-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FPcak5yiaK9uenpD9s+d1AU7AfDKpOky6DFFMkeYAMifFo519+ExFB9g2hqONQDP jhpP6Fxaz6asuYvNdeIN0Q== 0000950147-97-000358.txt : 19970528 0000950147-97-000358.hdr.sgml : 19970528 ACCESSION NUMBER: 0000950147-97-000358 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970527 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROCHIP TECHNOLOGY INC CENTRAL INDEX KEY: 0000827054 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 860629024 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21184 FILM NUMBER: 97614312 BUSINESS ADDRESS: STREET 1: 2355 W CHANDLER BLVD CITY: CHANDLER STATE: AZ ZIP: 85224-6199 BUSINESS PHONE: 6017867200 MAIL ADDRESS: STREET 1: 2355 WEST CHANDLER BLVD CITY: CHANDLER STATE: AZ ZIP: 85224-6199 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934 (No fee required, effective October 7, 1996) For the fiscal year ended March 31, 1997 or ___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from _________ to __________ Commission File Number: 0-21184 MICROCHIP TECHNOLOGY INCORPORATED (Exact Name of Registrant as Specified in Its Charter) ---------------------------------------------------- Delaware 86-0629024 (State of Incorporation) (I.R.S. Employer Identification No.) 2355 W. Chandler Blvd., Chandler, AZ 85224 (Address of Principal Executive Offices, Including Zip Code) (602) 786-7200 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Per Share The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. (_) The approximate aggregate market value of the voting stock of the registrant beneficially owned by stockholders, other than directors, officers and affiliates of the registrant, at April 27, 1997 was: $1,546,133,816. Number of shares of Common Stock, $.001 par value, outstanding as of April 27, 1997 was: 53,198,679. Documents Incorporated by Reference ----------------------------------- Document Part of Form 10-K -------- ----------------- Proxy Statement for the 1997 Annual III Meeting of Stockholders - -------------------------------------------------------------------------------- PART I Item 1. BUSINESS Microchip Technology Incorporated, a Delaware corporation ("Microchip" or the "Company") develops, manufactures and markets field programmable 8-bit microcontrollers, application-specific standard products (ASSPs) and related memory products for high-volume embedded control applications in the consumer, automotive, office automation, communications and industrial markets. The Company provides cost-effective field programmability for high-volume applications and believes that its PIC(R) product family is a price/performance leader in the worldwide 8-bit microcontroller market. Microchip's embedded control products also offer the advantages of a small footprint and low voltage operation along with ease of development, enabling timely and cost-effective product integration by its customers. The Company's ASSP products include a variety of specialized integrated circuits, including KEELOQ(R) security products and QuickASIC(TM) gate array devices. The Company's memory products are primarily comprised of Serial EEPROMs, which are used primarily to provide additional memory in embedded control systems. Except as noted below, references to the Company include the Company and its subsidiaries. The Company's executive offices are located at 2355 West Chandler Boulevard, Chandler, Arizona 85224-6199 and its telephone number is (602) 786-7200. The following discussion of the Company's business contains certain factors that may affect future operating results. For further discussion on certain factors that may affect the Company's future operating results, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," below. Industry Background Competitive pressures increasingly require manufacturers to expand product functionality and provide differentiation while maintaining or reducing cost. To address these requirements, manufacturers increasingly use integrated circuit-based embedded control systems which provide an integrated solution for application-specific control requirements. Embedded control systems enable manufacturers to differentiate their products, replace less efficient electromechanical control devices, add product functionality and significantly reduce product costs. In addition, embedded control systems facilitate the emergence of complete new classes of products. Embedded control systems have been incorporated into thousands of products and subassemblies in a wide variety of markets worldwide, including automotive air bag systems, remote control devices, handheld tools, appliances, portable computers, cordless and cellular telephones, motor controls and security systems. Embedded control systems typically incorporate a microcontroller as the principal active, and sometimes sole, component. A microcontroller is a self-contained computer-on-a-chip consisting of a central processing unit, non-volatile program memory, RAM memory for data storage and various input/output functions. In addition to the microcontroller, a complete embedded control system incorporates application-specific software and may include specialized peripheral device controllers and external non-volatile memory components, such as EEPROMs, to store additional program software. The increasing demand for embedded control has made the market for microcontrollers one of the largest segments of the semiconductor logic market. Microcontrollers are currently available in 4-bit through 32-bit architectures. Although 4-bit microcontrollers are relatively inexpensive, typically costing under $1.00 each, they generally lack the minimum performance and features required by today's design engineers for product differentiation and are typically used only to provide basic functionality in products. While 16- and 32-bit architectures provide very high performance, they are prohibitively expensive for most high-volume embedded control applications, typically costing over $6.00 each. As a result, manufacturers of competitive, high-volume products have increasingly found 8-bit microcontrollers, that typically cost $1.00 to $8.00 each, to be the most cost-effective embedded control solution. For example, a typical new automobile may include one 32-bit microcontroller for engine control, three 16-bit microcontrollers for transmission control, audio systems and anti-lock braking, and up to 50 8-bit microcontrollers to provide other embedded control functions, such as door locking, automatic windows, sun roof, adjustable seats, electric mirrors, air bags, fuel pump, speedometer, and the security and climate control systems. Most microcontrollers available today are ROM-based and must be programmed by the semiconductor supplier during manufacturing, resulting in six-to-20 week lead times for delivery of such microcontrollers. In addition to delayed product introduction, these long lead times can result in potential inventory obsolescence and factory shutdowns when changes to the firmware are required. To address time-to-market constraints, some suppliers have made EPROM-, EEPROM-, or Flash Memory-based programmable microcontrollers available for prototyping and preproduction runs. However, these microcontrollers have been relatively expensive, and manufacturers have still been required to send program code to the semiconductor factory for ROM programming as product changes are made. As a result, the long lead times for production volume microcontrollers have not been significantly reduced by traditional approaches. Products Microchip's strategic focus is on embedded control products, primarily including microcontrollers, ASSPs, related memory products and application development systems. Microcontrollers Microchip offers a broad family of proprietary 8-bit field programmable microcontrollers under the PIC(R) name and has shipped more than 400 million PIC(R) microcontrollers to customers worldwide since 1990. The Company's PIC(R) products are designed for applications requiring high performance, fast time-to-market and user programmability. They feature low cost, low voltage and power, small footprint and ease of use. Microchip believes this product family is currently a price/performance leader in the 8-bit microcontroller marketplace. Microchip's performance results from an exclusive RISC-based architecture that provides significant speed advantages over the prevailing 8-bit CISC architectures. In addition to providing up to 33 MHz performance, this architecture offers up to a 2:1 software compaction advantage, thereby significantly reducing software development time. RISC architectures also have the advantage of being more easily scaled to higher internal clock speeds in future products. Microchip's field programmable 8-bit microcontroller prices range from approximately $.55 to $16.00 per unit. Microchip's original market focus was in the lowest cost segment of the 8-bit microcontroller marketplace. With its baseline 8-bit products, the Company built its current market position as a leading supplier of field programmable microcontrollers. Over the past three years, Microchip has introduced more than 60 new 8-bit microcontrollers targeted at the mid-range and high-end segments of the 8-bit microcontroller marketplace, as well as the lower end of the 16-bit microcontroller market. In addition, with its 8-pin, 8-bit microcontroller, introduced in the first quarter of fiscal 1997, the Company has also targeted a portion of the large 4-bit microcontroller marketplace. The Company believes that these additional segments represent a significant opportunity for future sales growth. Microchip has used its manufacturing experience and design and process technology to bring additional enhancements and manufacturing efficiencies to the development and production of its PIC(R) family of microcontroller products. This extensive experience base has enabled the Company to develop its advanced, low cost user programmability feature by incorporating non-volatile memory (EPROM, EEPROM and Flash Memory) into the microcontroller in addition to masked ROM. Development Systems The Company offers a comprehensive set of low cost and easy-to-learn application development tools. These tools enable system designers to quickly and easily program a PIC(R) microcontroller for specific applications and are a key factor for obtaining design wins. Microchip's family of development tools operates in the standard Windows environment on IBM-compatible hardware. Entry-level systems, which include an assembler and programmer hardware, are priced at less than $200. A fully configured system which also provides in-circuit emulation hardware, performance simulators and software debuggers is priced at approximately $3,700. Customers moving from entry-level designs to those requiring real-time emulation are able to preserve their investment in software tools as they migrate to future PIC(R) devices since all the product families are assembly- and C- language compatible. Many independent companies also develop and market application development tools and systems which support Microchip's standard microcontroller product architecture. The Company believes that familiarity with and adoption of the Company's, and third-party, development systems by an increasing number of product designers will be an important factor in the future selection of Microchip's embedded control products. These development tools allow design engineers to develop thousands of application-specific products from Microchip's standard field programmable microcontrollers. Currently, there are more than 100 third-party tool suppliers world wide whose products support the Company's proprietary microcontroller architecture. ASSPs (Application-Specific Standard Products) Microchip's application-specific standard products are specialized products designed to perform specific end-user applications as opposed to the Company's other products which are more general purpose in nature. The Company's ASSP 2 device families currently include, among other specialized integrated circuit devices, KEELOQ(R) security products and QuickASIC(TM) gate array devices. KEELOQ(R) security products are designed for low cost, secure, uni-directional communications and verification purposes. Applications include automotive remote keyless entry systems, automotive immobilizer systems, automatic garage and gate openers and smart cards. QuickASIC(TM) gate array products are targeted at the growing FPGA conversion market opportunity. Memory Products Microchip's memory products consist primarily of Serial EEPROMs. The Company sells these devices primarily into the embedded control market and is the third largest supplier of such devices worldwide. EEPROM (electrically erasable programmable read only memory) products are used for non-volatile program and data storage in systems where such data must be modified frequently. Serial EEPROMs have a very low I/O pin requirement, permitting production of very small devices. As a result, Serial EEPROMs are widely used to supply non-volatile memory in space-sensitive applications such as portable computers, cellular and cordless telephones, pagers and remote control devices. Within this market, Microchip has emphasized providing Serial EEPROMs to customers that require features such as highly compact packaging, low operating voltage, reduced power consumption, extended data retention and high endurance. The Company addresses these requirements by offering products with extremely small package sizes and very low operating voltage for both read and write functions (1.8 volts in contrast with the industry standard of 3.3 volts), together with a wide operating voltage range (1.8 to 5.5 volts). High performance circuitry and microcode are also available to reduce power consumption when a device is not in use, while permitting immediate operating capability when required. The products also feature long data retention and high erase/write endurance. Microchip currently offers a complete Serial EEPROM family, which meets three principal industry bus interface standards and are available in most standard density, configuration and packaging alternatives. The Company's Smart Serials(TM) line of specialized Serial EEPROMs with user-configurable architecture and other advanced features targets applications such as cellular telephones and data communications. The Company's future operating results will depend to a significant extent on its ability to continue to develop and introduce new products on a timely basis which compete effectively on the basis of price and performance and which address customer requirements. If the Company were unable to design, develop and introduce competitive products on a timely basis, its future operating results would be adversely affected. Manufacturing Microchip's ownership of its manufacturing resources is an important component of its business strategy, enabling it to maintain a high level of manufacturing control and to be one of the lowest cost producers in the embedded control industry. By owning its wafer fabrication and the majority of its test operations, and by employing proprietary statistical process control techniques, the Company has been able to achieve high production yields. Direct control over wafer fabrication also allows Microchip to shorten the Company's design and production cycles and to capture the manufacturing and a portion of the testing profit margin. Wafer fabrication and wafer test facilities are located in Chandler and Tempe, Arizona. The Company performs product test at its facilities in Kaohsiung, Taiwan and Chachoengsao, Thailand, located near Bangkok. Wafers are produced in Class 10 fabrication modules in Chandler ("Fab 1") and Tempe ("Fab 2") sites. Fab 1 currently contains approximately 24,000 square feet; construction is currently underway to add additional capacity of 3,000 square feet, which is presently anticipated to be completed in July, 1997. Fab 2 occupies approximately 25,000 square feet; construction is currently underway to add additional capacity of 20,000 square feet, which is presently anticipated to be completed in August, 1997. Fab 1 currently produces 5-inch and 6-inch wafers, while Fab 2 currently produce 6-inch and 8-inch wafers. Wafer sort is performed in an 8,000 square foot, Class 10,000 clean room, equipped with automated wafer handlers and test equipment. The two wafer fabrication sites are managed by the same management team and utilize similar production techniques. The Company is continuing the process of transitioning products to smaller geometries and to larger wafer sizes. Eight-inch wafer production commenced at Fab 2 in early fiscal 1998. In addition, the Company will continue the transition of products to its 0.7 micron process and has commenced development of its next generation technology. Other companies in the industry have experienced difficulty in effecting transitions to smaller geometry processes and to larger wafers and, consequently, have experienced reduced manufacturing yields or delays in product deliveries. The Company believes that its transition to smaller geometries and to larger wafers will be important for the Company to remain competitive and operating results could be adversely affected if the Company's transition is substantially delayed or inefficiently implemented. 3 Microchip currently employs proprietary design and manufacturing processes in developing its microcontroller and memory products. The Company believes its processes afford it both cost-effective designs in existing and derivative products and greater functionality in new product designs. While many of the Company's competitors develop and optimize separate processes for their logic and memory product lines, Microchip uses a common process technology for both microcontroller and non-volatile memory products. This allows Microchip to more fully absorb its process research and development costs and to deliver new products to market more rapidly. Microchip engineers utilize advanced CAD tools and software to perform circuit design, simulation and layout. The Company's in-house photomask and wafer fabrication facilities enable it to rapidly verify design techniques by processing test wafers quickly and efficiently. Over the last several years, Microchip shifted its assembly operations from Company-owned facilities to third-party contractors in order to meet increased product shipment requirements. At March 31, 1997, all assembly was conducted by third-party contractors. During the third quarter of fiscal 1997, the Company commenced final test operations at its wholly-owned Chachoengsao test facility. Currently, the Chachoengsao test facility has the capacity to handle up to one million units per day. If required, the Chachoengsao facility could be expanded in the future to more than double its current capacity. The Company will continue to use third-party contractors to provide a majority of its assembly services. Reliance on third parties involves some reduction in the Company's level of control over the assembly and test portion of its business. While the Company reviews the quality, delivery and cost performance of these third-party contractors, there can be no assurance that increased reliance on third-party contractors will not adversely impact results in future reporting periods if any third-party contractor is unable to maintain assembly and test yields and costs at approximately their current levels. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations - Gross Profit", below. The Company's Taiwan and Thailand subsidiaries test the majority of the products produced in Fab 1 and Fab 2. The 88,700 square foot Kaohsiung facility has a monthly capacity of 19 million plastic packages; the 150,000 square foot Chachoengsao facility has a monthly capacity of 30 million units. Final test and burn-in functions are handled by advanced automated equipment. The Company uses third-party contractors in Bangkok, Thailand to assemble a significant portion of its products. The balance of Microchip's assembly and test requirements are fulfilled by several third-party assembly and test contractors in Thailand, the Philippines, People's Republic of China, and several other countries in Asia and the Pacific Rim. The Company's reliance on facilities in Taiwan, Thailand, the Philippines and other foreign countries, and maintenance of substantially all of its finished goods inventory overseas, entails certain political and economic risks, including political instability and expropriation, supply disruption, currency controls and exchange fluctuations, as well as changes in tax laws, tariff and freight rates. Microchip currently employs the Alphatec Electronics Public Company Limited group of companies ("Alphatec") headquartered in Bangkok, Thailand for a significant portion of its product assembly volume and a portion of its product final test capacity. While Alphatec's assembly and test operations have performed reliably for the Company for several years, Alphatec has recently experienced difficulty in obtaining financing in connection with some of its unrelated joint ventures involving semiconductor fabrication facilities in Thailand. Such financing difficulties have not impacted Alphatec's assembly and test facilities nor its provision of services to the Company. However, there can be no assurance that assembly and test operations will not be affected in the future. Microchip currently has second sources for product assembly and test for most of its package types and can shift its wafer output to other factories, if necessary, however, there can be no assurance that such action would not result in short-term disruption including possible temporary product shortages. The Company has not experienced any significant interruptions in its foreign business operations to date. Nonetheless, the Company's business and operating results could be adversely affected if foreign operations or international air transportation were disrupted. Due to the high fixed cost inherent in semiconductor manufacturing, increased manufacturing yields can have significant positive effects on gross profits and overall operating results. During fiscal 1997, the Company continued to focus on manufacturing productivity, and maintained average wafer fab line yields in excess of 90%. The yields are primarily driven by a comprehensive implementation of statistical process control, extensive employee training and selective upgrading of the Company's manufacturing facilities and equipment. Maintenance of manufacturing productivity and yields are important factors in the achievement of the Company's operating results. As is typical in the semiconductor industry, the Company has from time to time experienced lower than anticipated manufacturing yields. The Company's operating results would be adversely affected if it were unable to maintain yields at approximately the current levels. The raw materials and equipment used in the production of the Company's integrated circuits currently are available from a number of suppliers, and the Company is not materially dependent on any single source of supply. Although the Company has not experienced any material difficulty to date in obtaining raw materials or equipment, the interruption of certain components or ingredients of certain raw materials could reduce the availability or increase the cost of raw materials used by the Company. The manufacture and assembly of integrated circuits, particularly non-volatile, erasable CMOS 4 memory and logic devices such as those produced by the Company, is a highly complex process and sensitive to a wide variety of factors, including the level of contaminants in the manufacturing environment, impurities in the materials used and the performance of the fabrication equipment. Research and Development The Company's current research and development activities focus on the design of new microcontroller and memory products, ASSPs, new development systems, and software and application-specific software libraries. The Company is also developing new design and process technology to achieve further cost reductions and performance improvements in existing products. As of April 27, 1997, 243 employees were engaged in research and development. In fiscal 1997, 1996 and 1995, the Company's research and development expenses were $32.1 million, $27.5 million and $20.7 million, respectively. The Company expects that it will continue to spend substantial funds on research and development activities. Sales and Distribution The Company markets its products worldwide through a direct sales organization and through distributors. In fiscal 1997, the Company derived approximately 40% of its net sales from direct sales to OEM customers and 60% from sales through distributors. The Company's direct sales force, currently consisting of 159 people, focuses on four geographical markets: the Americas, Europe, Asia/Pacific and Japan. In the Americas, the Company currently has Technical Support Centers in San Jose, Los Angeles, Dallas, Dayton, Chicago, Atlanta, Boston, New York and Toronto. Microchip also maintains Technical Support Centers in Tokyo, London, Munich, Paris, Milan, Taipei, Seoul, Singapore, Hong Kong, Shanghai, and Bangalore, India. Microchip's direct sales force is augmented by a worldwide network of national distributors and regional distributors in North and South America. Microchip's distribution effort also includes a network of manufacturer's representatives in North America and Europe. Microchip believes that a strong technical service presence is essential to the continued development of the embedded control market. The majority of Microchip's field sales engineers (FSEs), field application engineers (FAEs) and sales management have technical degrees and have been previously employed in an engineering environment. The Company believes the technical knowledge of its sales force is a key competitive advantage in the sale of field programmable products. Currently, Microchip has at least one dedicated application engineer in every Technical Support Center. The primary mission of the FAE team is to provide technical assistance to OEM customers, conduct periodic training sessions for FSEs, manufacturer's representatives and distributor sales teams. The FAEs also conduct frequent technical seminars in major cities around the world. FAEs also work closely with the Company's distributors and manufacturer's representatives to provide technical assistance in end-user support and to assist in the sales process. As is common in the semiconductor industry, the Company grants price protection to distributors. Under this policy, distributors receive a credit for the difference, at the time of a price reduction, between the price they were originally charged for products in inventory and the reduced price which the Company subsequently charges distributors. From time to time, distributors also receive credit on an individual basis for Company-approved price reductions on specific transactions. The Company also grants some distributors limited rights to return products. The Company defers recognition of net sales and profit on sales to distributors that have rights of return and price protection until those distributors have resold the products to end-customers. Foreign sales, primarily in Asia/Pacific, Japan and Europe, represented approximately 66%, 65% and 65% of consolidated net sales in the years ended March 31, 1997, 1996 and 1995, respectively. International sales are predominately billed in U.S. Dollars. Although foreign sales are subject to certain government export restrictions, the Company has not experienced any material difficulties as a result of export restrictions to date. The Company's policy is to hedge its net foreign currency positions in the normal course of business to reduce its exposure to fluctuations in foreign exchange rates. Foreign exchange gains and losses have not been material during fiscal years 1995 through 1997. Backlog As of April 27, 1997, the Company's backlog was approximately $93.7 million as compared to $116.6 million as of April 26, 1996. The Company includes in its backlog all purchase orders scheduled for delivery within the subsequent 12 months. 