-----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, GVU1/6nKcRNuxUnGXu2dKZn/KdxeA7JEOjgPt8Uq66iOqdvjCNjFm5ZhKto0dDq5 bEltON8BBwHXuLqRRraQEA== 0000891618-98-004296.txt : 19980925 0000891618-98-004296.hdr.sgml : 19980925 ACCESSION NUMBER: 0000891618-98-004296 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980924 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXIM INTEGRATED PRODUCTS INC CENTRAL INDEX KEY: 0000743316 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942896096 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16538 FILM NUMBER: 98714339 BUSINESS ADDRESS: STREET 1: 120 SAN GABRIEL DR CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087377600 MAIL ADDRESS: STREET 1: 120 SAN GABRIEL DR CITY: SUNNYVALE STATE: CA ZIP: 94086 10-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 27, 1998 1 UNITED STATES 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 (FEE REQUIRED) For the Fiscal Year Ended June 27, 1998 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 0-16538 MAXIM INTEGRATED PRODUCTS, INC. (Exact name of registrant as specified in its charter) Delaware 94-2896096 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 120 San Gabriel Drive Sunnyvale, California 94086 (Address of Principal Executive Offices, including Zip Code) Registrant's telephone number, including area code: (408) 737-7600 --------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any Amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the registrant as of August 3, 1998 was approximately $2,341,000,000*. Number of shares outstanding of the registrant's Common Stock, $.001 par value, as of August 3, 1998: 130,412,014. 2 DOCUMENTS INCORPORATED BY REFERENCE: Part II - Annual Report to Stockholders for the fiscal year ended June 27, 1998 Part III - Proxy Statement for the 1998 Annual Meeting of Stockholders * Excludes the Common Stock held by executive officers, directors and stockholders whose ownership exceeds 5% of the Common Stock outstanding at August 3, 1998. Exclusion of such shares should not be construed to indicate that each of such persons possesses the power, direct or indirect, to control the Registrant, or that each such person is controlled by or under common control with the Registrant. 2 3 PART I This Annual Report on form 10-K and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include (a) projections relevant to future revenue, income, earnings, capital expenditures, capital structure or other financial items (b) statements of plans or objectives of the Company's management for future operations, including plans or objectives relating to the Company's products or services, (c) statements of future economic performance, and (d) statements of any assumptions underlying or relating to any of the foregoing. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions relating to the future operations are intended to identify forward-looking statements. All forward-looking statements are based on the Company's current expectations, estimates, projections, beliefs and plans or objectives about its business and its industry. These statements are not guarantees of future performance and are subject to risk and uncertainty. Actual results may differ materially from those predicted or implied in any such forward-looking statement. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Form 10-K and in the documents incorporated herein by reference. Particular attention should be paid to the section entitled "Risk Factors" at pages 11 through 16 below and to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Stockholders, which is incorporated herein by reference. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise. However, readers should carefully review future reports and documents that the Company files from time to time with the Securities and Exchange Commission, such as its quarterly reports on Form 10-Q (particularly Management's Discussion and Analysis of Financial Condition and Results of Operations) and any current reports on Form 8-K. 3 4 ITEM 1. BUSINESS Maxim Integrated Products, Inc., ("Maxim" or the "Company") designs, develops, manufactures, and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The Company also provides a range of high-frequency design processes and capabilities that can be used in custom design. The analog market is highly fragmented and characterized by many diverse applications, a great number of product variations, and relatively long product life cycles. Maxim's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. Maxim operates three wafer fabrication facilities (See "Manufacturing" below). In addition, the Company subcontracts the fabrication of a small portion of its silicon wafers to outside silicon foundries. Based on product announcements by its competitors, Maxim believes that in the past 15 years it has developed more products for the analog market, including proprietary and second-source products, than any of its competitors over the same period. THE ANALOG INTEGRATED CIRCUIT MARKET All electronic signals fall into one of two categories, linear or digital. Linear (or analog) signals represent real world phenomena, such as temperature, pressure, sound, or speed, and are continuously variable over a wide range of values. Digital signals represent the "ones" and "zeros" of binary arithmetic and are either on or off. Three general classes of semiconductor products arise from this partitioning of signals into linear or digital. There are those, such as memories and microprocessors, that operate only in the digital domain. There are linear devices such as amplifiers, references, analog multiplexers, and switches that operate primarily in the analog domain. Finally, there are mixed-signal devices that combine linear and digital functions on the same integrated circuit and interface between the analog and digital worlds. Maxim targets both the linear and mixed signal markets, often collectively referred to as the analog market. The Company believes that, compared to the digital integrated circuit market, the analog market has generally been characterized by a wider range of standard products used in smaller quantities by a large number of customers; longer product life cycles; less competition from Japanese and other foreign manufacturers; lower capital requirements as a result of using more mature manufacturing technologies; and relatively more stable growth rates that are less influenced by economic cycles. The Company believes that the widespread application of low-cost microprocessor-based systems has affected the market for analog integrated circuits by increasing the need for interfaces with the analog world. 4 5 The analog market is a highly fragmented group of niche markets, serving numerous and widely differing applications for instrumentation, industrial control, data processing, communications, military, video, and selected medical equipment. For each application, different users may have unique requirements for circuits with specific resolution, accuracy, linearity, speed, power, and signal amplitude capability, which results in a high degree of market complexity. Maxim's products can be used in a variety of applications, but serve only certain segments of the total analog market. PRODUCTS AND APPLICATIONS The Company initially entered the analog market with a relatively narrow portfolio of products as second sources for industry-standard parts for which there was an existing customer base. After establishing a position in the market, the Company began to introduce technically innovative proprietary products. Although second sourcing continues to be a component of the Company's product development program, current research and development emphasize development of proprietary circuits. The Company believes it addresses the requirements of the market by providing competitively priced products that add value to electronic equipment with superior quality and reliability. As of June 27, 1998, Maxim has introduced over 1,500 products. These products are available with numerous packaging alternatives, including packages for surface mount technology. The following table illustrates the major industries served by the Company and typical applications for which the Company's products can be used: Industry Typical Application Communications . . . . . . . . . . . Broadband Networks Cable System Central Office Switches Direct Broadcast TV Fiber Optics Pagers PBX Phones * Cellular * Cordless Satellite Communications Transmission Systems Video Communications Wireless Communications Industrial Control . . . . . . . . . . Control of * Flow * Position * Pressure 5 6 * Temperature * Velocity Robotics Instrumentation . . . . . . . . . . . . Automatic Test Equipment Analyzers Data Recorders Measuring Instruments * Electrical * Light * Pressure * Sound * Speed * Temperature Testers Data Processing . . . . . . . . . . . Bar-code Readers Disk Drives Mainframes Minicomputers Personal Computers Printers Point of Sale Terminals Tape Drives Workstations The Company also sells products for military and selected medical equipment. While Maxim's proprietary products have received substantial market acceptance, Maxim has experienced additional competition as Maxim's competitors have developed second sources for Maxim's successful innovative proprietary products. Typically in the semiconductor industry, when a proprietary product becomes second sourced, the credibility of the original design is enhanced, and there is an opportunity to increase total revenues as the potential customers' reluctance to design in a sole-source product is removed, but gross margins may be adversely affected due to increased price competition. PRODUCT QUALITY Maxim places strong emphasis on product quality from initial design through final quality assurance. In the product design phase, Maxim applies a set of circuit design rules that it believes results in enhanced product reliability. Upon receipt from Maxim's own fabrication facilities or from silicon foundries, a majority of processed wafers are tested for conformance with specific parameters. Products are individually tested using specialized test equipment and complex programs to ensure that they meet data sheet performance levels. In addition, long-term operating life and mechanical stress tests are routinely performed on samples to assure continued consistency. 6 7 MANUFACTURING Maxim uses its own wafer fabrication facilities and, to a small extent, silicon foundries to produce wafers. The majority of processed wafers are subjected to parametric and functional testing at the Company's facilities. As is customary in the industry, the Company ships most of its processed wafers to foreign assembly subcontractors, located in the Philippines, Malaysia, and South Korea, where wafers are separated into individual integrated circuits and assembled into a variety of packages. During fiscal 1997, Maxim completed construction of a 141,000-square-foot manufacturing and test facility in the Philippines. At the present time, this facility is operating as Maxim's offshore test facility, testing the majority of Maxim's packaged units. The rest of the packaged units are tested at its Sunnyvale, California and Beaverton, Oregon facilities upon receipt from assembly subcontractors. At some time in the future, the Philippines facility may also be used for part of Maxim's assembly requirements in addition to, or in place of, assembly subcontractors. The broad range of products demanded by the analog integrated circuit market requires multiple manufacturing process technologies. Twenty different process technologies are currently used for wafer fabrication of the Company's products. Historically, wafer fabrication of analog integrated circuits has not required the state-of-the-art processing equipment necessary for the fabrication of advanced digital integrated circuits, although newer processes do utilize and require some of these facilities and equipment. In addition, hybrid products are manufactured using a complex multichip technology featuring thin-film, thick-film, and laser-trimmed resistors. For the majority of these technologies in multiple fabrication lines, the Company relies on its three geographically separated fabrication facilities in Sunnyvale and San Jose, California and Beaverton, Oregon and, to a small extent, manufacturing subcontractors. The Company currently uses five subcontract silicon foundries that represent less than 8% of wafer production. Each of the subcontractors currently used by Maxim is unaffiliated with Maxim. In December 1989, the Company acquired a wafer fabrication facility in Sunnyvale, California capable of producing 3 micron CMOS and bipolar products. Maxim leased the building housing the facility and purchased all manufacturing assets required for its manufacturing operations. In May 1994, the Company acquired a mixed-class wafer fabrication facility in Beaverton, Oregon capable of producing CMOS and bipolar products. In November 1997, the company acquired a sub-micron wafer fabrication facility in San Jose, California. (See "Item 2. Properties" below). As is typical in the semiconductor industry, the Company has experienced disruptions in the supply of processed wafers due to quality problems or failure to achieve satisfactory electrical yields. If the foundries used by the Company were unwilling or the Company's own internal wafer fabrication facilities were unable to produce adequate supplies of processed wafers conforming to the Company's quality standards, the Company's business and relationships with its customers could be adversely affected. 7 8 Due to the relatively lengthy manufacturing cycle, the Company builds some of its inventory in advance of receiving orders from its customers. As a consequence of inaccuracies inherent in forecasting, inventory imbalances periodically occur that result in surplus amounts of some Company products and shortages of others. Such shortages can adversely affect customer relations and surpluses can result in larger-than-desired inventory levels. SALES AND MARKETING In the United States and Canada, the Company sells its products through a direct sales and applications organization in eight regional sales offices and through various distribution channels. As is customary in the industry, domestic distributors are entitled to certain price rebates and limited product return privileges. International sales are conducted by 13 Maxim sales offices and 36 sales representative organizations and distributors consisting of 60 office locations. The Company sells in both United States dollars and various foreign currencies. Over half of the Company's international sales are billed and payable in United States dollars and are therefore not directly subject to currency exchange fluctuations. A portion of the Company's sales from its United Kingdom, French, and German affiliates is denominated in the local currencies. The majority of the sales to customers and distributors located in Japan are denominated in yen. The Company places foreign currency forward contracts to protect the United States dollar value of its firm sales commitments and net monetary assets. Changes in the relative value of the dollar, however, may create pricing pressures for Maxim's products. In addition, various forms of protectionist trade legislation have been proposed in the United States and certain foreign countries. A change in current tariff structures or other trade policies could adversely affect the Company's foreign marketing strategies. In general, payment terms for foreign customers, distributors and others, are longer than for U.S. customers, and certain major foreign customers habitually pay for product well beyond the scheduled payment dates. As is customary in the semiconductor industry, the Company's domestic distributors may market products competitive with Maxim's. The Company's independent sales representatives and international distributors may not represent competitive product lines, although they are permitted to sell non-competing products for other companies. International sales accounted for approximately 56%, 57%, and 57% of net revenues in fiscal 1998, 1997 and 1996, respectively. (See "Note 10 Notes to Consolidated Financial Statements" as set forth in the Company's Annual Report to Stockholders for the fiscal year ended June 27, 1998.) The Company also sells product directly to original equipment manufacturers. In particular, the Company has a long-term supply arrangement with Tektronix, Inc. for the supply of products manufactured by Tektronix prior to its sale in May 1994 of its integrated circuits operation ("ICO") to the Company and for new designs created by Tektronix. As of June 27, 1998, the Company's backlog was approximately $181 million as compared to approximately $152 million at June 30, 1997. The Company includes in its backlog customer-released orders with firm schedules for shipment within the next 12 months. As is customary in the 8 9 semiconductor industry, these orders may be canceled in most cases without penalty to the customers. In addition, the Company's backlog includes orders from domestic distributors as to which revenues are not recognized until the products are sold by the distributors. Such products when sold may result in revenue lower than the stated backlog amounts as a result of discounts that are authorized by the Company at the time of sale by the distributors. Accordingly, the Company believes that its backlog at any time should not be used as a measure of future revenues. The Company warrants its products to its customers generally for 12 months from shipment, but in certain cases for longer periods. Warranty expense to date has been minimal. RESEARCH AND DEVELOPMENT The Company believes that research and development is critical to its future success. Objectives for the research and development function include definition and design of innovative proprietary products that meet customer needs, development of second-source products, design of parts for high yield and reliability, and development of manufacturing processes and advanced packaging to support an expanding product line. Research and development expenses were approximately $72.2 million, $51.3 million, and $47.5 million in fiscal 1998, 1997, and 1996, respectively. COMPETITION The analog integrated circuit industry is intensely competitive, and virtually all major semiconductor companies presently compete with, or conceivably could compete with, some segment of the Company's business. Maxim's primary competitors are Analog Devices, Inc. and Linear Technology Corporation. Other competitors with respect to some of the Company's products include Burr-Brown Corporation, Harris Corporation, Lucent Technologies, Micrel Inc., Motorola Inc., National Semiconductor Corporation, Philips Electronics N.V., Rockwell Corporation, Siliconix Inc., Sipex Corporation, TelCom Semiconductor Inc., and Texas Instruments Inc. While Japanese and other foreign manufacturers have not played a major role in markets from which the Company currently derives a majority of its revenue, they possess the necessary technical and financial capabilities to participate in these markets, and there can be no assurance that significant foreign competition will not develop in the future. Many of Maxim's competitors have substantially greater financial, manufacturing, and marketing resources than the Company, and some of Maxim's competitors have greater technical resources. The Company believes it competes favorably with these corporations primarily on the basis of technical innovation, product definition, quality, and service. There can be no assurance that competitive factors will not adversely affect the Company's future business. PATENTS, LICENSES, AND OTHER INTELLECTUAL PROPERTY RIGHTS The Company relies primarily upon know-how, rather than on patents, to develop and maintain its competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer the Company's products or that the confidentiality 9 10 agreements with employees, consultants, silicon foundries and other suppliers and vendors will be adequate to protect the Company's interests. Maxim currently owns 71 U.S. patents and 27 foreign patents with expiration dates ranging from 2001 to 2016. In addition, the Company has applied for 52 U.S. patents, a large number of which have corresponding patent applications in multiple foreign jurisdictions. It is the Company's policy to seek patent protection for significant inventions that may be patented, though the Company may elect, in appropriate cases, not to seek patent protection even for significant inventions if other protection, such as maintaining the invention as a trade secret, is considered more advantageous. There can be no assurance that any patent will issue on pending applications or that any patent issued will provide substantive protection for the technology or product covered by it. In addition, the Company has registered certain of its mask sets under the Semiconductor Chip Protection Act of 1984. The Company believes that patent and mask work protection is of less significance in its business than experience, innovation, and management skill. Maxim has registered several of its trademarks with the U.S. Patent and Trademark Office and in foreign jurisdictions. Maxim is a party to a number of licenses, including patent licenses and other licenses obtained from Tektronix in connection with its acquisition of Tektronix's ICO in May 1994. Due to the many technological developments and the technical complexity of the semiconductor industry, it is possible that certain of the Company's designs or processes may involve infringement of patents or other intellectual property rights held by others. From time to time, the Company has received, and in the future may receive, notice of claims of infringement by its products on intellectual property rights of third parties. (See "Risk Factors-Intellectual Property Litigation and Claims," and "Legal Proceedings") If any such infringements were to exist, the Company might be obligated to seek a license from the holder of the rights and might have liability for past infringement. In the past, it has been common semiconductor industry practice for patent holders to offer licenses on reasonable terms and rates. Although in some situations, typically where the patent directly relates to a specific product or family of products, patent holders have refused to grant licenses, the practice of offering licenses appears to be generally continuing. However, no assurance can be given that the Company will be able to obtain licenses as needed in all cases or that the terms of any license that may be offered will be acceptable to Maxim. In those circumstances where an acceptable license is not available, the Company would need either to change the process or product so that it no longer infringes or else stop manufacturing the product or products involved in the infringement. ENVIRONMENTAL REGULATION Federal, state, and local regulations impose a variety of environmental controls on the storage, handling, discharge and disposal of certain chemicals and gases used in semiconductor manufacturing. The Company's facilities have been designed to comply with these regulations, and it believes that its activities are conducted in material compliance with such regulations. There can be 10 11 no assurance, however, that interpretation and enforcement of current or future environmental regulations will not impose costly requirements upon the Company. Any failure of the Company to control adequately the storage, use, and disposal of regulated substances could result in future liabilities. Increasing public attention has been focused on the environmental impact of electronic manufacturing operations. While the Company to date has not experienced any materially adverse effects on its business from environmental regulations, there can be no assurance that changes in such regulations will not impose costly equipment or other requirements. EMPLOYEES The supply of skilled analog designers and other engineers required for Maxim's business is limited, and competition for such personnel is intense. The Company's growth also requires the hiring or training of additional middle-level managers. If the Company is unable to hire, retain, and motivate qualified technical and management personnel, its operations and financial results will be adversely affected. None of the Company's employees is subject to a collective bargaining agreement. The Company believes that its relations with its employees are good. As of June 27, 1998, Maxim had 3,066 employees. MAXTEK COMPONENTS CORPORATION In connection with Maxim's 1994 purchase of the integrated circuits business of Tektronix, Inc., Maxim and Tektronix jointly formed a new company, which is equally owned, to operate Tektronix's hybrid circuit business. This company, named Maxtek Components Corporation, is an independent company devoted to design and production of multichip modules and hybrids. Maxtek's principal customer, Tektronix, accounts for approximately 38% of its revenue. Under Maxtek's supply agreements, all of its costs related to the Tektronix supply agreement are reimbursed on a cost plus profit basis. High-frequency designs often require a multitude of component technologies, and there are no monolithic IC processes currently available that can combine the performance advantages of all disparate technologies. High-frequency modules and hybrids are intended to combine the optimum technologies and deliver maximum performance. RISK FACTORS An investment in the securities of Maxim involves certain risks. In evaluating the Company and its business, prospective investors should give careful consideration to the factors listed below, in addition to the information provided elsewhere in this Annual Report on Form 10-K, in the documents incorporated herein by reference and in other documents filed with the Securities and Exchange Commission. