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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number: 0-21184
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MICROCHIP TECHNOLOGY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0629024
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2355 W. Chandler Blvd., Chandler, AZ 85224-6199
(602) 786-7200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's
Principal Executive Offices)
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for the past 90 days.
Yes X No
----------- -----------
The number of shares outstanding of the issuer's common stock, as of January 30,
1998:
Common Stock, $.001 Par Value: 53,013,109 shares
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<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1997..............................3
Condensed Consolidated Statements of Income -
Three Months And Nine Months Ended December 31, 1997
and December 31, 1996.............................................4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 1997 and December 31, 1996.........5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings................................................16
Item 6. Exhibits and Reports on Form 8-K.................................17
SIGNATURES ...................................................................18
EXHIBITS
10.1 Development Agreement dated as of August 29, 1997 by and
between Microchip Technology Incorporated and the City of
Chandler, Arizona
10.2 Development Agreement dated as of July 17, 1997 by and
between Microchip Technology Incorporated and the City of
Tempe, Arizona
11. Computation of Net Income Per Share..............................20
2
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1997 1997
------------ ---------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 41,844 $ 42,999
Accounts receivable, net 62,053 61,102
Inventories 58,742 56,813
Prepaid expenses 3,107 1,715
Deferred tax asset 28,548 24,251
Other current assets 1,450 2,656
--------- ---------
Total current assets 195,744 189,536
Property, plant and equipment, net 318,363 234,058
Other assets 4,407 4,498
--------- ---------
Total assets $ 518,514 $ 428,092
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 49,940 $ 35,281
Current maturities of long-term debt 2,339 2,470
Current maturities of capital lease obligations 2,588 3,776
Accrued liabilities 52,482 36,392
Deferred income on shipments to distributors 33,135 20,441
--------- ---------
Total current liabilities 140,484 98,360
Long-term debt, less current maturities 1,780 3,616
Capital lease obligations, less current maturities 630 2,383
Long-term pension accrual 974 980
Deferred tax liability 6,098 6,169
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares;
no shares issued or outstanding -- --
Common stock, $.001 par value; authorized 100,000,000 shares;
issued 53,897,655 and outstanding 53,647,655 shares at December 31, 1997; 54 53
issued 53,300,619 and outstanding 53,196,037 shares at March 31, 1997.
Additional paid-in capital 176,047 168,185
Retained earnings 199,966 149,825
Less shares of common stock held in treasury; 250,000 shares at cost
at December 31, 1997 and 104,582 shares at cost at March 31, 1997 (7,519) (1,479)
--------- ---------
Net stockholders' equity 368,548 316,584
Total liabilities and stockholders' equity $ 518,514 $ 428,092
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 103,550 $ 87,076 $ 303,814 $ 240,747
Cost of sales 53,746 43,562 152,476 120,809
--------- --------- --------- ---------
Gross profit 49,804 43,514 151,338 119,938
Operating expenses:
Research and development 10,009 8,432 28,599 23,003
Selling, general and administrative 17,212 14,291 50,638 40,538
Special charges 5,000 -- 5,000 7,544
--------- --------- --------- ---------
32,221 22,723 84,237 71,085
Operating income 17,583 20,791 67,101 48,853
Other income (expense):
Interest income 755 294 2,340 1,038
Interest expense (267) (1,061) (835) (2,821)
Other, net (89) 186 80 281
--------- --------- --------- ---------
Income before income taxes 17,982 20,210 68,686 47,351
Income taxes 4,855 5,455 18,545 12,784
--------- --------- --------- ---------
Net income $ 13,127 $ 14,755 $ 50,141 $ 34,567
========= ========= ========= =========
Basic net income per share $ 0.24 $ 0.29 $ 0.94 $ 0.67
========= ========= ========= =========
Diluted net income per share $ 0.23 $ 0.27 $ 0.89 $ 0.64
========= ========= ========= =========
Weighted average common
shares outstanding 53,762 51,189 53,362 51,274
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 56,822 54,594 56,557 54,201
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
-------------------------------
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 50,141 $ 34,567
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for doubtful accounts 456 147
Provision for inventory valuation 669 3,640
Provision for pension accrual 954 925
Special charges 5,000 2,483
Depreciation and amortization 39,055 29,598
Amortization of purchased technology 225 225
Deferred income taxes (4,368) 2,429
Compensation expense on stock options -- 30
Increase in accounts receivable (1,407) (4,903)
Increase in inventories (2,598) (5,051)
Increase (decrease) in accounts payable and accrued liabilities 25,749 (7,796)
Change in other assets and liabilities 11,413 (6,669)
--------- ---------
Net cash provided by operating activities 125,289 49,625
--------- ---------
Cash flows from investing activities:
Capital expenditures (123,359) (59,990)
--------- ---------
Net cash used in investing activities (123,359) (59,990)
--------- ---------
Cash flows from financing activities:
Net proceeds from lines of credit -- 16,712
Payments on long-term debt (1,967) (2,174)
Payments on capital lease obligations (2,941) (2,213)
Repurchase of common stock (7,519) (19,463)
Proceeds from sale of stock and put options 9,342 8,435
--------- ---------
Net cash provided by (used in) financing activities (3,085) 1,297
--------- ---------
Net decrease in cash and cash equivalents (1,155) (9,068)
Cash and cash equivalents at beginning of period 42,999 31,059
--------- ---------
Cash and cash equivalents at end of period $ 41,844 $ 21,991
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include
the accounts of Microchip Technology Incorporated and its wholly-owned
subsidiaries (the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.
In the nine months ended December 31, 1997, the Company changed its
method of accounting for inventories from the last-in, first-out (LIFO) method
to the first-in, first-out (FIFO) method. The change did not have a material
effect on the results of operations for the nine months. The FIFO method is the
predominant accounting method used in the semiconductor industry. Prior to this
change, the Company's inventory costs did not differ significantly under the two
methods. Prior period results of operations have not been restated for this
change as the impact was not material.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128 in the quarter ended December 31, 1997. 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 dual presentation of basic and diluted EPS. Statement 128 is
effective for annual and interim periods ending after December 15, 1997. Earlier
adoption was not permitted. All prior period EPS data have been restated to
conform to Statement 128.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Company, the accompanying financial statements include all adjustments of a
normal recurring nature which are necessary for a fair presentation of the
results for the interim periods presented. Certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 1997. The results of operations for the nine
months ended December 31, 1997 are not necessarily indicative of the results to
be expected for the full fiscal year.
(2) Legal Settlement With Lucent Technologies Inc.
On January 13, 1998, the Company finalized a settlement of its patent
litigation with Lucent Technologies Inc. In connection with this settlement, the
Company has recorded a $5 million charge during the quarter ended December 31,
1997. Under the terms of the settlement, Microchip made a one-time cash payment
to Lucent and has also issued to Lucent a warrant to acquire Common Stock of the
Company. The terms of the settlement also provide for the Company to make a
contingent payment to Lucent if the Company's earnings per share performance for
the three and one-half year period ending June 30, 2001 does not meet certain
targeted levels. The timing of any contingent payment may be earlier in the
event of an acquisition of the Company. It is currently anticipated that any
contingent payment required under the terms of the settlement will be expensed
in the period the amount is determined.
6
<PAGE>
(3) Accounts Receivable
Accounts receivable consists of the following (amounts in thousands):
December 31, March 31,
1997 1997
---------------------------
(unaudited)
Trade accounts receivable $63,944 $62,165
Other 536 1,031
------- -------
64,480 63,196
Less allowance for doubtful accounts 2,427 2,094
------- -------
$62,053 $61,102
======= =======
(4) Inventories
The components of inventories are as follows (amounts in thousands):
December 31, March 31,
1997 1997
--------------------------
(unaudited)
Raw materials $ 3,163 $ 2,310
Work in process 36,948 44,813
Finished goods 27,564 18,021
------- -------
67,675 65,144
Less allowance for inventory valuation 8,933 8,331
------- -------
$58,742 $56,813
======= =======
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following (amounts in
thousands):
December 31, March 31,
1997 1997
---------------------------
(unaudited)
Land $ 11,178 $ 10,837
Building and building improvements 57,175 51,796
Machinery and equipment 296,247 218,284
Projects in process 91,565 52,608
-------- --------
456,165 333,525
Less accumulated depreciation
and amortization 137,802 99,467
-------- --------
$318,363 $234,058
======== ========
7
<PAGE>
(6) Lines of Credit
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 (8.25% at
December 31, 1997) and expiring in October, 2001. At March 31, 1997 and December
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 December 31, 1997. The Company also has an unsecured
short term line of credit totaling $22.3 million with certain foreign banks.
There were no borrowings under the foreign line of credit as of December 31,
1997. There are no covenants related to the foreign line of credit.
(7) Stockholders' Equity
Stock Repurchase Activity. In connection with a stock repurchase
program, during the nine months ended December 31, 1996, 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. As of June 30, 1997, the Company had
reissued all of these shares through stock option exercises and the Company's
employee stock purchase plan. During the quarter ended December 31, 1997, the
Company purchased 250,000 additional shares of the Company's Common Stock at a
total cost of $7,519,000 in connection with the stock repurchase program. All of
these shares remained in Treasury Stock as of December 31, 1997. Also, in
connection with the stock repurchase program, during the nine months ended
December 31, 1997, the Company sold put options for 700,000 shares of Common
Stock at prices ranging from $29.50 to $38.81 per share. During the quarter
ended December 31, 1997 the Company repurchased put options for 300,000 shares.
The net proceeds from the sale and repurchase of these options, in the amount of
$2,215,330 for the nine months ended December 31, 1997, has been credited to
additional paid-in capital. As of December 31, 1997, the Company had outstanding
put options for 400,000 shares which have expiration dates ranging from June
16,1998 to March 3, 1999 at prices ranging from $29.63 to $38.81 per share.
On January 30, 1998 and July 26, 1997, the Company's Board of
Director's authorized 2,500,000 shares and 1,500,000 shares, respectively, in
connection with a Common Stock repurchase plan. On July 26, 1997, the Board of
Directors also authorized the Company to sell up to 750,000 put options in
connection with the same plan. 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. As of February 3, 1998 the Company has purchased
1,210,000 shares of Common Stock at an aggregate cost of $29,791,000 and is
holding 400,000 put options at prices ranging from $29.63 to $38.81.
Increase to the Number of Authorized Shares. In April, 1997, 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 was approved by the
stockholders at the 1997 annual stockholders' meeting held on July 28, 1997, and
became effective upon the filing of a certificate of amendment to the Restated
Certificate of Incorporation with the Delaware Secretary of State on July 28,
1997.
8
<PAGE>
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain operational data as a percentage
of net sales for the periods indicated:
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
----------------- ----------------
Net sales ............................ 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................ 51.9 50.0 50.2 50.2
Gross profit ......................... 48.1 50.0 49.8 49.8
Research and development ............. 9.7 9.7 9.4 9.6
Selling, general and administrative .. 16.6 16.4 16.7 16.8
Special charges ...................... 4.8 -- 1.6 3.1
Operating income ..................... 17.0% 23.9% 22.1% 20.3%
==== ==== ==== ====
Net Sales. The Company's net sales for the quarter ended December 31,
1997 were $103.6 million, an increase of 18.9% over net sales of $87.1 million
for the corresponding quarter of the previous fiscal year, and an increase of
0.6% from the previous quarter's net sales of $103.0 million. The Company's net
sales for the nine months ended December 31, 1997 were $303.8 million, an
increase of 26.2% over net sales of $240.7 million for the corresponding period
of the previous fiscal year. 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
67.7% and 65.9% of total net sales in the three months ended December 31, 1997
and 1996, respectively. A related component of the Company's product sales
consists primarily of serial EEPROMs, which accounted for 30.5% of net sales in
each of the quarters ended December 31, 1997 and 1996. Microcontrollers and
associated application development systems accounted for 69.1% and 64.3% of
total net sales in the nine months ended December 31, 1997 and 1996,
respectively. Serial EEPROMs and other memory devices accounted for 29.3% and
31.6% of total net sales in the nine months ended December 31, 1997 and 1996,
respectively.
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, results in
customers placing orders with short delivery schedules. The Company has
experienced increasing turns orders as a portion of the Company's business in
the nine months ended December 31, 1997, as compared to the corresponding period
of the previous fiscal year and the turns order percentage is expected to
increase in the current quarter. Because turns orders are difficult to predict,
there can be no assurance that the combination of turns orders and shipments
from 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
9
<PAGE>
revenues and operating results would be materially adversely affected. In the
quarter ended December 31, 1997, the Company experienced sequentially flat sales
primarily due to weakness in turns orders.
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 over time. During the nine months
ended December 31, 1997, the Company continued to experience increased pricing
pressure on its non-volatile memory products due to the less proprietary nature
of these products and increased competition. While average selling prices for
microcontrollers have remained relatively constant, the Company has experienced
increasing pricing in certain microcontroller product lines due primarily to
competitive conditions. 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.
The foregoing statements regarding product mix, turns orders, average
selling prices 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.
Several countries, predominantly in Asia, have recently experienced
economic difficulties including high rates of loan defaults, business failures
and currency devaluations. During the quarter ended December 31, 1997, the
Company experienced weakness in the expected level of turns orders and net sales
related to its business in Asia. The Company derives approximately 38% of its
net sales from customers in Asia and Japan and there can be no assurance that
such economic difficulties will not continue to adversely affect the Company's
operating results in future periods.
Foreign sales represented 71.0% of net sales in the current quarter and
69.0% of net sales in the corresponding quarter of the previous fiscal year and
68.0% of net sales in the immediately proceeding quarter. Foreign sales
represented 70.0% and 66.4% of net sales for the nine months ended December 31,
1997 and 1996, respectively. The Company's foreign sales have been predominantly
in Asia, Europe and Japan, which the Company attributes to the manufacturing
activity 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
10
<PAGE>
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 significant
numbers of application development systems in the three months ended December
31, 1997. 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 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 markets served by the Company
could adversely affect the Company's operating results.
