0000912057-02-031739.txt : 20020814 0000912057-02-031739.hdr.sgml : 20020814 20020813213516 ACCESSION NUMBER: 0000912057-02-031739 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED DEVICE TECHNOLOGY INC CENTRAL INDEX KEY: 0000703361 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942669985 STATE OF INCORPORATION: DE FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12695 FILM NUMBER: 02731522 BUSINESS ADDRESS: STREET 1: 2975 STENDER WAY CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4087276116 MAIL ADDRESS: STREET 1: 2975 STENDER WAY CITY: SANTA CLARA STATE: CA ZIP: 95054 10-Q 1 a2086462z10-q.htm 10-Q
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FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002
OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 0-12695

INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		94-2669985 (I.R.S. Employer Identification No.)
2975 STENDER WAY, SANTA CLARA, CALIFORNIA (Address of Principal Executive Offices)		95054 (Zip Code)

Registrant's Telephone Number, Including Area Code: (408) 727-6116

NONE

Former name, former address and former fiscal year (if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of July 23, 2002, was approximately 103,322,400.

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)

		Three months ended
		Jun. 30, 2002			Jul. 1, 2001
Revenues		$	91,812		$	115,908
Cost of revenues			57,003			71,933
Restructuring, asset impairment and other			—			2,301

Gross profit			34,809			41,674

Operating expenses:
	Research and development		30,241			33,073
	Selling, general and administrative		20,426			23,968
	Acquired in-process research and development		—			16,000
	Amortization of intangibles		156			1,681

Total operating expenses			50,823			74,722

Operating loss			(16,014	)		(33,048	)
Interest expense			(131	)		(655	)
Interest income and other, net			5,923			11,729

Loss before income taxes			(10,222	)		(21,974	)
Benefit from income taxes			(2,632	)		(485	)

Net loss		$	(7,590	)	$	(21,489	)

Basic net loss per share		$	(0.07	)	$	(0.20	)
Diluted net loss per share		$	(0.07	)	$	(0.20	)
Weighted average shares:
	Basic		104,232			104,944
	Diluted		104,232			104,944

The accompanying notes are an integral part of these condensed consolidated financial statements.

INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS)

		Jun. 30, 2002			Mar. 31, 2002
ASSETS
Current assets:
	Cash and cash equivalents	$	240,836		$	256,172
	Short-term investments		376,657			418,228
	Restricted investments		50,558			—
	Accounts receivable, net		36,362			40,067
	Inventories, net		78,351			78,247
	Deferred tax assets		75,380			74,874
	Prepayments and other current assets		23,428			19,787

Total current assets			881,572			887,375
Property, plant and equipment, net			204,276			221,499
Goodwill and other intangibles, net			56,339			57,281
Other assets			39,574			59,664

TOTAL ASSETS		$	1,181,761		$	1,225,819

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	17,871		$	18,342
	Accrued compensation and related expenses		16,374			14,068
	Deferred income on shipments to distributors		29,494			36,443
	Income taxes payable		18,897			21,863
	Other accrued liabilities		28,051			29,173

Total current liabilities			110,687			119,889
Long-term obligations			49,446			51,221

Total liabilities			160,133			171,110
Stockholders' equity:
	Common stock and additional paid-in capital		797,556			794,068
	Deferred stock compensation		(4,515	)		(5,043	)
	Treasury stock		(170,123	)		(140,308	)
	Retained earnings		401,069			408,659
	Accumulated other comprehensive loss		(2,359	)		(2,667	)

Total stockholders' equity			1,021,628			1,054,709

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,181,761		$	1,225,819

The accompanying notes are an integral part of these condensed consolidated financial statements.

INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)

		Three months ended
		Jun. 30, 2002			Jul. 1, 2001
OPERATING ACTIVITIES
Net loss		$	(7,590	)	$	(21,489	)
Adjustments:
	Depreciation and amortization		19,422			23,961
	Amortization of intangible assets		942			2,467
	Acquired in-process research and development		—			16,000
	Merger-related stock compensation		495			1,082
	Loss (gain) on sale of property, plant and equipment		41			(212	)
Changes in assets and liabilities:
	Accounts receivable		3,705			49,751
	Inventories		(104	)		(1,259	)
	Prepayments and other assets		1,196			(286	)
	Accounts payable		(471	)		(18,035	)
	Accrued compensation and related expenses		2,306			(28,804	)
	Deferred income on shipments to distributors		(6,949	)		(21,314	)
	Income taxes payable		(2,966	)		(4,703	)
	Other accrued liabilities		(825	)		(2,154	)

NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES			9,202			(4,995	)

INVESTING ACTIVITIES
	Purchases of property, plant and equipment		(7,785	)		(9,604	)
	Proceeds from sales of property, plant and equipment		157			1,317
	Acquisition, net of acquired cash		—			(74,249	)
	Purchases of marketable securities		(64,360	)		(206,655	)
	Proceeds from sales and maturities of marketable securities		105,000			117,535
	Purchases of other investments		(30,000	)		—

NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES			3,012			(171,656	)

FINANCING ACTIVITIES
	Issuance of common stock, net		3,522			7,288
	Repurchases of common stock		(29,815	)		(19,035	)
	Payments on capital leases and other debt		(1,257	)		(8,390	)

NET CASH USED FOR FINANCING ACTIVITIES			(27,550	)		(20,137	)

Net decrease in cash and cash equivalents			(15,336	)		(196,788	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			256,172			397,709

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	240,836		$	200,921

The accompanying notes are an integral part of these condensed consolidated financial statements.

INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Integrated Device Technology, Inc. (IDT or the Company) contain all normal adjustments which are, in the opinion of management, necessary to present fairly the interim financial information included therein.

These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended March 31, 2002. The results of operations for the three-month period ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. Certain prior-period amounts have been reclassified to conform to the current presentation.

Note 2—Loss Per Share

Loss per share has been computed using weighted-average common shares outstanding in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."

Net loss per share for the three month periods ended June 30, 2002 and July 1, 2001 is based only on weighted average shares outstanding. Incremental shares related to the assumed exercise of stock options for the three months ended June 30, 2002 and July 1, 2001 of 3.0 million and 4.0 million, respectively, have been excluded, as their effect would be antidilutive. Total stock options outstanding, including antidilutive options, were 18.6 million and 15.3 million at June 30, 2002 and July 1, 2001, respectively.

Note 3—Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and associated asset retirement costs. Adoption of SFAS No. 143 is required during IDT's fiscal 2004. The Company does not expect adoption to have a material impact on its financial position or results of operations.

On April 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption did not have a significant effect on the Company's financial position and results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

Note 4—Cash Equivalents and Investments

Cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase. All of the Company's investments are classified as available for sale at June 30, 2002 and March 31, 2002. Available-for-sale investments are classified as short-term investments, as these investments generally consist of highly marketable securities that are intended to be available to

meet current cash requirements. Investment securities classified as available-for-sale are reported at market value, and net unrealized gains or losses are recorded in accumulated comprehensive income, a separate component of stockholders' equity, until realized. Realized gains and losses on non-equity investments are computed based upon specific identification and are included in interest income and other, net. Management evaluates investments on a regular basis to determine if an other-than-temporary impairment has occurred. See Note 14 regarding restricted investments.

Note 5—Inventories, Net

Inventories (net of reserves of $77.2 million and $84.3 million at June 30, 2002 and March 31, 2002, respectively) are summarized as follows:

*(in thousands)*	Jun. 30, 2002		Mar. 31, 2002
Raw materials	$	4,606	$	4,262
Work-in-process		59,816		62,109
Finished goods		13,929		11,876

Total inventories, net	$	78,351	$	78,247

Note 6—Business Combination

On April 18, 2001, the Company acquired Newave Semiconductor Corp. (Newave), a privately held designer and marketer of integrated circuits for the telecommunications market. The Company paid approximately $73.2 million in cash and issued options to purchase approximately 0.47 million shares of IDT stock in exchange for outstanding employee options to acquire Newave stock.

The Newave combination was accounted for as a purchase. The total purchase price for Newave was $75.5 million, which was comprised of the following:

*(in thousands)*
Cash price	$	73,235
Less: contingent consideration		(2,422	)
Fair value of options assumed		13,214
Deferred stock compensation		(10,257	)
Direct costs of acquisition		1,685

Total purchase price	$	75,455

Deferred Stock Compensation. The intrinsic value of the options assumed as part of the Newave transaction and not vested as of the closing date was recorded as deferred compensation to be amortized over the respective vesting periods of the options. A total of $0.5 million and $1.1 million of stock-based compensation expense was recorded in the first quarters of fiscal 2003 and 2002, respectively.

The total purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed based on independent appraisals and management estimates as follows:

*(in thousands)*
Fair value of tangible net assets acquired	$	2,291
In-process research and development		16,000
Existing technology		22,000
Other identified intangibles		3,150
Deferred taxes		(9,985	)
Excess of purchase price over net assets acquired		41,999

Total purchase price	$	75,455

Acquired In-Process Research and Development. The Company recorded a $16.0 million charge to in-process research and development during the first quarter of fiscal 2002. The amount was determined by identifying research projects which had not yet proven to be technically feasible and did not have alternative future uses. Estimated future expenses were deducted and economic rents charged for the use of other assets. Based on this analysis, a present value calculation of estimated after-tax cash flows attributable to the projects was computed using a discount rate of 30%. Present values were adjusted by factors representing the percentage of completion for each project, which ranged from 24% to 85%.