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements, including statements regarding the Company's beliefs, 11 12 expectations, plans, or intentions regarding the future. All forward-looking statements included in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K involve risk and uncertainty, including risk factors discussed below. Factors Affecting Future Operating Results The Company's future operating results are difficult to predict and may be affected by a number of factors. The semiconductor market has historically been cyclical and subject to significant economic downturns at various times. After a period of increasing demand, more recently the semiconductor industry, including the portions in which the Company participates, has been experiencing reduced demand. Current conditions are affected by the major economic problems in the Asian market. It is uncertain what level of demand will prevail in the future for the industry and for the markets targeted by the Company. Other key factors affecting the Company's revenues and operating results that could cause actual results to differ materially from past or predicted results include the timing of new product announcements or introductions by the Company and its competitors, competitive pricing pressures, fluctuations in manufacturing yields and manufacturing efficiency, adequate availability of wafers and manufacturing capacity, changes in product mix, and economic conditions in the United States and international markets. As a result of these and other factors, there can be no assurance that the Company will not experience material fluctuations in its future operating results on a quarterly or annual basis. The Company's ability to realize its quarterly revenue goals and projections is affected to a significant extent by its ability to match inventory and current production mix with the product mix required to fulfill orders on hand and orders received within a quarter for delivery in that quarter (referred to as "turns business"). This issue, which has been one of the distinguishing characteristics of the analog integrated circuit industry, results from the very large number of individual parts offered for sale and the very large number of customers combined with limitations on Maxim's and its customers' ability to forecast orders accurately and relatively lengthy manufacturing cycles. Because of this extreme complexity in the Company's business, no assurance can be given that the Company will achieve a match of inventory on hand, production units, and shippable orders sufficient to realize quarterly revenue goals. Dependence on New Products and Process Technologies The Company's future success will depend very significantly on its continued ability to introduce new products and to develop new process technologies. Semiconductor design and process technology are subject to rapid technological change, requiring a high level of expenditures for research and development. Design and process development for the analog portion of the market in which the Company participates are particularly challenging. The success of new 12 13 product introductions is dependent on several factors, including proper new product selection, timely product introduction, achievement of acceptable production yields, and market acceptance. From time to time, Maxim has not fully achieved its new product introduction and process development goals. For example, increasing manufacturing capacity and efficiency in its high-frequency processes has advanced at a slower rate than planned. There can be no assurance that the Company will successfully develop or implement new process technologies or that new products will be introduced on a timely basis or receive substantial market acceptance. In addition, the Company's growth is dependent on its continued ability to penetrate new markets such as the high-frequency communications segment of the electronics market where the Company has limited experience and competition is intense. There can be no assurance that the markets being served by the Company will continue to grow; that the Company's existing and new products will meet the requirements of such markets; that the Company's products will achieve customer acceptance in such markets; that competitors will not force prices to an unacceptably low level or take market share from the Company; or that the Company can achieve or maintain profit in these markets. Manufacturing Risks The fabrication of integrated circuits is a highly complex and precise process. Minute impurities, contaminants in the manufacturing environment, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer, manufacturing equipment failures, wafer breakage, or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. The Company has from time to time in the past experienced lower-than-expected production yields, which have delayed product shipments and adversely affected gross margins. There can be no assurance that the Company will not experience a decrease in manufacturing yields or that the Company will be able to maintain acceptable manufacturing yields in the future. The number of shippable die per wafer for a given product is critical to the Company's results of operations. To the extent the Company does not achieve acceptable manufacturing yields or experiences delays in its wafer fabrication, assembly or final test operations, its results of operations could be adversely affected. During periods of decreased demand, fixed wafer fabrication costs could have an adverse effect on the Company's financial condition, gross margins, and results of operations. The Company manufactures over 92% of its wafer production requirements at three internal wafer fabrication facilities. One fabrication facility is currently operating at capacity. Given the nature of the Company's products, it would be difficult to arrange for independent manufacturing facilities to supply such products. Any prolonged inability to utilize one of the Company's manufacturing facilities as a result of fire, natural disaster, or otherwise, would have a material adverse effect on the Company's results of operations. Competition The Company experiences intense competition from a number of companies, many of which 13 14 have significantly greater financial, manufacturing, and marketing resources than the Company and some of which have greater technical resources than the Company. To the extent that the Company's proprietary products become more successful, competitors will offer second sources for some of those products, possibly causing some erosion of profit margins. Although Japanese and other foreign manufacturers have not played a major role in the markets from which the Company currently derives the bulk of its revenue, they possess the necessary technical and financial capabilities to participate in these markets, and there can be no assurance that significant foreign competition will not develop in the future. See "Business-Competition." Dependence on Independent Foundries, Subcontractors, and Philippines Test Facility Although the Company has an internal capability to fabricate most of its wafers, Maxim remains dependent on outside silicon foundries for a small but important portion of its wafer fabrication. Each of the foundries currently used by Maxim are unaffiliated with Maxim and are relatively small operations. As is typical in the semiconductor industry, from time to time the Company has experienced disruptions in the supply of processed wafers from these foundries due to quality problems, failure to achieve satisfactory electrical yields, and capacity limitations. Procurement from foundries is done by purchase order and long-term contracts. If these foundries are unable or unwilling to produce adequate supplies of processed wafers conforming to the Company's quality standards, the Company's business and relationships with its customers for the limited quantities of products produced by these foundries would be adversely affected. Finding alternate sources of supply or initiating internal wafer processing for these products would be difficult and time consuming. Maxim relies on subcontractors located in the Philippines, Malaysia, and South Korea to separate wafers into individual integrated circuits and package them. The Company also performs final testing for the majority of its products at a facility owned by the Company in the Philippines. In the past, South Korea and the Philippines have experienced relatively severe political disorders, labor disruptions, and natural disasters. Although the Company has been affected by these problems, none has materially affected the Company's revenues or costs to date. However, similar problems in the future or more aggravated consequences of current problems, could affect deliveries to Maxim of assembled, tested product, possibly resulting in substantial delayed or lost sales and/or increased expense. See "Business-Manufacturing." Availability of Materials, Supplies, and Subcontract Services Over the past few years, the semiconductor industry has experienced a very large expansion of fabrication capacity and production worldwide. As a result of increasing demands from semiconductor manufacturers, availability of certain basic materials and supplies, such as polysilicon, silicon wafers, lead frames and molding compounds, and of subcontract services, like epitaxial growth and ion implantation and assembly of integrated circuits into packages, have from time to time, over the past few years, been in short supply and may be expected to come into short supply again if overall industry demand increases. Maxim devotes continuous efforts to maintaining availability of all required materials, supplies, and subcontract services. However, Maxim does not have long-term agreements providing for all of these materials, supplies, and services, and shortages could occur as a result of capacity limitations or production constraints on 14 15 suppliers that could have materially adverse effects on Maxim's ability to achieve its planned production. Dependence on Independent Distributors and Sales Representatives A significant portion of the Company's sales is realized through electronics distributors and independent sales representatives that are not under the direct control of the Company. These independent sales organizations generally represent product lines offered by several companies and thus could reduce their sales efforts applied to the Company's products or terminate their representation of the Company. Payment terms for foreign distributors are substantially longer, either according to contract or by practice, than for U.S. customers. The inability to collect open accounts could adversely affect the Company's results of operation. Termination of a significant distributor, whether at the Company's or the distributor's initiative, is disruptive to the Company's current business. If the Company were unable to find suitable replacements, terminations by significant distributors or representatives could have a material adverse impact on the Company. See "Business-Sales and Marketing." Protection of Proprietary Information The Company relies primarily upon know-how, rather than on patents, to develop and maintain its competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer the Company's products or that the confidentiality agreements upon which the Company relies will be adequate to protect its interests. Other companies have obtained patents covering a variety of semiconductor designs and processes, and the Company might be required to obtain licenses under some of these patents or be precluded from making and selling the infringing products. There can be no assurance that Maxim would be able to obtain licenses, if required, upon commercially reasonable terms. See "Business-Patents, Licenses and Other Intellectual Property Rights," and "Risk Factors-Intellectual Property Litigation and Claims." Intellectual Property Litigation and Claims The Company is subject to various legal proceedings (See Item 3, Legal Proceedings) and other similar claims that involve possible infringement of patent or other intellectual property rights of third parties. In addition, from time to time, the Company receives notices that its products or processes may be infringing the intellectual property rights of others. See "Patents, Licenses and Other Intellectual Property Rights." If one or more of the Company's products or processes were determined to infringe any such intellectual property rights, the Company might be enjoined by a court from further manufacture and/or sale of the affected products, the Company would need to obtain a license from the holders of the rights and/or to reengineer the Company's products or processes in such a way as to avoid the alleged infringement. In any of those cases, there can be no assurance that the Company would be able to obtain any necessary license on commercially reasonable terms or that the Company would be able to reengineer its products or processes to avoid infringement. An adverse result in litigation arising from such a claim could involve an injunction to prevent the sales 15 16 of a material portion of the Company's products, a reduction or the elimination of the value of related inventories, and the assessment of a substantial monetary award for damages related to past sales. Foreign Trade and Currency Exchange Many of the materials and manufacturing steps in the Company's products are supplied by foreign companies or by the Company's operations abroad, such as its test operations in the Philippines. Approximately 56% of the Company's net revenues in fiscal 1998 were from foreign customers. Accordingly, both manufacturing and sales of the Company's products may be adversely affected by political or economic conditions abroad. In addition, various forms of protectionist trade legislation have been proposed in the United States and certain foreign countries. A change in current tariff structures or other trade policies could adversely affect the Company's foreign manufacturing or marketing strategies. Currency exchange fluctuations could also increase the cost of components manufactured abroad and the cost of the Company's products to foreign customers or decrease the costs of products from the Company's foreign competitors. See "Business-Manufacturing" and "Business-Sales and Marketing." Dependence on Key Personnel The Company's success depends to a significant extent upon the continued service of its president, John F. Gifford, its other executive officers, and key management and technical personnel, particularly its experienced analog design engineers, and on its ability to continue to attract, retain, and motivate qualified personnel. The Company does not maintain any key person life insurance policy on any such person. The competition for such employees is very intense. The loss of the services of Mr. Gifford, or of one or more of the Company's executive officers, design engineers, other key personnel, or the inability to continue to attract qualified personnel, could have a material adverse effect on the Company. 16 17 ITEM 2. PROPERTIES Maxim's headquarters are located in a 63,000-square-foot building in Sunnyvale, California, which the Company purchased in October 1987. Between December 1989 and June 1998, the Company purchased 6 buildings adjacent to its headquarters building in Sunnyvale with an aggregate of 95,000 square feet of space. These buildings serve as the executive offices of the Company and also provide space for engineering, manufacturing, administration, customer service and other uses. In December 1989, in connection with acquiring one of its wafer fabrication facilities, Maxim assumed the operating lease of the 30,000-square-foot building in Sunnyvale, California. This lease extends through November 2003 and has a five-year lease extension option. In May 1994, Maxim purchased the Tektronix integrated circuit operation. This facility, located in Beaverton, Oregon, on 21 acres, totals 226,000 square feet and contains 71,000 square feet of wafer fabrication areas as well as engineering, manufacturing, and general office space. A portion of the space is leased to an unrelated party. In fiscal 1996, the Company acquired an approximately 9-acre parcel in Sunnyvale, California, to support future expansion and currently is utilizing 30,000 square feet as office space. In 1997, the Company completed construction of an approximate 141,000-square-foot facility at Gateway Business Park in Cavite Province, Philippines. The facility is now operating as the Company's principal final test operation, and it can provide future capacity for assembly and other manufacturing operations for the Company. In November 1997, the Company acquired a 67,000-square-foot building including a sub-micron wafer fabrication facility in San Jose, California. The Company expects these buildings and the contiguous land to be adequate for its purposes through fiscal 1999. ITEM 3. LEGAL PROCEEDINGS Maxim Integrated Products, Inc. vs. Analog Devices, Inc. and Pioneer-Standard Electronics, Inc., Action Nos. C-92-20716-JW and C-96-20723 JW EAI in the United States District Court for the Northern District of California. These proceedings were completed in the fourth fiscal quarter of 1998 in favor of both defendants and against Maxim. Judgment has not yet been entered. Linear Technology Corporation vs. Maxim Integrated Products, Inc. et al., Action No. C-98-1727 FMS in the Federal District Court for the Northern District of California. On June 26, 1997, a complaint was filed by Linear Technology Corporation ("LTC") naming the Company and certain other unrelated parties as defendants. The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC's United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount. The complaint further alleges that the Company's actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys fees. 17 18 The Company answered the complaint on October 20, 1997, denying all of LTC's substantive allegations and counterclaiming for a declaration that LTC's patent is invalid and not infringed. The case is in its early stages with the parties continuing to be involved in discovery proceedings. The case has been bifurcated into separate liability and damages trials, with the issues of liability and willfulness likely to go to jury trial in late 1999. The Company has asserted in its answer, and continues to believe, that the allegations in the complaint are without merit. Although the case is still in its relatively early stages and the outcome of a jury trial involving patents and intellectual property is inherently uncertain, the Company does not believe that the ultimate outcome of the matter will have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 27, 1998 under the headings "Financial Information - Financial Highlights by Quarter" and "Corporate Data, Stockholder Information." ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 27, 1998 under the heading "Financial Information - Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 27, 1998 under the heading "Financial Information - Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18 19 The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 27, 1998 under the subheading "Interest Income" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations. " ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 27, 1998 under the headings "Financial Information - Consolidated Balance Sheets, - Consolidated Statements of Income, - Consolidated Statements of Stockholders' Equity, - Consolidated Statements of Cash Flows, - Notes to Consolidated Financial Statements, - Report of Ernst & Young LLP, Independent Auditors and - Financial Highlights by Quarter." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 19 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Other than as follows, the information required by this item is incorporated by reference from the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders under the headings "Proposal 1 - Election of Directors" and "Compliance with Section 16(A) of the Securities Exchange Act of 1934." EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
Name Age Position - ---- --- -------- John F. Gifford 57 President, Chief Executive Officer and Chairman of the Board Frederick G. Beck 61 Vice President Ziya G. Boyacigiller 46 Vice President Michael J. Byrd 38 Vice President and Chief Financial Officer Tunc Doluca 40 Vice President Richard C. Hood 48 Vice President Kenneth J. Huening 37 Vice President Carl W. Jasper 42 Corporate Controller and Principal Accounting Officer William N. Levin 57 Vice President Nasrollah Navid 49 Vice President Pirooz Parvarandeh 38 Vice President Robert F. Scheer 45 Vice President Vijay Ullal 40 Vice President
20 21 Mr. Gifford, a founder of the Company, has served as Maxim's President, Chief Executive Officer and Chairman of the Board since its incorporation in April 1983. Mr. Beck, a founder of the Company, has served as Vice President since May 1983, except for a medical leave between December 1991 and January 1994. Mr. Boyacigiller joined Maxim in June 1983 and was promoted to Vice President in April 1995. Prior to April 1995, he served in business management and integrated circuits design positions. Mr. Byrd joined Maxim in February 1994 as Vice President and Chief Financial Officer. Prior to joining Maxim he was with Ernst & Young LLP from August 1982 to February 1994 where he held various positions, including partner. Mr. Doluca joined Maxim in October 1984 and was promoted to Vice President in July 1994. Prior to July 1994, he served in a number of integrated circuit development positions. Mr. Hood, a founder of the Company, joined the Company in June 1983 and was promoted to Vice President in February 1997. Prior to February 1997, he served in a number of integrated circuit test positions. Mr. Huening joined Maxim in December 1983 and was promoted to Vice President in December 1993. Prior to December 1993, he served in a number of quality assurance positions. Mr. Jasper joined Maxim in May 1998 and was promoted to Principal Accounting Officer in June 1998. Prior to joining Maxim, he was with Read-Rite Corporation from November 1995 to April 1998 where he held the position of Vice President, Corporate Controller and prior to that was with Ernst & Young LLP from September 1983 to November 1995. Mr. Levin joined Maxim in August 1990 as Vice President. From 1987 and until joining Maxim, he was Vice President, Program Management, for Shugart Corporation. Dr. Navid joined Maxim in May 1997 as Vice President. Prior to joining Maxim and since 1980, he was with Philips Semiconductors where he served in a number of wireless product line management positions. Mr. Parvarandeh joined Maxim in August 1988 and was promoted to Vice President in July 1997. Prior to July 1997, he served in a number of integrated circuit development positions. Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President in June 1992. Mr. Ullal joined Maxim in December 1989 and was promoted to Vice President in March 1996. Prior to March 1996, he served in a number of wafer fab operation positions. 21 22 ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders under the headings "Executive Compensation" and "Performance Graph." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Certain Relationships and Related Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following financial statements are included in the Company's 1998 Annual Report to Stockholders and are incorporated herein by reference pursuant to Item 8. Consolidated Balance Sheets at June 27, 1998 and June 30, 1997. Consolidated Statements of Income for each of the three years in the period ended June 27, 1998. Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 27, 1998. Consolidated Statements of Cash Flows for each of the three years in the period ended June 27, 1998. Notes to Consolidated Financial Statements (a)(2) The following financial statement schedule is filed as part of this Form 10-K. Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or because the required 22 23 information is included in the consolidated financial statements or notes thereto. (a)(3) Exhibits. See attached Exhibit Index. (b) Reports on Form 8-K. None 23 24 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. Date: September 25, 1998 MAXIM INTEGRATED PRODUCTS, INC. By /s/ Michael J. Byrd ------------------------------- Michael J. Byrd, Vice President and Chief Financial Officer (For the Registrant and as Principal Financial Officer) By /s/ Carl W. Jasper ------------------------------- Carl W. Jasper, Corporate Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ John F. Gifford President, Chief September 25, 1998 - ----------------------------- Executive Officer and John F. Gifford Chairman of the Board (Principal Executive Officer) /s/ James R. Bergman Director September 25, 1998 - ----------------------------- James R. Bergman /s/ B. Kipling Hagopian Director September 25, 1998 - ----------------------------- B. Kipling Hagopian /s/ A.R. Wazzan Director September 25, 1998 - ----------------------------- A.R. Wazzan
24 25 MAXIM INTEGRATED PRODUCTS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
Additions Charged Balance at to Costs Balance at Beginning and End of Period Expenses Deductions (1) of Period --------- -------- -------------- --------- Allowance for doubtful accounts: Year ended June 30, 1996 $1,145 $154 $ 9 $1,290 Year ended June 30, 1997 $1,290 $ 54 $ - $1,344 Year ended June 27, 1998 $1,344 $568 $20 $1,892
(1) Uncollectible accounts written off. 25 26 EXHIBIT INDEX
Exhibit Sequentially Number Numbered Page Description - ------ ------------- ----------- 3.1 0 Restated Certificate of Incorporation of the Company as filed with the Delaware Secretary of State on September 21, 1995 3.3 Amendment to Restated Certificate of Incorporation of the Company as filed with the Delaware Secretary of State on December 3, 1997. 3.4 Q Amended and Restated Bylaws of the Company, as amended 10.1 X Form of the Company's Domestic Distributor Agreement 10.2 # Form of the Company's International Distributor Agreement 10.3 # Form of the Company's Domestic Sales Representative Agreement 10.4 # Form of the Company's International Representative Agreement 10.5 0 Agreement dated as of July 14, 1987, amended and restated February 1994 between John F. Gifford and the Company(1) 10.6 X Agreement dated as of March 7, 1991 between John F. Gifford and the Company(1) 10.8 * Form of Indemnity Agreement 10.9 Z Asset Purchase Agreement by and between the Company and Tektronix, Inc., dated as of March 31,