5 Microchip produces standard products that can be shipped from inventory within a short time after receipt of an order. The Company's business and, to a large extent, that of the entire semiconductor industry is characterized by short-term orders and shipment schedules. Orders constituting the Company's current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. Accordingly, although useful for scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period. Turns orders (orders received in a quarter for shipment in that quarter) have become an increasingly important component of the Company's quarterly operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Net Sales," below. Competition The semiconductor industry is intensely competitive and has been characterized by price erosion, rapid technological change and foreign competition with respect to many products. The Company competes with major domestic and international semiconductor companies, many of which have greater market recognition and substantially greater financial, technical, marketing, distribution and other resources than the Company with which to pursue engineering, manufacturing, marketing and distribution of their products. Emerging companies are also increasing their participation in the market for embedded control applications. The Company's overall average selling prices for its microcontroller products have remained relatively constant while average selling prices of its non-volatile products have declined gradually over time. During fiscal 1997, the Company experienced increased pricing pressure on its non-volatile memory products due primarily to a worldwide industry inventory correction and the less proprietary nature of these products. There can be no assurance that average selling prices for the Company's microcontroller or other products will not experience increased pricing pressure in the future. An increase in pricing pressure could adversely affect the Company's operating results. In addition, the Company's ability to compete successfully depends on a number of factors both within and outside its control, including the quality, performance, reliability, features, ease of use, pricing and diversity of its products; the quality of its customer service and its ability to address the needs of its customers; its success in designing and manufacturing new products including those implementing new technologies; efficiency of production, adequate sources of raw materials and other supplies at acceptable prices; protection of the Company's products and processes by effective utilization of intellectual property laws; the rate at which customers incorporate the Company's products into their own products; product introductions by the Company's competitors; the number, nature and success of its competitors in a given market; and general market and economic conditions. Furthermore, capacity in the semiconductor industry is increasing over time and such increased capacity or improved product availability could adversely affect the Company's competitive position. The Company currently competes principally on the basis of the technical innovation and performance of its embedded control products, including their speed, functionality, density, power consumption, reliability and packaging alternatives, as well as on price and product availability. The Company believes that other important competitive factors in the embedded control market include ease of use, functionality of application development systems and technical service and support. The Company believes that it competes favorably with other companies on all of these factors, although there is no assurance that the Company will continue to be able to compete successfully in the future. Patents, Licenses and Trademarks The Company's success depends in part on its ability to obtain patents, licenses and other intellectual property rights covering its products and manufacturing processes, and to protect its proprietary information. As of March 31, 1997, the Company owned 46 U.S. patents and eight foreign patents, expiring on various dates between 1997 and 2015, and had an additional 49 U.S. patent applications and 44 foreign patent applications pending. The Company intends to continue to seek patents on its inventions used in its products and manufacturing processes. However, the Company believes that its continued success depends primarily on such factors as the technological skills and innovative abilities of its personnel rather than on its patents. There can be no assurance the Company's existing patents or any new patents that are issued will be of sufficient scope or strength to provide meaningful protection or other commercial advantage to the Company. The Company acquired a nonexclusive, royalty-free license under certain semiconductor patents owned by General Instrument in connection with the acquisition and formation of the Company in 1989. The license extends for the life of the licensed patents and is subject to early termination upon assignment without General Instrument's consent, to any entity with annual revenues of more than $100 million that acquires control of the Company. The Company also acquired certain cross licenses between General Instrument and other semiconductor patent owners. 6 In October, 1991, the Company acquired a nonexclusive, nontransferable license for certain EPROM and EEPROM patents owned by Intel Corporation. This license extends for the life of the licensed patents. The license may require the payment of royalties under certain circumstances. As is typical in the semiconductor industry, the Company has from time to time received, and may in the future receive, communications alleging possible infringement of patents or other intellectual property rights of others. The Company investigates all such notices and responds as it believes is appropriate. The Company is currently in discussions with several other companies regarding intellectual property licenses of such other companies' semiconductor patents and technology. Based on industry practice, the Company believes that in most cases it could obtain any necessary licenses or other rights on commercially reasonable terms. However, no assurance can be given that licenses would be on acceptable terms, that litigation would not ensue or that damages for any past infringement would not be assessed. Litigation, which could result in substantial cost to the Company and diversion of management effort, may be necessary to enforce patents or other intellectual property rights of the Company or to defend the Company against claimed infringement of the rights of others. The failure to obtain necessary licenses or other rights or litigation arising out of infringement claims, could have a material adverse effect on the Company's business and results of operations. The Company is currently in discussions with Lucent Technologies Inc. ("Lucent") regarding alleged infringement of certain of Lucent's semiconductor patents. The Company has investigated Lucent's claims and believes it does not infringe any of the asserted patents. Notwithstanding the Company's position, the Company and Lucent have exchanged various proposals for a patent license, but, to date, have been unable to reach an agreement. Although the outcome of the discussions with Lucent is not presently determinable, the Company believes that, should a license be necessary, the Company will be able to obtain a license from Lucent on commercially reasonable terms. However, no assurances can be given that a mutually satisfactory conclusion will be achieved. In such event, the Company may be subject to litigation, which could result in substantial cost to the Company and diversion of management effort. If unsuccessful, the Company could be forced to pay royalties on past and future sales. Any such litigation and/or royalty payments could have a material adverse impact on the Company's business and operating results. Environmental Regulation The Company is subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing processes, including the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendment and Reauthorization Act, the Clean Air Act and the Water Pollution Control Act. The Company believes it has obtained all necessary environmental permits to conduct its business. Although the Company believes that its activities conform to presently applicable environmental regulations, the failure to comply with present or future regulations could result in fines being imposed on the Company, suspension of production or a cessation of operations. While the Company has not experienced any materially adverse effects on its operations from governmental regulations, there can be no assurance that changes in such regulations will not require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. Any failure by the Company to control the use of or adequately restrict the discharge of hazardous substances could subject it to future liabilities. There can be no assurance that environmental problems will not occur in the future which could subject the Company to future costs or liabilities. Employees As of April 27, 1997, the Company had 1,879 employees, including 1,330 in manufacturing, 243 in research and development, 190 in sales and marketing and 116 in finance and administration. Approximately 42% of the Company's employees work at the final test facilities located in Kaohsiung, Taiwan and Chachoengsao, Thailand. No employees in the U.S. or Thailand are represented by a labor organization. All employees in the Kaohsiung facility, except for certain management employees, are represented by a labor organization. The Company has never had a work stoppage and believes that its employee relations are good. Executive Officers The following sets forth certain information regarding the Company's executive officers as of April 27, 1997: 7
Name Age Position ---- --- -------- Steve Sanghi 41 Chairman of the Board, President and Chief Executive Officer Timothy B. Billington 54 Vice President, Manufacturing Operations C. Philip Chapman 43 Vice President, Chief Financial Officer and Secretary Robert A. Lanford 55 Vice President, Worldwide Sales George P. Rigg 57 Vice President, Advanced Microcontroller and Technology Division Mitchell R. Little 44 Vice President, Standard Microcontroller and ASSP Division
Mr. Sanghi is currently, and has been since August, 1990, President of the Company, since October, 1991, Chief Executive Officer and since October, 1993, Chairman of the Board of Directors. He has served as a director of the Company since August, 1990. He served as the Company's Chief Operating Officer from August, 1990 through October, 1991 and as Senior Vice President of Operations from February, 1990 through August, 1990. Mr. Sanghi holds an M.S. degree in Electrical and Computer Engineering from the University of Massachusetts and a B.S. degree in Electronics and Communication from Punjab University, India. Mr. Sanghi is also a director of ADFlex Solutions, Inc., a U.S. supplier of flexible circuit-based interconnect solutions. Mr. Billington has served as Vice President, Manufacturing Operations since October, 1994 and was Vice President, Process Development and Manufacturing Operations from April, 1991 until October, 1994. Prior to his appointment as Vice President, Mr. Billington served as Director of Wafer Fabrication from November, 1990 to April, 1991 and Wafer Fabrication Manager from June, 1989 to November, 1990. Mr. Billington holds a B.S. degree in marketing from Abilene Christian University. Mr. Chapman has served as the Company's Vice President and Chief Financial Officer since joining the Company in September, 1992 and as Secretary of the Company since December, 1992. Prior to joining the Company, Mr. Chapman was employed by Syntellect Inc., a telecommunication systems company, where he served as Executive Vice President, Finance and Operations, and Chief Financial Officer from 1988 to 1992. Mr. Chapman holds an M.B.A. from the Harvard Graduate School of Business Administration and B.A. degrees in Accounting and Managerial Finance from the University of California. Mr. Lanford has served as Vice President, Worldwide Sales for the Company since April, 1991. From May, 1990 to April, 1991, Mr. Lanford was Vice President, Marketing for Specialty Development Corporation, a distributor of semiconductor devices and other computer peripherals. From 1987 to 1990, Mr. Lanford served as Vice President of Sales and Marketing and a director for AIM Technology, a computer software company. Mr. Lanford holds a B.S. degree in Electrical Engineering from Arizona State University. Mr. Rigg has served as Vice President, Advanced Microcontroller and Technology Division since November, 1995. From June, 1989 to November, 1995, he served as Vice President, Logic Products Division. From 1981 to 1989, Mr. Rigg held a number of senior management positions with Advanced Micro Devices, Inc., a semiconductor company, including Vice President, Embedded Processor Division, Managing Director of Programmable Microprocessors and Product Line Manager for Interface and LAN. Mr. Rigg holds a B.S. degree in Physics from Manchester University, England. Mr. Little has served as Vice President, Standard Microcontroller and ASSP Division since November, 1995. From September, 1993 to November, 1995, he served as Vice President, Memory Products and ASSP Division. Prior to his appointment as Vice President, Mr. Little served as Division Director for the Company's Memory Products Division from July, 1991 to September, 1993, and as Director of Memory Marketing from November, 1989 to July, 1991. Immediately prior to joining the Company, Mr. Little was employed by SGS-Thomson Microelectronics from 1982 to 1989 where he held various positions of increasing management responsibility for the marketing of microprocessors, microcontrollers and memory products. Mr. Little holds a BSET from United Electronics Institute. Item 2. PROPERTIES The Company's current headquarters, research and development center and one of its wafer fabrication facilities are located in three buildings totaling approximately 242,000 square feet situated on a 77-acre parcel of land in Chandler, Arizona. A second wafer fabrication facility of approximately 170,000 square feet is located in Tempe, Arizona. The Chandler and Tempe facilities are owned by the Company. Company-owned final test facilities are located in Taiwan and Thailand. The Taiwan operations are housed in a three-story, 88,700 square foot building located in the Kaohsiung Export Processing Zone in Kaohsiung, Taiwan, Republic of China. The Taiwan building is owned by the Company's Taiwan subsidiary and is located on land that is leased to the Company pursuant to leases from the Taiwan government expiring in 1998 and 2002. The Company's Thailand final test operations are housed in a 150,000 square foot facility located in the 8 Alphatechnopolis Industrial Park in Chachoengsao, Thailand, near Bangkok. The Thailand facility, owned by the Company's Thailand subsidiary, is situated on land to which the Company expects to acquire title by the end of fiscal 1998, in accordance with an agreement between the Company and the land owner. The Company leases space for 20 Technical Support Centers in San Jose and Los Angeles, California; Dallas, Texas; Dayton, Ohio; Chicago, Illinois; Atlanta, Georgia; Boston, Massachusetts; New York, New York; as well as in Toronto, Tokyo, London, Munich, Paris, Milan, Taipei, Seoul, Singapore, Hong Kong, Shanghai and Bangalore, India. The Company's aggregate monthly rental payments for its facilities are approximately $81,000. The Company is in the process of making capital improvements to Fab 1 and Fab 2 to add additional capacity. See, "Business - Manufacturing," and "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources." The Company currently believes that its existing facilities, together with the additional capacity presently under construction, will be adequate to meet its requirements for the next 12 months. In fiscal 1996, the Company initiated planning and design of an additional wafer fabrication facility in Chandler, Arizona ("Fab 3"). The Company has determined that additional capital investment in Fab 1 and Fab 2 will yield sufficient manufacturing capacity for several additional years and, thus, has deferred the construction of Fab 3 for the present time. Item 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is involved in a limited number of legal actions, both as plaintiff and defendant, and could incur an uninsured liability in any one or more of them. Although the outcome of these actions is not presently determinable, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's results of operations or financial condition. The Company could also be subject to future litigation if it is unable to resolve pending intellectual property and technology licensing discussions. See "Business - Patents, Licenses and Trademarks," above. Litigation relating to the semiconductor industry is not uncommon, and the Company is, and from time to time, has been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future. The Securities and Exchange Commission is presently conducting an investigation into matters relating to the Company's disclosure on February 26, 1996 that revenues and earnings for the quarter ended March 31, 1996 would be lower than previously estimated. While the outcome of the investigation, and its effect on the Company, if any, cannot be predicted at the present time, the Company does not believe that the investigation will result in a material adverse effect on the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1997. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market under the symbol "MCHP." The Company's Common Stock has been quoted on the Nasdaq National Market since March 19, 1993. The following table sets forth the quarterly high and low closing prices of the Common Stock as reported by the Nasdaq National Market for the last two years, adjusted to reflect a 3-for-2 stock split effected in November, 1995, and a 3-for-2 stock split effected in January, 1997: Fiscal 1996 High Low Fiscal 1997 High Low ----------- ---- --- ----------- ---- --- First Quarter $25.50 $17.08 First Quarter $19.50 $14.67 Second Quarter 27.50 23.167 Second Quarter 25.67 14.00 Third Quarter 29.25 22.00 Third Quarter 34.84 23.34 Fourth Quarter 25.67 16.00 Fourth Quarter 39.50 25.00 On May 22, 1997, the closing sale price for the Company's Common Stock was $33.875 per share. As of such date, there were approximately 547 holders of record of the Company's Common Stock. This figure does not reflect beneficial ownership of shares held in nominee names. 9 The Company has not paid cash dividends on its capital stock. The Company currently anticipates that it will retain all available funds for use in the operations of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. The trading price of the Company's Common Stock has been, and in the future could be, subject to wide fluctuations in response to quarterly variations in operating results of the Company and other semiconductor companies, actual or anticipated announcements of technical innovations or new products by the Company or its competitors, changes in analysts' estimates of the Company's financial performance, general conditions in the semiconductor industry, worldwide economic and financial conditions and other events or factors. In addition, the stock market has experienced significant price and volume fluctuations which have particularly affected the market prices for many high technology companies and which often have been unrelated to the operating performance of such companies. These broad market fluctuations and other factors may adversely affect the market price of the Company's Common Stock. Item 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for the five-year period ended March 31, 1997 should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this report. The Company's consolidated statement of income data for each of the years in the three year period ended March 31, 1997, and the balance sheet data as of March 31, 1997 and 1996 are derived from and are qualified by reference to the audited consolidated financial statements of the Company, included in Item 8 of this report.
Year Ended March 31, 1997 1996 1995 1994 1993 -------------------------------------------------------------------------- (in thousands, except per share data) Income Statement Data: Net sales............................$ 334,252 $ 285,888 $ 207,961 $ 138,742 $ 88,652 Cost of sales........................ 167,330 137,708 101,039 73,765 56,552 Research and development............. 32,073 27,517 20,746 13,840 9,114 Selling, general and administrative.. 56,248 48,903 36,975 26,933 17,420 Restructuring cost................... 5,969 --- --- --- --- Write-off of in-process technology... 1,575 11,448 --- --- --- Operating income .................... 71,057 60,312 49,201 24,204 5,566 Interest expense, net................ (1,852) (947) (881) (593) (1,825) Other income, net.................... 288 569 808 522 814 Income before income taxes........... 69,493 59,934 49,128 24,133 4,555 Provision for income taxes........... 18,361 16,182 12,829 4,974 337 Net income ..........................$ 51,132 $ 43,752 $ 36,299 $ 19,159 $ 4,218 Net income per share.................$ 0.94 $ 0.80 $ 0.70 $ 0.42 $ 0.13 Shares used in per share calculations 54,683 54,533 51,641 46,155 33,420
As of March 31, 1997 1996 1995 1994 1993 -------------------------------------------------------------------------- Balance Sheet Data: Working capital......................$ 91,176 $ 55,855 $ 71,307 $ 53,584 $ 32,445 Total assets......................... 428,092 358,187 249,480 151,425 76,919 Long-term obligations, less current portion.............................. 5,999 33,250 15,340 14,424 3,749 Stockholders' equity................. 316,584 219,632 161,825 87,864 43,834
10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain operational data as a percentage of net sales for the years indicated: Year Ended March 31, 1997 1996 1995 ---------------------------------- Net sales............................. 100.0% 100.0% 100.0% Cost of sales......................... 50.1 48.2 48.6 --------- ---------- -------- Gross profit.......................... 49.9 51.8 51.4 Research and development.............. 9.6 9.6 10.0 Selling, general and administrative... 16.8 17.1 17.8 Restructuring cost.................... 1.8 --- --- Write-off of in-process technology.... 0.4 4.0 --- Amortization of negative goodwill..... --- --- (0.1) --------- ---------- -------- Operating income...................... 21.3% 21.1% 23.7% ========= ========== ======== Net Sales Microchip's net sales of $334.3 million in fiscal 1997 increased by $48.4 million, or 16.9%, over fiscal 1996 and net sales of $285.9 million in fiscal 1996 increased by $77.9 million, or 37.5%, over fiscal 1995. The Company experienced growth in sales of 8-bit microcontrollers and EEPROM memories over these periods and a moderate decline in sales of its commodity memory and other product categories. The Company's family of 8-bit microcontrollers represents the largest component of Microchip's total net sales. Microcontrollers and associated application development systems accounted for 64%, 59% and 58% of total net sales in fiscal 1997, 1996 and 1995, respectively. A related component of the Company's product sales consist of serial and parallel EEPROM memories and high-speed and low-voltage EPROMs. These products accounted for 31%, 34% and 34% of net sales in fiscal 1997, 1996 and 1995, respectively. The remaining component of total net sales was the Company's lower margin memory and other miscellaneous products which accounted for 5%, 7% and 8% of net sales in fiscal 1997, 1996 and 1995, respectively. During the three year period ended March 31, 1997 the Company increased the percentage of net sales attributable to 8-bit microcontrollers as a result of the Company's focus in this area. It is anticipated that this trend will continue for the foreseeable future. The Company's net sales in any given quarter are dependent upon a combination of orders received in that quarter for shipment in that quarter ("turns orders") and shipments from backlog. The Company has emphasized its ability to respond quickly to customer orders as part of its competitive strategy. This strategy, combined with current industry conditions, is resulting in customers placing orders with relatively short delivery schedules. This has had the effect of increasing turns orders as a portion of the Company's business in fiscal 1997 as compared to fiscal 1996, and has reduced the Company's visibility in projecting net sales levels. Because turns orders are more difficult to predict, there can be no assurance that the combination of turns orders and backlog in any quarter will be sufficient to achieve growth in net sales. If the Company does not achieve a sufficient level of turns orders in a particular quarter, the Company's revenues and operating results would be materially adversely affected. In the quarter ended March 31, 1997, the Company was unable to ship approximately $4 million of product for which it had firm scheduled orders. This shipment delinquency was a result of inventory mix issues which were exacerbated by the rapid growth in the Company's product offerings and the low long-term order visibility. It is anticipated that low long-term order visibility will continue for the foreseeable future and, as a result, the Company expects it may have shipment delinquencies at the end of each quarter which could adversely affect quarterly operating results. The Company's overall average selling prices for its microcontroller products have remained relatively constant while average selling prices of its non-volatile memory products have declined gradually over time. During fiscal 1997, the Company experienced increased pricing pressure on its non-volatile memory products due primarily to a worldwide industry inventory correction and the less proprietary nature of these products. There can be no assurance that average selling prices 11 for the Company's microcontroller or other products will not experience increased pricing pressure in the future. An increase in pricing pressure could adversely affect the Company's operating results. The foregoing statements regarding product mix, turns orders, shipment delinquencies and pricing pressures are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. Actual results could differ materially because of the following factors, among others: the level of orders that are received and can be shipped in a quarter; inventory mix and timing of customer orders; competition and competitive pressures on pricing and product availability; customers' inventory levels, order patterns and seasonality; the cyclical nature of both the semiconductor industry and the markets addressed by the Company's products; market acceptance of the products of both the Company and its customers; demand for the Company's products; fluctuations in production yields, production efficiencies and overall capacity utilization; changes in product mix; and absorption of fixed costs, labor and other fixed manufacturing costs. Foreign sales represented 66%, 65% and 65% of net sales in fiscal 1997, 1996 and 1995, respectively. The Company's foreign sales have been predominantly in Asia, Europe and Japan which the Company attributes to the manufacturing strength in those areas for consumer, automotive, office automation, communications and industrial products. The majority of foreign sales are U.S. Dollar denominated. The Company has entered into and, from time to time, will enter into hedging transactions in order to minimize exposure to currency rate fluctuations. Although none of the countries in which the Company conducts significant foreign operations have had a highly inflationary economy in the last five years, there is no assurance that inflation rates or fluctuations in foreign currency rates in countries where the Company conducts operations will not adversely affect the Company's operating results in the future. Additional Factors Affecting Operating Results The Company believes that future growth in net sales of its 8-bit family of microcontroller products and related memory products will depend largely upon the Company's success in having its current and new products designed into high-volume customer applications. Design wins typically precede the Company's volume shipment of products for such applications by 15 months or more. The Company also believes that shipment levels of its proprietary application development systems are an indicator of potential future design wins and microcontroller sales. The Company continued to achieve a high volume of design wins and shipped increased numbers of application development systems in fiscal 1997 compared to previous fiscal years. There can be no assurance that any particular development system shipment will result in a product design win or that any particular design win will result in future product sales. The Company's operating results are affected by a wide variety of other factors that could adversely impact its net sales and profitability, many of which are beyond the Company's control. These factors include the Company's ability to design and introduce new products on a timely basis, market acceptance of products of both the Company and its customers, customer order patterns and seasonality, changes in product mix, whether the Company's customers buy from a distributor or directly from the Company, product performance and reliability, product obsolescence, the amount of any product returns, availability and utilization of manufacturing capacity, fluctuations in manufacturing yield, the availability and cost of raw materials, equipment and other supplies, the cyclical nature of both the semiconductor industry and the markets addressed by the Company's products, technological changes, competition and competitive pressures on prices, and economic, political or other conditions in the United States, and other worldwide markets served by the Company. The Company believes its ability to continue to increase its manufacturing capacity to meet customer demand and maintain satisfactory delivery schedules will be an important competitive factor. As a result of the increase in fixed costs and operating expenses related to expanding its manufacturing capacity, the Company's operating results may be adversely affected if net sales do not increase sufficiently to offset the increased costs. The Company's products are incorporated into a wide variety of consumer, automotive, office automation, communications and industrial products. A slowdown in demand for products which utilize the Company's products as a result of economic or other conditions in the worldwide markets served by the Company could adversely affect the Company's operating results. Gross Profit The Company's gross profit was $166.9 million, $148.2 million and $106.9 million in fiscal 1997, 1996 and 1995, respectively. Gross profit as a percent of sales