PRE 14A: Preliminary proxy statement not related to a contested matter or merger/acquisition
Published on May 29, 1997
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Microchip Technology Incorporated
---------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
_________________.
(2) Aggregate number of securities to which transaction applies:
_________________.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined:
______________________________________________________________________.
(4) Proposed maximum aggregate value of transaction:
_________________________________.
(5) Total fee paid: ______________.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid: _______________.
(2) Form, Schedule or Registration Statement No.: ________________.
(3) Filing Party: ________________.
(4) Date Filed: __________________.
MICROCHIP
PRELIMINARY
MICROCHIP TECHNOLOGY INCORPORATED
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July 28, 1997
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of Microchip Technology Incorporated, a
Delaware corporation (the "Company"), will be held at 9:00 a.m. local time on
Monday, July 28, 1997, at the Company's facility at 1200 South 52nd Street,
Tempe, Arizona, for the following purposes:
1. To elect directors to serve until the next annual meeting of
stockholders and until their successors are elected and qualified;
2. To vote on a proposed amendment to the Company's Restated
Certificate of Incorporation, as amended, to increase the number of authorized
shares of Common Stock, par value $0.001 per share (the "Common Stock"), from
65,000,000 to 100,000,000;
3. To approve amendments to the Company's 1993 Stock Option Plan to
increase by 2,000,000 the number of shares of Common Stock reserved for issuance
thereunder;
4. To approve an amendment to the Company's Employee Stock Purchase
Plan to increase by 300,000 the number of shares of Common Stock reserved for
issuance thereunder;
5. To ratify the appointment of KPMG Peat Marwick LLP as the
independent auditors of the Company for the fiscal year ending March 31, 1998;
and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on June 2, 1997
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to personally attend the
meeting. To assure your representation at the meeting, however, you are urged to
mark, sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
Sincerely,
C. Philip Chapman
Secretary
Chandler, Arizona
June __, 1997
MICROCHIP
PRELIMINARY
MICROCHIP TECHNOLOGY INCORPORATED
2355 West Chandler Boulevard
Chandler, Arizona 85224-6199
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
VOTING AND OTHER MATTERS
General
The enclosed proxy is solicited on behalf of Microchip Technology
Incorporated, a Delaware corporation (the "Company"), by the Company's board of
directors (the "Board of Directors") for use at the Annual Meeting of
Stockholders to be held at 9:00 a.m. local time on Monday, July 28, 1997 (the
"Meeting"), or at any adjournment thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The Meeting will be held at the Company's facility at 1200 South
52nd Street, Tempe, Arizona.
These proxy solicitation materials were first mailed on or about June
___, 1997, to all stockholders entitled to vote at the Meeting.
Unless otherwise noted, all references in this Proxy Statement to
number of shares of the Company's Common Stock, $0.001 par value per share (the
"Common Stock") and stock option information have been restated to reflect a
3-for-2 stock split of the Common Stock effected on January 6, 1997.
Voting Securities and Voting Rights
Stockholders of record at the close of business on June 2, 1997 (the
"Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, __________ shares of Common Stock were issued and outstanding.
The presence, in person or by proxy, of the holders of a majority of
the total number of shares of Common Stock outstanding on the Record Date
constitutes a quorum for the transaction of business at the Meeting. Each
stockholder voting at the Meeting, either in person or represented by proxy, may
cast one vote per share of Common Stock held on all matters to be voted on at
the Meeting. Assuming that a quorum is present, the affirmative vote of a
majority of the shares of Common Stock present in person or represented by proxy
at the Meeting and entitled to vote is required: (i) to amend the Company's 1993
Stock Option Plan, as proposed; (ii) to amend the Company's Employee Stock
Purchase Plan, as proposed; and (iii) for the ratification of the appointment of
the Company's independent auditors. The affirmative vote of a majority of the
shares of Common Stock outstanding on the Record Date is required to approve the
proposed amendment to the Company's Restated Certificate of Incorporation
PRELIMINARY
(the "Certificate of Incorporation"). In the election of directors, the nominees
receiving the highest number of affirmative votes shall be elected as directors.
Votes withheld from any director are counted for purposes of determining the
presence of a quorum, but have no other effect under Delaware law.
Voting of Proxies
Votes cast in person or by proxy at the Meeting will be tabulated by
the election inspector(s) appointed for the Meeting. When a proxy is properly
executed and returned, the shares it represents will be voted at the Meeting as
directed. Any proxy that is returned using the form of proxy enclosed and which
is not marked as to a particular item will be voted: (i) "FOR" the election of
the nominees set forth in this Proxy Statement; (ii) "FOR" approval of each of
the other matters presented to stockholders in this Proxy Statement; and (iii)
as the proxy holders deem advisable on other matters that may come before the
Meeting. A stockholder may indicate on the enclosed proxy or its substitute that
it is abstaining from voting on a particular matter (an "abstention"). A broker
may indicate on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter (a
"broker non-vote"). Abstentions and broker non-votes are each tabulated
separately. The election inspector(s) will determine whether a quorum is present
at the Meeting. In general, Delaware law provides that a majority of the shares
entitled to vote, present in person or represented by proxy, constitutes a
quorum. Abstentions and broker non-votes of shares that are entitled to vote are
treated as shares that are present in person or represented by proxy for
purposes of determining the presence of a quorum. In determining whether a
proposal has been approved, abstention of shares that are entitled to vote are
treated as present in person or represented by proxy, but not as voting for such
proposal and hence have the same effect as votes against such proposal; broker
non-votes of shares that are entitled to vote are not treated as present in
person or represented by proxy, and hence have no effect on the vote for such
proposal.
Revocability of Proxies
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
Solicitation
The Company will pay all expenses of this solicitation. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for expenses incurred in forwarding solicitation
materials to such beneficial owners. Proxies also may be solicited by certain of
the Company's directors and officers, personally or by telephone or telegram,
without additional compensation. The Company may also, at its sole expense,
retain a proxy solicitation firm to assist in the distribution of proxy
solicitation materials and in the collection of proxies. If so, the Company
believes that the expense will not exceed $15,000.
2
PRELIMINARY
ELECTION OF DIRECTORS
Nominees
A board of five directors is to be elected at the Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for each of the nominees named below. All of the nominees are currently
directors of the Company. In the event that any such nominee is unable or
declines to serve as a director at the time of the Meeting, the proxies will be
voted for any nominee designated by the current Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director at
the Meeting will continue until the next annual meeting of stockholders and
until a successor has been elected and qualified.
The following table sets forth certain information regarding the
nominees for directors of the Company:
Name Age Position(s) Held
- ---- --- ----------------
Steve Sanghi.....................41 Chairman of the Board, President and
Chief Executive Officer
Albert J. Hugo-
Martinez (1)(2)..................51 Director
Jon H. Beedle (1)................64 Director
L.B. Day (2).....................52 Director
Matthew W. Chapman...............46 Director
- ------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Sanghi is currently, and has been since August, 1990, President of
the Company, since October, 1991, Chief Executive Officer and since October,
1993, Chairman of the Board of Directors. He has served as a director of the
Company since August, 1990. He served as the Company's Chief Operating Officer
from August, 1990 through October, 1991 and as Senior Vice President of
Operations from February, 1990 through August, 1990. Mr. Sanghi is also a
director of ADFlex Solutions, Inc., a U.S. supplier of flexible circuit-based
interconnect solutions.
Mr. Hugo-Martinez has served as a director of the Company since
October, 1990. Since March, 1996, he has served as President and Chief Executive
Officer of GTI Corporation, a manufacturer of ISDN and local area network
subcomponents. From 1987 to 1995, he served as President and Chief Executive
Officer of Applied Micro Circuits Corporation, a manufacturer of
high-performance bipolar and bi-CMOS gate arrays.
Mr. Beedle has served as director of the Company since October, 1993.
In 1995, Mr. Beedle retired as President of IN-STAT, Inc., a leading high
technology, market research firm, a position in which he had served since 1981.
Mr. Beedle is also a director of Bell Microproducts, a regional electronics
distributor.
3
PRELIMINARY
Mr. Day has served as a director since December, 1994. Since 1976, he
has served as President of L.B. Day & Company, Inc. (formerly Day-Floren
Associates, Inc.), a management consulting firm specializing in organizational
structure, development and strategic planning.
Mr. Chapman has served as a director since May, 1997. Since 1988, he
has served as Chief Executive Officer and since 1991, he has served as Chairman
of CFI ProServices, Inc., a supplier of integrated software solutions and
services to financial institutions throughout the United States.
Meetings and Committees of the Board of Directors
The Company's By-Laws authorize the Board of Directors to appoint from
among its members one or more committees composed of one or more directors. The
Board of Directors has appointed a standing Audit Committee and a standing
Compensation Committee. The Company does not have a nominating committee or any
committee that performs the functions of a nominating committee. The Audit
Committee is primarily responsible for appointing the Company's independent
accounting firm and for reviewing and evaluating the Company's accounting
principals and its systems of internal controls. The Audit Committee also
reviews the annual financial statements, significant accounting and tax issues
and the scope of the annual audit with the Company's independent auditors. The
Compensation Committee reviews and acts on all matters relating to compensation
levels and benefit plans for the Company's key executives. See "Board
Compensation Committee Report on Executive Compensation," below.
The Board of Directors met five times during the fiscal year ended
March 31, 1997. The Company's Audit Committee met separately twice, and the
Company's Compensation Committee met separately four times, during the fiscal
year ended March 31, 1997.
Director Compensation and Other Information
Director Fees
Directors receive a $10,000 annual retainer, paid in quarterly
installments, and $1,000 per meeting for each regular and special Board of
Directors' meeting. No compensation is paid for telephonic meetings of the Board
of Directors or for meetings of committees of the Board of Directors.
Stock Options
Under the terms of the Company's 1993 Stock Option Plan, non-employee
directors receive stock options to purchase 10,000 shares of Common Stock upon
their first election to the Board of Directors and, for 1996 and earlier years,
options to purchase 5,000 shares of Common Stock at the meeting of the Board of
Directors held immediately following each annual stockholders' meeting.
Commencing with the 1997 Meeting, non-employee directors will receive options to
purchase 5,000 shares of Common Stock as of the first business day of the month
in which the annual stockholders' meeting is held. Following the 1996 annual
meeting of stockholders on July 26, 1996, each of Messrs. Hugo-Martinez, Beedle
and Day were granted options to acquire 5,000 shares of Common Stock at an
4
PRELIMINARY
exercise price of $30.75(1) such options to vest in a series of 12 equal and
successive monthly installments commencing one month after the grant date.
Following his election to the Board of Directors on May 19, 1997, Mr. Chapman
was granted an option to acquire 10,000 shares of Common Stock at an exercise
price of $31.5625 per share. These options vest in a series of 36 equal and
successive monthly installments commencing one month after the grant date.
EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the Company's five other most highly
compensated executive officers whose aggregate annual cash compensation exceeded
$100,000 for services rendered in all capacities to the Company (collectively,
the "Named Executive Officers") for the three fiscal years ended March 31, 1997,
1996 and 1995:
- ------------------------------
(1) Neither the number of shares nor the option exercise price set forth
above have been adjusted to reflect the 3-for-2 stock split of the
Common Stock effected on January 6, 1997. To the extent such options
had not been exercised on January 6, 1997, the number of unexercised
options and the exercise price were adjusted to reflect the 3-for-2
stock split.
5
PRELIMINARY
Summary Compensation Table
- ------------------------------
(1) Includes MICP bonus earned in year shown but not paid until the following
year, and cash bonus payments under the Company's cash bonus plan. See
"Board Compensation Committee Report on Executive Compensation," below for
descriptions of the MICP bonus program and the cash bonus plan.
(2) Except as otherwise noted, consists of: (i) the Company-matching
contribution to the Company's 401(k) retirement savings plan, which were
$3,792 for Mr. Sanghi, $2,706 for Mr. Lanford, $2,689 for Mr. Rigg, $-0- for
Mr. Billington, $1,760 for Mr. Chapman, and $2,285 for Mr. Little; and (ii)
an additional payment by the Company in connection with a split-dollar life
insurance program which is distributable to the individual executive officer
when he is no longer an employee of the Company, in the amount of $268,750
for Mr. Sanghi, $34,561 for Mr. Lanford, $60,851 for Mr. Rigg, $-0- for Mr.
Billington, $60,923 for Mr. Chapman and $31,500 for Mr. Little. See "Board
Compensation Committee Report on Executive Compensation," below for a
description of the split-dollar life insurance program.
6
PRELIMINARY
Compensation Plans
1993 Stock Option Plan (the "Plan")
The Plan is the Company's primary equity incentive program for key
employees, non-employee members of the Board of Directors and independent
contractors who provide valuable services to the Company. The Plan is more fully
discussed below at "Proposal To Amend The Company's 1993 Stock Option Plan."
Employee Stock Purchase Plan (the "Purchase Plan")
The Purchase Plan allows eligible employees of the Company to purchase
shares of Common Stock at semi-annual intervals through periodic payroll
deductions. The purchase price per share for an eligible employee who
participates in the Purchase Plan is the lower of (i) 85% of the fair market
value of a share of Common Stock on the employee's entry date into the
then-current offering period under the Purchase Plan or (ii) 85% of the fair
market value of a share of Common Stock on the semi-annual purchase date. The
Purchase Plan is more fully discussed below at "Proposal To Amend The Company's
Employee Stock Purchase Plan."
Option Grants
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended March 31,
1997:
7
PRELIMINARY
Option Grants in Last Fiscal Year
Option Exercises and Holdings
The following table provides information on option exercises in the
fiscal year ended, and option holdings at, March 31, 1997 by the Named Executive
Officers and the value of such officers' unexercised options at March 31, 1997:
- -------------------------------
(1) Each stock option becomes exercisable over a one-year vesting period, in 12
successive monthly installments commencing on October 21, 1999, and has a
maximum term of 10 years from the date of grant. Vesting may be accelerated
under certain circumstances in connection with an acquisition of the Company
or a change of control. The exercise price may be paid in cash, in shares of
Common Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. See "Proposal to Amend The Company's 1993 Stock Option Plan -
Description of the Plan," below, for a further description of the material
provisions of the Plan.
(2) Each stock option becomes exercisable over a one-year vesting period, in 12
successive monthly installments commencing on July 2, 2000, and has a
maximum term of 10 years from the date of grant. Vesting may be accelerated
under certain circumstances in connection with an acquisition of the Company
or a change of control. The exercise price may be paid in cash, in shares of
Common Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. See "Proposal to Amend The Company's 1993 Stock Option Plan -
Description of the Plan," below, for a further description of the material
provisions of the Plan.
