entails certain political and economic risks, including
political instability and expropriation, labor disruption, supply disruption,
currency controls and exchange fluctuations, as well as changes in tax laws,
tariff and freight rates. Microchip currently employs the Alphatec Electronics
Public Company Limited group of companies ("Alphatec") headquartered in Bangkok,
Thailand for a significant portion of its product assembly volume and a portion
of its product final test capacity. While Alphatec's assembly and test
operations have performed reliably for the Company for several years, Alphatec
has recently experienced difficulty in obtaining financing in connection with
some of its unrelated joint ventures involving semiconductor fabrication
facilities in Thailand. Such financing difficulties have not impacted Alphatec's
assembly and test facilities nor its provision of services to the Company.
However, there can be no assurance that assembly and test operations will not be
affected in the future. Microchip currently has second sources for product
assembly and test for most of its package types and can shift its wafer output
to other factories, if necessary, however, that can be no assurance that such
action would not result in short-term disruption including possible temporary
product shortages. The Company has not experienced any significant interruptions
in its foreign business operations to date. Nonetheless, the Company's business
and operating results could be adversely affected if foreign operations or
international air transportation were disrupted.
During the fourth quarter of fiscal 1997, the Company commenced
construction of an additional 20,000 square foot wafer fabrication module at
Tempe, Arizona. It is anticipated that the construction will be completed during
the second quarter of fiscal 1998 and that the new wafer fabrication module will
begin 8-inch wafer production in the fourth quarter of fiscal 1998. In addition,
the Company is also expanding capacity at its Chandler wafer fabrication
facility and expects to have an additional 3,000 square feet of capacity
available in Chandler during the second quarter of fiscal 1998. The foregoing
statements regarding completion of construction and additional available
capacity are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbors created thereby.
Actual results could differ materially because of the following factors, among
others: delays in facilitation of the expanded Tempe and Chandler wafer
fabrication facilities; production yields and efficiencies; factory absorption
rates; capacity loading; supply disruption; operating cost levels; and the rate
of revenue growth.
13
<PAGE>
Research and Development
The Company is committed to continued investment in new and enhanced
products, including its development systems software and in its design and
manufacturing process technology, which are significant factors in maintaining
the Company's competitive position. The dollar investment in research and
development increased 17% in fiscal 1997 over fiscal 1996, and 33% in fiscal
1996 over fiscal 1995. The Company will continue to invest in research and
development in the future, including an investment in process and product
development associated with the capacity expansion of the Company's fabrication
facilities.
The Company's future operating results will depend to a significant extent
on its ability to continue to develop and introduce new products on a timely
basis which can compete effectively on the basis of price and performance and
which address customer requirements. The success of new product introductions
depends on various factors, including proper new product selection, timely
completion and introduction of new product designs, development of support tools
and collateral literature that make complex new products easy for engineers to
understand and use and market acceptance of customers' end products. Because of
the complexity of its products, the Company has experienced delays from time to
time in completing development of new products. In addition, there can be no
assurance that any new products will receive or maintain substantial market
acceptance. If the Company were unable to design, develop and introduce
competitive products on a timely basis, its future operating results would be
adversely affected.
The Company's future success will also depend upon its ability to develop
and implement new design and process technologies. Semiconductor design and
process technologies are subject to rapid technological change, requiring large
expenditures for research and development. Other companies in the industry have
experienced difficulty in effecting transitions to smaller geometry processes
and to larger wafers and, consequently, have suffered reduced manufacturing
yields or delays in product deliveries. The Company believes that its transition
to smaller geometries and to larger wafers will be important for the Company to
remain competitive, and operating results could be adversely affected if the
transition is substantially delayed or inefficiently implemented.
Selling, General and Administrative
Through expense controls and operating efficiencies, the Company has
reduced selling, general and administrative expenses in fiscal 1997 to 16.8% of
sales, as compared to 17.1% and 17.8% of sales in fiscal 1996 and 1995,
respectively. This has been achieved while the Company has continued to invest
significantly in incremental worldwide sales and technical support resources to
promote the Company's embedded control products. However, there can be no
assurance that revenue growth in the future will be sufficient to continue to
reduce the current level of selling, general and administrative expenses as a
percentage of sales.
Other Income (Expense)
Interest expense in fiscal 1997 increased over fiscal 1996 and fiscal 1995
due to increased borrowings associated with the Company's capital equipment
additions and stock repurchase program. Interest income in fiscal 1997 decreased
from fiscal 1996 but increased from fiscal 1995, primarily as a result of
changes in invested cash balances. Other income represents numerous immaterial
non-operating items. The Company's interest expense could increase in fiscal
1998 if the Company increases its borrowings and interest expense would be
adversely impacted by increased interest rates.
Provision for Income Taxes
Provisions for income taxes reflect tax on foreign earnings and federal and
state tax on U.S. earnings. The Company had an effective tax rate of 26.4%,
27.0% and 26.1% for the years ended March 31, 1997, 1996 and 1995, respectively,
due primarily to lower tax rates at its foreign locations. The Company believes
that its tax rate for the foreseeable future will be approximately 27%. During
fiscal 1995, the Internal Revenue Service ("IRS") completed an examination of
the Company's federal income tax returns for fiscal 1993, 1992, 1991 and 1990.
As a result of the completion of this examination by the IRS and completion of
examinations by certain foreign tax authorities, the Company recognized a
benefit to its effective tax rate in fiscal 1995. The foregoing statement
regarding the Company's anticipated future tax rate is a forward-looking
statement within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
is subject to the safe harbors created thereby. Actual results could differ
materially because of the following factors, among others: taxation rates in
geographic regions where the Company has significant operations; and current tax
holidays available in foreign locations.
14
<PAGE>
Liquidity and Capital Resources
The Company had $43.0 million in cash and cash equivalents at March 31,
1997, an increase of $11.9 million from the March 31, 1996 balance. The Company
has an unsecured line of credit with a syndicate of domestic banks totaling
$90.0 million. There were no borrowings under the domestic line of credit as of
March 31, 1997. The domestic line of credit requires the Company to achieve
certain financial ratios and operating results. The Company was in compliance
with these covenants at March 31, 1997. The Company also has an unsecured short
term line of credit totaling $14.9 million with certain foreign banks. There
were no borrowings under the foreign line of credit as of March 31, 1997. There
are no covenants related to the foreign line of credit.
At March 31, 1997, an aggregate of $104.9 million of these facilities was
available, subject to financial covenants and ratios with which the Company was
in compliance. The Company's ability to fully utilize these facilities is
dependent on the Company remaining in compliance with such covenants and ratios.
During the year ended March 31, 1997, the Company generated $77.6 million
of cash from operating activities, an improvement of $4.2 million from the year
ended March 31, 1996 and an improvement of $34.5 million from the year ended
March 31, 1995. The improvement in cash flow from operations was primarily due
to increased profitability, the impact of changes in accounts payable and
accrued expenses and an increase in depreciation expense.
The Company's level of capital expenditures varies from time to time as a
result of actual and anticipated business conditions. Capital expenditures in
the years ended March 31, 1997, 1996 and 1995 were $79.0 million, $115.8 million
and $70.8 million, respectively. Capital expenditures were primarily for the
expansion of production capacity and the addition of research and development
equipment in each of these periods. The Company also acquired equipment under
capital leases of $3.7 million in the year ended March 31, 1995. The Company
currently intends to spend approximately $135.0 million during the next 12
months for additional capital equipment to increase capacity at its existing
wafer fabrication facilities, to construct additional facilities and to expand
product test operations. The Company expects capital expenditures will be
financed by cash flow from operations, available debt arrangements and other
sources of financing. The Company believes that the capital expenditures
anticipated to be incurred over the next 12 months will provide sufficient
additional manufacturing capacity to meet its currently anticipated needs.
Net cash provided by financing activities was $13.4 million, $27.1 million
and $31.5 million for the years ended March 31, 1997, 1996 and 1995
respectively. Proceeds from sale of stock and put options were $59.5 million,
$9.6 million and $33.7 million for the years ended March 31, 1997, 1996 and
1995, respectively. Proceeds from issuance of long term debt were $2.9 million
and $3.8 million for the years ended March 31, 1996 and 1995, respectively.
Payments on long term debt and capital lease obligations were $5.7 million, $5.9
million and $5.9 million for the years ended March 31, 1997, 1996 and 1995,
respectively. Proceeds from lines of credit were $20.5 million for the year
ended March 31, 1996. Repayments on lines of credit were $21.0 million for the
year ended March 31, 1997. Cash expended for the purchase of the Company's
Common Stock was $19.5 million for the year ended March 31, 1997.
On July 26, 1996, the Company's Board of Directors authorized a share
repurchase plan which permits the Company to purchase up to 1,500,000 shares of
its Common Stock and to sell up to 750,000 put options. Based on the price of
Microchip's stock and other pertinent factors, the Company may from time to time
purchase shares on the open market or sell put options. See Footnote 14 to the
Company's Consolidated Financial Statements, below.
The Company believes that its existing sources of liquidity combined with
cash generated from operations will be sufficient to meet the Company's
currently anticipated cash requirements for at least the next 12 months.
However, the semiconductor industry is capital intensive. In order to remain
competitive, the Company must continue to make significant investments in
capital equipment, for both production and research and development. The Company
may seek additional equity or debt financing during the next 12 months for the
capital expenditures required to maintain or expand the Company's wafer
fabrication and product test facilities. The timing and amount of any such
capital requirements will depend on a number of factors, including demand for
the Company's products, product mix, changes in industry conditions and
competitive factors. There can be no assurance that such financing will be
available on acceptable terms, and any additional equity financing could result
in additional dilution to existing investors.
Recent Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128 , "Earnings per Share"
("Statement 128"). Statement 128 establishes standards for computing and
presenting earnings per share ("EPS"), and supersedes APB Opinion No.15.
Statement 128 replaces primary EPS with basic EPS and requires
15
<PAGE>
dual presentation of basic and diluted EPS. Statement 128 is effective for
annual and interim periods ending after December 15, 1997. Earlier adoption is
not permitted. After adoption all prior period EPS data shall be restated to
conform to Statement 128. Basic and diluted EPS, as calculated under Statement
128 would have been $.99 and $.94 for the fiscal year ended March 31, 1997.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company listed in the index
appearing under Item 14(a)(1) hereof are filed as part of this Annual Report on
Form 10-K. See also Index to Financial Statements on page F-1 hereof.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's directors is incorporated herein
by reference to the Company's proxy statement for the 1997 annual meeting of
stockholders under the caption "Election of Directors."
See Item I, Part I hereof under the caption "Executive Officers" for
information with respect to the Company's executive officers. Information with
respect to compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended, is incorporated herein by reference to the Company's proxy statement
for the 1997 annual meeting of stockholders under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance."
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated herein
by reference to the information under the caption "Executive Compensation" in
the Company's proxy statement for the 1997 annual meeting of stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management of the Company is incorporated herein by reference to the
information under the caption "Security Ownership of Principal Stockholders,
Directors and Executive Officers" in the Company's proxy statement for the 1997
annual meeting of stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
16
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
(1) Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets as of
March 31, 1997 and 1996 F-2
Consolidated Statements of Income for each
of the years in the three-year period ended
March 31, 1997 F-3
Consolidated Statements of Cash Flows for
each of the years in the three-year period
ended March 31, 1997 F-4
Consolidated Statements of Stockholders'
Equity for each of the years in the
three-year period ended March 31, 1997 F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules - Applicable
schedules have been omitted because information
is included in the footnotes to the Financial
Statements.
(3) The Exhibits which are filed with this report or
which are incorporated herein by reference are set
forth in the Exhibit Index which appears on page
E-1 hereof, which Exhibit Index is incorporated
herein by this reference.
(b) No current reports on Form 8-K were filed during the quarter
ended March 31, 1997.
(c) See Item 14(a)(3) above.
(d) See "Index to Financial Statements" included under Item 8 to
this report.
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MICROCHIP TECHNOLOGY INCORPORATED
(Registrant)
By: /s/ Steve Sanghi
----------------------------------------
Steve Sanghi
President and Chief Executive Officer
Date: May 23, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
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>
Name and Signature Title Date
- ------------------ ----- ----
<S> <C> <C>
/s/ Steve Sanghi Director, President and May 23, 1997
- -------------------------------------------- Chief Executive Officer
Steve Sanghi
Albert J. Hugo-Martinez* Director May 23, 1997
Jon H. Beedle* Director May 23, 1997
L.B. Day* Director May 23, 1997
/s/ C. Philip Chapman Vice President, Chief Financial May 23, 1997
- -------------------------------------------- Officer and Secretary (Principal
C. Philip Chapman Financial and Accounting Officer)
*By: /s/ Steve Sanghi Individually and as Attorney-in-fact May 23, 1997
---------------------------------------
Steve Sanghi
</TABLE>
18
<PAGE>
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
--------------------------------------
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
EXHIBITS
--------------------------------------
YEAR ENDED MARCH 31, 1997
MICROCHIP TECHNOLOGY INCORPORATED
AND SUBSIDIARIES
CHANDLER, ARIZONA
19
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page Number
-----------
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
as of March 31, 1997 and 1996
Consolidated Statements of Income F-3
for each of the years in the three-year
period ended March 31, 1997
Consolidated Statements of Cash Flows F-4
for each of the years in the three-year
period ended March 31, 1997
Consolidated Statements of Stockholders' Equity F-5
for each of the years in the three-year
period ended March 31, 1997
Notes to Consolidated Financial Statements F-6
i
<PAGE>
KPMG Peat Marwick LLP
Independent Auditors' Report
The Board of Directors and Stockholders
Microchip Technology Incorporated:
We have audited the accompanying consolidated balance sheets of Microchip
Technology Incorporated and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Microchip Technology
Incorporated and subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
April 18, 1997
F-1
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
March 31,
-----------------------------------------
1997 1996
----------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 42,999 $ 31,059
Accounts receivable, net 61,102 47,208
Inventories 56,813 56,127
Prepaid expenses 1,715 1,808
Deferred tax asset 24,251 19,121
Other current assets 2,656 1,108
----------------- ------------------
Total current assets 189,536 156,431
Property, plant and equipment, net 234,058 197,383
Other assets 4,498 4,373
----------------- ------------------
Total assets $ 428,092 $ 358,187
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 35,281 $ 47,165
Current maturities of of long-term debt 2,470 2,734
Current maturities of capital lease obligations 3,776 2,943
Accrued liabilities 36,392 28,207
Deferred income on shipments to distributors 20,441 19,527
----------------- ------------------
Total current liabilities 98,360 100,576
Long-term line of credit --- 21,000
Long-term debt, less current maturities 3,616 6,086
Capital lease obligations, less current maturities 2,383 6,164
Long-term pension accrual 980 690
Deferred tax liability 6,169 4,039
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares;
no shares issued or outstanding --- ---
Common stock, $.001 par value; authorized 65,000,000 shares;
issued 53,300,619 and outstanding 53,196,037 shares at March 31, 1997;
issued and outstanding 51,581,172 shares at March 31, 1996. 53 52
Additional paid-in capital 168,185 120,887
Retained earnings 149,825 98,693
Less shares of common stock held in treasury; 104,582 shares at cost (1,479) ---
----------------- ------------------
Net stockholders' equity 316,584 219,632
Total liabilities and stockholders' equity $ 428,092 $ 358,187
================= ==================
</TABLE>
F-2
See accompanying notes to consolidated financial statements
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share amounts)
Year Ended March 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
Net sales $ 334,252 $ 285,888 $ 207,961
Cost of sales 167,330 137,708 101,039
--------- --------- ---------
Gross profit 166,922 148,180 106,922
Operating expenses:
Research and development 32,073 27,517 20,746
Selling, general and administrative 56,248 48,903 36,975
Restructuring cost 5,969 -- --
Write-off of in-process technology 1,575 11,448 --
--------- --------- ---------
95,865 87,868 57,721
Operating income 71,057 60,312 49,201
Other income (expense):
Interest income 1,419 2,034 1,108
Interest expense (3,271) (2,981) (1,989)
Other, net 288 569 808
--------- --------- ---------
Income before income taxes 69,493 59,934 49,128
Income taxes 18,361 16,182 12,829
--------- --------- ---------
Net income $ 51,132 $ 43,752 $ 36,299
========= ========= =========
Net income per common and
common equivalent share $ 0.94 $ 0.80 $ 0.70
========= ========= =========
Shares used in per share calculation 54,683 54,533 51,641
========= ========= =========
F-3
See accompanying notes to consolidated financial statements
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 51,132 $ 43,752 $ 36,299
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for doubtful accounts 452 634 649
Provision for inventory valuation 1,886 7,639 1,883
Provision for pension accrual 1,316 1,197 1,177
Provision for restructuring cost 2,483 --- ---
Depreciation 39,853 29,975 17,196
Amortization of purchased technology 300 --- ---
Deferred income taxes (3,000) (7,402) (9,055)
Tax benefit from exercise of stock options 5,742 4,130 4,120
Increase in accounts receivable (14,346) (9,974) (12,101)
Increase in inventories (2,572) (23,565) (17,354)
Increase (decrease) in accounts payable
and accrued liabilities (3,699) 28,788 15,550
Change in other assets and liabilities (1,961) (1,815) 4,751
------------- -------------- --------------
Net cash provided by operating activities 77,586 73,359 43,115
------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (79,012) (115,845) (70,848)
Sales of marketable securities --- 13,796 4,420
------------- -------------- --------------
Net cash used in investing activities (79,012) (102,049) (66,428)
------------- -------------- --------------
Cash flows from financing activities:
Net proceeds from (repayments on) lines
of credit (21,000) 20,499 1
Proceeds from issuance of long-term debt --- 2,926 3,769
Payments on long-term debt (2,734) (2,688) (2,352)
Payments on capital lease obligations (2,948) (3,251) (3,591)
Purchase of treasury stock (19,463) --- ---
Proceeds from sale of stock and put options 59,511 9,625 33,722
------------- -------------- --------------
Net cash provided by financing activities 13,366 27,111 31,549
------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents 11,940 (1,579) 8,236
Cash and cash equivalents at beginning of year 31,059 32,638 24,402
------------- -------------- --------------
Cash and cash equivalents at end of year $ 42,999 $ 31,059 $ 32,638
============= ============== ==============
</TABLE>
F-4
See accompanying notes to consolidated financial statements
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Common Net
Stock and Additional Stock held in Retained Stockholders'
Paid-in Capital Treasury Earnings Equity
(in thousands) Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1994 46,181 $ 69,222 - - $ 18,642 $ 87,864
Sale of Stock
Public offering 1,500 28,384 - - - 28,384
Exercise of stock options 902 1,964 - - - 1,964
Employee stock purchase plan 1,372 2,746 - - - 2,746
Sale of put options - 628 - - - 628
Tax benefit from exercise of options - 4,120 - - - 4,120
Compensation expense - 60 - - - 60
Unrealized holding loss - (240) - - - (240)
Net income - - - - 36,299 36,299
- --------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1995 49,955 $ 106,884 - - $ 54,941 $ 161,825
Sale of Stock
Exercise of stock options 1,368 5,686 - - - 5,686
Employee stock purchase plan 258 3,292 - - - 3,292
Sale of put options - 647 - - - 647
Tax benefit from exercise of options - 4,130 - - - 4,130
Unrealized holding loss - 240 - - - 240
Compensation expense - 60 - - - 60
Net income - - - - 43,752 43,752
- --------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1996 51,581 $ 120,939 - - $ 98,693 $ 219,632
Sale of Stock
Public offering (net of
offering costs of $2,905) 1,380 47,120 - - - 47,120
Exercise of stock options 1,315 8,388 - - - 8,388
Employee stock purchase plan 246 3,576 - - - 3,576
Purchase of treasury stock - - 1,326 (19,463) - (19,463)
Issuance of treasury stock for the
exercise of options and purchases in
the employee stock purchase plan (1,221) (17,984) (1,221) 17,984 - -
Sale of put options, net - 427 - - - 427
Tax benefit from exercise of options - 5,742 - - - 5,742
Compensation expense - 30 - - - 30
Net income - - - - 51,132 51,132
- --------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1997 53,301 $ 168,238 105 $ (1,479) $ 149,825 $ 316,584
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Microchip
Technology Incorporated and its wholly owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Stock Split
On December 6, 1996, the Company's Board of Directors approved a
three-for-two split of its Common Stock which became effective January
6, 1997. Accordingly, all references in the financial statements to
number of shares of Common Stock, weighted average number of shares of
Common Stock and stock option information have been restated to reflect
this stock split.