Gross Profit. The Company's gross profit was $49.8 million in the three
months ended December 31, 1997, as compared to $43.5 million in the
corresponding quarter of the prior fiscal year, and $52.1 million in the
immediately preceding quarter. Gross profit as a percent of sales was 48.1% in
the current quarter, 50.0% in the corresponding quarter of the prior fiscal year
and 50.6% in the immediately preceding quarter. Gross profit for the nine months
ended December 31, 1997 was $151.3 million as compared to $119.9 million for the
corresponding period of the previous fiscal year. Gross profit as a percent of
sales was 49.8% in both these periods. Gross profit margins during the quarter
decreased from the prior period levels, primarily as a result of a change in
expected sales mix of lower margin memory products versus higher margin
microcontroller products, heightened pricing pressure in Asia, lower utilization
of Microchip's wafer fabrication facility during the quarter and increased
product obsolescence reserves for slow moving inventory. The Company continues
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 Company's Tempe wafer fabrication facility in early fiscal
1998, and the Company is continuing the transition of products to its 0.7 micron
process. The Company expects that 25% of its production will come from
eight-inch wafers during the quarter ending March 31, 1998. The Company
anticipates that its cost of sales and gross profit percentage will fluctuate
over time, driven primarily by the mix of 8-bit microcontroller products and
related memory products, manufacturing yields, wafer fab loading levels and
competitive and economic conditions. 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
11
<PAGE>
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 efficiency 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.
All of Microchip's assembly operations 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 this
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 reliance on third-party contractors will not adversely impact results in
future reporting periods if any third-party contractor is unable to maintain
assembly 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, People's Republic
of China and other locations in Asia for product assembly. 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 PCL group of companies ("Alphatec") headquartered in
Bangkok, Thailand, for a portion of its product assembly. Alphatec's assembly
operations have performed reliably for the Company for several years, however,
Alphatec has experienced difficulty in obtaining financing in connection with
some of its unrelated joint ventures involving semiconductor fabrication
facilities in Thailand. Microchip currently has multiple sources for product
assembly and test for most of its package types and has shifted a significant
portion of its assembly to other factories and test requirements to its owned
facilities. Despite these actions, there can be no assurance that Microchip may
not experience short-term disruption, including possible temporary product
shortages and increased assembly and test costs, compared to those received from
the current subcontract relationship with Alphatec. 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 second quarter of fiscal 1998, construction was completed on
a 20,000 square foot wafer fabrication module at the Company's Tempe, Arizona
facility. It is anticipated that this module will begin wafer production in the
first quarter of fiscal 1999. In addition, the Company also expanded capacity at
its Chandler wafer fabrication facility by adding an additional 3,000 square
feet of capacity during the second quarter of fiscal 1998. The foregoing
statements regarding additional available capacity and commencement of wafer
production 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.
Research and Development. The Company is committed to continued investment
in new and enhanced products, including its development systems software and its
design and manufacturing
12
<PAGE>
process technology, which are significant factors in maintaining the Company's
competitive position. The dollar investment in research and development
increased 18.7% in the current quarter as compared to the corresponding quarter
of the previous fiscal year and by 6.7% from the previous quarter. The dollar
investment in research and development increased by 24.3% in the nine months
ended December 31, 1997 as compared to the corresponding period of the prior
fiscal year. The Company will continue to invest in research and development in
the future, including 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 the 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. The level of selling, general and
administrative expenses in the current fiscal quarter was essentially flat at
16.6% of sales, as compared to 16.4% of sales in the corresponding period of the
previous fiscal year. Selling, general and administrative expenses were 16.7% of
sales in the nine month period ended December 31, 1997, as compared to 16.8% for
the corresponding period in the prior fiscal year.
Other Income (Expense). Interest expense in the three months ended
December 31, 1997 decreased over the same period of the previous fiscal year due
to lower borrowings associated with the Company's capital equipment additions,
and was essentially in line with interest expense for the previous quarter.
Interest income in the three months ended December 31, 1997 increased from the
same period of the previous year and decreased from the previous fiscal quarter
primarily as a result of changes in invested cash balances. Other income
represents numerous immaterial non-operating items. The Company's interest
expense will increase in the fourth quarter of fiscal 1998 as the Company
increases its borrowings due to purchases of shares of Common Stock in
connection with the Company's share repurchase plan. 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 27.0% for each of the three months ended December 31, 1997
and 1996 and each of the nine months ended September 30, 1997
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and 1996, due primarily to lower tax rates at its foreign locations. The Company
believes that its tax rate for the foreseeable future will be approximately
27.0%. 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.
Liquidity and Capital Resources
The Company had $41.8 million in cash and cash equivalents at December
31, 1997, a decrease of $1.2 million from the March 31, 1997 balance. The
Company has an unsecured line of credit with a syndicate of U.S. banks totaling
$90.0 million. The line is a revolving line of credit, expiring on October 28,
2001. There were no borrowings under the line of credit as of December 31, 1997.
The line of credit requires the Company to achieve certain financial ratios and
operating results. The Company was in compliance with these covenants at
December 31, 1997. The Company also has an unsecured short term line of credit
totaling $22.3 million with certain foreign banks. There were no borrowings
under the foreign line of credit as of December 31, 1997. There are no covenants
related to the foreign line of credit.
At December 31, 1997, an aggregate of $112.3 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 nine months ended December 31, 1997, the Company generated
$125.3 million of cash from operating activities, an improvement of $75.7
million from the nine months ended December 31, 1997. The improvement in cash
flow from operations was primarily due to increased profitability, the impact of
increases in accounts payable and accrued expenses, changes in other assets and
liabilities 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 nine months ended December 31, 1997 and 1996, were $123.4 million and $60.0
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 currently intends to spend approximately
$25.0 million during the balance of this fiscal year and approximately $60.0
million during the next fiscal year 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 currently
anticipates 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. The foregoing statements regarding the anticipated level of
capital expenditures during the remainder of this fiscal year and during the
next fiscal year 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 capital expenditures could differ materially because of the
following factors, among others: the cyclical nature of the semiconductor
industry and the markets addressed by the Company's products; market acceptance
of the
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products of both the Company and its customers; utilization of current
manufacturing capacity; the availability and cost of raw materials, equipment
and other supplies; and the economic, political and other conditions in the
markets served by the Company.
Net cash used in financing activities was $3.1 million for the nine
months ended December 31, 1997. Net cash provided by financing activities was
$1.3 million for the nine months ended December 31, 1996. Proceeds from sale of
stock and put options were $9.3 million and $8.4 million for the nine months
ended December 31, 1997 and 1996, respectively. Payments on long term debt and
capital lease obligations were $4.9 million and $4.4 million for the nine months
ended December 31, 1997 and 1996 respectively. Proceeds from lines of credit
were $16.7 million for the nine months ended December 31, 1996. Cash expended
for the purchase of the Company's Common Stock was $7.5 million and $19.5
million for the nine months ended December 31, 1997 and December 31, 1996,
respectively.
On January 30, 1998 and July 26, 1997, the Company's Board of Directors
authorized 2,500,000 shares and 1,500,000 shares, respectively, in connection
with a Common Stock repurchase plan. On July 26, 1997, the Board of Directors
also authorized the Company to sell up to 750,000 put options in connection with
the same plan. 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. As of February 3, 1998 the Company has purchased 1,210,000
shares of Common Stock at an aggregate cost of $29,791,000 and is holding
400,000 put options at prices ranging from $29.63 to $38.81.
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.
15
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PART II. OTHER INFORMATION.
Item 1. LEGAL PROCEEDINGS.
Microchip Technology Incorporated v. Lucent Technologies Inc. (District
of Arizona, CIV97-1502 PHX EHC) On January 13, 1998, the Company finalized a
settlement of its patent litigation with Lucent Technologies Inc. In connection
with this settlement the Company recorded a $5 million charge during the quarter
ended December 31, 1997. Under the terms of the settlement, Microchip made a
one-time cash payment to Lucent and also issued to Lucent a warrant to acquire
Common Stock of the Company. The terms of the settlement also provide for the
Company to make a contingent payment to Lucent if the Company's earnings per
share performance for the three and one-half year period ending June 30, 2001
does not meet certain targeted levels. The timing of any contingent payment may
be earlier in the event of an acquisition of the Company. It is currently
anticipated that any contingent payment required under the terms of the
settlement will be expensed in the period the amount is determined. See also
Footnote 2 to the Condensed Consolidated Financial Statements, above.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Development Agreement dated as of August 29, 1997 by
and between Microchip Technology Incorporated and the
City of Chandler, Arizona
10.2 Development Agreement dated as of July 17, 1997 by and
between Microchip Technology Incorporated and the City
of Tempe, Arizona
11 Computation of Net Income Per Share
(b) Reports on Form 8-K.
The registrant did not file any reports on Form 8-K during the
quarter ended December 31, 1997.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROCHIP TECHNOLOGY INCORPORATED
Date: February 13, 1998 By: /s/ C. Philip Chapman
------------------ --------------------------------------------
C. Philip Chapman
Vice President, Chief Financial Officer
and Secretary (Duly Authorized Officer, and
Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Page No.
----------- --------
10.1 Development Agreement dated as of August 29, 1997 by and
between Microchip Technology Incorporated and the City of
Chandler, Arizona
10.2 Development Agreement dated as of July 17, 1997 by and
between Microchip Technology Incorporated and the City of
Tempe, Arizona
11. Computation of Net Income Per Share.........................20
19
After Recording Return to:
OFFICIAL RECORDS OF
Paul E. Gilbert, Esq. MARICOPA COUNTY RECORDER
BEUS, GILBERT & MORRILL, P.L.L.C. HELEN PURCELL
1000 Great American Tower
3200 North Central Avenue 97-0616640 09/05/97 04:36
Phoenix, AZ 85012
- --------------------------------------------------------------------------------
DEVELOPMENT AGREEMENT
This Development Agreement ("Agreement") is made as of the 29 day of
August, 1997 by and between the City of Chandler, Arizona, an Arizona municipal
corporation (which together with any successor public body or officer hereafter
designated by or pursuant to law, is hereafter called "City"), and Microchip
Technology Inc., a Delaware corporation (which together with its successors and
assigns, is hereafter called "Developer").
RECITALS:
---------
A. The parties hereto acknowledge that this Agreement is intended to be
and constitutes a "Development Agreement" as authorized pursuant to Arizona
Revised Statutes, ss. 9-500.05, and that, in accordance therewith, a copy of
this Development Agreement shall be recorded with the Maricopa County Recorder
no later than ten (10) days after entering into this Agreement to give notice to
all persons of its existence and of the parties' intent that the burdens of this
Agreement are binding on, and the benefits of this Agreement shall inure to, the
City and Developer and their respective successors-in-interest and assigns.
B. Developer is the owner of approximately 80 acres of real property
depicted on Exhibit A-1 attached hereto and more particularly described on
Exhibit A-2 attached hereto (the "Property"), including and adjacent to
Developer's corporate headquarters facility at 2355 W. Chandler Boulevard.
C. In furtherance of the City's goal of continued development of the
Property as provided for in the General Plan, Developer intends to further
develop the Property as an electronics manufacturing facility by adding two
additional fabrication buildings, an administrative building, and ancillary
structures and equipment (collectively the "Facility").
D. City desires to obtain those public benefits which will accrue from
the further development of the Property in accordance with City's General Plan,
including, but not limited to creation of jobs, stimulation of economic
development in City, construction of infrastructure improvements within the
public right-of-way adjacent to the Property, and generation of additional tax
revenues to City.
<PAGE>
E. Pursuant to Arizona Revised Statutes ss. 9-500.11, City is
authorized and empowered to make economic development expenditures of the type
expressly provided for in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, it is understood and agreed by the parties hereto as follows:
1. RECITALS. The recitals set forth above are acknowledged by the
parties to be true and correct and are incorporated herein by this reference.
2. ON-SITE IMPROVEMENTS BY DEVELOPER.
2.1. The Facility. Developer shall construct and equip the
Facility in general conformity with the preliminary site plans previously
submitted to the City and in accordance with final site plans to be approved by
the City in general conformity with the approved preliminary site plans,
including buildings, parking lots, landscaping, signs, and all on-site utilities
including but not limited to the on-site roads built to present city standards
for private roads. Developer shall also construct at its expense water and sewer
mains within the Property boundaries which are necessary to serve the Property,
as approved by the City Engineer. The Facility will include construction of:
"Fab 3," an approximate 115,000 square foot manufacturing facility, containing
approximately 50,000 square feet of clean room, equipment for 8-inch wafer
manufacturing, and ancillary space for manufacturing support systems;
construction of a four story, approximately 200,000 square foot office building;
and, at the sole option of Developer, conversion of one existing building into a
wafer testing facility.
2.2. Fees and Taxes. Developer shall pay all required fees for
plan check, building permit, engineering review, recording, impact/system
development, and all local sales taxes applicable to construction of the on-site
improvements described in Section 2.1.
2.3. Presently Anticipated Timing of Construction. Developer
shall Commence Construction of: (a) the Fab 3 building on or before the later of
June 15, 1999, or the date Developer is granted foreign trade subzone status as
required in section 7 and (b) the office building on or before July 1, 1998, or,
in either case, such later date as business conditions may reasonably require.
Once construction has begun on any such facility, Developer shall use
reasonable, good faith efforts to complete such construction in a continuous
manner. For purposes of this Agreement, "Commence Construction" or "Commencement
of Construction" shall be the date of commencement of work on foundation for the
applicable improvements while securing all permits required under the City's
Construction Code from the City's Building Department, as evidenced by the
City's first inspection and approval for foundation work. Developer presently
intends for construction of Fab 3 to be completed by within twenty-five (25)
months of the date of the Commencement of Construction, but no commitment to
that effect is given.
2
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2.4. Presently Anticipated Cost and Employment. The Facility
will be constructed at a total cost of approximately $450 million and, at full
capacity, will employ approximately 1,000 workers at an expected average wage of
approximately $49,000 per year.
3. TRAFFIC STUDY. Developer has prepared and submitted to the City a
traffic impact analysis to determine improvements needed to maintain acceptable
levels of service through the year 2010 at level of service "D." City
acknowledges that the traffic study provided by Developer is acceptable to it
and will form the basis for the traffic improvements provided for herein,
subject to the current proposal for construction of only one Fab unit.