(3) No assurance can be given that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. The rates of appreciation are specified by rules of the
Securities and Exchange Commission (the "SEC") and are for illustrative
purposes only; they do not represent the Company's estimate of future stock
price. Unless the market price of the Common Stock does in fact appreciate
over the option term, no value will be realized from the option grant. The
exercise price of each of the options was equal to the closing sales price
of the Common Stock as quoted on the NASDAQ Stock Market on the date of
grant.
8
PRELIMINARY
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Employment Contracts, Termination of Employment and Change in Control
Arrangements
The Company has not entered into employment contracts with any of the Named
Executive Officers. Each of the Named Executive Officers has entered into an
Executive Officer Severance Agreement (the "Severance Agreement"). The Severance
Agreement provides for the automatic acceleration in vesting of all unvested
stock options upon the first to occur of any of the following events: (i) as of
the date immediately preceding a change of control in the event any such stock
options are or will be terminated or canceled (except by mutual consent) or any
successor to the Company fails to assume and agree to perform all such stock
option agreements at or prior to such time as any such person becomes a
successor to the Company; (ii) as of the date immediately preceding such change
of control in the event the executive does not or will not receive upon exercise
of such executive's stock purchase rights under any such stock option agreement
the same identical securities and/or other consideration as is received by all
other stockholders in any merger, consolidation, sale, exchange or similar
transaction occurring upon or after such change of control; (iii) as of the date
immediately preceding any involuntary termination of such executive occurring
upon or after any such change of control; or (iv) as of the date six months
following the first such change of control, provided that the executive shall
have remained an employee of the Company continuously throughout such six-month
period.
- -------------------------------
(1) Calculated based on $30.00 per share, which was the closing sales price per
share of the Common Stock as quoted on the NASDAQ Stock Market on March 31,
1997, multiplied by the number of applicable shares in-the-money less the
total exercise price for such shares.
(2) Calculated based on the market price per share of the Common Stock at date
of exercise multiplied by the number of options exercised less the total
exercise price of the options exercised.
9
PRELIMINARY
Board Compensation Committee Report on Executive Compensation
The Compensation Committee; General
The Board of Directors maintains a Compensation Committee (the
"Committee") comprised of one or more outside directors. The Committee is
presently comprised of Messrs. Hugo-Martinez and Beedle. The Committee, with
input from Messrs. Day and Sanghi, conducted performance reviews for fiscal
1997, and made compensation decisions for fiscal 1998, with respect to the
Company's executive officers other than Mr. Sanghi. The Committee, with input
from Mr. Day, conducted the performance review for fiscal 1997, and made
compensation decisions for fiscal 1998, with respect to Mr. Sanghi. Mr. Sanghi
does not participate in deliberations relating to his own compensation. Mr.
Chapman was elected to the Board of Directors on May 19, 1997. He did not
participate in any decisions related to fiscal 1997 compensation for the
executive officers and, as of the date of this Proxy Statement, has not
participated in any compensation decisions for fiscal 1998.
The Stock Option Committee
The Board of Directors also maintains a Stock Option Committee
comprised of two or more outside directors. The Stock Option Committee
administers the Plan and determines, within the confines of the Plan, the
timing, amount and vesting of stock options to be granted to the Company's
executive officers. Messrs. Hugo-Martinez and Beedle currently comprise the
Stock Option Committee.
Compensation Policy
The Company bases its compensation policy on a pay-for-performance
philosophy for all corporate officers and key employees. This philosophy
emphasizes variable compensation, primarily by setting base salaries after a
review of average base salary levels of comparable companies in the
semiconductor industry, with an opportunity to enhance total compensation
through various incentives. The Company believes that this philosophy
successfully aligns an executive's total compensation with the Company's
business objectives and performance and the interests of the stockholders, and
serves to attract, retain and reward individuals who contribute both to the
Company's short-term and long-term success. Compensation decisions also include
subjective determinations and a consideration of various factors with the weight
given to a particular factor varying from time to time and in various individual
cases. The Company believes that its overall pay-for-performance philosophy
fosters a team environment among the Company's management that focuses their
energy on achieving the Company's financial and performance objectives,
consistent with the Company's guiding values.
The Committee believes that the overall compensation levels for the
Company's executive officers for fiscal 1997 are consistent with the Company's
pay-for-performance philosophy and are reasonable in light of the Company's
fiscal 1997 performance. Fiscal 1997 was an unusual and unprecedented year in
the semiconductor industry as a whole, which manifested itself in industry-wide
inventory correction activities and an overall industry growth rate of - 6%.
Despite industry conditions, the Company's net sales increased 17% and 38% in
fiscal 1997 and 1996, respectively; its net income increased 17% and 21% in
fiscal 1997 and 1996, respectively; and its return on average equity was 23% and
28% in fiscal 1997 and 1996, respectively.
10
PRELIMINARY
Elements of Compensation
There are currently four major elements of the Company's executive
compensation program: annual base salary, incentive cash bonuses and long term
compensation programs, stock options, and compensation and employee benefits
generally available to all Company employees.
Base Salaries. The Committee establishes annual base salaries for the
Company's executive officers at the beginning of each fiscal year, primarily by
considering the salaries of executive officers in similar positions with
comparably-sized companies (the "Reference Group"). The Reference Group
currently consists of six companies with $300 million to $1.0 billion in annual
sales, market capitalizations of between $400 million and $4.0 billion, and that
operate in recognized market segments, such as logic, memory and mixed-signal,
within the semiconductor industry. Monitoring the Reference Group provides a
stable and continuing frame of reference for reviewing and setting base salary
compensation. The composition of the Reference Group is subject to change from
year to year based on the Committee's assessment of comparability, including the
extent to which the Reference Group reflects changes occurring within the
Company and in the semiconductor industry as a whole. In addition, consistent
with the Company's pay-for-performance philosophy, the Committee reviews the
performance objectives for the Company as a whole for the immediately preceding
fiscal year and the upcoming fiscal year, as well as the performance objectives
for each of the individual officers relative to their respective areas of
responsibility for both periods. Performance objectives are initially developed
by the individual officers, in conjunction with their respective operating
units, and then discussed with and approved by the Chief Executive Officer to
generate the Company's annual operating plan ("AOP"). The Board of Directors
then reviews and approves the AOP. In setting base salaries, the Committee also
considers subjective factors such as an executive's experience and tenure in the
industry and perceived value of the executive's position to the Company as a
whole. After consideration of all of the above-described factors, average base
salaries for the Company's executive officers increased 3.85% in fiscal 1997.
Incentive Cash Bonuses and Long-Term Compensation Programs. Incentive
cash bonuses may be payable to the Company's officers, managers and other key
employees under the Company's Management Incentive Compensation Plan ("MICP").
The Board of Directors approved the MICP for fiscal 1997 as part of the fiscal
1997 AOP at the beginning of fiscal 1997. The MICP is an aggregate bonus pool
derived from a percentage of the Company's annual operating profit. This bonus
pool may then be allocated among the eligible participants based upon the
achievement of individual performance objectives and various subjective
determinations, with no particular weight being assigned to any one factor. The
Board of Directors and the Committee generally give Mr. Sanghi wide discretion
with respect to the designation of employees eligible to participate in the MICP
and the amount of any MICP bonus to be awarded to each participant, including
executive officers other than himself. The Committee determines the amount of
the MICP bonus, if any, to be awarded to Mr. Sanghi. In fiscal 1997,
approximately 214 employees, including the executive officers and the Chief
Executive Officer, participated in the MICP.
In conjunction with the MICP, the executive officers are eligible to
participate in a program designed to provide longer term compensation to the
executive officers. In light of the importance of retaining the executive
officers in the Company's long-term employ and to provide an alternative to
11
PRELIMINARY
immediately taxable cash bonuses, in fiscal 1995 the Committee created a longer
term benefit for key executives in the form of a split-dollar life insurance
program. The split-dollar life insurance program provides key officers with an
incentive to remain in the long-term employ of the Company, an insurance
benefit, and a cash value benefit payable in the future when the executive is no
longer in the Company's employ. The Committee determines what portion of an
executive's overall MICP cash bonus will be paid in cash or into the
split-dollar life insurance program. During fiscal 1997, two of the executive
officers received a cash MICP bonus; all of the MICP bonuses for the other
executive officers, including Mr. Sanghi, were contributed to the split-dollar
life insurance program. See the "Summary Compensation Table" and the footnotes
thereto, above.
Numerous objective and subjective factors were considered in
establishing the total MICP bonus compensation for fiscal 1997, including the
Company's sales and net income growth, and return on equity. MICP bonuses for
fiscal 1997 were paid at the rate of 80% of the total MICP bonus pool
established in the fiscal 1997 AOP. As a result, the average MICP bonus for the
Company's six executive officers, excluding Mr. Sanghi, was approximately 33.7%
of base salary, an increase of approximately 45.6% in fiscal 1997 as compared to
fiscal 1996 when the average MICP bonus for such officers, excluding Mr. Sanghi,
was approximately 24% of base salary. See the "Summary Compensation Table" and
footnotes thereto, above. The Committee believes that the MICP bonus
compensation for fiscal 1997 is consistent with the Company's
pay-for-performance philosophy and is commensurate with the Company's overall
performance, as well as the fiscal 1997 AOP objectives.
Stock Options. The Company believes that executive officers, other
corporate officers and key employees should hold substantial, long-term equity
stakes in the Company so that their collective interests will coincide with the
interests of the stockholders. Thus, stock options constitute a significant
portion of the Company's incentive compensation program. At March 31, 1997,
approximately 56% of the Company's employees worldwide held options to purchase
Common Stock. In granting stock options to executive officers under the Plan,
the Stock Option Committee considers numerous factors, such as the individual's
position and responsibilities with the Company, the individual's future
potential to influence the Company's mid- and long-term growth, the vesting
schedule of the options awarded and the number of options previously granted. A
description of the Plan is set forth below at "Proposal To Amend The Company's
1993 Stock Option Plan." See the table under "Option Grants - Option Grants in
Last Fiscal Year," above, for information regarding options to purchase Common
Stock granted to the Named Executive Officers during fiscal 1997.
As described above, the grant of stock options to employees is a
critical element in the Company's pay-for-performance, variable
compensation-based philosophy that provides a competitive incentive to remain in
the Company's service. In April, 1996, as a response to the Company's
performance in the fourth quarter of fiscal 1996, and that of the semiconductor
industry as a whole, the Company eliminated MICP bonuses for all employees for
the second half of fiscal 1996, and cash bonus plan payments for all employees
for the fourth quarter of fiscal 1996. In light of these actions, the Committee
reviewed the terms of stock option grants to the employee population at large,
excluding the executive officers and non-employee directors. The Committee
determined that a large portion of such grants were of little or no incentive
value to the affected employees because the exercise prices were well in excess
of the then-current value of the Common Stock. The Committee concluded that a
significant and serious competitive disadvantage would result to the Company if
that situation were not remedied. To counteract this competitive disadvantage,
the Committee adopted an option exchange
12
PRELIMINARY
program (the "Exchange Program"). Pursuant to the terms of the Exchange Program,
employees who held options with an exercise price in excess of $30.00 per share
were given the opportunity to exchange those options for a stock option grant
dated April 30, 1996 at an exercise price of $25.50(1) per share. None of the
Company's executive officers or non-employee directors were eligible to
participate in the Exchange Program.
Compensation and Employee Benefits Generally Available to All Company
Employees. The Company maintains compensation and employee benefits that are
generally available to all Company employees, including medical, dental and life
insurance benefits, the Purchase Plan, a 401(k) retirement savings plan, a
supplemental retirement savings plan (an unfunded, non-qualified deferred
compensation plan maintained primarily for the purpose of providing deferral
compensation for a select group of management employees as defined in ERISA
Sections 201, 301 and 401), and a cash bonus plan. The cash bonus plan awards
each eligible employee with up to two and one-half days of pay, based on base
salary, every quarter, if the Company meets certain operating profitability
objectives established by the Board of Directors. For fiscal 1997, each eligible
employee received 85% of the maximum cash bonus payment permitted under the cash
bonus plan.
Chief Executive Officer Compensation
The Committee uses the same factors and criteria described above in
making compensation decisions regarding the Chief Executive Officer. For fiscal
1997, Mr. Sanghi's base salary was increased by 4%. The Committee believes this
is an appropriate increase considering the base salaries of chief executive
officers in the Reference Group, and the Company's sales growth and performance
in an unprecedented and difficult industry environment. Mr. Sanghi's aggregate
MICP bonus for fiscal 1997 was determined after considering numerous objective
and subjective factors, including the Company's performance in an unusual and
unprecedented industry environment as compared to that of the semiconductor
industry as a whole, and resulted in a total MICP bonus payment for fiscal 1997
(which was made as a contribution to the split-dollar life insurance program) of
approximately 78.4% of his base salary. As a result, Mr. Sanghi's fiscal 1997
MICP bonus represented an increase of approximately 62.9% in fiscal 1997 as
compared to fiscal 1996 when Mr. Sanghi's MICP bonus was approximately 50% of
his base salary. See the "Summary Compensation Table" and footnotes thereto,
above. The Committee believes that Mr. Sanghi's fiscal 1997 MICP bonus was (i)
consistent with the Company's pay-for-performance philosophy and is commensurate
with the Company's overall performance, as well as the fiscal 1997 AOP
objectives; and (ii) reasonable based on the Company's overall performance in
fiscal 1997, that performance as compared to the Reference Group and Mr.
Sanghi's leadership and influence over the Company's performance. See the table
under "Option Grants in Last Fiscal Year," above, for information regarding
options to purchase Common Stock granted to Mr. Sanghi during fiscal 1997. The
April 30, 1996 grant became exercisable over a one year vesting period in 12
successive monthly installments commencing October 21, 1999; the July 2, 1996
grant became exercisable over a one year vesting period in 12 successive monthly
installments commencing July 2, 2000. The amount of these grants and the vesting
terms were determined to provide an appropriate long-term incentive for Mr.
Sanghi.
- -------------------------------
(1) For presentation purposes, neither the original exercise price nor the
exercise price of the new option grants have been adjusted to reflect the
3-for-2 stock split of the Common Stock effected on January 6, 1997. To the
extent such options had not been exercised on January 6, 1997, the number of
unexercised options and the exercise price were adjusted to reflect the 3-
for -2 stock split.
13
PRELIMINARY
Deductibility of Executive Compensation
Beginning in 1994, Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), limits the deductibility by the Company for federal
income tax purposes of compensation paid to the Company's Chief Executive
Officer and to each of the Company's other four most highly compensated
executive officers to $1 million each. The Company anticipates that a
substantial portion of each executive officer's compensation will be "qualified
performance-based compensation," that is not limited under Code Section 162(m).