Cash and Cash Equivalents
All highly liquid investments including marketable securities purchased
with an original maturity of three months or less are considered to be
cash equivalents. As of March 31, 1997, the Company has classified
marketable securities of $25,964,000, with a maturity of less than
three months as cash and cash equivalents. The Company intends to hold
these securities to maturity. There were no marketable securities at
March 31, 1996.
Inventories
Inventories are valued at the lower of cost or market using the
last-in, first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are
expensed when incurred. Depreciation is provided on a straight-line
basis over the estimated useful lives of the related assets which range
from three to twenty-five years.
Assets acquired under capital lease arrangements have been recorded at
the present value of the future minimum lease payments and are being
amortized on a straight-line basis over the estimated useful life of
the asset or the lease term, whichever is shorter. Amortization of this
equipment is included in depreciation and amortization expense.
Foreign Currency Translation and Forward Contracts
The Company's foreign subsidiaries are considered to be extensions of
the U.S. company and any translation gains and losses related to these
subsidiaries are included in income. As the U.S. Dollar is utilized as
the functional currency, gains and losses resulting from foreign
currency transactions (transactions denominated in a currency other
than the subsidiaries' functional currency) are also included in
income. Gains and losses associated with currency rate changes on
forward contracts are recorded currently in income.
Revenue Recognition
Revenue from product sales to direct customers is recognized upon
shipment. The Company defers recognition of net sales and profits on
sales to distributors that have rights of return and price protection
until the distributors have resold the products.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered
or settled.
Computation of Net Income per Share
Net income per share is based upon the weighted average number of
shares of Common Stock and common equivalent shares consisting of stock
options (using the treasury stock method) outstanding for each of the
periods presented. Common equivalent shares are not considered if the
result would be anti-dilutive.
F-6
<PAGE>
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, on April 1, 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption
of this Statement did not have a material impact on the Company's
financial position or results of operations.
Stock Option Plan
Prior to April 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded, only if, on the date of grant, the current market price of
the underlying stock exceeded the exercise price. On April 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in fiscal 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Use of Estimates
The Company has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Reclassifications
Certain 1996 and 1995 fiscal year balances have been reclassified to
conform to the fiscal year 1997 presentation.
2. ACQUISITIONS
------------
Keeloq(R) Hopping Code
On November 17, 1995, the Company acquired the Keeloq(R) hopping code
technology and patents developed by Nanoteq Ltd. of the Republic of
South Africa, and the marketing rights related thereto (the "Keeloq
Acquisition"). The Keeloq Acquisition was treated as an asset purchase
for accounting purposes. The amount paid for the Keeloq Acquisition,
including all related costs, was $12,948,000. The Company has written
off a substantial portion of the purchase price that relates to
in-process research and development costs, which is consistent with the
Company's on-going treatment of research and development costs, as well
as all Keeloq Acquisition-related costs. The one-time write-off
associated with the Keeloq Acquisition was $11,448,000, with the
balance treated as purchased technology and amortized on a straight
line basis over five years. Under the terms of the Keeloq Acquisition,
the Company has agreed to a secondary payment which will be determined
by a formula based on the net sales and gross margin results of the
division for the six month period ended December 31, 1998. Any such
secondary payment is based on future performance and it is currently
not possible to determine the amount of such payment. It is currently
anticipated that any such payment would be expensed in the quarter the
amount is determined. The impact of the Keeloq Acquisition to the
Company's reported financial position and results of operations is
immaterial, therefore, pro-forma information illustrating the combined
results after the Keeloq Acquisition has not been provided.
ASIC Technical Solutions
On June 25, 1996 the Company acquired ASIC Technical Solutions, Inc., a
fabless provider of quick turn gate array devices (the "ASIC
Acquisition"). The ASIC Acquisition was treated as a purchase for
accounting purposes. The amount paid for the ASIC Acquisition and
related costs was $1,750,000. As part of the ASIC Acquisition, the
Company allocated a substantial portion of the purchase price to
in-process research and development costs, which is consistent with the
Company's on-going treatment of research and development costs. The
total one-time write-off associated with the ASIC Acquisition was
$1,575,000, with the balance treated as purchased technology related to
current products and amortized over five years. Under the terms of the
ASIC Acquisition, the Company has agreed to a secondary payment which
will be determined by a formula based on the net sales and gross margin
F-7
<PAGE>
results of the division for the two year period ending December 31,
1999. Any such secondary payment is based on future performance and it
is currently not possible to determine the amount of such payment. It
is currently anticipated that any such payment would be expensed in the
quarter the amount is determined. The impact of the ASIC Acquisition to
the Company's reported financial position and results of operations is
immaterial, therefore, pro-forma information illustrating the combined
results after the ASIC Acquisition has not been provided.
3. RESTRUCTURING CHARGES
---------------------
During the quarter ended June 30, 1996, primarily in response to
inventory correction activities at the Company's customers, the Company
implemented a series of actions to reduce production capacity, curtail
the growth of inventories and reduce operating expenses. These actions
included delaying capital expansion plans and deferring capital
spending, a 15% production cutback in wafer fabrication, a headcount
reduction in early April, 1996 representing approximately 3% of the
Company`s worldwide employees, and a two-week wafer fab shut down in
early July, 1996. As a result of these actions, the Company recorded a
pre-tax restructuring charge of $5,969,000 in the quarter ended June
30, 1996 to cover costs primarily related to idling part of the
Company's 5-inch wafer fab capacity, paying continuing expenses during
the wafer fabrication facility shutdown and paying severance costs
associated with the April, 1996 headcount reduction.
4. CONTINGENCIES
-------------
The Company is subject to lawsuits and other claims arising in the
ordinary course of its business. In the Company's opinion, based on
consultation with legal counsel, as of March 31, 1997, the effect of
such matters will not have a material adverse effect on the Company's
financial position.
5. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
March 31,
1997 1996
---------------------------------
<S> <C> <C>
Trade accounts receivable $ 62,165 $ 47,799
Other 1,031 1,243
---------------------------------
63,196 49,042
Less allowance for doubtful accounts 2,094 1,834
----------------------------------
$ 61,102 $ 47,208
==================================
</TABLE>
6. INVENTORIES
The components of inventories are as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31,
1997 1996
---------------------------------
<S> <C> <C>
Raw materials $ 2,310 $ 2,033
Work in process 44,813 43,036
Finished goods 18,021 21,430
---------------------------------
65,144 66,499
Less allowance for inventory valuation 8,331 10,372
---------------------------------
$ 56,813 $ 56,127
=================================
</TABLE>
The Company has consistently presented its results of operations for
all periods on the last-in first-out (LIFO) method and has assessed the
net realizable value of inventory based on LIFO costs. LIFO has the
effect of matching current costs of production with sales generated
during the same period. Production costs have decreased over time due
to improvements in manufacturing productivity and yields, resulting in
lower cost of sales for the year ended
F-8
<PAGE>
March 31, 1995. Due to changes in sales and product mix which affected
production costs, cost of sales increased during the years ended March
31, 1997 and 1996. The difference in cost of sales between the LIFO and
FIFO inventory valuation methods for the reporting periods was
immaterial. The inventory has been valued at net realizable value after
considering costs of disposition and the LIFO basis of the inventory.
7. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment consists of the following (amounts in
thousands):
<TABLE>
<CAPTION>
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Land $ 10,837 $ 10,518
Building and building improvements 51,796 36,939
Machinery and equipment 218,284 185,580
Projects in process 52,608 26,389
----------- -----------
333,525 259,426
Less accumulated depreciation
and amortization 99,467 62,043
----------- -----------
$ 234,058 $ 197,383
=========== ===========
</TABLE>
8. LONG-TERM DEBT
--------------
Long-term debt consists of borrowings (denominated in U.S. Dollars)
from three Taiwan financial institutions, secured by equipment financed
thereby. Interest rates are at the London Interbank Offering Rate
(LIBOR) (6.0% at March 31, 1997) plus 0.75%, and Singapore Interbank
Offering Rate (SIBOR) (6.125% at March 31, 1997) plus 0.75%. The
weighted average interest rate on these borrowings was 6.824% at March
31, 1997. Payments, including interest, are due semi-annually through
September 15, 2000. The aggregate annual maturities of long term debt
as of March 31, 1997 are $2,470,000, $2,196,000, $1,147,000 and
$273,000 for the years ending March 31, 1998, 1999, 2000 and 2001,
respectively.
The Company has an unsecured line of credit with a syndicate of U.S.
banks for up to $90,000,000, bearing interest at the Prime Rate (8.50%
at March 31, 1997) and expiring in October, 1998. At March 31, 1996 the
Company had utilized $21,000,000 of this line of credit. At March 31,
1997 there were no borrowings against the line of credit. The agreement
between the Company and the syndicate of banks requires the Company to
achieve certain financial ratios and operating results. The Company was
in compliance with these covenants as of March 31, 1997.
The Company has an additional unsecured line of credit with various
Taiwan financial institutions for up to $14,890,000 (U.S. Dollar
equivalent). These borrowings are predominantly denominated in New
Taiwan Dollars, bearing interest at the Taiwan money market rate (6.10%
at March 31, 1997) and expiring on various dates through September,
1998. No borrowings were outstanding on this line of credit as of March
31, 1997 and 1996.
9. EMPLOYEE BENEFIT PLANS
----------------------
The Company maintains a contributory profit-sharing plan for a majority
of its domestic employees meeting certain service requirements. The
plan qualifies under Section 401(k) of the Internal Revenue Code, and
allows employees to contribute up to 15% of their compensation, subject
to maximum annual limitations prescribed by the Internal Revenue
Service. Company contributions to the plan were at the discretion of
the Board of Directors until January 1, 1997, when the employer match
was revised to provide for a fixed and discretionary component. The
Company shall make a matching contribution of up to 25% of the first 4%
of the participant's eligible compensation and may award up to an
additional 25% under the discretionary match. All matches are provided
on a quarterly basis and require the participant to be an active
employee at the end of each quarter. For the years ended March 31,
1997, 1996 and 1995, the Company contributions to the plan totaled
$452,000, $407,000, and $273,000, respectively.
Effective January 1, 1997, the Company adopted a non-qualified deferred
compensation arrangement. This plan is unfunded and is maintained
primarily for the purpose of providing deferred compensation for a
select group of management as defined in ERISA Sections 201, 301 and
401. There are no Company matching contributions with respect to this
plan.
F-9
<PAGE>
Substantially all employees in foreign locations are covered by a
statutory pension plan. Contributions are accrued based on an
actuarially determined percentage of compensation and are funded in
amounts sufficient to meet statutory requirements. Pension expense
amounted to $1,316,000, $1,197,000, and $1,177,000 for the years ended
March 31, 1997, 1996 and 1995, respectively.
The Company has an incentive compensation plan which provides for
awards, based on a percentage of base salary, from an incentive pool
created from operating profits of the Company, at the discretion of the
Board of Directors. During the years ended March 31, 1997, 1996 and
1995, $2,064,000, $1,357,000 and $2,105,000, respectively, was charged
against operations for this plan.
The Company also has a plan which provides a cash bonus based on the
operating profits of the Company for all employees, at the discretion
of the Board of Directors. During the years ended March 31, 1997, 1996
and 1995, $1,373,000, $1,025,000, and $1,025,000, respectively, was
charged against operations for this plan.
10. STOCK OPTION PLANS
------------------
Under the Company's 1993 Stock Option Plan (the "Plan") key employees,
non-employee directors and consultants may be granted incentive stock
options or non-statutory stock options to purchase shares of Common
Stock at a price not less than 100% of the fair market value of the
option shares on the grant date. Options granted under the Plan vest
over the period determined by the Board of Directors at the date of
grant, at periods ranging from one year to four years.
At March 31, 1997, there were 1,508,370 shares available for grant
under the Plan. The per share weighted-average fair value of stock
options granted under the Plan for the years ended March 31, 1997 and
1996 was $9.66 and $13.22, respectively, based on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for both years: expected dividend yield of
0%, expected volatility of 60%, risk-free interest rate of 6.25%, and
an expected life of 3.50 years.
Under the Company's 1993 Stock Option Plan, 14,897,477 shares of Common
Stock had been reserved for issuance since the inception of the Plan.
In April, 1997, subject to stockholder approval, the Board of Directors
reserved an additional 2,000,000 shares of Common Stock for issuance
under the Plan.
The stock option activity is as follows:
Options Outstanding
Weighted Average
Shares Exercise Price
-----------------------------------------
Outstanding at March 31, 1994 5,963,625 $ 4.69
Granted 2,186,945 13.76
Exercised (901,656) 2.20
Canceled (138,242) 6.50
-----------------
Outstanding at March 31, 1995 7,110,672 7.76
Granted 981,833 23.77
Exercised (1,367,832) 4.01
Canceled (177,366) 10.86
-----------------
Outstanding at March 31, 1996 6,547,307 10.88
Granted 2,092,952 17.74
Exercised (1,314,977) 6.16
Canceled (967,610) 21.28
-----------------
Outstanding at March 31, 1997 6,357,672 $ 12.50
=================
F-10
<PAGE>
The following table summarizes information about the stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Options Remaining Average Options Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.0300 - $ 2.4070 571,588 5.72 $ 1.87 571,588 $ 1.87
$ 3.6300 - $ 7.1110 1,714,505 6.47 7.07 1,369,106 7.06
$ 7.5930 - $13.0000 175,997 6.95 11.06 91,951 10.93
$ 13.7220 - 1,525,500 7.31 13.72 77,940 13.72
$ 14.5550 - $16.7500 116,975 8.21 15.25 28,473 15.37
$ 16.8330 - 1,001,250 9.25 16.83 -- --
$ 17.0000 - $38.2500 1,251,857 8.91 19.70 69,750 20.31
--------- ---- ------ --------- -------
$0.0300 - $38.2500 6,357,672 7.56 $12.50 2,208,808 $ 6.60
========= ==== ====== ========= ======
</TABLE>
At March 31, 1997 and 1996, the number of options exercisable was
2,208,808 and 2,115,404, respectively, and the weighted-average
exercise price of those options was $6.60 and $6.21, respectively.
On April 23, 1996, the Board of Directors of the Company approved an
option exchange program for options priced in excess of $20.00.
Employees, excluding executive officers, certain corporate officers,
and directors, who were issued stock options in this category, and who
were active employees on April 30, 1996, could elect to keep their
options to buy Common Stock at the original grant price or exchange
their options for options priced at $17.00 per share, the fair market
value of the Company's Common Stock on April 30, 1996. If the employee
elected to exchange their options for options priced at $17.00 per
share, the vesting commencement date was extended by 90 days from the
original vesting date. There were 654,395 shares exchanged under the
option exchange program.
For certain options granted, the Company recognizes as compensation
expense the excess of the deemed value for accounting purposes of the
Common Stock issuable upon exercise of such options over the exercise
price of such options. This deferred compensation expense is amortized
ratably over the vesting period of each option. During the years ended
March 31, 1997, 1996 and 1995, the Company recorded compensation
expense of $30,000, $60,000 and $60,000, respectively.
Common stock received through the exercise of incentive stock options
which are sold by the optionee within two years of grant or one year of
exercise result in a tax deduction for the Company equivalent to the
taxable gain recognized by the optionee. For financial reporting
purposes, the tax effect of this deduction is accounted for as a credit
to additional paid-in capital rather than as a reduction of income tax
expense. Such optionee sales resulted in a tax benefit to the Company
of $5,742,000, $4,130,000 and $4,120,000 for the years ended March 31,
1997, 1996 and 1995, respectively.
The Company's Employee Stock Purchase Plan (the "Purchase Plan") allows
eligible employees of the Company to purchase shares of Common Stock at
semi-annual intervals through periodic payroll deductions. The purchase
price per share, in general, will be 85% of the lower of the fair
market value of the Common Stock on the participant's entry date into
the offering period or 85% of the fair market value on the semi-annual
purchase date. As of March 31, 1997, 179,086 shares were available for
issuance under the Purchase Plan. Since the inception of the Purchase
Plan, 3,006,000 shares of Common Stock have been reserved for issuance
under the Purchase Plan. In April, 1997, subject to stockholder
approval, the Board of Directors reserved an additional 300,000 shares
of Common Stock for issuance under the Purchase Plan. During fiscal
1995, a purchase plan was adopted for employees in non-U.S. locations.
The plan will allow for the purchase price per share to be 100% of the
lower of the fair market value of the Common Stock on the beginning or
end of the semi-annual purchase plan period. In April, 1997, the Board
of Directors reserved an additional 10,000 shares of Common Stock for
issuance under this plan.