Goodwill and Other Intangible Assets. See Note 7.

Note 7—Goodwill and Other Intangible Assets

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on April 1, 2002 and, in accordance with the standard, ceased to amortize goodwill as of the beginning of fiscal 2003. Goodwill is reviewed annually for impairment (or more frequently if indicators of impairment arise). The Company will complete the transitional impairment assessment required under SFAS No. 142 by the end of fiscal 2003.

In connection with the adoption of SFAS No. 142, the balance of the in-place workforce intangible, which no longer met the definition of an identifiable intangible asset, was reclassified to goodwill as of April 1, 2002. The amount reclassified was $0.3 million.

Goodwill and identified intangible assets relate to the Company's acquisition of Newave Semiconductor Corp. in April 2001 (see Note 6) and are allocable in their entirety to the Company's

Communications and High Performance Logic segment. Balances as of June 30, 2002 and March 31, 2002 are summarized as follows:

	Jun. 30, 2002
*(in thousands)*	Gross assets		Accumulated amortization			Net assets
Goodwill	$	36,299	$	—		$	36,299

Identified intangible assets:
Existing technology		22,000		(3,930	)		18,070
Trademark		2,100		(375	)		1,725
Non-compete agreement		650		(405	)		245

Subtotal, identified intangible assets		24,750		(4,710	)		20,040

Total goodwill and identified intangible assets	$	61,049	$	(4,710	)	$	56,339

	Mar. 31, 2002
*(in thousands)*	Gross assets		Accumulated amortization			Net assets
Goodwill	$	41,999	$	(6,000	)	$	35,999

Identified intangible assets:
Existing technology		22,000		(3,144	)		18,856
Trademark		2,100		(300	)		1,800
In-place workforce		400		(100	)		300
Non-compete agreement		650		(324	)		326

Subtotal, identified intangible assets		25,150		(3,868	)		21,282

Total goodwill and identified intangible assets	$	67,149	$	(9,868	)	$	57,281

Amortization expense for goodwill and identified intangibles is summarized below:

	Three months ended
*(in thousands)*	Jun. 30, 2002		Jul. 1, 2001
Goodwill, including in-place workforce	$	—	$	1,525
Existing technology		786		786
Other identified intangibles		156		156

Total	$	942	$	2,467

The amounts allocated to existing technology are being amortized over an estimated useful life of seven years. Other identified intangibles are being amortized over estimated useful lives of two to seven years. Estimated future amortization expense is $2.8 million for the remaining nine months of fiscal 2003. For fiscal 2004 through 2008, estimated future amortization expense is $3.4 million per year.

A reconciliation of the Company's net loss and net loss per share, as reported, to pro forma amounts exclusive of goodwill amortization is as follows:

	Three months ended
*(in thousands)*	Jun. 30, 2002			Jul. 1, 2001
Net loss, as reported	$	(7,590	)	$	(21,489	)
Goodwill amortization, including in-place workforce		—			1,525

Adjusted net loss	$	(7,590	)	$	(19,964	)

Net loss per share, as reported	$	(0.07	)	$	(0.20	)
Goodwill amortization, including in-place workforce		—			0.01

Adjusted net loss per share	$	(0.07	)	$	(0.19	)

Note 8—Other Assets

Included in other assets is an interest-bearing financial instrument in the amount of $30.0 million, which under certain circumstances is either repayable, potentially including a premium, or convertible into preferred shares of a private, technology company. Prior to repayment or conversion, the financial instrument bears interest at a rate of 2.9% per annum.

Note 9—Debt

In the first quarter of fiscal 2002, the Company repaid the mortgage related to its Salinas, Calif. wafer manufacturing facility. The Company paid approximately $5.7 million, including a 5% prepayment premium, to repay the debt.

Note 10—Restructuring and Asset Impairment

During fiscal 2002, the Company recorded approximately $26.0 million in asset impairment and restructuring charges as a result of poor business conditions in the semiconductor industry. Included in these charges were $2.5 million in expenses related to restructuring actions, consisting mainly of reductions in force, which were recorded in the first quarter of fiscal 2002.

Also in fiscal 2002, the Company announced plans to consolidate its wafer manufacturing operations. Production at the Salinas, Calif. manufacturing facility was phased out during the first quarter of fiscal 2003 and successfully transferred to the Company's Hillsboro, Ore. facility. Approximately 180 Salinas-based positions were eliminated during the first quarter of fiscal 2003 and an additional 80 personnel currently engaged in shutdown and disposal activities are expected to be terminated during the remainder of fiscal 2003.

Reserve balances related to these actions and charges are summarized in the table below:

*(in thousands)*	Severance and other termination benefits			Asset impairment		Other exit costs		Total
Balance, March 31, 2002	$	3,867		$	—	$	—	$	3,867
Cash payments		(2,001	)		—		—		(2,001	)

Balance, June 30, 2002	$	1,866		$	—	$	—	$	1,866

Assets held for sale in the amount of $5.4 million, representing the estimated net realizable value of the Salinas manufacturing assets, are included in prepayments and other current assets as of June 30, 2002. The Company plans to reassess the carrying value of these assets on a quarterly basis until they are sold or otherwise disposed of. Because of fluctuating market conditions for older wafer fabrication facilities and equipment, adjustments in future periods may be necessary.

Note 11—Comprehensive Loss

The components of comprehensive loss were as follows:

*(in thousands)*	Jun. 30, 2002			Jul. 1, 2001
Net loss	$	(7,590	)	$	(21,489	)
Currency translation adjustments		950			(62	)
Change in unrealized gain or loss on derivatives, net of taxes		(81	)		114
Net gain (loss) on investments, net of taxes		(561	)		21,250

Comprehensive loss	$	(7,282	)	$	(187	)

The components of accumulated other comprehensive loss were as follows:

*(in thousands)*	Jun. 30, 2002			Mar. 31, 2002
Cumulative translation adjustments	$	(1,702	)	$	(2,652	)
Unrealized gain (loss) on derivatives		(79	)		2
Unrealized loss on investments		(578	)		(17	)

Total accumulated other comprehensive loss	$	(2,359	)	$	(2,667	)

Note 12—Derivative Instruments

As a result of its significant international operations, sales and purchase transactions, the Company is subject to risks associated with fluctuating currency exchange rates. The Company uses derivative financial instruments, principally currency forward contracts, to attempt to minimize the impact of currency exchange rate movements on its operating results and on the cost of capital equipment purchases. The Company does not enter into derivative financial instruments for speculative or trading purposes. The Company's major foreign currency exchange exposures and related hedging programs are described below.

Forecasted transactions. The Company uses currency forward contracts to hedge exposures related to forecasted sales denominated in Japanese yen. These contracts are designated as cash flow hedges when the transactions are forecasted and in general closely match the underlying forecasted transactions in duration. The contracts are carried on the balance sheet at fair value and the effective portion of the contracts' gains and losses is recorded as other comprehensive income until the forecasted transaction occurs.

If the underlying forecasted transactions do not occur, or it becomes probable that they will not occur, the gain or loss on the related cash flow hedge is recognized immediately, in other income. For the first three months of fiscal 2003 and 2002, the Company did not record any gains or losses related to forecasted transactions that did not occur or became improbable.

The Company measures the effectiveness of hedges of forecasted transactions on at least a quarterly basis by comparing the fair values of the designated currency forward contracts with the fair values of the forecasted transactions. No ineffectiveness was recognized in earnings during the first three months of fiscal 2003 and 2002.

Firm commitments. The Company uses currency forward contracts to hedge certain foreign currency purchase commitments, primarily in Japanese yen and the euro. These contracts are designated as fair value hedges, and changes in the fair value of the contracts are offset against changes in the fair value of the commitment being hedged, through earnings. Net gains and losses included in earnings during the first three months of fiscal 2003 and 2002 were not material.

For firm commitment hedges, the Company excludes the time value of currency forward contracts from effectiveness testing, as permitted under SFAS No. 133. For the first three months of fiscal 2003 and the first three months of fiscal 2002, the time value of these contracts was recorded as other income and was not significant.

Balance sheet. The Company also utilizes currency forward contracts to hedge currency exchange rate fluctuations related to certain foreign currency assets and liabilities. Gains and losses on these undesignated derivatives offset gains and losses on the assets and liabilities being hedged and the net amount is included in earnings. An immaterial amount of net gains and losses were included in earnings during the first three months of fiscal 2003 and 2002.

Equity investments. The Company's policies allow for the use of derivative financial instruments to hedge the fair values of investments in publicly traded equity securities. As of June 30, 2002, the Company had not entered into this type of hedge.

Note 13—Industry Segments

The Company operates in two segments: (1) Communications and High-Performance Logic and (2) SRAMs and Other. The Communications and High-Performance Logic segment includes FIFOs and multi-ports, communications applications-specific standard products (ASSPs) and high-performance logic and clock management devices. The SRAMs and Other segment consists mainly of high-speed SRAMs. IDT evaluates the performance of its segments on the basis of operating results which exclude acquisition-related costs; special items, such as asset impairments and restructuring charges; interest expense; interest income and other; and taxes.