The Committee, therefore, does not currently anticipate that any executive
officer's compensation will exceed that limitation of deductibility in fiscal
1998.
Compensation Committee Interlocks and Insider Participation
The Board of Directors maintains a Compensation Committee, which is
currently comprised of Messrs. Hugo-Martinez and Beedle. Neither of Messrs.
Hugo-Martinez or Beedle had any contractual or other relationship with the
Company during fiscal 1997 except as a director and neither has ever served as
an officer or employee of the Company.
Performance Graph
The following graph shows a comparison of cumulative total stockholder
return for: (i) the Common Stock; (ii) a self-constructed Peer Group Index
comprised of six companies that operate in recognized market segments, such as
logic, memory and mixed-signal, within the semiconductor industry and which have
annual sales between $300 and $1.0 billion and a market capitalization of
between $400 million and $4.0 billion (the "Peer Group"); and (iii) the CRSP
Total Return Index for the NASDAQ Stock Market (U.S.). The Peer Group is
comprised of Altera Corporation, Atmel Corporation, Linear Technology
Corporation, Maxim Integrated Products, Inc., Xilinx, Inc., and Zilog, Inc.
The Peer Group is identical to the Reference Group used by the
Committee in reviewing executive compensation. See "Board Compensation Committee
Report on Executive Compensation."
In preparing the following graph, it was assumed that $100 was invested
in the Common Stock at the initial offering price on March 22, 1993, the date on
which shares of Common Stock were first publicly traded. No cash dividends have
been declared or paid with respect to the Common Stock.
Note that historic stock price performance is not necessarily
indicative of future stock performance.
14
PRELIMINARY
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 27, 1997 by: (i) each director and
nominee for director; (ii) each of the Named Executive Officers; (iii) all
directors and executive officers as a group; and (iv) each person who is
known to the Company to own beneficially more than five percent of the
Common Stock:
- -------------------------------
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in this table
have sole voting and investment power with respect to all shares of Common
Stock.
(2) Includes shares of Common Stock issuable to the identified person pursuant
to stock options and stock purchase rights that may be exercised within 60
days of April 27, 1997. In calculating the percentage of ownership, such
shares are deemed to be outstanding for the purpose of computing the
percentage of shares of Common Stock owned by such person but are not
deemed to be outstanding for the purpose of computing the percentage of
shares of Common Stock owned by any other stockholder.
(3) 140 East 45th Street, 43rd Floor, New York, NY 10017. Information is based
on a Schedule 13G filed with the SEC by The Kaufmann Fund, Inc. dated
January 31, 1997.
(4) 82 Devonshire Street, Boston, Massachusetts 02109. Information is based on
a Schedule 13G filed with the SEC by FMR Corp. dated February 14, 1997.
Various persons have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, Common Stock.
(5) 1255 Drummers Lane, Suite 300, Wayne, Pa 19087. Information is based on a
Schedule 13G filed with the SEC by Pilgrim Baxter & Associates dated
February 14, 1998. Such Schedule 13G indicates that Pilgrim Baxter &
Associates has the sole power to dispose of or direct the disposition of
such Common Stock, but has shared power to vote or to direct the vote of
such Common Stock.
(6) Includes 546,328 shares issuable upon exercise of options. Also includes
312,369 shares held of record by Steve Sanghi and Maria Sanghi as joint
tenants and 201,646 shares held of record by Steve Sanghi and Maria T.
Sanghi as Trustees of Declaration of Trust.
(7) Includes 48,028 shares issuable upon exercise of options.
(8) Includes 22,784 shares issuable upon exercise of options.
(9) Includes 61,588 share issuable upon exercise of options.
(10) Includes 35,765 shares issuable upon exercise of options . Also includes
5,921 shares held of record by Albert J. Hugo-Martinez and S. Gay
Hugo-Martinez as trustees of the Martinez Family Trust.
(11) Includes 39,674 shares issuable upon exercise of options.
(12) Includes 21,042 shares issuable upon exercise of options.
(13) Includes 15,610 shares issuable upon exercise of options. All shares held
of record are held by Mitchell R. Little and Jean E. Little as joint
tenants.
(14) Includes 6,875 shares issuable upon exercise of options.
(15) Includes 278 shares issuable upon exercise of options
(16) Includes 797,694 shares issuable upon exercise of options.
15
PRELIMINARY
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers and
persons who own more than 10% of a class of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
SEC. Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on the Company's review of the copies of such forms
received by it during the fiscal year ended March 31, 1997, and written
representations that no other reports were required, the Company believes that,
except as described below, each person who, at any time during fiscal 1997, was
a director, officer or beneficial owner of more than 10% of the Common Stock,
complied with all Section 16(a) filing requirements. An open market stock
purchase of Common Stock by Mr. Hugo-Martinez in March, 1996 was not timely
reported on a Form 4 for March, 1996. This purchase was reported on Mr.
Hugo-Martinez' Form 4 filed in November, 1996. An open market stock sale by Mr.
Hugo-Martinez in November, 1996 was not timely reported on Mr. Hugo-Martinez'
otherwise timely filed Form 4 for November, 1996. Mr. Hugo-Martinez has reported
the transaction on his timely filed Form 5 for the fiscal year ended March 31,
1997. A sale of shares of Common Stock held by Mr. Billington's employee stock
purchase plan account was inadvertently omitted from his otherwise timely filed
Form 4 for November, 1996. This transaction was reported on Mr. Billington's
timely filed Form 5 for the fiscal year ended March 31, 1997.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Certificate of Incorporation currently provides that the Company is
authorized to issue two classes of stock consisting of 65,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, $0.001 par value per
share. In April, 1997, the Board of Directors authorized an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 100,000,000 shares. At the Meeting, the stockholders are being
asked to approve the proposed amendment. Under the proposed amendment, paragraph
(A) of Article IV of the Certificate of Incorporation would be amended to read
as follows:
"(A) Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, `Common Stock' and
`Preferred Stock.' The total number of shares which the corporation is
authorized to issue is one hundred and five million (105,000,000)
shares. One Hundred Million (100,000,000) shares shall be Common Stock,
par value $0.001 and five million (5,000,000) shares be Preferred
Stock, par value $0.001 per share."
The Company currently has 65,000,000 authorized shares of Common Stock.
As of the Record Date, _________________ shares of Common Stock were issued and
outstanding. In addition, as of the Record Date, and without giving effect to
the proposed amendments to the Plan and the Purchase Plan
16
PRELIMINARY
described in this Proxy Statement, ________________ shares were reserved for
future issuance upon the exercise of outstanding options under the Company's
employee stock option and stock purchase plans.
Purpose and Effect of the Amendment
The Board of Directors believes that it is in the Company's best
interests to increase the number of authorized shares of Common Stock in order
to have additional authorized but unissued shares available for issuance to meet
business needs as they arise. The Board of Directors believes that the
availability of such additional shares will provide the Company with flexibility
to issue Common Stock for possible future financings, stock dividends or
distributions, acquisitions, stock option plans or other proper corporate
purposes which may be identified in the future by the Board of Directors,
without the possible expense and delay of a special stockholders' meeting. The
issuance of additional shares of Common Stock may have a dilutive effect on
earnings per share and, for persons who do not purchase additional shares to
maintain their pro rata interest in the Company, on such stockholders'
percentage voting power.
The authorized shares of Common Stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable, without further action by the Company's
stockholders, except as may be required by applicable law or by the rules of any
stock exchange or national securities association trading system on which the
Common Stock may be listed or traded. Upon issuance, such shares will have the
same rights as the outstanding shares of Common Stock. Holders of Common Stock
have no preemptive rights.
The Company has no arrangements, agreements or understandings at the
present time for the issuance or use of the additional shares of Common Stock
proposed to be authorized. The Board of Directors does not intend to issue any
Common Stock except on terms which the Board of Directors deems to be in the
best interests of the Company and its then existing stockholders. Any future
issuance of Common Stock will be subject to the rights of holders of outstanding
shares of any preferred stock that the Company may issue in the future.
Potential Anti-Takeover Effect
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions that
would make a change of control of the Company more difficult and, therefore,
less likely. Any such issuance of additional Common Stock could have the effect
of diluting the earnings per share and book value per share of the outstanding
shares of Common Stock, and such additional shares could be used to dilute the
stock ownership or voting rights of a person seeking to obtain control of the
Company. Microchip has previously adopted certain measures that may have the
effect of helping to resist an unsolicited takeover attempt, including: (i) a
Preferred Share Rights Agreement dated as of February 13, 1995 (the "Rights
Plan"), providing for the distribution of rights to purchase shares of the
Company's Series A Participating Preferred Stock which rights become exercisable
in the event of certain attempts to acquire control of the Company; (ii)
provisions in the Plan providing for the acceleration of exercisability of
outstanding options in the event of a sale of assets or merger; and (iii)
provisions of the Certificate of
17
PRELIMINARY
Incorporation authorizing the Board of Directors to issue up to 5,000,000 shares
of Preferred Stock with the terms, provisions and rights fixed by the Board of
Directors.
The Board of Directors adopted the Rights Plan in February, 1995 and
issued under the Rights Plan, as a dividend to the holders of Common Stock,
rights to purchase Series A Participating Preferred Stock. The Rights Plan is
designed to protect stockholders against the adverse consequences of partial
takeovers and other abusive takeover tactics which the Board of Directors
believes are not in the best interests of the Company's stockholders. Until
certain contingencies set forth in the Rights Plan occur, each issued and
outstanding share of Common Stock carries such a right and the right is not
separable from the Common Stock. Certain circumstances described in the Rights
Plan (including an attempt to acquire the Company without the approval of the
Board of Directors) may result in the rights becoming rights to purchase shares
of Common Stock of the Company or of the acquiring entity at a fraction of the
market price, thus possibly deterring any such transaction and thus possibly
having an adverse impact on stockholders in the ways described above.
The Rights Plan is embodied in the Preferred Share Rights Agreement
between the Company and Bank One, Arizona, NA, as Rights Agent. A copy of the
Rights Agreement was filed with the SEC on February 14, 1995 as an exhibit to
the Company's Registration Statement on Form 8-A with respect to the rights
covered by the Rights Plan. The foregoing brief description of the Rights Plan
is qualified in its entirety by reference to the text of the Rights Agreement.
In the event rights become exercisable for Common Stock, the Company
might have to issue a substantial number of new shares of Common Stock. Although
under the Rights Plan the Company is not now required to reserve shares of
Common Stock for issuance thereunder, a failure to have sufficient shares
available could result in a delay or failure of implementation of all aspects of
the Rights Plan. An increase in the authorized number of shares of Common Stock
could therefore make a change in control of the Company more difficult by
facilitating the complete operation of the Rights Plan.
Other potential anti-takeover measures are also available to management
and the Board of Directors under the laws of Delaware, where the Company is
incorporated, and Arizona, where the Company is headquartered. Under Delaware
statutes, a change in control may be delayed unless holders of a substantial
percentage of the outstanding voting securities approve the change of control
transaction. Arizona law provides certain protections to ward off or prevent
non-negotiated takeover attempts by third parties. Under Arizona statutes, among
other matters, certain restrictions are placed on the ability of a company to
enter into transactions with interested stockholders (generally those holding
10% or more of a company's stock) unless consented to by the company. Although
the Delaware and Arizona statutes may protect stockholders against partial
takeovers and abusive takeover tactics, the effects of the statutes may
negatively affect the stockholders desiring a change of control in the ways set
forth above.
In addition, the Severance Agreements between the Company and the Named
Executive Officers provide for the automatic acceleration in vesting of all
unvested stock options in the event of certain transactions that result in a
change of control of the Company, which could make a change in control of the
Company less attractive to a potential acquiror. See "Employment Contracts,
Termination of Employment and Change In Control Arrangements," above, for a
description of the terms of the Severance Agreements.
18
PRELIMINARY
Required Vote
The approval of the foregoing amendment to the Certificate of
Incorporation requires the affirmative vote of a majority of the shares of
Common Stock issued and outstanding on the Record Date. The effect of an
abstention is the same as that of a vote against the proposal. If approved by
the stockholders, the proposed amendment to Article IV(A) will become effective
upon the filing of a certificate of amendment to the Certificate of
Incorporation, which will occur as soon as reasonably practicable. If the
proposed amendment is not approved by the stockholders, the Company's authorized
stock will not change.
The Board of Directors recommends that the stockholders vote "FOR" this
proposed amendment to the Certificate of Incorporation to increase the
authorized number of shares of Common Stock.
PROPOSAL TO AMEND THE COMPANY'S 1993 STOCK OPTION PLAN
The Board of Directors has approved an amendment to the Company's 1993
Stock Option Plan (the "Plan"), subject to approval by the stockholders, to
increase the number of shares of Common Stock reserved for issuance thereunder
by 2,000,000 (the "Plan Amendment"). Since the Plan's initial adoption, a total
of 14,897,477 shares of Common Stock (without considering the proposed Plan
Amendment) have been reserved over time for issuance under the Plan. As of the
Record Date, without giving effect to the proposed Plan Amendment, ____________
have been previously issued upon exercise of options, ____________ are currently
subject to outstanding options and __________ are shares with respect to which
options may be granted in the future.
The Plan is intended to promote the best interests of the Company by
providing key employees, non-employee members of the Board of Directors, and
other independent contractors who provide valuable services to the Company with
the opportunity to acquire, or otherwise increase, their equity interest in the
Company as an incentive to remain in service to the Company and to align their
collective interests with those of the stockholders. The proposed Plan Amendment
acknowledges the significant growth of the Company's operations, and the
increase in the number of outstanding shares of Common Stock resulting from the
Company's initial public offering in March, 1993, its three follow-on public
offerings, as well as the Company's four stock splits effected since the Company
went public in March, 1993.
The participation of key employees (including officers) in stock option
plans has always been an essential component of the Company's
pay-for-performance compensation program. See "Board Compensation Committee
Report on Executive Compensation," above. The Board of Directors believes that
the stock option program should continue to function as the Company's key
long-term incentive compensation program. Stock option programs are a standard
employee benefit in the high technology industry in which the Company competes,
enabling these companies to ultimately attract and then retain talented
employees. As a result many other companies, including the Company's
competitors, maintain stock option programs. The Board of Directors believes
that such plans are necessary and important in attracting and retaining
employees with outstanding capabilities and that a serious competitive
disadvantage would result if the Company were unable to continue granting stock
options. Thus, the
19
PRELIMINARY
Board of Directors believes that it is in the best interest of the Company to
increase the number of shares of Common Stock reserved for issuance under the
Plan.