was 50%, 52% and 51% in fiscal 1997, 1996 and 1995, respectively. The Company anticipates that its cost of sales will fluctuate over time, driven primarily by the product mix of 8-bit microcontroller products and related memory products, manufacturing yields, wafer fab loading levels and competitive and economic conditions. Gross profit percentage was down from the prior years' levels, primarily as a result of reduced 5-inch wafer production at one of the Company's wafer fabrication facilities and increased pricing pressure on its non-volatile memory products. The Company anticipates that its gross profit percentage will fluctuate over time, driven primarily by 12 product mix, manufacturing costs and yields, and competitive and economic conditions. The Company is continuing the process of transitioning products to smaller geometries and to larger wafer sizes to reduce future manufacturing costs. Eight-inch wafer production commenced at the Tempe wafer fabrication facility in early fiscal 1998. The Company will continue the transition of products to its 0.7 micron process. The foregoing statements relating to anticipated gross margins, cost of sales, and the transition to higher yielding manufacturing processes are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. Actual results could differ materially because of the following factors, among others: fluctuations in production yields, production efficiencie and overall capacity utilization; cost and availability of raw materials; absorption of fixed costs, labor and other direct manufacturing costs; the timing and success of manufacturing process transition; changes in product mix; competitive pressures on prices; and other economic conditions in the United States and other worldwide markets. The Company has consistently presented its results of operations for all periods on the last-in first-out (LIFO) method and has assessed the net realizable value of inventory based on LIFO costs. LIFO has the effect of matching current costs of production with sales generated during the same period. Production costs have decreased over time due to improvements in manufacturing productivity and yields, resulting in lower cost of sales for the year ended March 31, 1995. Due to changes in sales and product mix which affected production costs, cost of sales increased during the years ended March 31, 1997 and 1996. The difference in cost of sales between the LIFO and FIFO inventory valuation methods for the reporting periods was immaterial. All of Microchip's assembly operations and a portion of its product final test requirements are performed by third-party contractors in order to meet product shipment requirements. Reliance on third parties involves some reduction in the Company's level of control over these portions of its business. While the Company reviews the quality, delivery and cost performance of these third-party contractors, there can be no assurance that reliance on third-party contractors will not adversely impact results in future reporting periods if any third-party contractor is unable to maintain assembly and test yields and costs at approximately their current levels. The Company owns product final test facilities in Kaohsiung, Taiwan, Republic of China and Chachoengsao, Thailand. The Company also uses various third-party contractors in Thailand, Taiwan, the Philippines and other locations in Asia for product assembly and test. The Company's reliance on facilities in these countries, and maintenance of substantially all of its finished goods inventory overseas, entails certain political and economic risks, including political instability and expropriation, labor disruption, supply disruption, currency controls and exchange fluctuations, as well as changes in tax laws, tariff and freight rates. Microchip currently employs the Alphatec Electronics Public Company Limited group of companies ("Alphatec") headquartered in Bangkok, Thailand for a significant portion of its product assembly volume and a portion of its product final test capacity. While Alphatec's assembly and test operations have performed reliably for the Company for several years, Alphatec has recently experienced difficulty in obtaining financing in connection with some of its unrelated joint ventures involving semiconductor fabrication facilities in Thailand. Such financing difficulties have not impacted Alphatec's assembly and test facilities nor its provision of services to the Company. However, there can be no assurance that assembly and test operations will not be affected in the future. Microchip currently has second sources for product assembly and test for most of its package types and can shift its wafer output to other factories, if necessary, however, that can be no assurance that such action would not result in short-term disruption including possible temporary product shortages. The Company has not experienced any significant interruptions in its foreign business operations to date. Nonetheless, the Company's business and operating results could be adversely affected if foreign operations or international air transportation were disrupted. During the fourth quarter of fiscal 1997, the Company commenced construction of an additional 20,000 square foot wafer fabrication module at Tempe, Arizona. It is anticipated that the construction will be completed during the second quarter of fiscal 1998 and that the new wafer fabrication module will begin 8-inch wafer production in the fourth quarter of fiscal 1998. In addition, the Company is also expanding capacity at its Chandler wafer fabrication facility and expects to have an additional 3,000 square feet of capacity available in Chandler during the second quarter of fiscal 1998. The foregoing statements regarding completion of construction and additional available capacity are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. Actual results could differ materially because of the following factors, among others: delays in facilitation of the expanded Tempe and Chandler wafer fabrication facilities; production yields and efficiencies; factory absorption rates; capacity loading; supply disruption; operating cost levels; and the rate of revenue growth. 13 Research and Development The Company is committed to continued investment in new and enhanced products, including its development systems software and in its design and manufacturing process technology, which are significant factors in maintaining the Company's competitive position. The dollar investment in research and development increased 17% in fiscal 1997 over fiscal 1996, and 33% in fiscal 1996 over fiscal 1995. The Company will continue to invest in research and development in the future, including an investment in process and product development associated with the capacity expansion of the Company's fabrication facilities. The Company's future operating results will depend to a significant extent on its ability to continue to develop and introduce new products on a timely basis which can compete effectively on the basis of price and performance and which address customer requirements. The success of new product introductions depends on various factors, including proper new product selection, timely completion and introduction of new product designs, development of support tools and collateral literature that make complex new products easy for engineers to understand and use and market acceptance of customers' end products. Because of the complexity of its products, the Company has experienced delays from time to time in completing development of new products. In addition, there can be no assurance that any new products will receive or maintain substantial market acceptance. If the Company were unable to design, develop and introduce competitive products on a timely basis, its future operating results would be adversely affected. The Company's future success will also depend upon its ability to develop and implement new design and process technologies. Semiconductor design and process technologies are subject to rapid technological change, requiring large expenditures for research and development. Other companies in the industry have experienced difficulty in effecting transitions to smaller geometry processes and to larger wafers and, consequently, have suffered reduced manufacturing yields or delays in product deliveries. The Company believes that its transition to smaller geometries and to larger wafers will be important for the Company to remain competitive, and operating results could be adversely affected if the transition is substantially delayed or inefficiently implemented. Selling, General and Administrative Through expense controls and operating efficiencies, the Company has reduced selling, general and administrative expenses in fiscal 1997 to 16.8% of sales, as compared to 17.1% and 17.8% of sales in fiscal 1996 and 1995, respectively. This has been achieved while the Company has continued to invest significantly in incremental worldwide sales and technical support resources to promote the Company's embedded control products. However, there can be no assurance that revenue growth in the future will be sufficient to continue to reduce the current level of selling, general and administrative expenses as a percentage of sales. Other Income (Expense) Interest expense in fiscal 1997 increased over fiscal 1996 and fiscal 1995 due to increased borrowings associated with the Company's capital equipment additions and stock repurchase program. Interest income in fiscal 1997 decreased from fiscal 1996 but increased from fiscal 1995, primarily as a result of changes in invested cash balances. Other income represents numerous immaterial non-operating items. The Company's interest expense could increase in fiscal 1998 if the Company increases its borrowings and interest expense would be adversely impacted by increased interest rates. Provision for Income Taxes Provisions for income taxes reflect tax on foreign earnings and federal and state tax on U.S. earnings. The Company had an effective tax rate of 26.4%, 27.0% and 26.1% for the years ended March 31, 1997, 1996 and 1995, respectively, due primarily to lower tax rates at its foreign locations. The Company believes that its tax rate for the foreseeable future will be approximately 27%. During fiscal 1995, the Internal Revenue Service ("IRS") completed an examination of the Company's federal income tax returns for fiscal 1993, 1992, 1991 and 1990. As a result of the completion of this examination by the IRS and completion of examinations by certain foreign tax authorities, the Company recognized a benefit to its effective tax rate in fiscal 1995. The foregoing statement regarding the Company's anticipated future tax rate is a forward-looking statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbors created thereby. Actual results could differ materially because of the following factors, among others: taxation rates in geographic regions where the Company has significant operations; and current tax holidays available in foreign locations. 14 Liquidity and Capital Resources The Company had $43.0 million in cash and cash equivalents at March 31, 1997, an increase of $11.9 million from the March 31, 1996 balance. The Company has an unsecured line of credit with a syndicate of domestic banks totaling $90.0 million. There were no borrowings under the domestic line of credit as of March 31, 1997. The domestic line of credit requires the Company to achieve certain financial ratios and operating results. The Company was in compliance with these covenants at March 31, 1997. The Company also has an unsecured short term line of credit totaling $14.9 million with certain foreign banks. There were no borrowings under the foreign line of credit as of March 31, 1997. There are no covenants related to the foreign line of credit. At March 31, 1997, an aggregate of $104.9 million of these facilities was available, subject to financial covenants and ratios with which the Company was in compliance. The Company's ability to fully utilize these facilities is dependent on the Company remaining in compliance with such covenants and ratios. During the year ended March 31, 1997, the Company generated $77.6 million of cash from operating activities, an improvement of $4.2 million from the year ended March 31, 1996 and an improvement of $34.5 million from the year ended March 31, 1995. The improvement in cash flow from operations was primarily due to increased profitability, the impact of changes in accounts payable and accrued expenses and an increase in depreciation expense. The Company's level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the years ended March 31, 1997, 1996 and 1995 were $79.0 million, $115.8 million and $70.8 million, respectively. Capital expenditures were primarily for the expansion of production capacity and the addition of research and development equipment in each of these periods. The Company also acquired equipment under capital leases of $3.7 million in the year ended March 31, 1995. The Company currently intends to spend approximately $135.0 million during the next 12 months for additional capital equipment to increase capacity at its existing wafer fabrication facilities, to construct additional facilities and to expand product test operations. The Company expects capital expenditures will be financed by cash flow from operations, available debt arrangements and other sources of financing. The Company believes that the capital expenditures anticipated to be incurred over the next 12 months will provide sufficient additional manufacturing capacity to meet its currently anticipated needs. Net cash provided by financing activities was $13.4 million, $27.1 million and $31.5 million for the years ended March 31, 1997, 1996 and 1995 respectively. Proceeds from sale of stock and put options were $59.5 million, $9.6 million and $33.7 million for the years ended March 31, 1997, 1996 and 1995, respectively. Proceeds from issuance of long term debt were $2.9 million and $3.8 million for the years ended March 31, 1996 and 1995, respectively. Payments on long term debt and capital lease obligations were $5.7 million, $5.9 million and $5.9 million for the years ended March 31, 1997, 1996 and 1995, respectively. Proceeds from lines of credit were $20.5 million for the year ended March 31, 1996. Repayments on lines of credit were $21.0 million for the year ended March 31, 1997. Cash expended for the purchase of the Company's Common Stock was $19.5 million for the year ended March 31, 1997. On July 26, 1996, the Company's Board of Directors authorized a share repurchase plan which permits the Company to purchase up to 1,500,000 shares of its Common Stock and to sell up to 750,000 put options. Based on the price of Microchip's stock and other pertinent factors, the Company may from time to time purchase shares on the open market or sell put options. See Footnote 14 to the Company's Consolidated Financial Statements, below. The Company believes that its existing sources of liquidity combined with cash generated from operations will be sufficient to meet the Company's currently anticipated cash requirements for at least the next 12 months. However, the semiconductor industry is capital intensive. In order to remain competitive, the Company must continue to make significant investments in capital equipment, for both production and research and development. The Company may seek additional equity or debt financing during the next 12 months for the capital expenditures required to maintain or expand the Company's wafer fabrication and product test facilities. The timing and amount of any such capital requirements will depend on a number of factors, including demand for the Company's products, product mix, changes in industry conditions and competitive factors. There can be no assurance that such financing will be available on acceptable terms, and any additional equity financing could result in additional dilution to existing investors. Recent Accounting Pronouncements In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 , "Earnings per Share" ("Statement 128"). Statement 128 establishes standards for computing and presenting earnings per share ("EPS"), and supersedes APB Opinion No.15. Statement 128 replaces primary EPS with basic EPS and requires 15 dual presentation of basic and diluted EPS. Statement 128 is effective for annual and interim periods ending after December 15, 1997. Earlier adoption is not permitted. After adoption all prior period EPS data shall be restated to conform to Statement 128. Basic and diluted EPS, as calculated under Statement 128 would have been $.99 and $.94 for the fiscal year ended March 31, 1997. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Company listed in the index appearing under Item 14(a)(1) hereof are filed as part of this Annual Report on Form 10-K. See also Index to Financial Statements on page F-1 hereof. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the Company's directors is incorporated herein by reference to the Company's proxy statement for the 1997 annual meeting of stockholders under the caption "Election of Directors." See Item I, Part I hereof under the caption "Executive Officers" for information with respect to the Company's executive officers. Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference to the Company's proxy statement for the 1997 annual meeting of stockholders under the caption "Section 16(a) Beneficial Ownership Reporting Compliance." Item 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is incorporated herein by reference to the information under the caption "Executive Compensation" in the Company's proxy statement for the 1997 annual meeting of stockholders. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the information under the caption "Security Ownership of Principal Stockholders, Directors and Executive Officers" in the Company's proxy statement for the 1997 annual meeting of stockholders. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 16 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K:
Page No. (1) Financial Statements: Independent Auditors' Report F-1 Consolidated Balance Sheets as of March 31, 1997 and 1996 F-2 Consolidated Statements of Income for each of the years in the three-year period ended March 31, 1997 F-3 Consolidated Statements of Cash Flows for each of the years in the three-year period ended March 31, 1997 F-4 Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended March 31, 1997 F-5 Notes to Consolidated Financial Statements F-6 (2) Financial Statement Schedules - Applicable schedules have been omitted because information is included in the footnotes to the Financial Statements. (3) The Exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index which appears on page E-1 hereof, which Exhibit Index is incorporated herein by this reference. (b) No current reports on Form 8-K were filed during the quarter ended March 31, 1997. (c) See Item 14(a)(3) above. (d) See "Index to Financial Statements" included under Item 8 to this report.
17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICROCHIP TECHNOLOGY INCORPORATED (Registrant) By: /s/ Steve Sanghi ---------------------------------------- Steve Sanghi President and Chief Executive Officer Date: May 23, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name and Signature Title Date - ------------------ ----- ---- /s/ Steve Sanghi Director, President and May 23, 1997 - -------------------------------------------- Chief Executive Officer Steve Sanghi Albert J. Hugo-Martinez* Director May 23, 1997 Jon H. Beedle* Director May 23, 1997 L.B. Day* Director May 23, 1997 /s/ C. Philip Chapman Vice President, Chief Financial May 23, 1997 - -------------------------------------------- Officer and Secretary (Principal C. Philip Chapman Financial and Accounting Officer) *By: /s/ Steve Sanghi Individually and as Attorney-in-fact May 23, 1997 --------------------------------------- Steve Sanghi
18 Annual Report on Form 10-K Item 8, Item 14(a)(1) and (2), (c) and (d) -------------------------------------- INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS EXHIBITS -------------------------------------- YEAR ENDED MARCH 31, 1997 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CHANDLER, ARIZONA 19 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES Index to Consolidated Financial Statements Page Number ----------- Independent Auditors' Report F-1 Consolidated Balance Sheets F-2 as of March 31, 1997 and 1996 Consolidated Statements of Income F-3 for each of the years in the three-year period ended March 31, 1997 Consolidated Statements of Cash Flows F-4 for each of the years in the three-year period ended March 31, 1997 Consolidated Statements of Stockholders' Equity F-5 for each of the years in the three-year period ended March 31, 1997 Notes to Consolidated Financial Statements F-6 i KPMG Peat Marwick LLP Independent Auditors' Report The Board of Directors and Stockholders Microchip Technology Incorporated: We have audited the accompanying consolidated balance sheets of Microchip Technology Incorporated and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Microchip Technology Incorporated and subsidiaries as of March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Phoenix, Arizona April 18, 1997 F-1 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
ASSETS March 31, ----------------------------------------- 1997 1996 ----------------- ------------------ Cash and cash equivalents $ 42,999 $ 31,059 Accounts receivable, net 61,102 47,208 Inventories 56,813 56,127 Prepaid expenses 1,715 1,808 Deferred tax asset 24,251 19,121 Other current assets 2,656 1,108 ----------------- ------------------ Total current assets 189,536 156,431 Property, plant and equipment, net 234,058 197,383 Other assets 4,498 4,373 ----------------- ------------------ Total assets $ 428,092 $ 358,187 ================= ================== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 35,281 $ 47,165 Current maturities of of long-term debt 2,470 2,734 Current maturities of capital lease obligations 3,776 2,943 Accrued liabilities 36,392 28,207 Deferred income on shipments to distributors 20,441 19,527 ----------------- ------------------ Total current liabilities 98,360 100,576 Long-term line of credit --- 21,000 Long-term debt, less current maturities 3,616 6,086 Capital lease obligations, less current maturities 2,383 6,164 Long-term pension accrual 980 690 Deferred tax liability 6,169 4,039 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value; authorized 5,000,000 shares; no shares issued or outstanding --- --- Common stock, $.001 par value; authorized 65,000,000 shares; issued 53,300,619 and outstanding 53,196,037 shares at March 31, 1997; issued and outstanding 51,581,172 shares at March 31, 1996. 53 52 Additional paid-in capital 168,185 120,887 Retained earnings 149,825 98,693 Less shares of common stock held in treasury; 104,582 shares at cost (1,479) --- ----------------- ------------------ Net stockholders' equity 316,584 219,632 Total liabilities and stockholders' equity $ 428,092 $ 358,187 ================= ==================
F-2 See accompanying notes to consolidated financial statements MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share amounts) Year Ended March 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- Net sales $ 334,252 $ 285,888 $ 207,961 Cost of sales 167,330 137,708 101,039 --------- --------- --------- Gross profit 166,922 148,180 106,922 Operating expenses: Research and development 32,073 27,517 20,746 Selling, general and administrative 56,248 48,903 36,975 Restructuring cost 5,969 -- -- Write-off of in-process technology 1,575 11,448 -- --------- --------- --------- 95,865 87,868 57,721 Operating income 71,057 60,312 49,201 Other income (expense): Interest income 1,419 2,034 1,108 Interest expense (3,271) (2,981) (1,989) Other, net 288 569 808 --------- --------- --------- Income before income taxes 69,493 59,934 49,128 Income taxes 18,361 16,182 12,829 --------- --------- --------- Net income $ 51,132 $ 43,752 $ 36,299 ========= ========= ========= Net income per common and common equivalent share $ 0.94 $ 0.80 $ 0.70 ========= ========= ========= Shares used in per share calculation 54,683 54,533 51,641 ========= ========= ========= F-3 See accompanying notes to consolidated financial statements MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share amounts)
Years Ended March 31, --------------------------------------------------- 1997 1996 1995 ---------- ----------- ---------- Cash flows from operating activities: Net income $ 51,132 $ 43,752 $ 36,299 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 452 634 649 Provision for inventory valuation 1,886 7,639 1,883 Provision for pension accrual 1,316 1,197 1,177 Provision for restructuring cost 2,483 --- --- Depreciation 39,853 29,975 17,196 Amortization of purchased technology 300 --- --- Deferred income taxes (3,000) (7,402) (9,055) Tax benefit from exercise of stock options 5,742 4,130 4,120 Increase in accounts receivable (14,346) (9,974) (12,101) Increase in inventories (2,572) (23,565) (17,354) Increase (decrease) in accounts payable and accrued liabilities (3,699) 28,788 15,550 Change in other assets and liabilities (1,961) (1,815) 4,751 ------------- -------------- -------------- Net cash provided by operating activities 77,586 73,359 43,115 ------------- -------------- -------------- Cash flows from investing activities: Capital expenditures (79,012) (115,845) (70,848) Sales of marketable securities --- 13,796 4,420 ------------- -------------- -------------- Net cash used in investing activities (79,012) (102,049) (66,428) ------------- -------------- -------------- Cash flows from financing activities: Net proceeds from (repayments on) lines of credit (21,000) 20,499 1 Proceeds from issuance of long-term debt --- 2,926 3,769 Payments on long-term debt (2,734) (2,688) (2,352) Payments on capital lease obligations (2,948) (3,251) (3,591) Purchase of treasury stock (19,463) --- --- Proceeds from sale of stock and put options 59,511 9,625 33,722 ------------- -------------- -------------- Net cash provided by financing activities 13,366 27,111 31,549 ------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents 11,940 (1,579) 8,236 Cash and cash equivalents at beginning of year 31,059 32,638 24,402 ------------- -------------- -------------- Cash and cash equivalents at end of year $ 42,999 $ 31,059 $ 32,638 ============= ============== ==============
F-4 See accompanying notes to consolidated financial statements MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Common Net Stock and Additional Stock held in Retained Stockholders' Paid-in Capital Treasury Earnings Equity (in thousands) Shares Amount Shares Amount - -------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1994 46,181 $ 69,222 - - $ 18,642 $ 87,864 Sale of Stock Public offering 1,500 28,384 - - - 28,384 Exercise of stock options 902 1,964 - - - 1,964 Employee stock purchase plan 1,372 2,746 - - - 2,746 Sale of put options - 628 - - - 628 Tax benefit from exercise of options - 4,120 - - - 4,120 Compensation expense - 60 - - - 60 Unrealized holding loss - (240) - - - (240) Net income - - - - 36,299 36,299 - -------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1995 49,955 $ 106,884 - - $ 54,941 $ 161,825 Sale of Stock Exercise of stock options 1,368 5,686 - - - 5,686 Employee stock purchase plan 258 3,292 - - - 3,292 Sale of put options - 647 - - - 647 Tax benefit from exercise of options - 4,130 - - - 4,130 Unrealized holding loss - 240 - - - 240 Compensation expense - 60 - - - 60 Net income - - - - 43,752 43,752 - -------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1996 51,581 $ 120,939 - - $ 98,693 $ 219,632 Sale of Stock Public offering (net of offering costs of $2,905) 1,380 47,120 - - - 47,120 Exercise of stock options 1,315 8,388 - - - 8,388 Employee stock purchase plan 246 3,576 - - - 3,576 Purchase of treasury stock - - 1,326 (19,463) - (19,463) Issuance of treasury stock for the exercise of options and purchases in the employee stock purchase plan (1,221) (17,984) (1,221) 17,984 - - Sale of put options, net - 427 - - - 427 Tax benefit from exercise of options - 5,742 - - - 5,742 Compensation expense - 30 - - - 30 Net income - - - - 51,132 51,132 - -------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1997 53,301 $ 168,238 105 $ (1,479) $ 149,825 $ 316,584 ==========================================================================================================================