The Company applies APB Opinion No. 25 in accounting for its various
stock plans and, accordingly, no compensation cost has been recognized
for the Plan or the Purchase Plan in the financial statements. Had the
Company determined compensation cost 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 indicated below:
F-11
<PAGE>
Year Ended March 31,
1997 1996
-------------------------
Net income As reported $ 51,132 $ 43,752
Pro forma 48,202 40,691
Net income per common and As reported $ 0.94 $ 0.80
common equivalent share Pro-forma 0.88 0.75
Pro forma net income reflects only options granted during the fiscal
years ended March 31, 1997 and 1996. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is
not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period
and compensation cost for options granted prior to April 1, 1995 is not
considered.
11. LEASE COMMITMENTS
-----------------
The Company leases office space, transportation and other equipment
under capital and operating leases which expire at various dates
through March, 2003. The future minimum lease commitments under these
leases are payable as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year ended Capital Operating
March 31, Leases Leases
--------- ------ ------
<S> <C> <C> <C>
1998 $ 4,116 $ 1,410
1999 2,139 1,220
2000 360 712
2001 2 237
2002 --- 136
Thereafter --- 52
-------------- ------------
Total minimum lease payments $ 6,617 $ 3,767
============
Less amount representing interest
(at rates ranging from 6.7% to 10.43%) (458)
--------------
Present value of net minimum lease payments 6,159
Less current maturities 3,776
--------------
Capital lease obligations $ 2,383
==============
</TABLE>
Rental expense under operating leases totaled $2,644,000, $1,675,000
and $1,646,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
F-12
<PAGE>
12. INCOME TAXES
The provision for income taxes is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C>
Current expense:
Federal $ 13,814 $ 15,923 $ 15,833
State 3,454 4,122 3,835
Foreign 4,093 3,539 2,216
------------- ------------- -----------
21,361 23,584 21,884
------------- ------------- -----------
Deferred expense (benefit):
Federal (1,322) (5,922) (7,017)
State (331) (1,480) (2,038)
Foreign (1,347) --- ---
-------------- ------------- -----------
(3,000) (7,402) (9,055)
-------------- -------------- ------------
$ 18,361 $ 16,182 $ 12,829
============= ============= ===========
</TABLE>
The tax benefit associated with the exercise of employee stock options
reduced taxes currently payable by $5,742,000, $4,130,000 and
$4,120,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
The provision for income taxes differs from the amount computed by
applying the statutory federal tax rate to income before income taxes.
The sources and tax effects of the differences are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Computed expected provision $ 24,323 $ 20,977 $ 17,195
State income taxes, net
of federal benefit 2,245 1,669 1,168
Foreign sales corporation benefit (2,552) (2,123) (154)
Foreign income taxed at
lower than the federal rate (5,655) (4,341) (5,380)
-------------- -------------- ------------
$ 18,361 $ 16,182 $ 12,829
============= ============= ===========
</TABLE>
Pretax income from foreign operations was $32,172,000, $29,434,000 and
$21,064,000 for the years ended March 31, 1997, 1996 and 1995,
respectively. Unremitted foreign earnings that are considered to be
permanently invested outside the United States and on which no deferred
taxes have been provided, amounted to approximately $108,320,000 at
March 31, 1997.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows (amounts in thousands):
F-13
<PAGE>
<TABLE>
<CAPTION>
March 31,
1997 1996
--------------------------------
<S> <C> <C>
Deferred tax assets:
Intercompany profit in inventory $ 10,408 $ 10,055
Deferred income on shipments
to distributors 6,475 4,938
Inventory reserves 2,392 2,196
Technology assets 2,934 3,536
Accrued expenses and other 4,976 1,932
----------- -----------
Gross deferred tax assets 27,185 22,657
=========== ===========
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences in
depreciation (8,479) (6,950)
Other deferred liabilities (624) (625)
------------ ------------
Gross deferred tax liability (9,103) (7,575)
------------ ------------
Net deferred tax asset $ 18,082 $ 15,082
============= ============
</TABLE>
Management believes that it is more likely than not that the results of
future operations will generate sufficient
taxable income to realize the deferred tax assets.
The Company has enjoyed the benefits of a partial tax holiday for its
Taiwan manufacturing operations over the past several years. The
aggregate dollar benefits derived from this tax holiday status
approximated $5,415,000, $5,003,000, and $3,707,000 for the years ended
March 31, 1997, 1996 and 1995, respectively. The benefit the tax
holiday status had on net income per share approximated $0.10, $0.09
and $0.07 for the years ended March 31, 1997, 1996 and 1995,
respectively. The Company's tax holiday status in Taiwan expired in
March, 1997.
13. ACCRUED LIABILITIES
-------------------
Accrued liabilities consists of the following (amounts in thousands):
March 31,
1997 1996
---------------------------
Accrued salaries and wages $ 6,344 $ 4,728
Income taxes 14,957 7,422
Other accrued expenses 15,091 16,057
----------- -----------
$ 36,392 $ 28,207
=========== ===========
14. STOCKHOLDERS' EQUITY
--------------------
Stockholder Rights Plan. On February 13, 1995, the Company's Board of
Directors adopted a Stockholder Rights Plan (the "Plan"). Under the
Plan, each share of the Company's Common Stock has one right which
entitles the stockholder to buy 1/100th of a share of the Company's
Series A Participating Preferred Stock. The rights have an exercise
price of $66.67 and expire in February, 2005. The rights become
exercisable and transferable upon the occurrence of certain events.
Stock Repurchase Activity. In connection with a stock repurchase
program, during the year ended March 31, 1997, the Company purchased a
total of 1,326,477 shares of the Company's Common Stock in open market
activities at a total cost of $19,463,000. Through December 31, 1996,
the Company had reissued through stock option exercises and the
Company's employee stock purchase plan a total of 1,221,895 shares of
the Company's Common Stock held in treasury. Also, in connection with a
stock repurchase program, during fiscal 1997 and fiscal 1996 the
Company sold put options for 500,000 shares and 517,500 shares of
Common Stock, respectively. Pricing per share ranged from $15.00 to
$24.88 in fiscal 1997 and from $18.25 to $25.08 in fiscal 1996. During
fiscal 1997, the Company
F-14
<PAGE>
repurchased put options for 142,500 shares. As of March 31, 1997 the
Company held put options for 300,000 shares which have expiration dates
ranging from April 1, 1997 to December 26, 1997 at prices ranging from
$15.00 to $24.88 per share. The net proceeds from the sale and
repurchase of these options, in the amount of $427,750 and $647,000 for
fiscal years 1997 and 1996 respectively, has been credited to
additional paid-in capital.
Proposed Increase to the Number of Authorized Shares. In April, 1997,
subject to stockholder approval, the Board of Directors approved an
amendment to the Company's Restated Certificate of Incorporation, as
amended, to increase the number of authorized shares of Common Stock
from 65,000,000 to 100,000,000. This matter will be voted upon by the
stockholders at the 1997 annual stockholders' meeting.
15. GEOGRAPHIC INFORMATION
----------------------
The Company operates in one industry segment and engages primarily in
the design, development, manufacture and marketing of semiconductor
products. The Company sells its products to system manufacturers and
distributors in a broad range of industries, performs on-going credit
evaluations of its customers and generally requires no collateral. The
Company's operations outside the United States consist of comprehensive
product final test facilities in Taiwan and Thailand and sales offices
in certain foreign countries. Domestic operations are responsible for
the design, development and wafer fabrication of all products, as well
as the coordination of production planning and shipping to meet
worldwide customer commitments. The Taiwan test facility is reimbursed
in relation to value added with respect to test operations and other
functions performed, and certain foreign sales offices receive a
commission on export sales within their territory. The Thailand test
facility was brought on line during the fiscal year ended March 31,
1997 and has also been reimbursed in relation to value added during
test operations. Accordingly, for financial statement purposes, it is
not meaningful to segregate sales or operating profits for the test and
foreign sales office operations. Identifiable assets by geographic area
are as follows (in thousands):
March 31,
1997 1996
-------------------------------
United States $ 254,477 $ 192,726
Taiwan 101,036 119,269
Thailand 44,126 23,767
Other 28,453 22,425
------------- -------------
Total Assets $ 428,092 $ 358,187
============= =============
Sales to unaffiliated customers located outside the United States,
primarily in Asia, Europe and Japan, aggregated approximately 66%, 65%,
and 65% of consolidated net sales for the years ended March 31, 1997,
1996 and 1995, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amount of cash equivalents approximates fair value because
their maturity is less than three months. The carrying amount of
accounts receivable, accounts payable and accrued liabilities
approximates fair value due to the short term maturity of the amounts.
The fair value of capital lease obligations and long-term debt
approximate their carrying value as they are estimated by discounting
the future cash flows at rates currently offered to the Company for
similar debt instruments.
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business to reduce its exposure to
fluctuations in foreign exchange rates. These financial instruments
include standby letters of credit and foreign currency forward
contracts. When engaging in forward contracts, risks arise from the
possible inability of counterparties to meet the terms of their
contracts and from movements in securities values, interest rates and
foreign exchange rates. At March 31, 1997 and 1996, the Company held
contracts totaling $5,421,000 and $10,243,000, respectively, which were
entered into and hedged the Company's foreign currency risk. The
contracts matured in April and May 1997 and 1996 respectively.
Unrealized gains and losses as of the balance sheet dates and realized
gains and losses for the years ending March 31, 1997, 1996 and 1995
were not material.
F-15
<PAGE>
17. QUARTERLY RESULTS (UNAUDITED)
-----------------------------
The following table presents selected unaudited quarterly operating
results for the Company's eight quarters ended March 31, 1997. The
Company believes that all necessary adjustments have been made to
present fairly the related quarterly results.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-----------------------------------------------------
Fiscal 1997
-----------
<S> <C> <C> <C> <C> <C>
Net sales $ 74,161 $ 79,510 87,076 $ 93,505 $334,252
Gross profit 36,636 39,788 43,514 46,984 166,922
Operating income 9,545 18,517 20,791 22,204 71,057
Net income 6,686 13,126 14,755 16,565 51,132
Net income per common
and common equivalent
share 0.12 0.24 0.27 0.30 0.94
Fiscal 1996
-----------
Net sales $ 64,499 $ 71,265 $ 78,069 $ 72,055 $285,888
Gross profit 33,495 36,958 40,383 37,344 148,180
Operating income 16,161 17,994 8,064 18,093 60,312
Net income 11,503 12,765 5,765 13,719 43,752
Net income per common
and common equivalent
share 0.21 0.23 0.10 0.25 0.80
</TABLE>
18. SUPPLEMENTAL FINANCIAL INFORMATION
----------------------------------
The Company acquired equipment and incurred capital lease obligations
of $3,656,000 during the year ended March 31, 1995.
Cash paid for income taxes amounted to $8,108,000, $17,557,000 and
$10,905,000 during the years ended March 31, 1997, 1996 and 1995,
respectively. Cash paid for interest amounted to $3,183,000, $2,643,000
and $2,081,000 during the years ended March 31, 1997, 1996 and 1995,
respectively.
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended March 31, 1997,
1996 and 1995 follows:
Balance at Charged to
beginning costs and Balance at
of year expenses Deductions end of year
-------------------------------------------------
Allowance for doubtful accounts:
1997 $ 1,834 $ 452 $ (192) $ 2,094
1996 1,394 634 (194) 1,834
1995 885 649 (140) 1,394
Allowance for inventory valuation:
1997 $ 10,372 $ 1,886 $ (3,927) $ 8,331
1996 4,373 7,639 (1,640) 10,372
1995 5,049 1,883 (2,559) 4,373
F-16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Registrant
[Incorporated by reference to Exhibit 3.1 to Registration
Statement No. 33-70608]
3.1.1 Certificate of Amendment to Registrant's Restated Certificate
of Incorporation [Incorporated by reference to Exhibit 3.3.1
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994]
3.1.2 Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock of
Registrant [Incorporated by reference to Exhibit No. 3.1.2 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995]
3.1.3 Certificate of Amendment to Registrant's Restated Certificate
of Incorporation [Incorporated by reference to Exhibit No. 1
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995]
3.2 Amended and Restated By-Laws of Registrant, as amended through
May 19, 1997
4.1 Investors' Rights Agreement dated October 30, 1992
[Incorporated by reference to Exhibit No. 4.1 to Registration
Statement No. 33-57960]
4.2 Preferred Share Rights Agreement dated as of February 13, 1995
between Registrant and Bank One, Arizona, N.A., including the
form of Rights Certificate and the Summary of Rights attached
as exhibits thereto [Incorporated by reference to Exhibit No.
1 to Registrant's Registration Statement on Form 8-A as filed
with the Securities and Exchange Commission as of February 14,
1995]
10.1 Form of Indemnification Agreement between Registrant and its
directors and certain of its officers [[Incorporated by
reference to Exhibit No. 10.1 to Registration Statement No.
33-57960]
10.2 Series B Preferred Stock Purchase Agreement dated as of March
14, 1991, as amended, between Registrant and the investors
specified therein [Incorporated by reference to Exhibit No.
10.2 to Registration Statement No. 33-57960]
10.3 Series C Preferred Stock Purchase Agreement dated as of
October 30, 1992 between Registrant and the investors
specified therein [Incorporated by reference to Exhibit No.
10.3 to Registration Statement No. 33-57960]
10.4 Warrant Purchase Agreement dated as of May 15, 1991 between
Registrant and Silicon Valley Bank [Incorporated by reference
to Exhibit No. 10.5 to Registration Statement No. 33-57960]
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.5 Warrant Purchase Agreement dated as of July 1, 1992 between
Registrant and Silicon Valley Bank [Incorporated by reference
to Exhibit No. 10.6 to Registration Statement No. 33-57960]
10.6 Form of Stock Purchase Warrant between Registrant and certain
investors [Incorporated by reference to Exhibit No. 10.8 to
Registration Statement No. 33-57960]
10.7 License Agreement dated as of April 1, 1988 between Registrant
and General Instrument Corporation, as amended by that certain
Amendment, Assignment and Assumption Agreement dated as of
April 12, 1989 [Incorporated by reference to Exhibit No. 10.9
to Registration Statement No. 33-57960]
10.8 Land Lease Contract dated January 1, 1989 between Registrant's
subsidiary and Kaohsiung Export Processing Zone Administration
Summary (English Summary) [Incorporated by reference to
Exhibit No. 10.10 to Registration Statement No. 33-57960]
10. 9 Land Lease Contract dated September 1, 1992 between
Registrant's subsidiary and Kaohsiung Export Processing Zone
Administration Summary (English Summary) [Incorporated by
reference to Exhibit No. 10.11 to Registration Statement No.
33-57960]
10.10 Amended and Restated 1989 Stock Option Plan [Incorporated by
reference to Exhibit No. 10.14 to Registration Statement No.
33-57960]
10.11 1993 Stock Option Plan, as amended through April 25, 1997
10.12 Form of Notice of Grant For 1993 Stock Option Plan, with
Exhibit A thereto, Form of Stock Option Agreement; and Exhibit
B thereto, Form of Stock Purchase Agreement [Incorporated by
reference to Exhibit No. 10.6 to Registration Statement No.
333-872]
10.13 Employee Stock Purchase Plan, as amended through April 25,
1997
10.14 Form of Stock Purchase Agreement for Employee Stock Purchase
Plan [Incorporated by reference to Exhibit No. 10.2 to
Registration Statement No. 333-872]
E-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.15 Form of Enrollment Form For Employee Stock Purchase Plan
[Incorporated by reference to Exhibit No. 10.3 to Registration
Statement No. 333-872]
10.16 Form of Change Form For Employee Stock Purchase Plan
[Incorporated by reference to Exhibit No. 10.4 to Registration
Statement No. 333-872]
10.17 Form of Executive Officer Severance Agreement [Incorporated by
reference to Exhibit No. 10.7 to Registration Statement No.
333-872]
10.18 Purchase and Sale Agreement dated October 7, 1993 Between
Registrant and Digital Equipment Corporation [Incorporated by
reference to Exhibit No. 10.22 to Registration Statement No.