The Board of Directors recommends a vote "FOR" the proposed Plan Amendment.
Description of the Plan
The Plan is the Company's primary equity incentive program. The Plan,
which is a successor plan to the Company's 1989 Stock Option Plan (the "1989
Plan"), was adopted by the Board of Directors in January, 1993 and approved by
the stockholders in February, 1993. Since the Plan's initial adoption and
without giving effect to the proposed Plan Amendment, 14,897,477 shares of
Common Stock have been reserved over time for issuance under the Plan. Of this
total and as of the Record Date, __________ have been previously issued upon
exercise of options, __________ are currently subject to outstanding options and
_________ are shares with respect to which options may be granted in the future.
The Plan is divided into the Discretionary Option Grant Program and the
Automatic Option Grant Program. Option grants under the Discretionary Option
Grant Program may be made to employees (including officers and directors), and
consultants and independent contractors who provide valuable services to the
Company. As of April 25, 1997, the Company's 1,879 employees and its independent
contractors and consultants would have been eligible to participate under the
Plan's Discretionary Option Grant Program. The Plan is administered by the Stock
Option Committee, which is presently comprised of Messrs. Hugo-Martinez and
Beedle.
Options granted under the Discretionary Option Grant Program may be
either incentive stock options meeting the requirements of Code Section 422 or
non-statutory options. If any outstanding option (including options incorporated
from the 1989 Plan) expires or terminates prior to exercise, the shares subject
to that option may become the subject of subsequent grants under the Plan. The
expiration date, maximum number of shares purchasable and the other provisions
of the options granted under the Discretionary Option Grant Program, including
vesting provisions, are established at the time of grant. Options may be granted
for terms of up to 10 years and become exercisable in whole or in one or more
installments at such time as may be determined by the Stock Option Committee
upon the grant of the options. The exercise prices of options are determined by
the Stock Option Committee, but may not be less than 100% of the fair market
value of the Common Stock at the time of the grant for both nonstatutory and
incentive options (in the case of incentive options, 110% if the option is
granted to a stockholder who at the time the option is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its subsidiaries). The per share closing price of the
Common Stock on the NASDAQ Stock Market was $_______ on June __, 1997.
If the Company is acquired by merger, consolidation or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
assumed by the successor corporation or otherwise replaced with a comparable
option will automatically accelerate and become exercisable in full. Any options
so assumed may be accelerated if the optionee's employment is terminated within
a designated period following the acquisition. In connection with a change in
control of the Company by tender offer or proxy contest for board membership,
the Stock Option Committee can accelerate outstanding options.
20
PRELIMINARY
The Stock Option Committee also has authority to extend these acceleration
provisions to one or more outstanding options under the 1989 Plan incorporated
into the Plan.
The Plan's Automatic Option Grant Program provides for the automatic
grant of stock options to non-employee directors, of which there are currently
three. The non-discretionary feature is intended to satisfy the requirements of
rules adopted under the Exchange Act. Under the Automatic Option Grant Program,
options to acquire 5,000 shares of Common Stock are automatically granted to
each non-employee director at the meeting of the Board of Directors held
immediately after each annual meeting of stockholders, with such options to vest
in a series of 12 equal and successive monthly installments commencing one month
after the annual automatic grant date. In addition, new non-employee members of
the Board of Directors receive an automatic grant of options to acquire 10,000
shares of Common Stock on the date of their first appointment or election to the
Board of Directors. Those options become exercisable and vest in a series of 36
equal and successive monthly installments commencing one month after the
automatic grant date. A non-employee member of the Board of Directors is not
eligible to receive the 5,000 share automatic option grant if that option grant
date is within 30 days of such non-employee member receiving the 10,000 share
automatic option grant. If the Company is acquired by merger, consolidation or
asset sale, or in connection with a change in control of the Company by tender
offer or proxy contest for board membership, each outstanding option under the
Automatic Option Grant Program will automatically accelerate and immediately
vest in full.
Options granted under the Plan are nontransferable other than by will
or by the laws of descent and distribution upon the death of the option holder
and, during the lifetime of the option holder, are exercisable only by such
option holder. Termination of employment at any time for cause immediately
terminates all options held by the terminated employee.
The Plan will remain in force until January 19, 2003. The Board of
Directors at any time may suspend, amend or terminate the Plan except that,
without the approval of the affirmative vote of the stockholders, the Board of
Directors may not: (i) increase, except in the case of certain organic changes
to the Company, the maximum number of shares of Common Stock subject to the
Plan; (ii) reduce the exercise price at which options may be granted or the
exercise price for which any outstanding option may be exercised; (iii) extend
the term of the Plan; (iv) change the class of persons eligible to receive
options; or (v) materially increase the benefits accruing to participants under
the Plan. The Board of Directors, however, may amend the Plan from time to time
as it deems necessary in order to meet the requirements of any amendments to
Rule 16b-3 under the Exchange Act without the consent of the stockholders of the
Company.
The grant of options under the Discretionary Option Grant Program,
including grants to the Named Executive Officers, is subject to the discretion
of the Stock Option Committee. As of the date of this Proxy Statement, there has
been no determination by the Stock Option Committee with respect to future
awards under the Plan. Accordingly, future discretionary awards are not
determinable.
The future award of options under the Automatic Option Grant Program to
non-employee directors is subject to the (re)election of such individuals as
directors and the fair market value of the Common Stock on the first business
day of the month in which the annual stockholders' meeting is held.
21
PRELIMINARY
The following table sets forth information with respect to the grant of
options during the fiscal year ended March 31, 1997 to: (i) non-employee
directors; (ii) Named Executive Officers; (iii) all current executive officers
as a group; and (iv) all other employees as a group:
AMENDED PLAN BENEFITS
1993 STOCK OPTION PLAN(1)
-------------------------
- -------------------------------
(1) See also the table under "Option Grants," above.
(2) Represents weighted average per share grant price.
22
PRELIMINARY
On the Record Date, __________ shares of Common Stock were subject to
outstanding options under the Plan.
On the Record Date, __________ shares of Common Stock were subject to
outstanding options under the Plan.
Federal Income Tax Consequences for Stock Options
Certain options granted under the Plan will be intended to qualify as
incentive stock options under Code Section 422. Accordingly, there will be no
taxable income to an employee when an incentive stock option is granted to him
or when that option is exercised. The amount by which the fair market value of
the shares at the time of exercise exceeds the option price generally will be
treated as an item of preference in computing the alternative minimum taxable
income of the optionholder. If an optionholder exercises an incentive stock
option and does not dispose of the shares within either two years after the date
of the grant of the option or one year of the date the shares were transferred
to the optionholder, any gain or loss realized upon disposition will be taxable
to the optionholder as a capital gain or loss. If the optionholder does not
satisfy the applicable holding periods, however, the difference between the
option price and the fair market value of the shares on the date of exercise of
the option will be taxed as ordinary income, and the balance of the gain, if
any, will be taxed as capital gain. If the shares are disposed of before the
expiration of the one-year or two-year periods and the amount realized is less
than the fair market value of the shares at the date of exercise, the employee's
ordinary income is limited to the amount realized less the option exercise price
paid. The Company will be entitled to a tax deduction only to the extent the
option holder has ordinary income upon the sale or other disposition of the
shares.
Options issued under the Plan also may be nonqualified options. The
income tax consequences of nonqualified options are governed by Code Section 83.
Under Code Section 83, the excess of the fair market value of the shares of the
Common Stock acquired pursuant to the exercise of any option over the amount
paid for such stock (hereinafter referred to as "Excess Value") must be included
in the gross income of the optionholder. In calculating Excess Value, fair
market value is generally determined on the date of the acquisition. Generally,
the Company will be entitled to a federal income tax deduction in the same
taxable year that the optionholder recognizes income. The Company will be
required to withhold taxes with respect to income reportable pursuant to Code
Section 83 by an optionholder who is also an employee of the Company. The basis
of the shares acquired by an optionholder will be equal to the option price of
those shares plus any income recognized pursuant to Code Section 83. Subsequent
sales of the acquired shares will produce capital gain or loss. Such capital
gain or loss will be long term if the stock has been held for one year from the
date the substantial risk of forfeiture lapsed, or, if a Section 83(b) election
is made, one year from the date the shares were acquired.
PROPOSAL TO AMEND THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has approved an amendment to the Company's
Employee Stock Purchase Plan (the "Purchase Plan"), subject to approval by the
Company's stockholders, to increase by 300,000 the number of shares of Common
Stock reserved for issuance thereunder. Since the initial adoption of the
Purchase Plan, a total of 3,006,000 shares of Common Stock have been reserved
over time for issuance under the Purchase Plan. Of this amount and as of the
Record Date, 2,826,914 shares have
23
PRELIMINARY
previously been issued, and a total of 179,086 shares are presently available
for future issuance, without giving effect to the proposed amendment.
The Purchase Plan is intended to promote the best interests of the
Company by providing all eligible employees, including officers, who participate
in the Purchase Plan with the opportunity to become stockholders of the Company
by purchasing the Company's Common Stock at discounted prices through payroll
deductions. The Board of Directors believes that the Purchase Plan is an
incentive to employees to remain in the Company's employ, and aligns the
collective interests of employees with those of the stockholders. As of April
25, 1997, approximately ___ employees were eligible for the Purchase Plan, of
whom ___ were participants.
The Board of Directors recommends a vote "FOR" the proposed amendment
to the Purchase Plan.
Description of the Purchase Plan
The Purchase Plan was initially adopted by the Board of Directors in
January, 1993 and approved by the stockholders in March, 1993. Since the
Purchase Plan's initial inception, and without giving effect to the proposed
amendment, 3,006,000 shares of Common Stock has been reserved over time for
issuance under the Purchase Plan.
The Purchase Plan, and the rights of participants to make purchases
thereunder, is intended to qualify under the provisions of Code Sections 421 and
423. See the discussion below under "Federal Income Tax Consequences for
Purchase of Common Stock Under the Purchase Plan," for a summary of the general
rules regarding the federal tax treatment of the purchase and sale of Common
Stock under the Purchase Plan. The Purchase Plan is currently administered by
the Board of Directors. The Board of Directors has full authority to administer
the Purchase Plan, including the authority to interpret and construe any
provision of the Purchase Plan and to adopt such rules and regulations it deems
necessary for administration of the Purchase Plan.
Any person who has been employed by the Company for more than 30 days
and who is customarily employed for more than 20 hours per week and at least
five months per calendar year by the Company is eligible to participate in
offerings under the Purchase Plan. Eligible employees become participants in the
Purchase Plan by delivering to the Company's stock administration department a
subscription agreement authorizing payroll deductions at least 24 hours prior to
the beginning of the applicable offering period, as described below. An employee
who becomes eligible to participate in the Purchase Plan after commencement of
an offering period may not participate in the Purchase Plan until the next
semi-annual entry date. There are a maximum of four semi-annual entry dates
("entry date") within each offering period, which are the first business day of
each March and September within an offering period.
Participation in the Purchase Plan is voluntary and is dependent on
each eligible employee's election to participate and his or her respective
determination as to the level of payroll deductions. Accordingly, future
purchases under the Purchase Plan are not determinable. The following table sets
forth, as to the Named Executive Officers, all current executive officers as a
group and all other employees who participated in the Purchase Plan: (i) the
number of shares of Common Stock purchased
24
PRELIMINARY
under the Purchase Plan during the fiscal year ended March 31, 1997; (ii) the
dollar value of the benefit, which is calculated as the fair market value per
share of the Common Stock on the date of purchase, minus the purchase price per
share of Common Stock under the Purchase Plan; and (iii) the amount of payroll
deductions accumulated through March 31, 1997 for the current offering period
under the Purchase Period which commenced March 1, 1997:
AMENDED PLAN BENEFITS
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
Name of Individual or
Identity of Group and Number of Shares Dollar
Position Purchased Value ($)(1)
- -------------------------------- --------- ------------
Steve Sanghi, Director,
Chairman, President and
Chief Executive Officer 1,830 $ 38,489
Robert A. Lanford,
Vice President, Worldwide Sales 1,591 27,085
George P. Rigg, Vice President,
Advanced Microcontroller
And ASSP Division 1,267 21,678
Timothy B. Billington,
Vice President,
Manufacturing Operations 1,616 28,835
C. Philip Chapman,
Vice President, Chief Financial
Officer and Secretary 1,139 19,542
Mitchell R. Little,
Vice President, Memory
Standard Microcontroller and
ASSP Division 1,341 23,396
All current executive officers
as a group (6 people) 8,784 159,026
All other employees
as a group 229,049 3,788,465
- --------------------------
(1) Calculated as the fair market value per share of the Common Stock on the
date of purchase, minus the purchase price per share of Common Stock under
the Purchase Plan.
25
PRELIMINARY
The Purchase Plan is currently implemented in a series of successive
offering periods, each with a maximum duration of 24 months. Each two-year
offering period is divided into four semi-annual participation periods,
commencing on the first business day of each March and September during the
offering period. Shares are purchased on the last business day of each
semi-annual participation period (a "purchase date") during an offering period.
The purchase price per share for an eligible employee who participates in the
Purchase Plan is the lower of (i) 85% of the fair market value of a share of
Common Stock on the employee's entry date into the then-current offering period
under the Purchase Plan or (ii) 85% of the fair market value of a share of
Common Stock on the semi-annual purchase date.
The second offering period under the Purchase Plan began in March, 1995
and ended on February 28, 1997. The fair market value of the Common Stock on the
first entry date into the Purchase Plan for the second offering period (March 1,
1995) was $16.33 per share; and the fair market value of the Common Stock on the
last day of the second two-year offering period (February 28, 1997) was $24.92
per share. This resulted in a weighted average purchase price of $14.22 for the
second two year offering period.
The third and current offering period under the Purchase Plan began in
March, 1997 and will end on February 28, 1999. The fair market value of the
Common Stock on March 1, 1997 was $24.63 per share.
The purchase price of shares is accumulated by payroll deductions over
the semi-annual participation period. The deductions may not exceed 10% of a
participant's earnings for the semi-annual participation period. A participant
may discontinue his or her participation in the Purchase Plan at any time prior
to five business days before a purchase date during an offering period and may
decrease the rate of payroll deductions at any time during a semi-annual
participation period; provided, however, that the participant may not effect
more than one such reduction during the same semi-annual period of
participation. A participant may not increase his or her rate of payroll
deductions following his or her entry date into the Purchase Plan unless such
increase is made prior to the commencement of the next two-year offering period.