The tables below provide information about these segments for the three-month periods ended June 30, 2002 and July 1, 2001:

Revenues by segment

	Three months ended
*(in thousands)*	Jun. 30, 2002		Jul. 1, 2001
Communications and High-Performance Logic	$	78,430	$	97,081
SRAMs and Other		13,382		18,827

Total consolidated revenues	$	91,812	$	115,908

Profit (loss) by segment

	Three months ended
*(in thousands)*	Jun. 30, 2002			Jul. 1, 2001
Communications and High-Performance Logic	$	(5,399	)	$	11,853
SRAMs and Other		(4,738	)		(22,836	)
Restructuring and asset impairment		—			(2,301	)
Amortization of intangible assets		(942	)		(2,467	)
Acquired in-process R&D		—			(16,000	)
Other operating expenses		(4,935	)		(1,297	)
Interest income and other		5,923			11,729
Interest expense		(131	)		(655	)

Loss before income taxes	$	(10,222	)	$	(21,974	)

Note 14—Subsequent Event

The Company's wafer fabrication facility in Hillsboro, Ore., is subject to a synthetic, $64 million Tax Ownership Operating Lease which expires in May 2005. Monthly rent payments under the lease vary based on the London Interbank Offering Rate (LIBOR). Under the terms of the transaction, the Company earns interest income, also based on LIBOR, on its 79% purchase interest in the rental stream. The Company is required to maintain a deposit of $50.6 million with the lessor. The Company can, at its option, acquire the leased assets or, at the end of the lease, arrange for them to be acquired by others.

On July 16, 2002, the Company formally notified the lessor of its intent to terminate the synthetic lease and exercise its option to purchase approximately $64 million in fixed assets. In anticipation of the lease termination, which is expected to be completed in September 2002, the $50.6 million deposit has been reclassified from long-term other assets to short-term restricted investments as of June 30, 2002.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references are to our fiscal quarters ended June 30, 2002 (Q1 2003), March 31, 2002 (Q4 2002) and July 1, 2001 (Q1 2002), unless otherwise indicated. Quarterly financial results may not be indicative of the financial results of future periods.

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve a number of risks and uncertainties. These include, but are not limited to: operating results; new product introductions and sales; competitive conditions; capital expenditures and resources; manufacturing capacity utilization; customer demand and inventory levels; intellectual property issues; and the risk factors set forth in the section "Factors Affecting Future Results." As a result of these risks and uncertainties, actual results could differ from those anticipated in the forward-looking statements.

Forward-looking statements, which are generally identified by words such as "anticipate," "expect," "plan," and similar terms, include statements related to revenues and gross profit, research and development activities, selling, general, and administrative expenses, interest expense, interest income and other, taxes, capital spending and financing transactions, as well as statements regarding successful development and market acceptance of new products, industry and overall economic conditions and demand, and capacity utilization.

RESULTS OF OPERATIONS

Revenues (Q1 2003 compared to Q1 2002). Our revenues for Q1 2003 were $91.8 million, a decrease of $24.1 million or 21% compared to Q1 2002. In Q1 2003, revenues for our Communications and High Performance Logic segment, which includes FIFOs and multi-ports, communications applications- specific standard products (ASSPs), and high-performance logic and clock management devices, declined by $18.7 million or 19% compared to Q1 2002. Revenues for the SRAMs and Other segment in Q1 2003 declined by $5.4 million or 29% compared to Q1 2002. Unit volumes shipped increased in both segments, but were offset by declines in average selling price (ASP) per unit. For products that we sell where multiple sources exist, such as in our SRAMs and Other segment, the ASP decline significantly exceeded what one would expect to experience in normalized industry conditions.

Global economic conditions have a direct impact on demand in our customers' markets and broadly weaker economic conditions across multiple industries and geographies affected capital spending trends, to which our customers are sensitive. The trend towards weaker global economic conditions and reduced customer demand worsened during much of fiscal 2002 in all of our sales channels (distributors; contract equipment manufacturers or CEMs; and direct customers, which consist primarily of original equipment manufacturers, or OEMs). Our customers also reacted to changes in end market conditions by taking steps to reduce their finished goods, work-in-process and component inventories. This industry-wide trend decreased demand for our more proprietary products, and led to the declines in ASPs described above for multiple-sourced products, and was the primary reason for the decline in revenues from Q1 2002 to Q1 2003.

Revenues (Q1 2003 compared to Q4 2002). Consistent with what we observed to be stabilizing or improving economic and market conditions in early calendar 2002, the levels of unit demand and revenues for our products have improved in recent quarters. In Q1 2003, our revenues grew by 6% over Q4 2002, following an 8% sequential revenue increase from Q3 2002 to Q4 2002. The growth in Q1 2003 was led by products in our Communications and High Performance Logic segment, which grew by $6.6 million or 9% from Q4 2002. Revenues in the SRAMs and Other segment declined by $1.4 million or 10% from Q4 2002. Units shipped grew slightly for each segment compared with Q4 2002.

While business conditions have stabilized somewhat, customers continue to delay placing committed purchase orders and to demand that products be delivered on very short lead times, resulting in low levels of backlog. This current lack of order visibility, together with continuing uncertain conditions in the economies, markets, and customers that we serve, make it difficult to predict the rate of future growth in our revenue.

Gross profit (Q1 2003 compared to Q1 2002). Gross profit for Q1 2003 was $34.8 million, a decrease of $6.9 million compared to Q1 2002. The decline in gross profit is due primarily to the lower level of revenues in Q1 2003, and hence lower utilization of our fixed manufacturing infrastructure. Gross profit in Q1 2003 was also lower due to higher non-recurring charges, such as retention bonuses related to closing our Salinas manufacturing facility (as described below under Restructuring charges, asset impairment and other). These factors were partially offset by reduced manufacturing spending in Q1 2003, including lower labor costs as a result of two manufacturing headcount reductions that we implemented in Q1 2002 and Q3 2002. Gross profit in Q1 2002 was also affected by $2.3 million in restructuring charges related to these actions. Our gross margin for Q1 2003 was 37.9% compared to 36.0% for Q1 2002.

Gross profit (Q1 2003 compared to Q4 2002). Our gross profit increased by $8.2 million in Q1 2003 compared to Q4 2002. The improvement relates primarily to better manufacturing utilization in Q1 2003, as revenues grew but manufacturing spending remained essentially flat; and to lower non-recurring charges in Q1 2003, as $4.0 million in Q4 2002 restructuring charges (primarily severance related to closing the Salinas facility) did not repeat. Reserves related to shipments of SRAM products that had been carried at the lower of cost or market were reversed during the period. This was more than offset by the adverse impact during Q1 2003 of under-absorbed manufacturing spending, as our facilities continued to operate at low utilization levels. Our gross margin percentage for Q4 2002 was 30.7%.

For the remainder of fiscal 2003, we expect that while the closure of our Salinas manufacturing facility will have a positive impact on gross margin percentage in Q2 2003, further significant improvement in quarterly gross margin percentage will remain primarily dependent on whether business conditions continue to improve and support sequential revenue growth.

Restructuring charges, asset impairment and other. We recorded $26.0 million in asset impairment and restructuring charges during fiscal 2002, primarily because of poor business conditions in the semiconductor industry. Of this amount, $24.7 million was recorded as cost of goods sold; the remainder, as operating expenses. In the first and third quarters of fiscal 2002, we recorded $4.6 million in expenses related to restructuring actions, consisting mainly of worldwide reductions in force in our manufacturing and administrative organizations. Such expenses in the first quarter of fiscal 2002 were recorded as cost of goods sold ($2.3 million) and operating expenses ($0.2 million).

During fiscal 2002, we performed impairment reviews of our manufacturing facilities. Principally because of the age and limited capability of the facility to produce technologically competitive products going forward, we determined that future undiscounted cash flows related to our older wafer fabrication facility located in Salinas would not be sufficient to recover the carrying values of the assets in that facility. We accordingly wrote down the assets to their fair values on the basis of appraisals and management estimates, resulting in a charge of $17.4 million in the third quarter of fiscal 2002.

In the fourth quarter of fiscal 2002, we recorded a charge of $4.0 million in restructuring expenses, primarily related to severance and other termination benefits, in connection with our plan to consolidate our wafer fabrication manufacturing operations. We phased out production at the Salinas facility and completed the transfer of production to our Hillsboro, Ore., facility in Q1 2003.

In addition to expenses specifically identified as asset impairment and restructuring charges, we have incurred other Salinas-related expenses, mainly for retention bonuses. These expenses totaled

$3.8 million and $3.2 million in Q1 2003 and Q4 2002, respectively. We expect to incur additional costs of approximately $4-5 million associated with closure of the facility, most of which will be recorded during the remainder of fiscal 2003. We expect to reduce wafer manufacturing costs by approximately $6 to $8 million per quarter as a result of this facility consolidation, beginning in Q2 2003.

Research and development. For Q1 2003, research and development (R&D) expenses totaled $30.2 million, a decrease of $1.7 million and $2.8 million compared to Q4 2002 and Q1 2002, respectively.

