0001047469-03-036288.txt : 20031106 0001047469-03-036288.hdr.sgml : 20031106 20031106143819 ACCESSION NUMBER: 0001047469-03-036288 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030928 FILED AS OF DATE: 20031106 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: 03982017 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 a2121838z10-q.htm FORM 10-Q
QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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 September 28, 2003
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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes ý No o

The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of Oct. 27, 2003, was approximately 104,830,000.

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						Six months ended
		Sep. 28, 2003			Sep. 29, 2002			Sep. 28, 2003			Sep. 29, 2002
Revenues		$	80,777		$	92,252		$	163,822		$	184,064
Cost of revenues			42,201			49,246			90,925			106,249

Gross profit			38,576			43,006			72,897			77,815

Operating expenses:
	Research and development		25,716			29,384			51,082			59,625
	Selling, general and administrative		18,320			20,018			36,645			40,600
	Acquired in-process research and development		264			—			264			—

Total operating expenses			44,300			49,402			87,991			100,225

Operating loss			(5,724	)		(6,396	)		(15,094	)		(22,410	)
Gain (loss) on equity investments			3,151			(6,557	)		3,151			(6,557	)
Interest expense			(118	)		(129	)		(210	)		(260	)
Interest income and other, net			3,142			5,231			7,366			11,154

Income (loss) before income taxes			451			(7,851	)		(4,787	)		(18,073	)
Benefit from income taxes			(699	)		(2,969	)		(1,185	)		(5,601	)

Net income (loss)		$	1,150		$	(4,882	)	$	(3,602	)	$	(12,472	)

Basic net income (loss) per share		$	0.01		$	(0.05	)	$	(0.03	)	$	(0.12	)
Diluted net income (loss) per share		$	0.01		$	(0.05	)	$	(0.03	)	$	(0.12	)
Weighted average shares:
	Basic		104,210			103,091			104,041			103,662
	Diluted		106,148			103,091			104,041			103,662

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

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

		Sep. 28, 2003			Mar. 30, 2003
Assets
Current assets:
	Cash and cash equivalents	$	176,519		$	144,400
	Short-term investments		391,429			410,425
	Accounts receivable, net		40,950			40,111
	Inventories, net		33,414			41,189
	Prepayments and other current assets		20,781			29,420

Total current assets			663,093			665,545
Property, plant and equipment, net			122,561			129,923
Goodwill and other intangibles, net			54,278			47,266
Other assets			37,344			38,578

Total assets		$	877,276		$	881,312

Liabilities and stockholders' equity
Current liabilities:
	Accounts payable	$	16,323		$	17,514
	Accrued compensation and related expenses		11,885			11,020
	Deferred income on shipments to distributors		16,082			17,911
	Income taxes payable		33,095			32,280
	Other accrued liabilities		19,406			20,120

Total current liabilities			96,791			98,845
Long-term obligations			20,359			23,775

Total liabilities			117,150			122,620
Stockholders' equity:
	Common stock and additional paid-in capital		812,686			806,629
	Deferred stock based compensation		(1,862	)		(2,633	)
	Treasury stock		(180,751	)		(180,751	)
	Retained earnings		127,161			130,763
	Accumulated other comprehensive income		2,892			4,684

Total stockholders' equity			760,126			758,692

Total liabilities and stockholders' equity		$	877,276		$	881,312

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)

			Six months ended
			Sep. 28, 2003			Sep. 29, 2002
Operating activities
	Net loss		$	(3,602	)	$	(12,472	)
	Adjustments:
		Depreciation and amortization		24,356			38,761
		Amortization of intangible assets		802			1,884
		Acquired in-process research and development		264			—
		Merger-related stock-based compensation		721			990
		Impairment loss on equity investments		—			6,557
		Non-cash restructuring and other		164			—
		Loss on sale of property, plant and equipment		—			42
	Changes in assets and liabilities:
		Accounts receivable		(839	)		(5,482	)
		Inventories		7,775			7,458
		Prepayments and other assets		9,873			195
		Accounts payable		(1,191	)		1,194
		Accrued compensation and related expenses		865			(1,312	)
		Deferred income on shipments to distributors		(1,829	)		(15,726	)
		Income taxes payable		815			(4,572	)
		Other accrued liabilities		(1,319	)		(6,377	)

		Net cash provided by operating activities		36,855			11,140

Investing activities
	Purchases of property, plant and equipment			(17,120	)		(16,375	)
	Purchase of assets under synthetic lease			—			(64,369	)
	Proceeds from sales of property, plant and equipment			—			209
	Purchases of marketable securities			(230,846	)		(399,841	)
	Proceeds from sales and maturities of marketable securities			247,272			425,570
	Acquisition of technology			(8,078	)		—
	Purchases of other investments			—			(30,000	)

		Net cash used for investing activities		(8,772	)		(84,806	)

Financing activities
	Issuance of common stock			6,107			6,566
	Repurchases of common stock			—			(40,443	)
	Payments on capital leases and other debt			(2,071	)		(3,215	)

		Net cash provided by (used for) financing activities		4,036			(37,092	)

Net increase (decrease) in cash and cash equivalents				32,119			(110,758	)
Cash and cash equivalents at beginning of period				144,400			256,172

Cash and cash equivalents at end of period			$	176,519		$	145,414

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 30, 2003. The results of operations for the three-and six-month periods ended September 28, 2003 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
Net Income (Loss) Per Share

Net income (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."