4. DEDICATION OF CERTAIN PROPERTY BY DEVELOPER. Developer shall at no
cost to the City cause the following described parcels to be dedicated and
conveyed to the City by assignment, special warranty deed, or other instrument
legally sufficient to convey and dedicate to the City all right, title and
interest of Developer in and to such parcels, free and clear of all liens,
encumbrances, covenants, conditions and restrictions:
4.1. Traffic Right of Way. Right-of-way no more extensive than
necessary to permit the construction of required street and off-site
improvements specified in the traffic impact analysis referred to in Section 3.
4.2. Well and Storage Facilities. If City chooses to drill
wells or locate a storage facility on the Property in order to satisfy its
obligations under Section 6.4, Developer shall dedicate up to five (5) acres of
the Property for water well and/or storage facilities. The exact size, and
location, of such dedication shall be as mutually agreed by City and Developer,
and shall be configured so as to minimize the land requirement to the extent
reasonably possible and to accommodate construction of the Facilities as
planned. Developer shall make the land described herein available to City within
sixty (60) days after the Developer provides City with the notice that it is
proceeding with Fab 3. Developer shall provide up to five (5) acres if City
needs the land for both the well and storage. If City needs the land for a well
only, one (1) acre shall be provided.
5. CITY APPROVAL PROCESSES.
5.1. Scope of Development. Developer's Facility plans set
forth a conceptual land use and density on the Property. Developer and City
shall work together using best efforts throughout the legally required planning
process to obtain expedited approvals.
5.2. Facility Approval. The approval by City of this Agreement
constitutes affirmative representation by City, on which Developer is entitled
to rely, that Developer, notwithstanding subsequent changes of the zoning or
land use controls applicable to the Property after the date of this Agreement,
or after the date of any amendments to this Agreement, or zoning on this
Property are approved, (1) shall be authorized to implement the uses, density
and intensity, set forth for the Facility, and (2) will be accorded through the
legally required planning process the approvals reasonably necessary to permit
Developer to proceed with and implement the proposed improvements, including any
amendments thereto, subject to City's customary
3
<PAGE>
standards for review and approval of site plans and architectural plans,
including expedited design review pursuant to Sections 5.3 through 5.7.
Developer and City shall work together using best efforts throughout the
planning stages to resolve any City comments regarding the proposed development,
provided, however, that if Developer believes at any stage that it has reached
an impasse regarding any issue with City's staff, such dispute shall be resolved
in accordance with the dispute resolution provisions of Section 5.8.
5.3. Diligence in Review and Process. In connection with the
proposed development and the issuance of building permits, construction
inspections, and the issuance of the Certificates of Occupancy, City agrees to
accelerate all approvals, inspections and permitting processes to the greatest
extent possible. City will not impose any unusual or extraordinary plan or
design review requirements. The fast-tracking and priority scheduling program
will take into account, among other things, the magnitude and scope of the
Facility, mixed use and phasing consideration, construction document review,
permitting, inspection, and City approval matters.
5.4. Appointment of Representative. In order to expedite
decisions by City, City agrees to designate a representative of City to act as a
liaison between City and Developer, and between City's various departments and
Developer. City's representative shall be available at all reasonable times to
serve as such liaison in order to ensure expedited review and approval of all
permits, plans, specifications, plats, and/or any other development submittals,
project drawing revisions, or approvals for the Property and the Facility, it
being the intention of this paragraph to provide Developer with one individual
utilized consistently as City's principal representative. Developer shall also
designate a Developer representative who shall serve as a liaison between the
Developer and City. The initial City representative shall be the Planning &
Development Director and the initial Developer representatives shall be Robert
J. Lloyd, or other persons designated by Developer.
5.5. Expedited Building Permit Process with on-site Inspector.
City will provide at its sole expense an expedited building permit process with
plan review, inspection, and approval conducted at the Property by an on-site
inspector empowered by City to make decisions without further review processes
to meet the need of Developer's expansion. The on-site review process shall be
provided for a maximum of twenty-five (25) months from commencement of
construction on Fab 3. If Developer wishes the building permit process to be
expedited further than it is expedited by one on-site inspector, Developer will
pay the cost of additional on-site personnel.
5.6. Certificates of Occupancy. City agrees that promptly upon
completion of each building of the Facility and at such time as a building is in
compliance with applicable City Codes and ordinances, City will provide
Developer (or the owner of such building) with a Certificate of Occupancy for
such building. Upon substantial compliance with applicable City codes and
ordinances, City will provide Developer with a temporary certificate of
occupancy for the limited purpose of testing equipment within the building. If
City fails or refuses to provide a Certificate of Occupancy for any portion of
the Facility when requested, City shall, within four (4) business days after
written request from Developer, provide Developer a written statement indicating
in adequate detail how they failed to satisfy the conditions for issuance of the
4
<PAGE>
Certificate of Occupancy and what measures or acts City requires before City
will issue the Certificate of Occupancy. City shall not withhold approval
without good and substantial reason.
5.7. Subdivision Requirements. The parties acknowledge and
agree that in connection with the development of the Property, developer will
need to combine some of the parcels which currently comprise the Property. City
and Developer agree to mutually cooperate with each other to effectuate this
combining of parcels which will most likely result in a two lot subdivision.
City agrees that it will expedite any and all such approvals and further agrees
that it will approve any subdivision request reasonably required in conjunction
with the development of the Property, subject only to the Property as
subdivided, complying with applicable zoning, health and safety ordinances.
5.8. Resolution of Disputes. City and Developer agree
Developer must be able to proceed rapidly with the proposed development.
Accordingly, an expedited City review process is essential. Accordingly, the
parties agree that if at any time Developer believes that an impasse has been
reached with City or an unreasonable delay affecting the proposed development or
issuance of a certificate of occupancy, Developer shall have the right to
immediately appeal to the City representative for an expedited decision pursuant
to this paragraph. If the issue on which an impasse or delay has been reached is
an issue on which a final decision can be reached by City staff, the City
representative shall give Developer a final decision within two (2) business
days after the request for an expedited decision is made. If the issue on which
an impasse or delay has been reached is one where a decision requires City
Council action, the City representative shall be responsible for scheduling a
City Council hearing on the issue which hearing shall be held within two (2)
weeks after the request for an expedited decision is made by Developer. If an
impasse or delay still exists thirty (30) calendar days after Developer's
request for an expedited decision, Developer shall proceed under Article 15 and
may immediately cease all activities in connection with construction of the
Facility. Developer acknowledges City may not be able to comply with this
schedule requiring City Council hearings during the months of December and
August. City will, however, use its best efforts in complying as completely as
possible during these months.
6. CITY PROVISION OF TRANSPORTATION AND TRAFFIC IMPROVEMENTS; WATER,
AND SEWER.
6.1. Transportation Improvements. Upon Developer's giving of
the notice specified in Section 6.6, City shall design and construct four (4)
enumerated street improvement projects identified on Exhibit "B" hereto.
Developer shall be responsible for no more than $238,275 (based on present
estimates) of the cost of constructing these transportation improvements. The
City shall be responsible for all costs of the transportation improvements
beyond $238,275 (based on present estimates). The foregoing figures shall be
adjusted proportionately based on the final construction costs using a ratio of
$238,275 (Developer) to $696,000 total. Such construction shall include at a
minimum the following items: subgrade preparation and pregrading; paving; curb
and gutter on all permanent edges of the streets; driveways; bus bay(s); parkway
grading; adjustment of manholes; adjustment of water valves;
5
<PAGE>
survey monuments; catch basins; storm sewer laterals; street lights, street
light trenching; and landscaping and irrigation systems.
Concurrently with, or as soon as possible following
Developer's notice under Section 6.6, City shall provide Developer with a
projected time line for solicitation of bids for such improvements, awarding of
contracts and commencement of construction, provided that subject to the City
having received notice 25 months prior to the estimated completion date, such
time line shall in no event extend the estimated completion dates set forth in
Section 2.3, inasmuch as such improvements are necessary for the timely
completion and commencement of operation of Fab 3 and its related improvements
and Developer will be materially adversely affected by any delay in completion
of such improvements. City shall periodically, and in no event less frequently
than every 60 days, provide Developer with a progress report in respect of such
improvements as well as current information concerning the expected costs of
constructing the same.
City shall use its best efforts to obtain Economic
Strength Fund grants from the State of Arizona in the approximate amount of
$696,000 to cover the cost of off-site improvements described in this Article,
and Developer shall cooperate with City is seeking those grants. Developer shall
provide $25,113 toward the match funds required for the Economic Strength Funds
and City shall provide all the balance of required match funds. If such grants
are not received, the City shall still be obligated to construct, subject to
Developer contribution pursuant to paragraph 6.1, the improvements referred to
in this Article 6. If such grants are received, they shall all be used by the
City to construct the transportation improvements described in section 6.1, and
the traffic improvements described in section 6.2. The first $238,279 received
shall be credit against, and shall be deemed to satisfy, Developer's obligation
to bear a portion of the cost of the transportation improvements described in
this section.
6.2. Construction Water Supply. The City shall provide access
to an existing fire hydrant adjacent to the Property along Chandler Boulevard,
Ellis Street or Frye Road on or before the date Developer commences grading and
devegetation activities at the Property, for Fab 3. Developer shall establish a
construction water account with the City Development Services Department,
install the requisite fire hydrant meter, and pay all charges for water used
during construction in accordance with City Code.
6.3. Operations Water Supply. City shall provide Developer
with a one (1) million gallon per day additional groundwater supply of
Acceptable Quality (the "Additional Water Supply") through one well to which the
Facility shall have priority use to the full extent of the Additional Water
Supply, and, when the Additional Water Supply well is temporarily down or
otherwise inoperable, through additional well(s) (the "Backup Water Supply").
Ground water shall be of Acceptable Quality only if the following standards are
met: (1) total organic carbon ("TOC") content shall be less than or equal to
three (3) parts per million; and (2) the ground water shall meet the City's
presently existing primary drinking water standard.
6.4. Additional Water Supply. The Additional Water Supply
shall be made available to Developer prior to its completion of Fab 3. The City
will buy wells from a third
6
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party or drill on the Property any new wells required to fulfill the City's
obligation under this Section 6.4. If the City chooses to purchase an existing
well from a third party, the City shall construct at its sole expense all lines,
pumps, and other facilities required to deliver the Additional Water Supply to
the Property lines, including but not limited to any water mains or other lines
in the public right of way of groundwater of acceptable quality. In all events,
City shall reserve in its water supply system at all times after commencement of
construction of Fab 3, the amount of capacity required to deliver the Additional
Water Supply described in this Section 6. The Additional Water Supply shall be
at the City's sole expense except: (a) the buy-in fees provided in Section 6.7;
and (b) the payments for water actually delivered as hereinafter provided.
Developer will be responsible for on-site water main construction. Developer
will pay for water delivered by the City to the Property at rates not less
favorable than the rates then being charged by the City to any other industrial
user. No take or pay agreement will be required from Developer. In all events,
City shall reserve in its water supply one and one-half (1-1/2) million gallons
per day of groundwater either through the Additional Water Supply or the Backup
Water Supply hereinafter described.
6.4.1. Backup Water Supply. The City shall make the
Backup Water Supply through ground water of Acceptable Quality available to
Developer prior to its completion of Fab 3. The City's provision of the Backup
Water Supply shall be on the following additional terms and conditions. The City
shall use its best efforts to locate, drill, and equip, an additional backup
dedicated well on the Property, and shall consult fully with Developer on a
regular basis and fully inform Developer on the feasibility of drilling the
Backup well on the Property and any and all other options that are available for
location of the Backup well. Developer shall have the highest priority to use of
the groundwater from said well to the extent necessary for the Backup Water
Supply. If the well is so located on the Property by the City, the Backup Water
Supply shall be at the City's sole expense except: (a) the buy-in fees provided
in section 6.7; and (b) the payments for water actually delivered as hereinafter
provided; and (c) Developer's connection costs.
6.4.2. Off-Property Backup Water Supply. If,
notwithstanding its best efforts under Section 6.4.1, the City is unable to
locate the Backup Water Supply on the Property, then the City shall purchase an
existing well located off the Property from a third party or drill a new well
located off the Property. The City shall consult fully with Developer on a
regular basis and fully inform Developer of all options that are possible for
location of the Backup well off-Property. The City shall use its best efforts to
locate the off-property Backup well so that the actual cost of construction of
transmission lines and delivery facilities to the Property does not exceed
$1,000,000. If, after consultation, City and Developer mutually agree that the
Backup well cannot be located so that the total cost of the transmission lines
and delivery system to the Property does not exceed $1,000,000, then Developer
shall notify the City either: (1) that the Developer will agree to increase the
reimbursement amount provided below to the full amount of the cost of
transmission lines and delivery facilities; or (2) that the Developer will waive
the requirement for a Backup well and will accept for the Backup Water Supply
only, water from the City's public water system which meets the City's present
primary drinking water standard. City agrees to proceed on the basis of
whichever of the two elections Developer makes. Developer shall have the highest
priority to use of the groundwater from said well to
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the extent necessary for the Backup Water Supply. In the case of any such well
located off the Property, the City shall construct at its sole expense all
lines, pumps, and other facilities required to deliver the Backup Water Supply
to the Property line, including but not limited to any water mains or other
lines in the public right of way. If it is necessary for the City to proceed
under this Section 6.4.2, then Developer and City shall work together to arrive
at a mutually agreeable arrangement under which Developer shall reimburse the
City for the actual cost of construction of such transmission lines and delivery
facilities, but not to exceed $1,000,000 (unless pursuant to an election by
Developer as set forth above), either in a lump sum cash reimbursement or a
surcharge on the Developer's price for delivered water over a period of time, as
the parties may determine by mutual agreement.
6.4.3. On-Site Construction. Developer will be
responsible for all on-site water main construction.
6.4.4. Payment. Developer will pay for water delivered
by the City to the Property at rates not less favorable than the rates then
being charged by the City to any other industrial user, except as may otherwise
be agreed pursuant to the last sentence of Section 6.4.2. No take or pay
agreement will be required from Developer.
6.4.5. Total Water Supply 1.5 Million Gallons Per Day.
City acknowledges that Developer plans to continue the operation of its current
original facility for five or more years and that the water requirements set
forth in this paragraph 6 reference an additional water commitment for the
Facility. Therefore, while Developer operates both the existing facility and the
Facility, it will require a total combined water commitment of 1.5 million
gallons per day. City agrees to provide Developer with a total water capacity of
1.5 million gallons per day from groundwater of Acceptable Quality at such time
and while both the current facility and the Facility are operating.