The decrease from Q4 2002 was driven primarily by lower allocations of manufacturing costs to R&D activities (including the cessation of R&D activities at the Salinas manufacturing facility), and by lower deferred compensation expenses related to our Newave acquisition. Lower allocations of manufacturing costs to R&D activities and lower product tooling costs (particularly for photomasks) contributed to the $2.8 million decrease from Q1 2002 to Q1 2003.

We expect R&D spending to be flat or slightly higher in Q2 2003 compared with Q1 2003.

Selling, general and administrative. In Q1 2003, selling, general and administrative (SG&A) expenses were $20.4 million, a decrease of $3.5 million compared to Q1 2002 and an increase of $1.7 million compared to Q4 2002.

The increase from Q4 2002 reflects higher spending on outside professional services, and on severance related to small headcount reductions in certain SG&A departments. These increases were partially offset by lower commission expenses to outside sales representatives under a new commission plan that was implemented in Q1 2003. Q4 2002 also benefitted from annual adjustments to amounts owed to distributors under cooperative advertising programs.

The $3.5 million decrease from Q1 2002 to Q1 2003 reflects the results of our implementation of controls on discretionary spending across the Company, reductions in force completed in October 2001, and lower revenue-based commissions to outside sales representatives.

We expect SG&A spending to be flat or increase very slightly in Q2 2003 compared with Q1 2003.

Acquired in-process research and development. In connection with our acquisition of Newave, we recorded a $16.0 million charge for acquired in-process research and development (IPR&D) in Q1 2002. The allocation of the purchase price to IPR&D was determined by identifying technologies that had not attained technological feasibility and that did not have future alternative uses.

Amortization of intangibles. During fiscal 2002, goodwill related to the Newave transaction was amortized to expenses in accordance with an estimated useful life of seven years using the straight-line method. Goodwill amortization expense was $1.5 million in Q1 2002. Other identified intangibles were amortized over estimated useful lives of two to seven years, also using the straight-line method.

As a result of our adoption of Statement of Financial Accounting Standards (SFAS) No. 142, we ceased to amortize goodwill effective April 1, 2002. As a result, we expect quarterly amortization expense during fiscal 2003 to be approximately $1.5 million lower than in fiscal 2002. In connection with the adoption of SFAS No. 142, IDT is required to perform a transitional goodwill impairment assessment by the end of fiscal 2003.

Interest income and other, net. Changes in interest income and other, net are summarized as follows:

*(in thousands)*	Q1 2003		Q4 2002		Q1 2002
Interest income	$	5,637	$	6,330	$	11,453
Other income, net		286		129		276

Interest income and other, net	$	5,923	$	6,459	$	11,729

Interest income declined by $0.7 million in Q1 2003 compared to Q4 2002 due to lower invested balances and lower average interest rates on our investment portfolio. From Q1 2002 to Q1 2003, interest income declined by 51%, mostly due to lower average interest rates.

Provision for taxes. Due mainly to the decreased effects of non-deductible, merger-related costs, the effective tax rate rose from a benefit of 2.2% in Q1 2002 to a benefit of 25.7% in Q1 2003.

Liquidity and Capital Resources

Our financial condition remains strong. Our cash, cash equivalents and investments, excluding restricted investments and our shares of PMC, were $614.4 million at June 30, 2002, a decrease of $54.5 million compared to March 31, 2002. Long- and short-term debt, excluding operating leases, was only $13.7 million as of June 30, 2002.

Net cash provided by operating activities was $9.2 million in Q1 2003, compared to a use of $5.0 million in Q1 2002. During Q1 2002, the cash generated through a significant reduction in the level of accounts receivable was offset by uses of cash related to lower accounts payable balances; decreased deferred income on shipments to distributors, due to lower levels of distributor channel inventory; and decreased accrued compensation, due to payouts of profit dependent personnel expenses accrued in fiscal 2001 and paid in fiscal 2002.

Investing activities provided $3.0 million in Q1 2003. Periodically, we make investments in third-party companies, principally for strategic technology related reasons. In Q1 2003, we invested $30.0 million in an interest bearing financial instrument which in certain circumstances is either repayable or convertible into preferred shares of a privately held technology related company. This investment largely offset net proceeds of $40.6 million from sales and maturities of marketable securities during Q1 2003. We used $171.7 million for investing activities in Q1 2002, including $89.1 million related to net purchases of marketable securities and $74.2 million for the Newave acquisition.

We used $27.6 million for financing activities in Q1 2003, compared to $20.1 million in Q1 2002. Significant financing activities in Q1 2003 and Q1 2002 included repurchases of common stock ($29.8 million and $19.0 million, respectively).

We anticipate new capital expenditures of approximately $65-$70 million during fiscal 2003, depending upon business conditions, to be financed primarily through cash generated from operations and existing cash and investments. This estimate includes $7.8 million in capital expenditures during Q1 2003. In addition, we intend to terminate the synthetic lease related to our Hillsboro, Ore., manufacturing site and have notified the lessor of our plans to do so by September 2002. We expect to exercise our option to purchase approximately $64 million in additional fixed assets, with most of the purchase price (approximately $50 million) funded by amounts already pledged to collateralize the lease, and the balance (approximately $14 million) funded by existing cash and investments.

We believe that existing cash and investment balances, together with cash flows from operations, will be sufficient to meet our working capital and capital expenditure needs through the remainder of fiscal 2003 and 2004. We may investigate other financing alternatives; however, we cannot be certain that additional financing will be available on satisfactory terms.

FACTORS AFFECTING FUTURE RESULTS

Our operating results can fluctuate dramatically. For example, we had net income of $415.2 million and $130.6 million for fiscal 2001 and 2000, respectively, compared to a net loss of $46.2 million for fiscal 2002. Fluctuations in operating results can result from a wide variety of factors, including:

•: timing of new product and process technology announcements and introductions from us or our competitors;
•: competitive pricing pressures, particularly in the SRAM market;
•: fluctuations in manufacturing yields;
•: changes in the mix of products sold;
•: availability and costs of raw materials, and of foundry and other manufacturing services;
•: the cyclical nature of the semiconductor industry and industry-wide wafer processing capacity;
•: political and economic conditions in various geographic areas;
•: changes in demand for our products in the markets we serve; and
•: costs associated with other events, such as underutilization or expansion of production capacity, intellectual property disputes, or other litigation.

In addition, many of these factors also impact the recoverability of the cost of manufacturing, tax, goodwill and other intangibles and other assets. As business conditions change, future writedowns or abandonment of these assets may occur. Further, we may be unable to compete successfully in the future against existing or potential competitors, and our operating results could be harmed by increased competition. Our operating results are also impacted by changes in overall economic conditions, both domestically and abroad. Should economic conditions deteriorate, domestically or overseas, our sales and business results could be harmed.

The cyclicality of the semiconductor industry exacerbates the volatility of our operating results. The semiconductor industry is highly cyclical. Market conditions characterized by excess supply relative to demand and resultant pricing declines have occurred in the past and may occur in the future. Such pricing declines adversely affect our operating results and force us and our competitors to modify capacity expansion programs. As an example, in prior years, a significant increase in manufacturing capacity allocated to industry standard SRAM components caused significant downward trends in pricing, which adversely affected our gross margins and operating results. We are unable to accurately estimate the amount of worldwide production capacity dedicated to or planned for the industry-standard products, such as SRAM, that we produce. Our operating results can be adversely affected by such factors in the semiconductor industry as: a material increase in industry-wide production capacity; a shift in industry capacity toward products competitive with our products; and reduced demand or other factors that may result in material declines in product pricing.

Although we are continuing to try to reduce our dependence on revenues derived from the sale of industry-standard products, and while we carefully manage costs, these efforts may not be sufficient to offset the adverse effect the above or other industry related factors can have on our results.

Demand for our products depends on demand in the communications, and to a lesser extent, computer markets. The majority of our products are incorporated into customers' systems in enterprise/carrier class network, wireless infrastructure and access network applications. A percentage of our products, including high-performance logic components, serve in customers' computer storage, computer-related, and other applications. Customer applications for our products have historically been characterized by rapid technological change and significant fluctuations in demand. Demand for most of our products, and therefore potential increases in revenue, depends upon growth in the communications market,

particularly in the data networking and wireless telecommunications infrastructure markets and, to a lesser extent, the computer-related markets. Any slowdown in these communications or computer- related markets could materially adversely affect our operating results. In addition, when all channels of distribution are considered, one customer in the communications market, Cisco Systems, Inc., represents more than 10% of our total revenues.

Our product manufacturing operations are complex and subject to interruption. From time to time, we have experienced production difficulties, including reduced manufacturing yields or products that do not meet our or our customers' specifications, that have caused delivery delays and quality problems. While production delivery delays have been infrequent and generally short in duration, we could experience manufacturing problems, capacity constraints and/or product delivery delays in the future as a result of, among other things, complexity of manufacturing processes, changes to our process technologies (including transfers to other facilities and die size reduction efforts), and ramping production and installing new equipment at our facilities.

Substantially all of our revenues are derived from products manufactured at facilities which are exposed to the risk of natural disasters. We have a wafer fabrication facility in Hillsboro, Ore., and assembly and test facilities in the Philippines and Malaysia. If we were unable to use our facilities, as a result of a natural disaster or otherwise, our operations would be materially adversely affected until we were able to obtain other production capability. We do not carry earthquake insurance on our California facilities or with respect to our business operations, as we do not believe that adequate protection is available at economically justifiable rates.