33-70608]
10.19 Credit Agreement dated as of October 31, 1996 among
Registrant, the Banks named therein, Wells Fargo Bank, N.A. as
Administrative Agent and NBD Bank, as Co-Agent [Incorporated
by reference to Exhibit No. 10.1 to Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 1996]
10.20 Modification Agreement dated as of January 14, 1997 to the
Credit Agreement dated as of October 31, 1996 among
Registrant, the Banks named therein, Wells Fargo Bank, N.A.,
as Administra- tive Agent and NBD Bank, as Co-Agent
11.1 Computation of Net Income Per Share
21.1 Subsidiaries of Registrant [Incorporated by reference to
Exhibit No. 21.1 to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996]
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney Re: Microchip Technology Incorporated, the
Registrant [Incorporated by reference to Exhibit No. 24.1 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995]
28.1 Specimen Certificate of Registrant's Common Stock
[Incorporated by reference to Exhibit No. 28.1 to Registration
Statement No. 33-57960]
</TABLE>
E-3
AMENDED AND RESTATED BYLAWS
OF
MICROCHIP TECHNOLOGY INCORPORATED
Amended Through May 19, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I - CORPORATE OFFICES.......................................................................................-1-
1.1 Registered Office.........................................................................................-1-
1.2 Other Offices.............................................................................................-1-
ARTICLE II - STOCKHOLDERS...........................................................................................-1-
2.1 Place of Meetings.........................................................................................-1-
2.2 Annual Meeting............................................................................................-1-
2.3 Special Meeting...........................................................................................-2-
2.4 Notice of Stockholders Meetings...........................................................................-2-
2.5 Manner of Giving Notice; Affidavit of Notice..............................................................-2-
2.6 Quorum....................................................................................................-2-
2.7 Adjourned Meeting; Notice.................................................................................-3-
2.8 Voting....................................................................................................-3-
2.9 Waiver of Notice..........................................................................................-3-
2.10 Stockholder Action by Written Consent Without a Meeting...................................................-4-
2.11 Record Date for Stockholder Notice; Voting; Giving Consents...............................................-4-
2.12 Proxies...................................................................................................-5-
2.13 List of Stockholders Entitled to Vote.....................................................................-5-
2.14 Conduct of Business.......................................................................................-6-
2.15 Inspectors of Election....................................................................................-6-
2.16 Inspectors of Election and Procedures for Counting Written Consents.......................................-6-
2.17 Election Not To Be Subject to Arizona Control Share Acquisitions Statute .................................-8-
ARTICLE III - DIRECTORS.............................................................................................-8-
3.1 Powers....................................................................................................-8-
3.2 Number of Directors.......................................................................................-8-
3.3 Election, Qualification and Term of Office of Directors...................................................-8-
3.4 Resignation and Vacancies.................................................................................-9-
3.5 Place of Meetings; Meetings by Telephone.................................................................-10-
3.6 Regular Meetings.........................................................................................-10-
3.7 Special Meetings; Notice.................................................................................-10-
3.8 Quorum...................................................................................................-11-
3.9 Waiver of Notice.........................................................................................-11-
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
3.10 Adjourned Meeting; Notice................................................................................-11-
3.11 Board Action by Written Consent Without a Meeting........................................................-11-
3.12 Fees and Compensation of Directors.......................................................................-11-
3.13 Approval of Loans to Officers............................................................................-11-
3.14 Removal of Directors.....................................................................................-12-
3.15 Conduct of Business......................................................................................-12-
3.16 Presumption of Assent....................................................................................-12-
ARTICLE IV - COMMITTEES............................................................................................-12-
4.1 Committees of Directors..................................................................................-12-
4.2 Committee Minutes........................................................................................-13-
4.3 Meetings and Action of Committees........................................................................-13-
ARTICLE V - OFFICERS...............................................................................................-13-
5.1 Officers ...............................................................................................-14-
5.2 Appointment of Officers..................................................................................-14-
5.3 Subordinate Officers.....................................................................................-14-
5.4 Removal and Resignation of Officers......................................................................-14-
5.5 Vacancies in Offices.....................................................................................-14-
5.6 Chairman of the Board....................................................................................-14-
5.7 President................................................................................................-14-
5.8 Vice Presidents..........................................................................................-15-
5.9 Secretary................................................................................................-15-
5.10 Chief Financial Officer..................................................................................-15-
5.11 Treasurer................................................................................................-16-
5.12 Assistant Secretary......................................................................................-16-
5.13 Assistant Treasurer......................................................................................-16-
5.14 Authority and Duties of Officers.........................................................................-16-
5.15 Representation of Shares of Other Corporations...........................................................-16-
ARTICLE VI - INDEMNITY.............................................................................................-17-
6.1 Indemnification of Directors and Officers................................................................-17-
6.2 Indemnification of Others................................................................................-17-
6.3 Insurance................................................................................................-17-
ARTICLE VII - RECORDS AND REPORTS..................................................................................-18-
7.1 Maintenance and Inspection of Records....................................................................-18-
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.2 Inspection by Directors..................................................................................-18-
ARTICLE VIII - GENERAL MATTERS.....................................................................................-18-
8.1 Checks...................................................................................................-18-
8.2 Execution of Corporate Contracts and Instruments.........................................................-18-
8.3 Stock Certificates; Partly Paid Shares...................................................................-18-
8.4 Special Designation on Certificates......................................................................-19-
8.5 Lost Certificates........................................................................................-19-
8.6 Construction; Definitions................................................................................-19-
8.7 Dividends................................................................................................-20-
8.8 Fiscal Year..............................................................................................-20-
8.9 Seal.....................................................................................................-20-
8.10 Transfer of Stock........................................................................................-20-
8.11 Stock Transfer Agreements................................................................................-20-
8.12 Registered Stockholders..................................................................................-20-
8.13 Notices..................................................................................................-20-
ARTICLE IX - AMENDMENTS............................................................................................-21-
</TABLE>
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<PAGE>
AMENDED AND RESTATED BYLAWS OF
MICROCHIP TECHNOLOGY INCORPORATED
As Amended Through May 19, 1997
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office. The registered office of the corporation shall
be in the City of Dover, County of Kent, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company.
1.2 Other Offices. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders shall be held at any
place, within or outside the State of Delaware, designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the registered office of the corporation.
2.2 Annual Meeting. The annual meeting of stockholders shall be held,
each year, on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted.
To be properly brought before an annual meeting business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before the meeting by a stockholder, the secretary of the
corporation must have received notice in writing from the stockholder not less
than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that if less than thirty-five (35) days' notice of the
meeting is given to stockholders, such notice shall have been received by the
secretary not later than the close of business on the seventh (7th) day
following the day on which the notice of meeting was mailed. Such written notice
to the secretary shall set forth, as to each matter the stockholder proposes to
bring before the annual meeting: (i) a brief description of the business, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the number of shares of stock of the
corporation beneficially owned by such stockholder, and (iv) any material
interest of such stockholder in such business. Notwithstanding any provision in
the bylaws to the
<PAGE>
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.2.
2.3 Special Meeting. A special meeting of the stockholders may be
called at any time by the board of directors or by the chairman of the board or
by one or more stockholders owning in the aggregate not less than fifty percent
(50%) of the entire capital stock of the corporation issued and outstanding and
entitled vote.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
2.4 Notice of Stockholders Meetings. All notices of meetings of
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each stockholder entitled to
vote at such meeting, except as otherwise provided herein or required by law
(meaning, here and hereinafter, as required from time to time by the General
Corporation Law of Delaware or the certificate of incorporation of the
corporation). The notice shall specify the place, date, and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of any
meeting of stockholders, if mailed, is given when deposited in the United States
mail, tice postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation. An affidavit of the secretary or an
assistant secretary or of the transfer agent of the corporation that the notice
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
2.6 Quorum. At any meeting of the stockholders, the holders of a
majority, present in person or by proxy, of all of the shares of the stock
entitled to vote at the meeting shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law. Where a separate vote by a class or classes is required, a
majority, present in person or by proxy, of the shares of such class or classes
entitled to take action with respect to that vote on
-2-
<PAGE>
that matter shall constitute a quorum. If a quorum shall fail to attend any
meeting, the chairman of the meeting may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, those present at such adjourned meeting
shall constitute a quorum (but in no event shall a quorum consist of less than
one-third of the shares entitled to vote at the meeting), and all matters shall
be determined by a majority of the votes cast at such meeting, except as
otherwise required by law.
2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another
time or place, unless these bylaws otherwise require, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Each stockholder shall have one (1) vote for every share of stock
entitled to vote that is registered in his or her name on the record date for
the meeting (as determined in accordance with Section 2.11 of these bylaws),
except as otherwise provided herein or required by law.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law or provided herein, all other matters
shall be determined by a majority of the votes cast affirmatively or negatively.
2.9 Waiver of Notice. Whenever notice is required to be given under any
provision of the General Corporation Law of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
bylaws.
-3-
<PAGE>
2.10 Stockholder Action by Written Consent Without a Meeting. Any
action required or able to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice, and without a
vote if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation at its registered office in Delaware,
its principal place of business, or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery to the corporation's registered office shall be made by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days
after the date the earliest dated consent is delivered to the corporation, a
written consent or consents signed by holders of a sufficient number of votes to
take action are delivered to the corporation in the manner prescribed in the
first paragraph of this section.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 Record Date for Stockholder Notice; Voting; Giving Consents. In
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the board of directors may fix a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change,
-4-
<PAGE>
conversion or exchange of stock or for any other purpose shall be at the close
of business on the day on which the board of directors adopts the resolution
relating thereto.
In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall neither precede nor be
more than ten (10) days after the date upon which such resolution is adopted by
the board of directors. Any stockholder of record seeking to have the
stockholders authorize or take action by written consent shall, by written
notice to the secretary, request the board of directors to fix a record date.
The board of directors shall promptly, but in all events within ten (10) days
after the date on which such notice is received, adopt a resolution fixing the
record date.
If the board of directors has not fixed a record date within such
time, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation in the manner prescribed in the first paragraph of
Section 2.10 of these bylaws. If the board of directors has not fixed a record
date within such time and prior action by the board of directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the date on which the board of directors adopts the resolution taking such
prior action.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by a
written proxy, filed in accordance with the procedure established for the
meeting or taking of action in writing, but no such proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section
2.12 may be substituted or used in lieu of the original writing or transmission
for any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
The revocability of a proxy that states on its face that it is irrevocable shall
be governed by the provisions of Section 212(c) of the General Corporation Law
of Delaware.
2.13 List of Stockholders Entitled to Vote. The officer who has charge
of the stock ledger of a corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered
-5-
<PAGE>
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. Such list shall presumptively
determine the identity of the stockholders entitled to vote at the meeting and
the number of shares held by each of them.
2.14 Conduct of Business. The Board of Directors will appoint a
Chairman of the meeting, and he/she shall be authorized to be the final
authority on all matters of procedure at the meeting. The rules provided below
will govern the conduct of the meeting of stockholders and will be strictly
enforced to maintain an orderly meeting. Robert's Rules of Order will not be
applicable and will not be utilized.
(i) Method of Obtaining the Floor. Stockholders who desire to
address the meeting must raise their hands and wait to be recognized by the
Chairman. Only when a stockholder is recognized as having the floor may he or
she address the meeting.
(ii) Discussion. Persons addressing the meeting must limit
their remarks to the issue then under consideration by the stockholders and to
not more than five minutes in duration. A stockholder will be permitted to
address the meeting on a particular issue not more than three times.
(iii) Stockholder Proposals. Stockholders will only be
permitted to address the meeting on proposals that are included in the proxy
statement and proxy relating to that meeting.
2.15 Inspectors of Election. The corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the person presiding at the meeting may, and to the
extent required by law, shall, appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
2.16 Inspectors of Election and Procedures for Counting Written
Consents. Within three (3) business days after receipt of the earliest dated
consent delivered to the corporation in the manner provided in Section 228(c) of
the Delaware General Corporation Law or the determination by the board of
directors of the corporation that the corporation should seek corporate action
by written consent, as the case may be, the secretary may engage nationally
recognized independent inspectors of elections for the purpose of performing a
ministerial review of the validity of the
-6-
<PAGE>
consents and revocations. The cost of retaining inspectors of election shall be
borne by the corporation.
Consents and revocations shall be delivered to the inspectors upon
receipt by the corporation, the stockholder or stockholders soliciting consents
or soliciting revocations in opposition to action by consent proposed by the
corporation (the "Soliciting Stockholders") or their proxy solicitors or other
designated agents. As soon as consents and revocations are received, the
inspectors shall review the consents and revocations and shall maintain a count
of the number of valid and unrevoked consents. As soon as practicable after the
earlier of (i) sixty (60) days after the date of the earliest dated consent
delivered to the corporation in the manner provided in Section 228(c) of the
Delaware General Corporation Law or (ii) a written request therefor by the
corporation or the Soliciting Stockholders (whichever is soliciting consents)
(which request, except in the case of corporate action by written consent taken
pursuant to the solicitations of not more than ten (10) persons, may be made no
earlier than after such reasonable amount of time after the commencement date of
the applicable solicitation of consents as is necessary to permit the inspectors
to commence and organize their count, but in no event less than five (5) days
after such commencement date), notice of which request shall be given to the
party opposing the solicitation of consents, if any, which request shall state
that the corporation or Soliciting Stockholders, as the case may be, have a good
faith belief that the requisite number of valid and unrevoked consents to
authorize or take the action specified in the consents has been received in
accordance with these bylaws, the inspectors shall issue a preliminary report to
the corporation and the Soliciting Stockholders stating: (i) the number of valid
consents; (ii) the number of valid revocations; (iii) the number of valid and
unrevoked consents; (iv) the number of invalid consents; (v) the number of
invalid revocations; and (vi) whether, based on their preliminary count, the
requisite number of valid and unrevoked consents has been obtained to authorize
or take the action specified in the consents.
Unless the corporation and the Soliciting Stockholders shall agree to
a shorter or longer period, the corporation and the Soliciting Stockholders
shall have 48 hours to review the consents and revocations and to advise the
inspectors and the opposing party in writing as to whether they intend to
challenge the preliminary report of the inspectors. If no written notice of an
intention to challenge the preliminary report is received within 48 hours after
the inspectors' issuance of the preliminary report, the inspectors shall issue
to the corporation and the Soliciting Stockholders their final report containing
the information from the inspectors' determination with respect to whether the
requisite number of valid and unrevoked consents was obtained to authorize and
take the action specified in the consents. If the corporation or the Soliciting
Stockholders issue written notice of an intention to challenge the inspectors'
preliminary report within 48 hours after the issuance of that report, a
challenge session shall be scheduled by the inspectors as promptly as
practicable. A transcript of the challenge session shall be recorded by a
certified court reporter. Following completion of the challenge session, the
inspectors shall as promptly as practicable issue their final report to the
corporation and the Soliciting Stockholders, which report shall contain the
information included in the preliminary report, plus all changes made to the
vote totals as a result of the challenge and a certification of whether the
requisite number of valid and unrevoked consents was
-7-
<PAGE>
obtained to authorize or take the action specified in the consents. A copy of
the final report of the inspectors shall be included in the book in which the
proceedings of meetings of stockholders are recorded.
2.17 Election Not To Be Subject to Arizona Control Share Acquisitions
Statute. The corporation elects not to be subject to Title 10, Chapter 23,
Article 2 of the Arizona Revised Statutes relating to "Control Share
Acquisitions."
ARTICLE III
DIRECTORS
3.1 Powers. Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 Number of Directors. The number of directors of the corporation
shall be five (5). This number may be changed by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw adopted by
resolution of the board of directors or by the stockholders.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors. Except as
provided in Section 3.4 of these bylaws, at each annual meeting of stockholders,
directors of the corporation shall be elected to hold office until the
expiration of the term for which they are elected, and until their successors
have been duly elected and qualified; except that if any such election shall not
be so held, such election shall take place at a stockholders' meeting called and
held in accordance with the Delaware General Corporation Law.
Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed.
Nominations for election to the board of directors of the corporation
at an annual meeting of stockholders may be made by the board or on behalf of
the board by a nominating committee appointed by the board, or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting. Such nominations, other than those made by or on behalf of the
board, shall be made by notice in writing received by the secretary of the
corporation not less than thirty (30) days nor more than sixty (60) days prior
to the date of the annual meeting; provided, however, that if less than
thirty-five (35) days notice of the meeting is given to stockholders, such
nomination shall have been received by the secretary not later than the close of
business on the seventh (7th) day
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following the day on which the notice was mailed. Such notice shall set forth
(i) the name and address of the stockholder who intends to make the nomination;
(ii) a representation that the nominating stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting and nominate the person or persons
specified in the notice; (iii) the number of shares of stock held beneficially
and of record by the nominating stockholder; (iv) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice; (v) the principal occupation or employment of such nominee; (vi) the
number of shares of stock of the corporation beneficially owned by each such
nominee; (vii) a description of all arrangements or understandings between the
nominating stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the nominating stockholder; (viii) any other information concerning
the nominee that must be disclosed of nominees in proxy solicitations pursuant
to Regulation 14A under the Securities Exchange Act of 1934; and (ix) the
consent of such nominee to serve as a director of the corporation if so elected.
The chairman of the annual meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure. If such determination and declaration
is made, the defective nomination shall be disregarded.
3.4 Resignation and Vacancies. Any director may resign at any time upon
written notice to the corporation. When one or more directors so resigns and the
resignation is effective at a future date, only a majority of the directors then
in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled only by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled only by a majority of the
directors elected by such class or classes or series thereof then in office, or
by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
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of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone. The board of directors of
the corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings. Regular meetings of the board of directors shall
be held at such place or places, on such date or dates, and at such time or
times as shall have been established by the board of directors and publicized
among all directors. A notice of each regular meeting shall not be required.
3.7 Special Meetings; Notice. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the president
or secretary of the corporation, or by any two of the directors then in office
and shall be held at a place, on a date and at a time as such officer or such
directors shall fix. Notice of the place, date and time of special meetings,
unless waived, shall be given to each director by mailing written notice not
less than two (2) days before the meeting or by sending a facsimile transmission
of the same not less than two (2) hours before the time of the holding of the
meeting. If the circumstances warrant, notice may also be given personally or by
telephone not less than two (2) hours before the time of the holding of the
meeting. Oral notice given personally or by telephone may be communicated either
to the director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to the
director. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
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3.8 Quorum. At all meetings of the board of directors, a majority of
the authorized number of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 Waiver of Notice. Whenever notice is required to be given under any
provision of the General Corporation Law of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these bylaws.
3.10 Adjourned Meeting; Notice. If a quorum is not present at any
meeting of the board of directors, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
3.11 Board Action by Written Consent Without a Meeting. Unless
otherwise restricted by the certificate of incorporation or these bylaws, any
action required or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.12 Fees and Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the board of directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance of each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
3.13 Approval of Loans to Officers. The corporation may lend money to,
or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its
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subsidiaries, including any officer or employee who is a director of the
corporation or its subsidiaries, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.14 Removal of Directors. Unless otherwise restricted by statute, by
the certificate of incorporation or by these bylaws, any director or the entire
board of directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.15 Conduct of Business. At any meeting of the board of directors,
business shall be transacted in such order and manner as the board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or required by
law.
3.16 Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
ARTICLE IV
COMMITTEES
4.1 Committees of Directors. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, with
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors or in the bylaws of the
corporation,
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shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers that may
require it; but no such committee shall have the power or authority to (i) amend
the certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix the designation and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), (ii) adopt an agreement of
merger or consolidation under Section 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, a supplemental resolution of the
board of directors, the bylaws or the certificate of incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
Delaware.
4.2 Committee Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
4.3 Meetings and Action of Committees. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment and notice of adjournment), and Section 3.11 (action
without a meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolutions of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
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ARTICLE V
OFFICERS
5.1 Officers. The officers of the corporation shall be a president, a
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, a controller, one or more
assistant controllers, a treasurer, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 Appointment of Officers. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section
5.3 or 5.5 of these bylaws, shall be appointed by the board of directors.
5.3 Subordinate Officers. The board of directors may appoint, or
empower the president to appoint, such other officers and agents as the business
of the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these bylaws or
as the board of directors may from time to time determine.
5.4 Removal and Resignation of Officers. Any officer may be removed,
either with or without cause, by an affirmative vote of the majority of the
board of directors at any regular or special meeting of the board or, except in
the case of an officer chosen by the board of directors, by any officer upon
whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective.
5.5 Vacancies in Offices. Any vacancy occurring in any office of the
corporation shall be filled in the manner prescribed in these bylaws for regular
appointments to that office.
5.6 Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from time
to time be assigned to him by the board of directors or as may be prescribed by
these bylaws. If there is no president, then the chairman of the board shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these bylaws.
5.7 President. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be such
an officer, the president shall be the
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chief executive officer of the corporation and shall, subject to the control of
the board of directors, have general supervision, direction, and control of the
business and the officers of the corporation. He shall preside at all meetings
of the stockholders and, in the absence or nonexistence of a chairman of the
board, at all meetings of the board of directors. He shall have the general
powers and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the board of directors or these bylaws.
5.8 Vice President. In the absence or disability of the president, the
vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these bylaws, the president or the chairman of the board.
5.9 Secretary. The secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the board
of directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 Chief Financial Officer. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
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The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws. The
duties of the chief financial officer may be allocated by the board of directors
among one or more persons, in its discretion.
5.11 Treasurer. The treasurer shall have such powers and discharge such
duties relating to the financial aspects of the corporation's business as may be
prescribed by the board of directors or the chief financial officer.