6.5. Sewer. City shall provide Developer with an 800,000
gallons per day additional sewer capacity for Fab 3. City shall reserve in its
sewer disposal system at all times after completion of construction of Fab 3 the
amount of capacity required to deliver the additional sewer capacity described
in the first sentence of this Section 6.5. Trunk line facilities are currently
in place and appear to be adequate, but City shall be obligated to augment such
facilities if they prove to be inadequate, by constructing at its sole expense
all mains, lines, and other facilities necessary to accept or accommodate the
additional 800,000 gallons per day sewer flow or effluent from Fab 3 and related
improvements. No up-front or other additional fees or costs shall be imposed on
Developer with respect to the additional sewer capacity provided for herein
except the buy-in fees set forth in section 6.7. Developer will be responsible
for on-site sewer main construction and connection to the city line. The City
shall be responsible for all costs necessary to bring the sewer line adjacent to
the portion of the Property where the first construction will take place.
Developer shall be responsible for connection to the sewer line in Ellis Street
and for all on-site construction costs. The additional sewer capacity shall be
at the City's sole expense except the payments for normal sewer usage fees as
hereinafter provided. Developer will pay for ongoing sewage service to the
Property at rates not less favorable than
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the rates then being charged by the City to any other industrial user. No take
or pay agreement will be required from Developer.
6.6. Construction Timing. Developer shall give City written
notice at least thirty (30) days before commencement of construction of Fab 3 of
Developer's intention to commence construction and of the Developer's best
estimate of when such construction will be completed. City shall cause all
improvements described in this Article 6 required for Phase One of the Facility
to be constructed at least two months prior to the projected completion of
construction of Fab 3. City shall not commence construction of any of the
improvements described in this Article 6 necessary for Fab 3 until after
Developer has given the notice specified in this section 6.6. Concurrently with,
or as soon as possible following Developer's notice under this Section 6.6, City
shall provide Developer with a projected time line for solicitation of bids for
all improvements required under Sections 6.1, 6.3, 6.4, and 6.5, awarding of
contracts therefor, and commencement of construction, provided that subject to
the City having received notice 25 months prior to the estimated completion
date, such time line shall in no event extend the estimated completion dates set
forth in Section 2.3, inasmuch as such improvements are necessary for the timely
completion and commencement of operation of Fab 3 and its related improvements
and Developer will be materially adversely affected by any delay in completion
of such improvements. City shall periodically, and in no event less frequently
than every 60 days, provide Developer with a progress report in respect of such
improvements as well as current information concerning the expected costs of
constructing the same.
6.7. Buy-in and Development Fees. Developer agrees to pay
water and sewer buy-in fees and development fees for the Facility. Based upon
the preliminary plans submitted to the City, and projected number and size of
meters shown on Exhibit C, it is estimated that these Fab 3 charges will total
$255,146. When the final plans for this project are submitted to the City, these
fees might be adjusted; but they shall not materially exceed the estimate set
forth above unless the project area increases or the number or size of requested
meters change. Developer acknowledges that there is the potential for yearly
increases in fees for all users of an applicable size meter and any such
increase for all users shall not be considered a material increase.
7. FOREIGN TRADE ZONE TAXATION
7.1. Foreign-Trade Subzone Application. The City shall use its
best efforts to cause City of Phoenix to sponsor an application to the
Foreign-Trade Zones Board of the U.S. Commerce Department ("Board") for issuance
of a grant of authority for a special purpose foreign-trade subzone ("Subzone")
to be operated by Developer within the Property pursuant to the following
procedure:
7.1.1. Application. Developer shall prepare a Subzone
application ("Application") at its sole cost and expense.
7.1.2. Subzone Operations Agreement. Prior to
requesting activation of the Subzone, the City of Phoenix and Developer shall
execute a Foreign-Trade Subzone
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Operations Agreement (the "Operations Agreement") permitting Developer to
utilize the Subzone as a foreign-trade subzone, subject to the terms and
conditions of the Operations Agreement, for an initial period equal to the
maximum period allowed by law, thereafter to be automatically extended from year
to year unless terminated by the terms thereof. The Operations Agreement shall
acknowledge the provisions of Section 7.1.3. The Operations Agreement shall
require Developer to remain in compliance with the property tax classification
limitations set forth in Section 7.3. It is specifically understood that in the
event Federal Trade Subzone status is not achieved as provided in Sections 9 and
12.5, Developer shall have an absolute right to unilaterally cancel this
Agreement and in such event there shall be no further obligation or liability to
City under this Agreement other than payment of City's costs as provided in
Section 13.1.
7.1.3. City Standing. Developer acknowledges that
breach of its property tax class limitations set forth in this Article 7 would
be detrimental to the public interest and that Chandler would be a party
"directly affected" (as that term is used in 15 CFR Part 400). Developer will
not object to the City's standing before the Foreign Trade Zones Board or any
other administrative body or court, in the event the City seeks to show that
Developer's use of the subzone is not in the public interest and, as a
consequence thereof, seeks to terminate the grant of the subzone, or otherwise
limit or terminate Developer's use of the subzone.
7.1.4. City Concurrence. The City will execute a letter
of concurrence prior to activation of the Subzone by the U.S. Customs Service
upon receipt of a written request therefor from Developer (which request may
occur before commencement of construction or before completion of construction
of the Facility), and shall use all reasonable efforts to assist in achieving
the Foreign Trade Subzone status and the Operations Agreement with the City of
Phoenix, provided that no Developer Performance Default shall have occurred and
be continuing.
7.2. Tax Classifications. Arizona Revised Statutes ss.
42-162(A)(8)(b) provides that all real and personal property within the
boundaries of a Foreign Trade Zone or subzone shall be classified as Class 8
property for taxation ("Class 8"); provided, however, such classification
applies only to the area that is activated for Foreign Trade Zone use by the
Port Director of the U.S. Customs Service, pursuant to 19 C.F.R. 146.6, A.R.S.
ss. 42-162.01, and the procedures of the Maricopa County Assessor (the
"Assessor") require that the owner notify the Assessor that a reclassification
of property to Class 8 should be made.
7.3. Developer Limitation. Notwithstanding that the entire
Property and Facility shall receive Foreign Trade Zone status, Developer agrees
that only the following portions of the Property and Facility shall receive
Class 8 property tax classification: (a) The Fab 3 Building, all land underlying
that building and the parking and landscaped areas associated with that
building, and all personal property used in connection with that building; and
(b) the presently existing building if and when it is converted into a wafer
testing facility, all land underlying it and the parking and landscaped areas
associated with it, and all personal property used in connection with it.
Exhibit D hereto designates the approximate locations of the Class 8 land and
buildings within the Property.
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7.4. Minimum Property Tax Amounts.
7.4.1. From and after Year 1. Developer has projected
that the value of all real and personal property comprising the Property and the
Facility will be far in excess of normal industrial property. Therefore,
Developer agrees that if in the following years, the total City property taxes
on all real and personal property comprising the Property and the Facility is
less than the minimum amount indicated, Developer will pay the shortfall amount
to the City.
Year Minimum City Property Tax Amount
---- --------------------------------
Year 1: No guaranteed minimum.
Years 2-6: $225,000
Years 7-8: $200,000
Years 9-11: $150,000
For purposes of this Section 7.4, "Year 1" shall mean the first full calendar
year that Fab 3 is fabricating products. In any year in which there is a fifteen
percent (15%) reduction to Developer's segment of the electronics manufacturing
market, Developer may provide reasonable evidence of such to the City Council
and Developer shall be relieved of the requirements of this section 7.4.
7.4.2. Prior to Year 1. Because activation of the
Foreign Trade Subzone may occur prior to commencement or completion of
construction of the Facility, Developer agrees that if, solely as a result of
activation of the Foreign Trade Subzone, the City property taxes due for any tax
year prior to Year 1 on all real and personal property comprising the Property
and the Facility are less than what the City property taxes on all real and
personal property comprising the Property and the Facility would have been but
for early activation of the Foreign Trade Subzone, Developer shall pay to City
the shortfall amount.
7.5. Foreign Trade Zone Costs. Developer shall pay all costs
charged by the City of Phoenix for the formation and oversight of the special
purpose foreign trade subzone of the Phoenix Foreign-Trade Zone No. 75 discussed
later in the Agreement. Developer's written approval shall be required for City
to enter into an agreement with City of Phoenix regarding any such costs.
8. STATE FUNDING. Developer and City may be eligible for state funding
for various aspects of the Facility and its operations. Developer and City shall
use their best efforts to cooperate in identifying all possible sources of state
funding, including but not limited to training grants and economic strength
grants, and in applying for and obtaining the benefit of such state funding for
the Facility and its operations.
9. CONDITIONS TO DEVELOPER'S OBLIGATIONS. Developer's obligations under
this Agreement are subject to satisfaction of all of the following conditions
precedent:
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9.1. Zoning. The City represents and warrants that the
Property has been properly classified for I-1 zoning pursuant to the City of
Chandler zoning ordinance. City agrees that no other action is necessary in
order to place the I-1 zoning on the Property. City further agrees that it will
take no action to remove or change the I-1 zoning within five (5) years and that
any action to remove or change the zoning after that period will only be done
for valid, reasonable land use reasons. City further agrees that upon Developer
starting construction of Fab 3, the I-1 zoning on the Property shall be vested.
9.2. Foreign Trade Zone Status. The United States Department
of Commerce shall, no later than December 31, 1999, have issued a grant of
authority for a special purpose foreign-trade subzone ("Subzone") to be operated
by Developer within the Property pursuant to procedure set forth in Section 7.1.
9.3. Approval of Plans and Specifications. The City shall have
given Developer all necessary permits and approvals for the construction of the
Facility.
9.4. Property Tax Classification. Developer shall have
received an unqualified written acknowledgment from the Maricopa County
Assessor's office that all those portions of the Property, the Facility, and all
personal property used on the Property specified in Section 7.3 have been and
will continue to be classified as Class 8 property.
10. CONDITIONS TO CITY'S OBLIGATIONS. City's obligations under this
Agreement are subject to the conditions precedent that the United States
Department of Commerce shall, in a timely fashion, have issued a grant of
authority for a special purpose foreign-trade subzone ("Subzone") to be operated
by Developer within the Site pursuant to procedure set forth in Section 7.1.
11. REPRESENTATIONS
11.1. Developer Representations. Developer represents and
warrants that (a) it is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, (b) its execution,
delivery and performance of this Agreement is duly authorized, (c) that
Developer shall execute all documents and take all action necessary to implement
and enforce this Development Agreement, (d) that the representations made by
Developer in this Development Agreement are truthful to the best of its
knowledge and belief, and (e) Developer shall vigorously defend any action
brought to contest the validity of this Development Agreement and shall not seek
from the City any payments, contributions, costs or attorneys' fees incurred in
such defense.
11.2. City Representations. City represents and warrants (a)
that its execution, delivery and performance of this Development Agreement has
been duly authorized and entered into in compliance with all the ordinances and
codes of City, (b) that subject to a court's equitable powers, this Development
Agreement is enforceable in accordance with its terms, (c) that City shall
execute all documents and take all action necessary to implement and enforce
this Development Agreement, (d) that the representations made by City to
Developer in this
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Development Agreement are truthful to the best of its knowledge and belief, and
(e) that City shall vigorously defend any action brought to contest the validity
of this Development Agreement and shall not seek from Developer, any
contributions, payments, costs, or attorneys fees incurred in such defense.
12. CANCELLATION OF THE FACILITY.
12.1. For Business Reasons. Developer reserves the right in
its sole discretion to cancel, delay, or abandon construction of all or any part
of the Facility for business reasons as determined by Developer. In the event
Developer exercises its rights under this Section 12.1 to delay construction of
all or part of the Facility, Developer agrees to reimburse City for City Costs
as provided in Article 13.
12.2. Due to Impasse or Delay in Approval Process. Developer
reserves the right in its sole discretion to cancel, delay, or abandon
construction of all or any part of the Facility if an impasse or unacceptable
delay is reached on any matter relating to a City approval under Section 5.8
hereof. In the event Developer exercises its rights under this Section 12.2,
Developer shall reimburse City for City Costs as provided in Article 13.
12.3. Failure to Approve Final Site Development Plans.
Developer reserves the right to cancel, delay, or abandon construction of all or
any part of the Facility if City fails to provide reasonable approval of final
plans and specifications by the dates necessary to permit commencement of
construction at the times specified in Section 2.3, or any action by City which
would otherwise preclude Developer from realizing the land use or intensities
specified for the Facility; provided, however, that nothing herein shall
preclude City from the reasonable exercise of its normal review and approval
processes as agreed to be modified herein; and provided further that City shall
not act in an arbitrary or capricious manner. In the event Developer exercises
its rights under this Section 12.3, Developer shall have no further liability to
City under this Agreement, including but not limited to any obligation to
reimburse City Costs as provided in Article 13.
12.4. For City's Performance Default. Developer reserves the
right to cancel, delay, or abandon construction of all or any part of the
Facility if a City Performance Default (as hereinafter defined) occurs. In the
event Developer exercises its rights under this Section 12.4, Developer shall
have no further liability to City under this Agreement, including but not
limited to any obligation to reimburse City Costs as provided in Article 13.
12.5. For Loss of Class 8 Property Classification. Developer
reserves the right to cancel, delay, or abandon construction of all or any part
of the facility at any time if any court decision determines Class 8 to be
unconstitutional or invalid in any respect, if a legal challenge to Class 8 is
filed and not resolved to Developer's satisfaction, or if any legislative action
repeals or adversely modifies the Class 8 assessment ratio. In the event
Developer exercises its rights under this Section 12.5, Developer shall have no
further liability to City under this Agreement, except its liability for City
Costs under Section 13.1.
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13. DEVELOPER PAYMENT OF CITY'S COSTS IN CERTAIN EVENTS.