We are dependent upon electric power generated by public utilities where we operate our manufacturing facilities. We have periodically experienced electrical power interruptions in the Philippines and California because utilities in these geographies have failed to provide an adequate power infrastructure. We maintain limited backup generating capability, but the amount of electric power that we can generate on our own is insufficient to fully operate these facilities and prolonged power interruptions, particularly at our manufacturing locations, could have a significant adverse impact on our business.

Historically, we have utilized subcontractors for the majority of our incremental assembly requirements, typically at higher costs than at our own Malaysian and Philippines assembly and test operations. We expect to continue utilizing subcontractors to supplement our own production volume capacity. Due to production lead times and potential subcontractor capacity constraints, any failure on our part to adequately forecast the mix of product demand could adversely affect our operating results.

Our results are dependent on the success of new products. New products and process technology associated with the Hillsboro fabrication facility will continue to require significant R&D expenditures. If we are unable to develop new products in a timely manner, and to sell them at gross margins comparable to or better than our current products, our future results of operations could be adversely impacted.

We are dependent on a limited number of suppliers. Our manufacturing operations depend upon obtaining adequate raw materials on a timely basis. The number of vendors of certain raw materials, such as silicon wafers, ultra-pure metals and certain chemicals and gases, is very limited. In addition, certain packages used by us require long lead times and are available from only a few suppliers. From time to time, vendors have extended lead times or limited supply to us due to capacity constraints. Our results of operations would be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if there were significant increases in the costs of raw materials.

Intellectual property claims could adversely affect our business and operations. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which have resulted in significant and often protracted and expensive litigation. In recent years, there has been a

growing trend by companies to resort to litigation to protect their semiconductor technology from unauthorized use by others. We have been involved in patent litigation in the past, which adversely affected our operating results. Although we have obtained patent licenses from certain semiconductor manufacturers, we do not have licenses from a number of semiconductor manufacturers that have broad patent portfolios. Claims alleging infringement of intellectual property rights have been asserted against us and could be asserted against us in the future. These claims could result in our having to discontinue the use of certain processes; cease the manufacture, use and sale of infringing products; incur significant litigation costs and damages; and develop non-infringing technology. We might not be able to obtain such licenses on acceptable terms or to develop non-infringing technology. Further, the failure to renew or renegotiate existing licenses on favorable terms, or the inability to obtain a key license, could adversely affect us.

International operations add increased volatility to our operating results. A substantial percentage of our revenues are derived from international sales, as summarized below:

*Percentage of total revenues*	First three months of fiscal 2003		Twelve months of fiscal 2002		Twelve months of fiscal 2001
Americas	40	%	48	%	58	%
Asia Pacific	31	%	18	%	11	%
Japan	10	%	14	%	12	%
Europe	19	%	20	%	19	%

Total	100	%	100	%	100	%

In addition, our assembly and test facilities in Malaysia and the Philippines incur payroll, facility and other expenses in local currencies. Accordingly, movements in foreign currency exchange rates can impact our cost of goods sold, as well as both pricing and demand for our products. Our offshore manufacturing sites and export sales are also subject to risks associated with foreign operations, including:

•: political instability and acts of war or terrorism, which could disrupt our manufacturing activities;
•: currency controls and fluctuations;
•: changes in local economic conditions; and
•: changes in tax laws, import and export controls, tariffs and freight rates.

Contract pricing for raw materials used in the fabrication and assembly processes, as well as for subcontract assembly services, can also be impacted by currency exchange rate fluctuations. We also purchase certain semiconductor manufacturing tools, such as photolithography equipment, from overseas vendors. Prices for such tools are typically quoted in foreign currencies and may equate to several million U.S. dollars per unit. Although we seek to mitigate currency risks through the use of hedge instruments, currency exchange rate fluctuations can have a substantial impact on our net U.S.-dollar cost for these tools.

Global economic and political factors, including terrorism, could harm our business. Weak economic conditions, terrorist actions, and the effects of ongoing military actions against terrorists could lead to significant business disruptions. If such disruptions result in cancellations of customer orders or a general decrease in corporate spending on information technology, or directly impact our marketing, manufacturing, financial and logistics functions, our results of operations and financial condition could be adversely affected.

We are subject to a variety of environmental and other regulations related to hazardous materials used in our manufacturing processes. Any failure by us to control the use or discharge of hazardous materials

under present or future regulations could subject us to substantial liability or cause our manufacturing operations to be suspended.

Our common stock has experienced substantial price volatility. Such volatility may occur in the future, particularly as a result of quarter-to-quarter variations in the actual or anticipated financial results of IDT, other semiconductor companies, or our customers. Announcements by us or by our competitors regarding new product introductions may also lead to volatility. In addition, our stock price can fluctuate due to price and volume fluctuations in the stock market, especially in the technology sector. Stock price volatility may also result from changes in perceptions about the various types of products we manufacture and sell, which employ a variety of semiconductor design technologies and include both proprietary or limited-source products and industry-standard or multiple-source products.

We are exposed to fluctuations in the market price of our investment in PMC-Sierra, Inc. We currently hold approximately 338,000 common shares of PMC-Sierra, Inc. (PMC). The PMC stock is highly volatile. The amount of income and cash flow that we ultimately realize from this investment in future periods cannot be determined at this time and may vary materially from the current unrealized amount. We evaluate our investments on a regular basis to determine if an other-than temporary impairment has occurred.

We may have difficulty integrating acquired companies. We acquired Newave Semiconductor Corp. (Newave) in fiscal 2002 and may pursue other acquisitions in the future. Failure to successfully integrate acquired companies into our business could adversely affect our results of operations. Integration risks and issues may include, but are not limited to, personnel retention and assimilation, management distraction, technology development, and unexpected costs and liabilities. In addition, we have adopted SFAS No. 142, "Goodwill and Other Intangible Assets," and are required to perform a transitional impairment assessment of Newave-related goodwill during fiscal 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our interest rate risk relates primarily to our investment portfolio, which consisted of $240.8 million in cash and cash equivalents and $376.6 million in short-term investments as of June 30, 2002. By policy, we limit our exposure to longer-term investments, and a substantial majority of our investment portfolio at the end of fiscal 2002 had maturities of less than two years. As a result of the relatively short duration of our portfolio, a hypothetical 10% move in interest rates would have an insignificant effect on our financial position, results of operations or cash flows. We do not currently use derivative financial instruments in our investment portfolio.

By policy, we mitigate the credit risk to our investment portfolio through diversification and for, debt securities, adherence to high credit-rating standards.

We have minimal interest rate risk with respect to debt; our balance sheet at June 30, 2002 includes only $13.7 million in debt. The synthetic lease related to our manufacturing facility in Hillsboro, Ore. has variable, London Interbank Offered Rate (LIBOR)-based payments. However, this lease is collateralized with investment securities that have similar, and thus offsetting, interest rate characteristics.

We are exposed to foreign currency exchange rate risk as a result of international sales, assets and liabilities of foreign subsidiaries, and capital purchases denominated in foreign currencies. We use derivative financial instruments (primarily forward contracts) to help manage our foreign currency exchange exposures. We do not enter in derivatives for trading purposes. We performed a sensitivity analysis for both fiscal 2002 and the first three months of fiscal 2003 and determined that a 10% change in the value of the U.S. dollar would have an insignificant near-term impact on our financial position, results of operations or cash flows.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): The following exhibits are filed herewith:

Exhibit number		Description
10.4		1984 Employee Stock Purchase Plan, as amended and restated effective October 1, 2002.
10.23		1997 Employee Stock Option Plan.

(b): Reports on Form 8-K:

No reports were filed on Form 8-K during this quarter.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		INTEGRATED DEVICE TECHNOLOGY, INC.
Date: August 14, 2002		/s/ JERRY G. TAYLOR Jerry G. Taylor President and Chief Executive Officer (duly authorized officer)
Date: August 14, 2002		/s/ ALAN F. KROCK Alan F. Krock Vice President, Chief Financial Officer (principal accounting officer)

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PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

INTEGRATED DEVICE TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEGRATED DEVICE TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED; IN THOUSANDS)
INTEGRATED DEVICE TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED; IN THOUSANDS)
INTEGRATED DEVICE TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PART II OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
EX-10.4 3 a2086462zex-10_4.htm EX-10.4

EXHIBIT 10.4

INTEGRATED DEVICE TECHNOLOGY, INC.

1984 EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated Effective as of October 1, 2002)

TABLE OF CONTENTS

		Page

Section 1.	Establishment of the Plan

Section 2.	Definitions

Section 3.	Duration; Shares Authorized

Section 4.	Administration

Section 5.	Eligibility and Participation

Section 6.	Purchase Price

Section 7.	Employee Contributions

Section 8.	Plan Accounts; Purchase of Shares

Section 9.	Withdrawal From the Plan

Section 10.	Effect of Termination of Employment or Death

Section 11.	Rights Not Transferable

Section 12.	Recapitalization, Etc

Section 13.	Limitation on Stock Ownership

Section 14.	No Rights as an Employee

Section 15.	Rights as a Stockholder

Section 16.	Use of Funds

Section 17.	Amendment or Termination of the Plan

Section 18.	Governing Law

INTEGRATED DEVICE TECHNOLOGY, INC.