- -------- (1) Management contract or compensatory plan or arrangement. 27
Exhibit Sequentially Number Numbered Page Description - ------ ------------- ----------- 1994, as amended, with certain attachments(2) 10.10 0 Technology Transfer Agreement dated May 27, 1994 by and between the Company and Tektronix, Inc.(2) 10.11 0 Incentive Stock Option Plan, as amended(1) 10.12 1987 Supplemental Stock Option Plan, as amended(1) 10.13 Supplemental Nonemployee Stock Option Plan, as amended(1) 10.14 1987 Employee Stock Participation Plan, as amended(1) 10.15 1988 Nonemployee Director Stock Option Plan, as amended(1) 10.16 1996 Stock Incentive Plan(1) 10.17 Q Lease Agreement with Mathilda Development L.P., dated September 30, 1993 10.18 Bonus Plan(1) 13.1 Portions of the Annual Report to Stockholders for the fiscal year ended June 27, 1998 incorporated by reference into the Form 10-K 21 List of Subsidiaries 23 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedules
* Incorporated by Reference to the Company's Registration Statement on Form S-1 No. 33-19561. X Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1991. # Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1992. - -------------- (2) Schedules and certain attachments omitted pursuant to Item 601(b) of Registration S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Commission. Certain material omitted pursuant to the request for confidential treatment by the Company. 28 + Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1993. Z Incorporated by Reference to the Company's Form 8-K filed with the Commission on June 11, 1994. 0 Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1995. P Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1996. Q Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1997. EX-3.3 2 AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF MAXIM INTEGRATED PRODUCTS, INC. John F. Gifford and Michael J. Byrd each hereby certifies that: 1. They are the President and Assistant Secretary, respectively, of Maxim Integrated Products, Inc. (the "Corporation"), a Delaware corporation, the original Restated Certificate of Incorporation of which was filed with the Secretary of State of the State of Delaware on September 21, 1995. 2. At a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring that amendment to be advisable and directing that the amendment proposed be considered at the next annual meeting of the stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED that the second and third sentences of Section A of Article FOURTH of the Restated Certificate of Incorporation of the Corporation are hereby amended to read in full as follows: "The total number of shares of all classes of stock which the Corporation has the authority to issue is 242,000,000 shares. The number of shares of Common Stock which the Corporation is authorized to issue is 240,000,000, and the number of shares of Preferred Stock which the Corporation is authorized to issue is 2,000,000." 3. Thereafter, the annual meeting of stockholders of the Corporation was called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware. At that annual meeting a vote of the stockholders entitled to vote thereon was taken for and against the proposed amendment. A majority of the outstanding Common Stock, being the only class of stock outstanding, entitled to vote thereon was voted in favor of the proposed amendment. 4. This Certificate of Amendment of Restated Certificate of Incorporation has been duly adopted, in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment of Restated Certificate of Incorporation this 3rd day of December, 1997. /s/ JOHN F. GIFFORD -------------------------- John F. Gifford, President ATTEST: /s/ MICHAEL J. BYRD - ------------------------------------ Michael J. Byrd, Assistant Secretary 2 RESTATED CERTIFICATE OF INCORPORATION OF MAXIM INTEGRATED PRODUCTS, INC. MAXIM INTEGRATED PRODUCTS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware DOES HEREBY CERTIFY: FIRST: (a) The present name of this corporation is Maxim Integrated Products, Inc. (b) The name under which this corporation was originally incorporated was Maxim Integrated Products, Inc. (Delaware). (c) The original Certificate of Incorporation of Maxim Integrated Products, Inc. (Delaware) was filed with the Secretary of State of the State of Delaware on August 19, 1987. SECOND: The Restated Certificate of Incorporation of Maxim Integrated Products, Inc. in the form attached hereto as Exhibit A has been duly adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware by the directors of the Corporation. THIRD: The Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the corporation's Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of the Restated Certificate. FOURTH: The Restated Certificate of Incorporation so adopted reads in full as set forth in Exhibit A attached hereto and hereby incorporated by reference. IN WITNESS WHEREOF, Maxim Integrated Products, Inc. has caused this Certificate to be signed by John F. Gifford, its President, this 20th day of September, 1995. MAXIM INTEGRATED PRODUCTS, INC. By: /s/ JOHN F. GIFFORD --------------------------- John F. Gifford, President 3 EXHIBIT A RESTATED CERTIFICATE OF INCORPORATION OF MAXIM INTEGRATED PRODUCTS, INC. FIRST: The name of the corporation (hereinafter called the "Corporation") is MAXIM INTEGRATED PRODUCTS, INC. SECOND: The address of the registered office of the Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, and the name or the registered agent of the Corporation in the State of Delaware at such address as the United States Corporation Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: A. The Corporation is authorized to issue two classes of shares designated respectively "Common Stock" and "Preferred Stock", and referred to herein as Common Stock and either Preferred Stock or Preferred Shares, respectively. The total number of shares of all classes of stock which the Corporation has the authority to issue is 62,000,000 shares. The number of shares of Common Stock which the Corporation is authorized to issue is 60,000,000, and the number of shares of Preferred Stock which the Corporation is authorized to issue is 2,000,000. Each share of Common stock shall have a par value of $0.001, and each share of Preferred Stock shall have a par value of $0.001. B. The Preferred Shares may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred shares and to determine the designation of any such series. The Board of Directors is also authorized to determine the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred shares and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series, then outstanding) the number of shares of any series subsequent to the issue of shares of that series. FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors shall have the power to adopt, amend, repeal or otherwise alter the bylaws without any action on the part of the stockholders; provided, however, that any bylaws made by 4 the Board of Directors and any and all powers conferred by any of said bylaws may be amended, altered or repealed by the stockholders. SIXTH: A director of the Corporation shall, to the full extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, not be liable to the Corporation or its stockholders for monetary damages for breach of his fiduciary duty as a director. SEVENTH: (a) Vote Required for Certain Business Combinations. (1) Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or this Restated Certificate of Incorporation, and except as otherwise expressly provided in paragraph (b) of this Article Seventh: (i) any merger or consolidation of this Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of this Corporation or any Subsidiary having an aggregate Fair Market Value equal to or greater than 10% of the Corporation's assets as set forth on the Corporation's most recent audited, consolidated financial statements filed with the Securities and Exchange Commission; or (iii) the adoption of any plan or proposal for the liquidation or dissolution of this Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (iv) any reclassification of securities (including any reverse stock split) or recapitalization of this Corporation, or any merger or consolidation of this Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate shares of the outstanding shares of any class of equity or convertible securities of this Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any affiliate of any Interested Stockholder; shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may 2. 5 be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) Definition of "Business Combination." The term "Business Combination" as used in this Article Seventh shall mean any transaction which is referred to in any one or more clauses (i) through (iv) or subparagraph (1) of this paragraph (a). (b) When Higher Vote is Not Required. The provisions of paragraph (a) of this Article Seventh shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Restated Certificate of Incorporation, if all of the conditions specified in either of the following subparagraphs (b)(1) or (b)(2) are met: (1) Approval by Disinterested Directors. The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined). (2) Price and Procedure Requirements. All of the following conditions shall have been met: (i) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: (A) (if applicable) the highest per share price paid by the Interested Stockholder for any shares of Common Stock acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; and (B) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article Seventh as the "Determination Date"), whichever is higher. (ii) The aggregate amount of the cash and the Fair Market Value as of the date of consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b)(2)(ii) shall be required to be met with respect to every class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): 3. 6 (A) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of this corporation; and (C) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (iii) The consideration to be received by holders of any particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. The price determined in accordance with subparagraphs (b)(2)(i) and (b)(2)(ii) shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event. (iv) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder (or any subsequent provisions replacing the Exchange Act or such rules or regulations) shall be mailed to public stockholders of this corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (c) Certain Definitions. For the purposes of this Article Seventh: (1) A "person" shall mean any individual, firm, corporation or other entity. (2) "Interested Stockholder" shall mean any person (other than this Corporation or any Subsidiary) who or which: (i) is the beneficial owner, directly or indirectly, of more than 20% of the voting power of the outstanding Voting Stock; or (ii) is an Affiliate of this corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 20% or more of the voting power of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving public offering within the meaning of the Securities Act of 1933. 4. 7 (3) A person shall be a "beneficial owner" of any Voting Stock: (i) that such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) that such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to an agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the beneficial owner of securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or Associates until such tender securities are accepted for purchase; of (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a person shall not be deemed the beneficial owner of any security of the agreement, arrangement or understanding to vote such security (I) arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the Exchange Act and (II) is not also then reportable on Schedule 13D under the Exchange Act (or a comparable or successor report); or (iii) that are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent permitted by the proviso of subparagraph (c)(3)(ii)(B) above) or disposing of any shares of Voting Stock. (4) For the purposes of determining whether a person is an Interested Stockholder pursuant to subparagraph (c)(2), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (c)(3), but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights warrants or options, or otherwise. (5) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on August 15, 1987. (6) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by this Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in subparagraph (c)(2), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly by this Corporation. (7) "Disinterested Director" means any member of the Board of Directors of this Corporation (the "Board") who is unaffiliated with the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is unaffiliated with the Interested Stockholder 5. 8 and is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board. (8) "Fair Market Value" means: (i) in the case of stock, the average of the closing sale prices during the 10-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if the stock is not listed on any such exchange but is listed as a National Market System stock in the National Association of Securities Dealers, Inc. Automated Quotation System, as reported in that National Market System, if such stock is not listed on any such exchange or reported in such system the average of the closing bid quotations with respect to a share of such stock during the 10-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. (9) In the event of any Business Combination in which the corporation survives, the phase "consideration other than cash to be received" as used in subparagraphs (b)(2)(i) and (ii) of this Article Seventh shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (d) Powers of the Board of Directors. A majority of the Disinterested Directors of this Corporation shall have the power and duty to determine for the purposes of this Article Seventh on the basis of information known to them after reasonable inquiry (i) whether a person is an Interested Stockholder, (ii) the number of shares of Voting Stock beneficially owned by any person, (iii) whether a person is an Affiliate or Associate of another, and (iv) the Fair Market Value of the assets that are the subject of any Business Combination. A majority of the Disinterested Directors of this Corporation shall have the further power to interpret all of the terms and provisions of this Article Seventh. (e) No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article Seventh shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. (f) Amendment, Repeal, etc. Notwithstanding any other provisions of this Certificate of Incorporation or the bylaws of this corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Restated Certificate of Incorporation or the bylaws of this Corporation), the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) or more of the outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with this Article Seventh. 6. 9 EIGHTH: At all elections of directors of the Corporation, each holder of shares of the Corporation's stock shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and such holder may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. 7. EX-10.12 3 1987 SUPPLEMENTAL STOCK OPTION PLAN, AS AMENDED 1 EXHIBIT 10.12 MAXIM INTEGRATED PRODUCTS, INC. 1987 SUPPLEMENTAL STOCK OPTION PLAN Adopted June 2, 1987 As amended by the Board of Directors on August 26, 1987 Approved by Shareholders October 19, 1987 As further amended on January 29 and August 23, 1988 Approved by Stockholders on October 26, 1988 As further amended on August 24, 1988 Approved by Stockholders on November 3, 1989 As further amended on August 9, 1990 Approved by Stockholders on October 26, 1990 As further amended on May 8, 1991 Approved by Stockholders on November 7, 1991 As further amended on August 13, 1992 Approved by Stockholders on November 5, 1992 As further amended on August 25, 1993 Approved by Stockholders on November 5, 1993 As further amended on February 17, 1994, March 23, 1994, April 21, 1994 and May 12, 1994 Approved by Stockholders on November 10, 1994 As further amended on August 10, 1995 Approved by Stockholders on November 16, 1995 As further amended on May 14, 1998 1. 2 1. PURPOSE (a) The purpose of the Plan is to provide a means by which employees of Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now employed by the Company, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the options issued under the Plan not be incentive stock options as that term is used in Section 422 of the Code. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted options; when and how the option shall be granted; the provisions of each option granted (which need not be identical), including the time or times during the term of each option within which all or portions of such option may be exercised; and the number of shares for which an option shall be granted to each such person. (2) To construe and interpret the Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan as provided in paragraph 10. 2. 3 (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than three (3) persons (who may, but need not, be members of the Board) (the "Committee"), all of the members of which Committee shall be disinterested persons, if required and as defined by the provisions of subparagraph 2(d), and may also be, in the discretion of the Board, outside directors, as defined by the provisions of subparagraph 2(f). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan to the extent permitted by law, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this paragraph 2 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant options to eligible persons who (1) are not then subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and/or (2) are either (i) not then covered employees (as defined by the provisions of subparagraph 2(e)) and are not expected to be covered employees at the time of recognition of income resulting from such option, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. (d) The term "disinterested person," as used in this Plan, shall mean an administrator of the Plan, whether a member of the Board or of any Committee to which responsibility for administration of the Plan has been delegated pursuant to subparagraph 2(c), meets the definition of a "disinterested person" set forth in Securities and Exchange Commission ("SEC") Rule 16b-3 or any successor to such Rule. (e) The term "covered employee," as used in this Plan, means the Chief Executive Officer and the four (4) other highest compensated officers of the Company. (f) The term "outside director," as used in this Plan, means a director who either (i) is not a current employee of the Company or an "affiliated corporation" (as defined in the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an affiliated corporation at any time, and is not currently receiving compensation for personal services in any capacity other than as a director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (g) Any requirement that an administrator of the Plan be a "disinterested person" shall not apply if the Board or the Committee expressly declares that such requirement shall not apply. 3. 4 3. SHARES SUBJECT TO THE PLAN (a) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate ninety-one million one hundred and twenty thousand (91,120,000) shares [adjusted to reflect all stock dividends through December 5, 1997] of the Company's common stock; provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's common stock which has been sold under, or may be sold pursuant to outstanding options granted under, the Company's Incentive Stock Option Plan, 1987 Employee Stock Participation Plan and Supplemental Nonemployee Stock Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any option granted under this Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for this Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. (c) There is no maximum limit on the aggregate fair market value of the stock for which any eligible person may be granted options under the Plan in any calendar year. 4. ELIGIBILITY (a) Options may be granted only to employees (including officers) of the Company or its Affiliates. A director of the Company shall not be eligible for the benefits of the Plan unless such director is also an employee (including an officer) of the Company or any Affiliate. (b) A director shall in no event be eligible for the benefits of the Plan unless and until such director is expressly declared eligible to participate in the Plan by action of the Board or the Committee, and only if, at any time discretion is exercised by the Board in the selection of a director as a person to whom options may be granted, or in the determination of the number or maximum number of shares which may be covered by options granted to a director, a majority of the Board and a majority of the directors acting in such matter are disinterested persons, as defined in subparagraph 2(d). The Board shall otherwise comply with the requirements of Rule 16b-3 promulgated under the Exchange Act, as from time to time in effect. (c) No person shall be eligible for the grant of an option under the Plan if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more then ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the option price is at least one hundred ten 4. 5 percent (110%) of the fair market value of such stock at the date of grant and the term of the option does not exceed five (5) years from the date of grant. (d) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, no person shall be eligible to be granted options covering more than six million thousand (6,000,000) shares (adjusted to reflect all stock dividends through December 5, 1997) of the Company's common stock in any calendar year. 5. OPTION PROVISIONS Each option shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions: (a) The term of any option shall not be greater than ten (10) years from the date it was granted. (b) The exercise price of each option shall be not less than eighty-five percent (85%) of the fair market value of the stock subject to the option on the date the option is granted; provided, however, that no option may be granted at less than one hundred percent (100%) of the fair market value except as follows: (1) Any grant at less than one hundred percent (100%) of fair market value requires the approval of the Committee; (2) the Committee shall not grant such option unless it records in the minutes of its meeting or action by written consent its good faith determination that the following conditions have been satisfied: grants of this nature are to be made only infrequently and only where good business reasons outweigh a normal presumption in favor of grants at one hundred percent (100%) of fair market value; and (3) the total number of shares of stock subject to grant at less than one hundred percent (100%) of the fair market value shall not exceed five percent (5%) of the Total Shares Subject to the Plan. The Total Shares Subject to the Plan shall mean the aggregate number of shares initially reserved for issuance under the Plan plus all increases in shares reserved for issuance after the initial reservation. (c) The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of grant or exercise of the option (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 5(d), or (C) in any other form of legal consideration that may be acceptable to the Board or the Committee. Deferred payment arrangements may be interest free or may provide for interest at any rate deemed appropriate by the Board or the Committee. 5. 6 (d) Except as may be permitted by the Board or the Committee either in individual cases or by general rule or policy, an option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or his guardian or legal representative. (e) The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may be exercised with respect to some or all of the shares allotted to that period, and/or with respect to some or all of the shares allotted to any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph 5(e) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 5(d), as a condition of exercising any such option: (1) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with a view to or for sale in connection with any distribution of the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. (g) An option shall terminate three (3) months after termination of the optionee's employment with the Company or an Affiliate, unless (i) the termination of employment of the optionee is due to such person's permanent and total disability, within the meaning of Section 422(c)(6) of the Code, in which case the option may, but need not, provide that it may be exercised at any time within one (1) year following such termination of employment; or (ii) the optionee dies while in the employ of the Company or an Affiliate, or within not more than three (3) months after termination of such employment, in which case the option may, but need not, provide that it may be exercised at any time within eighteen (18) months following the death of the optionee by the person or persons to whom the optionee's rights under such option pass by will or by the laws of descent and distribution; or (iii) the option 6. 