13.1. City Costs. Developer acknowledges that the City will
incur certain costs in discharging its obligations under this Agreement. City
shall provide Developer with a quarterly report of costs City expects to incur
in the next calendar quarter. City agrees to negotiate with Developer in good
faith over the timing and amounts of costs proposed to be incurred by the City
during the next quarter, in light of then existing business conditions. In the
event these negotiations result in actual delays in the City performing its
obligations in this Agreement, City shall be given an additional amount of time
equal to the delay to perform its obligations herein. Developer agrees to refund
the City Costs in the event Developer cancels this Agreement for reasons other
than set forth in Section 12.2, 12.3 or 12.4. The amounts required to be
reimbursed ("City Costs") shall be determined in accordance with the following
rules:
13.1.1. City Costs shall include the actual,
out-of-pocket costs to the City in planning, designing, and constructing the
infrastructure for the Developer's expansion described in this Agreement and
shall include all reasonable out-of-pocket costs of planning and design
professionals, and all reasonable costs of labor and materials actually used in
constructing the infrastructure required under this Agreement.
13.1.2. City Costs shall not include: (a) any costs for
work done or services performed by City employees which were not specifically
hired by the City for work limited to this Facility; or (b) the value of any
time spent by full-time City employees or the cost of their salaries, wages, or
benefits.
13.2. Accounting. On a periodic basis, but no less than once
every month, City shall provide Developer with a written itemization of all
costs incurred from the inception of the Facility to date. In addition, at any
time Developer may request from City a written itemization of such costs, City
shall provide such itemization within six working days. In the event Developer
disagrees with any cost entry or entries on any itemization, it may provide
written objection to City within ten days of receipt, at which time City shall
review and respond to the objection within ten working days. If Developer still
disagrees with the cost entry being charged to it, the party shall first attempt
to resolve the dispute through negotiations up to the level of City Manager and
the Developer's Project Manager as provided in Section 5.8.
13.3. Mitigation. Notwithstanding any obligation of Developer
to reimburse City Costs, any amount owed by Developer for City Costs shall be
reduced or mitigated to the extent City can use such construction either at the
time Developer notifies City of cancellation, delay, or abandonment of all or
any part of the Facility or within seven (7) years after such notice. If City
cannot use such construction within one year, then Developer shall pay City
annually, within sixty (60) days of Developer's receipt of an invoice with
supporting documentation and calculations, an amount equal to the City's average
cost of borrowed funds until such time as City can use such construction, up to
a maximum of seven (7) years. In the event that neither party can use any of the
constructed items, the parties shall use good faith efforts to arrive at an
equitable resolution of the issue.
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14. DEFAULTS AND REMEDIES.
14.1. Events Constituting Developer Default. Developer shall
be deemed to be in default under this Agreement (a "Developer Performance
Default") if (a) Developer commits a material breach of any obligation required
to be performed by Developer herein, and (b) such breach continues for a period
of one hundred twenty (120) days after written notice thereof by City, Developer
fails to commence the cure of such breach and, thereafter, to diligently pursue
the same to completion.
14.2. Remedies to City. In the event of a Developer
Performance Default, which default is not cured within any applicable cure
period, City shall have the right to seek and obtain all legal and equitable
remedies otherwise available to it.
14.3. Events of Default by City. City shall be deemed to be in
default under this Agreement (a "City Performance Default") if (a) City commits
a material breach of any obligation required to be performed by City herein,
including, without limitation, (i) the failure to issue a Certificate of
Occupancy where Developer has complied with its obligations for issuance of such
Certificate; or (ii) the failure to provide other approvals as required herein,
and such breach continues for a period of thirty (30) days after written notice
by Developer.
14.4. Remedies of Developer. In the event City is in default
herein, Developer shall have all legal and equitable remedies available to it.
15. FORCE MAJEURE. In addition to specific provisions of this
Agreement, performance by Developer hereunder shall not be deemed to be a
default where delays or inability to perform are due to war, insurrection,
strikes, lockouts, riots, floods, earthquake, fires, casualties, acts of God,
acts of the public enemy, epidemics, quarantine restriction, freight embargoes,
lack of transportation, governmental restrictions or priority, litigation,
unusually severe weather, inability (when the party which is unable to perform
is substantially without fault) of any contractor, subcontractor or supplier to
perform acts of the other party, or acts or the failure to act, of any utility,
public or governmental agent or entity, litigation relating to the Facility
initiated by a party other than Developer beyond the control or without the
fault of Developer. In the event that Developer is unable to perform due to an
event constituting force majeure as provided for above, and such excused delay
is the proximate cause of City being unable to perform in accordance with the
terms of this Agreement, then the time for performance of City shall be extended
for a period of time equal to the period of the delay. An extension of time for
any such cause shall only be for the period of the enforced delay, which period
shall commence to run from the time City is notified by Developer in writing of
the commencement of the cause. If such force majeure adversely impacts the
economic viability of the Facility (in Developer's sole discretion), Developer
shall have the right, if applicable, to stop or delay construction. In such
event, Developer shall reimburse City for City Costs as provided in Article 13.
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16. MISCELLANEOUS
16.1. Notices. Unless otherwise specifically provided herein,
all notices, demands or other communication is given hereunder shall be in
writing and shall be deemed to have been duly delivered upon personal delivery
or confirmed facsimile transmission, or as of the second business day after
mailing by United States mail, postage prepaid, by certified mail, returns
receipt requested, addressed as follows:
To Developer: Microchip Technology Inc.
Attn: Steve Sanghi
Robert J. Lloyd
Mary Simmons-Mothershed
2355 W. Chandler Blvd.
Chandler, Arizona 85226
Facsimile No. (602) 917-4163
Copy to:
Paul E. Gilbert, Esq.
BEUS, GILBERT & MORRILL, P.L.L.C.
3200 North Central Avenue
1000 Great American Tower
Phoenix, AZ 85012-2417
Facsimile No. (602) 234-5983
To City: City Manager
City of Chandler
25 S. Arizona Place, #301
Chandler, Arizona 85225
Facsimile No. (602) 786-2209
Copy to:
City Attorney
City of Chandler
25 S. Arizona Place, #304
Chandler, Arizona 85225
Facsimile No. (602) 786-2240
Notice of address may be changed by either party by giving written notice to the
other party as provided herein.
16.2. Amendments. This Agreement may be amended only by a
written agreement fully executed by the parties hereto.
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16.3. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Arizona. This Agreement shall be deemed
made and entered into in Maricopa County.
16.4. Waiver. No waiver by either party of a breach of any of
the terms, covenants or conditions of this Agreement shall be construed or held
to be a waiver of any succeeding or preceding breach of the same or any other
term, covenant or condition herein contained.
16.5. Severability. In the event that any phrase, clause,
sentence, paragraph, section, article or other portion of this Agreement shall
become illegal, null or void or against public policy, for any reason, or shall
be held by any court of competent jurisdiction to be illegal, null or void or
against public policy, the remaining portions of this Agreement shall not be
affected thereby and shall remain in force and effect to the fullest extent
permissible by law, provided that the fundamental purposes of this Development
Agreement are not defeated by such severability. For the Developer, the
fundamental purposes of this Development Agreement include, but are not limited
to, obtaining Class 8 property tax treatment as presently in effect, as provided
in Section 7.2 and all provisions of Articles 5, 6, and 7 hereof.
16.6. Exhibits. All exhibits attached hereto are incorporated
herein by reference as though fully set forth herein. The exhibits are as
follows:
Exhibit "A-1" Preliminary Site Plan of the Property
Exhibit "A-2" Legal Description of the Property
Exhibit "B" Street Improvement Projects
Exhibit "C" Projected Number and Size of Water Meters
Exhibit "D" Approximate Locations of Class 8 Land and Buildings
16.7. Entire Agreement. This Agreement and the exhibits hereto
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof and all prior and contemporaneous agreements,
representations, negotiations and understandings of the parties hereto, oral or
written, are hereby superseded and merged herein.
16.8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute one and the same instrument.
16.9. Consents and Approvals. City and Developer shall at all
times act reasonably and in good faith with respect to any and all matters which
require either party to review, consent or approve any act or matter hereunder.
16.10. Mutual Benefits. The City and Developer agree that in
making the promises contained in this Development Agreement that certain
benefits and advantages will accrue to both parties as a result of the
performance of this Agreement, and that therefore this Agreement is being
entered into in reliance upon the actual benefits afforded each of the parties.
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16.11. Conflict of Interest. No member, official or employee
of the City may have any direct or indirect interest in this Development
Agreement, nor participate in any decision relating to the Development Agreement
which is prohibited by law. All parties hereto acknowledged that this Agreement
is subject to cancellation pursuant to the provisions of Arizona Revised Statute
ss. 38-511.
16.12. Warranty Against Payment of Consideration for
Agreement. Developer warrants that it has not paid or given, and will not pay or
give, any third person any money or other consideration for obtaining this
Development Agreement, other than normal costs of conducting business and costs
of professional services such as architects, consultants, engineers and
attorneys.
16.13. Enforcement by Either Party. This Agreement shall be
enforceable by any party hereto notwithstanding any change hereafter in any
applicable General Plan, specific plan, zoning ordinance, subdivision ordinance
or building ordinance adopted by City which substantially changes, alters or
amends the applicability of said plans or ordinances to the development of the
Facility or the Property.
16.14. Cumulative Remedies. Except as otherwise expressly
stated in this Agreement, the rights and remedies of the parties are cumulative,
and the exercise by any party of one or more of such rights or remedies will not
preclude the exercise by it, at the same time or different times, of any other
rights or remedies for the same default or any other default by such defaulting
party. The provision of this Section 16.14 are not intended to modify Article 14
or any other provisions of this Agreement and are not intended to provide
additional remedies not otherwise permitted by law.
16.15. Attorneys' Fees. In any arbitration, quasi judicial or
administrative proceedings or any other action in any court of competent
jurisdiction, brought by either party to enforce any covenant or any of such
party's rights or remedies under this Agreement, including any action for
declaratory or equitable relief, the prevailing party shall be entitled to
reasonable attorneys' fees and all reasonable costs, expenses and disbursements
in connection with such action.
16.16. Successors. This Agreement shall be binding upon, and
shall inure to the benefit of the parties hereto and their successors and
assigns.
16.17. No Third Party Beneficiaries. This Agreement is made
and entered into for the sole protection and benefit of the parties. No person
other than the parties shall have any right of action based upon any provision
of this Agreement.
16.18. Recordation. Simultaneously with the execution of this
Development Agreement, Developer and City will record a copy of this Development
Agreement in the records of the Maricopa County Recorder. Any written amendment
hereto shall be similarly recorded within ten days after execution by the
parties.
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IN WITNESS WHEREOF, City has caused this Agreement to be duly executed
in its name and behalf by its Mayor and its seal to be hereunto duly affixed and
attested by its City Clerk, and Developer has signed and sealed the same, on or
as of the day and year first above written.
CITY OF CHANDLER, ARIZONA, an
Arizona municipal corporation
ATTEST:
By:/s/ Carolyn Dixon 7/2/97 /s/ Jay Tibshraeny
---------------------------- ---------------------------------
CITY CLERK MAYOR
[SEAL]
CITY OF CHANDLER
ARIZONA
CORPORATED
APPROVED AS TO FORM:
/s/ Dennis M. O'Neill
- ------------------------------
CHANDLER CITY ATTORNEY
MICROCHIP TECHNOLOGY INC., a
Delaware corporation
By: /s/ Steve Sanghi
------------------------------
Its: PRESIDENT, CEO and
-----------------------
Chairman of the Board
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STATE OF ARIZONA )
)
County of Maricopa )
The foregoing Development Agreement was acknowledged before me this 29
day of August, 1997, by Mayor Jay Tibshraeny, May of the City of Chandler,
Arizona, an Arizona municipal corporation, on behalf of the corporation.
My Commission Expires:
Sept. 30, 1998 /s/ Jacquelin A. Rensel
- --------------------- -----------------------------------
Notary Public
OFFICIAL SEAL
JACQUELIN A. RENSEL
Notary Republic - State of Arizona
MARICOPA COUNTY
My Commission Expires Sept. 30, 1998
STATE OF ARIZONA )
)
County of Maricopa )
The foregoing Development Agreement was acknowledged before me this 30
day of September, 1997, by Steve Sanghi, the President & CEO of Microchip
Technology Inc., a Delaware corporation, on behalf of the corporation.
My Commission Expires:
"OFFICIAL SEAL" /s/ Dianne Iverson
Dianne Iverson ----------------------------------
Notary Public - Arizona Notary Public
Maricopa County
My Commission Expires 4/25/98
20
<PAGE>
[PRELIMINARY SITE PLAN OF THE PROPERTY]
EXHIBIT A-1
<PAGE>
[LOGO] BRADY * AULERICH & ASSOCIATIONS, INC. Dennis H. Brady, P.L.S.
Civil Engineering * Land Surveying C.E. Aulerich, P.L.S.
Construction Staking Robert N. Hermon, P.E./P.L.S.
LEGAL DESCRIPTION: MICROCHIP PROPERTY - 2355 WEST CHANDLER BLVD.
CHANDLER, ARIZONA
The West half of the Northeast quarter of Section 31, Township 1 South, Range 5
East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona;
EXCEPT dedicated public road rights-of-way along the North, South, East and West
sides thereof, as specified in records of Maricopa County, Arizona.
Described property being in and forming a part of the City of Chandler, Maricopa
County, Arizona and comprising an area of 80 acres more or less (inclusive of
said rights-of-way).
/s/ Robert N. Hermon
REGISTERED LAND SURVEYOR
ARIZONA, U.S.A.
CERTIFICATE NO.