1984 EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated Effective as of October 1, 2002)

Section 1. Establishment of the Plan.

The Integrated Device Technology, Inc. 1984 Employee Stock Purchase Plan (the “Plan”) is hereby amended and restated to provide for certain changes in the duration and frequency of Participation Periods (as defined below), to provide for Purchase Periods (as defined below) within such Participation Periods and to provide for certain other changes. The Plan provides Eligible Employees with an opportunity to purchase the Company’s common stock so that they may increase their proprietary interest in the success of the Company. The Plan, which provides for the purchase of stock through payroll withholding, is intended to qualify under Section 423 of the Code.

Section 2. Definitions.

(a) “Board of Directors” or “Board” means the Board of Directors of the Company.

(b) “Code” means the Internal Revenue Code of 1986, as amended.

(d) “Compensation” means the cash remuneration paid to a Participant during a Purchase Period that is reported on Form W-2 for federal income tax purposes (including salary deferrals to the Integrated Device Technology, Inc. 401(k) Savings Plan and contributions to the Company’s Code Section 125 plan). Compensation shall include overtime and shift differential payments, incentive compensation, commissions, profit sharing payments and bonuses. Notwithstanding the foregoing, Compensation shall exclude any special payments (e.g., moving or auto allowances, educational reimbursements, welfare benefits, amounts realized from the exercise, sale exchange or other disposition of any stock option and premiums for life and disability insurance).

(e) “Date of Exercise” means the last day of each Purchase Period within any Participation Period.

(f) “Date of Participation” means, except as provided in Section 5(d), the first day of the earliest Participation Period with respect to which an Eligible Employee is participating in the Plan.

(g) “Eligible Employee” means any Employee of a Participating Company (i) who is customarily employed for at least twenty (20) hours per week, (ii) who is customarily employed for more than five (5) months per calendar year, and (iii) who is an Employee at the commencement of a Purchase Period.

In the event an Eligible Employee fails to remain in the continuous employ of a Participating Company customarily for at least twenty (20) hours per week during a Participation Period, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his or her account will be returned to him or her; provided that a Participant who goes on an unpaid leave of absence shall be permitted to remain in the Plan during such leave of absence. Notwithstanding the preceding sentence, if such Participant is not guaranteed reemployment by contract or statute and the leave of absence extends beyond ninety (90) days, such Participant shall be deemed to have terminated employment for purposes of the Plan on the ninety–first (91st) day of such leave of absence. Payroll deductions for a Participant who has been on an unpaid leave of absence will resume at the same rate as in effect prior to such leave upon return to work unless changed by such Participant. The Date of Participation for a Participant who has been on unpaid leave of absence shall be the same as if such Participant remained in continuous service as an Employee of a Participating Company throughout such unpaid leave of absence.

(h) “Employee” means any person who renders services to a Participating Company in the status of an employee within the meaning of Code Section 3401(c). “Employee” shall not include any Board member of a Participating Company who does not render services to the Participating Company in the status of an employee within the meaning of Code Section 3401(c).

(i) “Fair Market Value” of a share of Stock means the market price of Stock, determined as follows: (i) if the Stock was traded over–the–counter on the date in question but was not classified as a national market issue, then the Fair Market Value shall be equal to the closing bid price quoted by the National Association of Securities Dealers, Inc. (“NASDAQ”) for the immediately preceding date; (ii) if the Stock is traded over–the–counter on the date in question and was classified as a national market issue, then the Fair Market value shall be equal to the last–transaction price quoted by the NASDAQ system for the immediately preceding date; (iii) if the Stock is traded on a national exchange on the date in question, then the Fair Market Value shall be the highest closing bid price reported on such exchange for the immediately preceding date. If the Stock is not traded on the date as of which the Fair Market Value is to be determined, Fair Market Value shall be determined as of the first preceding date on which Stock was traded. In all cases the determination of Fair Market Value by the Board of Directors shall be conclusive and binding on all persons.

(j) “Participant” means an Eligible Employee who elects to participate in the Plan, as provided in Section 5 hereof.

(k) “Participating Company” means the Company and such present or future Subsidiaries of the Company as the Board of Directors shall from time to time designate.

(l) “Participation Period” means each consecutive twelve month period commencing each Company fiscal quarter during the term of the Plan. The Board shall have the power to change the frequency and/or duration of Participation Periods upon at least fifteen (15) days written notice to then-Eligible Employees before the scheduled beginning of the Participation Period to be affected.

(m) “Plan Account” means the account established for each Participant pursuant to Section 8(a).

(n) “Plan Administrator” means the committee appointed by the Board to administer the Plan pursuant to Section 4.

(o) “Purchase Period” with respect to any Participant means each consecutive Company fiscal quarter beginning with the Date of Participation. The Board shall have the power to change the frequency and/or duration of Purchase Periods upon at least fifteen (15) days written notice to then-Eligible Employees before the scheduled beginning of the Purchase Period to be affected.

(p) “Purchase Price” means the price at which Participants may purchase Stock under Section 8 of the Plan, as determined pursuant to Section 6.

(q) “Stock” means the common stock, par value $0.001, of the Company.

(r) “Stock Administrator” means the Company’s Stock Administration Department.

(s) “Subsidiary,” means a subsidiary corporation as defined in Section 424(f) of the Code.

Section 3. Duration; Shares Authorized.

The Plan shall terminate on the last day of the Company’s 2008–2009 fiscal year, unless terminated earlier by the Board of Directors. The maximum aggregate number of shares which may be offered under the Plan shall be 8,500,000 shares of Stock, subject to adjustment as provided in Section 12 hereof.

Section 4. Administration.

(a) Except as otherwise provided herein, the Plan shall be administered by the Board or by a committee (the “Plan Administrator”) appointed by the Board of Directors which shall consist of not less than two members of the Board. References in this Plan to the “Plan Administrator” shall mean the Board if no Plan Administrator has been appointed. The interpretation and construction by the Plan Administrator of any provision of the Plan or of any right to purchase stock qualified hereunder shall be conclusive and binding on all persons.

(b) No member of the Board or the Plan Administrator shall be liable for any action or determination made in good faith with respect to the Plan or the right to purchase Stock hereunder. The Plan Administrator shall be indemnified by the Company against the reasonable expenses, including attorney’s fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which it may be a party by reason of any action taken or failure to act under or in connection with the Plan or any stock purchased thereunder, and against all amounts paid by it in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by it in satisfaction of a judgment in any such action, suit or proceeding, except in relation

to matters as to which it shall be adjudged in such action, suit or proceeding that the Plan Administrator is liable for negligence or misconduct in the performance of its duties; provided that within sixty (60) days after institution of any such action, suit or proceeding, the Plan Administrator shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same.

(c) All costs and expenses incurred in administering the Plan shall be paid by the Company. The Board or the Plan Administrator may request advice for assistance or employ such other persons as are necessary for proper administration of the Plan.

Section 5. Eligibility and Participation.

(a) Any person who qualifies or will qualify as an Eligible Employee on the Date of Participation with respect to a Participation Period may elect to participate in the Plan for such Participation Period. An Eligible Employee may elect to participate by executing the participation agreement prescribed for such purpose by the Stock Administrator. The participation agreement shall be filed with the Stock Administrator no later than the filing deadline imposed and communicated to Eligible Employees with respect to the Participation Period for which such participation agreement is intended to be effective by the Stock Administrator, and if none is so imposed and/or communicated, then no later than five (5) days before the Participation Period for which such participation agreement is intended to be effective. The Eligible Employee shall designate on the participation agreement the percentage of his or her Compensation which he or she elects to have withheld for the purchase of Stock, which may be any whole percentage from 1 to 10% of the Participant’s Compensation.

(b) By enrolling in the Plan, a Participant shall be deemed to have been granted an option on his or her Date of Participation to purchase the maximum number of whole shares of Stock which can be purchased with the amount of the Participant’s Compensation which is withheld during each Purchase Period within the Participation Period for which the Participation is enrolled. However, with respect to any Purchase Period, no Participant shall be eligible to purchase more than two thousand five hundred (2,500) shares of Stock provided that such amount shall not result in the limitations set forth in Section 13 being exceeded. Notwithstanding the foregoing, effective as of October 1, 2002, the Plan Administrator, or a committee appointed by the Plan Administrator, which committee may be comprised solely of employees of the Company, shall have the right to amend the limit set forth in this Section 5(b) with respect to Purchase Periods commencing after the date of such amendment; provided, however, that in no event shall the limit exceed two thousand five hundred (2,500) shares of Stock per Purchase Period or the limitations set forth in Section 13.

(c) Once enrolled, a Participant will continue to participate in the Plan for each succeeding Purchase Period and each succeeding Participation Period until he or she terminates participation or ceases to qualify as an Eligible Employee. A Participant who withdraws from the Plan in accordance with Section 9 may again become a Participant in a subsequent Participation Period, if he or she then is an Eligible Employee, by following the procedure described in Section 5(a).

(d) If the Fair Market Value of a share of Stock on the Date of Participation for the current Participation Period in which a Participant is enrolled is higher than the Fair Market Value of a share of Stock on the first day of any subsequent Participation Period, the Company will (after the Purchase Period), terminate the current Participation Period, and the Participant’s Date of Participation shall be the first day of such subsequent Participation Period until changed in accordance with the terms of this Plan.