7 by its terms specifies either (a) that it shall terminate sooner than three (3) months after termination of the optionee's employment, or (b) that it may be exercised more than three (3) months after termination of the optionee's employment with the Company or an Affiliate. This subparagraph 5(g) shall not be construed to extend the term of any option or to permit anyone to exercise the option after expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee's employment. (h) The option may, but need not, include a provision whereby the optionee may elect at any time during the term of his or her employment with the Company or any Affiliate to exercise the option as to any part or all of the shares subject to the option prior to the stated vesting date of the option or of any installment or installments specified in the option. Any shares so purchased from any unvested installment or option may be subject to a repurchase right in favor of the Company or to any other restriction the Board or the Committee determines to be appropriate. (i) In connection with each option granted pursuant to this Plan, at any time when the Company could have any withholding obligation (whether for Federal, state, local or foreign income, disability, Medicare, employment or other taxes or otherwise) as a result of exercise of an option, the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or the disposition of shares acquired upon such exercise, the Company shall have no obligation to permit exercise of such option or to issue any shares upon exercise of the option unless and until either the exercise of the option is accompanied by sufficient payment, as determined by the Company in its absolute discretion, to meet those withholding obligations on such exercise, lapse or disposition or other arrangements are made that are satisfactory to the Company in its absolute discretion to provide otherwise for such payment. The Company shall have no liability to any optionee or transferee for exercising the foregoing right not to permit exercise or issue shares. 6. COVENANTS OF THE COMPANY (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to 7. 8 issue and sell stock upon exercise of such options unless and until such authority is obtained. 7. USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 8. MISCELLANEOUS (a) The Board or the Committee shall have the power to accelerate the time during which an option may be exercised or the time during which an option or any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding the provisions in the option stating the time during which it may be exercised or the time during which it will vest. (b) Neither an optionee nor any person to whom an option is transferred under subparagraph 5(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (c) Throughout the term of any option granted pursuant to the Plan, the Company shall make available to the holder of such option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the option term, upon request, such financial and other information regarding the Company as comprises the annual report to the shareholders of the Company provided for in the bylaws of the Company. (d) Nothing in the Plan or any instrument executed or option granted pursuant thereto shall confer upon any eligible person or optionee any right to continue in the employ of the Company or any Affiliate or shall affect the right of the Company or any Affiliate to terminate the employment of any eligible person or optionee with or without cause. (e) Outstanding options may be Repriced (as defined below) only subject to the following conditions: (1) Repricing may be approved as to a number of shares subject to outstanding options equal to not more than five percent (5%) of the Total Shares Subject to the Plan (defined below) in any twelve (12) month period; (2) Repricing requires the approval of a majority of the Board or the Committee; and (3) the Board or the Committee shall not Reprice options unless it records in the minutes of its meeting or action by written consent its good faith determination that the following conditions have been satisfied: Repricing is to occur only infrequently and the determination to approve Repricing derives principally from conditions other than poor operating performance by the Company. To "Reprice" for purposes of this Plan shall mean to amend an outstanding option to reduce its exercise price or to issue a new option with a lower exercise price to replace an outstanding option with a higher exercise price, in either case 8. 9 without a material adverse (to the optionee) change in the other terms of the outstanding option. The Total Shares Subject to the Plan shall mean the aggregate number of shares initially reserved for issuance under the Plan plus all increases in shares reserved for issuance after the initial reservation. 9. ADJUSTMENTS UPON CHANGES IN STOCK (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, at the sole discretion of the Board and to the extent permitted by applicable law: (i) any surviving corporation shall assume any options outstanding under the Plan or shall substitute similar options for those outstanding under the Plan, or (ii) the time during which such options may be exercised shall be accelerated and the option terminated if not exercised prior to such event, or (iii) such options shall continue in full force and effect. 10. AMENDMENT OF THE PLAN (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 9 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the vote of a majority of the shares of the Company represented and voting at a duly held meeting within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for options under the Plan; (ii) Materially modify the requirements as to eligibility for participation in the Plan; or (iii) Materially increase the benefits accruing to participants under the Plan except to the extent permitted by Rule 16b-3 promulgated under the Exchange Act, as those rules are in effect at the time the amendment is adopted by the Board. (b) The Board may in its sole discretion submit any other amendment to the 9. 10 Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) Rights and obligations under any option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom the option was granted. 11. TERMINATION OR SUSPENSION OF THE PLAN (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. 12. EFFECTIVE DATE OF PLAN The Plan as amended and restated herein shall become effective as determined by the Board, but no options granted after the date of this amendment and restatement of the Plan shall be exercised unless and until this amended and restated Plan has been approved by the vote or written consent of the holders of a majority of the outstanding shares of the Company entitled to vote, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 10. EX-10.13 4 SUPPLEMENTAL NONEMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10.13 MAXIM INTEGRATED PRODUCTS, INC. SUPPLEMENTAL NONEMPLOYEE STOCK OPTION PLAN Adopted October 20, 1983 As Amended by the Board of Directors on August 14, 1986 Approved by the Shareholders on October 19, 1987 As Further Amended by the Board of Directors on January 29 and April 22, 1988 As Further Amended by the Board of Directors on August 9, 1990 As Further Amended by the Board of Directors on May 8, 1991 As Further Amended by the Board of Directors on August 13, 1992 As Further Amended by the Board of Directors on August 25, 1993 As Further Amended by the Board of Directors on February 17, 1994, March 23, 1994, April 21, 1994, and May 12, 1994 As Further Amended by the Board of Directors on August 10, 1995 As Further Amended by the Board of Directors on May 14, 1998 1. PURPOSE (a) The purpose of the Plan is to provide a means by which selected consultants, advisors, independent contractors, vendors, customers and other persons (which term shall include, for purposes of this Plan, individuals, partnerships, corporations and other entities) having a past, current or prospective business relationship with Maxim Integrated Products, Inc., a Delaware corporation (the Company"), or any of its affiliates, as defined in subparagraph 1(b), may be given an opportunity to purchase stock of the Company. The Company, by means of the Plan, seeks to secure, retain and enhance the benefits of relationships with such persons. (b) The word "affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Section 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). 1. 2 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted options; when, how and for what price, if any, the option shall be granted; the provisions of each option granted (which need not be identical), including the time or times during the term of each option within which all or portions of such option may be exercised; and the number of shares for which an option shall be granted to each such person. (2) To construe and interpret the Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan as provided in paragraph 10. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee of the Board. If administration is delegated to a committee, the committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN (a) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate ninety-one million one hundred and twenty thousand (91,120,000) shares [adjusted to reflect all stock dividends through December 5, 1997] of the Company's Common Stock; provided, however, that such aggregate number of shares shall be reduced to reflect the number 2. 3 of shares of the Company's common stock which has been sold under, or may be sold pursuant to outstanding options granted under, the Company's Incentive Stock Option Plan, 1987 Employee Stock Participation Plan and 1987 Supplemental Stock Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. In addition, if options granted under the Plan are exercised in accordance with the option prior to the full vesting thereof, and shares of the stock so acquired are thereafter repurchased by the Company in accordance with the terms of such option, the stock so repurchased shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY Options may be granted to any person having a past, current or prospective business relationship with the Company or any of its affiliates as to whom the Board or the committee has determined that providing such person an opportunity for an equity interest in the Company is likely to be beneficial to the Company or any of its affiliates. Eligible persons may include, without limiting the generality of the foregoing, consultants, advisors, independent contractors, suppliers and customers. Persons eligible under this Plan shall not include (a) any person who is an employee of the Company or any of its affiliates at the time of grant (but such person's subsequently becoming an employee of the Company or an affiliate during the term of the option shall not affect the option, and the exercisability of an option may be conditioned upon an optionee's becoming and/or remaining an employee of the Company or an affiliate), (b) any director of the Company, or (c) any person in which or whom any director of the Company has any material financial interest. It shall be a condition precedent to the effectiveness of any option grant hereunder that the prospective optionee shall certify (A) as to what, if any, material financial interest in such optionee is held by any director or officer of the Company and (B) that the grantee has made whatever disclosures as to the option grant and effected all other compliances that may be required by him by law or by his employer, partners or other persons to whom he may owe a duty of disclosure as to the option grant. 5. OPTION PROVISIONS Each option shall be in such form and shall contain such terms and conditions as the Board or the committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions: (a) The price to be paid upon acquisition of the option, provided that such price may 3. 4 be equal to zero. Any such acquisition price shall be paid in cash or in any other form of legal consideration that may be acceptable to the Board or the committee in their discretion. (b) The term of any option shall not be greater than ten (10) years from the date it was granted. (c) The exercise price of each option shall be not less than one hundred percent (100%) of the fair market value of the stock subject to the option on the date the option is granted. (d) The purchase price of stock acquired pursuant to an option shall be paid, as specified in the option, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the committee, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 5(e), or (C) in any other form of legal consideration that may be acceptable to the Board or the committee in their discretion, either at the time of grant or exercise of the option. In the case of any deferred payment arrangement specified at the time of grant, an interest rate shall be stated which is not less than the rate then specified which will prevent any imputation of higher interest under Section 483 of the Code. (e) Except as may be permitted by the Board or the Committee either in individual cases or by general rule or policy, an option shall not be transferable except by will or by the laws of descent and distribution or, as to a person other than an individual, in connection with a merger or a sale or transfer of all or substantially all the assets of the optionee. (f) The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may be exercised with respect to some or all of the shares allotted to that period, and/or with respect to some or all of the shares allotted to any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph 5(f) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised. (g) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 5(e), as a condition of exercising any such option: (1) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative who has such 4. 5 knowledge and experience in financial and business matters that he is capable of evaluating, alone or together with the optionee, the merits and risks of exercising the option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement is not required in the circumstances under the then applicable federal securities laws. (h) In connection with each option granted pursuant to this Plan, at any time when the Company could have any withholding obligation (whether for Federal, state, local or foreign income, disability, Medicare, employment or other taxes or otherwise) as a result of exercise of an option, the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or the disposition of shares acquired upon such exercise, the Company shall have no obligation to permit exercise of such option or to issue any shares upon exercise of the option unless and until either the exercise of the option is accompanied by sufficient payment, as determined by the Company in its absolute discretion, to meet those withholding obligations on such exercise, lapse or disposition or other arrangements are made that are satisfactory to the Company in its absolute discretion to provide otherwise for such payment. The Company shall have no liability to any optionee or transferee for exercising the foregoing right not to permit exercise or issue shares. 6. COVENANTS OF THE COMPANY (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan or any stock issued or issuable pursuant to any such option. If the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options unless and until such authority is obtained. 5. 6 7. USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 8. MISCELLANEOUS (a) The Board or the committee shall have the power to accelerate the time during which an option may be exercised, notwithstanding the provisions in the option stating the time during which it may be exercised. (b) Neither an optionee nor any person to whom an option is transferred under subparagraph 5(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. 9. ADJUSTMENTS UPON CHANGES IN STOCK (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Board may make appropriate adjustments in the maximum number of shares subject to the Plan and the number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, any outstanding options under the Plan shall terminate, unless another corporation assumes such options or substitutes similar options for those under the Plan or the Board determines in its sole discretion that such options shall continue in full force and effect. 10. AMENDMENT OF THE PLAN (a) The Board at any time, and from time to time, may amend the Plan. (b) Rights and obligations under any option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom the option was granted. 6. 7 11. TERMINATION OR SUSPENSION OF THE PLAN (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on August 12, 2002. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. 12. EFFECTIVE DATE OF PLAN The Plan as amended and restated herein shall become effective as determined by the Board. 7. EX-10.14 5 1987 EMPLOYEE STOCK PARTICIPATION PLAN 1 EXHIBIT 10.14 MAXIM INTEGRATED PRODUCTS, INC. 1987 EMPLOYEE STOCK PARTICIPATION PLAN Adopted August 26, 1987 Approved by Shareholders on October 19, 1987 Amended January 29 and August 23, 1988 Approved by Stockholders on October 26, 1988 Amended August 24, 1989 Approved by Stockholders on November 3, 1989 Amended August 9, 1990 Approved by Stockholders on October 26, 1990 Amended May 8, 1991 Approved by Stockholders on November 7, 1991 Amended August 13, 1992 Approved by Stockholders on November 5, 1992 Amended August 25, 1993 Approved by Stockholders on November 5, 1993 Amended February 17, 1994, March 23, 1994, April 21, 1994, and May 12, 1994 Approved by Stockholders on November 10, 1994 Amended November 10, 1994 Amended August 10, 1995 Approved by Stockholders on November 16, 1995 Amended August 16, 1996 Approved by Stockholders on November 14, 1996 Amended August 13, 1998 1. PURPOSE (a) The purpose of the Plan is to provide a means by which employees of Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 1. 2 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13 (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than three (3) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate one hundred and thirteen million one hundred and twenty thousand (113,120,000) shares [adjusted to reflect the stock dividends effective November 23, 1994, November 29, 1995 and December 5, 1997] of the Company's $.001 par value common stock (the "Common Stock"); provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's Common Stock which has been sold under, or may be sold pursuant to outstanding options granted under, the 1996 Stock Incentive Plan, the Incentive Stock Option Plan, 1987 Supplemental Stock Option Plan and Supplemental Nonemployee Stock Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. 4. GRANT OF RIGHTS; OFFERING The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. If an employee has more than one right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. The provisions of separate Offerings need not be identical, but each Offering shall 2. 3 include (through incorporation of the provisions of this Plan by reference in the Offering or otherwise) the substance of the provisions contained in paragraphs 5 through 8, inclusive. 5. ELIGIBILITY (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is at least twenty (20) hours per week and at least five (5) months per calendar year. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the Purchase Period (as defined below) for such right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Purchase Period (as defined below) for such Offering, he or she will not receive any right under that Offering. (c) Directors and executive officers of the Company or an Affiliate who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code are not eligible to be granted rights under the Plan. (d) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(d), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (e) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. 3. 4 6. RIGHTS; PURCHASE PRICE (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase the number of shares of Common Stock of the Company purchasable with up to twenty percent (20%) of such employee's Compensation (as defined in Section 7(a)) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no more than twenty-seven (27) months after the Offering Date (the "Purchase Period"). In connection with each Offering made under this Plan, the Board or the Committee shall specify a maximum number of shares which may be purchased by any employee as well as a maximum aggregate number of shares which may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each such Offering, the Board or the Committee may specify the maximum fair market value of Common Stock which may be purchased by any employee pursuant to such Offering as well as a maximum aggregate number of shares which may be purchased by all eligible employees on any given Exercise Date (as defined in the Offering) under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (b) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Exercise Date. 7. PARTICIPATION; WITHDRAWAL; TERMINATION (a) An eligible employee may become a participant in an Offering by delivering an agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to twenty percent (20%) of such employee's Compensation during the Purchase Period. Compensation is defined as total cash compensation, including commissions, bonuses, overtime and other cash compensation, and amounts elected to be deferred by the employee (that would otherwise have been paid) under the Company's Cash or Deferred Savings Plan. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. At any time during the Purchase Period a participant may terminate his or her payroll deductions. A participant may reduce, increase or begin such payroll deductions after the beginning of any Purchase Period only as provided for in the Offering. If specifically allowed pursuant to the terms of an Offering, a participant may make direct payments into his or her account to the extent that such participant has not had the maximum amount withheld during the Purchase Period. (b) If a participant terminates his or her payroll deductions, such participant may withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Purchase Period. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in other Offerings under the Plan. 4. 5 (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company or an Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), without interest. (d) Rights granted under the Plan shall not be transferable, and shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE (a) On each exercise date, as defined in the relevant Offering (an "Exercise Date"), each participant's accumulated payroll deductions (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Exercise Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to such participant after such Exercise Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Exercise Date of an Offering shall be distributed in full to such participant after such Exercise Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the Plan (including rights granted thereunder) is covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act"). If, on an Exercise Date of any Offering hereunder, the Plan is not so registered, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Purchase Period (reduced to the extent, if any, such deductions have been used to acquire stock for the participants) shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 5. 6 11. RIGHTS AS A STOCKHOLDER A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until certificates representing such shares shall have been issued. 12. ADJUSTMENTS UPON CHANGES IN STOCK (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding rights will be appropriately adjusted in the class(es) and the maximum number of shares subject to the Plan and the class(es) and the number of shares and price per share of stock subject to outstanding rights. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, as determined by the Board in its sole discretion, any surviving corporation shall assume outstanding rights or substitute similar rights for those under the Plan, such rights shall continue in full force and effect, or such rights shall be exercised immediately prior to such event. 13. AMENDMENT OF THE PLAN (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the vote of a majority of the shares of the Company represented and voting at a duly held meeting within 12 months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted. 14. TERMINATION OR SUSPENSION OF THE PLAN (a) The Board may suspend or terminate the Plan at any time. Unless sooner 6. 7 terminated, the Plan shall terminate on August 25, 2007. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom such rights were granted. 15. EFFECTIVE DATE OF PLAN The Plan as amended and restated herein shall become effective as determined by the Board, but no rights granted after the date of this amendment and restatement of the Plan shall be exercised unless and until this amended and restated Plan has been approved by the vote of the holders of a majority of the outstanding shares of the Company entitled to vote or by the written consent of the holders of the outstanding shares of the Company entitled to vote to the extent necessary to obtain employee stock purchase plan treatment under Section 423 of the Code, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 7. EX-10.15 6 1988 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN 1 EXHIBIT 10.15 MAXIM INTEGRATED PRODUCTS, INC. 1988 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN Adopted August 23, 1988 Approved by Stockholders on October 26, 1988 Amended by the Board of Directors on August 9, 1990 Approved by Stockholders on October 26, 1990 Amended by the Board of Directors on May 8, 1991 and August 14, 1991 Approved by Stockholders on November 7, 1991 Amended by the Board of Directors on February 23, 1995 Amended by the Board of Directors on February 29, 1996 and August 16, 1996 Approved by Stockholders on November 14, 1996 Amended by the Board of Directors on May 14, 1998 1. PURPOSE (a) The purpose of the Maxim Integrated Products, Inc. 1988 Nonemployee Director Stock Option Plan (the "Plan") is to provide a means by which each director of MAXIM INTEGRATED PRODUCTS, INC. (the "Company") who is not an employee of the Company and has not prior to August 23, 1988 been granted an option by the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(b). (b) The Board may delegate administration of the Plan to a committee composed of not fewer than three (3) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the 1 2 provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN (a) Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate one million two hundred and eighty thousand (1,280,000) shares [adjusted to reflect all stock dividends through December 5, 1997] of the Company's Common Stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY Options shall be granted only to Non-employee Directors of the Company. 