See accompanying notes to consolidated financial statements F-5 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- Principles of Consolidation The consolidated financial statements include the accounts of Microchip Technology Incorporated and its wholly owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Stock Split On December 6, 1996, the Company's Board of Directors approved a three-for-two split of its Common Stock which became effective January 6, 1997. Accordingly, all references in the financial statements to number of shares of Common Stock, weighted average number of shares of Common Stock and stock option information have been restated to reflect this stock split. Cash and Cash Equivalents All highly liquid investments including marketable securities purchased with an original maturity of three months or less are considered to be cash equivalents. As of March 31, 1997, the Company has classified marketable securities of $25,964,000, with a maturity of less than three months as cash and cash equivalents. The Company intends to hold these securities to maturity. There were no marketable securities at March 31, 1996. Inventories Inventories are valued at the lower of cost or market using the last-in, first-out (LIFO) method. Property, Plant and Equipment Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed when incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets which range from three to twenty-five years. Assets acquired under capital lease arrangements have been recorded at the present value of the future minimum lease payments and are being amortized on a straight-line basis over the estimated useful life of the asset or the lease term, whichever is shorter. Amortization of this equipment is included in depreciation and amortization expense. Foreign Currency Translation and Forward Contracts The Company's foreign subsidiaries are considered to be extensions of the U.S. company and any translation gains and losses related to these subsidiaries are included in income. As the U.S. Dollar is utilized as the functional currency, gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the subsidiaries' functional currency) are also included in income. Gains and losses associated with currency rate changes on forward contracts are recorded currently in income. Revenue Recognition Revenue from product sales to direct customers is recognized upon shipment. The Company defers recognition of net sales and profits on sales to distributors that have rights of return and price protection until the distributors have resold the products. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Computation of Net Income per Share Net income per share is based upon the weighted average number of shares of Common Stock and common equivalent shares consisting of stock options (using the treasury stock method) outstanding for each of the periods presented. Common equivalent shares are not considered if the result would be anti-dilutive. F-6 Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on April 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position or results of operations. Stock Option Plan Prior to April 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded, only if, on the date of grant, the current market price of the underlying stock exceeded the exercise price. On April 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Use of Estimates The Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Reclassifications Certain 1996 and 1995 fiscal year balances have been reclassified to conform to the fiscal year 1997 presentation. 2. ACQUISITIONS ------------ Keeloq(R) Hopping Code On November 17, 1995, the Company acquired the Keeloq(R) hopping code technology and patents developed by Nanoteq Ltd. of the Republic of South Africa, and the marketing rights related thereto (the "Keeloq Acquisition"). The Keeloq Acquisition was treated as an asset purchase for accounting purposes. The amount paid for the Keeloq Acquisition, including all related costs, was $12,948,000. The Company has written off a substantial portion of the purchase price that relates to in-process research and development costs, which is consistent with the Company's on-going treatment of research and development costs, as well as all Keeloq Acquisition-related costs. The one-time write-off associated with the Keeloq Acquisition was $11,448,000, with the balance treated as purchased technology and amortized on a straight line basis over five years. Under the terms of the Keeloq Acquisition, the Company has agreed to a secondary payment which will be determined by a formula based on the net sales and gross margin results of the division for the six month period ended December 31, 1998. Any such secondary payment is based on future performance and it is currently not possible to determine the amount of such payment. It is currently anticipated that any such payment would be expensed in the quarter the amount is determined. The impact of the Keeloq Acquisition to the Company's reported financial position and results of operations is immaterial, therefore, pro-forma information illustrating the combined results after the Keeloq Acquisition has not been provided. ASIC Technical Solutions On June 25, 1996 the Company acquired ASIC Technical Solutions, Inc., a fabless provider of quick turn gate array devices (the "ASIC Acquisition"). The ASIC Acquisition was treated as a purchase for accounting purposes. The amount paid for the ASIC Acquisition and related costs was $1,750,000. As part of the ASIC Acquisition, the Company allocated a substantial portion of the purchase price to in-process research and development costs, which is consistent with the Company's on-going treatment of research and development costs. The total one-time write-off associated with the ASIC Acquisition was $1,575,000, with the balance treated as purchased technology related to current products and amortized over five years. Under the terms of the ASIC Acquisition, the Company has agreed to a secondary payment which will be determined by a formula based on the net sales and gross margin F-7 results of the division for the two year period ending December 31, 1999. Any such secondary payment is based on future performance and it is currently not possible to determine the amount of such payment. It is currently anticipated that any such payment would be expensed in the quarter the amount is determined. The impact of the ASIC Acquisition to the Company's reported financial position and results of operations is immaterial, therefore, pro-forma information illustrating the combined results after the ASIC Acquisition has not been provided. 3. RESTRUCTURING CHARGES --------------------- During the quarter ended June 30, 1996, primarily in response to inventory correction activities at the Company's customers, the Company implemented a series of actions to reduce production capacity, curtail the growth of inventories and reduce operating expenses. These actions included delaying capital expansion plans and deferring capital spending, a 15% production cutback in wafer fabrication, a headcount reduction in early April, 1996 representing approximately 3% of the Company`s worldwide employees, and a two-week wafer fab shut down in early July, 1996. As a result of these actions, the Company recorded a pre-tax restructuring charge of $5,969,000 in the quarter ended June 30, 1996 to cover costs primarily related to idling part of the Company's 5-inch wafer fab capacity, paying continuing expenses during the wafer fabrication facility shutdown and paying severance costs associated with the April, 1996 headcount reduction. 4. CONTINGENCIES ------------- The Company is subject to lawsuits and other claims arising in the ordinary course of its business. In the Company's opinion, based on consultation with legal counsel, as of March 31, 1997, the effect of such matters will not have a material adverse effect on the Company's financial position. 5. ACCOUNTS RECEIVABLE ------------------- Accounts receivable consists of the following (amounts in thousands):
March 31, 1997 1996 --------------------------------- Trade accounts receivable $ 62,165 $ 47,799 Other 1,031 1,243 --------------------------------- 63,196 49,042 Less allowance for doubtful accounts 2,094 1,834 ---------------------------------- $ 61,102 $ 47,208 ==================================
6. INVENTORIES The components of inventories are as follows (amounts in thousands):
March 31, 1997 1996 --------------------------------- Raw materials $ 2,310 $ 2,033 Work in process 44,813 43,036 Finished goods 18,021 21,430 --------------------------------- 65,144 66,499 Less allowance for inventory valuation 8,331 10,372 --------------------------------- $ 56,813 $ 56,127 =================================
The Company has consistently presented its results of operations for all periods on the last-in first-out (LIFO) method and has assessed the net realizable value of inventory based on LIFO costs. LIFO has the effect of matching current costs of production with sales generated during the same period. Production costs have decreased over time due to improvements in manufacturing productivity and yields, resulting in lower cost of sales for the year ended F-8 March 31, 1995. Due to changes in sales and product mix which affected production costs, cost of sales increased during the years ended March 31, 1997 and 1996. The difference in cost of sales between the LIFO and FIFO inventory valuation methods for the reporting periods was immaterial. The inventory has been valued at net realizable value after considering costs of disposition and the LIFO basis of the inventory. 7. PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment consists of the following (amounts in thousands):
March 31, 1997 1996 ----------- ----------- Land $ 10,837 $ 10,518 Building and building improvements 51,796 36,939 Machinery and equipment 218,284 185,580 Projects in process 52,608 26,389 ----------- ----------- 333,525 259,426 Less accumulated depreciation and amortization 99,467 62,043 ----------- ----------- $ 234,058 $ 197,383 =========== ===========
8. LONG-TERM DEBT -------------- Long-term debt consists of borrowings (denominated in U.S. Dollars) from three Taiwan financial institutions, secured by equipment financed thereby. Interest rates are at the London Interbank Offering Rate (LIBOR) (6.0% at March 31, 1997) plus 0.75%, and Singapore Interbank Offering Rate (SIBOR) (6.125% at March 31, 1997) plus 0.75%. The weighted average interest rate on these borrowings was 6.824% at March 31, 1997. Payments, including interest, are due semi-annually through September 15, 2000. The aggregate annual maturities of long term debt as of March 31, 1997 are $2,470,000, $2,196,000, $1,147,000 and $273,000 for the years ending March 31, 1998, 1999, 2000 and 2001, respectively. The Company has an unsecured line of credit with a syndicate of U.S. banks for up to $90,000,000, bearing interest at the Prime Rate (8.50% at March 31, 1997) and expiring in October, 1998. At March 31, 1996 the Company had utilized $21,000,000 of this line of credit. At March 31, 1997 there were no borrowings against the line of credit. The agreement between the Company and the syndicate of banks requires the Company to achieve certain financial ratios and operating results. The Company was in compliance with these covenants as of March 31, 1997. The Company has an additional unsecured line of credit with various Taiwan financial institutions for up to $14,890,000 (U.S. Dollar equivalent). These borrowings are predominantly denominated in New Taiwan Dollars, bearing interest at the Taiwan money market rate (6.10% at March 31, 1997) and expiring on various dates through September, 1998. No borrowings were outstanding on this line of credit as of March 31, 1997 and 1996. 9. EMPLOYEE BENEFIT PLANS ---------------------- The Company maintains a contributory profit-sharing plan for a majority of its domestic employees meeting certain service requirements. The plan qualifies under Section 401(k) of the Internal Revenue Code, and allows employees to contribute up to 15% of their compensation, subject to maximum annual limitations prescribed by the Internal Revenue Service. Company contributions to the plan were at the discretion of the Board of Directors until January 1, 1997, when the employer match was revised to provide for a fixed and discretionary component. The Company shall make a matching contribution of up to 25% of the first 4% of the participant's eligible compensation and may award up to an additional 25% under the discretionary match. All matches are provided on a quarterly basis and require the participant to be an active employee at the end of each quarter. For the years ended March 31, 1997, 1996 and 1995, the Company contributions to the plan totaled $452,000, $407,000, and $273,000, respectively. Effective January 1, 1997, the Company adopted a non-qualified deferred compensation arrangement. This plan is unfunded and is maintained primarily for the purpose of providing deferred compensation for a select group of management as defined in ERISA Sections 201, 301 and 401. There are no Company matching contributions with respect to this plan. F-9 Substantially all employees in foreign locations are covered by a statutory pension plan. Contributions are accrued based on an actuarially determined percentage of compensation and are funded in amounts sufficient to meet statutory requirements. Pension expense amounted to $1,316,000, $1,197,000, and $1,177,000 for the years ended March 31, 1997, 1996 and 1995, respectively. The Company has an incentive compensation plan which provides for awards, based on a percentage of base salary, from an incentive pool created from operating profits of the Company, at the discretion of the Board of Directors. During the years ended March 31, 1997, 1996 and 1995, $2,064,000, $1,357,000 and $2,105,000, respectively, was charged against operations for this plan. The Company also has a plan which provides a cash bonus based on the operating profits of the Company for all employees, at the discretion of the Board of Directors. During the years ended March 31, 1997, 1996 and 1995, $1,373,000, $1,025,000, and $1,025,000, respectively, was charged against operations for this plan. 10. STOCK OPTION PLANS ------------------ Under the Company's 1993 Stock Option Plan (the "Plan") key employees, non-employee directors and consultants may be granted incentive stock options or non-statutory stock options to purchase shares of Common Stock at a price not less than 100% of the fair market value of the option shares on the grant date. Options granted under the Plan vest over the period determined by the Board of Directors at the date of grant, at periods ranging from one year to four years. At March 31, 1997, there were 1,508,370 shares available for grant under the Plan. The per share weighted-average fair value of stock options granted under the Plan for the years ended March 31, 1997 and 1996 was $9.66 and $13.22, respectively, based on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for both years: expected dividend yield of 0%, expected volatility of 60%, risk-free interest rate of 6.25%, and an expected life of 3.50 years. Under the Company's 1993 Stock Option Plan, 14,897,477 shares of Common Stock had been reserved for issuance since the inception of the Plan. In April, 1997, subject to stockholder approval, the Board of Directors reserved an additional 2,000,000 shares of Common Stock for issuance under the Plan. The stock option activity is as follows: Options Outstanding Weighted Average Shares Exercise Price ----------------------------------------- Outstanding at March 31, 1994 5,963,625 $ 4.69 Granted 2,186,945 13.76 Exercised (901,656) 2.20 Canceled (138,242) 6.50 ----------------- Outstanding at March 31, 1995 7,110,672 7.76 Granted 981,833 23.77 Exercised (1,367,832) 4.01 Canceled (177,366) 10.86 ----------------- Outstanding at March 31, 1996 6,547,307 10.88 Granted 2,092,952 17.74 Exercised (1,314,977) 6.16 Canceled (967,610) 21.28 ----------------- Outstanding at March 31, 1997 6,357,672 $ 12.50 ================= F-10 The following table summarizes information about the stock options outstanding at March 31, 1997:
Weighted Average Weighted Weighted Range of Options Remaining Average Options Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- $ 0.0300 - $ 2.4070 571,588 5.72 $ 1.87 571,588 $ 1.87 $ 3.6300 - $ 7.1110 1,714,505 6.47 7.07 1,369,106 7.06 $ 7.5930 - $13.0000 175,997 6.95 11.06 91,951 10.93 $ 13.7220 - 1,525,500 7.31 13.72 77,940 13.72 $ 14.5550 - $16.7500 116,975 8.21 15.25 28,473 15.37 $ 16.8330 - 1,001,250 9.25 16.83 -- -- $ 17.0000 - $38.2500 1,251,857 8.91 19.70 69,750 20.31 --------- ---- ------ --------- ------- $0.0300 - $38.2500 6,357,672 7.56 $12.50 2,208,808 $ 6.60 ========= ==== ====== ========= ======
At March 31, 1997 and 1996, the number of options exercisable was 2,208,808 and 2,115,404, respectively, and the weighted-average exercise price of those options was $6.60 and $6.21, respectively. On April 23, 1996, the Board of Directors of the Company approved an option exchange program for options priced in excess of $20.00. Employees, excluding executive officers, certain corporate officers, and directors, who were issued stock options in this category, and who were active employees on April 30, 1996, could elect to keep their options to buy Common Stock at the original grant price or exchange their options for options priced at $17.00 per share, the fair market value of the Company's Common Stock on April 30, 1996. If the employee elected to exchange their options for options priced at $17.00 per share, the vesting commencement date was extended by 90 days from the original vesting date. There were 654,395 shares exchanged under the option exchange program. For certain options granted, the Company recognizes as compensation expense the excess of the deemed value for accounting purposes of the Common Stock issuable upon exercise of such options over the exercise price of such options. This deferred compensation expense is amortized ratably over the vesting period of each option. During the years ended March 31, 1997, 1996 and 1995, the Company recorded compensation expense of $30,000, $60,000 and $60,000, respectively. Common stock received through the exercise of incentive stock options which are sold by the optionee within two years of grant or one year of exercise result in a tax deduction for the Company equivalent to the taxable gain recognized by the optionee. For financial reporting purposes, the tax effect of this deduction is accounted for as a credit to additional paid-in capital rather than as a reduction of income tax expense. Such optionee sales resulted in a tax benefit to the Company of $5,742,000, $4,130,000 and $4,120,000 for the years ended March 31, 1997, 1996 and 1995, respectively. The Company's Employee Stock Purchase Plan (the "Purchase Plan") allows eligible employees of the Company to purchase shares of Common Stock at semi-annual intervals through periodic payroll deductions. The purchase price per share, in general, will be 85% of the lower of the fair market value of the Common Stock on the participant's entry date into the offering period or 85% of the fair market value on the semi-annual purchase date. As of March 31, 1997, 179,086 shares were available for issuance under the Purchase Plan. Since the inception of the Purchase Plan, 3,006,000 shares of Common Stock have been reserved for issuance under the Purchase Plan. In April, 1997, subject to stockholder approval, the Board of Directors reserved an additional 300,000 shares of Common Stock for issuance under the Purchase Plan. During fiscal 1995, a purchase plan was adopted for employees in non-U.S. locations. The plan will allow for the purchase price per share to be 100% of the lower of the fair market value of the Common Stock on the beginning or end of the semi-annual purchase plan period. In April, 1997, the Board of Directors reserved an additional 10,000 shares of Common Stock for issuance under this plan. The Company applies APB Opinion No. 25 in accounting for its various stock plans and, accordingly, no compensation cost has been recognized for the Plan or the Purchase Plan in the financial statements. Had the Company determined compensation cost in accordance with SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below: F-11 Year Ended March 31, 1997 1996 ------------------------- Net income As reported $ 51,132 $ 43,752 Pro forma 48,202 40,691 Net income per common and As reported $ 0.94 $ 0.80 common equivalent share Pro-forma 0.88 0.75 Pro forma net income reflects only options granted during the fiscal years ended March 31, 1997 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period and compensation cost for options granted prior to April 1, 1995 is not considered. 11. LEASE COMMITMENTS ----------------- The Company leases office space, transportation and other equipment under capital and operating leases which expire at various dates through March, 2003. The future minimum lease commitments under these leases are payable as follows (amounts in thousands):
Year ended Capital Operating March 31, Leases Leases --------- ------ ------ 1998 $ 4,116 $ 1,410 1999 2,139 1,220 2000 360 712 2001 2 237 2002 --- 136 Thereafter --- 52 -------------- ------------ Total minimum lease payments $ 6,617 $ 3,767 ============ Less amount representing interest (at rates ranging from 6.7% to 10.43%) (458) -------------- Present value of net minimum lease payments 6,159 Less current maturities 3,776 -------------- Capital lease obligations $ 2,383 ==============
Rental expense under operating leases totaled $2,644,000, $1,675,000 and $1,646,000 for the years ended March 31, 1997, 1996 and 1995, respectively. F-12 12. INCOME TAXES The provision for income taxes is as follows (amounts in thousands):
Year Ended March 31, 1997 1996 1995 --------------------------------------------------------------- Current expense: Federal $ 13,814 $ 15,923 $ 15,833 State 3,454 4,122 3,835 Foreign 4,093 3,539 2,216 ------------- ------------- ----------- 21,361 23,584 21,884 ------------- ------------- ----------- Deferred expense (benefit): Federal (1,322) (5,922) (7,017) State (331) (1,480) (2,038) Foreign (1,347) --- --- -------------- ------------- ----------- (3,000) (7,402) (9,055) -------------- -------------- ------------ $ 18,361 $ 16,182 $ 12,829 ============= ============= ===========
The tax benefit associated with the exercise of employee stock options reduced taxes currently payable by $5,742,000, $4,130,000 and $4,120,000 for the years ended March 31, 1997, 1996 and 1995, respectively. The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income before income taxes. The sources and tax effects of the differences are as follows (amounts in thousands):
Year Ended March 31, 1997 1996 1995 ----------------------------------------------------------- Computed expected provision $ 24,323 $ 20,977 $ 17,195 State income taxes, net of federal benefit 2,245 1,669 1,168 Foreign sales corporation benefit (2,552) (2,123) (154) Foreign income taxed at lower than the federal rate (5,655) (4,341) (5,380) -------------- -------------- ------------ $ 18,361 $ 16,182 $ 12,829 ============= ============= ===========
Pretax income from foreign operations was $32,172,000, $29,434,000 and $21,064,000 for the years ended March 31, 1997, 1996 and 1995, respectively. Unremitted foreign earnings that are considered to be permanently invested outside the United States and on which no deferred taxes have been provided, amounted to approximately $108,320,000 at March 31, 1997. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (amounts in thousands): F-13
March 31, 1997 1996 -------------------------------- Deferred tax assets: Intercompany profit in inventory $ 10,408 $ 10,055 Deferred income on shipments to distributors 6,475 4,938 Inventory reserves 2,392 2,196 Technology assets 2,934 3,536 Accrued expenses and other 4,976 1,932 ----------- ----------- Gross deferred tax assets 27,185 22,657 =========== =========== Deferred tax liabilities: Property, plant and equipment, principally due to differences in depreciation (8,479) (6,950) Other deferred liabilities (624) (625) ------------ ------------ Gross deferred tax liability (9,103) (7,575) ------------ ------------ Net deferred tax asset $ 18,082 $ 15,082 ============= ============
Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The Company has enjoyed the benefits of a partial tax holiday for its Taiwan manufacturing operations over the past several years. The aggregate dollar benefits derived from this tax holiday status approximated $5,415,000, $5,003,000, and $3,707,000 for the years ended March 31, 1997, 1996 and 1995, respectively. The benefit the tax holiday status had on net income per share approximated $0.10, $0.09 and $0.07 for the years ended March 31, 1997, 1996 and 1995, respectively. The Company's tax holiday status in Taiwan expired in March, 1997. 13. ACCRUED LIABILITIES ------------------- Accrued liabilities consists of the following (amounts in thousands): March 31, 1997 1996 --------------------------- Accrued salaries and wages $ 6,344 $ 4,728 Income taxes 14,957 7,422 Other accrued expenses 15,091 16,057 ----------- ----------- $ 36,392 $ 28,207 =========== =========== 14. STOCKHOLDERS' EQUITY -------------------- Stockholder Rights Plan. On February 13, 1995, the Company's Board of Directors adopted a Stockholder Rights Plan (the "Plan"). Under the Plan, each share of the Company's Common Stock has one right which entitles the stockholder to buy 1/100th of a share of the Company's Series A Participating Preferred Stock. The rights have an exercise price of $66.67 and expire in February, 2005. The rights become exercisable and transferable upon the occurrence of certain events. Stock Repurchase Activity. In connection with a stock repurchase program, during the year ended March 31, 1997, the Company purchased a total of 1,326,477 shares of the Company's Common Stock in open market activities at a total cost of $19,463,000. Through December 31, 1996, the Company had reissued through stock option exercises and the Company's employee stock purchase plan a total of 1,221,895 shares of the Company's Common Stock held in treasury. Also, in connection with a stock repurchase program, during fiscal 1997 and fiscal 1996 the Company sold put options for 500,000 shares and 517,500 shares of Common Stock, respectively. Pricing per share ranged from $15.00 to $24.88 in fiscal 1997 and from $18.25 to $25.08 in fiscal 1996. During fiscal 1997, the Company F-14 repurchased put options for 142,500 shares. As of March 31, 1997 the Company held put options for 300,000 shares which have expiration dates ranging from April 1, 1997 to December 26, 1997 at prices ranging from $15.00 to $24.88 per share. The net proceeds from the sale and repurchase of these options, in the amount of $427,750 and $647,000 for fiscal years 1997 and 1996 respectively, has been credited to additional paid-in capital. Proposed Increase to the Number of Authorized Shares. In April, 1997, subject to stockholder approval, the Board of Directors approved an amendment to the Company's Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of Common Stock from 65,000,000 to 100,000,000. This matter will be voted upon by the stockholders at the 1997 annual stockholders' meeting. 15. GEOGRAPHIC INFORMATION ---------------------- The Company operates in one industry segment and engages primarily in the design, development, manufacture and marketing of semiconductor products. The Company sells its products to system manufacturers and distributors in a broad range of industries, performs on-going credit evaluations of its customers and generally requires no collateral. The Company's operations outside the United States consist of comprehensive product final test facilities in Taiwan and Thailand and sales offices in certain foreign countries. Domestic operations are responsible for the design, development and wafer fabrication of all products, as well as the coordination of production planning and shipping to meet worldwide customer commitments. The Taiwan test facility is reimbursed in relation to value added with respect to test operations and other functions performed, and certain foreign sales offices receive a commission on export sales within their territory. The Thailand test facility was brought on line during the fiscal year ended March 31, 1997 and has also been reimbursed in relation to value added during test operations. Accordingly, for financial statement purposes, it is not meaningful to segregate sales or operating profits for the test and foreign sales office operations. Identifiable assets by geographic area are as follows (in thousands): March 31, 1997 1996 ------------------------------- United States $ 254,477 $ 192,726 Taiwan 101,036 119,269 Thailand 44,126 23,767 Other 28,453 22,425 ------------- ------------- Total Assets $ 428,092 $ 358,187 ============= ============= Sales to unaffiliated customers located outside the United States, primarily in Asia, Europe and Japan, aggregated approximately 66%, 65%, and 65% of consolidated net sales for the years ended March 31, 1997, 1996 and 1995, respectively. 16. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amount of cash equivalents approximates fair value because their maturity is less than three months. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short term maturity of the amounts. The fair value of capital lease obligations and long-term debt approximate their carrying value as they are estimated by discounting the future cash flows at rates currently offered to the Company for similar debt instruments. The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to reduce its exposure to fluctuations in foreign exchange rates. These financial instruments include standby letters of credit and foreign currency forward contracts. When engaging in forward contracts, risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values, interest rates and foreign exchange rates. At March 31, 1997 and 1996, the Company held contracts totaling $5,421,000 and $10,243,000, respectively, which were entered into and hedged the Company's foreign currency risk. The contracts matured in April and May 1997 and 1996 respectively. Unrealized gains and losses as of the balance sheet dates and realized gains and losses for the years ending March 31, 1997, 1996 and 1995 were not material. F-15 17. QUARTERLY RESULTS (UNAUDITED) ----------------------------- The following table presents selected unaudited quarterly operating results for the Company's eight quarters ended March 31, 1997. The Company believes that all necessary adjustments have been made to present fairly the related quarterly results.