Section 6. Purchase Price.

The Purchase Price for each share of Stock shall be the lesser of (i) eighty–five percent (85%) of the Fair Market Value of such share on the Date of Participation or (ii) eighty–five percent (85%) of the Fair Market Value of such share on the Date of Exercise, for an applicable Participation Period.

Section 7. Employee Contributions.

A Participant may purchase shares of Stock solely by means of payroll deductions. Payroll deductions, as designated by the Participant pursuant to Section 5(a), shall commence with the first paycheck issued during the Purchase Period and shall be deducted from each subsequent paycheck throughout the Purchase Period; provided, however, that, with respect to a Participant, the Company shall be entitled to discontinue payroll deductions for such Participant during a Purchase Period to the extent that the Company determines that the payroll deductions for such Participant during such Purchase Period will cause the Participant to exceed the limitations set forth in Sections 5 or 13; provided, further, that the Company will recommence payroll deductions for such Participant on the first day of the next Purchase Period to the extent the limitation set forth in Section 13 has not been exceeded. If a Participant desires to decrease the rate of payroll withholding during the Purchase Period, he or she may do so one time during a Purchase Period by filing a new participation agreement with the Stock Administrator. Such decrease will be effective no later than the first day of the second payroll period which begins following the receipt of the new participation agreement. If a Participant desires to increase or decrease the rate of payroll withholding, he or she may do so effective for the next Purchase Period by filing a new participation agreement with the Stock Administrator on or before the date imposed and communicated to Eligible Employees by the Stock Administrator, and if none is so imposed and/or communicated, then no later than five (5) days before the Purchase Period for which such change is to be effective.

Section 8. Plan Accounts; Purchase of Shares.

(a) The Company will maintain a Plan Account on its books in the name of each Participant. At the close of each pay period, the amount deducted from the Participant’s Compensation will be credited to the Participant’s Plan Account.

(b) As of each Date of Exercise, the amount then in the Participant’s Plan Account will be divided by the Purchase Price, and the number of whole shares which results (subject to the limitations described in Sections 5(b), 8(c) and 13) shall be purchased from the Company with the funds in the Participant’s Plan Account. The number of shares of Stock so purchased shall be delivered to a brokerage account designated by the Plan Administrator and

kept in such account pursuant to a participation agreement (which shall be uniform) between each Participant and the Company and subject to the conditions described therein (which may include, without limitation, restrictions on transferability of the shares of Stock so purchased).

(c) In the event that the aggregate number of shares which all Participants elect to purchase during a Purchase Period shall exceed the number of shares remaining available for issuance under the Plan, then the number of shares to which each Participant shall become entitled shall be determined by multiplying the number of shares available for issuance by a fraction the numerator of which is the sum of the number of shares the Participant has elected to purchase pursuant to Section 5, and the denominator of which is the sum of the number of shares which all employees have elected to purchase pursuant to Section 5. Any cash amount remaining in the Participant’s Plan Account under these circumstances shall be refunded to the Participant.

(d) Any amount remaining in the Participant’s Plan Account caused by a surplus due to fractional shares after deducting the amount of the Purchase Price for the number of whole shares issued to the Participant shall be carried over in the Participant’s Plan Account for the succeeding Purchase Period, without interest. Any amount remaining in the Participant’s Plan Account caused by anything other than a surplus due to fractional shares shall be refunded to the Participant in cash, without interest.

(e) As soon as practicable following the end of each Purchase Period, the Company shall deliver to each Participant a Plan Account statement setting forth the amount of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.

Section 9. Withdrawal From the Plan.

A Participant may elect to withdraw from participation under the Plan at any time up to the last day of a Purchase Period by filing the prescribed form with the Stock Administrator. As soon as practicable after a withdrawal, payroll deductions shall cease and all amounts credited to the Participant’s Plan Account will be refunded in cash, without interest. A Participant who has withdrawn from the Plan shall not be a Participant in future Participation Periods, unless he or she again enrolls in accordance with the provisions of Section 5.

Section 10. Effect of Termination of Employment or Death.

(a) Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 9. A transfer from one Participating Company to another shall not be treated as a termination of employment.

(b) A Participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the Participant’s Account under the Plan in the event of such Participant’s death subsequent to the purchase of shares but prior to delivery to him or her of such shares and cash. In addition, a Participant may file a written designation of a beneficiary

who is to receive any cash from the Participant’s Account under the Plan in the event of such Participant’s death prior to the last day of a Purchase Period.

(c) Such designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant in the absence of a valid designation of a beneficiary who is living at the time of such Participant’s death, the Company shall deliver such shares and/or cash in accordance with the Participant’s designation of beneficiaries under the Integrated Device Technology, Inc. 401(k) Savings Plan; or, in the absence of such designation, to the executor or administrator of the estate of the Participant; or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant; or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

Section 11. Rights Not Transferable.

The rights or interests of any Participant in the Plan, or in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or by any other manner other than as permitted by the Code or by will or the laws of descent and distribution. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than as permitted by the Code or by will or the laws of descent and distribution, such act shall be treated as an automatic withdrawal under Section 9.

Section 12. Recapitalization, Etc.

(a) The aggregate number of shares of Stock offered under the Plan, the number and price of shares which any Participant has elected to purchase pursuant to Section 5 and the maximum number of shares which a Participant may elect to purchase under the Plan in any Purchase Period shall be proportionately adjusted for any increase or decrease in the number of issued shares of Stock resulting from a subdivision or consolidation of shares or any other capital adjustment, the payment of a stock dividend, or other increase or decrease in such shares affected without receipt of consideration by the Company.

(b) In the event of a dissolution or liquidation of the Company, or a merger or consolidation to which the Company is a constituent corporation, this Plan shall terminate, unless the plan of merger, consolidation or reorganization provides otherwise, and all amounts which each Participant has paid towards the Purchase Price of Stock hereunder shall be refunded, without interest.

(c) The Plan shall in no event be construed to restrict in any way the Company’s right to undertake a dissolution, liquidation, merger, consolidation or other reorganization.

Section 13. Limitation on Stock Ownership.

Notwithstanding any provision herein to the contrary, no Participant shall be permitted to elect to participate in the Plan (i) if such Participant, immediately after his or her

election to participate, would own 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 parent or Subsidiary of the Company, or (ii) if under the terms of the Plan the rights of the Employee to purchase Stock under this Plan and all other qualified employee stock purchase plans of the Company or its Subsidiaries would accrue at a rate which exceeds twenty–five thousand dollars ($25,000) of the Fair Market Value of such Stock (determined at the time such right is granted) for each calendar year for which such right is outstanding at any time. Nothing in this Section shall cause a Participant’s Date of Participation to be other than as would be determined pursuant to the Plan without regard to the limitations set forth in this Section. For purposes of this Section, ownership of stock shall be determined by the attribution rules of Section 425(d) of the Code, and Participants shall be considered to own any stock which they have a right to purchase under this or any other stock plan.

Section 14. No Rights as an Employee.

Nothing in the Plan shall be construed to give any person the right to remain in the employ of a Participating Company. Each Participating Company reserves the right to terminate the employment of any person at any time and for any reason.

Section 15. Rights as a Stockholder.

A Participant shall have no rights as a stockholder with respect to any shares he or she may have a right to purchase under the Plan until the date of issuance to the brokerage account designated by the Plan Administrator the shares of Stock issued pursuant to the Plan.

Section 16. Use of Funds.

All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions in separate accounts.

Section 17. Amendment or Termination of the Plan.

Except as otherwise provided herein, the Board of Directors shall have the right to amend, modify or terminate the Plan at any time without notice. An amendment of the Plan shall be subject to shareholder approval only to the extent required by applicable laws, regulations or rules.

Section 18. Governing Law.

The Plan shall be governed by, and construed and interpreted in accordance with, the laws of the State of Delaware.

To record the adoption of this amended and restated Plan, the Company has caused its authorized officer to execute the same this day of , 2002.

Integrated Device Technology, Inc.

	By:
	Its:

EX-10.23 4 a2086462zex-10_23.htm EX-10.23

EXHIBIT 10.23

INTEGRATED DEVICE TECHNOLOGY, INC.

1997 STOCK OPTION PLAN

As Adopted October 30, 1997
As Amended April 21, 1998

1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company’s future performance through awards of stock options. Capitalized terms not defined in the text are defined in Section 19.

2. SHARES SUBJECT TO THE PLAN.

2.1 Number of Shares Available. Subject to Sections 2.2 and 14, the total number of Shares reserved and available for grant and issuance pursuant to Awards under the Plan shall be 4,500,000 Shares. Subject to Sections 2.2 and 14, Shares that are subject to issuance upon exercise of an Award but cease to be subject to such Award for any reason other than exercise of such Award will again be available for grant and issuance under this Plan.

2.2 Adjustment of Shares. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, or by a Corporate Transaction (as defined in Section 14.1) then, unless such change results in the termination of all outstanding Awards as a result of the Corporate Transaction, (a) the number of Shares reserved for issuance under the Plan and (b) the Exercise Prices of and number of Shares subject to outstanding Awards shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Committee; and provided, further, that the Exercise Price of any Award may not be decreased to below the par value of the Shares.