5. AUTOMATIC GRANTS (a) Each person who is, after the date of the approval of the Plan by the Board (the "Adoption Date"), elected for the first time to be a Non-employee Director shall, upon the date of his initial election to be a Non-employee Director by the Board or stockholders of the company, automatically be granted an option to purchase sixty thousand (60,000) shares [adjusted to reflect all stock dividends through December 5, 1997] of the Company's Common Stock (subject to adjustment as provided in paragraph 10 hereof) on such date upon the terms and conditions set forth herein. (b) Each Non-employee Director who serves on the Company's Board of Directors on the Adoption Date shall automatically be granted an option to purchase twenty thousand (20,000) shares [adjusted to reflect all stock dividends through December 5, 1997] of the Company's Common Stock (subject to adjustment as provided in Paragraph 10 hereof) on such date upon the terms and conditions set forth herein. (c) Each Non-employee Director who was elected to the Company's Board of directors prior to October 26, 1990 and who has been nominated by the Board of Directors for election at the Company's 1991 Annual Meeting of Stockholders to be held on November 7, 1991 (the "1991 Election Date") shall automatically be granted an option to purchase twenty thousand (20,000) shares of the Company's Common Stock (subject to adjustment as provided in Paragraph 10 hereof) on August 14, 1991 upon the terms and conditions set forth herein. 2 3 (d) Each Non-employee Director initially elected to the Company's Board of Directors on or before October 26, 1990 shall automatically be granted an option to purchase five thousand (5,000) shares of Common Stock (subject to adjustment as provided in Paragraph 10 hereof) on the 1991 Election Date, and shall automatically be granted an option to purchase seven thousand five hundred (7,500) shares of (adjusted to reflect the stock dividend effective November 23, 1994) Common Stock (subject to adjustment as provided in Paragraph 10 hereof) on each anniversary of the 1991 Election Date if he is on such anniversary a Non-employee Director. Each Non-employee Director initially elected to the Company's Board of Directors after October 26, 1990 shall automatically be granted an option to purchase seven thousand five hundred (7,500) shares (adjusted to reflect the stock dividend effective November 23, 1994) of Common Stock (subject to adjustment as provided in Paragraph 10 hereof) on each anniversary of the date of his initial election to the Board of Directors if he is on such anniversary a Non-employee Director. 6. OPTION PROVISIONS Each option shall contain the following terms and conditions: (a) The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires on the date ("Expiration Date") five years from the date of grant. The term of each option may terminate sooner than such Expiration Date if the optionee's service as a Non-employee Director of the Company terminates for any reason or for no reason. In the event of such termination of service, the option shall terminate on the earlier of the Expiration Date or the date seven (7) months following the date of termination of service; provided, however, that if such termination of service is due to the optionee's death, the option shall terminate on the earlier of the Expiration Date or twelve (12) months following the date of the optionee's death. In any and all circumstances, an option may be exercised following termination of the optionee's service as a Non-employee Director of the Company only as to that number of shares as to which it was exercisable on the date of termination of such service under the provisions of subparagraph 6(e). Notwithstanding the foregoing, if exercise within the foregoing periods is prohibited under paragraph 13 below, the term of the option shall be extended to a date thirty days following the first date on which the condition of paragraph 13 of the Plan has been met, and the option shall be exercisable as to the number of shares that could have been exercised on the date of termination of service had the condition of paragraph 13 been satisfied on that date. (b) The exercise price of each option shall be one hundred percent (100%) of the fair market value of the stock subject to such option on the date such option is granted. (c) Payment of the exercise price of each option is due in full in cash upon any exercise when the number of shares being purchased upon such exercise is less than 1,000 shares; but when the number of shares being purchased upon an exercise is 1,000 or more shares, the optionee may 3 4 elect to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash at the time of exercise; or (ii) Provided that at the time of exercise the Company's common stock is publicly traded and quoted regularly in The Wall Street Journal, payment by delivery of already-owned shares of common stock of the Company owned by the optionee for at least six (6) months and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at fair market value on the date of exercise; or (iii) Payment by a combination of the methods of payment specified in subparagraph 6(c)(i) and 6(c)(ii) above. (d) Except as may be permitted by the Board or the Committee either in individual cases or by general rule or policy, an option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or by his guardian or legal representative. (e) (i) The options described in paragraph 5(a) shall become exercisable (vest) in installments as follows: eight and three hundred thirty-four thousandths percent (8.334%) of the shares covered by the option on the date three (3) months after the date of grant, and eight and three hundred thirty-four thousandths percent (8.334%) of the shares covered by the option at the end of every subsequent three-month period thereafter until all the shares have become vested on the date three (3) years from the date of grant; provided that shares shall become exercisable (vest) on any relevant vesting date only if the optionee is a Non-employee Director of the Company on that vesting date. (ii) The options described in paragraph 5(b) shall become exercisable (vest) in installments as follows: twelve and one-half percent (12.5%) of the shares covered by the option on the date three (3) months after the date of grant, and twelve and one-half percent (12.5%) of the shares covered by the option at the end of every subsequent three-month period thereafter until all the shares have become vested on the date two (2) years after the date of the grant; provided that shares shall become exercisable (vest) on any relevant vesting date only if the optionee is a Non-employee Director of the Company on that vesting date. (iii) The options described in paragraph 5(c) shall become exercisable (vest) in installments as follows: eight and three hundred thirty-four thousandths percent (8.334%) of the shares covered by the option on the date three (3) months after the date of grant, and eight and three hundred thirty-four thousandths percent (8.334%) of the shares covered by the option at the end of every subsequent three-month period thereafter until all the shares have become vested on the date 4 5 three (3) years after the date of grant; provided that shares shall become exercisable (vest) on any relevant vesting date only if the optionee is a Non-employee Director of the Company on that vesting date. (iv) The options described in paragraph 5(d) shall become exercisable (vest) in installments as follows: twenty-five percent (25%) of the shares covered by the option on the date three (3) months after all previously granted automatic options under this Plan have vested, and twenty-five percent (25%) of the shares covered by the option at the end of every subsequent three (3) month period thereafter until all the shares have become vested one year after all previously granted automatic options under this Plan have vested; provided that shares shall become exercisable (vest) on any relevant vesting date only if the optionee is Non-employee Director of the Company on that vesting date. (v) Subject to the limitations contained herein including, without limitation, those contained in subparagraph 13(b), each option shall be exercisable with respect to each installment on or after the date of vesting applicable to such installment. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(d), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if, as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. (g) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. (h) In connection with each option granted pursuant to this Plan, at any time when the Company could have any withholding obligation (whether for Federal, state, local or foreign income, disability, Medicare, employment or other taxes or otherwise) as a result of exercise of an option, the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or the disposition of shares acquired upon such exercise, the Company shall have no obligation to permit exercise of such option or to issue any shares upon exercise of the option unless and until either the exercise of the option is accompanied by sufficient payment, as determined by the Company in its absolute discretion, to meet those withholding obligations on such exercise, lapse or disposition or other arrangements are made that are satisfactory to the Company in its absolute discretion to provide otherwise for such payment. The Company shall have no liability to any optionee or transferee for exercising the foregoing right not to permit exercise or issue shares. 5 6 7. COVENANTS OF THE COMPANY (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 8. USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 9. MISCELLANEOUS (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-employee Director any right to continue in the service of the Company or shall affect any right of the Company, its Board or stockholders to terminate the service of any Non-employee Director with or without cause. (c) No Non-employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him pursuant to an option granted to him. (d) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-employee Director, or to evidence the removal of any restrictions on transfer, that such Non-employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. 6 7 10. ADJUSTMENTS UPON CHANGES IN STOCK (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution or liquidation of the company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then all outstanding options shall become exercisable in full for a period of at least ten (10) days prior to such event. Outstanding options which have not been exercised prior to such event shall terminate on the date of such event unless assumed by a successor corporation. 11. AMENDMENT OF THE PLAN (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the vote of a majority of the shares of the Company represented and voting at a duly held meeting within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Materially increase the number of shares which may be issued under the Plan; (ii) Materially modify the requirements as to eligibility for participation in the Plan; or (iii) Materially increase the benefits accruing to participants under the Plan, whether by increasing the number of shares for which an option may be granted to an optionee or otherwise. (b) Rights and obligations under any option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom the option was granted. 12. TERMINATION OR SUSPENSION OF THE PLAN (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, 7 8 the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. (c) The Plan shall terminate upon the occurrence of any of the events described in Section 10(b) above. 13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE The Plan shall become effective upon adoption by the Board of Directors, subject to the condition subsequent that the Plan is approved by the vote or written consent of the holders of a majority of the shares of the Company represented and voting at the next special or annual meeting of stockholders of the Company. No option granted under the Plan shall be exercised or exercisable unless and until the condition of paragraph 13 has been met. 8 EX-10.16 7 1996 STOCK INCENTIVE PLAN 1 EXHIBIT 10.16 MAXIM INTEGRATED PRODUCTS, INC. 1996 STOCK INCENTIVE PLAN Adopted August 16, 1996 Approved by Shareholders November 14, 1996 As further amended by the Board of Directors on April 16, 1997 and May 15, 1997 Approved by Shareholders November 13, 1997 As further amended by the Board of Directors on March 10, 1998, May 14, 1998, and August 13, 1998 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of the Committees appointed to administer the Plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. (c) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Options granted to residents therein. (d) "Board" means the Board of Directors of the Company. (e) "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or (ii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole 1 2 number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means any committee appointed by the Board to administer the Plan. (h) "Common Stock" means the common stock of the Company. (i) "Company" means Maxim Integrated Products, Inc., a Delaware corporation. (j) "Consultant" means any person who is a consultant, advisor, independent contractor, vendor, customer or other person having a past, current or prospective business relationship with the Company or any Parent or Subsidiary. (k) "Continuing Directors" means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. (l) "Continuous Status as an Employee, Director or Consultant" means that the employment, director or consulting relationship with the Company, any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an Employee, Director or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. (m) "Corporate Transaction" means any of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with complete liquidation or dissolution of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. 2 3 (n) "Covered Employee" means any person who is a "covered employee" under Section 162(m)(3) of the Code. (o) "Director" means a member of the Board. (p) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Parent or Subsidiary of the Company for purposes of Section 422 of the Code. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. Except for purposes of grants of Incentive Stock Options, "Employee" also includes any person whom an officer identifies as a prospective employee of the Company or any Parent or Subsidiary of the Company. (q) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (r) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value of a share of Common Stock shall be (A) the closing sale price of the Common Stock for the last market trading day prior to the date of the determination or on the date of the determination, as determined by the Administrator at the time of the determination (or, if no sales were reported on either such date, on the last trading date on which sales were reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the closing price of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such price was reported on that date, on the last date on which such price was reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market of the type described in (i), above, for the Common Stock, the Fair Market Value thereof shall be determined by the Administrator in good faith. (s) "Grantee" means an Employee, Director or Consultant who receives an Option under the Plan. (t) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (u) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (v) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (w) "Option" means a stock option granted pursuant to the Plan. (x) "Option Agreement" means the written agreement evidencing the grant of 3 4 an Option executed by the Company and the Grantee, including any amendments thereto. (y) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (z) "Performance-Based Compensation" means compensation qualifying as "performance-based compensation" under Section 162(m) of the Code. (aa) "Plan" means this 1996 Stock Incentive Plan. (bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor thereto. (cc) "Share" means a share of the Common Stock. (dd) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. (ee) "Subsidiary Disposition" means the disposition by the Company of its equity holdings in any subsidiary corporation effected by a merger or consolidation involving that subsidiary corporation, the sale of all or substantially all of the assets of that subsidiary corporation or the Company's sale or distribution of substantially all of the outstanding capital stock of such subsidiary corporation. 3. Stock Subject to the Plan. (a) Subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to this Plan is 22,000,000 Shares [adjusted to reflect the stock dividend effective December 5, 1997]; provided, however, that such maximum aggregate number of Shares shall be increased by the number of Shares or options returned to the Company's Incentive Stock Option Plan, 1987 Employee Stock Participation Plan, and Supplemental Nonemployee Stock Option Plan. Notwithstanding the foregoing, the maximum aggregate number of Shares available for grant of Incentive Stock Options shall be 22,000,000 Shares, and such number shall not be subject to adjustment as described above. The Shares to be issued pursuant to the Plan may be authorized, but unissued, or reacquired Common Stock. (b) If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option exchange program, or if any unissued Shares are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option or any withholding taxes due with respect to such Option, such unissued or retained Shares shall become available for future grant under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan pursuant to an Option shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Plan Administrator. 4 5 (i) Administration with Respect to Directors and Officers. With respect to grants of Options to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Options to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Options and may limit such authority by requiring that such Options must be reported to and ratified by the Board or a Committee within six (6) months of the grant date, and if so ratified, shall be effective as of the grant date. (iii) Administration With Respect to Covered Employees. Notwithstanding the foregoing, grants of Options to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Options qualifying as Performance-Based Compensation. In the case of such Options granted to Covered Employees, references to the "Administrator" or to a "Committee" shall be deemed to be references to such Committee or subcommittee. (iv) Administration Errors. In the event an Option is granted in a manner inconsistent with the provisions of this subsection (a), such Option shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws. (b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Options may be granted from time to time hereunder; (ii) to determine whether and to what extent Options are granted hereunder; (iii) to determine the number of Shares or the amount of other consideration to be covered by each Option granted hereunder; (iv) to determine the Fair Market Value of the Common Stock in accordance with Section 2(r) of the Plan; (v) to approve forms of Option Agreement for use under the Plan; (vi) to determine the terms and conditions of any Option granted 5 6 hereunder; (vii) to amend the terms of any outstanding Option granted under the Plan, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Option shall not be made without the Grantee's written consent; (viii) to reduce the exercise price of any Option to reflect a reduction in the Fair Market Value of the Common Stock since the grant date of the Option without a material adverse impact on the Grantee; provided, however, that (A) such reductions in the aggregate do not apply to Options covering more than five percent (5%) of the maximum aggregate number of Shares available under Section 0(0), above (as amended from time to time), in any twelve (12) month period, (B) such reduction is approved by a majority of the members of the Administrator, and (C) the Administrator determines in good faith and in writing that such reductions occur only infrequently and principally in response to conditions other than poor operating performance by the Company. For purposes of this subsection (0), the issuance of an Option in replacement of an existing Option with a lower exercise price (or a lower base amount on which appreciation is measured) without a material adverse impact on the Grantee shall be deemed to be a reduction in the exercise price of the earlier granted Option; (ix) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan; (x) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Option shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and (xi) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be conclusive and binding on all persons. 5. Eligibility. Non-Qualified Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees. An Employee, Director or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. Options may be granted to such Employees of the Company and its subsidiaries who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Options. (a) Designation of Option. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby 6 7 in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. (b) Conditions of Option. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms and conditions of each Option including, but not limited to, the Option vesting schedule, form of payment upon exercise of the Option and satisfaction of any performance criteria. (c) Individual Option Limit. The maximum number of Shares with respect to which Options may be granted to any individual in any fiscal year of the Company shall be 6,000,000 [adjusted to reflect the stock dividend effective December 5, 1997]. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization pursuant to Section 10, below. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to an individual, if any Option is canceled, the canceled Option shall continue to count against the maximum number of Shares with respect to which Options may be granted to the individual. For this purpose, the repricing of an Option shall be treated as the cancellation of the existing Option and the grant of a new Option. (d) Term of Option. The term of each Option shall be ten (10) years from the date of grant for all Grantees other than Directors who are not Employees, in whose case the term shall be five (5) years from the date of grant. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. (e) Transferability of Options. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution, and may be exercised during the lifetime of the Grantee only by the Grantee. Non-Qualified Stock Options shall be transferable to the extent provided in the Option Agreement. (f) Time of Granting Options. The date of grant of an Option shall for all purposes be the date on which the Administrator makes the determination to grant such Option, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. (g) Vesting During Leave of Absence. During any leave of absence from employment, directorship or consulting arrangement with the Company or any Parent or Subsidiary, vesting of such Grantee's Options shall cease, and shall resume upon the Grantee's return to his or her relationship with the Company, Parent or Subsidiary. The dates on which such Grantee's Options vest shall thereafter be adjusted by the duration of the leave of absence. 7. Option Exercise Price, Consideration and Taxes. 7 8 (a) Exercise Price. The exercise price for an Option shall be as follows: (i) In the case of an Incentive Stock Option: (a) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (b) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator; provided, however, that in the case the per Share exercise price is less than one hundred percent (100%) of the Fair Market Value per Share on the date of the grant, the Administrator determines in writing and in good faith that (A) such grants are made infrequently, (B) there is a good business reason for the grant that outweighs the normal presumption of a per Share exercise price of not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant, and (C) the aggregate number of Shares subject to such Options does not exceed five percent (5%) of the aggregate maximum number of Shares under Section 0(0), above, as amended from time to time. (iii) In the case of Options intended to qualify as Performance-Based Compensation, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise of an Option including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following: (i) cash; (ii) check; (iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) surrender of Shares (including withholding of Shares otherwise deliverable upon exercise of the Option) which have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised (but only to the extent that such exercise of the Option would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); 8 9 (v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (vi) any combination of the foregoing methods of payment. (c) Taxes. In connection with each option granted pursuant to this Plan, at any time when the Company could have any withholding obligation (whether for Federal, state, local or foreign income, disability, Medicare, employment or other taxes or otherwise) as a result of exercise of an option, the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or the disposition of shares acquired upon such exercise, the Company shall have no obligation to permit exercise of such option or to issue any shares upon exercise of the option unless and until either the exercise of the option is accompanied by sufficient payment, as determined by the Company in its absolute discretion, to meet those withholding obligations on such exercise, lapse or disposition or other arrangements are made that are satisfactory to the Company in its absolute discretion to provide otherwise for such payment. The Company shall have no liability to any optionee or transferee for exercising the foregoing right not to permit exercise or issue shares. 8. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. (i) Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Option Agreement. (ii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Option, notwithstanding the exercise of an Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Option Agreement or Section 10, below. (b) Exercise of Option Following Termination of Employment, Director or Consulting Relationship. (i) An Option may not be exercised after the termination date of such Option set forth in the Option Agreement and may be exercised following the termination of a Grantee's Continuous Status as an Employee, Director or Consultant only to the extent that the Grantee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such option as set forth in the Option Agreement). Options shall be exercisable for a period of ninety (90) days following termination generally, and for a period of 9 10 five hundred forty-seven (547) days following termination due to death of the Grantee or three hundred sixty-five (365) days following termination due to the disability of the Grantee (or, in each case, such other period of time as is determined by the Administrator, which such determination in the case of an Incentive Stock Option shall be made at the time of grant of the Option). (ii) All Options shall terminate to the extent not exercised on the last day of the period specified in paragraph (i) above or the last day of the original term of the Option, whichever occurs first. (iii) Any Option designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Status as an Employee, Director or Consultant shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Option Agreement. (c) Exercise of Option Following Termination of Employment, Director or Consulting Relationship. In the event of termination of a Grantee's Continuous Status as an Employee, Director or Consultant with the Company for any reason other than disability or death (but not in the event of an Grantee's change of status from Employee to Consultant or from Consultant to Employee), such Grantee may, but only within ninety (90) days after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Grantee was entitled to exercise it at the date of such termination or to such other extent as may be determined by the Administrator. If the Grantee should die within ninety (90) days after the date of such termination, the Grantee's estate or the person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option to the extent that the Grantee was entitled to exercise it at the date of such termination within five hundred forty-seven (547) days of the Grantee's date of death, but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement. In the event of an Grantee's change of status from Employee to Consultant, an Employee's Incentive Stock Option shall convert automatically to a Non-Qualified Stock Option on the ninety-first (91st) day following such change of status. If the Grantee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (d) Disability of Grantee. In the event of termination of a Grantee's Continuous Status as an Employee, Director or Consultant as a result of his or her disability, Grantee may, but only within three hundred sixty-five (365) days from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Non-Qualified Stock Option on the day three (3) months and one day following such termination. To the extent that Grantee is not entitled to exercise the Option at the date of termination, or if Grantee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) Death of Grantee. In the event of the death of a Grantee, the Option may 10 11 be exercised at any time within five hundred forty-seven (547) days following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement), by the Grantee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Grantee was entitled to exercise the Option at the date of death. If, at the time of death, the Grantee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Grantee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate. (f) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made. 9. Conditions Upon Issuance of Shares. (a) Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. 10. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other similar event resulting in an increase or decrease in the number of issued shares of Common Stock. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Option. 11. Corporate Transactions/Changes in Control/Subsidiary Dispositions. (a) The Administrator shall have the authority, exercisable either in advance of any actual or anticipated Corporate Transaction, Change in Control or Subsidiary Disposition or at the time of an actual Corporate Transaction, Change in Control or Subsidiary Disposition and exercisable at the time of the grant of an Option under the Plan or any time while an Option remains outstanding, to provide for the full automatic vesting and exercisability of one or more outstanding unvested Options under the Plan and the release from restrictions on transfer 11 12 and repurchase or forfeiture rights of such Options in connection with a Corporate Transaction, Change in Control or Subsidiary Disposition, on such terms and conditions as the Administrator may specify. The Administrator also shall have the authority to condition any such Option vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Status as an Employee or Consultant of the Grantee within a specified period following the effective date of the Change in Control or Subsidiary Disposition. The Administrator may provide that any Options so vested or released from such limitations in connection with a Change in Control or Subsidiary Disposition, shall remain fully exercisable until the expiration or sooner termination of the Option. Effective upon the consummation of a Corporate Transaction, all outstanding Options under the Plan shall terminate unless assumed by the successor company or its Parent. (b) The portion of any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction, Change in Control or Subsidiary Disposition shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the extent such dollar limitation is exceeded, the accelerated excess portion of such Option shall be exercisable as a Non-Qualified Stock Option. 12. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated. 13. Amendment, Suspension or Termination of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan. To the extent required to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such manner and to such a degree as required. (b) No Option may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. 14. Reservation of Shares. (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. No Effect on Terms of Employment. The Plan shall not confer upon any Grantee 12 13 any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 13 EX-10.18 8 BONUS PLAN 1 EXHIBIT 10.18 BONUS PLAN 1. This Bonus Plan has been adopted by Maxim Integrated Products, Inc. (the "Company") for the determination of annual incentive bonuses payable to the Company's executive officers. This Bonus Plan shall be administered by the Company's Compensation Committee. This Bonus Plan shall be in effect for the Company's fiscal years 1998-2002, for payment of bonuses with respect to each such fiscal year but to be determined and paid in the immediately following fiscal year. 2. With respect to each fiscal year, there shall be created a pool (the "Bonus Pool") in an amount of up to 3% of the Company's pre-tax earnings, determined as follows: (a) If the Company's earnings per share for that fiscal year are at least 30% greater than the Company's earnings per share for the immediately preceding fiscal year, an amount equal to 1.5% of the Company's pre-tax earnings shall be available in the Bonus Pool. If the growth in the Company's earnings per share for such period is less than 30%, then the amount available in the pool shall equal 1.5% times the actual percentage growth in earnings per share for such period divided by 30%. (b) If the closing price for the Company's Common Stock on the last trading day of that fiscal year is at least 30% greater than the closing price for the Company's Common Stock on the last trading day of the immediately preceding fiscal year, an amount equal to 1.5% of the Company's pre-tax earnings shall be available in the Bonus Pool. If the growth in the Company's stock price for such period is less than 30%, then the amount available in the pool shall equal 1.5% times the actual percentage growth in the Company's stock price for such period divided by 30%. 3. Within 90 days of the beginning of each fiscal year during the term of this Bonus Plan, the Compensation Committee is to determine a formula for the amount of the bonus payable to each executive officer, based on the same performance criteria as set forth in paragraphs 2(a) and (b) above. The maximum bonus payable to any executive officer in respect of any fiscal year is one half of the Bonus Pool for that year. 4. After the end of each fiscal year, the Compensation Committee shall determine and certify the performance of the Company and each executive officer against the performance criteria set forth in paragraphs 2 and 3 above, and shall determine the amount available in the Bonus Pool and the amount of the bonus payable to each executive officer hereunder for such fiscal year. 5. The Compensation Committee reserves the right to pay any executive officer for any fiscal year a bonus in an amount less than the bonus determined pursuant to paragraphs 2 and 3, based on the Compensation Committee's determination of that executive officer's individual performance during the fiscal year. In making such determination, the Compensation Committee may consult with such parties, including the Company's Chief Executive Officer, seek such other input and take into account such factors as the Compensation Committee, in its sole discretion, may determine. EX-13.1 9 PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Net Revenues Maxim Integrated Products, Inc. (the Company) reported net revenues of $560.2 million in fiscal 1998, $433.7 million in fiscal 1997, and $421.6 million in fiscal 1996. The increases in net revenues for fiscal 1998 and fiscal 1997 are related primarily to higher unit shipments resulting from continued introduction of new proprietary products and increased market acceptance of the Company's proprietary and second-source products. Net Revenues (dollars in millions) [GRAPH TO COME] Approximately 56% of the Company's fiscal 1998 net revenues was derived from customers outside the U.S., primarily in Europe and the Pacific Rim (57% for both fiscal 1997 and 1996). While a majority of the Company's sales are denominated in U.S. dollars, the Company enters into foreign currency forward contracts to mitigate its risk on firm commitments and net monetary assets denominated in foreign currencies; as a result, the impact of changes in foreign exchange rates on revenues and the Company's results of operations for 1998 was minimal. Gross Margin The Company's gross margin as a percentage of net revenues was 67.2%, 66.5%, and 65.3% in fiscal 1998, 1997, and 1996, respectively. The continued improvements in gross margin are principally due to production efficiencies obtained through economies of scale offset to some extent by a $10.5 million increase in inventory reserves and $8.2 million in charges related to equipment writedowns in fiscal 1998. Gross Margin (percentage of net revenues) [GRAPH TO COME] Research and Development The Company is continuously working to introduce new products through its research and development efforts. Research and development expenses were 12.9%, 11.8%, and 11.3% of net revenues in fiscal 1998, 1997, and 1996, respectively. The increase in research and development expenses as a percentage of net revenues was due to continued investments in new product development efforts and $3.1 million in charges related to equipment writedowns in fiscal 1998. Research & Development (dollars in millions) [GRAPH TO COME] 12 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selling, General & Administrative (dollars in millions) [GRAPH TO COME] Selling, General and Administrative Selling, general and administrative expenses were 8.8%, 8.8%, and 9.9% of net revenues in fiscal 1998, 1997, and 1996, respectively. Selling, general and administrative expenses increased in absolute dollars as a result of increased headcount and related expenses primarily associated with the Company's direct sales efforts, and $1.0 million in charges related to equipment writedowns in fiscal 1998. Selling, general and administrative expenses decreased in absolute dollars in fiscal 1997 from fiscal 1996 as a result of savings realized through the establishment of a direct sales force in the United States during the latter half of fiscal 1996. Interest Income, Net Interest income, net increased to $14.9 million in fiscal 1998 from $8.6 million in fiscal 1997 and $4.6 million in fiscal 1996, primarily due to higher levels of invested cash, cash equivalents, and short-term investments. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company does not use derivative financial instruments in its investment portfolio. Under its investment policy, the Company invests exclusively in U.S. Treasury and Federal Agency debt securities with a maturity of one year or less. Investments mature at frequent intervals during the year, at which time the funds are available for use in the business, or for reinvestment, as cash demands dictate. This policy is intended to reduce default risk, market risk, and reinvestment risk. The fair value of the Company's investment portfolio or related interest income would not be significantly impacted by a material change in interest rates, due to the short-term nature of the Company's investment portfolio. At June 27, 1998, the Company's investment portfolio had an expected weighted average return of 5.5% and a weighted maturity of 219 days. Provision for Income Taxes The effective tax rate was 34% for both fiscal 1998 and 1997, and 35% for fiscal 1996. The decrease in the effective tax rate from fiscal 1996 was primarily due to restoration of the Federal Research and Development Tax Credit and the California Manufacturers' Investment Credit. 13 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK: Both end-market bookings and net bookings on the Company were lower in the last quarter of fiscal 1998 than in prior quarters during the year. These lower booking levels reflected softer demand for the Company's products in the United States, Europe, and the Pacific Rim and changes made in the Company's U.S. distribution channels. At the end of the fourth quarter of fiscal 1998, backlog shippable within the next twelve months was $181 million. Because the Company's backlog of orders at any point is not necessarily based on firm, noncancelable orders, and because the Company's customers do in fact routinely cancel orders for their own convenience with little notice, opening backlog has limited value as a predictor of future revenues. The Company's ability to increase its revenues and earnings in the first quarter of fiscal 1999 and beyond depends on resumption of bookings growth. FINANCIAL CONDITION: Overview Total assets grew to $769.5 million at the end of fiscal 1998, up from $556.4 million at the end of fiscal 1997. The increase is primarily due to favorable operating results for the year. Accounts receivable increased to $101.9 million at the end of fiscal 1998 from $91.6 million at the end of fiscal 1997, primarily due to an overall increase in sales volume and an increase in direct sales to international OEM customers, which generally have longer payment cycles. Inventory increased to $44.7 million at the end of fiscal 1998 from $36.8 million at the end of fiscal 1997, due to higher manufacturing production levels to support the Company's higher revenue levels. Liquidity and Capital Resources The Company's primary source of funds for fiscal 1998, 1997, and 1996 has been from net cash generated from operating activities of approximately $295.5 million, $187.1 million, and $119.5 million, respectively. In addition, the Company received approximately $37.2 million, $31.2 million, and $19.7 million of proceeds from the exercises of stock options during fiscal 1998, 1997, and 1996, respectively. Cash, Cash Equivalents & Short-Term Investments (dollars in millions) [GRAPH TO COME] Another source of cash from the Company's option programs is the tax deductions that arise from exercise of options. These tax benefits amounted to $74.3 million, $52.4 million, and $32.7 million in fiscal 1998, 1997, and 1996, respectively. It has been the Company's policy 14 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS to reduce the dilution effect from stock options by repurchasing its common stock from time to time in amounts based on estimates of proceeds from future stock option exercises and of tax benefits related to such exercises. The Company plans to continue this policy and, at management's discretion, may repurchase its common stocks in amounts significantly in excess of such estimates. The principal uses of funds for fiscal 1998, 1997, and 1996 were repurchases of $123.1 million, $80.7 million, and $27.4 million of the Company's common stock, and purchases of property, plant and equipment of $109.4 million, $44.2 million, and $75.1 million, respectively. In fiscal 1998, $42.0 million of the $109.4 million in capital purchases was for a sub-micron wafer fabrication facility located in San Jose, California. As of June 27, 1998, the Company's available funds consisted of approximately $322.9 million in cash, cash equivalents, and short term U.S. Treasury and Federal Agency debt securities. The Company anticipates that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including its anticipated level of capital equipment expenditures, through the end of fiscal 1999. YEAR 2000 ISSUE: As a result of certain computer programs being written using two digits rather than four to define the applicable year, any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in normal business activities. The Company is in the process of evaluating the modifications to both new and existing software and hardware required to mitigate the Year 2000 Issue. The Company has also initiated formal communications with its significant suppliers and large customers to determine the extent to which the Company is vulnerable to those third parties' failure to minimize their own Year 2000 Issue. The Company expects to have any required modifications completed prior to December 31, 1999. However, if such modifications are not made, or are not completed in a timely fashion, the Year 2000 Issue could have a material impact on the operations of the Company. In addition, there can be no assurance that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The Company currently has no contingency plan in the event it or third parties are unable to complete system modification to address the Year 2000 Issue. Costs incurred through June 27, 1998, addressing the Year 2000 Issue have been minimal. While the Company has not fully completed the evaluation of its Year 2000 Issue, it does not anticipate that the future cost of these efforts will be material. The date on which the Company plans to complete any necessary Year 2000 modifications is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans, and other factors. However, there can be no assurance that these estimates will be achieved, and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 15 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION: Forward-looking statements in this Annual Report, including this Management's Discussion and Analysis section, involve risk and uncertainty. There are numerous factors that could cause the Company's actual results to differ materially from results predicted or implied. Important factors affecting the Company's ability to achieve future revenue growth include whether, and the extent to which, demand for the Company's products increases and reflects real end-user demand; whether customer cancellations and delays of outstanding orders increase; and whether the Company is able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether the Company is able to achieve its new product development and introduction goals, including, without limitation, goals for recruiting, retaining, training, and motivating engineers, particularly design engineers, and goals for conceiving and introducing timely new products that are well received in the marketplace; and whether the Company is able to successfully commercialize its new technologies, such as its new second-generation high frequency technologies, that it has been investing in by designing and introducing new products based on these new technologies. Other important factors that could cause actual results to differ materially from those predicted include overall economic conditions, such as the currency and other economic issues affecting Asian countries; demand for electronic products and semiconductors generally; demand for the end-user products for which the Company's semiconductors are suited; timely availability of raw material, equipment, supplies and services; unanticipated manufacturing problems; technological and product development risks; competitors' actions; and other risk factors described in the Company's filings with the Securities and Exchange Commission. All forward-looking statements included in this document are made as of the date hereof, based on the information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement. 