5.12 Assistant Secretary. The assistant secretary, or, if there is more
than one, the assistant secretaries in the order determined by the stockholders
or board of directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the secretary or in the event of his
or her inability or refusal to act, perform the duties and exercise the powers
of the secretary and shall perform such other duties and have such other powers
as the board of directors or the stockholders may from time to time prescribe.
5.13 Assistant Treasurer. The assistant treasurer, or, if there is more
than one, the assistant treasurers in the order determined by the stockholders
or board of directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the treasurer or in the event of
his or her inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the board of directors or the stockholders may from time to time
prescribe.
5.14 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the board of directors or
the stockholders.
5.15 Representation of Shares of Other Corporations. The chairman of
the board, the president, any vice president, the treasurer, the secretary or
assistant secretary s of this corporation, or any other person authorized by the
board of directors or the president or a vice president, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
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ARTICLE VI
INDEMNITY
6.1 Indemnification of Directors and Officers. The corporation shall,
to the maximum extent and in the manner permitted by the General Corporation Law
of ers Delaware, indemnify each of its directors and executive officers against
expenses (including attorneys' fees), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.1, a "director" or "executive
officer" of the corporation includes any person (i) who is or was a director or
executive officer of the corporation, (ii) who is or was serving at the request
of the corporation as a director or executive officer of another corporation
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or executive officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 Indemnification of Others. The corporation shall have the power, to
the extent and in the manner permitted by the General Corporation Law of
Delaware, to indemnify each of its employees and agents (other than directors
and executive officers) against expenses (including attorney's fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.2, an
"employee"or "agent" of the corporation (other than a director or executive
officer) includes any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of the General Corporation Law of Delaware.
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ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records. The corporation shall,
either at its principal executive office or at such place or places as
designated by the board of directors, keep a record of its stockholders listing
their names and addresses and the number and class of shares held by each
stockholder, a copy of these bylaws as amended to date, accounting books, and
other records.
7.2 Inspection by Directors. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders, and its
other books and records for a purpose reasonably related to his position as a
director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks. From time to time, the board of directors shall determine
by resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness that
are issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares. The shares of a corporation
shall be represented by certificates, provided that the board of directors of
the corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the
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corporation by the chairman or vice-chairman of the board of directors, or the
president or vice-president, and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of such corporation representing the
number of shares registered in certificate form. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 Special Designation on Certificates. If the corporation is
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.5 Lost Certificates. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and cancelled at
the same time. The corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 Construction; Definitions. Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in the General
Corporation Law of Delaware shall govern the construction of these bylaws.
Without limiting the generality of this provision, the
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singular number includes the plural, the plural number includes the singular,
and the term "person" includes both a corporation and a natural person.
8.7 Dividends. The directors of the corporation, subject to any
restrictions contained in (i) the General Corporation Law of Delaware or (ii)
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock. Dividends may be paid in cash, in property, or in shares
of the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the board of directors and may be changed by the board of
directors.
8.9 Seal. The corporation may adopt a corporate seal, which may be
altered at pleasure, and may use the same by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 Stock Transfer Agreements. The corporation shall have power to
enter into and perform any agreement with any number of stockholders of any one
or more classes of stock of the corporation to restrict the transfer of shares
of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, shall be entitled to
hold liable for calls and assessments the person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of another person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
8.13 Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery, by mail, postage paid, or by
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facsimile transmission. Any such notice shall be addressed to such stockholder,
director, officer, employee or agent at his last known address as it appears on
the books of the corporation. The time when such notice shall be deemed
received, if hand delivered, or dispatched, if sent by mail or facsimile,
transmission, shall be the time of the giving of the notice.
ARTICLE IX
AMENDMENTS
Any of these bylaws may be altered, amended or repealed by the affirmative vote
of a majority of the board of directors or, with respect to bylaw amendments
placed before the stockholders for approval and except as otherwise provided
herein or required by law, by the affirmative vote of the holders of a majority
of the shares of the corporation's stock entitled to vote in the election of
directors, voting as one class.
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CERTIFICATE OF ADOPTION OF AMENDMENT TO AMENDED AND RESTATED BYLAWS
OF
MICROCHIP TECHNOLOGY INCORPORATED
The undersigned hereby certifies that she is a duly elected, qualified, and
acting Assistant Secretary of Microchip Technology Incorporated and that the
foregoing Amended and Restated Bylaws, as amended, comprising twenty-one(21)
pages, were adopted as the Bylaws of the corporation on May 19, 1997 by the
Board of Directors of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the
corporate seal this day of May, 1997.
/s/ Mary Simmons-Mothershed
--------------------------------
Mary Simmons-Mothershed
Assistant Secretary
================================================================================
MICROCHIP TECHNOLOGY INCORPORATED
1993 STOCK OPTION PLAN
AMENDED THROUGH APRIL 25, 1997
================================================================================
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I
GENERAL
<S> <C>
1.1 PURPOSE OF THE PLAN.................................................................................... 1
(a) Amendment..................................................................................... 1
(b) Purpose....................................................................................... 1
(c) Effective Date................................................................................ 1
(d) Successor to 1989 Plan......................................................................... 2
(e) Parent/Subsidiaries........................................................................... 2
1.2 STRUCTURE OF THE PLAN................................................................................... 3
(a) Stock Programs................................................................................. 3
(b) General Provisions............................................................................ 3
1.3 ADMINISTRATION OF THE PLAN............................................................................. 3
(a) Bifurcation of Administration................................................................. 3
(b) Affiliate Administration....................................................................... 3
(c) Non-Affiliate Administration.................................................................. 4
(d) Term on Committee............................................................................. 4
(e) Authority of Plan Administrators.............................................................. 4
(f) Indemnification................................................................................ 5
1.4 ELIGIBLE PERSONS UNDER THE PLAN........................................................................ 5
(a) Discretionary Option Grant..................................................................... 5
(b) Automatic Option Grant Program................................................................. 5
1.5 STOCK SUBJECT TO THE PLAN............................................................................... 6
(a) Amendment...................................................................................... 6
(b) Available Shares............................................................................... 6
(c) Adjustments for Issuances...................................................................... 6
(d) Adjustments for Organic Changes................................................................ 7
(e) Limitation on Grants to Employees.............................................................. 7
ARTICLE II
DISCRETIONARY OPTION GRANT PROGRAM
2.1 TERMS AND CONDITIONS OF OPTIONS......................................................................... 8
(a) General........................................................................................ 8
(b) Option Price................................................................................... 8
(c) Payment of Option Price........................................................................ 8
(d) Fair Market Value.............................................................................. 9
(e) Term and Exercise of Options................................................................... 9
(f) Termination of Service.........................................................................10
(g) Discretion to Accelerate Vesting.............................................................. 11
(h) Discretion to Extend Exercise Period.......................................................... 11
(i) Definitions................................................................................... 11
</TABLE>
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<TABLE>
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(j) Stockholder Rights............................................................................ 11
(k) Repurchase Rights............................................................................. 12
2.2 INCENTIVE OPTIONS...................................................................................... 12
(a) General....................................................................................... 12
(b) Dollar Limitation............................................................................. 13
(c) 10% Stockholder............................................................................... 13
(d) Application................................................................................... 13
2.3 CORPORATE TRANSACTIONS................................................................................. 13
(a) Definition.................................................................................... 13
(b) Acceleration of Option........................................................................ 14
(c) Termination and Options....................................................................... 14
(d) Adjustments on Assumption or Continuation..................................................... 14
(e) Discretion to Accelerate...................................................................... 15
(f) Plan Not to Affect Corporation................................................................ 15
2.4 CHANGE IN CONTROL...................................................................................... 15
(a) Definition.................................................................................... 15
(b) Discretion to Accelerate...................................................................... 15
(c) Exercise Rights................................................................................16
2.5 INCENTIVE OPTIONS...................................................................................... 16
ARTICLE III
RESERVED
ARTICLE IV
AUTOMATIC OPTION GRANT PROGRAM
4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.........................................................16
(a) Amount and Date of Grant...................................................................... 16
(b) Exercise Price................................................................................ 17
(c) Method of Exercise............................................................................ 17
(d) Payment Price..................................................................................17
(e) Exercise Date................................................................................. 18
(f) Term of Option................................................................................ 18
(g) Vesting........................................................................................19
(h) Limited Transferability....................................................................... 19
4.2 CORPORATE TRANSACTION.................................................................................. 19
4.3 CHANGE IN CONTROL...................................................................................... 19
4.4 MISCELLANEOUS PROVISIONS............................................................................... 20
(a) Corporation Rights............................................................................ 20
(b) Privilege of Stock Ownership.................................................................. 20
</TABLE>
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TABLE OF CONTENTS
continued
<TABLE>
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Page
ARTICLE V
MISCELLANEOUS
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5.1 AMENDMENT OF THE PLAN AND AWARDS....................................................................... 20
(a) Board Authority............................................................................... 20
(b) Options Issued Prior to Stockholder Approval.................................................. 20
(c) Rule 16b-3 Plan............................................................................... 21
5.2 TAX WITHHOLDING........................................................................................ 21
(a) General....................................................................................... 21
(b) Shares to Pay for Withholding................................................................. 21
(i) Stock Withholding.................................................................... 21
(ii) Stock Delivery....................................................................... 21
5.3 EFFECTIVE DATE AND TERM OF PLAN........................................................................ 22
(a) Effective Date................................................................................ 22
(b) Incorporation of 1989 Plan.................................................................... 22
(c) Discretion.................................................................................... 22
(d) Termination of Plan........................................................................... 22
5.4 USE OF PROCEEDS........................................................................................ 22
5.5 REGULATORY APPROVALS................................................................................... 22
(a) General....................................................................................... 22
(b) Securities Registration....................................................................... 23
5.6 NO EMPLOYMENT/SERVICE RIGHTS........................................................................... 23
5.7 MISCELLANEOUS PROVISIONS............................................................................... 23
(a) Assignment.................................................................................... 23
(b) Choice of Law................................................................................. 23
(c) Plan Not Exclusive............................................................................ 24
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MICROCHIP TECHNOLOGY INCORPORATED
1993 STOCK OPTION PLAN
AMENDED THROUGH APRIL 25, 1997
ARTICLE I
GENERAL
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1.1 PURPOSE OF THE PLAN
(a) Amendment. On January 19, 1993, the Board of Directors
(the "Board") of Microchip Technology Incorporated, a Delaware corporation (the
"Corporation") adopted the 1993 Stock Option/Stock Issuance Plan. On April 23,
1993 and September 14, 1993, the Board amended the Plan authorizing additional
available shares of Common Stock. On October 7, 1993, the Board amended and
restated the Plan as stated herein. On April 18, 1994, the Board amended the
Plan authorizing additional available shares of Common Stock, subject to
stockholder approval. On January 20, and April 26, 1995, the Board amended the
Plan authorizing, among other matters, additional available shares of Common
Stock, subject to stockholder approval and the elimination of the stock issuance
portion of the Plan. Any options outstanding under the Plan before this
amendment shall remain valid and unchanged. On April 25, 1997, the Board amended
the Plan authorizing, among other matters, additional available shares of Common
Stock, subject to stockholder approval.
(b) Purpose. This 1993 Stock Option Plan, amended through
April 25, 1997 ("Plan") is intended to promote the interests of the Corporation
by providing (i) key employees (including officers) of the Corporation (or its
parent or subsidiary corporations) who are responsible for the management,
growth and financial success of the Corporation (or its parent or subsidiary
corporations), (ii) non-employee members of the Corporation's Board of Directors
(the "Board") and (ii) consultants and other independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary corporations)
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the corporation as an incentive for them to remain in
the service of the Corporation (or its parent or subsidiary corporations).
(c) Effective Date. The Plan became effective on the first
date on which the shares of the Corporation's common stock are registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Such date is hereby designated as the Effective Date of the Plan. The
effective date
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of any amendments to the Plan shall be as of the date of Board approval.
Notwithstanding the foregoing, certain amendments referenced herein must be
approved by the stockholders of the Corporation.
(d) Successor to 1989 Plan. This Plan shall serve as the
successor to the Corporation's 1989 Stock Option Plan (the "1989 Plan"), and no
further option grants or stock issuances shall be made under the 1989 Plan from
and after the Effective Date of this Plan. All options outstanding under the
1989 Plan on such Effective Date are hereby incorporated into this Plan and
shall accordingly be treated as outstanding options under this Plan. However,
each outstanding option so incorporated shall continue to be governed solely by
the express terms and conditions of the instrument evidencing such grant, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Corporation's common stock thereunder. All
outstanding unvested share issuances under the 1989 Plan shall continue to be
governed solely by the express terms and conditions of the instruments
evidencing such issuances, and no provision of this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
unvested shares.
(e) Parent/Subsidiaries. For purposes of the Plan, the
following provisions shall be applicable in determining the parent and
subsidiary corporations of the Corporation:
(i) Any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation shall be
considered to be a parent of the corporation, provided each such corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in any other corporation in such
chain.
(ii) Each corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such corporation
(other than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in any other corporation in such
chain.
(f) All references herein to number of shares of Common Stock
have been restated to reflect a 2-for-1 stock split of the Common Stock effected
on September 14, 1993, a 3-for-2 stock split of the Common Stock effected on
April 4, 1994, a 3-for-2 split of
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the Common Stock effected on November 8, 1994, and a 3-for-2 split of the Common
Stock effected on January 6, 1997.
1.2 STRUCTURE OF THE PLAN
(a) Stock Programs. The Plan shall be divided into two
separate components: the Discretionary Option Grant Program specified in Article
II and the Automatic Option Grant Program specified in Article IV. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article II. Under the Automatic Option
Grant Program, non-employee members of the Board will be automatically granted
options to purchase shares of the Common Stock in accordance with the provisions
of Article IV.
(b) General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles I and V shall apply to the Discretionary
Option Grant Program and the Automatic Stock Grant Program, and shall
accordingly govern the interests of all individuals under the Plan.
1.3 ADMINISTRATION OF THE PLAN
(a) Bifurcation of Administration. The eligible persons under
the Discretionary Option Grant Program shall be divided into two groups and
there shall be a separate administrator for each group. One group shall be
comprised of eligible persons that are "Affiliates." For purposes of the Plan,
the term "Affiliates" shall mean (i) all "executive officers" as that term is
defined in Rule 16a-1(f) promulgated under the Securities and Exchange Act of
1934 as amended (the "1934 Act"), (ii) all directors of the Company, and (iii)
all persons who own 10% or more of the Company's issued and outstanding common
stock. The other group shall be comprised of all eligible persons under the Plan
that are not Affiliates ("Non-Affiliates").
(b) Affiliate Administration. The power to administer the
Discretionary Option Grant Program with respect to eligible persons that are
Affiliates shall be vested with a committee (the "Senior Committee") of two (2)
or more non-employee Board members appointed by the Board. No Board member shall
be eligible to serve on the Senior Committee if such individual has, within the
relevant period designated below, received an option grant or direct stock
issuance under this Plan (not including any option grants made pursuant to the
Automatic Option Grant Program set forth in Article IV) or any other stock plan
of the Corporation (or any parent or subsidiary corporation):
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(i) for each of the initial members of the Committee,
the period commencing with the Effective Date of the Plan and ending with the
date of his or her appointment to the Senior Committee, or
(ii) for any successor or substitute member, the
twelve-month period immediately preceding the date of his or her appointment to
the Senior Committee or (if shorter) the period commencing with the Effective
Date of the Plan and ending with the date of his or her appointment to the
Senior Committee.
(c) Non-Affiliate Administration. The power to administer the
Discretionary Option Grant Program with respect to eligible persons that are not
Non-Affiliates shall be vested with the Board. The Board, however, may at any
time appoint a committee (the "Employee Committee") of one or more persons who
are members of the Board and delegate to such Employee Committee the power, in
whole or in part, to administer the Discretionary Stock Option Grant Program
with respect to the Non-Affiliates.
(d) Term on Committee. Members of the Senior Committee and the
Employee Committee shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any time. The Board at
any time may terminate the functions of the Employee Committee and reassume all
powers and authority previously delegated to such Committee.
(e) Authority of Plan Administrators. The Board, the Employee
Committee, and the Senior Committee, whichever is applicable, shall each be
referred to herein as a "Plan Administrator." Each Plan Administrator shall have
the authority and discretion, with respect to its administered group, to select
which eligible persons shall participate in the Plan. Unless otherwise required
by law, decisions among members of a Plan Administrator shall be by majority
vote. With respect to each administered group, the applicable Plan Administrator
shall have full power and authority (subject to the express provisions of the
Plan) to establish such rules and regulations as it may deem appropriate for the
proper administration of the Discretionary Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding option grants or stock issuances thereunder as it
may deem necessary or advisable. All decisions made by a Plan Administrator
shall be final and binding on all parties in its administered group who have an
interest in the Discretionary Option Grant Program or any outstanding option
thereunder. The Plan Administrator shall also have full authority to determine,
with respect to the option grants made under the Discretionary Option Program,
the number of shares to be covered by each such grant, the status of the granted
option as either an incentive stock option ("Incentive option") which satisfies
the requirements of Section
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422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding.
(f) Indemnification. In addition to such other rights of
indemnification as they may have, the members of each Plan Administrator shall
be indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any such member
thereof may be a party, by reason of any action taken or failed to be taken,
under or in connection with the Plan or any rights granted thereunder, and
against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a finding of bad faith.
1.4 ELIGIBLE PERSONS UNDER THE PLAN
(a) Discretionary Option Grant Program. The persons eligible
to participate in the Discretionary Option Grant Program under Article II are as
follows:
(i) officers and other key employees of the
Corporation (or its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the Corporation
(or its parent or subsidiary corporations);
(ii) non-employee members of the Board (excluding
those current members of the Senior Committee); and
(iii) those consultants or other independent
contractors who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
(b) Automatic Option Grant Program. The persons eligible to
participate in the Automatic Option Grant Program shall be limited to
non-employee Board members. A non-employee Board member shall not be eligible to
participate in the Automatic Option Grant Program, however, if such individual
has at any time been in the prior employ of the Corporation (or any parent or
subsidiary corporation). Unless otherwise provided in the Plan, persons who are
eligible under the Automatic Option Grant Program may also be eligible to
receive option grants under the Discretionary Option Grant Program in effect
under this Plan.