First Second Third Fourth Quarter Quarter Quarter Quarter Total ----------------------------------------------------- Fiscal 1997 ----------- Net sales $ 74,161 $ 79,510 87,076 $ 93,505 $334,252 Gross profit 36,636 39,788 43,514 46,984 166,922 Operating income 9,545 18,517 20,791 22,204 71,057 Net income 6,686 13,126 14,755 16,565 51,132 Net income per common and common equivalent share 0.12 0.24 0.27 0.30 0.94 Fiscal 1996 ----------- Net sales $ 64,499 $ 71,265 $ 78,069 $ 72,055 $285,888 Gross profit 33,495 36,958 40,383 37,344 148,180 Operating income 16,161 17,994 8,064 18,093 60,312 Net income 11,503 12,765 5,765 13,719 43,752 Net income per common and common equivalent share 0.21 0.23 0.10 0.25 0.80
18. SUPPLEMENTAL FINANCIAL INFORMATION ---------------------------------- The Company acquired equipment and incurred capital lease obligations of $3,656,000 during the year ended March 31, 1995. Cash paid for income taxes amounted to $8,108,000, $17,557,000 and $10,905,000 during the years ended March 31, 1997, 1996 and 1995, respectively. Cash paid for interest amounted to $3,183,000, $2,643,000 and $2,081,000 during the years ended March 31, 1997, 1996 and 1995, respectively. A summary of additions and deductions related to the allowances for accounts receivable and inventories for the years ended March 31, 1997, 1996 and 1995 follows: Balance at Charged to beginning costs and Balance at of year expenses Deductions end of year ------------------------------------------------- Allowance for doubtful accounts: 1997 $ 1,834 $ 452 $ (192) $ 2,094 1996 1,394 634 (194) 1,834 1995 885 649 (140) 1,394 Allowance for inventory valuation: 1997 $ 10,372 $ 1,886 $ (3,927) $ 8,331 1996 4,373 7,639 (1,640) 10,372 1995 5,049 1,883 (2,559) 4,373 F-16 EXHIBIT INDEX
Exhibit No. Description Page No. - ----------- ----------- -------- 3.1 Restated Certificate of Incorporation of Registrant [Incorporated by reference to Exhibit 3.1 to Registration Statement No. 33-70608] 3.1.1 Certificate of Amendment to Registrant's Restated Certificate of Incorporation [Incorporated by reference to Exhibit 3.3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1994] 3.1.2 Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Registrant [Incorporated by reference to Exhibit No. 3.1.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995] 3.1.3 Certificate of Amendment to Registrant's Restated Certificate of Incorporation [Incorporated by reference to Exhibit No. 1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995] 3.2 Amended and Restated By-Laws of Registrant, as amended through May 19, 1997 4.1 Investors' Rights Agreement dated October 30, 1992 [Incorporated by reference to Exhibit No. 4.1 to Registration Statement No. 33-57960] 4.2 Preferred Share Rights Agreement dated as of February 13, 1995 between Registrant and Bank One, Arizona, N.A., including the form of Rights Certificate and the Summary of Rights attached as exhibits thereto [Incorporated by reference to Exhibit No. 1 to Registrant's Registration Statement on Form 8-A as filed with the Securities and Exchange Commission as of February 14, 1995] 10.1 Form of Indemnification Agreement between Registrant and its directors and certain of its officers [[Incorporated by reference to Exhibit No. 10.1 to Registration Statement No. 33-57960] 10.2 Series B Preferred Stock Purchase Agreement dated as of March 14, 1991, as amended, between Registrant and the investors specified therein [Incorporated by reference to Exhibit No. 10.2 to Registration Statement No. 33-57960] 10.3 Series C Preferred Stock Purchase Agreement dated as of October 30, 1992 between Registrant and the investors specified therein [Incorporated by reference to Exhibit No. 10.3 to Registration Statement No. 33-57960] 10.4 Warrant Purchase Agreement dated as of May 15, 1991 between Registrant and Silicon Valley Bank [Incorporated by reference to Exhibit No. 10.5 to Registration Statement No. 33-57960]
E-1
Exhibit No. Description Page No. - ----------- ----------- -------- 10.5 Warrant Purchase Agreement dated as of July 1, 1992 between Registrant and Silicon Valley Bank [Incorporated by reference to Exhibit No. 10.6 to Registration Statement No. 33-57960] 10.6 Form of Stock Purchase Warrant between Registrant and certain investors [Incorporated by reference to Exhibit No. 10.8 to Registration Statement No. 33-57960] 10.7 License Agreement dated as of April 1, 1988 between Registrant and General Instrument Corporation, as amended by that certain Amendment, Assignment and Assumption Agreement dated as of April 12, 1989 [Incorporated by reference to Exhibit No. 10.9 to Registration Statement No. 33-57960] 10.8 Land Lease Contract dated January 1, 1989 between Registrant's subsidiary and Kaohsiung Export Processing Zone Administration Summary (English Summary) [Incorporated by reference to Exhibit No. 10.10 to Registration Statement No. 33-57960] 10. 9 Land Lease Contract dated September 1, 1992 between Registrant's subsidiary and Kaohsiung Export Processing Zone Administration Summary (English Summary) [Incorporated by reference to Exhibit No. 10.11 to Registration Statement No. 33-57960] 10.10 Amended and Restated 1989 Stock Option Plan [Incorporated by reference to Exhibit No. 10.14 to Registration Statement No. 33-57960] 10.11 1993 Stock Option Plan, as amended through April 25, 1997 10.12 Form of Notice of Grant For 1993 Stock Option Plan, with Exhibit A thereto, Form of Stock Option Agreement; and Exhibit B thereto, Form of Stock Purchase Agreement [Incorporated by reference to Exhibit No. 10.6 to Registration Statement No. 333-872] 10.13 Employee Stock Purchase Plan, as amended through April 25, 1997 10.14 Form of Stock Purchase Agreement for Employee Stock Purchase Plan [Incorporated by reference to Exhibit No. 10.2 to Registration Statement No. 333-872] E-2
Exhibit No. Description Page No. - ----------- ----------- -------- 10.15 Form of Enrollment Form For Employee Stock Purchase Plan [Incorporated by reference to Exhibit No. 10.3 to Registration Statement No. 333-872] 10.16 Form of Change Form For Employee Stock Purchase Plan [Incorporated by reference to Exhibit No. 10.4 to Registration Statement No. 333-872] 10.17 Form of Executive Officer Severance Agreement [Incorporated by reference to Exhibit No. 10.7 to Registration Statement No. 333-872] 10.18 Purchase and Sale Agreement dated October 7, 1993 Between Registrant and Digital Equipment Corporation [Incorporated by reference to Exhibit No. 10.22 to Registration Statement No. 33-70608] 10.19 Credit Agreement dated as of October 31, 1996 among Registrant, the Banks named therein, Wells Fargo Bank, N.A. as Administrative Agent and NBD Bank, as Co-Agent [Incorporated by reference to Exhibit No. 10.1 to Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1996] 10.20 Modification Agreement dated as of January 14, 1997 to the Credit Agreement dated as of October 31, 1996 among Registrant, the Banks named therein, Wells Fargo Bank, N.A., as Administra- tive Agent and NBD Bank, as Co-Agent 11.1 Computation of Net Income Per Share 21.1 Subsidiaries of Registrant [Incorporated by reference to Exhibit No. 21.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996] 23.1 Consent of KPMG Peat Marwick LLP 24.1 Power of Attorney Re: Microchip Technology Incorporated, the Registrant [Incorporated by reference to Exhibit No. 24.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995] 28.1 Specimen Certificate of Registrant's Common Stock [Incorporated by reference to Exhibit No. 28.1 to Registration Statement No. 33-57960]
E-3 EX-3.2 2 AMENDED & RESTATED BYLAWS AMENDED AND RESTATED BYLAWS OF MICROCHIP TECHNOLOGY INCORPORATED Amended Through May 19, 1997 TABLE OF CONTENTS
Page ---- ARTICLE I - CORPORATE OFFICES.......................................................................................-1- 1.1 Registered Office.........................................................................................-1- 1.2 Other Offices.............................................................................................-1- ARTICLE II - STOCKHOLDERS...........................................................................................-1- 2.1 Place of Meetings.........................................................................................-1- 2.2 Annual Meeting............................................................................................-1- 2.3 Special Meeting...........................................................................................-2- 2.4 Notice of Stockholders Meetings...........................................................................-2- 2.5 Manner of Giving Notice; Affidavit of Notice..............................................................-2- 2.6 Quorum....................................................................................................-2- 2.7 Adjourned Meeting; Notice.................................................................................-3- 2.8 Voting....................................................................................................-3- 2.9 Waiver of Notice..........................................................................................-3- 2.10 Stockholder Action by Written Consent Without a Meeting...................................................-4- 2.11 Record Date for Stockholder Notice; Voting; Giving Consents...............................................-4- 2.12 Proxies...................................................................................................-5- 2.13 List of Stockholders Entitled to Vote.....................................................................-5- 2.14 Conduct of Business.......................................................................................-6- 2.15 Inspectors of Election....................................................................................-6- 2.16 Inspectors of Election and Procedures for Counting Written Consents.......................................-6- 2.17 Election Not To Be Subject to Arizona Control Share Acquisitions Statute .................................-8- ARTICLE III - DIRECTORS.............................................................................................-8- 3.1 Powers....................................................................................................-8- 3.2 Number of Directors.......................................................................................-8- 3.3 Election, Qualification and Term of Office of Directors...................................................-8- 3.4 Resignation and Vacancies.................................................................................-9- 3.5 Place of Meetings; Meetings by Telephone.................................................................-10- 3.6 Regular Meetings.........................................................................................-10- 3.7 Special Meetings; Notice.................................................................................-10- 3.8 Quorum...................................................................................................-11- 3.9 Waiver of Notice.........................................................................................-11-
--i-- 3.10 Adjourned Meeting; Notice................................................................................-11- 3.11 Board Action by Written Consent Without a Meeting........................................................-11- 3.12 Fees and Compensation of Directors.......................................................................-11- 3.13 Approval of Loans to Officers............................................................................-11- 3.14 Removal of Directors.....................................................................................-12- 3.15 Conduct of Business......................................................................................-12- 3.16 Presumption of Assent....................................................................................-12- ARTICLE IV - COMMITTEES............................................................................................-12- 4.1 Committees of Directors..................................................................................-12- 4.2 Committee Minutes........................................................................................-13- 4.3 Meetings and Action of Committees........................................................................-13- ARTICLE V - OFFICERS...............................................................................................-13- 5.1 Officers ...............................................................................................-14- 5.2 Appointment of Officers..................................................................................-14- 5.3 Subordinate Officers.....................................................................................-14- 5.4 Removal and Resignation of Officers......................................................................-14- 5.5 Vacancies in Offices.....................................................................................-14- 5.6 Chairman of the Board....................................................................................-14- 5.7 President................................................................................................-14- 5.8 Vice Presidents..........................................................................................-15- 5.9 Secretary................................................................................................-15- 5.10 Chief Financial Officer..................................................................................-15- 5.11 Treasurer................................................................................................-16- 5.12 Assistant Secretary......................................................................................-16- 5.13 Assistant Treasurer......................................................................................-16- 5.14 Authority and Duties of Officers.........................................................................-16- 5.15 Representation of Shares of Other Corporations...........................................................-16- ARTICLE VI - INDEMNITY.............................................................................................-17- 6.1 Indemnification of Directors and Officers................................................................-17- 6.2 Indemnification of Others................................................................................-17- 6.3 Insurance................................................................................................-17- ARTICLE VII - RECORDS AND REPORTS..................................................................................-18- 7.1 Maintenance and Inspection of Records....................................................................-18-
--ii-- 7.2 Inspection by Directors..................................................................................-18- ARTICLE VIII - GENERAL MATTERS.....................................................................................-18- 8.1 Checks...................................................................................................-18- 8.2 Execution of Corporate Contracts and Instruments.........................................................-18- 8.3 Stock Certificates; Partly Paid Shares...................................................................-18- 8.4 Special Designation on Certificates......................................................................-19- 8.5 Lost Certificates........................................................................................-19- 8.6 Construction; Definitions................................................................................-19- 8.7 Dividends................................................................................................-20- 8.8 Fiscal Year..............................................................................................-20- 8.9 Seal.....................................................................................................-20- 8.10 Transfer of Stock........................................................................................-20- 8.11 Stock Transfer Agreements................................................................................-20- 8.12 Registered Stockholders..................................................................................-20- 8.13 Notices..................................................................................................-20- ARTICLE IX - AMENDMENTS............................................................................................-21-
--iii-- AMENDED AND RESTATED BYLAWS OF MICROCHIP TECHNOLOGY INCORPORATED As Amended Through May 19, 1997 ARTICLE I CORPORATE OFFICES 1.1 Registered Office. The registered office of the corporation shall be in the City of Dover, County of Kent, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS 2.1 Place of Meetings. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 Annual Meeting. The annual meeting of stockholders shall be held, each year, on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before the meeting by a stockholder, the secretary of the corporation must have received notice in writing from the stockholder not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that if less than thirty-five (35) days' notice of the meeting is given to stockholders, such notice shall have been received by the secretary not later than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. Such written notice to the secretary shall set forth, as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the number of shares of stock of the corporation beneficially owned by such stockholder, and (iv) any material interest of such stockholder in such business. Notwithstanding any provision in the bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.2. 2.3 Special Meeting. A special meeting of the stockholders may be called at any time by the board of directors or by the chairman of the board or by one or more stockholders owning in the aggregate not less than fifty percent (50%) of the entire capital stock of the corporation issued and outstanding and entitled vote. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, chief executive officer or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 Notice of Stockholders Meetings. All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the General Corporation Law of Delaware or the certificate of incorporation of the corporation). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, tice postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 Quorum. At any meeting of the stockholders, the holders of a majority, present in person or by proxy, of all of the shares of the stock entitled to vote at the meeting shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority, present in person or by proxy, of the shares of such class or classes entitled to take action with respect to that vote on -2- that matter shall constitute a quorum. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, those present at such adjourned meeting shall constitute a quorum (but in no event shall a quorum consist of less than one-third of the shares entitled to vote at the meeting), and all matters shall be determined by a majority of the votes cast at such meeting, except as otherwise required by law. 2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 Voting. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Each stockholder shall have one (1) vote for every share of stock entitled to vote that is registered in his or her name on the record date for the meeting (as determined in accordance with Section 2.11 of these bylaws), except as otherwise provided herein or required by law. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or provided herein, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. 2.9 Waiver of Notice. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. -3- 2.10 Stockholder Action by Written Consent Without a Meeting. Any action required or able to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice, and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation at its registered office in Delaware, its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery to the corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days after the date the earliest dated consent is delivered to the corporation, a written consent or consents signed by holders of a sufficient number of votes to take action are delivered to the corporation in the manner prescribed in the first paragraph of this section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.11 Record Date for Stockholder Notice; Voting; Giving Consents. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, -4- conversion or exchange of stock or for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall neither precede nor be more than ten (10) days after the date upon which such resolution is adopted by the board of directors. Any stockholder of record seeking to have the stockholders authorize or take action by written consent shall, by written notice to the secretary, request the board of directors to fix a record date. The board of directors shall promptly, but in all events within ten (10) days after the date on which such notice is received, adopt a resolution fixing the record date. If the board of directors has not fixed a record date within such time, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in the manner prescribed in the first paragraph of Section 2.10 of these bylaws. If the board of directors has not fixed a record date within such time and prior action by the board of directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board of directors adopts the resolution taking such prior action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.12 Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, filed in accordance with the procedure established for the meeting or taking of action in writing, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 2.12 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.13 List of Stockholders Entitled to Vote. The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered -5- in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. 2.14 Conduct of Business. The Board of Directors will appoint a Chairman of the meeting, and he/she shall be authorized to be the final authority on all matters of procedure at the meeting. The rules provided below will govern the conduct of the meeting of stockholders and will be strictly enforced to maintain an orderly meeting. Robert's Rules of Order will not be applicable and will not be utilized. (i) Method of Obtaining the Floor. Stockholders who desire to address the meeting must raise their hands and wait to be recognized by the Chairman. Only when a stockholder is recognized as having the floor may he or she address the meeting. (ii) Discussion. Persons addressing the meeting must limit their remarks to the issue then under consideration by the stockholders and to not more than five minutes in duration. A stockholder will be permitted to address the meeting on a particular issue not more than three times. (iii) Stockholder Proposals. Stockholders will only be permitted to address the meeting on proposals that are included in the proxy statement and proxy relating to that meeting. 2.15 Inspectors of Election. The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. 2.16 Inspectors of Election and Procedures for Counting Written Consents. Within three (3) business days after receipt of the earliest dated consent delivered to the corporation in the manner provided in Section 228(c) of the Delaware General Corporation Law or the determination by the board of directors of the corporation that the corporation should seek corporate action by written consent, as the case may be, the secretary may engage nationally recognized independent inspectors of elections for the purpose of performing a ministerial review of the validity of the -6- consents and revocations. The cost of retaining inspectors of election shall be borne by the corporation. Consents and revocations shall be delivered to the inspectors upon receipt by the corporation, the stockholder or stockholders soliciting consents or soliciting revocations in opposition to action by consent proposed by the corporation (the "Soliciting Stockholders") or their proxy solicitors or other designated agents. As soon as consents and revocations are received, the inspectors shall review the consents and revocations and shall maintain a count of the number of valid and unrevoked consents. As soon as practicable after the earlier of (i) sixty (60) days after the date of the earliest dated consent delivered to the corporation in the manner provided in Section 228(c) of the Delaware General Corporation Law or (ii) a written request therefor by the corporation or the Soliciting Stockholders (whichever is soliciting consents) (which request, except in the case of corporate action by written consent taken pursuant to the solicitations of not more than ten (10) persons, may be made no earlier than after such reasonable amount of time after the commencement date of the applicable solicitation of consents as is necessary to permit the inspectors to commence and organize their count, but in no event less than five (5) days after such commencement date), notice of which request shall be given to the party opposing the solicitation of consents, if any, which request shall state that the corporation or Soliciting Stockholders, as the case may be, have a good faith belief that the requisite number of valid and unrevoked consents to authorize or take the action specified in the consents has been received in accordance with these bylaws, the inspectors shall issue a preliminary report to the corporation and the Soliciting Stockholders stating: (i) the number of valid consents; (ii) the number of valid revocations; (iii) the number of valid and unrevoked consents; (iv) the number of invalid consents; (v) the number of invalid revocations; and (vi) whether, based on their preliminary count, the requisite number of valid and unrevoked consents has been obtained to authorize or take the action specified in the consents. Unless the corporation and the Soliciting Stockholders shall agree to a shorter or longer period, the corporation and the Soliciting Stockholders shall have 48 hours to review the consents and revocations and to advise the inspectors and the opposing party in writing as to whether they intend to challenge the preliminary report of the inspectors. If no written notice of an intention to challenge the preliminary report is received within 48 hours after the inspectors' issuance of the preliminary report, the inspectors shall issue to the corporation and the Soliciting Stockholders their final report containing the information from the inspectors' determination with respect to whether the requisite number of valid and unrevoked consents was obtained to authorize and take the action specified in the consents. If the corporation or the Soliciting Stockholders issue written notice of an intention to challenge the inspectors' preliminary report within 48 hours after the issuance of that report, a challenge session shall be scheduled by the inspectors as promptly as practicable. A transcript of the challenge session shall be recorded by a certified court reporter. Following completion of the challenge session, the inspectors shall as promptly as practicable issue their final report to the corporation and the Soliciting Stockholders, which report shall contain the information included in the preliminary report, plus all changes made to the vote totals as a result of the challenge and a certification of whether the requisite number of valid and unrevoked consents was -7- obtained to authorize or take the action specified in the consents. A copy of the final report of the inspectors shall be included in the book in which the proceedings of meetings of stockholders are recorded. 2.17 Election Not To Be Subject to Arizona Control Share Acquisitions Statute. The corporation elects not to be subject to Title 10, Chapter 23, Article 2 of the Arizona Revised Statutes relating to "Control Share Acquisitions." ARTICLE III DIRECTORS 3.1 Powers. Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 Number of Directors. The number of directors of the corporation shall be five (5). This number may be changed by a duly adopted amendment to the certificate of incorporation or by an amendment to this bylaw adopted by resolution of the board of directors or by the stockholders. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 Election, Qualification and Term of Office of Directors. Except as provided in Section 3.4 of these bylaws, at each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Nominations for election to the board of directors of the corporation at an annual meeting of stockholders may be made by the board or on behalf of the board by a nominating committee appointed by the board, or by any stockholder of the corporation entitled to vote for the election of directors at such meeting. Such nominations, other than those made by or on behalf of the board, shall be made by notice in writing received by the secretary of the corporation not less than thirty (30) days nor more than sixty (60) days prior to the date of the annual meeting; provided, however, that if less than thirty-five (35) days notice of the meeting is given to stockholders, such nomination shall have been received by the secretary not later than the close of business on the seventh (7th) day -8- following the day on which the notice was mailed. Such notice shall set forth (i) the name and address of the stockholder who intends to make the nomination; (ii) a representation that the nominating stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (iii) the number of shares of stock held beneficially and of record by the nominating stockholder; (iv) the name, age, business address and, if known, residence address of each nominee proposed in such notice; (v) the principal occupation or employment of such nominee; (vi) the number of shares of stock of the corporation beneficially owned by each such nominee; (vii) a description of all arrangements or understandings between the nominating stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the nominating stockholder; (viii) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934; and (ix) the consent of such nominee to serve as a director of the corporation if so elected. The chairman of the annual meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure. If such determination and declaration is made, the defective nomination shall be disregarded. 3.4 Resignation and Vacancies. Any director may resign at any time upon written notice to the corporation. When one or more directors so resigns and the resignation is effective at a future date, only a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled only by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate -9- of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 Place of Meetings; Meetings by Telephone. The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 Regular Meetings. Regular meetings of the board of directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the board of directors and publicized among all directors. A notice of each regular meeting shall not be required. 3.7 Special Meetings; Notice. Special meetings of the board of directors for any purpose or purposes may be called at any time by the president or secretary of the corporation, or by any two of the directors then in office and shall be held at a place, on a date and at a time as such officer or such directors shall fix. Notice of the place, date and time of special meetings, unless waived, shall be given to each director by mailing written notice not less than two (2) days before the meeting or by sending a facsimile transmission of the same not less than two (2) hours before the time of the holding of the meeting. If the circumstances warrant, notice may also be given personally or by telephone not less than two (2) hours before the time of the holding of the meeting. Oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. -10- 3.8 Quorum. At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 Waiver of Notice. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.10 Adjourned Meeting; Notice. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.11 Board Action by Written Consent Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.12 Fees and Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance of each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.13 Approval of Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its -11- subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.14 Removal of Directors. Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.15 Conduct of Business. At any meeting of the board of directors, business shall be transacted in such order and manner as the board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. 3.16 Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE IV COMMITTEES 4.1 Committees of Directors. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, -12- shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, a supplemental resolution of the board of directors, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 Meetings and Action of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of adjournment), and Section 3.11 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolutions of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. -13- ARTICLE V OFFICERS 5.1 Officers. The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, a controller, one or more assistant controllers, a treasurer, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 Appointment of Officers. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or 5.5 of these bylaws, shall be appointed by the board of directors. 5.3 Subordinate Officers. The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 Removal and Resignation of Officers. Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. 5.5 Vacancies in Offices. Any vacancy occurring in any office of the corporation shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 Chairman of the Board. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 President. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the -14- chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 Vice President. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 Secretary. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 Chief Financial Officer. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. -15- The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. The duties of the chief financial officer may be allocated by the board of directors among one or more persons, in its discretion. 5.11 Treasurer. The treasurer shall have such powers and discharge such duties relating to the financial aspects of the corporation's business as may be prescribed by the board of directors or the chief financial officer. 5.12 Assistant Secretary. The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.13 Assistant Treasurer. The assistant treasurer, or, if there is more than one, the assistant treasurers in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.14 Authority and Duties of Officers. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. 5.15 Representation of Shares of Other Corporations. The chairman of the board, the president, any vice president, the treasurer, the secretary or assistant secretary s of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. -16- ARTICLE VI INDEMNITY 6.1 Indemnification of Directors and Officers. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of ers Delaware, indemnify each of its directors and executive officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "executive officer" of the corporation includes any person (i) who is or was a director or executive officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or executive officer of another corporation partnership, joint venture, trust or other enterprise, or (iii) who was a director or executive officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 Indemnification of Others. The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and executive officers) against expenses (including attorney's fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee"or "agent" of the corporation (other than a director or executive officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. -17- ARTICLE VII RECORDS AND REPORTS 7.1 Maintenance and Inspection of Records. The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. 7.2 Inspection by Directors. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. ARTICLE VIII GENERAL MATTERS 8.1 Checks. From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 Execution of Corporate Contracts and Instruments. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 Stock Certificates; Partly Paid Shares. The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the -18- corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 Special Designation on Certificates. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 Lost Certificates. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Without limiting the generality of this provision, the -19- singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 Dividends. The directors of the corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 Seal. The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 Stock Transfer Agreements. The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 8.13 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery, by mail, postage paid, or by -20- facsimile transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his last known address as it appears on the books of the corporation. The time when such notice shall be deemed received, if hand delivered, or dispatched, if sent by mail or facsimile, transmission, shall be the time of the giving of the notice. ARTICLE IX AMENDMENTS Any of these bylaws may be altered, amended or repealed by the affirmative vote of a majority of the board of directors or, with respect to bylaw amendments placed before the stockholders for approval and except as otherwise provided herein or required by law, by the affirmative vote of the holders of a majority of the shares of the corporation's stock entitled to vote in the election of directors, voting as one class. -21- CERTIFICATE OF ADOPTION OF AMENDMENT TO AMENDED AND RESTATED BYLAWS OF MICROCHIP TECHNOLOGY INCORPORATED The undersigned hereby certifies that she is a duly elected, qualified, and acting Assistant Secretary of Microchip Technology Incorporated and that the foregoing Amended and Restated Bylaws, as amended, comprising twenty-one(21) pages, were adopted as the Bylaws of the corporation on May 19, 1997 by the Board of Directors of the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this day of May, 1997. /s/ Mary Simmons-Mothershed -------------------------------- Mary Simmons-Mothershed Assistant Secretary EX-10.11 3 1993 STOCK OPTION PLAN ================================================================================ MICROCHIP TECHNOLOGY INCORPORATED 1993 STOCK OPTION PLAN AMENDED THROUGH APRIL 25, 1997 ================================================================================ TABLE OF CONTENTS
Page ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN.................................................................................... 1 (a) Amendment..................................................................................... 1 (b) Purpose....................................................................................... 1 (c) Effective Date................................................................................ 1 (d) Successor to 1989 Plan......................................................................... 2 (e) Parent/Subsidiaries........................................................................... 2 1.2 STRUCTURE OF THE PLAN................................................................................... 3 (a) Stock Programs................................................................................. 3 (b) General Provisions............................................................................ 3 1.3 ADMINISTRATION OF THE PLAN............................................................................. 3 (a) Bifurcation of Administration................................................................. 3 (b) Affiliate Administration....................................................................... 3 (c) Non-Affiliate Administration.................................................................. 4 (d) Term on Committee............................................................................. 4 (e) Authority of Plan Administrators.............................................................. 4 (f) Indemnification................................................................................ 5 1.4 ELIGIBLE PERSONS UNDER THE PLAN........................................................................ 5 (a) Discretionary Option Grant..................................................................... 5 (b) Automatic Option Grant Program................................................................. 5 1.5 STOCK SUBJECT TO THE PLAN............................................................................... 6 (a) Amendment...................................................................................... 6 (b) Available Shares............................................................................... 6 (c) Adjustments for Issuances...................................................................... 6 (d) Adjustments for Organic Changes................................................................ 7 (e) Limitation on Grants to Employees.............................................................. 7 ARTICLE II DISCRETIONARY OPTION GRANT PROGRAM 2.1 TERMS AND CONDITIONS OF OPTIONS......................................................................... 8 (a) General........................................................................................ 8 (b) Option Price................................................................................... 8 (c) Payment of Option Price........................................................................ 8 (d) Fair Market Value.............................................................................. 9 (e) Term and Exercise of Options................................................................... 9 (f) Termination of Service.........................................................................10 (g) Discretion to Accelerate Vesting.............................................................. 11 (h) Discretion to Extend Exercise Period.......................................................... 11 (i) Definitions................................................................................... 11
i (j) Stockholder Rights............................................................................ 11 (k) Repurchase Rights............................................................................. 12 2.2 INCENTIVE OPTIONS...................................................................................... 12 (a) General....................................................................................... 12 (b) Dollar Limitation............................................................................. 13 (c) 10% Stockholder............................................................................... 13 (d) Application................................................................................... 13 2.3 CORPORATE TRANSACTIONS................................................................................. 13 (a) Definition.................................................................................... 13 (b) Acceleration of Option........................................................................ 14 (c) Termination and Options....................................................................... 14 (d) Adjustments on Assumption or Continuation..................................................... 14 (e) Discretion to Accelerate...................................................................... 15 (f) Plan Not to Affect Corporation................................................................ 15 2.4 CHANGE IN CONTROL...................................................................................... 15 (a) Definition.................................................................................... 15 (b) Discretion to Accelerate...................................................................... 15 (c) Exercise Rights................................................................................16 2.5 INCENTIVE OPTIONS...................................................................................... 16 ARTICLE III RESERVED ARTICLE IV AUTOMATIC OPTION GRANT PROGRAM 4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.........................................................16 (a) Amount and Date of Grant...................................................................... 16 (b) Exercise Price................................................................................ 17 (c) Method of Exercise............................................................................ 17 (d) Payment Price..................................................................................17 (e) Exercise Date................................................................................. 18 (f) Term of Option................................................................................ 18 (g) Vesting........................................................................................19 (h) Limited Transferability....................................................................... 19 4.2 CORPORATE TRANSACTION.................................................................................. 19 4.3 CHANGE IN CONTROL...................................................................................... 19 4.4 MISCELLANEOUS PROVISIONS............................................................................... 20 (a) Corporation Rights............................................................................ 20 (b) Privilege of Stock Ownership.................................................................. 20
ii TABLE OF CONTENTS continued
Page ARTICLE V MISCELLANEOUS 5.1 AMENDMENT OF THE PLAN AND AWARDS....................................................................... 20 (a) Board Authority............................................................................... 20 (b) Options Issued Prior to Stockholder Approval.................................................. 20 (c) Rule 16b-3 Plan............................................................................... 21 5.2 TAX WITHHOLDING........................................................................................ 21 (a) General....................................................................................... 21 (b) Shares to Pay for Withholding................................................................. 21 (i) Stock Withholding.................................................................... 21 (ii) Stock Delivery....................................................................... 21 5.3 EFFECTIVE DATE AND TERM OF PLAN........................................................................ 22 (a) Effective Date................................................................................ 22 (b) Incorporation of 1989 Plan.................................................................... 22 (c) Discretion.................................................................................... 22 (d) Termination of Plan........................................................................... 22 5.4 USE OF PROCEEDS........................................................................................ 22 5.5 REGULATORY APPROVALS................................................................................... 22 (a) General....................................................................................... 22 (b) Securities Registration....................................................................... 23 5.6 NO EMPLOYMENT/SERVICE RIGHTS........................................................................... 23 5.7 MISCELLANEOUS PROVISIONS............................................................................... 23 (a) Assignment.................................................................................... 23 (b) Choice of Law................................................................................. 23 (c) Plan Not Exclusive............................................................................ 24
iii MICROCHIP TECHNOLOGY INCORPORATED 1993 STOCK OPTION PLAN AMENDED THROUGH APRIL 25, 1997 ARTICLE I GENERAL ------- 1.1 PURPOSE OF THE PLAN (a) Amendment. On January 19, 1993, the Board of Directors (the "Board") of Microchip Technology Incorporated, a Delaware corporation (the "Corporation") adopted the 1993 Stock Option/Stock Issuance Plan. On April 23, 1993 and September 14, 1993, the Board amended the Plan authorizing additional available shares of Common Stock. On October 7, 1993, the Board amended and restated the Plan as stated herein. On April 18, 1994, the Board amended the Plan authorizing additional available shares of Common Stock, subject to stockholder approval. On January 20, and April 26, 1995, the Board amended the Plan authorizing, among other matters, additional available shares of Common Stock, subject to stockholder approval and the elimination of the stock issuance portion of the Plan. Any options outstanding under the Plan before this amendment shall remain valid and unchanged. On April 25, 1997, the Board amended the Plan authorizing, among other matters, additional available shares of Common Stock, subject to stockholder approval. (b) Purpose. This 1993 Stock Option Plan, amended through April 25, 1997 ("Plan") is intended to promote the interests of the Corporation by providing (i) key employees (including officers) of the Corporation (or its parent or subsidiary corporations) who are responsible for the management, growth and financial success of the Corporation (or its parent or subsidiary corporations), (ii) non-employee members of the Corporation's Board of Directors (the "Board") and (ii) consultants and other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations) the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the corporation as an incentive for them to remain in the service of the Corporation (or its parent or subsidiary corporations). (c) Effective Date. The Plan became effective on the first date on which the shares of the Corporation's common stock are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is hereby designated as the Effective Date of the Plan. The effective date 1 of any amendments to the Plan shall be as of the date of Board approval. Notwithstanding the foregoing, certain amendments referenced herein must be approved by the stockholders of the Corporation. (d) Successor to 1989 Plan. This Plan shall serve as the successor to the Corporation's 1989 Stock Option Plan (the "1989 Plan"), and no further option grants or stock issuances shall be made under the 1989 Plan from and after the Effective Date of this Plan. All options outstanding under the 1989 Plan on such Effective Date are hereby incorporated into this Plan and shall accordingly be treated as outstanding options under this Plan. However, each outstanding option so incorporated shall continue to be governed solely by the express terms and conditions of the instrument evidencing such grant, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of the Corporation's common stock thereunder. All outstanding unvested share issuances under the 1989 Plan shall continue to be governed solely by the express terms and conditions of the instruments evidencing such issuances, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such unvested shares. (e) Parent/Subsidiaries. For purposes of the Plan, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: (i) Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a parent of the corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in any other corporation in such chain. (ii) Each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a subsidiary of the Corporation, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in any other corporation in such chain. (f) All references herein to number of shares of Common Stock have been restated to reflect a 2-for-1 stock split of the Common Stock effected on September 14, 1993, a 3-for-2 stock split of the Common Stock effected on April 4, 1994, a 3-for-2 split of 2 the Common Stock effected on November 8, 1994, and a 3-for-2 split of the Common Stock effected on January 6, 1997. 1.2 STRUCTURE OF THE PLAN (a) Stock Programs. The Plan shall be divided into two separate components: the Discretionary Option Grant Program specified in Article II and the Automatic Option Grant Program specified in Article IV. Under the Discretionary Option Grant Program, eligible individuals may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock in accordance with the provisions of Article II. Under the Automatic Option Grant Program, non-employee members of the Board will be automatically granted options to purchase shares of the Common Stock in accordance with the provisions of Article IV. (b) General Provisions. Unless the context clearly indicates otherwise, the provisions of Articles I and V shall apply to the Discretionary Option Grant Program and the Automatic Stock Grant Program, and shall accordingly govern the interests of all individuals under the Plan. 1.3 ADMINISTRATION OF THE PLAN (a) Bifurcation of Administration. The eligible persons under the Discretionary Option Grant Program shall be divided into two groups and there shall be a separate administrator for each group. One group shall be comprised of eligible persons that are "Affiliates." For purposes of the Plan, the term "Affiliates" shall mean (i) all "executive officers" as that term is defined in Rule 16a-1(f) promulgated under the Securities and Exchange Act of 1934 as amended (the "1934 Act"), (ii) all directors of the Company, and (iii) all persons who own 10% or more of the Company's issued and outstanding common stock. The other group shall be comprised of all eligible persons under the Plan that are not Affiliates ("Non-Affiliates"). (b) Affiliate Administration. The power to administer the Discretionary Option Grant Program with respect to eligible persons that are Affiliates shall be vested with a committee (the "Senior Committee") of two (2) or more non-employee Board members appointed by the Board. No Board member shall be eligible to serve on the Senior Committee if such individual has, within the relevant period designated below, received an option grant or direct stock issuance under this Plan (not including any option grants made pursuant to the Automatic Option Grant Program set forth in Article IV) or any other stock plan of the Corporation (or any parent or subsidiary corporation): 3 (i) for each of the initial members of the Committee, the period commencing with the Effective Date of the Plan and ending with the date of his or her appointment to the Senior Committee, or (ii) for any successor or substitute member, the twelve-month period immediately preceding the date of his or her appointment to the Senior Committee or (if shorter) the period commencing with the Effective Date of the Plan and ending with the date of his or her appointment to the Senior Committee. (c) Non-Affiliate Administration. The power to administer the Discretionary Option Grant Program with respect to eligible persons that are not Non-Affiliates shall be vested with the Board. The Board, however, may at any time appoint a committee (the "Employee Committee") of one or more persons who are members of the Board and delegate to such Employee Committee the power, in whole or in part, to administer the Discretionary Stock Option Grant Program with respect to the Non-Affiliates. (d) Term on Committee. Members of the Senior Committee and the Employee Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board at any time may terminate the functions of the Employee Committee and reassume all powers and authority previously delegated to such Committee. (e) Authority of Plan Administrators. The Board, the Employee Committee, and the Senior Committee, whichever is applicable, shall each be referred to herein as a "Plan Administrator." Each Plan Administrator shall have the authority and discretion, with respect to its administered group, to select which eligible persons shall participate in the Plan. Unless otherwise required by law, decisions among members of a Plan Administrator shall be by majority vote. With respect to each administered group, the applicable Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Discretionary Option Grant Program and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding option grants or stock issuances thereunder as it may deem necessary or advisable. All decisions made by a Plan Administrator shall be final and binding on all parties in its administered group who have an interest in the Discretionary Option Grant Program or any outstanding option thereunder. The Plan Administrator shall also have full authority to determine, with respect to the option grants made under the Discretionary Option Program, the number of shares to be covered by each such grant, the status of the granted option as either an incentive stock option ("Incentive option") which satisfies the requirements of Section 4 422 of the Internal Revenue Code or a non-statutory option not intended to meet such requirements, the time or times at which each granted option is to become exercisable and the maximum term for which the option may remain outstanding. (f) Indemnification. In addition to such other rights of indemnification as they may have, the members of each Plan Administrator shall be indemnified and held harmless by the Company, to the extent permitted under applicable law, for, from and against all costs and expenses reasonably incurred by them in connection with any action, legal proceeding to which any such member thereof may be a party, by reason of any action taken or failed to be taken, under or in connection with the Plan or any rights granted thereunder, and against all amounts paid by them in settlement thereof or paid by them in satisfaction of a judgment of any such action, suit or proceeding, except a judgment based upon a finding of bad faith. 1.4 ELIGIBLE PERSONS UNDER THE PLAN (a) Discretionary Option Grant Program. The persons eligible to participate in the Discretionary Option Grant Program under Article II are as follows: (i) officers and other key employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or its parent or subsidiary corporations); (ii) non-employee members of the Board (excluding those current members of the Senior Committee); and (iii) those consultants or other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations). (b) Automatic Option Grant Program. The persons eligible to participate in the Automatic Option Grant Program shall be limited to non-employee Board members. A non-employee Board member shall not be eligible to participate in the Automatic Option Grant Program, however, if such individual has at any time been in the prior employ of the Corporation (or any parent or subsidiary corporation). Unless otherwise provided in the Plan, persons who are eligible under the Automatic Option Grant Program may also be eligible to receive option grants under the Discretionary Option Grant Program in effect under this Plan. 5 1.5 STOCK SUBJECT TO THE PLAN (a) Amendment. Under the Plan, 6,072,227 shares were originally authorized to be issued under the Plan (constituting 5,565,977 authorized shares under the 1989 Plan and rolled over into this Plan plus 506,250 additional shares authorized by the Board on January 19, 1993). On April 23, 1993, an additional 2,193,750 shares were authorized by the Board, subject to stockholder approval at the next stockholders' meeting. At that point, the total available authorized shares were 8,265,977. On September 14, 1993, the Board authorized the number of shares of Common Stock issuable under the Plan to be increased by 2,281,500 shares. On April 18, 1994, the Board authorized the number of shares of Common Stock issuable under the Plan to be increased by 2,925,000 shares. On January 20, 1995 and April 26, 1995, the Board authorized the number of shares of Common Stock issuable under the Plan to be increased by 1,425,000 shares, subject to Stockholder approval, such that the maximum number of shares issuable for the term of the Plan shall be as set forth in Section 1.5(b) below. (b) Available Shares. Shares of the Corporation's common stock (the "Common Stock") shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 14,897,477 shares, subject to adjustment from time to time in accordance with the provisions of this Section 1.5. To the extent one or more outstanding options under the 1989 Plan which have been incorporated into this Plan (as adjusted for the 1993 Stock Dividend) are subsequently exercised, the number of shares issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares available for issuance under this Plan. (c) Adjustments for Issuances. Should one or more outstanding options under this Plan (including outstanding options under the 1989 Plan incorporated into this Plan) expire or terminate for any reason prior to exercise in full, then the shares subject to the portion of each option not so exercised shall be available for subsequent option grant under the Plan. All share issuances under the Plan, whether or not the shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent option grants under the Plan. In addition, should the exercise price of an outstanding option under the Plan (including any option incorporated from the 1989 Plan) be paid with shares of Common 6 Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised, and not by the net number of shares of Common Stock actually issued to the option holder. (d) Adjustments for Organic Changes. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities and price per share in effect under each option outstanding under either the Discretionary Option Grant Program or the Automatic Option Grant Program and (iii) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from the 1989 Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Board shall be final, binding and conclusive. The amount of options granted automatically under the Automatic Option Grant Program on the Annual Automatic Grant Date and on the Initial Automatic Grant Date shall not be adjusted regardless of any organic changes made to the Common Stock issuable under the Plan. (e) Limitations on Grants to Employees. Notwithstanding any other provision herein to the contrary, the following limitations shall apply to grants of options to Employees: (i) No employee shall be granted, in any fiscal year of the Corporation, options to purchase more than three hundred thousand (300,000) shares. (ii) In connection with his or her initial employment, an Employee may be granted options to purchase up to an additional five hundred thousand (500,000) shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Corporation's capitalization as described in Section 1.5(d). (iv) If an option is cancelled in the same fiscal year of the Corporation in which such option was granted (other than in connection with a transaction described in Section 7 1.5(d)), the cancelled option will be counted against the limit set forth in Section 1.5(e)(i). For this purpose, if the exercise price of an option is reduced, the transaction will be treated as a cancellation of the option and the grant of a new option. ARTICLE II DISCRETIONARY OPTION GRANT PROGRAM ---------------------------------- 2.1 TERMS AND CONDITIONS OF OPTIONS (a) General. Options granted to eligible persons ("Optionees") pursuant to the Discretionary Option Grant Program set forth in this Article II shall be authorized by action of the Plan Administrator and, at the Plan Administrator's discretion, may be either Incentive Options or non-statutory options. Individuals who are not Employees of the Corporation or its parent or subsidiary corporations may only be granted non-statutory options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section 2.2 hereof. (b) Option Price. The option price per share shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The option price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the fair market value of such Common Stock on the grant date; and (ii) The option price per share of the Common Stock subject to a non-statutory stock option shall in no event be less than one hundred percent (100%) of the fair market value of such Common Stock on the grant date. (c) Payment of Option Price. The option price shall become immediately due upon exercise of the option and shall be payable in one of the following alternative forms specified below: (i) full payment in cash or check drawn to the Corporation's order; (ii) full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee (A) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the 8 settlement date, sufficient funds to cover the aggregate option price payable for the purchased shares plus all applicable Federal and State income and employment taxes required to be withheld by the Corporation in connection with such purchase and (B) shall provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. For purposes of this Section 2.1(c), the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such notice. (d) Fair Market Value. The fair market value per share of Common Stock shall be determined in accordance with the following provisions: (i) If the Common Stock is not at the time listed or admitted to trading on any national stock exchange but is traded on the NASDAQ National Market System, the fair market value shall be the closing price per share on the date in question, as such price is reported by the National Association of Securities Dealers through the NASDAQ National Market System or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of fair market value. (ii) If the Common Stock is at the time listed or admitted to trading on any national stock exchange, then the fair market value shall be the closing selling price per share on the date in question on the exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the fair market value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. (e) Term and Exercise of Options. Each option granted under this Discretionary Option Grant Program shall be exercisable at such time or times and during such period as is determined by the Plan Administrator and set forth in the instrument evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years from the grant date. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable by the 9 Optionee other than by will or by the laws of descent and distribution following the Optionee's death. (f) Termination of Service. The following provisions shall govern the exercise period applicable to any outstanding options held by the Optionee at the time of cessation of Service or death: (i) Should an Optionee cease Service for any reason (including permanent disability as defined in Section 22(e)(3) of the Internal Revenue Code but not including death) while holding one or more outstanding options under this Article II, then none of those options shall (except to the extent otherwise provided pursuant to Section 2.1(g) below) remain exercisable for more than a ninety (90) day period (or such shorter or longer period determined by the Plan Administrator and set forth in the instrument evidencing the grant, but not to exceed twelve (12) months) measured from the date of such cessation of Service. (ii) Any option held by the Optionee under this Article II and exercisable in whole or in part on the date of his or her death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such exercise, however, must occur prior to the earlier of six months following the date of optionee's death or the specified expiration date of the option term. Upon the occurrence of the earlier event, the option shall terminate and cease to be outstanding. (iii) Under no circumstances, however, shall any such option be exercisable after the specified expiration date of the option term. (iv) During the applicable post-Service exercise period, the option shall not be exercisable for more than the number of shares (if any) in which the Optionee is vested at the time of his or her cessation of Service (less any option shares subsequently purchased by the Optionee prior to death). Upon the expiration of the limited post-Service exercise period or (if earlier) upon the specified expiration date of the option term, each such option shall terminate and cease to be outstanding with respect to any vested shares for which the option has not otherwise been exercised. However, each outstanding option shall immediately terminate and cease to be outstanding, at the time of the Optionee's cessation of Service, with respect to any shares for which the option is not otherwise at that time exercisable or in which the Optionee is not otherwise at that time vested. (v) Should (A) the optionee's service be terminated for misconduct (including, but not limited to, any act 10 of dishonesty, willful misconduct, fraud or embezzlement) or (B) the Optionee make any unauthorized use or disclosure of confidential information or trade secrets of the Corporation or its parent or subsidiary corporations, then in any such event all outstanding options held by the Optionee under this Article II shall terminate immediately and cease to be outstanding. (g) Discretion to Accelerate Vesting. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the Optionee under this Article II to be exercised, during the limited post-Service exercise period applicable under Section 2.1(f) above, not only with respect to the number of vested shares of Common Stock for which each such option is exercisable at the time of the optionee's cessation of Service but also with respect to one or more subsequent installments of vested shares for which the option would otherwise have become exercisable had such cessation of Service not occurred. (h) Discretion to Extend Exercise Period. The Plan Administrator shall also have full power and authority to extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under Section 2.1(f) above to such greater period of time as the Plan Administrator shall deem appropriate. In no event, however, shall such option be exercisable after the specified expiration date of the option term. (i) Definitions. For purposes of the foregoing provisions of this Section 2.1 (and for all other purposes under the Discretionary Option Grant Program): (i) The Optionee shall (except to the extent otherwise specifically provided in the applicable stock option agreement) be deemed to remain in Service for so long as such individual renders services on a periodic basis to the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the Board or an independent consultant or advisor. (ii) The Optionee shall be considered to be an Employee for so long as he or she remains in the employ of the Corporation or one or more parent or subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. (j) Stockholder Rights. An Optionee shall have no stockholder rights with respect to any shares covered by the option 11 until such individual shall have exercised the option and paid the option price for the purchased shares. (k) Repurchase Rights. The shares of Common Stock acquired upon the exercise of any Article II option grant may be subject to repurchase by the Corporation in accordance with the following provisions: (i) The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock under this Article II. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at the option price paid per share. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the instrument evidencing such repurchase right. (ii) All of the Corporation's outstanding repurchase rights under this Article II shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon the occurrence of any Corporate Transaction under Section 2.3 hereof, except to the extent: (A) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (B) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. (iii) The Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of Service, to cancel the Corporation's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under this Discretionary Option Grant Program and thereby accelerate the vesting of such shares in whole or in part at any time. 2.2 INCENTIVE OPTIONS (a) General. The terms and conditions specified below shall be applicable to all incentive options ("Incentive Options") granted under this Article II pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Incentive Options may only be granted to individuals who are employees of the Corporation. Options which are specifically designated as "non-statutory" options when issued under the Plan shall not be subject to such terms and conditions. 12 (b) Dollar Limitation. The aggregate fair market value (determined as of the respective date or dates of grant) of the Common Stock for which one or more Incentive Options granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or more such Incentive Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options under the federal tax laws shall be applied on the basis of the order in which such Incentive Options are granted. Should the number of shares of Common Stock for which any Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then that option may nevertheless be exercised in that calendar year for the excess number of shares as a non-statutory option under the federal tax laws. (c) 10% Stockholder. If any individual to whom an Incentive Option is granted is the owner of stock (as determined under Code Section 424(d)) possessing ten percent (10%) or more of the total combined voting power of all classes of stock of the Corporation or any one of its parent or subsidiary corporations, then the option price per share shall not be less than one hundred and ten percent (110%) of the fair market value per share of Common Stock on the grant date, and the option term shall not exceed five years, measured from the grant date. (d) Application. Except as modified by the preceding provisions of this Section 2.2, the provisions of Articles I, II and V of the Plan shall apply to all Incentive Options granted hereunder. 2.3 CORPORATE TRANSACTIONS (a) Definition. For purposes of this Plan, any of the following stockholder approved transactions to which the Corporation is a party shall be considered a "Corporate Transaction": (i) a merger or consolidation in which the corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Corporation is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or 13 (iii) any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to person or persons different from those who held such securities immediately prior to such merger. (b) Acceleration of Option. Upon the stockholder approval of a Corporate Transaction, each option which is at the time outstanding under this Article II shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article II shall not so accelerate if and to the extent: (A) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (B) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option, or (C) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (A) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. (c) Termination of Options. Upon the consummation of the Corporate Transaction, all outstanding options under this Article II shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or its parent company. (d) Adjustments on Assumption or Continuation. Each outstanding option under this Article II which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder, in consummation of such Corporate Transaction, had such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the option price payable per share, provided the aggregate option price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan following the consummation of the Corporate Transaction shall be appropriately adjusted. 14 (e) Discretion to Accelerate. The Plan Administrator shall have the discretion, exercisable either in advance of any actually-anticipated Corporate Transaction or at the time of an actual Corporate Transaction, to provide (upon such terms as it may deem appropriate) for the automatic acceleration of one or more outstanding options granted under the Plan which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time, in the event the Optionee's Service should subsequently terminate within a designated period following the effective date of such Corporate Transaction. (f) Plan Not to Affect Corporation. The grant of options under this Article II shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 2.4 CHANGE IN CONTROL (a) Definition. For purposes of this Plan, a Change in Control shall be deemed to occur in the event: (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or (ii) there is a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board. (b) Discretion to Accelerate. The Plan Administrator shall have the discretionary authority, exercisable either in advance of any actually anticipated Change in Control or at the time of an actual Change in Control, to provide for the automatic acceleration of one or more outstanding options under this Article 15 II (and the termination of one or more of the Corporation's outstanding repurchase rights under this Article II) upon the occurrence of the Change in Control. The Plan Administrator shall also have full power and authority to condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent termination of the Optionee's Service within a specified period following the Change in control. (c) Exercise Rights. Any options accelerated in connection with the Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term. 2.5 INCENTIVE OPTIONS. The exercisability as Incentive Options of any options accelerated under Sections 2.3 or 2.4 hereof in connection with a Corporate Transaction or Change in Control shall remain subject to the dollar limitation of Section 2.2 hereof. ARTICLE III RESERVED -------- ARTICLE IV AUTOMATIC OPTION GRANT PROGRAM ------------------------------ 4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS. (a) Amount and Date of Grant. During the term of this Plan, automatic option grants (the "Automatic Option Grant") shall be made to each eligible non-employee member of the Board ("Optionee") as follows: (i) Each year on the Annual Automatic Grant Date an option to acquire 5,000 shares of Common Stock ("Option Shares") shall be granted to each eligible non-employee member of the Board for so long as there are shares of Common Stock available under Section 1.5 hereof. The "Annual Automatic Grant Date" shall be as of the first business day of the month in which the Corporation's Annual Stockholders Meeting is held. Notwithstanding the foregoing, (1) any non-Employee Member of the Board whose term ended as of such Automatic Grant Date shall not be eligible to receive any automatic option grants on that Annual Automatic Grant Date and (2) any non-Employee Member of the Board who has received an Automatic Grant pursuant to Section 4.1(a)(ii) on the same date as the Annual Automatic Grant Date or within 30 days prior thereto, 16 shall not be eligible to receive an Automatic Option Grant on that Annual Automatic Grant Date. (ii) On the Initial Automatic Grant Date, every new member of the Board who is an eligible non-Employee and has not previously been a member of the Board shall be granted an option to acquire 10,000 shares of Common Stock ("Option Shares") as long as there are shares of Common Stock available under Section 1.5 hereof. The "Initial Automatic Grant Date" shall be as of the date that the Optionee was first appointed or elected to the Board. (b) Exercise Price. The exercise price per share of Common Stock subject to each automatic option grant made under this Article IV shall be equal to 100% of the fair market value per share of the Common Stock on the applicable Automatic Grant Date, as determined in accordance with the valuation provisions of Section 2.1(d) hereof. (c) Method of Exercise. In order to exercise an option with respect to any Option Shares for which an Automatic Option Grant is exercisable at the time, Optionee (or in the case of an exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following action: (i) execute and deliver to the Secretary of the Company a written notice of exercise; (ii) pay the aggregate Option Price in one of the alternate forms as set forth in Section 4.1(d) below; and (iii) furnish appropriate documentation that the person or persons exercising the option (if other than the Optionee) has the right to exercise such option. As soon after the Exercise Date (as defined in Section 4.1(e) hereof), as practical, the Company shall mail or deliver to or on behalf of the Optionee (or any other person or persons exercising this option in accordance herewith) a certificate or certificates representing the shares for which the option has been exercised in accordance with the provisions of this Plan. In no event may any option be exercised for any fractional shares. (d) Payment Price. The exercise price shall be payable in one of the alternative forms specific below: (i) full payment in cash or check made payable to the Corporation's order; or (ii) full payment through a sale and remittance procedure pursuant to which the non-employee Board member (A) shall provide irrevocable written instructions to a designated brokerage 17 firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares and shall (B) concurrently provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. (e) Exercise Date. For purposes of this Article IV, the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation, and the fair market value per share of Common Stock on any relevant date under this Article IV shall be determined in accordance with the provisions of Section 2.1(d) hereof. Except to the extent the sale and remittance procedure specified above is utilized for the exercise of the potion, payment of the option price for the purchased shares must accompany the exercise notice. (f) Term of Option. Each automatic option grant under this Article IV shall have a maximum term of ten (10) years measured from the Automatic Grant Date. Should Optionee's service as a Board member cease for any reason while an option remains outstanding and unexercised, then the option term shall immediately terminate and the option shall cease to be outstanding prior to the Expiration Date in accordance with the following provisions: (i) The option shall immediately terminate and cease to be outstanding for any shares of Common Stock for which the option was not otherwise exercisable at the time of Optionee's cessation of Board service. (ii) Should Optionee cease, for any reason other than death, to serve as a member of the Board, then Optionee shall have a six-month period measured from the date of such cessation of Board service in which to exercise the options which vested prior to the time of such cessation of Board service. In no event, however, may any option be exercised after the Expiration Date of such option. (iii) Should Optionee die while serving as a Board member or within six months after cessation of Board service, then the personal representative of the Optionee's estate (or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have the right to exercise any option for any or all of the shares of Common Stock for which the option is, in accordance with the provisions of this Plan, exercisable at the time of the Optionee's cessation of Board service, less any shares subsequently purchased by the Optionee pursuant to the option prior to death. Such right shall cease to be exercisable and the option shall accordingly terminate with respect to all Common Stock 18 available under such option by the earlier of (A) the expiration of the twelve-month period measured from the date of Optionee's death or (B) the Expiration Date. (g) Vesting. Each Automatic Option Grant made pursuant to Section 4.1(a)(i) shall become exercisable and vest in a series of twelve (12) equal and successive monthly installments, with the first such installment to become exercisable one month after the Annual Automatic Grant Date. Each Automatic Option Grant made pursuant to Section 4.1(a)(ii) shall become exercisable and vest in a series of 36 equal and successive monthly installments, with the first such installment to become exercisable one month after the Initial Automatic Grant Date. Each installment of an option shall only vest and become exercisable if the Optionee has not ceased serving as a Board member as of such installment date. (h) Limited Transferability. Each Automatic Option Grant shall be exercisable only by Optionee during Optionee's lifetime and shall be neither transferable nor assignable, other than by will or by the laws of descent and distribution following Optionee's death. 4.2 CORPORATE TRANSACTION In the event of stockholder approval of a Corporate Transaction (as that term is defined in Section 2.3(a)), then all options granted pursuant to this Article IV (to the extent outstanding at such time, but not otherwise fully exercisable and vested) shall automatically accelerate and immediately vest so that the option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the Option Shares at the time subject to the option and may thereafter be exercised for any or all such Option Shares. Upon the consummation of the Corporate Transaction, the option shall, to the extent not previously exercised, terminate and cease to be outstanding. 4.3 CHANGE IN CONTROL All options granted pursuant to an Automatic Option Agreement under this Article IV (to the extent outstanding, but not otherwise fully exercisable and vested) shall automatically accelerate in connection with a Change in Control (as that term is defined in Section 2.4(a)), so that such option shall, immediately prior to the effective date of such Change in Control, become fully exercisable for all of the Option Shares at the time subject to that option and may be exercised for any or all of such Option Shares. The option shall remain so exercisable until such option has terminated in accordance with Section 4.1(d) hereof. 19 4.4 MISCELLANEOUS PROVISIONS (a) Corporation Rights. The Automatic Option Grants shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (b) Privilege of Stock Ownership. An Optionee shall not have any of the rights of a stockholder with respect to Option Shares until such individual shall have exercised the option and paid the option price for the Option Shares. ARTICLE V MISCELLANEOUS ------------- 5.1 AMENDMENT OF THE PLAN AND AWARDS (a) Board Authority. The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, no such amendment or modification shall, without the consent of the Corporation's stockholders, disqualify any option previously granted under the Plan for treatment as an Incentive Option, or adversely affect rights and obligations with respect to options at the time outstanding under the Plan, unless the Optionee or Participant consents to such amendment. In addition, the Board may not, without the approval of the Corporation's stockholders, amend the Plan to (i) materially increase the maximum number of shares issuable under the Plan, except for permissible adjustments under Section 1.5(d) or extend the term of the Plan, (ii) materially modify the eligibility requirements for plan participation or (iii) materially increase the benefits accruing to plan participants. (b) Options Issued Prior to Stockholder Approval. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and the Automatic Option Grant Program prior to any required stockholder approvals, provided, any shares actually issued under the Plan are held in escrow until stockholder approval is obtained. If such stockholder approval is not obtained within twelve (12) months of the meeting of the Board approving the Plan or any amendments, then (i) any unexercised options shall terminate and cease to be exercisable and (ii) the Corporation shall promptly refund the purchase price paid for any excess shares actually issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow. 20 (c) Rule 16b-3 Plan. With respect to persons subject to Section 16 of the 1934 Act, the Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated under the 1934 Act. To the extent any revision of the Plan or action by any Plan Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by such Plan Administrator. In addition, the Board may amend the Plan from time to time as it deems necessary in order to meet the requirements of any amendments to Rule 16b-3 without the consent of the shareholders of the Company. 5.2 TAX WITHHOLDING (a) General. The Corporation's obligation to deliver shares of Common Stock upon the exercise of stock options for such shares or the vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, State and local income tax and employment tax withholding requirements. (b) Shares to Pay for Withholding. A Plan Administrator may, in its discretion and in accordance with the provisions of this Section 5.2(b) and such supplemental rules as the Plan Administrator may from time to time adopt (including the applicable safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of non-statutory options or unvested shares under the Plan with the right to use shares of the Corporation's Common Stock in satisfaction of all or part of the Federal, State and local income tax and employment tax liabilities incurred by such holders in connection with the exercise of their options or the vesting of their shares (the "Taxes"). Such right may be provided to any such holder in either or both of the following formats: (i) Stock Withholding. The holder of the nonstatutory option or unvested shares may be provided with the election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such non-statutory option or the vesting of such shares, a portion of those shares with an aggregate fair market value equal to the percentage of the applicable Taxes (not to exceed one hundred percent (100%)) designated by the holder. (ii) Stock Delivery. The Plan Administrator may, in its discretion, provide the holder of the non-statutory option or the unvested shares with the election to deliver to the Corporation, at the time the non-statutory option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such individual (other than pursuant to the transaction triggering the Taxes) with an aggregate fair market value equal to the percentage of the taxes incurred in connection with such option 21 exercise or share vesting (not to exceed one hundred percent (100%)) designated by the holder. 5.3 EFFECTIVE DATE AND TERM OF PLAN (a) Effective Date. This Plan, as successor to the Corporation's 1989 Stock Option Plan, become effective as of the applicable Effective Date, and no further option grants or stock issuances shall be made under the 1989 Plan from and after such Effective Date. (b) Incorporation of 1989 Plan. Each option issued and outstanding under the 1989 Plan immediately prior to the Effective Date of the Discretionary Option Grant Program shall be incorporated into this Plan and treated as an outstanding option under this Plan, but each such option shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant, and nothing in this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such options with respect to their acquisition of shares of Common Stock thereunder. (c) Discretion. The option and vesting acceleration provisions of Article II relating to Corporate Transactions and Changes in Control may, in the Plan Administrator's discretion, be extended to one or more stock options which are outstanding under the 1989 Plan on the Effective Date of the Discretionary Option Grant Program but which do not otherwise provide for such acceleration. (d) Termination of Plan. The Plan shall terminate upon the earlier of (i) January 19, 2003 or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of options granted under the Plan. If the date of termination is determined under clause (i) above, then all option grants and unvested stock issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. 5.4 USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants under the Plan shall be used for general corporate purposes. 5.5 REGULATORY APPROVALS (a) General. The implementation of the Plan, the granting of any option under the Plan, and the issuance of Common 22 Stock upon the exercise or surrender of the option grants made hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it, and the Common Stock issued pursuant to it. (b) Securities Registration. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and State securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which stock of the same class is then listed. 5.6 NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the employ or service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. 5.7 MISCELLANEOUS PROVISIONS (a) Assignment. The right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or Participant. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Participants and Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. (b) Choice of Law. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of Arizona, as such laws are applied to contracts entered into and performed in such State. (c) Plan Not Exclusive. This Plan is not intended to be the exclusive means by which the Corporation may issue options or warrants to acquire its shares of Common Stock, stock awards or issuances, or any other type of award or issuance. To the extent permitted by applicable law, any such other option, warrants, 23 issuance, or awards may be issued by the Company, other than pursuant to this Plan, without shareholder approval. 24 EXECUTED as of the 25th day of April, 1997. MICROCHIP TECHNOLOGY CORPORATION, a Delaware corporation By: /s/ Steve Sanghi ------------------------------------ Steve Sanghi Its: Chairman of the Board, President and Chief Executive Officer Attested by: /s/ C. Philip Chapman - ------------------------------------ C. Philip Chapman Secretary /s/ Mary Simmons-Mothershed - ------------------------------------ Mary Simmons-Mothershed Assistant Secretary 25 EX-10.13 4 RESTATED EMPLOYEE STOCK PURCHASE PLAN RESTATED MICROCHIP TECHNOLOGY INCORPORATED EMPLOYEE STOCK PURCHASE PLAN ---------------------------- AS AMENDED THROUGH APRIL 25, 1997 --------------------------------- I. PURPOSE ------- The Microchip Technology Incorporated Employee Stock Purchase Plan (the "Plan") is intended to provide eligible employees of the Company and one or more of its Corporate Affiliates with the opportunity to acquire a proprietary interest in the Company through participation in a plan designed to qualify as an employee stock purchase plan under Section 423 of the Code. II. DEFINITIONS ----------- For purposes of administration of the Plan, the following terms shall have the meanings indicated: Board means the Board of Directors of the Company. Code means the Internal Revenue Code of 1986, as amended from time to time. Company means Microchip Technology Incorporated, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Microchip Technology Incorporated which shall by appropriate action adopt the Plan. Common Stock means shares of the Company's common stock, par value $0.001 per share. Corporate Affiliate means any parent or subsidiary corporation of the Company (as determined in accordance with Code Section 424) which is incorporated in the United States, including any parent or subsidiary corporation which becomes such after the Effective Date. Earnings means the sum of the following items of compensation paid to a Participant by one or more Participating Companies during such individual's period of participation in the Plan: (i) regular base salary, plus (ii) any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Company or any Corporate Affiliate plus (iii) all overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments. There shall, however, be excluded from the calculation of such Earnings any and all contributions (other than Code Section 401(k) or Code Section 125 contributions) made on the Participant's behalf by the Company or one or more Corporate Affiliates under any employee benefit or welfare plan now or hereafter established. Effective Date means March 17, 1993, the start date of the first offering period under the Plan. However, for any Corporate Affiliate which becomes a Participating Company in the Plan after such date, a subsequent Effective Date shall be designated with respect to participation by its Eligible Employees. Eligible Employee means any person who is engaged, on a regularly-scheduled basis of more than twenty (20) hours per week for more than five (5) months per calendar year, in the rendition of personal services to the Company or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. Entry Date means the date an Eligible Employee first joins the offering period in effect under the Plan. The earliest Entry Date under the Plan shall be the Effective Date. Fair Market Value means the fair market value of the Common Stock on any relevant date under the Plan and shall, for any date following the initial March 17, 1993 Effective Date, be deemed to be equal to the closing selling price per share of Common Stock on the date in question, as officially quoted on the Nasdaq National Market. If there is no quoted selling price for the date in question, then the closing selling price per share of Common Stock on the next preceding day for which there does exist such a quotation shall be determinative of Fair Market Value. Participant means any Eligible Employee of a Participating Company who is actively participating in the Plan. Participating Company means the Company and such Corporate Affiliate or Affiliates as may be designated from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. Semi-Annual Entry Date means the first business day of each March and September within an offering period in effect under the Plan. However, the earliest Semi-Annual Entry Date under the Plan shall be the March 17, 1993 Effective Date. Semi-Annual Period of Participation means each semi-annual period for which the Participant actually participates in an offering period in effect under the Plan. There shall be a maximum of four (4) semi-annual periods of participation within each offering period. Except as otherwise designated by the Plan Administrator, the first such semi-annual period (which may actually be less than six (6) months for the initial offering period) shall extend from the start date of the offering period through the last business day in August; subsequent semi-annual periods shall then be measured from the first business day of September and March thereafter to the last business day of February and August, respectively. Semi-Annual Purchase Date means the last business day of each February and August within an offering period on which shares of Common Stock are automatically purchased for Participants under the Plan. 2 Service means the period during which an individual performs services as an Eligible Employee and shall be measured from his or her hire date, whether that date is before or after the Effective Date of the Plan. III. ADMINISTRATION -------------- The Plan shall be administered by a committee (the "Plan Administrator") comprised of two (2) or more non-employee Board members appointed from time to time by the Board. The Plan Administrator shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Section 423 of the Code. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan. IV. OFFERING PERIODS ---------------- A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Article IX. B. The Plan shall be implemented in a series of successive offering periods, each to be of a duration of twenty-four (24) months or less as designated by the Plan Administrator prior to the start date. The initial offering period will begin on the Effective Date and will end on the last business day in February 1995. The next offering period shall commence on the first business day in March 1995, and subsequent offering periods shall commence as designated by the Plan Administrator. C. Under no circumstances shall any offering period commence under the Plan, nor shall any shares of Common Stock be issued hereunder, until such time as (i) the Plan shall have been approved by the Company's stockholders and (ii) the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which shares of the Common Stock are listed and all other applicable statutory and regulatory requirements. D. The Participant shall be granted a separate purchase right for each offering period in which he/she participates. The purchase right shall be granted on the Entry Date on which such individual first joins the offering period in effect under the Plan and shall be automatically exercised in successive semi-annual installments on the last business day of each February and August within the remainder of the offering period. Accordingly, each purchase right may be exercised up to two (2) times each calendar year it remains outstanding. E. The acquisition of Common Stock through plan participation for any offering period shall neither limit nor require the acquisition of Common Stock by the Participant in 3 any subsequent offering period. V. ELIGIBILITY AND PARTICIPATION ----------------------------- A. Each Eligible Employee of a Participating Company shall be eligible to participate in the Plan in accordance with the following provisions: - An individual who is an Eligible Employee with at least thirty (30) days of Service prior to the start date of the offering period may enter that offering period on the Semi-Annual Entry Date coincident with such start date or on any subsequent Semi-Annual Entry Date within that offering period on which he/she remains an Eligible Employee. The Semi-Annual Entry Date on which such individual first joins the offering period shall become such individual's Entry Date for the offering period, and on that date such individual shall be granted his/her purchase right for the offering period. - An individual who is not an Eligible Employee with at least thirty (30) days of Service on the start date of the offering period may subsequently enter that offering period on the first Semi-Annual Entry Date on which he/she is an Eligible Employee with thirty (30) or more days of Service or on any subsequent Semi-Annual Entry Date within that offering period on which he/she remains an Eligible Employee. The Semi-Annual Entry Date on which such individual first joins the offering period shall become such individual's Entry Date for that offering period, and on that date such individual shall be granted his/her purchase right for the offering period. B. To participate for a particular offering period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his/her scheduled Entry Date. C. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock under the Plan may be any multiple of one percent (1%) of the Earnings paid to the Participant during each Semi-Annual Period of Participation within the offering period, up to a maximum of ten percent (10%). The deduction rate so authorized shall continue in effect for the remainder of the offering period, except to the extent such rate is changed in accordance with the following guidelines: - The Participant may, at any time during a Semi-Annual Period of Participation, reduce his/her rate of payroll deduction. Such reduction shall become effective as soon as possible after the filing of the requisite reduction form with the Plan Administrator (or its designate), but the Participant may not effect more than one (1) such reduction during the same Semi-Annual Period of Participation. - The Participant may not increase his/her rate of payroll deduction following 4 his/her Entry Date into the offering period. However, the Participant may, prior to his/her Entry Date into any new offering period, increase the rate of his/her payroll deduction by filing the appropriate form with the Plan Administrator (or its designate). The new rate (which may not exceed the ten percent (10%) maximum) shall become effective as of the Participant's Entry Date into the first offering period following the filing of such form. Payroll deductions will automatically cease upon the termination of the Participant's purchase right in accordance with the provisions of Section VII below. VI. STOCK SUBJECT TO PLAN --------------------- A. The Common Stock purchasable under the Plan shall, solely in the discretion of the Plan Administrator, be made available from either authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by the Company, including shares of Common Stock purchased on the open market. The total number of shares which may be issued over the term of the Plan shall not exceed 3,306,000 shares1 (subject to adjustment under Section VI.B below). However, not more than 990,0002 shares may be issued under the Plan from and after March 1, 1995, subject to adjustment under Section VI.B below. B. In the event any change is made to the outstanding Common Stock by reason of any stock dividend, stock split, combination of shares or other change affecting such outstanding Common Stock as a class without the Company's receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the class and maximum number of securities issuable over the term of the Plan and from and after the March 1, 1995 effective date of this restatement, (ii) the class and maximum number of securities purchasable per Participant during any one (1) Semi-Annual Period of Participation and (iii) the class and number of securities and the price per share in effect under each purchase right at the time outstanding under the Plan. Such adjustments shall be designed to preclude the dilution or enlargement of rights and benefits under the Plan. VII. PURCHASE RIGHTS --------------- An Eligible Employee who participates in the Plan for a particular offering period shall have the right to purchase shares of Common Stock, in a series of successive semi-annual installments during such offering period, upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. Purchase Price. Common Stock shall be issuable at the end of each Semi-Annual Period of Participation within the offering period at a purchase price equal to eighty-five percent - ---------------------------- (1) Adjusted to reflect (i) the 300,000 share increase authorized by the Board on April 25, 1997, subject to stockholder approval at the 1997 Annual Meeting. Should this proposed increase not be approved, then the total number of shares which may be issued over the term of the Plan shall not exceed 3,006,000. (2) Adjusted to reflect (i) the 300,000 share increase authorized by the Board on April 25, 1997, subject to stockholder approval at the 1997 Annual Meeting. Should the proposed increase not be approved then the total number of shares that may be issued under the Plan from and after March 1, 1995, subject to adjustment under Section VI.B, below may not exceed 690,000. 5 (85%) of the lower of (i) the Fair Market Value per share on the Participant's Entry Date into that offering period or (ii) the Fair Market Value per share on the Semi-Annual Purchase Date on which such Semi-Annual Period of Participation ends. However, for each Participant whose Entry Date is other than the start date of the offering period, the clause (i) amount shall in no event be less than the Fair Market Value of the Common Stock on the start date of that offering period. Payment. Payment for the Common Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin with the first full payroll period beginning with or immediately following the Participant's Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of the offering period. The amounts so collected shall be credited to the Participant's book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from a Participant may be commingled with the general assets of the Company and may be used for general corporate purposes. Number of Purchasable Shares. The number of shares purchasable per Participant for each Semi-Annual Period of Participation during the offering period shall be the number of whole shares obtained by dividing the payroll deductions collected from the Participant during that Semi-Annual Period of Participation by the purchase price in effect for the Participant for such period. No Participant may purchase more than Thirteen Thousand Five Hundred (13,500) shares of Common Stock per Semi-Annual Period of Participation, subject to periodic adjustment under Section VI.B. Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates. Termination of Purchase Right. The following provisions shall govern the termination of outstanding purchase rights: (i) A Participant may, at any time prior to the last five (5) business days of the Semi-Annual Period of Participation, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). No further payroll deductions shall be collected from the Participant with respect to the terminated purchase right, and any payroll deductions collected for the Semi-Annual Period of Participation in which such termination occurs shall, at the Participant's election, be immediately refunded or held for the purchase of shares on the next Semi-Annual Purchase Date. If no such election is made at the time the purchase right is terminated, then the deductions collected with respect to the terminated right shall be refunded as soon as possible. 6 (ii) The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the offering period for which the terminated purchase right was granted. In order to resume participation in any subsequent offering period, such individual must re-enroll in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) on or before his/her scheduled Entry Date into the new offering period. (iii) If the Participant ceases to remain an Eligible Employee while his/her purchase right remains outstanding, then such purchase right shall immediately terminate, and the payroll deductions collected from such Participant for the Semi-Annual Period of Participation in which the purchase right so terminates shall be promptly refunded to the Participant. However, in the event the Participant's cessation of Eligible Employee status occurs by reason of his/her death or permanent disability, then such individual (or the personal representative of the estate of a deceased Participant) shall have the following election, exercisable at any time prior to the last five (5) business days of the Semi-Annual Period of Participation in which such cessation of Eligible Employee status occurs: - to withdraw all of the Participant's payroll deductions for such Semi-Annual Period of Participation, or - to have such funds held for the purchase of shares on the Semi-Annual Purchase Date immediately following such cessation of Eligible Employee status. If a timely election is not made, then the payroll deductions shall be refunded as soon as possible after the close of such Semi-Annual Period of Participation. In no event, however, may any payroll deductions be made on the Participant's behalf following his/her cessation of Eligible Employee status. Stock Purchase. Shares of Common Stock shall automatically be purchased on behalf of each Participant (other than Participants whose payroll deductions have previously been refunded in accordance with the Termination of Purchase Right provisions above) on each Semi-Annual Purchase Date. The purchase shall be effected by applying each Participant's payroll deductions for the Semi-Annual Period of Participation ending on such Semi-Annual Purchase Date (together with any carryover deductions from the preceding Semi-Annual Period of Participation) to the purchase of whole shares of Common Stock (subject to the limitation on the maximum number of purchasable shares set forth above) at the purchase price in effect for the Participant for such Semi-Annual Period of Participation. Any payroll deductions not applied to such purchase because they are not sufficient to purchase a whole share shall be held for the purchase of Common Stock in the next Semi-Annual Period of Participation. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable by the Participant during the Semi-Annual Period of Participation shall be promptly refunded to the Participant. 7 Proration of Purchase Rights. Should the total number of shares of Common Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded to such Participant. Rights as Stockholder. A Participant shall have no stockholder rights with respect to the shares subject to his/her outstanding purchase right until the shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan. No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after each Semi-Annual Purchase Date, a stock certificate for the number of shares purchased on the Participant's behalf. Such certificate may, upon the Participant's request, be issued in the names of the Participant and his/her spouse as community property or as joint tenants with right of survivorship. Alternatively, the Participant may request the issuance of such certificate in "street name" for immediate deposit in a designated brokerage account. Assignability. No purchase right granted under the Plan shall be assignable or transferable by the Participant other than by will or by the laws of descent and distribution following the Participant's death, and during the Participant's lifetime the purchase right shall be exercisable only by the Participant. Change in Ownership. Should any of the following transactions (a "Change in Ownership") occur during the offering period: (i) a merger or other reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the State in which the Company is incorporated), or (ii) a sale of all or substantially all of the Company's assets in liquidation or dissolution of the Company, or (iii) a reverse merger in which the Company is the surviving corporation but in which more than fifty percent (50%) of the Company's outstanding voting stock is transferred to person or persons different from those who held the stock immediately prior to such merger, or then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to the effective date of such Change in Ownership by applying the payroll deductions of each Participant for the Semi-Annual Period of Participation in which such Change in Ownership occurs to the purchase of whole shares of Common Stock at eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant's Entry 8 Date into the offering period in which such Change in Ownership occurs or (ii) the Fair Market Value per share of Common Stock immediately prior to the effective date of such Change in Ownership. However, the applicable share limitations of Articles VII and VIII shall continue to apply to any such purchase, and the clause (i) amount above shall not, for any Participant whose Entry Date for the offering period is other than the start date of that offering period, be less than the Fair Market Value per share of Common Stock on such start date. The Company shall use its best efforts to provide at least ten (10)-days advance written notice of the occurrence of any such Change in Ownership, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights in accordance with the applicable provisions of this Article VII. VIII. ACCRUAL LIMITATIONS ------------------- A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (I) rights to purchase Common Stock accrued under any other purchase right outstanding under this Plan and (II) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Company or any Corporate Affiliate (determined on the basis of the value of such stock on the date or dates such rights are granted the Participant) for each calendar year such rights are at any time outstanding. B. For purposes of applying such accrual limitations, the right to acquire Common Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: (i) The right to acquire Common Stock under each such purchase right shall accrue in a series of successive semi-annual installments as and when the purchase right first becomes exercisable for each such installment on the last business day of each Semi-Annual Period of Participation for which the right remains outstanding. (ii) No right to acquire Common Stock under an outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at the rate of Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of the Fair Market Value on the date or dates such rights are granted) for each calendar year those rights are at any time outstanding. (iii) If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Semi-Annual Period of Participation, then the payroll deductions which the Participant made during that Semi-Annual Period of Participation with respect to such purchase right shall be promptly 9 refunded. C. In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. IX. AMENDMENT AND TERMINATION ------------------------- A. The Board may alter, amend, suspend or discontinue the Plan following the close of any Semi-Annual Period of Participation. However, the Board may not, without the approval of the Company's stockholders: (i) materially increase the number of shares issuable under the Plan or the maximum number of shares purchasable per Participant during any one Semi-Annual Period of Participation, except that the Plan Administrator shall have the authority, exercisable without such stockholder approval, to effect adjustments to the extent necessary to reflect changes in the Company's capital structure pursuant to Section VI.B; (ii) alter the purchase price formula so as to reduce the purchase price payable for the shares issuable under the Plan; or (iii) materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for eligibility to participate in the Plan. B. The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate all outstanding purchase rights under the Plan immediately following the close of any Semi-Annual Period of Participation. Should the Company elect to exercise such right, then the Plan shall terminate in its entirety. No further purchase rights shall thereafter be granted or exercised, and no further payroll deductions shall thereafter be collected, under the Plan. X. DISPOSITION OF SHARES --------------------- A. The Plan Administrator may, in its absolute discretion, impose, as a condition to the issuance of the shares of Common Stock purchased under the Plan, the requirement that each Participant provide the Company with prompt notice of any transfer or other disposition of those shares which is effected within two (2) years after Participant's Entry Date into the offering period in which the shares were purchased or within one year after the Semi-Annual Purchase Date on which those shares were in fact purchased. The Plan Administrator may further require the certificate evidencing such shares to be endorsed with a legend indicating the existence of such notice requirement and impose appropriate stop transfer orders with respect to such certificate in the absence of such notice. 10 B. The Company shall not record on its books of record any transfer or other disposition of the shares of Common Stock issued under the Plan which is not effected in compliance with the foregoing notice requirement. Moreover, the Company may impose, as a condition to the recordation of such transfer or disposition, the requirement that the Participant satisfy all Federal, state and local income and employment tax withholding obligations applicable to such transfer or disposition. XI. GENERAL PROVISIONS ------------------ A. The Plan became effective on the March 17, 1993 Effective Date. B. The March 1, 1995 restatement incorporated a series of amendments to the Plan authorized by the Board in January, 1995 to effect the following changes to the Plan: (i) allow Eligible Employees to join an offering period on any Semi-Annual Entry Date within that offering period, (ii) prohibit Participants from increasing their rate of payroll deduction under the Plan after their Entry Date into a particular offering period, (iii) obligate Participants to notify the Company of any disqualifying disposition (as defined in Code Section 423) of the shares they acquire under the Plan and (iv) and increase in the number of shares of Common Stock available for issuance over the term of the Plan. C. The Plan shall terminate upon the earlier of (i) the last business day in February 2003 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. D. All costs and expenses incurred in the administration of the Plan shall be paid by the Company. E. Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Board or the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Company or any of its Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. F. The provisions of the Plan shall be governed by the laws of the State of Arizona without resort to that State's conflict-of-laws rules. 11 Schedule A ---------- Companies Participating in Employee Stock Purchase Plan As of April 25, 1997 ------------------- Microchip Technology Incorporated 12 EX-10.20 5 MODIFICATION AGREEMENT MODIFICATION AGREEMENT BY THIS MODIFICATION AGREEMENT (the "Agreement"), made and entered into as of the 14th day of January, 1997, WELLS FARGO BANK, N.A., whose address is 100 West Washington, Phoenix, Arizona 85003 as administrative agent for the Banks (as hereinafter defined) (the "Administrative Agent"), and MICROCHIP TECHNOLOGY INCORPORATED, a Delaware corporation, whose address is 2355 West Chandler Boulevard, Chandler, Arizona 85224 (the "Borrower"), in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby confirm and agree as follows: SECTION 1. RECITALS. 1.1 Borrower and the Administrative Agent, NBD Bank as Co-Agent and the Banks named therein entered into that Credit Agreement dated October 31, 1996 (the "Credit Agreement") to provide financial accommodations to the Borrower as provided therein. 1.2 Borrower and the Administrative Agent, with the consent of the Banks, desire to modify the Credit Agreement as set forth herein. 1.3 All undefined capitalized terms used herein shall have the meaning given them in the Credit Agreement. SECTION 2. CREDIT AGREEMENT. 2.1 The following definition in Section 1.1 of the Loan Agreement is hereby amended to read as follows: "Consolidated Debt" shall mean the total Debt of the Borrower and its Subsidiaries, less the outstanding principal amount of Convertible Subordinated Indebtedness, all computed on a consolidated basis in accordance with GAAP. 2.2 The following definition is hereby added to Section 1.1 of the Loan Agreement: "Convertible Subordinated Indebtedness" shall mean Subordinated Indebtedness that is convertible into equity of the Borrower, which amount for purposes of the calculation of the ratio under Section 6.8 shall not exceed at any time $100,000,000.00. SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS. 3.1 All references to the Credit Agreement in the other Loan Documents are hereby amended to refer to the Credit Agreement as hereby amended. 3.2 Borrower hereby reaffirms to Lender each of the representations, warranties, covenants and agreements of Borrower set forth in the Credit Agreement, with the same force and effect as if each were separately stated herein and made as of the date hereof. 3.3 Borrower hereby ratifies, reaffirms, acknowledges, and agrees that the Notes and the Credit Agreement represent valid, enforceable and collectible obligations of Borrower, and that there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with respect to any of these documents or instruments. In addition, Borrower hereby expressly waives, releases and absolutely and forever discharges the Banks and their present and former shareholders, directors, officers, employees and agents, and their separate and respective heirs, personal representatives, successors and assigns, from any and all liabilities, claims, demands, damages, action and causes of action, whether known or unknown and whether contingent or matured, that Borrower may now have, or has had prior to the date hereof, or that may hereafter arise with respect to acts, omissions or events occurring prior to the date hereof and, without limiting the generality of the foregoing, from any and all liabilities, claims, demands, damages, actions and causes of action, known or unknown, contingent or matured, arising out of, or in any way connected with, the Loans. Borrower further acknowledges and represents that no event has occurred and no condition exists that, after notice or lapse of time, or both, would constitute a default under this Agreement, the Notes or the Credit Agreement. 3.4 All terms, conditions and provisions of the Credit Agreement are continued in full force and effect and shall remain unaffected and unchanged except as specifically amended hereby. The Credit Agreement, as amended hereby, is hereby ratified and reaffirmed by Borrower, and Borrower specifically acknowledges the validity and enforceability thereof. SECTION 4. GENERAL. 4.1 This Agreement in no way acts as a release or relinquishment of those rights securing payment of the Loans. Such rights are hereby ratified, confirmed, renewed and extended by Borrower in all respects. 4.2 The modifications contained herein shall not be binding upon the Banks until the Administrative Agent shall have received all of the following: (a) An original of this Agreement fully executed by the Borrower. (b) Such resolutions or authorizations and such other documents as the Administrative Agent may require relating to the existence and good standing of the Borrower and the authority of any person executing this Agreement or other documents on behalf of the Borrower. 4.3 Borrower shall execute and deliver such additional documents and do such other acts as the Banks may reasonably require to fully implement the intent of this Agreement. -2- 4.4 Borrower shall pay all costs and expenses, including, but not limited to, reasonable attorneys' fees incurred by the Administrative Agent in connection herewith, whether or not all of the conditions described in Paragraph 4.2 above are satisfied. Banks, at their option, but without any obligation to do so, may advance funds to pay any such costs and expenses that are the obligation of the Borrower, and all such funds advanced shall bear interest at the highest rate provided in the Notes and shall be due and payable upon demand. 4.5 Notwithstanding anything to the contrary contained herein or in any other instrument executed by Borrower, the Administrative Agent or the Banks, or in any other action or conduct undertaken by Borrower, the Administrative Agent or the Banks on or before the date hereof, the agreements, covenants and provisions contained herein shall constitute the only evidence of the Banks' consent to modify the terms and provisions of the Credit Agreement. Accordingly, no express or implied consent to any further modifications involving any of the matters set forth in this Agreement or otherwise shall be inferred or implied by the Banks' consent to this Agreement. Further, the Banks' consent to this Agreement shall not constitute a waiver (either express or implied) of the requirement that any further modification of the Credit Agreement shall require the express written consent of the Banks; no such consent (either express or implied) has been given as of the date hereof. 4.6 Time is hereby declared to be of the essence hereof of the Credit Agreement, and Banks require, and Borrower agrees to, strict performance of each and every covenant, condition, provision and agreement hereof, of the Credit Agreement. 4.7 This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their heirs, personal representatives, successors and assigns. -3- 4.8 This Agreement is made for the sole protection and benefit of the parties hereto, and no other person or entity shall have any right of action hereon. 4.9 This Agreement shall be governed by and construed according to the laws of the State of Arizona. IN WITNESS WHEREOF, these presents are executed as of the date indicated above. WELLS FARGO BANK, N.A. By: /s/ Mae G. DelaBarre ------------------------------------- Name: Mae G. DelaBarre ----------------------------------- Its: Assistant Vice President ------------------------------------ ADMINISTRATIVE AGENT MICROCHIP TECHNOLOGY INCORPORATED, a Delaware corporation By: /s/ C. Philip Chapman ------------------------------------- Name: C. Philip Chapman ----------------------------------- Its: Vice President & CFO ------------------------------------ BORROWER -4- CONSENT OF THE BANKS Re: Microchip Technology Incorporated The following: (a) is a Bank named in that Credit Agreement dated October 31, 1996 between Microchip Technology Incorporated, a Delaware corporation (the "Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the "Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and (b) consents to that Modification Agreement dated January 14, 1997 entered into between the Borrower and the Administrative Agent. NBD BANK, a Michigan banking corporation By: /s/ James B. Junker ------------------------------------- Name: James B. Junker ----------------------------------- Its: Authorized Agent ------------------------------------ "Co-Agent and Bank" CONSENT OF THE BANKS Re: Microchip Technology Incorporated The following: (a) is a Bank named in that Credit Agreement dated October 31, 1996 between Microchip Technology Incorporated, a Delaware corporation (the "Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the "Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and (b) consents to that Modification Agreement dated January 14, 1997 entered into between the Borrower and the Administrative Agent. BANK ONE, ARIZONA, NA, a national banking association By: /s/ Steven Reinhart ------------------------------------- Name: Steven Reinhart ----------------------------------- Its: VP ------------------------------------ "Bank" -2- CONSENT OF THE BANKS Re: Microchip Technology Incorporated The following: (a) is a Bank named in that Credit Agreement dated October 31, 1996 between Microchip Technology Incorporated, a Delaware corporation (the "Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the "Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and (b) consents to that Modification Agreement dated January 14, 1997 entered into between the Borrower and the Administrative Agent. THE INDUSTRIAL BANK OF JAPAN, LIMITED, San Francisco Agency By: /s/ Takahide Akiyama ------------------------------------- Name: Takahide Akiyama ----------------------------------- Its: Joint General Manager ------------------------------------ "Bank" -3- CONSENT OF THE BANKS Re: Microchip Technology Incorporated The following: (a) is a Bank named in that Credit Agreement dated October 31, 1996 between Microchip Technology Incorporated, a Delaware corporation (the "Borrower"), Wells Fargo Bank, N.A., as administrative agent for the Banks (the "Administrative Agent"), NBD Bank as Co-Agent, and the Banks; and (b) consents to that Modification Agreement dated January 14, 1997 entered into between the Borrower and the Administrative Agent. WELLS FARGO BANK, N.A. By: /s/ Mae G. DelaBarre ------------------------------------- Name: Mae G. DelaBarre ----------------------------------- Its: Assistant Vice President ------------------------------------ "Bank" -4- EX-11.1 6 COMPUTATION OF NET INCOME PER SHARE MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES EXHIBIT 11.1 - COMPUTATION OF NET INCOME PER SHARE (in thousands, except per share amounts) Year Ended March 31, 1997 1996 1995 --------------------------- Net income $51,132 $43,752 $36,299 ------- ------- ------- Weighted average shares: Common shares outstanding 51,569 50,750 47,525 Common equivalent shares representing shares issuable upon exercise of stock options(1) 3,114 3,783 4,116 ------- ------- ------- Total weighted average shares primary 54,683 54,533 51,641 ------- ------- ------- Incremental common equivalent shares (calculated using the higher of end of period or average market value)(2) 315 - 384 ------- ------- ------- Total weighted average shares fully diluted 54,998 54,533 52,025 ------- ------- ------- Primary net income per common and common equivalent share 0.94 0.80 0.70 ------- ------- ------- Fully diluted net income per common and common equivalent share 0.93 0.80 0.70 ------- ------- ------- - --------------------------------------------------- (1) Amount calculated using the treasury stock method and fair market values for stock. (2) This calculation is submitted in accordance with regulation S-K Item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-23.1 7 INDEPENDENT AUDITORS' CONSENT KPMG Peat Marwick LLP Independent Auditors' Consent ----------------------------- The Board of Directors Microchip Technology Incorporated: We consent to incorporation by reference in the registration statements (No. 33-59686, No. 33-80072, No. 33-81690, No. 33-83196 and No. 333-872) on Form S-8 of Microchip Technology Incorporated of our report dated April 18, 1997, relating to the consolidated balance sheets of Microchip Technology Incorporated and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1997, which report appears in the March 31, 1997 annual report on Form 10-K of Microchip Technology Incorporated. KPMG Peat Marwick LLP Phoenix, Arizona May 23, 1997 EX-27 8 FDS --
5 1000 U.S. DOLLARS 12-MOS MAR-31-1997 APR-01-1996 MAR-31-1997 1 42999 0 61102 0 56813 189536 234058 0 428092 98360 5999 0 0 53 318010 428092 334252 334252 167330 167330 0 0 3271 69493 18361 51132 0 0 0 51132 0.94 0.93
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