16 6 CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------- (Amounts in thousands, except share data) JUNE 27, 1998 June 30, 1997 - ------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 16,739 $ 18,562 Short-term investments 306,209 205,391 - ------------------------------------------------------------------------------------------------- Total cash, cash equivalents and short-term investments 322,948 223,953 - ------------------------------------------------------------------------------------------------- Accounts receivable (net of allowance for doubtful accounts of $1,892 in 1998 and $1,344 in 1997) 101,921 91,642 Inventories 44,707 36,833 Deferred income taxes 34,400 21,500 Other current assets 4,039 3,079 - ------------------------------------------------------------------------------------------------- Total current assets 508,015 377,007 - ------------------------------------------------------------------------------------------------- Property, plant and equipment, at cost, less accumulated depreciation 255,453 174,508 Other assets 6,024 4,871 - ------------------------------------------------------------------------------------------------- Total assets $ 769,492 $ 556,386 - ------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 35,169 $ 25,249 Income taxes payable 27,412 10,916 Accrued salaries 21,421 16,408 Accrued expenses 22,604 16,312 Deferred income on shipments to distributors 23,686 16,336 - ------------------------------------------------------------------------------------------------- Total current liabilities 130,292 85,221 - ------------------------------------------------------------------------------------------------- Other liabilities 4,000 4,000 Deferred income taxes 4,200 1,600 Commitments and contingencies - ------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock, $0.001 par value; Authorized: 2,000,000 shares; Issued and outstanding: none -- -- Common stock, $0.001 par value; Authorized: 240,000,000 shares; Issued and outstanding: 130,752,346 in 1998 and 127,458,504 in 1997 131 127 Additional paid-in capital 81,118 92,774 Retained earnings 551,914 373,770 Translation adjustment (2,163) (1,106) - ------------------------------------------------------------------------------------------------- Total stockholders' equity 631,000 465,565 - ------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 769,492 $ 556,386 - -------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 17 7 CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------- (Amounts in thousands, except per share data) For the years ended JUNE 27, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------- Net revenues $560,220 $433,710 $421,626 Cost of goods sold 183,724 145,307 146,253 - ------------------------------------------------------------------------------------------------------- Gross margin 376,496 288,403 275,373 - ------------------------------------------------------------------------------------------------------- Operating expenses: Research and development 72,204 51,264 47,532 Selling, general and administrative 49,256 38,194 41,951 - ------------------------------------------------------------------------------------------------------- Total operating expenses 121,460 89,458 89,483 - ------------------------------------------------------------------------------------------------------- Operating income 255,036 198,945 185,890 Interest income, net 14,879 8,590 4,567 - ------------------------------------------------------------------------------------------------------- Income before provision for income taxes 269,915 207,535 190,457 Provision for income taxes 91,771 70,561 67,112 - ------------------------------------------------------------------------------------------------------- Net income $178,144 $136,974 $123,345 - ------------------------------------------------------------------------------------------------------- Earnings per share: Basic $ 1.37 $ 1.09 $ 1.03 Diluted $ 1.18 $ 0.94 $ 0.87 - ------------------------------------------------------------------------------------------------------- Shares used in the calculation of earnings per share: Basic 129,838 125,430 120,204 Diluted 150,661 145,754 141,854 - -------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 18 8 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------- Common Stock Additional -------------------------- Paid-In Retained Translation (Amounts in thousands, except share data) Shares Par Value Capital Earnings Adjustment Total - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1995 117,746,316 $ 118 $ 64,838 $113,451 $ 303 $ 178,710 Exercise of stock options under the Stock Option and Purchase Plans 6,798,722 7 19,673 -- -- 19,680 Repurchase of common stock (1,654,000) (2) (27,369) -- -- (27,371) Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans -- -- 32,736 -- -- 32,736 Translation adjustment -- -- -- -- (1,675) (1,675) Net income -- -- -- 123,345 -- 123,345 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1996 122,891,038 123 89,878 236,796 (1,372) 325,425 Exercise of stock options under the Stock Option and Purchase Plans 8,448,466 8 31,200 -- -- 31,208 Repurchase of common stock (3,881,000) (4) (80,701) -- -- (80,705) Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans -- -- 52,397 -- -- 52,397 Translation adjustment -- -- -- -- 266 266 Net income -- -- -- 136,974 -- 136,974 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1997 127,458,504 127 92,774 373,770 (1,106) 465,565 Exercise of stock options under the Stock Option and Purchase Plans 6,939,982 7 37,222 -- -- 37,229 Repurchase of common stock and other (3,646,140) (3) (123,131) -- -- (123,134) Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans -- -- 74,253 -- -- 74,253 Translation adjustment -- -- -- -- (1,057) (1,057) Net income -- -- -- 178,144 -- 178,144 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 27, 1998 130,752,346 $ 131 $ 81,118 $551,914 $(2,163) $ 631,000 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 19 9 Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------ (Amounts in thousands) Increase (decrease) in cash and cash equivalents For the years ended June 27, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 178,144 $ 136,974 $ 123,345 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and other 15,082 17,013 12,899 Reduction of equipment value 12,342 -- 1,344 Changes in assets and liabilities: Accounts receivable (10,279) (10,978) (52,950) Inventories (7,874) (6,362) (11,366) Other current assets (960) 409 (2,279) Accounts payable 9,920 (4,489) 4,953 Income taxes payable 90,749 43,990 50,254 Deferred income taxes (10,300) 775 (4,755) Deferred income on shipments to distributors 7,350 1,805 7,020 All other accrued liabilities 11,305 7,943 (8,926) - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 295,479 187,080 119,539 - ------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Additions to property, plant and equipment, net (109,426) (44,187) (75,061) Other non-current assets (1,153) 1,304 211 Purchase of held-to-maturity securities -- (24,313) (137,882) Purchases of available-for-sale securities (384,305) (239,437) -- Proceeds from maturities of held-to-maturity securities 5,800 95,122 106,241 Proceeds from sales/maturities of available-for- sale securities 277,687 32,207 -- - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (211,397) (179,304) (106,491) - ------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Issuance of common stock 37,229 31,208 19,680 Principal payments on capital lease obligations -- -- (40) Repurchase of common stock, and other (123,134) (80,705) (27,371) - ------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (85,905) (49,497) (7,731) - ------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (1,823) (41,721) 5,317 Cash and cash equivalents: Beginning of year 18,562 60,283 54,966 - ------------------------------------------------------------------------------------------------------------ End of year $ 16,739 $ 18,562 $ 60,283 - ------------------------------------------------------------------------------------------------------------ Supplemental disclosures of cash flow information: Cash paid during the year for: - ------------------------------------------------------------------------------------------------------------ Income taxes $ 8,293 $ 19,967 $ 19,381 - ------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 20 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations: Maxim Integrated Products, Inc. (the Company) designs, develops, manufactures, and markets linear and mixed-signal integrated circuits. Products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, switches, battery chargers, battery management circuits, RF circuits, fiber optic transceivers, and voltage references. Maxim Integrated Products, Inc., is a global company with manufacturing facilities in the United States, testing facilities in the Philippines, and sales offices throughout the world. The Company's products are sold to customers in numerous markets, including data processing, telecommunications, networking, industrial control, instrumentation, and military markets. 2. Summary of Significant Accounting Policies: Basis of presentation: The consolidated financial statements include the accounts of Maxim Integrated Products, Inc., and all of its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated. Effective July 1, 1997, the Company adopted a 52-to-53-week fiscal year that ends on the last Saturday in June, and in which each accounting quarter will end on the last Saturday of the quarter. Cash equivalents and short-term investments: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Short-term investments consist of U.S. Treasury and Federal Agency debt securities with original maturities beyond three months and within one year. Securities designated as held-to-maturity are carried at amortized cost which approximates market value. The original cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on held-to-maturity securities are included in interest income. Securities identified as available-for-sale are carried at fair market value based on market quotes. Unrealized gains and losses, net of tax, on securities in this category are reportable as a separate component of stockholders' equity. The cost of securities sold is based on the specific identification method. Interest earned on securities is included in interest income. Derivative financial instruments held for purposes other than trading: The Company enters into forward exchange contracts to hedge certain firm sales commitments denominated in foreign currencies and the net monetary assets and liabilities of its foreign subsidiaries. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash flows resulting from the sale of products to international customers and its subsidiaries will be adversely affected by changes in exchange rates. Gains and losses related to these contracts are deferred and included in operating income to match with the overall gains or losses from the underlying transactions. Any gain or loss realized from early termination of a forward contract is included in operating income upon termination. Inventories: Inventories are stated at the lower of standard cost (which approximates first in, first out) or market. 21 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, plant and equipment: Property, plant and equipment are stated at cost and depreciation is computed on the straight line method over estimated useful lives of 1 to 40 years. Leased machinery and equipment and leasehold improvements are amortized over the lesser of their useful lives or the remaining term of the related lease. The Company evaluates property, plant and equipment in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Revenue recognition: Revenue from product sales direct to customers is generally recognized upon shipment. A portion of the Company's sales are made to domestic distributors under agreements which provide for certain price rebates and limited product return privileges. As a result, the Company defers recognition of such sales until the merchandise is sold by the domestic distributors. Foreign currency translation and remeasurement: For foreign operations with the local currency as the functional currency, assets and liabilities are translated at year-end exchange rates, and statements of operations are translated at the average exchange rates during the year. Exchange gains or losses arising from the translation of foreign currency denominated assets and liabilities are included as a component of stockholders' equity. For foreign operations with the U.S. dollar as the functional currency, monetary assets and liabilities are remeasured at the year-end exchange rates. Certain non-monetary assets and liabilities are remeasured using historical rates. Statements of operations are remeasured at the average exchange rates during the year. Net gains and losses from foreign currency remeasurements have been minimal and are included in selling, general and administrative expenses. Employee stock plans: The Company accounts for its stock option and employee stock purchase plans in accordance with provisions of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is effective beginning fiscal year 1997. The Company has elected to continue to account for its employee stock plans in accordance with the provisions of APB 25. The Company has provided additional pro forma disclosures as required under SFAS 123 in Note 7. Earnings per share: In the second quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standard No. 128 (SFAS 128), "Earnings Per Share." SFAS 128 requires dual presentation of basic earnings per share (EPS) and diluted EPS. All prior periods have been restated. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and other convertible securities. Diluted earnings per share does not differ from the Company's previously reported earnings per common and common equivalent share. 22 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New accounting pronouncements: The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income," and SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. Statement 131 establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. These standards will be effective for fiscal year 1999. Adoption of these standards will only impact the form and content of the Company's financial statement disclosures. In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and for Hedging Activities." Statement 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. Statement 133 is effective for fiscal year 2000. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to the useful lives of fixed assets, allowances for doubtful accounts and customer returns, inventory reserves, potential reserves relating to litigation matters, accrued liabilities, and other reserves. Actual results may differ from those estimates, and such differences may be material to the financial statements. Concentration of credit risk: Due to the Company's credit evaluation and collection process, bad debt expenses have been insignificant. Credit risk with respect to trade receivables is limited because a large number of geographically diverse customers make up the Company's customer base, thus spreading the credit risk. While a significant portion of the Company's revenues are made through domestic and international distributors, no single customer has accounted for greater than 10% of net revenues in the last three fiscal years. The Company places its investments with government entities and high credit quality financial institutions and limits the amount of credit exposure to any one financial institution. Stock Split: On December 5, 1997, the Company effected a two-for-one stock split in the form of a stock dividend, thereby doubling the number of outstanding shares of common stock. All share, per share, common stock, and stock option amounts for the prior periods have been adjusted to reflect the split. Concentration of other risks: The semiconductor industry is characterized by rapid technological change, competitive pricing pressures, and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, both at home and abroad, economic conditions specific to the semiconductor industry and to the analog portion of that industry, demand for the Company's products, the 23 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS timely introduction of new products, implementation of new manufacturing technologies, the ability to manufacture efficiently, the ability to safeguard patents and intellectual property in a rapidly evolving market, and reliance on assembly and wafer fabrication subcontractors and on independent distributors and sales representatives. As a result, the Company may experience substantial period-to-period fluctuations in future operating results due to the factors mentioned above or other factors. 3. Financial Instruments: Investments: Short-term investments in held-to-maturity and available-for-sale securities are as follows:
- ---------------------------------------------------------------------------------------------------- (Amounts in thousands) June 27, 1998 June 30, 1997 - ---------------------------------------------------------------------------------------------------- U.S. Treasury held-to-maturity securities at cost $ -- $ 5,753 U.S. Treasury available-for-sale securities at market value 147,880 199,638 Federal Agency Debt available-for-sale securities at market value 158,329 -- - ---------------------------------------------------------------------------------------------------- $306,209 $205,391 - ----------------------------------------------------------------------------------------------------
Due to short maturity terms and relative price insensitivity to market interest rates, amortized cost approximates fair market value, and no unrealized gains or losses have been recorded at June 27, 1998 and June 30, 1997. Fair market values are calculated based upon prevailing market quotes at the end of each fiscal year. Gross realized gains or losses for the fiscal years ended June 1998, 1997, and 1996 were immaterial. Foreign Exchange Contracts: At June 27, 1998, the Company held forward exchange contracts, all having maturities of less than one year, to exchange various foreign currencies for U.S. dollars in the amount of $52.5 million. Gains and losses related to these contracts are deferred and matched with the overall gains or losses from the underlying transactions. The table below summarizes, by currency, the notional amounts of the Company's forward exchange contracts and net unrealized gain or loss at June 27, 1998 and June 30, 1997. The net unrealized gain or loss approximates carrying value of these contracts.
1998 1997 ---------------------------------------------------- Notional Unrealized Notional Unrealized (Amounts in thousands) Amounts Gain/(Loss) Amounts Gain/(Loss) - -------------------------------------------------------------------------------- Currency: Japanese Yen $33,158 $2,162 $46,404 $ 84 British Pound Sterling 6,463 (37) 7,920 (276) German Mark 8,870 77 7,307 290 French Franc 3,982 (1) 2,881 134 - -------------------------------------------------------------------------------- $52,473 $2,201 $64,512 $232 - --------------------------------------------------------------------------------
The net unrealized gain is potentially subject to credit risk as it represents appreciation of the hedge position over spot exchange rates at year end. The Company controls credit risk through credit approvals and monitoring procedures. 24 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Inventories: The components of inventories were:
(Amounts in thousands) June 27, 1998 June 30,1997 - -------------------------------------------------------------------------------- Raw materials $ 4,826 $ 5,058 Work-in-process 29,575 22,349 Finished goods 10,306 9,426 - -------------------------------------------------------------------------------- $44,707 $36,833 - --------------------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consists of:
(Amounts in thousands) June 27, 1998 June 30,1997 - --------------------------------------------------------------------------------- Land $ 26,817 $ 16,817 Buildings 47,923 28,899 Building improvements 33,082 19,126 Machinery and equipment 231,380 176,767 - --------------------------------------------------------------------------------- 339,202 241,609 - --------------------------------------------------------------------------------- Less accumulated depreciation and amortization (83,749) (67,101) - --------------------------------------------------------------------------------- $ 255,453 $ 174,508 - ---------------------------------------------------------------------------------
During fiscal 1998, the Company recorded charges of $12.3 million to reduce the carrying value of certain pieces of capital equipment, of which $8.2 million was charged to cost of goods sold, $3.1 million was charged to research and development expenses, and $1.0 million was charged to selling, general and administrative expenses. 6. Commitments and Contingencies: The Company is a defendant in a patent infringement lawsuit that alleges that certain of the Company's products infringe a United States patent owned by the plaintiff in the lawsuit. The lawsuit is in the discovery phase, with a jury trial on the issues of liability and willfulness likely to occur late in 1999. In addition, the Company is subject to other legal proceedings and claims that arise in the normal course of its business. The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position of the Company. The Company leases certain facilities, including a wafer fabrication facility for which the lease expires in November 2003. Under that lease, the Company has a five-year lease extension option and is responsible for maintenance, taxes, and insurance on the facility. Future annual minimum lease payments for all leased facilities are as follows:
Fiscal Year ending (Amounts in thousands) - -------------------------------------------------------------------------------- 1999 $1,207 2000 1,063 2001 770 2002 643 2003 643 2004-2009 941 - -------------------------------------------------------------------------------- $5,267 - --------------------------------------------------------------------------------
25 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Rent expense was approximately $1.4 million, $1.4 million and $1.3 million, in fiscal 1998, 1997, and 1996, respectively. 7. Stockholders' Equity: Stock option and purchase plans: At June 27, 1998, the Company has reserved a total of 45,849,602 of its common shares for issuance to employees and certain others under its 1996 Stock Incentive Plan, 1987 Supplemental Stock Option Plan, 1983 Incentive Stock Option Plan, 1987 Employee Stock Participation Plan, 1988 Nonemployee Director Stock Option Plan, and Supplemental Nonemployee Stock Option Plan. Under the plans, options are generally granted at a price not less than fair market value as determined by the Board at the date of grant. Subject to certain limitations, the Board has authority to make grants at prices less than fair market value. Options granted under the stock option plans described above generally vest within 5 years and expire from 5 to 10 years from the date of the grant or such shorter term as may be provided in the agreement. Under the 1987 Employee Stock Participation Plan, employees of the Company may purchase shares of common stock at a price not less than the lesser of 85% of the fair market value of the stock on the date the purchase right is granted or the date the right is exercised. During fiscal 1998, the Company received $74,253,000 of tax benefit on the exercise of nonqualified stock options and on disqualifying dispositions under stock plans ($52,397,000 in fiscal 1997 and $32,736,000 in fiscal 1996). Information with respect to activity under the stock option plans is set forth below:
Outstanding Options ------------------------------ Shares Weighted Average Available Number of Price for Grant Shares Per Share - -------------------------------------------------------------------------------- Balance, June 30, 1995 1,001,744 46,605,028 $ 4.16 Shares reserved 5,900,000 -- -- Options granted (7,272,002) 7,272,002 $15.75 Options terminated 1,228,082 (1,228,082) $11.17 Options exercised -- (6,798,722) $ 2.90 - -------------------------------------------------------------------------------- Balance, June 30, 1996 857,824 45,850,226 $ 5.93 Shares reserved 14,530,000 -- -- Options granted (8,931,886) 8,931,886 $18.94 Options terminated 1,172,966 (1,172,966) $12.70 Options exercised -- (8,448,466) $ 3.71 - -------------------------------------------------------------------------------- Balance, June 30, 1997 7,628,904 45,160,680 $ 8.64 Options granted (7,883,730) 7,883,730 $31.13 Options terminated 1,408,924 (1,408,924) $15.14 Options exercised -- (6,939,982) $ 5.36 - -------------------------------------------------------------------------------- Balance, June 27, 1998 1,154,098 44,695,504 $12.97 - --------------------------------------------------------------------------------
At June 27, 1998, options to purchase 17,308,790 shares of common stock were exercisable (options exercisable at June 30, 1997 and 1996 were 16,217,762 and 16,263,204, respectively). 26 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about options outstanding at June 27, 1998:
Outstanding Options Options Exercisable --------------------------------------------- ---------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Prices June 27, 1998 Life (Years) Price June 27, 1998 Price - ------------------------------------------------------------------------------------------------- $ 0.80-$ 4.45 9,808,590 3.7 $ 2.19 9,118,534 $ 2.11 $ 4.84-$ 7.25 10,321,507 5.9 $ 5.99 4,519,621 $ 5.86 $ 7.47-$15.27 9,728,135 6.7 $12.12 2,552,149 $ 9.55 $15.31-$29.06 10,426,752 8.5 $22.88 985,900 $19.52 $29.25-$38.50 4,410,520 9.3 $33.23 132,586 $32.88 - ------------------------------------------------------------------------------------------------- $ 0.80-$38.50 44,695,504 6.5 $12.97 17,308,790 $ 5.55 - -------------------------------------------------------------------------------------------------
Pro forma information: Under SFAS 123, the Company may elect to continue to account for the grant of stock options under APB Opinion 25, in which options granted with an exercise price equal to the fair market value on the date of grant do not require recognition of expense in the Company's financial statements. Under SFAS 123, the Company is, however, required to provide pro forma disclosure regarding net income and earnings per share as if the Company had accounted for its employee stock options (including shares issued under the 1996 Stock Incentive Plan, 1987 Supplemental Stock Option Plan, 1998 Nonemployee Director Stock Option Plan, and Supplemental Nonemployee Stock Option Plan, collectively called "options") granted subsequent to June 30, 1995, under the methodology prescribed by that statement. Since the Company has elected to account for the grant of options under APB Opinion No. 25, the following information is for disclosure purposes only and it will not affect the current or future earnings of the Company. The valuation of options granted in fiscal 1998, 1997, and 1996 reported below has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Stock Option Plans Employee Stock Participation Plan Year ended June 1998 1997 1996 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- Expected option holding period (in years) 4.0 4.4 4.4 0.5 0.5 0.5 Risk-free interest rate 6.0% 6.4% 6.0% 5.3% 5.4% 5.3% Stock price volatility 0.48 0.47 0.47 0.48 0.47 0.47 Dividend yield -- -- -- -- -- -- - -----------------------------------------------------------------------------------------------------------------------------
27 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate of value, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the value of the options. The following is a summary of weighted average grant date values generated by application of the Black-Scholes model: Weighted Average Grant Date Value Year ended June 1998 1997 1996 - -------------------------------------------------------------------------------- Stock Option Plans $14.59 $ 9.83 $ 7.77 Employee Stock Participation Plan $ 7.12 $ 5.99 $ 4.73 - -------------------------------------------------------------------------------- As required under SFAS 123, the reported net income and earnings per share have been presented to reflect the impact had the Company been required to include the amortization of the Black-Scholes option value as an expense. The adjusted amounts are as follows:
Year ended June 1998 1997 1996 - --------------------------------------------------------------------------------------------------- Pro forma net income adjusted for SFAS 123 (in thousands) $145,204 $121,190 $116,249 Pro forma diluted earnings per share adjusted for SFAS 123 $ 0.96 $ 0.83 $ 0.82 - ---------------------------------------------------------------------------------------------------
The effects of the disclosures above relate only to options granted after June 30, 1995. Therefore, the impact on net income recalculated under SFAS 123 is not likely to be representative of similar disclosures in future years as additional option grants will impact future disclosures. 8. Earnings Per Share: Under SFAS 128, the Company provides dual presentation of EPS on a basic and diluted basis. The Company's granting of certain stock options resulted in potential dilution of basic EPS. The following summarizes the effect of the assumed issuance of dilutive securities on weighted average shares for basic EPS. The number of incremental shares from the assumed issuance of stock options is calculated applying the treasury stock method.