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1.5 STOCK SUBJECT TO THE PLAN
(a) Amendment. Under the Plan, 6,072,227 shares were
originally authorized to be issued under the Plan (constituting 5,565,977
authorized shares under the 1989 Plan and rolled over into this Plan plus
506,250 additional shares authorized by the Board on January 19, 1993). On April
23, 1993, an additional 2,193,750 shares were authorized by the Board, subject
to stockholder approval at the next stockholders' meeting. At that point, the
total available authorized shares were 8,265,977. On September 14, 1993, the
Board authorized the number of shares of Common Stock issuable under the Plan to
be increased by 2,281,500 shares. On April 18, 1994, the Board authorized the
number of shares of Common Stock issuable under the Plan to be increased by
2,925,000 shares. On January 20, 1995 and April 26, 1995, the Board authorized
the number of shares of Common Stock issuable under the Plan to be increased by
1,425,000 shares, subject to Stockholder approval, such that the maximum number
of shares issuable for the term of the Plan shall be as set forth in Section
1.5(b) below.
(b) Available Shares. Shares of the Corporation's common stock
(the "Common Stock") shall be available for issuance under the Plan and shall be
drawn from either the Corporation's authorized but unissued shares of Common
Stock or from reacquired shares of Common Stock, including shares repurchased by
the Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 14,897,477
shares, subject to adjustment from time to time in accordance with the
provisions of this Section 1.5. To the extent one or more outstanding options
under the 1989 Plan which have been incorporated into this Plan (as adjusted for
the 1993 Stock Dividend) are subsequently exercised, the number of shares issued
with respect to each such option shall reduce, on a share-for-share basis, the
number of shares available for issuance under this Plan.
(c) Adjustments for Issuances. Should one or more outstanding
options under this Plan (including outstanding options under the 1989 Plan
incorporated into this Plan) expire or terminate for any reason prior to
exercise in full, then the shares subject to the portion of each option not so
exercised shall be available for subsequent option grant under the Plan. All
share issuances under the Plan, whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent option grants under the Plan. In addition, should the
exercise price of an outstanding option under the Plan (including any option
incorporated from the 1989 Plan) be paid with shares of Common
6
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Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an outstanding option under the Plan, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised, and not
by the net number of shares of Common Stock actually issued to the option
holder.
(d) Adjustments for Organic Changes. Should any change be made
to the Common Stock issuable under the Plan by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, then appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities and price per share in effect
under each option outstanding under either the Discretionary Option Grant
Program or the Automatic Option Grant Program and (iii) the number and/or class
of securities and price per share in effect under each outstanding option
incorporated into this Plan from the 1989 Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Board shall be final, binding and conclusive. The
amount of options granted automatically under the Automatic Option Grant Program
on the Annual Automatic Grant Date and on the Initial Automatic Grant Date shall
not be adjusted regardless of any organic changes made to the Common Stock
issuable under the Plan.
(e) Limitations on Grants to Employees. Notwithstanding any
other provision herein to the contrary, the following limitations shall apply to
grants of options to Employees:
(i) No employee shall be granted, in any fiscal year
of the Corporation, options to purchase more than three hundred thousand
(300,000) shares.
(ii) In connection with his or her initial
employment, an Employee may be granted options to purchase up to an additional
five hundred thousand (500,000) shares which shall not count against the limit
set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Corporation's
capitalization as described in Section 1.5(d).
(iv) If an option is cancelled in the same fiscal
year of the Corporation in which such option was granted (other than in
connection with a transaction described in Section
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1.5(d)), the cancelled option will be counted against the limit set forth in
Section 1.5(e)(i). For this purpose, if the exercise price of an option is
reduced, the transaction will be treated as a cancellation of the option and the
grant of a new option.
ARTICLE II
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
2.1 TERMS AND CONDITIONS OF OPTIONS
(a) General. Options granted to eligible persons ("Optionees")
pursuant to the Discretionary Option Grant Program set forth in this Article II
shall be authorized by action of the Plan Administrator and, at the Plan
Administrator's discretion, may be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section 2.2 hereof.
(b) Option Price. The option price per share shall be fixed by
the Plan Administrator in accordance with the following provisions:
(i) The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of such Common Stock on the grant date;
and
(ii) The option price per share of the Common Stock
subject to a non-statutory stock option shall in no event be less than one
hundred percent (100%) of the fair market value of such Common Stock on the
grant date.
(c) Payment of Option Price. The option price shall become
immediately due upon exercise of the option and shall be payable in one of the
following alternative forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the
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settlement date, sufficient funds to cover the aggregate option price payable
for the purchased shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Corporation in connection with
such purchase and (B) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
For purposes of this Section 2.1(c), the Exercise Date shall be the date on
which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure is utilized in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
(d) Fair Market Value. The fair market value per share of
Common Stock shall be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the NASDAQ
National Market System, the fair market value shall be the closing price per
share on the date in question, as such price is reported by the National
Association of Securities Dealers through the NASDAQ National Market System or
any successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of fair
market value.
(ii) If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the fair market value
shall be the closing selling price per share on the date in question on the
exchange determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(e) Term and Exercise of Options. Each option granted under
this Discretionary Option Grant Program shall be exercisable at such time or
times and during such period as is determined by the Plan Administrator and set
forth in the instrument evidencing the grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option shall be exercisable only by the Optionee
and shall not be assignable or transferable by the
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Optionee other than by will or by the laws of descent and distribution following
the Optionee's death.
(f) Termination of Service. The following provisions shall
govern the exercise period applicable to any outstanding options held by the
Optionee at the time of cessation of Service or death:
(i) Should an Optionee cease Service for any reason
(including permanent disability as defined in Section 22(e)(3) of the Internal
Revenue Code but not including death) while holding one or more outstanding
options under this Article II, then none of those options shall (except to the
extent otherwise provided pursuant to Section 2.1(g) below) remain exercisable
for more than a ninety (90) day period (or such shorter or longer period
determined by the Plan Administrator and set forth in the instrument evidencing
the grant, but not to exceed twelve (12) months) measured from the date of such
cessation of Service.
(ii) Any option held by the Optionee under this
Article II and exercisable in whole or in part on the date of his or her death
may be subsequently exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such exercise, however, must occur prior to the earlier of six months following
the date of optionee's death or the specified expiration date of the option
term. Upon the occurrence of the earlier event, the option shall terminate and
cease to be outstanding.
(iii) Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the option term.
(iv) During the applicable post-Service exercise
period, the option shall not be exercisable for more than the number of shares
(if any) in which the Optionee is vested at the time of his or her cessation of
Service (less any option shares subsequently purchased by the Optionee prior to
death). Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each such option
shall terminate and cease to be outstanding with respect to any vested shares
for which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at the time of
the Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee is not
otherwise at that time vested.
(v) Should (A) the optionee's service be terminated
for misconduct (including, but not limited to, any act
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of dishonesty, willful misconduct, fraud or embezzlement) or (B) the Optionee
make any unauthorized use or disclosure of confidential information or trade
secrets of the Corporation or its parent or subsidiary corporations, then in any
such event all outstanding options held by the Optionee under this Article II
shall terminate immediately and cease to be outstanding.
(g) Discretion to Accelerate Vesting. The Plan Administrator
shall have complete discretion, exercisable either at the time the option is
granted or at any time while the option remains outstanding, to permit one or
more options held by the Optionee under this Article II to be exercised, during
the limited post-Service exercise period applicable under Section 2.1(f) above,
not only with respect to the number of vested shares of Common Stock for which
each such option is exercisable at the time of the optionee's cessation of
Service but also with respect to one or more subsequent installments of vested
shares for which the option would otherwise have become exercisable had such
cessation of Service not occurred.
(h) Discretion to Extend Exercise Period. The Plan
Administrator shall also have full power and authority to extend the period of
time for which the option is to remain exercisable following the Optionee's
cessation of Service or death from the limited period in effect under Section
2.1(f) above to such greater period of time as the Plan Administrator shall deem
appropriate. In no event, however, shall such option be exercisable after the
specified expiration date of the option term.
(i) Definitions. For purposes of the foregoing provisions of
this Section 2.1 (and for all other purposes under the Discretionary Option
Grant Program):
(i) The Optionee shall (except to the extent
otherwise specifically provided in the applicable stock option agreement) be
deemed to remain in Service for so long as such individual renders services on a
periodic basis to the Corporation (or any parent or subsidiary corporation) in
the capacity of an Employee, a non-employee member of the Board or an
independent consultant or advisor.
(ii) The Optionee shall be considered to be an
Employee for so long as he or she remains in the employ of the Corporation or
one or more parent or subsidiary corporations, subject to the control and
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
(j) Stockholder Rights. An Optionee shall have no stockholder
rights with respect to any shares covered by the option
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until such individual shall have exercised the option and paid the option price
for the purchased shares.
(k) Repurchase Rights. The shares of Common Stock acquired
upon the exercise of any Article II option grant may be subject to repurchase by
the Corporation in accordance with the following provisions:
(i) The Plan Administrator shall have the discretion
to authorize the issuance of unvested shares of Common Stock under this Article
II. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.
(ii) All of the Corporation's outstanding repurchase
rights under this Article II shall automatically terminate, and all shares
subject to such terminated rights shall immediately vest in full, upon the
occurrence of any Corporate Transaction under Section 2.3 hereof, except to the
extent: (A) any such repurchase right is expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction or
(B) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
(iii) The Plan Administrator shall have the
discretionary authority, exercisable either before or after the Optionee's
cessation of Service, to cancel the Corporation's outstanding repurchase rights
with respect to one or more shares purchased or purchasable by the Optionee
under this Discretionary Option Grant Program and thereby accelerate the vesting
of such shares in whole or in part at any time.
2.2 INCENTIVE OPTIONS
(a) General. The terms and conditions specified below shall be
applicable to all incentive options ("Incentive Options") granted under this
Article II pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Incentive Options may only be granted to individuals who
are employees of the Corporation. Options which are specifically designated as
"non-statutory" options when issued under the Plan shall not be subject to such
terms and conditions.
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(b) Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more Incentive Options granted to any Employee under this Plan (or
any other option plan of the Corporation or its parent or subsidiary
corporations) may for the first time become exercisable during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two or more such Incentive Options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options under the
federal tax laws shall be applied on the basis of the order in which such
Incentive Options are granted. Should the number of shares of Common Stock for
which any Incentive Option first becomes exercisable in any calendar year exceed
the applicable One Hundred Thousand Dollar ($100,000) limitation, then that
option may nevertheless be exercised in that calendar year for the excess number
of shares as a non-statutory option under the federal tax laws.
(c) 10% Stockholder. If any individual to whom an Incentive
Option is granted is the owner of stock (as determined under Code Section
424(d)) possessing ten percent (10%) or more of the total combined voting power
of all classes of stock of the Corporation or any one of its parent or
subsidiary corporations, then the option price per share shall not be less than
one hundred and ten percent (110%) of the fair market value per share of Common
Stock on the grant date, and the option term shall not exceed five years,
measured from the grant date.
(d) Application. Except as modified by the preceding
provisions of this Section 2.2, the provisions of Articles I, II and V of the
Plan shall apply to all Incentive Options granted hereunder.
2.3 CORPORATE TRANSACTIONS
(a) Definition. For purposes of this Plan, any of the
following stockholder approved transactions to which the Corporation is a party
shall be considered a "Corporate Transaction":
(i) a merger or consolidation in which the
corporation is not the surviving entity, except for a transaction the principal
purpose of which is to change the State in which the Corporation is
incorporated,
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation, or
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(iii) any reverse merger in which the Corporation is
the surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities are transferred to person or persons different from those who held
such securities immediately prior to such merger.
(b) Acceleration of Option. Upon the stockholder approval of a
Corporate Transaction, each option which is at the time outstanding under this
Article II shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. However, an outstanding option under this Article II
shall not so accelerate if and to the extent: (A) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof, (B) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the option spread existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option, or (C) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (A) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
(c) Termination of Options. Upon the consummation of the
Corporate Transaction, all outstanding options under this Article II shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.
(d) Adjustments on Assumption or Continuation. Each
outstanding option under this Article II which is assumed in connection with the
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issued
to the option holder, in consummation of such Corporate Transaction, had such
person exercised the option immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the option price payable per
share, provided the aggregate option price payable for such securities shall
remain the same. In addition, the class and number of securities available for
issuance under the Plan following the consummation of the Corporate Transaction
shall be appropriately adjusted.
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(e) Discretion to Accelerate. The Plan Administrator shall
have the discretion, exercisable either in advance of any actually-anticipated
Corporate Transaction or at the time of an actual Corporate Transaction, to
provide (upon such terms as it may deem appropriate) for the automatic
acceleration of one or more outstanding options granted under the Plan which are
assumed or replaced in the Corporate Transaction and do not otherwise accelerate
at that time, in the event the Optionee's Service should subsequently terminate
within a designated period following the effective date of such Corporate
Transaction.
(f) Plan Not to Affect Corporation. The grant of options under
this Article II shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
2.4 CHANGE IN CONTROL
(a) Definition. For purposes of this Plan, a Change in Control
shall be deemed to occur in the event:
(i) any person or related group of persons (other
than the Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept; or
(ii) there is a change in the composition of the
Board over a period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number) ceases, by
reason of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (a) have been Board members continuously
since the beginning of such period or (b) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (a) who were still in office at the time such
election or nomination was approved by the Board.
(b) Discretion to Accelerate. The Plan Administrator shall
have the discretionary authority, exercisable either in advance of any actually
anticipated Change in Control or at the time of an actual Change in Control, to
provide for the automatic acceleration of one or more outstanding options under
this Article
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II (and the termination of one or more of the Corporation's outstanding
repurchase rights under this Article II) upon the occurrence of the Change in
Control. The Plan Administrator shall also have full power and authority to
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent termination of the Optionee's Service
within a specified period following the Change in control.
(c) Exercise Rights. Any options accelerated in connection
with the Change in Control shall remain fully exercisable until the expiration
or sooner termination of the option term.
2.5 INCENTIVE OPTIONS.
The exercisability as Incentive Options of any options
accelerated under Sections 2.3 or 2.4 hereof in connection with a Corporate
Transaction or Change in Control shall remain subject to the dollar limitation
of Section 2.2 hereof.
ARTICLE III
RESERVED
--------
ARTICLE IV
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
(a) Amount and Date of Grant. During the term of this Plan,
automatic option grants (the "Automatic Option Grant") shall be made to each
eligible non-employee member of the Board ("Optionee") as follows:
(i) Each year on the Annual Automatic Grant Date an
option to acquire 5,000 shares of Common Stock ("Option Shares") shall be
granted to each eligible non-employee member of the Board for so long as there
are shares of Common Stock available under Section 1.5 hereof. The "Annual
Automatic Grant Date" shall be as of the first business day of the month in
which the Corporation's Annual Stockholders Meeting is held. Notwithstanding the
foregoing, (1) any non-Employee Member of the Board whose term ended as of such
Automatic Grant Date shall not be eligible to receive any automatic option
grants on that Annual Automatic Grant Date and (2) any non-Employee Member of
the Board who has received an Automatic Grant pursuant to Section 4.1(a)(ii) on
the same date as the Annual Automatic Grant Date or within 30 days prior
thereto,
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shall not be eligible to receive an Automatic Option Grant on that Annual
Automatic Grant Date.
(ii) On the Initial Automatic Grant Date, every new
member of the Board who is an eligible non-Employee and has not previously been
a member of the Board shall be granted an option to acquire 10,000 shares of
Common Stock ("Option Shares") as long as there are shares of Common Stock
available under Section 1.5 hereof. The "Initial Automatic Grant Date" shall be
as of the date that the Optionee was first appointed or elected to the Board.
(b) Exercise Price. The exercise price per share of Common
Stock subject to each automatic option grant made under this Article IV shall be
equal to 100% of the fair market value per share of the Common Stock on the
applicable Automatic Grant Date, as determined in accordance with the valuation
provisions of Section 2.1(d) hereof.
(c) Method of Exercise. In order to exercise an option with
respect to any Option Shares for which an Automatic Option Grant is exercisable
at the time, Optionee (or in the case of an exercise after Optionee's death,
Optionee's executor, administrator, heir or legatee, as the case may be) must
take the following action:
(i) execute and deliver to the Secretary of the
Company a written notice of exercise;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 4.1(d) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the option (if other than the Optionee) has the
right to exercise such option. As soon after the Exercise Date (as defined in
Section 4.1(e) hereof), as practical, the Company shall mail or deliver to or on
behalf of the Optionee (or any other person or persons exercising this option in
accordance herewith) a certificate or certificates representing the shares for
which the option has been exercised in accordance with the provisions of this
Plan. In no event may any option be exercised for any fractional shares.
(d) Payment Price. The exercise price shall be payable in one
of the alternative forms specific below:
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment through a sale and remittance
procedure pursuant to which the non-employee Board member (A) shall provide
irrevocable written instructions to a designated brokerage
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firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares and shall (B) concurrently provide written directives to the Corporation
to deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
(e) Exercise Date. For purposes of this Article IV, the
Exercise Date shall be the date on which written notice of the option exercise
is delivered to the Corporation, and the fair market value per share of Common
Stock on any relevant date under this Article IV shall be determined in
accordance with the provisions of Section 2.1(d) hereof. Except to the extent
the sale and remittance procedure specified above is utilized for the exercise
of the potion, payment of the option price for the purchased shares must
accompany the exercise notice.
(f) Term of Option. Each automatic option grant under this
Article IV shall have a maximum term of ten (10) years measured from the
Automatic Grant Date. Should Optionee's service as a Board member cease for any
reason while an option remains outstanding and unexercised, then the option term
shall immediately terminate and the option shall cease to be outstanding prior
to the Expiration Date in accordance with the following provisions:
(i) The option shall immediately terminate and cease
to be outstanding for any shares of Common Stock for which the option was not
otherwise exercisable at the time of Optionee's cessation of Board service.
(ii) Should Optionee cease, for any reason other than
death, to serve as a member of the Board, then Optionee shall have a six-month
period measured from the date of such cessation of Board service in which to
exercise the options which vested prior to the time of such cessation of Board
service. In no event, however, may any option be exercised after the Expiration
Date of such option.
(iii) Should Optionee die while serving as a Board
member or within six months after cessation of Board service, then the personal
representative of the Optionee's estate (or the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution) shall have the right to exercise any option
for any or all of the shares of Common Stock for which the option is, in
accordance with the provisions of this Plan, exercisable at the time of the
Optionee's cessation of Board service, less any shares subsequently purchased by
the Optionee pursuant to the option prior to death. Such right shall cease to be
exercisable and the option shall accordingly terminate with respect to all
Common Stock
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available under such option by the earlier of (A) the expiration of the
twelve-month period measured from the date of Optionee's death or (B) the
Expiration Date.