No participant may purchase more than $25,000 in Common Stock annually (based on
the fair market value of a share of the Common Stock on the participant's entry
date into the Purchase Plan) or 13,500 shares of Common Stock per semi-annual
participation period.
If the Company is acquired by merger, consolidation or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition at a price per share equal to 85% of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the offering period or (ii) the fair market value of the Common
Stock immediately prior to such acquisition. A participant's purchase right
terminates automatically in the event that the participant ceases to be an
employee of the Company, and any payroll deductions collected from such
individual during the semi-annual period in which such termination occurs will
be refunded. However, in the event of the participant's disability or death,
such payroll deduction may be applied to the purchase of the Common Stock on the
next semi-annual purchase date.
The Board of Directors may at any time amend, suspend or terminate the
Purchase Plan following the close of any semi-annual purchase period. Following
termination or suspension of the
26
PRELIMINARY
Purchase Plan all outstanding options will automatically terminate. Amendments
to the Purchase Plan or to options thereunder that would adversely affect the
rights of any participant under an option theretofore granted shall only be
effective as to such options if the participant's consent is obtained. No
amendment may be made to the Purchase Plan without approval of the stockholders
of the Company if stockholder approval of such amendment is necessary and
desirable to comply with Code Section 423 or with Rule 16b-3 of the Exchange
Act, or any successor rule.
Federal Income Tax Consequences For Purchase of Common Stock Under the Purchase
Plan
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Code Sections 421 and
423. Under these provisions, no income will be taxable to a participant at the
time of grant of the option or purchase of shares. Upon disposition of the
shares, the participant will generally be subject to tax and the amount of the
tax will depend upon the holding period.
If the shares have been held by the participant for more than two years
after the date of option grant and for more than one year after the date of
purchase, the lesser of (a) the excess of the fair market value of the shares at
the time of such disposition over the purchase price or (b) 15% of the fair
market value of the shares at the date of commencement of the offering period,
will be treated as ordinary income. If the shares are sold and the sale price is
less than the purchase price, there is no ordinary income and the participant
has a capital loss for the difference. If the shares are disposed of before the
expiration of these holding periods, the excess of the fair market value of the
shares on the purchase date over the purchase price will be treated as ordinary
income, and any further gain or loss on such disposition will be long-term or
short-term capital gain or loss, depending on the holding period.
Different rules may apply with respect to participants subject to
Section 16 of the Exchange Act.
The Company is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent of
ordinary income recognized by participants upon dispositions of shares prior to
the expiration of the holding periods described above.
The foregoing is only a brief summary of the effect of federal income
taxation upon the participant and the Company with respect to the shares
purchased under the Purchase Plan, does not purport to be complete, and does not
discuss the tax consequences of a participant's death or the income tax laws of
any municipality, state or foreign country in which a participant may reside.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP ("KPMG"),
independent certified public accountants, to audit the consolidated financial
statements of the Company for the fiscal year ending March 31, 1998 and
recommends that stockholders vote in favor of the ratification of such
appointment. In the event of a negative vote on such ratification, the Board of
Directors will reconsider its selection. The Board of Directors anticipates that
representatives of KPMG will be present at the Meeting, will have the
opportunity to make a statement if they desire, and will be available to respond
to appropriate questions.
27
PRELIMINARY
DEADLINE FOR RECEIPT OF STOCKHOLDERS PROPOSALS
Stockholder proposals that are intended to be presented by such
stockholders at the annual meeting of stockholders of the Company for the fiscal
year ending March 31, 1998 must be received by the Company no later than
________________, 1998 in order to be considered for possible inclusion in the
proxy statement and form of proxy relating to such meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
Dated: June __, 1997
28
APPENDIX A
================================================================================
MICROCHIP TECHNOLOGY INCORPORATED
1993 STOCK OPTION PLAN
AMENDED THROUGH APRIL 25, 1997
================================================================================
TABLE OF CONTENTS
i
ii
TABLE OF CONTENTS
continued
iii
MICROCHIP TECHNOLOGY INCORPORATED
1993 STOCK OPTION PLAN
AMENDED THROUGH APRIL 25, 1997
ARTICLE I
GENERAL
-------
1.1 PURPOSE OF THE PLAN
(a) Amendment. On January 19, 1993, the Board of Directors
(the "Board") of Microchip Technology Incorporated, a Delaware corporation (the
"Corporation") adopted the 1993 Stock Option/Stock Issuance Plan. On April 23,
1993 and September 14, 1993, the Board amended the Plan authorizing additional
available shares of Common Stock. On October 7, 1993, the Board amended and
restated the Plan as stated herein. On April 18, 1994, the Board amended the
Plan authorizing additional available shares of Common Stock, subject to
stockholder approval. On January 20, and April 26, 1995, the Board amended the
Plan authorizing, among other matters, additional available shares of Common
Stock, subject to stockholder approval and the elimination of the stock issuance
portion of the Plan. Any options outstanding under the Plan before this
amendment shall remain valid and unchanged. On April 25, 1997, the Board amended
the Plan authorizing, among other matters, additional available shares of Common
Stock, subject to stockholder approval.
(b) Purpose. This 1993 Stock Option Plan, amended through
April 25, 1997 ("Plan") is intended to promote the interests of the Corporation
by providing (i) key employees (including officers) of the Corporation (or its
parent or subsidiary corporations) who are responsible for the management,
growth and financial success of the Corporation (or its parent or subsidiary
corporations), (ii) non-employee members of the Corporation's Board of Directors
(the "Board") and (ii) consultants and other independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary corporations)
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the corporation as an incentive for them to remain in
the service of the Corporation (or its parent or subsidiary corporations).
(c) Effective Date. The Plan became effective on the first
date on which the shares of the Corporation's common stock are registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Such date is hereby designated as the Effective Date of the Plan. The
effective date
1
of any amendments to the Plan shall be as of the date of Board approval.
Notwithstanding the foregoing, certain amendments referenced herein must be
approved by the stockholders of the Corporation.
(d) Successor to 1989 Plan. This Plan shall serve as the
successor to the Corporation's 1989 Stock Option Plan (the "1989 Plan"), and no
further option grants or stock issuances shall be made under the 1989 Plan from
and after the Effective Date of this Plan. All options outstanding under the
1989 Plan on such Effective Date are hereby incorporated into this Plan and
shall accordingly be treated as outstanding options under this Plan. However,
each outstanding option so incorporated shall continue to be governed solely by
the express terms and conditions of the instrument evidencing such grant, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Corporation's common stock thereunder. All
outstanding unvested share issuances under the 1989 Plan shall continue to be
governed solely by the express terms and conditions of the instruments
evidencing such issuances, and no provision of this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
unvested shares.
(e) Parent/Subsidiaries. For purposes of the Plan, the
following provisions shall be applicable in determining the parent and
subsidiary corporations of the Corporation:
(i) Any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation shall be
considered to be a parent of the corporation, provided each such corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in any other corporation in such
chain.
(ii) Each corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such corporation
(other than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in any other corporation in such
chain.
(f) All references herein to number of shares of Common Stock
have been restated to reflect a 2-for-1 stock split of the Common Stock effected
on September 14, 1993, a 3-for-2 stock split of the Common Stock effected on
April 4, 1994, a 3-for-2 split of
2
the Common Stock effected on November 8, 1994, and a 3-for-2 split of the Common
Stock effected on January 6, 1997.
1.2 STRUCTURE OF THE PLAN
(a) Stock Programs. The Plan shall be divided into two
separate components: the Discretionary Option Grant Program specified in Article
II and the Automatic Option Grant Program specified in Article IV. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article II. Under the Automatic Option
Grant Program, non-employee members of the Board will be automatically granted
options to purchase shares of the Common Stock in accordance with the provisions
of Article IV.
(b) General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles I and V shall apply to the Discretionary
Option Grant Program and the Automatic Stock Grant Program, and shall
accordingly govern the interests of all individuals under the Plan.
1.3 ADMINISTRATION OF THE PLAN
(a) Bifurcation of Administration. The eligible persons under
the Discretionary Option Grant Program shall be divided into two groups and
there shall be a separate administrator for each group. One group shall be
comprised of eligible persons that are "Affiliates." For purposes of the Plan,
the term "Affiliates" shall mean (i) all "executive officers" as that term is
defined in Rule 16a-1(f) promulgated under the Securities and Exchange Act of
1934 as amended (the "1934 Act"), (ii) all directors of the Company, and (iii)
all persons who own 10% or more of the Company's issued and outstanding common
stock. The other group shall be comprised of all eligible persons under the Plan
that are not Affiliates ("Non-Affiliates").
(b) Affiliate Administration. The power to administer the
Discretionary Option Grant Program with respect to eligible persons that are
Affiliates shall be vested with a committee (the "Senior Committee") of two (2)
or more non-employee Board members appointed by the Board. No Board member shall
be eligible to serve on the Senior Committee if such individual has, within the
relevant period designated below, received an option grant or direct stock
issuance under this Plan (not including any option grants made pursuant to the
Automatic Option Grant Program set forth in Article IV) or any other stock plan
of the Corporation (or any parent or subsidiary corporation):
3
(i) for each of the initial members of the Committee,
the period commencing with the Effective Date of the Plan and ending with the
date of his or her appointment to the Senior Committee, or
(ii) for any successor or substitute member, the
twelve-month period immediately preceding the date of his or her appointment to
the Senior Committee or (if shorter) the period commencing with the Effective
Date of the Plan and ending with the date of his or her appointment to the
Senior Committee.
(c) Non-Affiliate Administration. The power to administer the
Discretionary Option Grant Program with respect to eligible persons that are not
Non-Affiliates shall be vested with the Board. The Board, however, may at any
time appoint a committee (the "Employee Committee") of one or more persons who
are members of the Board and delegate to such Employee Committee the power, in
whole or in part, to administer the Discretionary Stock Option Grant Program
with respect to the Non-Affiliates.
(d) Term on Committee. Members of the Senior Committee and the
Employee Committee shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any time. The Board at
any time may terminate the functions of the Employee Committee and reassume all
powers and authority previously delegated to such Committee.
(e) Authority of Plan Administrators. The Board, the Employee
Committee, and the Senior Committee, whichever is applicable, shall each be
referred to herein as a "Plan Administrator." Each Plan Administrator shall have
the authority and discretion, with respect to its administered group, to select
which eligible persons shall participate in the Plan. Unless otherwise required
by law, decisions among members of a Plan Administrator shall be by majority
vote. With respect to each administered group, the applicable Plan Administrator
shall have full power and authority (subject to the express provisions of the
Plan) to establish such rules and regulations as it may deem appropriate for the
proper administration of the Discretionary Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding option grants or stock issuances thereunder as it
may deem necessary or advisable. All decisions made by a Plan Administrator
shall be final and binding on all parties in its administered group who have an
interest in the Discretionary Option Grant Program or any outstanding option
thereunder. The Plan Administrator shall also have full authority to determine,
with respect to the option grants made under the Discretionary Option Program,
the number of shares to be covered by each such grant, the status of the granted
option as either an incentive stock option ("Incentive option") which satisfies
the requirements of Section
4
422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding.
(f) Indemnification. In addition to such other rights of
indemnification as they may have, the members of each Plan Administrator shall
be indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any such member
thereof may be a party, by reason of any action taken or failed to be taken,
under or in connection with the Plan or any rights granted thereunder, and
against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a finding of bad faith.
1.4 ELIGIBLE PERSONS UNDER THE PLAN
(a) Discretionary Option Grant Program. The persons eligible
to participate in the Discretionary Option Grant Program under Article II are as
follows:
(i) officers and other key employees of the
Corporation (or its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the Corporation
(or its parent or subsidiary corporations);
(ii) non-employee members of the Board (excluding
those current members of the Senior Committee); and
(iii) those consultants or other independent
contractors who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
(b) Automatic Option Grant Program. The persons eligible to
participate in the Automatic Option Grant Program shall be limited to
non-employee Board members. A non-employee Board member shall not be eligible to
participate in the Automatic Option Grant Program, however, if such individual
has at any time been in the prior employ of the Corporation (or any parent or
subsidiary corporation). Unless otherwise provided in the Plan, persons who are
eligible under the Automatic Option Grant Program may also be eligible to
receive option grants under the Discretionary Option Grant Program in effect
under this Plan.
5
1.5 STOCK SUBJECT TO THE PLAN
(a) Amendment. Under the Plan, 6,072,227 shares were
originally authorized to be issued under the Plan (constituting 5,565,977
authorized shares under the 1989 Plan and rolled over into this Plan plus
506,250 additional shares authorized by the Board on January 19, 1993). On April
23, 1993, an additional 2,193,750 shares were authorized by the Board, subject
to stockholder approval at the next stockholders' meeting. At that point, the
total available authorized shares were 8,265,977. On September 14, 1993, the
Board authorized the number of shares of Common Stock issuable under the Plan to
be increased by 2,281,500 shares. On April 18, 1994, the Board authorized the
number of shares of Common Stock issuable under the Plan to be increased by
2,925,000 shares. On January 20, 1995 and April 26, 1995, the Board authorized
the number of shares of Common Stock issuable under the Plan to be increased by
1,425,000 shares, subject to Stockholder approval, such that the maximum number
of shares issuable for the term of the Plan shall be as set forth in Section
1.5(b) below.
(b) Available Shares. Shares of the Corporation's common stock
(the "Common Stock") shall be available for issuance under the Plan and shall be
drawn from either the Corporation's authorized but unissued shares of Common
Stock or from reacquired shares of Common Stock, including shares repurchased by
the Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 14,897,477
shares, subject to adjustment from time to time in accordance with the
provisions of this Section 1.5. To the extent one or more outstanding options
under the 1989 Plan which have been incorporated into this Plan (as adjusted for
the 1993 Stock Dividend) are subsequently exercised, the number of shares issued
with respect to each such option shall reduce, on a share-for-share basis, the
number of shares available for issuance under this Plan.
(c) Adjustments for Issuances. Should one or more outstanding
options under this Plan (including outstanding options under the 1989 Plan
incorporated into this Plan) expire or terminate for any reason prior to
exercise in full, then the shares subject to the portion of each option not so
exercised shall be available for subsequent option grant under the Plan. All
share issuances under the Plan, whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent option grants under the Plan. In addition, should the
exercise price of an outstanding option under the Plan (including any option
incorporated from the 1989 Plan) be paid with shares of Common
6
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an outstanding option under the Plan, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised, and not
by the net number of shares of Common Stock actually issued to the option
holder.