3. ELIGIBILITY. All Awards issued under the Plan shall be Nonqualified Stock Options. Awards may be granted to employees, consultants, independent contractors and advisors of the Company or any Parent, Subsidiary or Affiliate of the Company; provided that such employees, consultants, independent contractors and advisors are not officers or directors of the Company or any Parent, Subsidiary of Affiliate of the Company who are subject to Section 16 of the Securities Exchange Act of 1934; and provided further that such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under

the Plan. Each person is eligible to receive up to an aggregate maximum of 100,000 Shares per fiscal year.

4. ADMINISTRATION.

4.1 Committee Authority. The Plan shall be administered by the Committee. Subject to the general purposes, terms and conditions of the Plan, the Committee shall have full power to implement and carry out the Plan. The Committee shall have the authority to:

(a) construe and interpret the Plan, any Stock Option Agreement and any other agreement or document executed pursuant to the Plan;

(b) prescribe, amend and rescind rules and regulations relating to the Plan;

(d) determine the form and terms of Awards;

(e) determine the number of Shares subject to Awards;

(f) determine whether Awards will be granted in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company;

(g) grant waivers of Plan or Award conditions;

(h) determine the vesting and exercisability of Awards;

(i) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Stock Option Agreement;

(j) determine the disposition of Awards in the event of a Participant’s divorce or dissolution of marriage; and

(k) make all other determinations necessary or advisable for the administration of the Plan.

4.2 Committee Discretion. Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. The Committee may delegate to one or more officers of the Company

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the authority to grant an Award under the Plan to Participants who are not Insiders of the Company.

5. STOCK OPTIONS. The Committee may grant Awards to eligible persons and shall determine the number of Shares subject to the Award, the Exercise Price of the Award, the period during which the Award may be exercised, and all other terms and conditions of the Award, subject to the following:

5.1 Form of Option Grant. Each Award granted under the Plan shall be evidenced by a Stock Option Agreement and shall be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of the Plan.

5.2 Date of Grant. The date of grant of an Award shall be the date on which the Committee makes the determination to grant such Award, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of the Plan will be delivered to the Participant within a reasonable time after the granting of the Award.

5.3 Exercise Period. Awards shall be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Award shall be exercisable after the expiration of ten (10) years from the date the Award is granted. The Committee also may provide for the exercise of Awards to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines.

5.4 Exercise Price. The Exercise Price shall be determined by the Committee when the Award is granted and shall be not less than 100% of the Fair Market Value of the Shares on the date of grant.

5.5 Method of Exercise. Awards may be exercised only by delivery to the Company of a written exercise agreement (the “Exercise Agreement”) in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased.

5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Award shall always be subject to the following:

(a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant’s Awards only to the extent that such Awards would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such longer

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time period not exceeding five years as may be determined by the Committee), but in any event, no later than the expiration date of the Awards.

(b) If the Participant is terminated because of death or Disability (or the Participant dies within three months of such termination), then Participant’s Awards would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant’s legal representative or authorized assignee) no later than (i) twelve (12) months after the Termination Date in the case of disability or (ii) eighteen (18) months after the Termination Date in the case of death (or such longer time period not exceeding five years as may be determined by the Committee), but in any event no later than the expiration date of the Awards.

5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Award; provided that such minimum number will not prevent Participant from exercising the Award for the full number of Shares for which it is then exercisable.

5.8 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Awards and authorize the grant of new Awards in substitution therefor; provided that any such action may not, without the written consent of Participant, impair any of Participant’s rights under any Award previously granted. The Committee may reduce the Exercise Price of outstanding Awards without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of the Plan for Awards granted on the date the action is taken to reduce the Exercise Price; and provided, further, that the Exercise Price shall not be reduced below the par value of the Shares, if any.

6. PAYMENT FOR SHARE PURCHASES. Payment for Shares purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:

(a) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market;

(b) by waiver of compensation due or accrued to Participant for services rendered;

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(1) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (a “NASD Dealer”) whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased in order to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(2) through a “margin” commitment from Participant and a NASD Dealer whereby Participant irrevocably elects to exercise the Award and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or

(d) by any combination of the foregoing.

7. WITHHOLDING TAXES.

7.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

7.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee.

8. PRIVILEGES OF STOCK OWNERSHIP.

8.1 Voting and Dividends. No Participant shall have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares.

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8.2 Financial Statements. The Company shall provide financial statements to each Participant prior to such Participant’s purchase of Shares under the Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company shall not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information.

9. TRANSFERABILITY. Subject to Section 4.1(j), Awards granted under the Plan, and any interest therein, shall not: (a) be transferable or assignable by the Participant, (b) be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Stock Option Agreement provisions relating thereto or (c) during the lifetime of the Participant, be exercisable by anyone other than the Participant, and any elections with respect to an Award, may be made only by the Participant.

10. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed.

11. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so.

12. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant’s employment or other relationship at any time, with or without cause.

13. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective

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Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares or other consideration, based on such terms and conditions as the Committee and the Participant shall agree.

14. CORPORATE TRANSACTIONS.

14.1 Corporate Transactions. In the event of a Corporate Transaction (as defined in this Section 14.1), the exercisability of each Award shall be automatically accelerated so that each Award shall, immediately before the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of Shares and may be exercised for all or any portion of such Shares; provided, that an Award shall not be accelerated if and to the extent that such Award 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. The determination of comparability shall be made by the Committee, and the Committee’s determination shall be final, binding and conclusive. Upon the consummation of a Corporate Transaction, all outstanding Awards shall, to the extent not previously exercised or assumed by the successor corporation or its parent, terminate and cease to be exercisable.

“Corporate Transaction” means (a) a merger or acquisition in which the Company is not the surviving entity (except for a transaction the principal purpose of which is to change the State in which the Company is incorporated), (b) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (c) any other corporate reorganization or business combination that is not approved by the Board and in which the beneficial ownership of 50% or more of the Company’s outstanding voting stock is transferred.

14.2 Change in Control. Notwithstanding any provision in Section 14.1 to the contrary, in the event of a Change in Control (as defined in this Section 14.2), each Award shall automatically accelerate effective fifteen (15) days following the effective date of the Change in Control, so that each Award shall become fully exercisable with respect to the total number of Shares and may be exercised for all or any portion of such Shares. Upon a Change in Control, all outstanding Awards accelerated shall remain fully exercisable until the expiration or sooner termination of the Award term specified in the Stock Option Agreement.

A “Change in Control” shall be deemed to occur: (a) should a person or related group of persons, other than the Company or a person that directly or indirectly controls, is controlled by or is under common control with the Company, becomes the beneficial owner (within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act) of 25% or more of the Company’s outstanding voting stock pursuant to a tender or exchange offer that the Board does not recommend and that the stockholders of the Company accept; or (b) on the first date within any period of twenty-four (24) consecutive months or less on which there is effected a change in the composition of the Board by reason of a contested election such that a majority of the Board members cease to be comprised of individuals who either (i) have been members of the Board continuously since the beginning of such period or (ii)

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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 (i) who were still in office at the time such election or nomination was approved by the Board.

14.3 Dissolution. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Participant at least fifteen (15) days prior to such proposed action. To the extent that Awards have not been previously exercised, such Awards will terminate immediately prior to the consummation of such proposed action.

14.4 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company’s award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Award rather than assuming an existing option, such new Award may be granted with a similarly adjusted Exercise Price.

15. ADOPTION AND STOCKHOLDER APPROVAL. The Plan shall become effective on the date that it is adopted by the Board (the “Effective Date”).

16. TERM OF PLAN. Unless earlier terminated as provided herein, the Plan will terminate ten (10) years from the Effective Date.

17. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Stock Option Agreement or instrument to be executed pursuant to the Plan, provided, however, that no amendment may be made to outstanding Awards without the consent of the Participant.

18. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, nor any provision of the Plan, shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

19. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings:

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“Affiliate” means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company where “control” (including the terms “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise.

“Award” means an award of a nonqualified stock option to purchase Shares.

“Stock Option Agreement” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

“Board” means the Board of Directors of the Company.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board.

“Company” means Integrated Device Technology, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation.

“Disability” means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exercise Price” means the price at which a holder of an Award may purchase the Shares issuable upon exercise of the Award.

“Fair Market Value” means the value of a share of the Company’s Common Stock determined as follows:

(a) if such Common Stock is then quoted on the Nasdaq National Market the closing price on the Nasdaq National Market System on the trading day immediately preceeding the date on which Fair Market Value is determined, or, if no such reported sale takes place on such date, the closing price on the next preceding trading date on which a reported sale occurred;

(b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the closing price or, if no reported sale takes place on such date, the closing price on the next preceding trading day on which a reported sale occurred;

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(c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or

(d) if none of the foregoing is applicable, by the Board in good faith.

“Insider” means an officer or director of the Company or any other person whose transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Participant” means a person who receives an Award under the Plan.

“Plan” means this Integrated Device Technology, Inc. 1997 Stock Option Plan, as amended from time-to-time.

“SEC” means the Securities and Exchange Commission.

“Shares” means shares of the Company’s Common Stock $0.001 par value, reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 14, and any successor security.

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Termination” or “Terminated” means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, consultant, independent contractor or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee; provided, that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”).

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