(g) Vesting. Each Automatic Option Grant made pursuant to
Section 4.1(a)(i) shall become exercisable and vest in a series of twelve (12)
equal and successive monthly installments, with the first such installment to
become exercisable one month after the Annual Automatic Grant Date. Each
Automatic Option Grant made pursuant to Section 4.1(a)(ii) shall become
exercisable and vest in a series of 36 equal and successive monthly
installments, with the first such installment to become exercisable one month
after the Initial Automatic Grant Date. Each installment of an option shall only
vest and become exercisable if the Optionee has not ceased serving as a Board
member as of such installment date.
(h) Limited Transferability. Each Automatic Option Grant shall
be exercisable only by Optionee during Optionee's lifetime and shall be neither
transferable nor assignable, other than by will or by the laws of descent and
distribution following Optionee's death.
4.2 CORPORATE TRANSACTION
In the event of stockholder approval of a Corporate
Transaction (as that term is defined in Section 2.3(a)), then all options
granted pursuant to this Article IV (to the extent outstanding at such time, but
not otherwise fully exercisable and vested) shall automatically accelerate and
immediately vest so that the option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable for all
of the Option Shares at the time subject to the option and may thereafter be
exercised for any or all such Option Shares. Upon the consummation of the
Corporate Transaction, the option shall, to the extent not previously exercised,
terminate and cease to be outstanding.
4.3 CHANGE IN CONTROL
All options granted pursuant to an Automatic Option Agreement
under this Article IV (to the extent outstanding, but not otherwise fully
exercisable and vested) shall automatically accelerate in connection with a
Change in Control (as that term is defined in Section 2.4(a)), so that such
option shall, immediately prior to the effective date of such Change in Control,
become fully exercisable for all of the Option Shares at the time subject to
that option and may be exercised for any or all of such Option Shares. The
option shall remain so exercisable until such option has terminated in
accordance with Section 4.1(d) hereof.
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4.4 MISCELLANEOUS PROVISIONS
(a) Corporation Rights. The Automatic Option Grants shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
(b) Privilege of Stock Ownership. An Optionee shall not have
any of the rights of a stockholder with respect to Option Shares until such
individual shall have exercised the option and paid the option price for the
Option Shares.
ARTICLE V
MISCELLANEOUS
-------------
5.1 AMENDMENT OF THE PLAN AND AWARDS
(a) Board Authority. The Board has complete and exclusive
power and authority to amend or modify the Plan (or any component thereof) in
any or all respects whatsoever. However, no such amendment or modification
shall, without the consent of the Corporation's stockholders, disqualify any
option previously granted under the Plan for treatment as an Incentive Option,
or adversely affect rights and obligations with respect to options at the time
outstanding under the Plan, unless the Optionee or Participant consents to such
amendment. In addition, the Board may not, without the approval of the
Corporation's stockholders, amend the Plan to (i) materially increase the
maximum number of shares issuable under the Plan, except for permissible
adjustments under Section 1.5(d) or extend the term of the Plan, (ii) materially
modify the eligibility requirements for plan participation or (iii) materially
increase the benefits accruing to plan participants.
(b) Options Issued Prior to Stockholder Approval. Options to
purchase shares of Common Stock may be granted under the Discretionary Option
Grant Program and the Automatic Option Grant Program prior to any required
stockholder approvals, provided, any shares actually issued under the Plan are
held in escrow until stockholder approval is obtained. If such stockholder
approval is not obtained within twelve (12) months of the meeting of the Board
approving the Plan or any amendments, then (i) any unexercised options shall
terminate and cease to be exercisable and (ii) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
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(c) Rule 16b-3 Plan. With respect to persons subject to
Section 16 of the 1934 Act, the Plan is intended to comply with all applicable
conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated
under the 1934 Act. To the extent any revision of the Plan or action by any Plan
Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by such Plan Administrator. In
addition, the Board may amend the Plan from time to time as it deems necessary
in order to meet the requirements of any amendments to Rule 16b-3 without the
consent of the shareholders of the Company.
5.2 TAX WITHHOLDING
(a) General. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of stock options for such shares or the vesting
of such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, State and local income tax and employment tax withholding
requirements.
(b) Shares to Pay for Withholding. A Plan Administrator may,
in its discretion and in accordance with the provisions of this Section 5.2(b)
and such supplemental rules as the Plan Administrator may from time to time
adopt (including the applicable safe-harbor provisions of SEC Rule 16b-3),
provide any or all holders of non-statutory options or unvested shares under the
Plan with the right to use shares of the Corporation's Common Stock in
satisfaction of all or part of the Federal, State and local income tax and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares (the "Taxes"). Such
right may be provided to any such holder in either or both of the following
formats:
(i) Stock Withholding. The holder of the nonstatutory
option or unvested shares may be provided with the election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such non-statutory option or the vesting of such shares, a
portion of those shares with an aggregate fair market value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) Stock Delivery. The Plan Administrator may, in
its discretion, provide the holder of the non-statutory option or the unvested
shares with the election to deliver to the Corporation, at the time the
non-statutory option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than pursuant to the
transaction triggering the Taxes) with an aggregate fair market value equal to
the percentage of the taxes incurred in connection with such option
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exercise or share vesting (not to exceed one hundred percent (100%)) designated
by the holder.
5.3 EFFECTIVE DATE AND TERM OF PLAN
(a) Effective Date. This Plan, as successor to the
Corporation's 1989 Stock Option Plan, become effective as of the applicable
Effective Date, and no further option grants or stock issuances shall be made
under the 1989 Plan from and after such Effective Date.
(b) Incorporation of 1989 Plan. Each option issued and
outstanding under the 1989 Plan immediately prior to the Effective Date of the
Discretionary Option Grant Program shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder.
(c) Discretion. The option and vesting acceleration provisions
of Article II relating to Corporate Transactions and Changes in Control may, in
the Plan Administrator's discretion, be extended to one or more stock options
which are outstanding under the 1989 Plan on the Effective Date of the
Discretionary Option Grant Program but which do not otherwise provide for such
acceleration.
(d) Termination of Plan. The Plan shall terminate upon the
earlier of (i) January 19, 2003 or (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to the exercise of
options granted under the Plan. If the date of termination is determined under
clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
5.4 USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants under the Plan shall be used for general
corporate purposes.
5.5 REGULATORY APPROVALS
(a) General. The implementation of the Plan, the granting of
any option under the Plan, and the issuance of Common
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Stock upon the exercise or surrender of the option grants made hereunder shall
be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it, and the Common Stock issued pursuant to it.
(b) Securities Registration. No shares of Common Stock or
other assets shall be issued or delivered under this Plan unless and until there
shall have been compliance with all applicable requirements of Federal and State
securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan,
and all applicable listing requirements of any securities exchange on which
stock of the same class is then listed.
5.6 NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
5.7 MISCELLANEOUS PROVISIONS
(a) Assignment. The right to acquire Common Stock or other
assets under the Plan may not be assigned, encumbered or otherwise transferred
by any Optionee or Participant. The provisions of the Plan shall inure to the
benefit of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate Transaction or otherwise, and the Participants and
Optionees, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
(b) Choice of Law. The provisions of the Plan relating to the
exercise of options and the vesting of shares shall be governed by the laws of
the State of Arizona, as such laws are applied to contracts entered into and
performed in such State.
(c) Plan Not Exclusive. This Plan is not intended to be the
exclusive means by which the Corporation may issue options or warrants to
acquire its shares of Common Stock, stock awards or issuances, or any other type
of award or issuance. To the extent permitted by applicable law, any such other
option, warrants,
23
<PAGE>
issuance, or awards may be issued by the Company, other than pursuant to this
Plan, without shareholder approval.
24
<PAGE>
EXECUTED as of the 25th day of April, 1997.
MICROCHIP TECHNOLOGY CORPORATION,
a Delaware corporation
By: /s/ Steve Sanghi
------------------------------------
Steve Sanghi
Its: Chairman of the Board,
President and Chief Executive
Officer
Attested by:
/s/ C. Philip Chapman
- ------------------------------------
C. Philip Chapman
Secretary
/s/ Mary Simmons-Mothershed
- ------------------------------------
Mary Simmons-Mothershed
Assistant Secretary
25
RESTATED MICROCHIP TECHNOLOGY INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
AS AMENDED THROUGH APRIL 25, 1997
---------------------------------
I. PURPOSE
-------
The Microchip Technology Incorporated Employee Stock Purchase
Plan (the "Plan") is intended to provide eligible employees of the Company and
one or more of its Corporate Affiliates with the opportunity to acquire a
proprietary interest in the Company through participation in a plan designed to
qualify as an employee stock purchase plan under Section 423 of the Code.
II. DEFINITIONS
-----------
For purposes of administration of the Plan, the following
terms shall have the meanings indicated:
Board means the Board of Directors of the Company.
Code means the Internal Revenue Code of 1986, as amended from
time to time.
Company means Microchip Technology Incorporated, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Microchip Technology Incorporated which shall by
appropriate action adopt the Plan.
Common Stock means shares of the Company's common stock, par
value $0.001 per share.
Corporate Affiliate means any parent or subsidiary corporation
of the Company (as determined in accordance with Code Section 424) which is
incorporated in the United States, including any parent or subsidiary
corporation which becomes such after the Effective Date.
Earnings means the sum of the following items of compensation
paid to a Participant by one or more Participating Companies during such
individual's period of participation in the Plan: (i) regular base salary, plus
(ii) any pre-tax contributions made by the Participant to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria benefit program
now or hereafter established by the Company or any Corporate Affiliate plus
(iii) all overtime payments, bonuses, commissions, profit-sharing distributions
and other incentive-type payments. There shall, however, be excluded from the
calculation of such Earnings any and all contributions (other than Code Section
401(k) or Code Section 125 contributions) made on the Participant's behalf by
the Company or one or more Corporate Affiliates under any employee benefit or
welfare plan now or hereafter established.
<PAGE>
Effective Date means March 17, 1993, the start date of the
first offering period under the Plan. However, for any Corporate Affiliate which
becomes a Participating Company in the Plan after such date, a subsequent
Effective Date shall be designated with respect to participation by its Eligible
Employees.
Eligible Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to the
Company or any other Participating Company for earnings considered wages under
Section 3121(a) of the Code.
Entry Date means the date an Eligible Employee first joins the
offering period in effect under the Plan. The earliest Entry Date under the Plan
shall be the Effective Date.
Fair Market Value means the fair market value of the Common
Stock on any relevant date under the Plan and shall, for any date following the
initial March 17, 1993 Effective Date, be deemed to be equal to the closing
selling price per share of Common Stock on the date in question, as officially
quoted on the Nasdaq National Market. If there is no quoted selling price for
the date in question, then the closing selling price per share of Common Stock
on the next preceding day for which there does exist such a quotation shall be
determinative of Fair Market Value.
Participant means any Eligible Employee of a Participating
Company who is actively participating in the Plan.
Participating Company means the Company and such Corporate
Affiliate or Affiliates as may be designated from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees.
Semi-Annual Entry Date means the first business day of each
March and September within an offering period in effect under the Plan. However,
the earliest Semi-Annual Entry Date under the Plan shall be the March 17, 1993
Effective Date.
Semi-Annual Period of Participation means each semi-annual
period for which the Participant actually participates in an offering period in
effect under the Plan. There shall be a maximum of four (4) semi-annual periods
of participation within each offering period. Except as otherwise designated by
the Plan Administrator, the first such semi-annual period (which may actually be
less than six (6) months for the initial offering period) shall extend from the
start date of the offering period through the last business day in August;
subsequent semi-annual periods shall then be measured from the first business
day of September and March thereafter to the last business day of February and
August, respectively.
Semi-Annual Purchase Date means the last business day of each
February and August within an offering period on which shares of Common Stock
are automatically purchased for Participants under the Plan.
2
<PAGE>
Service means the period during which an individual performs
services as an Eligible Employee and shall be measured from his or her hire
date, whether that date is before or after the Effective Date of the Plan.
III. ADMINISTRATION
--------------
The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two (2) or more non-employee Board members
appointed from time to time by the Board. The Plan Administrator shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties who have an interest in the Plan.
IV. OFFERING PERIODS
----------------
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated in accordance with Article IX.
B. The Plan shall be implemented in a series of successive
offering periods, each to be of a duration of twenty-four (24) months or less as
designated by the Plan Administrator prior to the start date. The initial
offering period will begin on the Effective Date and will end on the last
business day in February 1995. The next offering period shall commence on the
first business day in March 1995, and subsequent offering periods shall commence
as designated by the Plan Administrator.
C. Under no circumstances shall any offering period commence
under the Plan, nor shall any shares of Common Stock be issued hereunder, until
such time as (i) the Plan shall have been approved by the Company's stockholders
and (ii) the Company shall have complied with all applicable requirements of the
Securities Act of 1933 (as amended), all applicable listing requirements of any
securities exchange on which shares of the Common Stock are listed and all other
applicable statutory and regulatory requirements.
D. The Participant shall be granted a separate purchase right
for each offering period in which he/she participates. The purchase right shall
be granted on the Entry Date on which such individual first joins the offering
period in effect under the Plan and shall be automatically exercised in
successive semi-annual installments on the last business day of each February
and August within the remainder of the offering period. Accordingly, each
purchase right may be exercised up to two (2) times each calendar year it
remains outstanding.
E. The acquisition of Common Stock through plan participation
for any offering period shall neither limit nor require the acquisition of
Common Stock by the Participant in
3
<PAGE>
any subsequent offering period.
V. ELIGIBILITY AND PARTICIPATION
-----------------------------
A. Each Eligible Employee of a Participating Company shall be
eligible to participate in the Plan in accordance with the following provisions:
- An individual who is an Eligible Employee with at least
thirty (30) days of Service prior to the start date of the offering
period may enter that offering period on the Semi-Annual Entry Date
coincident with such start date or on any subsequent Semi-Annual Entry
Date within that offering period on which he/she remains an Eligible
Employee. The Semi-Annual Entry Date on which such individual first
joins the offering period shall become such individual's Entry Date for
the offering period, and on that date such individual shall be granted
his/her purchase right for the offering period.
- An individual who is not an Eligible Employee with at least
thirty (30) days of Service on the start date of the offering period
may subsequently enter that offering period on the first Semi-Annual
Entry Date on which he/she is an Eligible Employee with thirty (30) or
more days of Service or on any subsequent Semi-Annual Entry Date within
that offering period on which he/she remains an Eligible Employee. The
Semi-Annual Entry Date on which such individual first joins the
offering period shall become such individual's Entry Date for that
offering period, and on that date such individual shall be granted
his/her purchase right for the offering period.
B. To participate for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.
C. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Earnings paid to the Participant during each
Semi-Annual Period of Participation within the offering period, up to a maximum
of ten percent (10%). The deduction rate so authorized shall continue in effect
for the remainder of the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
- The Participant may, at any time during a Semi-Annual Period
of Participation, reduce his/her rate of payroll deduction. Such
reduction shall become effective as soon as possible after the filing
of the requisite reduction form with the Plan Administrator (or its
designate), but the Participant may not effect more than one (1) such
reduction during the same Semi-Annual Period of Participation.
- The Participant may not increase his/her rate of payroll
deduction following
4
<PAGE>
his/her Entry Date into the offering period. However, the Participant
may, prior to his/her Entry Date into any new offering period, increase
the rate of his/her payroll deduction by filing the appropriate form
with the Plan Administrator (or its designate). The new rate (which may
not exceed the ten percent (10%) maximum) shall become effective as of
the Participant's Entry Date into the first offering period following
the filing of such form.
Payroll deductions will automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of Section VII below.
VI. STOCK SUBJECT TO PLAN
---------------------
A. The Common Stock purchasable under the Plan shall, solely
in the discretion of the Plan Administrator, be made available from either
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares of Common Stock purchased on the
open market. The total number of shares which may be issued over the term of the
Plan shall not exceed 3,306,000 shares1 (subject to adjustment under Section
VI.B below). However, not more than 990,0002 shares may be issued under the Plan
from and after March 1, 1995, subject to adjustment under Section VI.B below.
B. In the event any change is made to the outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without the
Company's receipt of consideration, appropriate adjustments shall be made by the
Plan Administrator to (i) the class and maximum number of securities issuable
over the term of the Plan and from and after the March 1, 1995 effective date of
this restatement, (ii) the class and maximum number of securities purchasable
per Participant during any one (1) Semi-Annual Period of Participation and (iii)
the class and number of securities and the price per share in effect under each
purchase right at the time outstanding under the Plan. Such adjustments shall be
designed to preclude the dilution or enlargement of rights and benefits under
the Plan.
VII. PURCHASE RIGHTS
---------------
An Eligible Employee who participates in the Plan for a
particular offering period shall have the right to purchase shares of Common
Stock, in a series of successive semi-annual installments during such offering
period, upon the terms and conditions set forth below and shall execute a
purchase agreement embodying such terms and conditions (not inconsistent with
the Plan) as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable at the end of
each Semi-Annual Period of Participation within the offering period at a
purchase price equal to eighty-five percent
- ----------------------------
(1) Adjusted to reflect (i) the 300,000 share increase authorized by the Board
on April 25, 1997, subject to stockholder approval at the 1997 Annual Meeting.
Should this proposed increase not be approved, then the total number of shares
which may be issued over the term of the Plan shall not exceed 3,006,000.
(2) Adjusted to reflect (i) the 300,000 share increase authorized by the Board
on April 25, 1997, subject to stockholder approval at the 1997 Annual Meeting.
Should the proposed increase not be approved then the total number of shares
that may be issued under the Plan from and after March 1, 1995, subject to
adjustment under Section VI.B, below may not exceed 690,000.
5
<PAGE>
(85%) of the lower of (i) the Fair Market Value per share on the Participant's
Entry Date into that offering period or (ii) the Fair Market Value per share on
the Semi-Annual Purchase Date on which such Semi-Annual Period of Participation
ends. However, for each Participant whose Entry Date is other than the start
date of the offering period, the clause (i) amount shall in no event be less
than the Fair Market Value of the Common Stock on the start date of that
offering period.
Payment. Payment for the Common Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll deductions.
Such deductions shall begin with the first full payroll period beginning with or
immediately following the Participant's Entry Date into the offering period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from a Participant may be
commingled with the general assets of the Company and may be used for general
corporate purposes.
Number of Purchasable Shares. The number of shares purchasable
per Participant for each Semi-Annual Period of Participation during the offering
period shall be the number of whole shares obtained by dividing the payroll
deductions collected from the Participant during that Semi-Annual Period of
Participation by the purchase price in effect for the Participant for such
period. No Participant may purchase more than Thirteen Thousand Five Hundred
(13,500) shares of Common Stock per Semi-Annual Period of Participation, subject
to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any of its Corporate Affiliates.
Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
five (5) business days of the Semi-Annual Period of Participation,
terminate his/her outstanding purchase right under the Plan by filing
the prescribed notification form with the Plan Administrator (or its
designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and any
payroll deductions collected for the Semi-Annual Period of
Participation in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Semi-Annual Purchase Date. If no such
election is made at the time the purchase right is terminated, then the
deductions collected with respect to the terminated right shall be
refunded as soon as possible.
6
<PAGE>
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of a
new purchase agreement and payroll deduction authorization) on or
before his/her scheduled Entry Date into the new offering period.
(iii) If the Participant ceases to remain an Eligible
Employee while his/her purchase right remains outstanding, then such
purchase right shall immediately terminate, and the payroll deductions
collected from such Participant for the Semi-Annual Period of
Participation in which the purchase right so terminates shall be
promptly refunded to the Participant. However, in the event the
Participant's cessation of Eligible Employee status occurs by reason of
his/her death or permanent disability, then such individual (or the
personal representative of the estate of a deceased Participant) shall
have the following election, exercisable at any time prior to the last
five (5) business days of the Semi-Annual Period of Participation in
which such cessation of Eligible Employee status occurs:
- to withdraw all of the Participant's
payroll deductions for such Semi-Annual Period of Participation, or
- to have such funds held for the purchase
of shares on the Semi-Annual Purchase Date immediately following such
cessation of Eligible Employee status.
If a timely election is not made, then the payroll deductions
shall be refunded as soon as possible after the close of such Semi-Annual Period
of Participation. In no event, however, may any payroll deductions be made on
the Participant's behalf following his/her cessation of Eligible Employee
status.
Stock Purchase. Shares of Common Stock shall automatically be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions above) on each Semi-Annual Purchase Date. The purchase
shall be effected by applying each Participant's payroll deductions for the
Semi-Annual Period of Participation ending on such Semi-Annual Purchase Date
(together with any carryover deductions from the preceding Semi-Annual Period of
Participation) to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of purchasable shares set forth above) at the
purchase price in effect for the Participant for such Semi-Annual Period of
Participation. Any payroll deductions not applied to such purchase because they
are not sufficient to purchase a whole share shall be held for the purchase of
Common Stock in the next Semi-Annual Period of Participation. However, any
payroll deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant during
the Semi-Annual Period of Participation shall be promptly refunded to the
Participant.
7
<PAGE>
Proration of Purchase Rights. Should the total number of
shares of Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded to such Participant.
Rights as Stockholder. A Participant shall have no stockholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as
practicable after each Semi-Annual Purchase Date, a stock certificate for the
number of shares purchased on the Participant's behalf. Such certificate may,
upon the Participant's request, be issued in the names of the Participant and
his/her spouse as community property or as joint tenants with right of
survivorship. Alternatively, the Participant may request the issuance of such
certificate in "street name" for immediate deposit in a designated brokerage
account.
Assignability. No purchase right granted under the Plan shall
be assignable or transferable by the Participant other than by will or by the
laws of descent and distribution following the Participant's death, and during
the Participant's lifetime the purchase right shall be exercisable only by the
Participant.
Change in Ownership. Should any of the following transactions
(a "Change in Ownership") occur during the offering period:
(i) a merger or other reorganization in which the
Company will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which the
Company is incorporated), or
(ii) a sale of all or substantially all of the Company's
assets in liquidation or dissolution of the Company, or
(iii) a reverse merger in which the Company is the
surviving corporation but in which more than fifty percent (50%) of the
Company's outstanding voting stock is transferred to person or persons
different from those who held the stock immediately prior to such
merger, or
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the effective date of such
Change in Ownership by applying the payroll deductions of each Participant for
the Semi-Annual Period of Participation in which such Change in Ownership occurs
to the purchase of whole shares of Common Stock at eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry
8
<PAGE>
Date into the offering period in which such Change in Ownership occurs or (ii)
the Fair Market Value per share of Common Stock immediately prior to the
effective date of such Change in Ownership. However, the applicable share
limitations of Articles VII and VIII shall continue to apply to any such
purchase, and the clause (i) amount above shall not, for any Participant whose
Entry Date for the offering period is other than the start date of that offering
period, be less than the Fair Market Value per share of Common Stock on such
start date.
The Company shall use its best efforts to provide at least ten
(10)-days advance written notice of the occurrence of any such Change in
Ownership, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights in accordance with the
applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
-------------------
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (I) rights to purchase
Common Stock accrued under any other purchase right outstanding under this Plan
and (II) similar rights accrued under other employee stock purchase plans
(within the meaning of Section 423 of the Code) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 worth of stock of the Company or any Corporate Affiliate (determined on
the basis of the value of such stock on the date or dates such rights are
granted the Participant) for each calendar year such rights are at any time
outstanding.
B. For purposes of applying such accrual limitations, the
right to acquire Common Stock pursuant to each purchase right outstanding under
the Plan shall accrue as follows:
(i) The right to acquire Common Stock under each such
purchase right shall accrue in a series of successive semi-annual
installments as and when the purchase right first becomes exercisable
for each such installment on the last business day of each Semi-Annual
Period of Participation for which the right remains outstanding.
(ii) No right to acquire Common Stock under an
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at the rate of
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value on the date or dates
such rights are granted) for each calendar year those rights are at any
time outstanding.
(iii) If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular
Semi-Annual Period of Participation, then the payroll deductions which
the Participant made during that Semi-Annual Period of Participation
with respect to such purchase right shall be promptly
9
<PAGE>
refunded.
C. In the event there is any conflict between the provisions
of this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
-------------------------
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Semi-Annual Period of Participation. However, the
Board may not, without the approval of the Company's stockholders:
(i) materially increase the number of shares issuable
under the Plan or the maximum number of shares purchasable per
Participant during any one Semi-Annual Period of Participation, except
that the Plan Administrator shall have the authority, exercisable
without such stockholder approval, to effect adjustments to the extent
necessary to reflect changes in the Company's capital structure
pursuant to Section VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
B. The Company shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Semi-Annual Period
of Participation. Should the Company elect to exercise such right, then the Plan
shall terminate in its entirety. No further purchase rights shall thereafter be
granted or exercised, and no further payroll deductions shall thereafter be
collected, under the Plan.
X. DISPOSITION OF SHARES
---------------------
A. The Plan Administrator may, in its absolute discretion,
impose, as a condition to the issuance of the shares of Common Stock purchased
under the Plan, the requirement that each Participant provide the Company with
prompt notice of any transfer or other disposition of those shares which is
effected within two (2) years after Participant's Entry Date into the offering
period in which the shares were purchased or within one year after the
Semi-Annual Purchase Date on which those shares were in fact purchased. The Plan
Administrator may further require the certificate evidencing such shares to be
endorsed with a legend indicating the existence of such notice requirement and
impose appropriate stop transfer orders with respect to such certificate in the
absence of such notice.
10
<PAGE>
B. The Company shall not record on its books of record any
transfer or other disposition of the shares of Common Stock issued under the
Plan which is not effected in compliance with the foregoing notice requirement.
Moreover, the Company may impose, as a condition to the recordation of such
transfer or disposition, the requirement that the Participant satisfy all
Federal, state and local income and employment tax withholding obligations
applicable to such transfer or disposition.
XI. GENERAL PROVISIONS
------------------
A. The Plan became effective on the March 17, 1993 Effective
Date.
B. The March 1, 1995 restatement incorporated a series of
amendments to the Plan authorized by the Board in January, 1995 to effect the
following changes to the Plan: (i) allow Eligible Employees to join an offering
period on any Semi-Annual Entry Date within that offering period, (ii) prohibit
Participants from increasing their rate of payroll deduction under the Plan
after their Entry Date into a particular offering period, (iii) obligate
Participants to notify the Company of any disqualifying disposition (as defined
in Code Section 423) of the shares they acquire under the Plan and (iv) and
increase in the number of shares of Common Stock available for issuance over the
term of the Plan.
C. The Plan shall terminate upon the earlier of (i) the last
business day in February 2003 or (ii) the date on which all shares available for
issuance under the Plan shall have been sold pursuant to purchase rights
exercised under the Plan.
D. All costs and expenses incurred in the administration of
the Plan shall be paid by the Company.
E. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.
F. The provisions of the Plan shall be governed by the laws of
the State of Arizona without resort to that State's conflict-of-laws rules.
11
<PAGE>
Schedule A
----------
Companies Participating in
Employee Stock Purchase Plan
As of April 25, 1997
-------------------
Microchip Technology Incorporated
12
MODIFICATION AGREEMENT
BY THIS MODIFICATION AGREEMENT (the "Agreement"), made and entered into
as of the 14th day of January, 1997, WELLS FARGO BANK, N.A., whose address is
100 West Washington, Phoenix, Arizona 85003 as administrative agent for the
Banks (as hereinafter defined) (the "Administrative Agent"), and MICROCHIP
TECHNOLOGY INCORPORATED, a Delaware corporation, whose address is 2355 West
Chandler Boulevard, Chandler, Arizona 85224 (the "Borrower"), in consideration
of the mutual covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby confirm and agree as follows:
SECTION 1. RECITALS.
1.1 Borrower and the Administrative Agent, NBD Bank as Co-Agent and the
Banks named therein entered into that Credit Agreement dated October 31, 1996
(the "Credit Agreement") to provide financial accommodations to the Borrower as
provided therein.
1.2 Borrower and the Administrative Agent, with the consent of the
Banks, desire to modify the Credit Agreement as set forth herein.
1.3 All undefined capitalized terms used herein shall have the meaning
given them in the Credit Agreement.
SECTION 2. CREDIT AGREEMENT.
2.1 The following definition in Section 1.1 of the Loan Agreement is
hereby amended to read as follows:
"Consolidated Debt" shall mean the total Debt of the Borrower
and its Subsidiaries, less the outstanding principal amount of
Convertible Subordinated Indebtedness, all computed on a consolidated
basis in accordance with GAAP.
2.2 The following definition is hereby added to Section 1.1 of the Loan
Agreement:
"Convertible Subordinated Indebtedness" shall mean
Subordinated Indebtedness that is convertible into equity of the
Borrower, which amount for purposes of the calculation of the ratio
under Section 6.8 shall not exceed at any time $100,000,000.00.
SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.
3.1 All references to the Credit Agreement in the other Loan Documents
are hereby amended to refer to the Credit Agreement as hereby amended.
<PAGE>
3.2 Borrower hereby reaffirms to Lender each of the representations,
warranties, covenants and agreements of Borrower set forth in the Credit
Agreement, with the same force and effect as if each were separately stated
herein and made as of the date hereof.
3.3 Borrower hereby ratifies, reaffirms, acknowledges, and agrees that
the Notes and the Credit Agreement represent valid, enforceable and collectible
obligations of Borrower, and that there are no existing claims, defenses,
personal or otherwise, or rights of setoff whatsoever with respect to any of
these documents or instruments. In addition, Borrower hereby expressly waives,
releases and absolutely and forever discharges the Banks and their present and
former shareholders, directors, officers, employees and agents, and their
separate and respective heirs, personal representatives, successors and assigns,
from any and all liabilities, claims, demands, damages, action and causes of
action, whether known or unknown and whether contingent or matured, that
Borrower may now have, or has had prior to the date hereof, or that may
hereafter arise with respect to acts, omissions or events occurring prior to the
date hereof and, without limiting the generality of the foregoing, from any and
all liabilities, claims, demands, damages, actions and causes of action, known
or unknown, contingent or matured, arising out of, or in any way connected with,
the Loans. Borrower further acknowledges and represents that no event has
occurred and no condition exists that, after notice or lapse of time, or both,
would constitute a default under this Agreement, the Notes or the Credit
Agreement.
3.4 All terms, conditions and provisions of the Credit Agreement are
continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. The Credit Agreement, as amended hereby,
is hereby ratified and reaffirmed by Borrower, and Borrower specifically
acknowledges the validity and enforceability thereof.
SECTION 4. GENERAL.
4.1 This Agreement in no way acts as a release or relinquishment of
those rights securing payment of the Loans. Such rights are hereby ratified,
confirmed, renewed and extended by Borrower in all respects.
4.2 The modifications contained herein shall not be binding upon the
Banks until the Administrative Agent shall have received all of the following:
(a) An original of this Agreement fully executed by the
Borrower.
(b) Such resolutions or authorizations and such other
documents as the Administrative Agent may require relating to the
existence and good standing of the Borrower and the authority of any
person executing this Agreement or other documents on behalf of the
Borrower.
4.3 Borrower shall execute and deliver such additional documents and do
such other acts as the Banks may reasonably require to fully implement the
intent of this Agreement.
-2-
<PAGE>
4.4 Borrower shall pay all costs and expenses, including, but not
limited to, reasonable attorneys' fees incurred by the Administrative Agent in
connection herewith, whether or not all of the conditions described in Paragraph
4.2 above are satisfied. Banks, at their option, but without any obligation to
do so, may advance funds to pay any such costs and expenses that are the
obligation of the Borrower, and all such funds advanced shall bear interest at
the highest rate provided in the Notes and shall be due and payable upon demand.
4.5 Notwithstanding anything to the contrary contained herein or in any
other instrument executed by Borrower, the Administrative Agent or the Banks, or
in any other action or conduct undertaken by Borrower, the Administrative Agent
or the Banks on or before the date hereof, the agreements, covenants and
provisions contained herein shall constitute the only evidence of the Banks'
consent to modify the terms and provisions of the Credit Agreement. Accordingly,
no express or implied consent to any further modifications involving any of the
matters set forth in this Agreement or otherwise shall be inferred or implied by
the Banks' consent to this Agreement. Further, the Banks' consent to this
Agreement shall not constitute a waiver (either express or implied) of the
requirement that any further modification of the Credit Agreement shall require
the express written consent of the Banks; no such consent (either express or
implied) has been given as of the date hereof.
4.6 Time is hereby declared to be of the essence hereof of the Credit
Agreement, and Banks require, and Borrower agrees to, strict performance of each
and every covenant, condition, provision and agreement hereof, of the Credit
Agreement.
4.7 This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns.
-3-
<PAGE>
4.8 This Agreement is made for the sole protection and benefit of the
parties hereto, and no other person or entity shall have any right of action
hereon.
4.9 This Agreement shall be governed by and construed according to the
laws of the State of Arizona.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
WELLS FARGO BANK, N.A.
By: /s/ Mae G. DelaBarre
-------------------------------------
Name: Mae G. DelaBarre
-----------------------------------
Its: Assistant Vice President
------------------------------------
ADMINISTRATIVE AGENT
MICROCHIP TECHNOLOGY INCORPORATED,
a Delaware corporation
By: /s/ C. Philip Chapman
-------------------------------------
Name: C. Philip Chapman
-----------------------------------
Its: Vice President & CFO
------------------------------------
BORROWER
-4-
<PAGE>
CONSENT OF THE BANKS
Re: Microchip Technology Incorporated
The following:
(a) is a Bank named in that Credit Agreement dated October 31,
1996 between Microchip Technology Incorporated, a Delaware corporation (the
"Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the
"Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and
(b) consents to that Modification Agreement dated January 14,
1997 entered into between the Borrower and the Administrative Agent.
NBD BANK, a Michigan banking corporation
By: /s/ James B. Junker
-------------------------------------
Name: James B. Junker
-----------------------------------
Its: Authorized Agent
------------------------------------
"Co-Agent and Bank"
<PAGE>
CONSENT OF THE BANKS
Re: Microchip Technology Incorporated
The following:
(a) is a Bank named in that Credit Agreement dated October 31,
1996 between Microchip Technology Incorporated, a Delaware corporation (the
"Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the
"Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and
(b) consents to that Modification Agreement dated January 14,
1997 entered into between the Borrower and the Administrative Agent.
BANK ONE, ARIZONA, NA,
a national banking association
By: /s/ Steven Reinhart
-------------------------------------
Name: Steven Reinhart
-----------------------------------
Its: VP
------------------------------------
"Bank"
-2-
<PAGE>
CONSENT OF THE BANKS
Re: Microchip Technology Incorporated
The following:
(a) is a Bank named in that Credit Agreement dated October 31,
1996 between Microchip Technology Incorporated, a Delaware corporation (the
"Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the
"Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and
(b) consents to that Modification Agreement dated January 14,
1997 entered into between the Borrower and the Administrative Agent.
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
San Francisco Agency
By: /s/ Takahide Akiyama
-------------------------------------
Name: Takahide Akiyama
-----------------------------------
Its: Joint General Manager
------------------------------------
"Bank"
-3-
<PAGE>
CONSENT OF THE BANKS
Re: Microchip Technology Incorporated
The following:
(a) is a Bank named in that Credit Agreement dated October 31,
1996 between Microchip Technology Incorporated, a Delaware corporation (the
"Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the
"Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and
(b) consents to that Modification Agreement dated January 14,
1997 entered into between the Borrower and the Administrative Agent.
WELLS FARGO BANK, N.A.
By: /s/ Mae G. DelaBarre
-------------------------------------
Name: Mae G. DelaBarre
-----------------------------------
Its: Assistant Vice President
------------------------------------
"Bank"
-4-
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
Year Ended March 31,
1997 1996 1995
---------------------------
Net income $51,132 $43,752 $36,299
------- ------- -------
Weighted average shares:
Common shares outstanding 51,569 50,750 47,525
Common equivalent shares
representing shares issuable upon
exercise of stock options(1) 3,114 3,783 4,116
------- ------- -------
Total weighted average shares
primary 54,683 54,533 51,641
------- ------- -------
Incremental common equivalent
shares (calculated using the higher
of end of period or average market
value)(2) 315 - 384
------- ------- -------
Total weighted average shares
fully diluted 54,998 54,533 52,025
------- ------- -------
Primary net income per common
and common equivalent share 0.94 0.80 0.70
------- ------- -------
Fully diluted net income per
common and common equivalent
share 0.93 0.80 0.70
------- ------- -------
- ---------------------------------------------------
(1) Amount calculated using the treasury stock method and fair market values
for stock.
(2) This calculation is submitted in accordance with regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
KPMG Peat Marwick LLP
Independent Auditors' Consent
-----------------------------
The Board of Directors
Microchip Technology Incorporated:
We consent to incorporation by reference in the registration statements (No.
33-59686, No. 33-80072, No. 33-81690, No. 33-83196 and No. 333-872) on Form S-8
of Microchip Technology Incorporated of our report dated April 18, 1997,
relating to the consolidated balance sheets of Microchip Technology Incorporated
and subsidiaries as of March 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended March 31, 1997, which report appears in the March
31, 1997 annual report on Form 10-K of Microchip Technology Incorporated.
KPMG Peat Marwick LLP
Phoenix, Arizona
May 23, 1997
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<FISCAL-YEAR-END> MAR-31-1997
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<TOTAL-LIABILITY-AND-EQUITY> 428092
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