16836
ROBERT N. HERMON
Date signed 8/26/97
EXHIBIT A-2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MICROCHIP TECHNOLOGY, INC. - CHANDLER FACILITY
Mitigation of Site Development Impacts on Arterial Streets
- --------------------------------------------------------------------------------------------------------
Microchip Microchip
Location Description of Improvements Cost Proportion Share
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chandler Boulevard/Ellis Street Install traffic signal $100,000 0.38 $ 37,844
- --------------------------------------------------------------------------------------------------------
Construct right turn $ 42,000 0.58 $ 24,203
Chandler Boulevard/Ellis Street on eastbound approach
- --------------------------------------------------------------------------------------------------------
Provide dual left turn $388,000 0.20 $ 77,665
on eastbound and westbound
Chandler Boulevard/Dobson Road approaches
- --------------------------------------------------------------------------------------------------------
Construct right turn $166,000 0.59 $ 98,563
Dobson Road/Frye Road on southbound approach
- --------------------------------------------------------------------------------------------------------
Totals $696,000 $238.275
- --------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit B
<PAGE>
EXHIBIT "C"
PROJECTED NUMBER AND SIZE OF WATER METERS
Based on an additional 1,000,000 gallon per day requirement, the
following is needed:
1 -- 6" turbine meter
<PAGE>
[APPROXIMATE LOCATIONS OF CLASS 8 LAND AND BUILDINGS]
Exhibit D
After Recording Return to:
OFFICIAL RECORDS OF
Paul E. Gilbert, Esq. MARICOPA COUNTY RECORDER
BEUS, GILBERT & MORRILL, P.L.L.C. HELEN PURCELL
1000 Great American Tower
3200 North Central Avenue 97-0497273 07/24/97 10:21
Phoenix, AZ 85012
- --------------------------------------------------------------------------------
DEVELOPMENT AGREEMENT
C97-141
This Development Agreement ("Agreement") is made as of the 17th day of
July, 1997 by and between the City of Tempe, Arizona, an Arizona municipal
corporation (which together with any successor public body or officer hereafter
designated by or pursuant to law, is hereafter called "City"), and Microchip
Technology Inc., a Delaware corporation (which together with its successors and
assigns, is hereafter called "Developer").
RECITALS:
---------
A. The parties hereto acknowledge that this Agreement is intended to be
and constitutes a "Development Agreement" as authorized pursuant to Arizona
Revised Statutes, ss. 9-500.05, and that, in accordance therewith, a copy of
this Development Agreement shall be recorded with the Maricopa County Recorder
no later than ten (10) days after entering into this Agreement to give notice to
all persons of its existence and of the parties' intent that the burdens of this
Agreement are binding on, and the benefits of this Agreement shall inure to, the
City and Developer and their respective successors-in-interest and assigns.
B. Exhibits A-1 A-2 attached hereto are provided for geographic
reference. Exhibit A-1 is an area map which depicts northwest Tempe where the
property is situated. Exhibit A-2 is a local area map which depicts the Hohokam
Industrial Park in which the property is more specifically situated.
C. Developer is the owner of approximately 18.09 acres of real property
at 1200 South 52nd Street, Tempe, Arizona, which is depicted on Exhibit B-1
attached hereto and more particularly described on Exhibit B-2 attached hereto
referred to as the "Property".
D. In furtherance of the City's goal of continued development of the
Property as provided for in the General Plan, Developer intends to expand its
silicon wafer manufacturing facility on the Property.
E. City desires to obtain those public benefits which will accrue from
the further development of the Property in accordance with City's General Plan,
including, but not limited to creation of jobs, stimulation of economic
development in City, and generation of additional tax revenues to City.
<PAGE>
F. Pursuant to Arizona Revised Statutes ss. 9-500.11, City is
authorized and empowered to make economic development expenditures of the type
expressly provided for in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, it is understood and agreed by the parties hereto as follows:
1. RECITALS. The recitals set forth above are acknowledged by the
parties to be true and correct and are incorporated herein by this reference.
2. ON-SITE IMPROVEMENTS BY DEVELOPER.
2.1. The Improvements. Developer shall expand its Tempe Fab II
Facility in two phases by adding 35,000 square feet of clean room along with
equipment for wafer manufacturing and related support systems (the "Expansion").
2.2. Fees and Taxes. Developer shall pay all required fees for
plan check, building permit, engineering review, recording, impact/system
development, and all local sales taxes applicable to construction of the on-site
improvements described in Section 2.1.
2.3. Presently Anticipated Timing of Construction. Developer
commenced the Expansion in January 1997 anticipates completion of Phase One in
August 1997 and completion of Phase Two in February 1998.
2.4. Presently Anticipated Cost and Employment. The Expansion
will be constructed at a total cost of approximately $137 million and will
employ approximately 150 additional workers at an expected average wage of
approximately $50,000 per year.
3. CITY APPROVAL PROCESSES.
3.1. Scope of Development. Developer and City shall work
together using best efforts throughout the legally required planning process to
expeditiously obtain approvals for the Expansion.
3.2. Expansion Approval. The approval by City of this
Agreement constitutes affirmative representation by City, on which Developer is
entitled to rely, that Developer, notwithstanding subsequent changes of the
zoning or land use controls applicable to the Property after the date of this
Agreement, or after the date of any amendments to this Agreement, or zoning on
the Property are approved, (1) shall be authorized to implement the uses,
density and intensity, set forth for the Expansion and (2) will be accorded
through the legally required planning process the approvals reasonably necessary
to permit Developer to proceed with and implement the proposed improvements,
including any amendments thereto, subject to City's customary standards for
review and approval of site plans and architectural plans, including expedited
design review. Developer and City shall work together using best efforts
throughout the planning and permitting stages to resolve any City comments
regarding the proposed
<PAGE>
development, provided, however, that if Developer believes at any stage that it
has reached an impasse regarding any issue with City's staff, such dispute shall
be resolved in accordance with the dispute resolution provisions of Section 3.8.
3.3. Diligence in Review and Process. In connection with the
proposed development and the issuance of building permits, construction
inspections, and the issuance of the Certificates of Occupancy, City agrees to
the following processing times: processing times for building plan review shall
be in accordance with standards for commercial additions/alterations (fifteen
(15) working days turnaround time for initial review, five (5) working days
turnaround time for resubmittals). Turnaround time for design review is two (2)
weeks provided complete application materials are supplied two (2) weeks or more
prior to a regularly scheduled Design Review Board meeting.
3.4. Appointment of Representative. In order to expedite
decisions by City, City agrees to designate a single plan check engineer to
review all building plans. This will assure consistency of review and efficiency
through knowledge of prior submittals. The initial plan check engineer shall be
Tom Tahmassian. (Note that the plan check engineer for mechanical electrical,
and plumbing permit may be different.) The Developer shall advise the City's
representative at the building counter when submitting application that this
agreement is in effect and that plans should be given to the designated plan
check engineer.
3.5. Expeditious Permit Process. City will use its best
efforts to expeditiously review permits, plan reviews, inspections.
3.6 Certificates of Occupancy. City agrees that promptly upon
completion of Expansion and at such time as a building is in substantial
compliance with applicable City Code and ordinance, City will provide Developer
(or the owner of such building) with a Certificate of Occupancy for the
Expansion. If City fails or refuses to provide a Certificate of Occupancy for
any portion of the Expansion when requested, City shall, within four (4)
business days after written request from Developer, provide Developer a written
statement indicating in adequate detail how they failed to satisfy the
conditions for issuance of the Certificate of Occupancy and what measures or
acts City requires before City will issue the Certificate of Occupancy. City
shall not withhold approval without good and substantial reason.
3.7 Subdivision Requirements. The parties acknowledge and
agree that in connection with the development of the Property in phases or
otherwise, as long as the Property remains in the ownership of Developer,
Developer will not need to further subdivide the Property, and that no further
subdivision approvals are required by City. In the event, however, that
Developer does transfer title of a portion of the Property to new entity, City
agrees that it will promptly process any and all approvals of all requests for
subdivision approval in conjunction with the Property, and further agrees that
it will approve any subdivision request reasonably required in connection with
the development of the Property, subject to the Property as subdivided complying
with applicable zoning and health and safety ordinances.
<PAGE>
3.8 Resolution of Disputes. City and Developer agree that
Developer must be able to proceed rapidly with the proposed development.
Accordingly, the parties agree that if at any time Developer believes that an
impasse has been reached with City staff on any issue affecting the proposed
development or issuance of a certificate of occupancy, Developer shall have the
right to immediately appeal to the Deputy City Manager for Development for a
decision pursuant to this Section 3.8. If the issue on which an impasse has been
reached where a final decision can be reached by City staff, the Deputy City
Manager for Development shall give Developer a final decision no later than
eight (8) business days after the request for such decision is made. If issue on
which an impasse has been reached is one where a final decision requires City
Council action, the Deputy City Manager for Development shall be responsible for
scheduling a City Council hearing on the issue no later than three (3) weeks
after the request. Both parties agree to continue to use reasonable good faith
efforts to resolve any impasse pending any such appeal. The Developer
acknowledges that City may not be able to comply with this schedule requiring
City Council hearings during the months of December and August. City will,
however, use its best efforts in complying as completely as possible during
these months.
4. CITY PROVISION OF INCREASED SEWER CAPACITY.
4.1. Sewer Capacity. Developer has represented that it will
increase its discharge to the City's sanitary sewer system by 380,000 gallons
per day (average) for the proposed Expansion. The Public Works Director,
pursuant to the authority granted to her by Tempe City Code Section 27-213(E)
has determined that the Developer is a Significant Industrial User (hereinafter
"SIU") that is significantly increasing its discharge to the City's sanitary
sewer system. The Director has determined that the amount of $1,536,000 is
necessary to be assessed as an additional sewer development fee to reimburse the
City for the cost associated with providing the sewer collection system capacity
and waste water treatment plant capacity calculated or estimated for the SIU
considering average daily and peak capacity needs and abilities. The City has
represented to the Developer that it has the ability to accommodate the proposed
discharge to the City's sanitary sewer system. No connection to the City
sanitary sewer system necessary to accommodate the additional 380,000 gallons
per day (average) will be permitted or allowed until the additional sewer
development fee of $1,536,000 is paid. This fee shall be due and payable upon
issuance of the Certificate of Occupancy for Phase II but in no event latter
than April 1, 1998.
4.2. Up-Front Fees. Developer shall pay to City the
nonrefundable sum of One Million Five Hundred Thirty Six Thousand and no/100
Dollars ($1,536,000) (the "Up Front Fee") for the additional sewer capacity set
forth in Section 4.1.
5. FOREIGN TRADE ZONE TAXATION.
5.1. Foreign Trade Subzone Application. The City shall use its
best efforts to cause City of Phoenix to sponsor an application to the Foreign
Trade Zones Board of the U.S. Commerce Department ("Board") for issuance of a
grant of authority for a special purpose foreign-trade subzone ("Subzone") to be
operated by Developer covering the structures comprising the Tempe Fab II
Facility (Exhibit C) pursuant to the following procedure:
<PAGE>
5.1.1. Application. Developer shall prepare a Subzone
application ("Application") at its sole cost and expense.
5.1.2. Subzone Operations Agreement. Prior to
requesting activation of the Subzone, the City of Phoenix and
Developer shall execute a Foreign Trade Subzone Operations
Agreement (the "Operations Agreement") permitting Developer to
utilize the Subzone as a foreign-trade subzone, subject to the
terms and conditions of the Operations Agreement, for an
initial period equal to the maximum period allowed by law,
thereafter to be automatically extended from year to year
unless terminated by the terms thereof. The Operations
Agreement shall acknowledge the provisions of Section 5.1.3.
It is specifically understood that in the event Foreign Trade
Subzone status is not achieved as provided in Section 5.2, and
upon payment of the sewer development fee set forth in
paragraphs 4.1 and 4.2 above, Developer shall have an absolute
right to unilaterally cancel this Agreement and in such event
there shall be no further obligation or liability to City
under this Agreement.
5.1.3. City Standing. Developer acknowledges that
breach of its property tax class limitations set forth in this
Article 5 would be detrimental to the public interest and that
Tempe would be a party "directly affected" (as that term is
used in 15 CFR Part 400). Developer will not object to the
City's standing before the Foreign Trade Zones Board or any
other administrative body or court, in the event the City
seeks to show that Developer's use of the subzone is not in
the public interest and, as a consequence thereof, seeks to
terminate the grant of the subzone, or otherwise limit or
terminate Developer's use of the subzone.
5.1.4. City Concurrence. The City will execute a
letter of concurrence prior to activation of the Subzone by
the U.S. Customs Service upon receipt of a written request
therefor from Developer, and shall use all reasonable efforts
to assist in achieving the Foreign Trade Subzone status and
the Operations Agreement with the City of Phoenix, provided
that no Developer Performance Default shall have occurred and
be continuing.
5.2. Tax Classifications. Arizona Revised Statutes ss.
42-162(A)(8)(b) provides that all real and personal property within the
boundaries of a Foreign Trade Zone or subzone shall be classified as Class 8
property for taxation ("Class 8"); provided, however, such classification
applies only to the area that is activated for Foreign Trade Zone use by the
Port Director of the U.S. Customs Service, pursuant to 19 C.F.R. 146.6, A.R.S.
ss. 42-162.01, and the procedures of the Maricopa County Assessor (the
"Assessor") require that the owner notify the Assessor that a reclassification
of property to Class 8 should be made.
5.3. Foreign Trade Zone Costs. Developer shall pay all costs
charged by the City of Phoenix for the formation and oversight of the special
purpose foreign trade subzone of the Phoenix Foreign Trade Zone No. 75.
<PAGE>
6. CONDITIONS TO DEVELOPER'S OBLIGATIONS. Developer's obligations under
this Agreement are subject to satisfaction of all of the following conditions
precedent:
6.1. Zoning. The City represents and warrants that the
Property has been properly classified for I-2 zoning pursuant to the City of
Tempe zoning ordinance. City further agrees that this zoning is vested and that
no other action is necessary in order to vest the zoning. City further agrees
that it will take no action to remove or change the zoning without the prior
written consent of the Property owner.
6.2. Foreign Trade Zone Status. Developer anticipates that by
June 30, 1998, the United States Department of Commerce will have issued a grant
of authority for the ("Subzone") to be operated by Developer within the Property
pursuant to procedure set forth in Section 5.1. However, City and Developer both
understand and agree that Developer has no influence over the speed at which the
United States Department of Commerce processes said grant of authority.
6.3. Approval of Plans and Specifications. The City shall have
given Developer all necessary permits and approvals for the construction of the
Expansion.
6.4. Property Tax Classification. Developer shall receive
written acknowledgment from the Maricopa County Assessor's office that all those
portions of the Tempe Fab II Facility and all personal property used therein
specified in Section 5.1 have been and will continue to be classified as Class 8
property.