(d) Adjustments for Organic Changes. Should any change be made
to the Common Stock issuable under the Plan by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, then appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities and price per share in effect
under each option outstanding under either the Discretionary Option Grant
Program or the Automatic Option Grant Program and (iii) the number and/or class
of securities and price per share in effect under each outstanding option
incorporated into this Plan from the 1989 Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Board shall be final, binding and conclusive. The
amount of options granted automatically under the Automatic Option Grant Program
on the Annual Automatic Grant Date and on the Initial Automatic Grant Date shall
not be adjusted regardless of any organic changes made to the Common Stock
issuable under the Plan.
(e) Limitations on Grants to Employees. Notwithstanding any
other provision herein to the contrary, the following limitations shall apply to
grants of options to Employees:
(i) No employee shall be granted, in any fiscal year
of the Corporation, options to purchase more than three hundred thousand
(300,000) shares.
(ii) In connection with his or her initial
employment, an Employee may be granted options to purchase up to an additional
five hundred thousand (500,000) shares which shall not count against the limit
set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Corporation's
capitalization as described in Section 1.5(d).
(iv) If an option is cancelled in the same fiscal
year of the Corporation in which such option was granted (other than in
connection with a transaction described in Section
7
1.5(d)), the cancelled option will be counted against the limit set forth in
Section 1.5(e)(i). For this purpose, if the exercise price of an option is
reduced, the transaction will be treated as a cancellation of the option and the
grant of a new option.
ARTICLE II
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
2.1 TERMS AND CONDITIONS OF OPTIONS
(a) General. Options granted to eligible persons ("Optionees")
pursuant to the Discretionary Option Grant Program set forth in this Article II
shall be authorized by action of the Plan Administrator and, at the Plan
Administrator's discretion, may be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section 2.2 hereof.
(b) Option Price. The option price per share shall be fixed by
the Plan Administrator in accordance with the following provisions:
(i) The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of such Common Stock on the grant date;
and
(ii) The option price per share of the Common Stock
subject to a non-statutory stock option shall in no event be less than one
hundred percent (100%) of the fair market value of such Common Stock on the
grant date.
(c) Payment of Option Price. The option price shall become
immediately due upon exercise of the option and shall be payable in one of the
following alternative forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the
8
settlement date, sufficient funds to cover the aggregate option price payable
for the purchased shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Corporation in connection with
such purchase and (B) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
For purposes of this Section 2.1(c), the Exercise Date shall be the date on
which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure is utilized in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
(d) Fair Market Value. The fair market value per share of
Common Stock shall be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the NASDAQ
National Market System, the fair market value shall be the closing price per
share on the date in question, as such price is reported by the National
Association of Securities Dealers through the NASDAQ National Market System or
any successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of fair
market value.
(ii) If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the fair market value
shall be the closing selling price per share on the date in question on the
exchange determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(e) Term and Exercise of Options. Each option granted under
this Discretionary Option Grant Program shall be exercisable at such time or
times and during such period as is determined by the Plan Administrator and set
forth in the instrument evidencing the grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option shall be exercisable only by the Optionee
and shall not be assignable or transferable by the
9
Optionee other than by will or by the laws of descent and distribution following
the Optionee's death.
(f) Termination of Service. The following provisions shall
govern the exercise period applicable to any outstanding options held by the
Optionee at the time of cessation of Service or death:
(i) Should an Optionee cease Service for any reason
(including permanent disability as defined in Section 22(e)(3) of the Internal
Revenue Code but not including death) while holding one or more outstanding
options under this Article II, then none of those options shall (except to the
extent otherwise provided pursuant to Section 2.1(g) below) remain exercisable
for more than a ninety (90) day period (or such shorter or longer period
determined by the Plan Administrator and set forth in the instrument evidencing
the grant, but not to exceed twelve (12) months) measured from the date of such
cessation of Service.
(ii) Any option held by the Optionee under this
Article II and exercisable in whole or in part on the date of his or her death
may be subsequently exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such exercise, however, must occur prior to the earlier of six months following
the date of optionee's death or the specified expiration date of the option
term. Upon the occurrence of the earlier event, the option shall terminate and
cease to be outstanding.
(iii) Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the option term.
(iv) During the applicable post-Service exercise
period, the option shall not be exercisable for more than the number of shares
(if any) in which the Optionee is vested at the time of his or her cessation of
Service (less any option shares subsequently purchased by the Optionee prior to
death). Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each such option
shall terminate and cease to be outstanding with respect to any vested shares
for which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at the time of
the Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee is not
otherwise at that time vested.
(v) Should (A) the optionee's service be terminated
for misconduct (including, but not limited to, any act
10
of dishonesty, willful misconduct, fraud or embezzlement) or (B) the Optionee
make any unauthorized use or disclosure of confidential information or trade
secrets of the Corporation or its parent or subsidiary corporations, then in any
such event all outstanding options held by the Optionee under this Article II
shall terminate immediately and cease to be outstanding.
(g) Discretion to Accelerate Vesting. The Plan Administrator
shall have complete discretion, exercisable either at the time the option is
granted or at any time while the option remains outstanding, to permit one or
more options held by the Optionee under this Article II to be exercised, during
the limited post-Service exercise period applicable under Section 2.1(f) above,
not only with respect to the number of vested shares of Common Stock for which
each such option is exercisable at the time of the optionee's cessation of
Service but also with respect to one or more subsequent installments of vested
shares for which the option would otherwise have become exercisable had such
cessation of Service not occurred.
(h) Discretion to Extend Exercise Period. The Plan
Administrator shall also have full power and authority to extend the period of
time for which the option is to remain exercisable following the Optionee's
cessation of Service or death from the limited period in effect under Section
2.1(f) above to such greater period of time as the Plan Administrator shall deem
appropriate. In no event, however, shall such option be exercisable after the
specified expiration date of the option term.
(i) Definitions. For purposes of the foregoing provisions of
this Section 2.1 (and for all other purposes under the Discretionary Option
Grant Program):
(i) The Optionee shall (except to the extent
otherwise specifically provided in the applicable stock option agreement) be
deemed to remain in Service for so long as such individual renders services on a
periodic basis to the Corporation (or any parent or subsidiary corporation) in
the capacity of an Employee, a non-employee member of the Board or an
independent consultant or advisor.
(ii) The Optionee shall be considered to be an
Employee for so long as he or she remains in the employ of the Corporation or
one or more parent or subsidiary corporations, subject to the control and
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
(j) Stockholder Rights. An Optionee shall have no stockholder
rights with respect to any shares covered by the option
11
until such individual shall have exercised the option and paid the option price
for the purchased shares.
(k) Repurchase Rights. The shares of Common Stock acquired
upon the exercise of any Article II option grant may be subject to repurchase by
the Corporation in accordance with the following provisions:
(i) The Plan Administrator shall have the discretion
to authorize the issuance of unvested shares of Common Stock under this Article
II. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.
(ii) All of the Corporation's outstanding repurchase
rights under this Article II shall automatically terminate, and all shares
subject to such terminated rights shall immediately vest in full, upon the
occurrence of any Corporate Transaction under Section 2.3 hereof, except to the
extent: (A) any such repurchase right is expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction or
(B) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
(iii) The Plan Administrator shall have the
discretionary authority, exercisable either before or after the Optionee's
cessation of Service, to cancel the Corporation's outstanding repurchase rights
with respect to one or more shares purchased or purchasable by the Optionee
under this Discretionary Option Grant Program and thereby accelerate the vesting
of such shares in whole or in part at any time.
2.2 INCENTIVE OPTIONS
(a) General. The terms and conditions specified below shall be
applicable to all incentive options ("Incentive Options") granted under this
Article II pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Incentive Options may only be granted to individuals who
are employees of the Corporation. Options which are specifically designated as
"non-statutory" options when issued under the Plan shall not be subject to such
terms and conditions.
12
(b) Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more Incentive Options granted to any Employee under this Plan (or
any other option plan of the Corporation or its parent or subsidiary
corporations) may for the first time become exercisable during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two or more such Incentive Options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options under the
federal tax laws shall be applied on the basis of the order in which such
Incentive Options are granted. Should the number of shares of Common Stock for
which any Incentive Option first becomes exercisable in any calendar year exceed
the applicable One Hundred Thousand Dollar ($100,000) limitation, then that
option may nevertheless be exercised in that calendar year for the excess number
of shares as a non-statutory option under the federal tax laws.
(c) 10% Stockholder. If any individual to whom an Incentive
Option is granted is the owner of stock (as determined under Code Section
424(d)) possessing ten percent (10%) or more of the total combined voting power
of all classes of stock of the Corporation or any one of its parent or
subsidiary corporations, then the option price per share shall not be less than
one hundred and ten percent (110%) of the fair market value per share of Common
Stock on the grant date, and the option term shall not exceed five years,
measured from the grant date.
(d) Application. Except as modified by the preceding
provisions of this Section 2.2, the provisions of Articles I, II and V of the
Plan shall apply to all Incentive Options granted hereunder.
2.3 CORPORATE TRANSACTIONS
(a) Definition. For purposes of this Plan, any of the
following stockholder approved transactions to which the Corporation is a party
shall be considered a "Corporate Transaction":
(i) a merger or consolidation in which the
corporation is not the surviving entity, except for a transaction the principal
purpose of which is to change the State in which the Corporation is
incorporated,
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation, or
13
(iii) any reverse merger in which the Corporation is
the surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities are transferred to person or persons different from those who held
such securities immediately prior to such merger.
(b) Acceleration of Option. Upon the stockholder approval of a
Corporate Transaction, each option which is at the time outstanding under this
Article II shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. However, an outstanding option under this Article II
shall not so accelerate if and to the extent: (A) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof, (B) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the option spread existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option, or (C) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (A) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
(c) Termination of Options. Upon the consummation of the
Corporate Transaction, all outstanding options under this Article II shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.
(d) Adjustments on Assumption or Continuation. Each
outstanding option under this Article II which is assumed in connection with the
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issued
to the option holder, in consummation of such Corporate Transaction, had such
person exercised the option immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the option price payable per
share, provided the aggregate option price payable for such securities shall
remain the same. In addition, the class and number of securities available for
issuance under the Plan following the consummation of the Corporate Transaction
shall be appropriately adjusted.
14
(e) Discretion to Accelerate. The Plan Administrator shall
have the discretion, exercisable either in advance of any actually-anticipated
Corporate Transaction or at the time of an actual Corporate Transaction, to
provide (upon such terms as it may deem appropriate) for the automatic
acceleration of one or more outstanding options granted under the Plan which are
assumed or replaced in the Corporate Transaction and do not otherwise accelerate
at that time, in the event the Optionee's Service should subsequently terminate
within a designated period following the effective date of such Corporate
Transaction.
(f) Plan Not to Affect Corporation. The grant of options under
this Article II shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
2.4 CHANGE IN CONTROL
(a) Definition. For purposes of this Plan, a Change in Control
shall be deemed to occur in the event:
(i) any person or related group of persons (other
than the Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept; or
(ii) there is a change in the composition of the
Board over a period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number) ceases, by
reason of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (a) have been Board members continuously
since the beginning of such period or (b) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (a) who were still in office at the time such
election or nomination was approved by the Board.
(b) Discretion to Accelerate. The Plan Administrator shall
have the discretionary authority, exercisable either in advance of any actually
anticipated Change in Control or at the time of an actual Change in Control, to
provide for the automatic acceleration of one or more outstanding options under
this Article
15
II (and the termination of one or more of the Corporation's outstanding
repurchase rights under this Article II) upon the occurrence of the Change in
Control. The Plan Administrator shall also have full power and authority to
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent termination of the Optionee's Service
within a specified period following the Change in control.
(c) Exercise Rights. Any options accelerated in connection
with the Change in Control shall remain fully exercisable until the expiration
or sooner termination of the option term.
2.5 INCENTIVE OPTIONS.
The exercisability as Incentive Options of any options
accelerated under Sections 2.3 or 2.4 hereof in connection with a Corporate
Transaction or Change in Control shall remain subject to the dollar limitation
of Section 2.2 hereof.
ARTICLE III
RESERVED
--------
ARTICLE IV
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
4.1 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
(a) Amount and Date of Grant. During the term of this Plan,
automatic option grants (the "Automatic Option Grant") shall be made to each
eligible non-employee member of the Board ("Optionee") as follows:
(i) Each year on the Annual Automatic Grant Date an
option to acquire 5,000 shares of Common Stock ("Option Shares") shall be
granted to each eligible non-employee member of the Board for so long as there
are shares of Common Stock available under Section 1.5 hereof. The "Annual
Automatic Grant Date" shall be as of the first business day of the month in
which the Corporation's Annual Stockholders Meeting is held. Notwithstanding the
foregoing, (1) any non-Employee Member of the Board whose term ended as of such
Automatic Grant Date shall not be eligible to receive any automatic option
grants on that Annual Automatic Grant Date and (2) any non-Employee Member of
the Board who has received an Automatic Grant pursuant to Section 4.1(a)(ii) on
the same date as the Annual Automatic Grant Date or within 30 days prior
thereto,
16
shall not be eligible to receive an Automatic Option Grant on that Annual
Automatic Grant Date.
(ii) On the Initial Automatic Grant Date, every new
member of the Board who is an eligible non-Employee and has not previously been
a member of the Board shall be granted an option to acquire 10,000 shares of
Common Stock ("Option Shares") as long as there are shares of Common Stock
available under Section 1.5 hereof. The "Initial Automatic Grant Date" shall be
as of the date that the Optionee was first appointed or elected to the Board.
(b) Exercise Price. The exercise price per share of Common
Stock subject to each automatic option grant made under this Article IV shall be
equal to 100% of the fair market value per share of the Common Stock on the
applicable Automatic Grant Date, as determined in accordance with the valuation
provisions of Section 2.1(d) hereof.
(c) Method of Exercise. In order to exercise an option with
respect to any Option Shares for which an Automatic Option Grant is exercisable
at the time, Optionee (or in the case of an exercise after Optionee's death,
Optionee's executor, administrator, heir or legatee, as the case may be) must
take the following action:
(i) execute and deliver to the Secretary of the
Company a written notice of exercise;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 4.1(d) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the option (if other than the Optionee) has the
right to exercise such option. As soon after the Exercise Date (as defined in
Section 4.1(e) hereof), as practical, the Company shall mail or deliver to or on
behalf of the Optionee (or any other person or persons exercising this option in
accordance herewith) a certificate or certificates representing the shares for
which the option has been exercised in accordance with the provisions of this
Plan. In no event may any option be exercised for any fractional shares.