(Amounts in thousands) Year ended June 1998 1997 1996 - ------------------------------------------------------------------------------------ Numerator for basic earnings per share and diluted earnings per share Net Income $178,144 $136,974 $123,345 - ------------------------------------------------------------------------------------ Denominator for basic earnings per share 129,838 125,430 120,204 Effect of dilutive securities: Stock options and warrants 20,823 20,324 21,650 ------------------------------------ Denominator for diluted earnings per share 150,661 145,754 141,854 - ------------------------------------------------------------------------------------ Earnings per share: Basic $ 1.37 $ 1.09 $ 1.03 Diluted $ 1.18 $ 0.94 $ 0.87 - ------------------------------------------------------------------------------------
28 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes: The provision for income taxes consists of the following: (Amounts in thousands)
Year ended June 1998 1997 1996 - -------------------------------------------------------------------------------- Federal Current $ 87,461 $54,976 $ 58,732 Deferred (9,200) 4,015 (3,730) State Current 9,305 8,225 9,113 Deferred (1,100) 595 (410) Foreign Current 5,305 2,750 3,407 - -------------------------------------------------------------------------------- $ 91,771 $70,561 $ 67,112 - --------------------------------------------------------------------------------
Pretax income from foreign operations was approximately $18.0 million, $6.4 million, and $8.1 million, for the years ended June 27, 1998 and June 30, 1997 and 1996, respectively. The Company enjoys a tax holiday with respect to its operations in Cavite, Philippines, which will expire in fiscal 2002. The impact of this holiday was to increase net income by approximately $1,274,000 ($0.01 diluted earnings per share) during fiscal 1998. At June 27, 1998, accumulated pretax earnings of approximately $3,747,000 are intended to be permanently reinvested outside the United States, and no federal tax has been provided on these earnings. The provision for income taxes differs from the amount computed by applying the statutory rate as follows:
Year ended June 1998 1997 1996 - -------------------------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State tax, net of federal benefit 2.0 2.8 3.0 General business credits (1.0) (0.7) -- Exempt earnings of Foreign Sales Corporation (2.0) (2.5) (2.7) Other -- (0.6) (0.1) - -------------------------------------------------------------------------------- 34.0% 34.0% 35.2% - --------------------------------------------------------------------------------
29 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities as of June 27, 1998 and June 30, 1997 are as follows:
(Amounts in thousands) 1998 1997 - -------------------------------------------------------------------------------- Deferred tax assets: Inventory valuation and reserves $ 8,958 $ 5,301 Distributor related accruals 8,943 6,296 Accrued compensation 4,783 5,079 Other reserves and accruals not currently deductible for tax reporting 13,502 7,331 - -------------------------------------------------------------------------------- Total deferred tax assets 36,186 24,007 - -------------------------------------------------------------------------------- Deferred tax liabilities-fixed assets cost recovery (5,986) (4,107) - -------------------------------------------------------------------------------- Net deferred tax assets $ 30,200 $ 19,900 - --------------------------------------------------------------------------------
10. Segment Information: The Company designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits for the analog market, and its business falls into one industry segment. Operations of the Company`s overseas subsidiaries consist primarily of a test facility and sales, marketing, and distribution centers. During fiscal 1998, approximately 56% of the Company`s net revenues (including both U.S. export sales and direct sales from foreign subsidiaries) were derived from customers outside of the U.S., primarily in Europe and the Pacific Rim, as compared to 57% of net revenues in fiscal 1997 and fiscal 1996. Pacific Rim consists primarily of Japan. Intercompany transfers between geographic areas are accounted for at prices that approximate arm's length transactions. Information regarding geographic areas at and for the years then ended is as follows:
June 27, 1998 Geographic Area ------------------------------------------ (Amounts in thousands) United States Europe Pacific Rim Total - ------------------------------------------------------------------------------------------------------ Net revenues from unaffiliated customers $420,374 $85,864 $53,982 $560,220 - ------------------------------------------------------------------------------------------------------ Operating income $237,221 $ 8,861 $ 8,954 $255,036 - ------------------------------------------------------------------------------------------------------ Identifiable assets $704,594 $28,675 $36,223 $769,492 - ------------------------------------------------------------------------------------------------------ Liabilities $131,067 $ 4,593 $ 2,832 $138,492 - ------------------------------------------------------------------------------------------------------
June 30, 1997 Geographic Area ------------------------------------------ (Amounts in thousands) United States Europe Pacific Rim Total - ------------------------------------------------------------------------------------------------------ Net revenues from unaffiliated customers $334,772 $62,634 $36,304 $433,710 - ------------------------------------------------------------------------------------------------------ Operating income $192,734 $ 4,039 $ 2,172 $198,945 - ------------------------------------------------------------------------------------------------------ Identifiable assets $499,064 $23,344 $33,978 $556,386 - ------------------------------------------------------------------------------------------------------ Liabilities $ 86,463 $ 3,115 $ 1,243 $ 90,821 - ------------------------------------------------------------------------------------------------------
June 30, 1996 Geographic Area ------------------------------------------- (Amounts in thousands) United States Europe Pacific Rim Total - ------------------------------------------------------------------------------------------------------ Net revenues from unaffiliated customers $344,922 $57,523 $19,181 $421,626 - ------------------------------------------------------------------------------------------------------ Operating income $177,975 $ 4,871 $ 3,044 $185,890 - ------------------------------------------------------------------------------------------------------ Identifiable assets $373,341 $28,616 $15,837 $417,794 - ------------------------------------------------------------------------------------------------------ Liabilities $ 89,634 $ 1,835 $ 900 $ 92,369 - ------------------------------------------------------------------------------------------------------
30 20 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Maxim Integrated Products, Inc. We have audited the accompanying consolidated balance sheets of Maxim Integrated Products, Inc., as of June 27, 1998 and June 30, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended June 27, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxim Integrated Products, Inc., at June 27, 1998 and June 30, 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 27, 1998, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP San Jose, California July 31, 1998 31 21 SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------- (Amounts in thousands, except per share data) - -------------------------------------------------------------------------------------------------------- Fiscal Year 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- Net revenues $560,220 $433,710 $421,626 $250,820 $153,932 - -------------------------------------------------------------------------------------------------------- Cost of goods sold $183,724 $145,307 $146,253 $103,598 $ 64,250 Gross margin % 67.2% 66.5% 65.3% 58.7% 58.3% - -------------------------------------------------------------------------------------------------------- Operating income $255,036 $198,945 $185,890 $ 57,234 $ 35,574 % of net revenues 45.5% 45.9% 44.1% 22.8% 23.1% - -------------------------------------------------------------------------------------------------------- Net income $178,144 $136,974 $123,345 $ 38,906 $ 24,082 - -------------------------------------------------------------------------------------------------------- Earnings per share: Basic $ 1.37 $ 1.09 $ 1.03 $ 0.34 $ 0.21 Diluted $ 1.18 $ 0.94 $ 0.87 $ 0.29 $ 0.19 - -------------------------------------------------------------------------------------------------------- Shares used in the calculation of earnings per share: Basic 129,838 125,430 120,204 115,703 113,137 Diluted 150,661 145,754 141,854 133,004 127,256 - -------------------------------------------------------------------------------------------------------- Cash, cash equivalents and short-term investments $322,948 $223,953 $129,253 $ 92,295 $ 48,430 Working capital $377,723 $291,786 $176,182 $ 95,978 $ 56,045 Total assets $769,492 $556,386 $417,794 $256,133 $178,523 Long-term debt, less current portion $ -- $ -- $ -- $ -- $ 40 Stockholders' equity $631,000 $465,565 $325,425 $178,710 $130,192 - --------------------------------------------------------------------------------------------------------
32 22 FINANCIAL HIGHLIGHTS BY QUARTER
- ---------------------------------------------------------------------------------------- Unaudited (Amounts in thousands, except per share data) - ---------------------------------------------------------------------------------------- Quarter Ended 1998 6/27/98 3/28/98 12/27/97 9/27/97 - ---------------------------------------------------------------------------------------- Net revenues $155,181 $145,039 $135,000 $125,000 - ---------------------------------------------------------------------------------------- Cost of goods sold $ 50,424 $ 47,250 $ 44,550 $ 41,500 Gross margin % 67.5% 67.4% 67.0% 66.8% - ---------------------------------------------------------------------------------------- Operating income $ 70,082 $ 66,242 $ 61,626 $ 57,086 % of net revenues 45.2% 45.7% 45.6% 45.7% - ---------------------------------------------------------------------------------------- Net income $ 49,201 $ 46,150 $ 42,829 $ 39,964 - ---------------------------------------------------------------------------------------- Earnings per share: Basic $ 0.37 $ 0.35 $ 0.33 $ 0.31 Diluted $ 0.33 $ 0.31 $ 0.29 $ 0.26 - ---------------------------------------------------------------------------------------- Shares used in calculation of earnings per share: Basic 131,546 130,510 128,733 128,564 Diluted 150,862 151,223 149,749 150,810 - ---------------------------------------------------------------------------------------- Market price range - High $ 40.62 $ 42.00 $ 38.19 $ 37.50 - Low $ 27.62 $ 28.50 $ 28.50 $ 27.94 - ----------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------- Quarter Ended 1997 6/30/97 3/31/97 12/31/96 9/30/96 - ---------------------------------------------------------------------------------------- Net revenues $117,019 $111,005 $104,686 $101,000 - ---------------------------------------------------------------------------------------- Cost of goods sold $ 39,313 $ 37,437 $ 35,530 $ 33,027 Gross margin % 66.4% 66.3% 66.1% 67.3% - ---------------------------------------------------------------------------------------- Operating income $ 52,992 $ 51,178 $ 48,646 $ 46,129 % of net revenues 45.3% 46.1% 46.5% 45.7% - ---------------------------------------------------------------------------------------- Net income $ 36,865 $ 35,403 $ 33,314 $ 31,392 - ---------------------------------------------------------------------------------------- Earnings per share: Basic $ 0.29 $ 0.28 $ 0.27 $ 0.26 Diluted $ 0.25 $ 0.24 $ 0.23 $ 0.22 - ---------------------------------------------------------------------------------------- Shares used in calculation of earnings per share: Basic 127,610 127,474 124,551 122,150 Diluted 148,652 148,750 144,844 140,768 - ---------------------------------------------------------------------------------------- Market price range - High $ 29.62 $ 28.31 $ 24.12 $ 19.44 - Low $ 22.75 $ 21.06 $ 15.12 $ 10.31 - ----------------------------------------------------------------------------------------
33 23 BOARD OF DIRECTORS AND CORPORATE OFFICERS BOARD OF DIRECTORS John F. Gifford Chairman of the Board, President and Chief Executive Officer James R. Bergman Director General Partner of DSV Partners Robert F. Graham Director Retired Chairman of the Board of Novellus Systems, Inc. B. Kipling Hagopian Director Special Limited Partner of Brentwood Venture Capital Partner, Apple/Oaks Partners LLC Dr. A. R. Frank Wazzan Director Dean of Engineering & Applied Sciences at University of California, Los Angeles CORPORATE OFFICERS John F. Gifford Chairman of the Board, President and Chief Executive Officer Frederick G. Beck Vice President Ziya G. Boyacigiller Vice President Michael J. Byrd Vice President and Chief Financial Officer Tunc Doluca Vice President Anthony C. Gilbert Corporate Secretary Richard C. Hood Vice President Kenneth J. Huening Vice President Carl W. Jasper Corporate Controller and Principal Accounting Officer William N. Levin Vice President Nasrollah Navid, Ph.D. Vice President Pirooz Parvarandeh Vice President Robert F. Scheer Vice President Vijay Ullal Vice President 34 24 CORPORATE DATA STOCKHOLDER INFORMATION INDEPENDENT AUDITORS Ernst & Young LLP San Jose, California LEGAL COUNSEL Morrison & Foerster LLP Palo Alto, California REGISTRAR/TRANSFER AGENT Boston EquiServe Boston, Massachusetts CORPORATE HEADQUARTERS 120 San Gabriel Drive Sunnyvale, California 94086 (408) 737-7600 FORM 10-K A copy of the Company's Form 10-K filed with the Securities & Exchange Commission, without exhibits, is available without charge upon writing to: Stockholder Relations Maxim Integrated Products, Inc. 120 San Gabriel Drive Sunnyvale, California 94086 STOCK LISTING At June 27, 1998, there were approximately 1,233 stockholders of record of the Company's common stock. Maxim common stock is traded on the NASDAQ National Market under the symbol MXIM. The Company has never paid cash dividends on its common stock and has no present plans to do so. ANNUAL MEETING The annual meeting of stockholders will be on Thursday, November 19, 1998 at 11:00 a.m. at the Company's Event Center, 433 Mathilda Avenue, Sunnyvale, California 94086. 35 EX-21 10 LIST OF SUBSIDIARIES 1 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- Maxim Integrated Products England UK Limited Maxim International Inc. Virgin Islands Maxim GmbH Germany Maxim SARL France Maxim Japan Japan Maxim Integrated Products Korea, Inc. Korea Maxim Phil. Operating Corporation Philippines Maxim Phil. Holding Corporation Philippines These Subsidiaries are 100% owned by the Registrant. Maxtek Components Corporation Oregon This Subsidiary is 50% owned by the Registrant. Maxim Phil. Land Corporation Philippines This Subsidiary is 40% owned by the Registrant.
29 EX-23 11 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Maxim Integrated Products, Inc. of our report dated July 31, 1998, included in the 1998 Annual Report to Stockholders of Maxim Integrated Products, Inc. Our audits also included the consolidated financial statement schedule of Maxim Integrated Products, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos.33-57849, 33-72186, 33-54026, 33-44485, 33-37470, 33-37469, 33-34728, and 33-34519) pertaining to the 1993 Incentive Stock Option Plan, the 1983 Supplemental Nonemployee Stock Option Plan, the 1987 Supplemental Stock Option Plan, the 1987 Employee Stock Option Participation Plan, and the 1988 Nonemployee Director Stock Option Plan of our report dated July 31, 1998, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the consolidated financial statement schedule included in this Annual Report (Form 10-K) of Maxim Integrated Products, Inc. /s/ ERNST & YOUNG LLP --------------------------------- Ernst & Young LLP San Jose, California September 24, 1998 EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME AND NOTES THERETO FOR ITS FISCAL YEAR END JUNE 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS AND NOTES IN ITS ANNUAL REPORT ON FORM 10-K. 1,000 12-MOS JUN-27-1998 JUL-01-1997 JUN-27-1998 322,948 0 103,813 (1,892) 44,707 508,015 339,202 (83,749) 769,492 130,292 0 0 0 131 630,869 769,492 560,220 560,220 183,724 183,724 121,460 0 (14,879) 269,915 91,771 178,144 0 0 0 178,144 1.37 1.18 Additional paid in capital, retain earnings and translation. For purposes of this exhibit, Expense means Income.
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