7. REPRESENTATIONS.
7.1. Developer Representations. Developer represents and
warrants that (a) it is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, (b) its execution,
delivery and performance of this Agreement is duly authorized, (c) that
Developer shall execute all documents and take all action necessary to implement
and enforce this Development Agreement, (d) that the representations made by
Developer in this Development Agreement are truthful to the best of its
knowledge and belief, and (e) Developer shall vigorously defend any action
brought to contest the validity of this Development Agreement and shall not seek
from the City any payments, contributions, costs or attorneys' fees incurred in
such defense.
7.2. City Representations. City represents and warrants (a)
that its execution, delivery and performance of this Development Agreement has
been duly authorized and entered into in compliance with all the ordinances and
codes of City, (b) that subject to a court's equitable powers, this Development
Agreement is enforceable in accordance with its terms, (c) that City shall
execute all documents and take all action necessary to implement and enforce
this Development Agreement, (d) that the representations made by City to
Developer in this Development Agreement are truthful to the best of its
knowledge and belief, and (e) that City shall vigorously defend any action
brought to contest the validity of this Development Agreement
<PAGE>
and shall not seek from Developer, any contributions, payments, costs, or
attorneys fees incurred in such defense.
8. CANCELLATION OF THE EXPANSION.
8.1. For Business Reasons. Provided the upfront sewer
development fee has been paid, Developer reserves the right in its sole
discretion to cancel, delay, or abandon construction of all or any part of the
Expansion for reasonable business reasons and shall have an absolute right to
unilaterally cancel this agreement for any reasonable business reason.
8.2. Due to Impasse or Delay in Approval Process. Developer
reserves the right in its sole discretion to cancel, delay, or abandon
construction of all or any part of the Expansion if an impasse or unacceptable
delay is reached on any matter relating to a City approval under Section 3.8
hereof.
8.3. For Loss of Class 8 Property Classification. Developer
reserves the right to cancel, delay, or abandon construction of all or any part
of the Expansion at any time if any court decision determines Class 8 to be
unconstitutional or invalid in any respect, if a legal challenge to Class 8 is
filed and not resolved to Developer's satisfaction, or if any legislative action
repeals or adversely modifies the Class 8 assessment ratio. In the event of
abandonment of construction of all or any part of the expansion and/or the
project, developer shall comply with all City laws.
9. DEFAULTS AND REMEDIES.
9.1. Events Constituting Developer Default. Developer shall be
deemed to be in default under this Agreement (a "Developer Performance Default")
if (a) Developer commits a material breach of any obligation required to be
performed by Developer herein, and (b) such breach continues for a period of
sixty (60) days after written notice thereof by City, Developer fails to
commence the cure of such breach and, thereafter, to diligently pursue the same
to completion.
9.2. Remedies to City. In the event of a Developer Performance
Default, which default is not cured within any applicable cure period, City
shall have the right to seek and obtain all legal and equitable remedies
otherwise available to it.
9.3. Events of Default by City. City shall be deemed to be in
default under this Agreement (a "City Performance Default") if (a) City commits
a material breach of any obligation required to be performed by City herein,
including, without limitation, (i) the failure to issue a Certificate of
Occupancy where Developer has complied with its obligations for issuance of such
Certificate; or (ii) the failure to provide other approvals as required herein,
and such breach continues for a period of sixty (60) days after written notice
by Developer, City fails to commence the cure of such breach and, thereafter, to
diligently pursue the same to completion.
<PAGE>
9.4. Remedies of Developer. In the event City is in default
herein, Developer shall have all legal and equitable remedies available to it.
10. DISPUTE RESOLUTION. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this Development
Agreement through the process set forth in Section 3.8 and through negotiation.
If, however, a matter has not been resolved within the time set forth in Section
3.8, then, upon the written demand of either party, the matter shall be resolved
by arbitration in accordance with the then prevailing rules for commercial
arbitration of the American Arbitration Association. Notwithstanding such rules,
unless both parties otherwise agree: (a) the Arbitrator shall be selected within
ten (10) business days after giving notice by one party to the other of the
demand for arbitration (the "Notice"); (b) the arbitration shall be held within
twenty (20) business days after the Notice; and (c) the arbitrator's decision
shall be rendered within ten (10) business days after the arbitration is
concluded. The results of the arbitration shall be final, binding, and
nonappealable.
11. UNCONTROLLABLE FORCES. Neither party shall be considered to be in
default in the performance of any of its obligations under this Agreement (other
than obligations of such party to pay costs and expenses) when a failure of
performance shall be due to an uncontrollable force. The term "uncontrollable
force" shall be any cause beyond the control of the party affected, including
but not restricted to failure of or threat of failure of facilities, flood,
earthquake, tornado, storm, fire, lightning, epidemic, war, riot, civil
disturbance or disobedience, labor dispute, labor or material shortage,
sabotage, restraint by court order or public authority, and action or non-action
by or failure to obtain the necessary authorizations or approvals from any
governmental agency or authority, which by exercise of due diligence it shall be
unable to overcome. Nothing contained herein shall be construed so as to require
a party to settle any strike or labor dispute in which it may be involved. Any
party rendered unable to fulfill any of its obligations under this agreement by
reason of any uncontrollable force shall give prompt written notice of such fact
to the other party and shall exercise due diligence to remove such inability
with all reasonable dispatch.
12. MISCELLANEOUS.
12.1. Notices. Unless otherwise specifically provided herein,
all notices, demands or other communication is given hereunder shall be in
writing and shall be deemed to have been duly delivered upon personal delivery
or confirmed facsimile transmission, or as of the second business day after
mailing by United States mail, postage prepaid, by certified mail, returns
receipt requested, addressed as follows:
To Developer: Microchip Technology Inc.
Attn: Steve Sanghi
Robert J. Lloyd
Mary Simmons-Mothershed
2355 W. Chandler Blvd.
Chandler, Arizona 85226
Facsimile No. (602) 786-7429
<PAGE>
Copy to:
Paul E. Gilbert, Esq.
BEUS, GILBERT & MORRILL, P.L.L.C.
3200 North Central Avenue
1000 Great American Tower
Phoenix, AZ 85012-2417
Facsimile No. (602) 234-5983
To City: City Manager
City of Tempe
P. O. Box 5002
31 E. Fifth St., Third Floor
Tempe, Arizona 85280
Facsimile No. (602) 350-8996
Copy to:
City Attorney
City of Tempe
P. O. Box 5003
140 E. Fifth St., Suite 301
Tempe, Arizona 85280
Facsimile No. (602) 350-8645
Notice of address may be changed by either party by giving written notice to the
other party as provided herein.
12.2. Amendments. This Agreement may be amended only by a
written Agreement fully executed by the parties hereto.
12.3. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Arizona. This Agreement shall be deemed
made and entered into in Maricopa County.
12.4. Waiver. No waiver by either party of a breach of any of
the terms, covenants or conditions of this Agreement shall be construed or held
to be a waiver of any succeeding or preceding breach of the same or any other
term, covenant or condition herein contained.
12.5. Severability. In the event that any phrase, clause,
sentence, paragraph, section, article or other portion of this Agreement shall
become illegal, null or void or against public policy, for any reason, or shall
be held by any court of competent jurisdiction to be illegal, null or void or
against public policy, the remaining portions of this Agreement shall not be
<PAGE>
affected thereby and shall remain in force and effect to the fullest extent
permissible by law, provided that the fundamental purposes of this Development
Agreement are not defeated by such severability. For the Developer, the
fundamental purposes of this Development Agreement include, but are not limited
to, obtaining Class 8 property tax treatment as presently in effect, as provided
in Section 5.2 and all provisions of Articles 4 and 5 hereof.
12.6. Exhibits. All exhibits attached hereto are incorporated
herein by reference as though fully set forth herein. The locale and site plans
enumerated below represent the geographic area and the property which are the
subject to this agreement:
Exhibit "A-1" Area Map
Exhibit "A-2" Local Area Map
Exhibit "B-1" Schematic Diagram of the Property
Exhibit "B-2" Legal Description of the Property
Exhibit "C" Schematic Diagram Depicting Foreign Trade Subzone
Boundary
Resolution 96.80 Foreign Trade Subzone Resolution in Support of a
Foreign Trade Subzone Application by Microchip
Technology, Inc.
12.7. Entire Agreement. This Agreement and the exhibits hereto
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof and all prior and contemporaneous agreements,
representations, negotiations and understandings of the parties hereto, oral or
written, are hereby superseded and merged herein.
12.8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute one and the same instrument.
12.9. Consents and Approvals. City and Developer shall at all
times act reasonably and in good faith with respect to any and all matters which
require either party to review, consent or approve any act or matter hereunder.
12.10. Mutual Benefits. The City and Developer agree that in
making the promises contained in this Development Agreement that certain
benefits and advantages will accrue to both parties as a result of the
performance of this Agreement, and that therefore this Agreement is being
entered into in reliance upon the actual benefits afforded each of the parties.
12.11. Conflict of Interest. No member, official or employee
of the City may have any direct or indirect interest in this Development
Agreement, nor participate in any decision relating to the Development Agreement
which is prohibited by law. All parties hereto acknowledged that this Agreement
is subject to cancellation pursuant to the provisions of Arizona Revised Statute
ss. 38-511.
12.12. Warranty Against Payment of Consideration for
Agreement. Developer warrants that it has not paid or given, and will not pay or
give, any third person any money or other
<PAGE>
consideration for obtaining this Development Agreement, other than normal costs
of conducting business and costs of professional services such as architects,
consultants, engineers and attorneys.
12.13. Enforcement by Either Party. This Agreement shall be
enforceable by any party hereto notwithstanding any change hereafter in any
applicable General Plan, specific plan, zoning ordinance, subdivision ordinance
or building ordinance adopted by City which substantially changes, alters or
amends the applicability of said plans or ordinances to the development of the
Property, or the Expansion.
12.14. Cumulative Remedies. Except as otherwise expressly
stated in this Agreement, the rights and remedies of the parties are cumulative,
and the exercise by any party of one or more of such rights or remedies will not
preclude the exercise by it, at the same time or different times, of any other
rights or remedies for the same default or any other default by such defaulting
party. The provision of this Section 12.14 are not intended to modify Articles 9
or 10 or any other provisions of this Agreement and are not intended to provide
additional remedies not otherwise permitted by law.
12.15. Attorneys' Fees. In any arbitration, quasi judicial or
administrative proceedings or any other action in any court of competent
jurisdiction, brought by either party to enforce any covenant or any of such
party's rights or remedies under this Agreement, including any action for
declaratory or equitable relief, the prevailing party shall be entitled to
reasonable attorneys' fees and all reasonable costs, expenses and disbursements
in connection with such action.
12.16. Successors. This Agreement shall be binding upon, and
shall inure to the benefit of the parties hereto and their successors and
assigns.
12.17. No Third Party Beneficiaries. This Agreement is made
and entered into for the sole protection and benefit of the parties. No person
other than the parties shall have any right of action based upon any provision
of this Agreement.
12.18. Recordation. Simultaneously with the execution of this
Development Agreement, Developer and City will record a copy of this Development
Agreement in the records of the Maricopa County Recorder. Any written amendment
hereto shall be similarly recorded within ten days after execution by the
parties.
IN WITNESS WHEREOF, City has caused this Agreement to be duly executed
in its name and behalf by its Mayor and its seal to be hereunto duly affixed and
attested by its City Clerk, and Developer has signed and sealed the same, on or
as of the day and year first above written.
CITY OF TEMPE, ARIZONA, an Arizona
municipal corporation
ATTEST:
By: /s/ Karen L. Buikingham /s/ Neil G. Giuliano
---------------------------- -------------------------------------
Dep. CITY CLERK MAYOR
<PAGE>
APPROVED AS TO FORM:
/s/ David R. Merkel
- -------------------------
TEMPE CITY ATTORNEY
MICROCHIP TECHNOLOGY INC., a
Delaware corporation
By: /s/ Steve Sanghi
----------------------------------
Its: President & CEO
---------------------------------
STATE OF ARIZONA )
: ss.
County of Maricopa )
The foregoing Development Agreement was acknowledged before me this
11th day of July, 1997, by Neil G. Giuliano, Mayor of the City of Tempe,
Arizona, an Arizona municipal corporation, on behalf of the corporation.
My Commission Expires:
/s/ Kay Savard
KAY SAVARD -------------------------------------
Notary Public - Arizona Notary Public
Maricopa County
My Comm. Expires May 31, 2001
<PAGE>
STATE OF ARIZONA )
: ss.
County of Maricopa )
The foregoing Development Agreement was acknowledged before me this 17
day of July, 1997, by Steve Sanghi, the President & CEO of Microchip Technology
Inc., a Delaware corporation, on behalf of the corporation.
My Commission Expires:
"OFFICIAL SEAL" /s/ Dianne Iverson
Dianne Iverson -------------------------------------
Notary Public - Arizona Notary Public
Maricopa County
My Commission Expires: 4/25/98
<PAGE>
[AREA MAP]
Exhibit A-1
<PAGE>
[LOCAL AREA MAP]
Exhibit A-2
<PAGE>
[SCHEMATIC DIAGRAM OF THE PROPERTY]
Exhibit B-1
<PAGE>
LEGAL DESCRIPTION
Escrow No. 9311301 44
PARCEL NO. 1:
Lots 57 and 58, HOHOKAM INDUSTRIAL PARK UNIT II, a subdivision recorded in Book
174 of Maps, page 33, records of Maricopa County, Arizona.
PARCEL NO. 2:
The East half of abandoned Hohokam Drive, as abandoned by ordinance recorded in
Docket 16127, page 472, records of Maricopa County, Arizona, said Hohokam Drive
described as follows:
Beginning at the Northwest corner of Lot 58 of Hohokam Industrial Park Unit II,
a subdivision recorded in Book 174 of Maps, page 33, records of Maricopa County,
Arizona; thence South 00 degrees 26 minutes 36 seconds East along the West line
of said Lot 58, a distance of 344.08 feet to a Southwesterly corner of said Lot
58; thence South 45 degrees 10 minutes 38 seconds East a distance of 21.31 feet
to another Southwesterly corner of said Lot 58; thence North 89 degrees 54
minutes 41 seconds West a distance of 90 feet, more or less to a Southeasterly
corner of Lot 59 of said Hohokam Industrial Park Unit 2; thence North 44 degrees
49 minutes 21 seconds East a distance of 21.11 feet to another Southeasterly
corner of said Lot 59; thence North 00 degrees 26 minutes 36 seconds West along
the East line of said Lot 59 a distance of 343.49 feet to the Northeast corner
of said Lot 59; thence North 89 degrees 31 minutes 24 seconds East a distance of
60 feet to the Point of Beginning.