(d) Payment Price. The exercise price shall be payable in one
of the alternative forms specific below:
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment through a sale and remittance
procedure pursuant to which the non-employee Board member (A) shall provide
irrevocable written instructions to a designated brokerage
17
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares and shall (B) concurrently provide written directives to the Corporation
to deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
(e) Exercise Date. For purposes of this Article IV, the
Exercise Date shall be the date on which written notice of the option exercise
is delivered to the Corporation, and the fair market value per share of Common
Stock on any relevant date under this Article IV shall be determined in
accordance with the provisions of Section 2.1(d) hereof. Except to the extent
the sale and remittance procedure specified above is utilized for the exercise
of the potion, payment of the option price for the purchased shares must
accompany the exercise notice.
(f) Term of Option. Each automatic option grant under this
Article IV shall have a maximum term of ten (10) years measured from the
Automatic Grant Date. Should Optionee's service as a Board member cease for any
reason while an option remains outstanding and unexercised, then the option term
shall immediately terminate and the option shall cease to be outstanding prior
to the Expiration Date in accordance with the following provisions:
(i) The option shall immediately terminate and cease
to be outstanding for any shares of Common Stock for which the option was not
otherwise exercisable at the time of Optionee's cessation of Board service.
(ii) Should Optionee cease, for any reason other than
death, to serve as a member of the Board, then Optionee shall have a six-month
period measured from the date of such cessation of Board service in which to
exercise the options which vested prior to the time of such cessation of Board
service. In no event, however, may any option be exercised after the Expiration
Date of such option.
(iii) Should Optionee die while serving as a Board
member or within six months after cessation of Board service, then the personal
representative of the Optionee's estate (or the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution) shall have the right to exercise any option
for any or all of the shares of Common Stock for which the option is, in
accordance with the provisions of this Plan, exercisable at the time of the
Optionee's cessation of Board service, less any shares subsequently purchased by
the Optionee pursuant to the option prior to death. Such right shall cease to be
exercisable and the option shall accordingly terminate with respect to all
Common Stock
18
available under such option by the earlier of (A) the expiration of the
twelve-month period measured from the date of Optionee's death or (B) the
Expiration Date.
(g) Vesting. Each Automatic Option Grant made pursuant to
Section 4.1(a)(i) shall become exercisable and vest in a series of twelve (12)
equal and successive monthly installments, with the first such installment to
become exercisable one month after the Annual Automatic Grant Date. Each
Automatic Option Grant made pursuant to Section 4.1(a)(ii) shall become
exercisable and vest in a series of 36 equal and successive monthly
installments, with the first such installment to become exercisable one month
after the Initial Automatic Grant Date. Each installment of an option shall only
vest and become exercisable if the Optionee has not ceased serving as a Board
member as of such installment date.
(h) Limited Transferability. Each Automatic Option Grant shall
be exercisable only by Optionee during Optionee's lifetime and shall be neither
transferable nor assignable, other than by will or by the laws of descent and
distribution following Optionee's death.
4.2 CORPORATE TRANSACTION
In the event of stockholder approval of a Corporate
Transaction (as that term is defined in Section 2.3(a)), then all options
granted pursuant to this Article IV (to the extent outstanding at such time, but
not otherwise fully exercisable and vested) shall automatically accelerate and
immediately vest so that the option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable for all
of the Option Shares at the time subject to the option and may thereafter be
exercised for any or all such Option Shares. Upon the consummation of the
Corporate Transaction, the option shall, to the extent not previously exercised,
terminate and cease to be outstanding.
4.3 CHANGE IN CONTROL
All options granted pursuant to an Automatic Option Agreement
under this Article IV (to the extent outstanding, but not otherwise fully
exercisable and vested) shall automatically accelerate in connection with a
Change in Control (as that term is defined in Section 2.4(a)), so that such
option shall, immediately prior to the effective date of such Change in Control,
become fully exercisable for all of the Option Shares at the time subject to
that option and may be exercised for any or all of such Option Shares. The
option shall remain so exercisable until such option has terminated in
accordance with Section 4.1(d) hereof.
19
4.4 MISCELLANEOUS PROVISIONS
(a) Corporation Rights. The Automatic Option Grants shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
(b) Privilege of Stock Ownership. An Optionee shall not have
any of the rights of a stockholder with respect to Option Shares until such
individual shall have exercised the option and paid the option price for the
Option Shares.
ARTICLE V
MISCELLANEOUS
-------------
5.1 AMENDMENT OF THE PLAN AND AWARDS
(a) Board Authority. The Board has complete and exclusive
power and authority to amend or modify the Plan (or any component thereof) in
any or all respects whatsoever. However, no such amendment or modification
shall, without the consent of the Corporation's stockholders, disqualify any
option previously granted under the Plan for treatment as an Incentive Option,
or adversely affect rights and obligations with respect to options at the time
outstanding under the Plan, unless the Optionee or Participant consents to such
amendment. In addition, the Board may not, without the approval of the
Corporation's stockholders, amend the Plan to (i) materially increase the
maximum number of shares issuable under the Plan, except for permissible
adjustments under Section 1.5(d) or extend the term of the Plan, (ii) materially
modify the eligibility requirements for plan participation or (iii) materially
increase the benefits accruing to plan participants.
(b) Options Issued Prior to Stockholder Approval. Options to
purchase shares of Common Stock may be granted under the Discretionary Option
Grant Program and the Automatic Option Grant Program prior to any required
stockholder approvals, provided, any shares actually issued under the Plan are
held in escrow until stockholder approval is obtained. If such stockholder
approval is not obtained within twelve (12) months of the meeting of the Board
approving the Plan or any amendments, then (i) any unexercised options shall
terminate and cease to be exercisable and (ii) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
20
(c) Rule 16b-3 Plan. With respect to persons subject to
Section 16 of the 1934 Act, the Plan is intended to comply with all applicable
conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated
under the 1934 Act. To the extent any revision of the Plan or action by any Plan
Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by such Plan Administrator. In
addition, the Board may amend the Plan from time to time as it deems necessary
in order to meet the requirements of any amendments to Rule 16b-3 without the
consent of the shareholders of the Company.
5.2 TAX WITHHOLDING
(a) General. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of stock options for such shares or the vesting
of such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, State and local income tax and employment tax withholding
requirements.
(b) Shares to Pay for Withholding. A Plan Administrator may,
in its discretion and in accordance with the provisions of this Section 5.2(b)
and such supplemental rules as the Plan Administrator may from time to time
adopt (including the applicable safe-harbor provisions of SEC Rule 16b-3),
provide any or all holders of non-statutory options or unvested shares under the
Plan with the right to use shares of the Corporation's Common Stock in
satisfaction of all or part of the Federal, State and local income tax and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares (the "Taxes"). Such
right may be provided to any such holder in either or both of the following
formats:
(i) Stock Withholding. The holder of the nonstatutory
option or unvested shares may be provided with the election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such non-statutory option or the vesting of such shares, a
portion of those shares with an aggregate fair market value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) Stock Delivery. The Plan Administrator may, in
its discretion, provide the holder of the non-statutory option or the unvested
shares with the election to deliver to the Corporation, at the time the
non-statutory option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than pursuant to the
transaction triggering the Taxes) with an aggregate fair market value equal to
the percentage of the taxes incurred in connection with such option
21
exercise or share vesting (not to exceed one hundred percent (100%)) designated
by the holder.
5.3 EFFECTIVE DATE AND TERM OF PLAN
(a) Effective Date. This Plan, as successor to the
Corporation's 1989 Stock Option Plan, become effective as of the applicable
Effective Date, and no further option grants or stock issuances shall be made
under the 1989 Plan from and after such Effective Date.
(b) Incorporation of 1989 Plan. Each option issued and
outstanding under the 1989 Plan immediately prior to the Effective Date of the
Discretionary Option Grant Program shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder.
(c) Discretion. The option and vesting acceleration provisions
of Article II relating to Corporate Transactions and Changes in Control may, in
the Plan Administrator's discretion, be extended to one or more stock options
which are outstanding under the 1989 Plan on the Effective Date of the
Discretionary Option Grant Program but which do not otherwise provide for such
acceleration.
(d) Termination of Plan. The Plan shall terminate upon the
earlier of (i) January 19, 2003 or (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to the exercise of
options granted under the Plan. If the date of termination is determined under
clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
5.4 USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants under the Plan shall be used for general
corporate purposes.
5.5 REGULATORY APPROVALS
(a) General. The implementation of the Plan, the granting of
any option under the Plan, and the issuance of Common
22
Stock upon the exercise or surrender of the option grants made hereunder shall
be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it, and the Common Stock issued pursuant to it.
(b) Securities Registration. No shares of Common Stock or
other assets shall be issued or delivered under this Plan unless and until there
shall have been compliance with all applicable requirements of Federal and State
securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan,
and all applicable listing requirements of any securities exchange on which
stock of the same class is then listed.
5.6 NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
5.7 MISCELLANEOUS PROVISIONS
(a) Assignment. The right to acquire Common Stock or other
assets under the Plan may not be assigned, encumbered or otherwise transferred
by any Optionee or Participant. The provisions of the Plan shall inure to the
benefit of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate Transaction or otherwise, and the Participants and
Optionees, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
(b) Choice of Law. The provisions of the Plan relating to the
exercise of options and the vesting of shares shall be governed by the laws of
the State of Arizona, as such laws are applied to contracts entered into and
performed in such State.
(c) Plan Not Exclusive. This Plan is not intended to be the
exclusive means by which the Corporation may issue options or warrants to
acquire its shares of Common Stock, stock awards or issuances, or any other type
of award or issuance. To the extent permitted by applicable law, any such other
option, warrants,
23
issuance, or awards may be issued by the Company, other than pursuant to this
Plan, without shareholder approval.
24
EXECUTED as of the 25th day of April, 1997.
MICROCHIP TECHNOLOGY CORPORATION,
a Delaware corporation
By: /s/ Steve Sanghi
------------------------------------
Steve Sanghi
Its: Chairman of the Board,
President and Chief Executive
Officer
Attested by:
/s/ C. Philip Chapman
- ------------------------------------
C. Philip Chapman
Secretary
/s/ Mary Simmons-Mothershed
- ------------------------------------
Mary Simmons-Mothershed
Assistant Secretary
25
APPENDIX B
RESTATED MICROCHIP TECHNOLOGY INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
AS AMENDED THROUGH APRIL 25, 1997
---------------------------------
I. PURPOSE
-------
The Microchip Technology Incorporated Employee Stock Purchase
Plan (the "Plan") is intended to provide eligible employees of the Company and
one or more of its Corporate Affiliates with the opportunity to acquire a
proprietary interest in the Company through participation in a plan designed to
qualify as an employee stock purchase plan under Section 423 of the Code.
II. DEFINITIONS
-----------
For purposes of administration of the Plan, the following
terms shall have the meanings indicated:
Board means the Board of Directors of the Company.
Code means the Internal Revenue Code of 1986, as amended from
time to time.
Company means Microchip Technology Incorporated, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Microchip Technology Incorporated which shall by
appropriate action adopt the Plan.
Common Stock means shares of the Company's common stock, par
value $0.001 per share.
Corporate Affiliate means any parent or subsidiary corporation
of the Company (as determined in accordance with Code Section 424) which is
incorporated in the United States, including any parent or subsidiary
corporation which becomes such after the Effective Date.
Earnings means the sum of the following items of compensation
paid to a Participant by one or more Participating Companies during such
individual's period of participation in the Plan: (i) regular base salary, plus
(ii) any pre-tax contributions made by the Participant to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria benefit program
now or hereafter established by the Company or any Corporate Affiliate plus
(iii) all overtime payments, bonuses, commissions, profit-sharing distributions
and other incentive-type payments. There shall, however, be excluded from the
calculation of such Earnings any and all contributions (other than Code Section
401(k) or Code Section 125 contributions) made on the Participant's behalf by
the Company or one or more Corporate Affiliates under any employee benefit or
welfare plan now or hereafter established.
Effective Date means March 17, 1993, the start date of the
first offering period under the Plan. However, for any Corporate Affiliate which
becomes a Participating Company in the Plan after such date, a subsequent
Effective Date shall be designated with respect to participation by its Eligible
Employees.
Eligible Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to the
Company or any other Participating Company for earnings considered wages under
Section 3121(a) of the Code.
Entry Date means the date an Eligible Employee first joins the
offering period in effect under the Plan. The earliest Entry Date under the Plan
shall be the Effective Date.
Fair Market Value means the fair market value of the Common
Stock on any relevant date under the Plan and shall, for any date following the
initial March 17, 1993 Effective Date, be deemed to be equal to the closing
selling price per share of Common Stock on the date in question, as officially
quoted on the Nasdaq National Market. If there is no quoted selling price for
the date in question, then the closing selling price per share of Common Stock
on the next preceding day for which there does exist such a quotation shall be
determinative of Fair Market Value.
Participant means any Eligible Employee of a Participating
Company who is actively participating in the Plan.
Participating Company means the Company and such Corporate
Affiliate or Affiliates as may be designated from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees.
Semi-Annual Entry Date means the first business day of each
March and September within an offering period in effect under the Plan. However,
the earliest Semi-Annual Entry Date under the Plan shall be the March 17, 1993
Effective Date.
Semi-Annual Period of Participation means each semi-annual
period for which the Participant actually participates in an offering period in
effect under the Plan. There shall be a maximum of four (4) semi-annual periods
of participation within each offering period. Except as otherwise designated by
the Plan Administrator, the first such semi-annual period (which may actually be
less than six (6) months for the initial offering period) shall extend from the
start date of the offering period through the last business day in August;
subsequent semi-annual periods shall then be measured from the first business
day of September and March thereafter to the last business day of February and
August, respectively.
Semi-Annual Purchase Date means the last business day of each
February and August within an offering period on which shares of Common Stock
are automatically purchased for Participants under the Plan.
2
Service means the period during which an individual performs
services as an Eligible Employee and shall be measured from his or her hire
date, whether that date is before or after the Effective Date of the Plan.
III. ADMINISTRATION
--------------
The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two (2) or more non-employee Board members
appointed from time to time by the Board. The Plan Administrator shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties who have an interest in the Plan.
IV. OFFERING PERIODS
----------------
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated in accordance with Article IX.
B. The Plan shall be implemented in a series of successive
offering periods, each to be of a duration of twenty-four (24) months or less as
designated by the Plan Administrator prior to the start date. The initial
offering period will begin on the Effective Date and will end on the last
business day in February 1995. The next offering period shall commence on the
first business day in March 1995, and subsequent offering periods shall commence
as designated by the Plan Administrator.