PARCEL NO 3:
That portion of the Southeast quarter of the Northwest quarter of Section 20,
Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, more particularly described as follows:
Beginning at the Southeast corner of said Southeast quarter of the Northwest
quarter; thence South 89 degrees 31 minutes 24 seconds West along the South line
of said Southeast quarter of the Northwest quarter and along the North lines of
Lots 57 and 58, Hohokam Industrial Park Unit II, a subdivision recorded in Book
174 of Maps, page 33, records of Maricopa County, Arizona, a distance of 647.87
feet to the Northwest corner of said Lot 58; thence North 0 degrees 26 minutes
36 seconds West along the Northerly prolongation of the West line of said Lot
58, a distance of 50 feet to a point on the South line of the property described
in Deed Grant G. Sandman, et ux, in Book 335 of Deeds, page 351, records of
Maricopa County, Arizona; thence North 89 degrees 31 minutes 24 seconds East,
along the South line of the property described in Book 335 of Deeds, page 351, a
distance of 648.35 feet to a point on the East line of said Southwest quarter of
the Northwest quarter;
Legal Description Continued
Exhibit B-2
<PAGE>
LEGAL DESCRIPTION - CONTINUED
Escrow No. 9311301 44
thence South 0 degrees 05 minutes 19 seconds West along the East line of said
Southeast quarter of the Northwest quarter a distance of 50 feet to the Point of
Beginning;
Except the East 25 feet thereof.
PARCEL NO. 4:
All that part of the South half of the Southeast quarter of the Northwest
quarter of Section 20, Township 1 North, Range 4 East of the Gila and Salt River
Base and Meridian, Maricopa County, Arizona, lying South of the South line of
the 100 foot strip of land as conveyed to drainage district no. 2 by
right-of-way Deed recorded in Book 172 of Deeds, page 392 and 393, records of
Maricopa County, Arizona;
Except the North 100 feet of the East 625 feet thereof, and
Except that portion described as follows:
Beginning at the Southeast corner of said Southwest quarter of the Northwest
quarter; thence South 89 degrees 31 minutes 24 seconds West along the South line
of said Southeast quarter of the Northwest quarter and along the North lines of
Lot 57 and 58, Hohokam Industrial Park Unit II, a subdivision recorded in Book
174 of Maps, page 33, records of Maricopa County, Arizona, a distance of 647.87
feet to the Northwest corner of said Lot 58; thence North 0 degrees 26 minutes
36 seconds West along the Northerly prolongation of the West line of said Lot
58, a distance of 50 feet to a point on the South line of the property described
in Deed to Grant G. Sandman, et ux, in Book 335 of Deeds, page 351, records of
Maricopa County, Arizona; thence North 89 degrees 31 minutes 24 seconds East
along the South line of the property described in Book 335 of Maps, page 351, a
distance of 648.35 feet to a point on the East line of said Southeast quarter of
the Northwest quarter; thence South 0 degrees 05 minutes 19 seconds West along
the East line of said Southeast quarter of the Northwest quarter, a distance of
50 feet to the Point of Beginning;
Except the East 25 feet thereof; and
Except from Parcel Nos. 1, 2, 3 and 4 above;
That portion of Lots 57 and 58, Hohokam Industrial Park Unit 2, a subdivision
recorded in Book 174 of Maps, page 33, records of Maricopa County, Arizona, and
the South half of the Southeast quarter of the Northwest quarter of Section 20,
Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
Beginning at the Northeast corner of said Lot 57; thence South 0 degrees 05
minutes 02 seconds West (recorded South 0 degrees 05 minutes 19 seconds West)
along the Easterly line of said Lot 57, 350.06 feet; thence South 45 degrees 05
<PAGE>
LEGAL DESCRIPTION - CONTINUED
Escrow No. 9311301 44
minutes 08 seconds West (recorded South 45 degrees 05 minutes 19 seconds West),
21.21 feet; thence North 89 degrees 54 minutes 46 seconds West, along the
Southerly line of Lots 57 and 58; 619.53 feet (recorded North 89 degrees 54
minutes 41 seconds West, 619.50 feet) to the centerline of Hohokam Drive (now
abandoned); thence North 0 degrees 26 minutes 55 seconds West (recorded North 0
degrees 26 minutes 36 seconds West) along said center line of Hohokam Drive
284.12 feet; thence South 89 degrees 45 minutes 40 seconds East, 242.13 feet to
a point on a curve, the center of which bears South 89 degrees 45 minutes 40
seconds East, 45.00 feet; thence Northeasterly along said curve through a
central angle of 90 degrees 00 minutes 00 seconds an arc distance of 70.69 feet;
thence South 89 degrees 45 minutes 40 seconds East, 87.00 feet; thence North 0
degrees 02 minutes 00 seconds East, 34.38 feet to a point on the North line of
said Lot 57, said line also being the South line of the South half of the
Southeast quarter of the Northwest quarter of said Section 20; thence continuing
North 0 degrees 02 minutes 00 seconds East, 26.87 feet; thence North 89 degrees
33 minutes 21 seconds East, 262.74 feet to a point on the Westerly right-of-way
line of 52 Street; thence South 0 degrees 26 minutes 36 seconds West, along said
right-of-way line 26.74 feet to the Point of Beginning.
PARCEL NO. 5:
Easement for access, and rights incident thereto, as created by instrument
recorded in Recording No. 88-257072, over:
The East half of abandoned Hohokam Drive, as an abandoned ordinance recorded by
Docket 16127, page 472, records of Maricopa County, Arizona, said Hohokam Drive
described as follows:
Beginning at the Northwest corner of Lot 58, Hohokam Industrial Park Unit 2, a
subdivision recorded in Book 174 of Maps, page 33, records of Maricopa County,
Arizona;
Thence South 00 degrees 26 minutes 55 seconds East (recorded South 00 degrees 26
minutes 36 seconds East) along the West line of said Lot 58, a distance of
344.16 feet (recorded 344.08 feet) to a Southwesterly corner of said Lot 58;
Thence South 45 degrees 10 minutes 51 seconds East (recorded South 45 degrees 10
minutes 38 seconds East) a distance of 21.31 feet to another Southwesterly
corner of said Lot 58;
Thence North 89 degrees 54 minutes 46 seconds West (recorded North 89 degrees 54
minutes 41 seconds West) a distance of 90.00 feet to a Southeasterly corner of
Lot 59 of said Hohokam Industrial Park Unit 2;
Thence North 44 degrees 49 minutes 09 seconds East (recorded North 44 degrees 49
minutes 21 seconds East) a distance of 21.11 feet to another Southeasterly
Corner of said Lot 59;
<PAGE>
LEGAL DESCRIPTION - CONTINUED
Escrow No. 9311301 44
Thence North 00 degrees 26 minutes 55 seconds West (recorded North 00 degrees 26
minutes 36 seconds West) along the East line of said Lot 59, a distance of
343.56 feet (recorded 343.49 feet) to the Northeast corner of said Lot 59;
Thence North 89 degrees 31 minutes 46 seconds East (recorded North 89 degrees 31
minutes 24 seconds East) a distance of 60.00 feet to the Point of Beginning;
Except the following described property;
Beginning at the Northwest corner of Lot 58 Hohokam Industrial Park Unit 2, a
subdivision recorded in Book 174 of Maps, page 33, records of Maricopa County,
Arizona;
Thence South 00 degrees 26 minutes 55 seconds East (recorded South 00 degrees 26
minutes 36 seconds East) along the West line of said Lot 58, a distance of 75.12
feet;
Thence North 89 degrees 45 minutes 40 seconds West, 30.00 feet to the centerline
of said abandoned Hohokam Drive;
Thence North 00 degrees 26 minutes 55 seconds West (recorded North 00 degrees 26
minutes 36 seconds West) along said centerline 74.75 feet to a point on the
North line of the Southwest quarter of Section 20, Township 1 North, Range 4
East of the Gila and Salt River Base and Meridian;
Thence North 89 degrees 31 minutes 46 seconds East (recorded North 89 degrees 31
minutes 24 seconds East) along said line 30.00 feet to the Point of Beginning.
PARCEL NO. 6:
Easement for access, and rights incident thereto, as created by instrument
recorded in Recording No. 8-257072, over:
The West half of abandoned Hohokam Drive, as abandoned by ordinance recorded in
Docket 16127, page 472, records of Maricopa County, Arizona, said Hohokam Drive
described as follows:
Beginning at the Northwest corner of Lot 58, HOHOKAM INDUSTRIAL PARK UNIT 2, a
subdivision recorded in Book 174 of Maps, page 33, records of Maricopa County,
Arizona;
Thence South 00 degrees 26 minutes 55 seconds East (recorded South 00 degrees 26
minutes 36 seconds East) along the West line of said Lot 58, a distance of
344.16 feet (recorded 344.08 feet) to a Southwesterly corner of said Lot 58;
Thence South 45 degrees 10 minutes 51 seconds East (recorded South 45 degrees 10
<PAGE>
LEGAL DESCRIPTION - CONTINUED
Escrow No. 9311301 44
minutes 38 seconds East) a distance of 21.31 feet to another Southwesterly
corner of said Lot 58;
Thence North 89 degrees 54 minutes 46 seconds West (recorded North 89 degrees 54
minutes 41 seconds West) a distance of 90.00 feet to a Southeasterly corner of
Lot 59 of said HOHOKAM INDUSTRIAL PARK UNIT 2;
Thence North 44 degrees 49 minutes 09 seconds East (recorded North 44 degrees 49
minutes 21 seconds East) a distance of 21.11 feet to another Southeasterly
corner of said Lot 59;
Thence North 00 degrees 26 minutes 55 seconds West (recorded North 00 degrees 26
minutes 36 seconds West) along the East line of said Lot 59, a distance of
343.56 feet (recorded 343.49 feet) to the Northeast corner of said Lot 59;
Then North 89 degrees 31 minutes 46 seconds (recorded North 89 degrees 31
minutes 24 seconds East) a distance of 60.00 feet to the Point of Beginning.
<PAGE>
[SCHEMATIC DIAGRAM DEPICTING FOREIGN TRADE SUBZONE BOUNDARY]
Exhibit C
<PAGE>
CERTIFICATION
I, Helen R. Fowler, City Clerk for the City of Tempe, Maricopa County, Arizona,
do hereby certify the attached to be a true and exact copy of Resolution 96.80
approved at the Council Meeting held on December 19, 1996, of the City of Tempe,
Arizona.
Dated this 25th day of June, 1997.
/s/ Helen R. Fowler
- -------------------------
Helen R. Fowler, CMC
City Clerk
<PAGE>
RESOLUTION NO. 96-80.
OF THE CITY COUNCIL OF THE CITY OF TEMPE
A RESOLUTION IN SUPPORT OF A FOREIGN TRADE SUB-ZONE APPLICATION BY
MICROCHIP TECHNOLOGY, INC. TO THE FEDERAL GOVERNMENT FOR A
FOREIGN TRADE ZONE STATUS DESIGNATION.
WHEREAS, Microchip Technology Inc., is an important component of Tempe, Arizona
and its continued growth and presence is essential and encouraged; and,
WHEREAS, Microchip Technology is applying to the U.S. Department of Commerce for
Foreign Trade Sub-Zone Status for its current manufacturing facility (the
building only) located at 1200 S. 52nd Street in Tempe, Arizona; and
WHEREAS, Microchip is a significant source of employment in the City of Tempe;
and
WHEREAS, Foreign Trade Sub-Zone status will be an important aspect of Microchip
international operations, which enhances the opportunity for local economic
activity that will benefit the City of Tempe;
NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF TEMPE, as
follows:
We hereby support the Foreign Trade Sub-Zone Application by Microchip
Technology, Inc. to the Federal Government for Foreign Trade Zone Status
Designation, and request that the Microchip application be duly considered and
expeditiously approved by the Foreign Trade Zones Board of the Department of
Commerce.
PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF TEMPE, ARIZONA, this 19th
day of December, 1996.
/s/ Neil G. Giuliano
-----------------------------------
MAYOR
ATTEST
/s/ Helen R. Fowler
- ---------------------------
City Clerk
APPROVED AS TO FORM
/s/ C. Brad Woodford
- ---------------------------
City Attorney
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $13,127 $14,755 $50,141 $34,567
======= ======= ======= =======
Weighted average shares:
Common shares outstanding 53,762 51,189 53,362 51,274
Common equivalent shares
representing shares issuable
upon exercise of stock options(1) 3,060 3,405 3,195 2,927
------- ------- ------- -------
Weighted average common
and common equivalent
shares outstanding 56,822 54,594 56,557 54,201
======= ======= ======= =======
Basic net income per share $ 0.24 $ 0.29 $ 0.94 $ 0.67
======= ======= ======= =======
Diluted net income per share $ 0.23 $ 0.27 $ 0.89 $ 0.64
======= ======= ======= =======
</TABLE>
- --------
(1) Amount calculated using the treasury stock method and fair market values for
stock.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 41,844
<SECURITIES> 0
<RECEIVABLES> 62,053
<ALLOWANCES> 0
<INVENTORY> 58,742
<CURRENT-ASSETS> 195,744
<PP&E> 318,363
<DEPRECIATION> 0
<TOTAL-ASSETS> 518,514
<CURRENT-LIABILITIES> 140,484
<BONDS> 2,410
0
0
<COMMON> 54
<OTHER-SE> 368,494
<TOTAL-LIABILITY-AND-EQUITY> 518,514
<SALES> 303,814
<TOTAL-REVENUES> 303,814
<CGS> 152,476
<TOTAL-COSTS> 152,476
<OTHER-EXPENSES> 33,599
<LOSS-PROVISION> 456
<INTEREST-EXPENSE> 835
<INCOME-PRETAX> 68,686
<INCOME-TAX> 18,545
<INCOME-CONTINUING> 50,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,141
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.89
</TABLE>