C. Under no circumstances shall any offering period commence
under the Plan, nor shall any shares of Common Stock be issued hereunder, until
such time as (i) the Plan shall have been approved by the Company's stockholders
and (ii) the Company shall have complied with all applicable requirements of the
Securities Act of 1933 (as amended), all applicable listing requirements of any
securities exchange on which shares of the Common Stock are listed and all other
applicable statutory and regulatory requirements.
D. The Participant shall be granted a separate purchase right
for each offering period in which he/she participates. The purchase right shall
be granted on the Entry Date on which such individual first joins the offering
period in effect under the Plan and shall be automatically exercised in
successive semi-annual installments on the last business day of each February
and August within the remainder of the offering period. Accordingly, each
purchase right may be exercised up to two (2) times each calendar year it
remains outstanding.
E. The acquisition of Common Stock through plan participation
for any offering period shall neither limit nor require the acquisition of
Common Stock by the Participant in
3
any subsequent offering period.
V. ELIGIBILITY AND PARTICIPATION
-----------------------------
A. Each Eligible Employee of a Participating Company shall be
eligible to participate in the Plan in accordance with the following provisions:
- An individual who is an Eligible Employee with at least
thirty (30) days of Service prior to the start date of the offering
period may enter that offering period on the Semi-Annual Entry Date
coincident with such start date or on any subsequent Semi-Annual Entry
Date within that offering period on which he/she remains an Eligible
Employee. The Semi-Annual Entry Date on which such individual first
joins the offering period shall become such individual's Entry Date for
the offering period, and on that date such individual shall be granted
his/her purchase right for the offering period.
- An individual who is not an Eligible Employee with at least
thirty (30) days of Service on the start date of the offering period
may subsequently enter that offering period on the first Semi-Annual
Entry Date on which he/she is an Eligible Employee with thirty (30) or
more days of Service or on any subsequent Semi-Annual Entry Date within
that offering period on which he/she remains an Eligible Employee. The
Semi-Annual Entry Date on which such individual first joins the
offering period shall become such individual's Entry Date for that
offering period, and on that date such individual shall be granted
his/her purchase right for the offering period.
B. To participate for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.
C. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Earnings paid to the Participant during each
Semi-Annual Period of Participation within the offering period, up to a maximum
of ten percent (10%). The deduction rate so authorized shall continue in effect
for the remainder of the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
- The Participant may, at any time during a Semi-Annual Period
of Participation, reduce his/her rate of payroll deduction. Such
reduction shall become effective as soon as possible after the filing
of the requisite reduction form with the Plan Administrator (or its
designate), but the Participant may not effect more than one (1) such
reduction during the same Semi-Annual Period of Participation.
- The Participant may not increase his/her rate of payroll
deduction following
4
his/her Entry Date into the offering period. However, the Participant
may, prior to his/her Entry Date into any new offering period, increase
the rate of his/her payroll deduction by filing the appropriate form
with the Plan Administrator (or its designate). The new rate (which may
not exceed the ten percent (10%) maximum) shall become effective as of
the Participant's Entry Date into the first offering period following
the filing of such form.
Payroll deductions will automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of Section VII below.
VI. STOCK SUBJECT TO PLAN
---------------------
A. The Common Stock purchasable under the Plan shall, solely
in the discretion of the Plan Administrator, be made available from either
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares of Common Stock purchased on the
open market. The total number of shares which may be issued over the term of the
Plan shall not exceed 3,306,000 shares1 (subject to adjustment under Section
VI.B below). However, not more than 990,0002 shares may be issued under the Plan
from and after March 1, 1995, subject to adjustment under Section VI.B below.
B. In the event any change is made to the outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without the
Company's receipt of consideration, appropriate adjustments shall be made by the
Plan Administrator to (i) the class and maximum number of securities issuable
over the term of the Plan and from and after the March 1, 1995 effective date of
this restatement, (ii) the class and maximum number of securities purchasable
per Participant during any one (1) Semi-Annual Period of Participation and (iii)
the class and number of securities and the price per share in effect under each
purchase right at the time outstanding under the Plan. Such adjustments shall be
designed to preclude the dilution or enlargement of rights and benefits under
the Plan.
VII. PURCHASE RIGHTS
---------------
An Eligible Employee who participates in the Plan for a
particular offering period shall have the right to purchase shares of Common
Stock, in a series of successive semi-annual installments during such offering
period, upon the terms and conditions set forth below and shall execute a
purchase agreement embodying such terms and conditions (not inconsistent with
the Plan) as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable at the end of
each Semi-Annual Period of Participation within the offering period at a
purchase price equal to eighty-five percent
- ----------------------------
(1) Adjusted to reflect (i) the 300,000 share increase authorized by the Board
on April 25, 1997, subject to stockholder approval at the 1997 Annual Meeting.
Should this proposed increase not be approved, then the total number of shares
which may be issued over the term of the Plan shall not exceed 3,006,000.
(2) Adjusted to reflect (i) the 300,000 share increase authorized by the Board
on April 25, 1997, subject to stockholder approval at the 1997 Annual Meeting.
Should the proposed increase not be approved then the total number of shares
that may be issued under the Plan from and after March 1, 1995, subject to
adjustment under Section VI.B, below may not exceed 690,000.
5
(85%) of the lower of (i) the Fair Market Value per share on the Participant's
Entry Date into that offering period or (ii) the Fair Market Value per share on
the Semi-Annual Purchase Date on which such Semi-Annual Period of Participation
ends. However, for each Participant whose Entry Date is other than the start
date of the offering period, the clause (i) amount shall in no event be less
than the Fair Market Value of the Common Stock on the start date of that
offering period.
Payment. Payment for the Common Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll deductions.
Such deductions shall begin with the first full payroll period beginning with or
immediately following the Participant's Entry Date into the offering period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from a Participant may be
commingled with the general assets of the Company and may be used for general
corporate purposes.
Number of Purchasable Shares. The number of shares purchasable
per Participant for each Semi-Annual Period of Participation during the offering
period shall be the number of whole shares obtained by dividing the payroll
deductions collected from the Participant during that Semi-Annual Period of
Participation by the purchase price in effect for the Participant for such
period. No Participant may purchase more than Thirteen Thousand Five Hundred
(13,500) shares of Common Stock per Semi-Annual Period of Participation, subject
to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any of its Corporate Affiliates.
Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
five (5) business days of the Semi-Annual Period of Participation,
terminate his/her outstanding purchase right under the Plan by filing
the prescribed notification form with the Plan Administrator (or its
designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and any
payroll deductions collected for the Semi-Annual Period of
Participation in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Semi-Annual Purchase Date. If no such
election is made at the time the purchase right is terminated, then the
deductions collected with respect to the terminated right shall be
refunded as soon as possible.
6
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of a
new purchase agreement and payroll deduction authorization) on or
before his/her scheduled Entry Date into the new offering period.
(iii) If the Participant ceases to remain an Eligible
Employee while his/her purchase right remains outstanding, then such
purchase right shall immediately terminate, and the payroll deductions
collected from such Participant for the Semi-Annual Period of
Participation in which the purchase right so terminates shall be
promptly refunded to the Participant. However, in the event the
Participant's cessation of Eligible Employee status occurs by reason of
his/her death or permanent disability, then such individual (or the
personal representative of the estate of a deceased Participant) shall
have the following election, exercisable at any time prior to the last
five (5) business days of the Semi-Annual Period of Participation in
which such cessation of Eligible Employee status occurs:
- to withdraw all of the Participant's
payroll deductions for such Semi-Annual Period of Participation, or
- to have such funds held for the purchase
of shares on the Semi-Annual Purchase Date immediately following such
cessation of Eligible Employee status.
If a timely election is not made, then the payroll deductions
shall be refunded as soon as possible after the close of such Semi-Annual Period
of Participation. In no event, however, may any payroll deductions be made on
the Participant's behalf following his/her cessation of Eligible Employee
status.
Stock Purchase. Shares of Common Stock shall automatically be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions above) on each Semi-Annual Purchase Date. The purchase
shall be effected by applying each Participant's payroll deductions for the
Semi-Annual Period of Participation ending on such Semi-Annual Purchase Date
(together with any carryover deductions from the preceding Semi-Annual Period of
Participation) to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of purchasable shares set forth above) at the
purchase price in effect for the Participant for such Semi-Annual Period of
Participation. Any payroll deductions not applied to such purchase because they
are not sufficient to purchase a whole share shall be held for the purchase of
Common Stock in the next Semi-Annual Period of Participation. However, any
payroll deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant during
the Semi-Annual Period of Participation shall be promptly refunded to the
Participant.
7
Proration of Purchase Rights. Should the total number of
shares of Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded to such Participant.
Rights as Stockholder. A Participant shall have no stockholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as
practicable after each Semi-Annual Purchase Date, a stock certificate for the
number of shares purchased on the Participant's behalf. Such certificate may,
upon the Participant's request, be issued in the names of the Participant and
his/her spouse as community property or as joint tenants with right of
survivorship. Alternatively, the Participant may request the issuance of such
certificate in "street name" for immediate deposit in a designated brokerage
account.
Assignability. No purchase right granted under the Plan shall
be assignable or transferable by the Participant other than by will or by the
laws of descent and distribution following the Participant's death, and during
the Participant's lifetime the purchase right shall be exercisable only by the
Participant.
Change in Ownership. Should any of the following transactions
(a "Change in Ownership") occur during the offering period:
(i) a merger or other reorganization in which the
Company will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which the
Company is incorporated), or
(ii) a sale of all or substantially all of the Company's
assets in liquidation or dissolution of the Company, or
(iii) a reverse merger in which the Company is the
surviving corporation but in which more than fifty percent (50%) of the
Company's outstanding voting stock is transferred to person or persons
different from those who held the stock immediately prior to such
merger, or
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the effective date of such
Change in Ownership by applying the payroll deductions of each Participant for
the Semi-Annual Period of Participation in which such Change in Ownership occurs
to the purchase of whole shares of Common Stock at eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry
8
Date into the offering period in which such Change in Ownership occurs or (ii)
the Fair Market Value per share of Common Stock immediately prior to the
effective date of such Change in Ownership. However, the applicable share
limitations of Articles VII and VIII shall continue to apply to any such
purchase, and the clause (i) amount above shall not, for any Participant whose
Entry Date for the offering period is other than the start date of that offering
period, be less than the Fair Market Value per share of Common Stock on such
start date.
The Company shall use its best efforts to provide at least ten
(10)-days advance written notice of the occurrence of any such Change in
Ownership, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights in accordance with the
applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
-------------------
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (I) rights to purchase
Common Stock accrued under any other purchase right outstanding under this Plan
and (II) similar rights accrued under other employee stock purchase plans
(within the meaning of Section 423 of the Code) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 worth of stock of the Company or any Corporate Affiliate (determined on
the basis of the value of such stock on the date or dates such rights are
granted the Participant) for each calendar year such rights are at any time
outstanding.
B. For purposes of applying such accrual limitations, the
right to acquire Common Stock pursuant to each purchase right outstanding under
the Plan shall accrue as follows:
(i) The right to acquire Common Stock under each such
purchase right shall accrue in a series of successive semi-annual
installments as and when the purchase right first becomes exercisable
for each such installment on the last business day of each Semi-Annual
Period of Participation for which the right remains outstanding.
(ii) No right to acquire Common Stock under an
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at the rate of
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value on the date or dates
such rights are granted) for each calendar year those rights are at any
time outstanding.
(iii) If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular
Semi-Annual Period of Participation, then the payroll deductions which
the Participant made during that Semi-Annual Period of Participation
with respect to such purchase right shall be promptly
9
refunded.
C. In the event there is any conflict between the provisions
of this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
-------------------------
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Semi-Annual Period of Participation. However, the
Board may not, without the approval of the Company's stockholders:
(i) materially increase the number of shares issuable
under the Plan or the maximum number of shares purchasable per
Participant during any one Semi-Annual Period of Participation, except
that the Plan Administrator shall have the authority, exercisable
without such stockholder approval, to effect adjustments to the extent
necessary to reflect changes in the Company's capital structure
pursuant to Section VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
B. The Company shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Semi-Annual Period
of Participation. Should the Company elect to exercise such right, then the Plan
shall terminate in its entirety. No further purchase rights shall thereafter be
granted or exercised, and no further payroll deductions shall thereafter be
collected, under the Plan.
X. DISPOSITION OF SHARES
---------------------
A. The Plan Administrator may, in its absolute discretion,
impose, as a condition to the issuance of the shares of Common Stock purchased
under the Plan, the requirement that each Participant provide the Company with
prompt notice of any transfer or other disposition of those shares which is
effected within two (2) years after Participant's Entry Date into the offering
period in which the shares were purchased or within one year after the
Semi-Annual Purchase Date on which those shares were in fact purchased. The Plan
Administrator may further require the certificate evidencing such shares to be
endorsed with a legend indicating the existence of such notice requirement and
impose appropriate stop transfer orders with respect to such certificate in the
absence of such notice.
10
B. The Company shall not record on its books of record any
transfer or other disposition of the shares of Common Stock issued under the
Plan which is not effected in compliance with the foregoing notice requirement.
Moreover, the Company may impose, as a condition to the recordation of such
transfer or disposition, the requirement that the Participant satisfy all
Federal, state and local income and employment tax withholding obligations
applicable to such transfer or disposition.
XI. GENERAL PROVISIONS
------------------
A. The Plan became effective on the March 17, 1993 Effective
Date.
B. The March 1, 1995 restatement incorporated a series of
amendments to the Plan authorized by the Board in January, 1995 to effect the
following changes to the Plan: (i) allow Eligible Employees to join an offering
period on any Semi-Annual Entry Date within that offering period, (ii) prohibit
Participants from increasing their rate of payroll deduction under the Plan
after their Entry Date into a particular offering period, (iii) obligate
Participants to notify the Company of any disqualifying disposition (as defined
in Code Section 423) of the shares they acquire under the Plan and (iv) and
increase in the number of shares of Common Stock available for issuance over the
term of the Plan.
C. The Plan shall terminate upon the earlier of (i) the last
business day in February 2003 or (ii) the date on which all shares available for
issuance under the Plan shall have been sold pursuant to purchase rights
exercised under the Plan.
D. All costs and expenses incurred in the administration of
the Plan shall be paid by the Company.
E. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.
F. The provisions of the Plan shall be governed by the laws of
the State of Arizona without resort to that State's conflict-of-laws rules.
11
Schedule A
----------
Companies Participating in
Employee Stock Purchase Plan
As of April 25, 1997
-------------------
Microchip Technology Incorporated
12