	Three months ended		Six months ended
*(in thousands)*	Sep. 28, 2003	Sep. 29, 2002	Sep. 28, 2003	Sep. 29, 2002
Weighted average common shares outstanding	104,210	103,091	104,041	103,662
Dilutive effect of employee stock options	1,938	—	—	—

Weighted average common shares outstanding, assuming dilution	106,148	103,091	104,041	103,662

Net income (loss) per share for the three month period ended September 29, 2002 and the six-month periods ended September 28, 2003 and September 29, 2002 is based only on weighted average shares outstanding. Stock options based equivalent shares for these periods, of 1.4 million, 1.2 million, and 2.2 million, respectively were excluded from the calculation of diluted earnings per share, as their effect would be antidilutive in net loss periods. Employee stock options to purchase 3.7 million shares for the three month period ended September 28, 2003, were outstanding, but were excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than the average share price of the common shares and therefore, the effect would be antidilutive.

Note 3
Stock-Based Employee Compensation

The Company accounts for its stock option plans and employee stock purchase plan in accordance with the intrinsic value method prescribed in the Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In certain instances, primarily in connection with acquisitions, the Company records stock-based employee compensation cost in net income (loss). The following table illustrates the effect on net income (loss) and income (loss) per share if we had

applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to stock-based employee compensation.

	Three months ended						Six months ended
*(in thousands)*	Sep. 28, 2003			Sep. 29, 2002			Sep. 28, 2003			Sep. 29, 2002
Reported net income (loss)	$	1,150		$	(4,882	)	$	(3,602	)	$	(12,472	)
Add: Stock-based compensation included in reported net income (loss)		359			495			721			990
Deduct: Stock-based employee compensation expense determined under a fair-value based method for all awards, net of tax (1)		(11,061	)		(12,276	)		(25,150	)		(23,695	)

Pro forma net loss	$	(9,552	)	$	(16,663	)	$	(28,031	)	$	(35,177	)

Pro forma net loss per share:
Basic	$	(0.09	)	$	(0.16	)	$	(0.27	)	$	(0.34	)
Diluted	$	(0.09	)	$	(0.16	)	$	(0.27	)	$	(0.34	)
Reported net income (loss) per share:
Basic	$	0.01		$	(0.05	)	$	(0.03	)	$	(0.12	)
Diluted	$	0.01		$	(0.05	)	$	(0.03	)	$	(0.12	)

(1): Assumes tax rate of 0% for fiscal 2004 and 39.7% for fiscal 2003

During the third quarter of fiscal 2003, the Company completed a voluntary stock option exchange program for its eligible employees. The Company's chief executive officer, president, board of directors and employees within certain non-U.S. jurisdictions were not eligible to participate in this program. Under the exchange offer program, IDT employees were given the opportunity to voluntarily exchange unexercised vested and unvested stock options previously granted to them that had an exercise price of $11.01 or more. The offer to exchange expired on December 6, 2002. Of the approximately 1,900 employees who were eligible, approximately 1,200 participated. Of the approximately 12.6 million stock options eligible for exchange, approximately 10.1 million options were tendered by participants in the offer and were canceled by the Company. On June 11, 2003, the Company granted approximately 7.3 million options as a result of the exchange program. The exchange program did not result in the recording of any compensation expense in the consolidated statement of operations.

Note 4
Recent Accounting Pronouncements

In November 2002, the EITF reached a consensus on Issue No. 00-21 (EITF 00-21), "Revenue Arrangements with Multiple Deliverables," which provides guidance on the timing and method of revenue recognition for arrangements that include the delivery of more than one product or service. EITF 00-21 is effective for arrangements entered into in periods beginning after June 15, 2003. The Company's adoption did not have a material impact on its financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (FIN 46)." FIN 46 requires an investor with a majority of the variable interests in a variable interest entity to consolidate the entity and to provide certain disclosures. A variable interest entity is defined as an entity in which the equity investors do not have the characteristics of a controlling interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from the other parties. As of September 28, 2003, the Company had no investments which would require consolidation under FIN 46.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. This statement is effective for contracts entered into or modified after June 30, 2003. The Company's adoption did not have a material impact on its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003. As of September 28, 2003, the Company had no financial instruments within the scope of this pronouncement.

Note 5
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 September 28, 2003 and March 30, 2003. 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 other 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.

Note 6
Inventories, Net

Inventories (net of reserves of $41.9 million and $65.7 million at September 28, 2003 and March 30, 2003, respectively) are summarized as follows:

*(in thousands)*	Sep. 28, 2003		Mar. 30, 2003
Raw materials	$	2,578	$	2,816
Work-in-process		22,195		26,944
Finished goods		8,641		11,429

Total inventories, net	$	33,414	$	41,189

Note 7
Goodwill and Other Intangible Assets

Goodwill is reviewed annually for impairment (or more frequently if indicators of impairment arise). The Company completed its annual impairment assessment in the fourth quarter of fiscal 2003 and concluded that goodwill was not impaired. For purposes of this assessment, the Company identified two reporting units, (1) Communications and High-Performance Logic and (2) SRAMs. All Company goodwill relates to the Communications and High-Performance Logic reporting unit.

In August 2003, the Company acquired certain technology for use in high-speed packet processing from IBM in a transaction, immaterial in value, that does not constitute a business combination. The principal identifiable intangible assets acquired were existing technology and customer relationship. In

process technology acquired was expensed at the date of acquisition. The fair values assigned are based on estimates and assumptions provided by management, and other information compiled by management, including a third-party valuation that utilized established valuation techniques appropriate for the high technology industry. In addition, incremental amounts will be paid if the seller achieves certain product development milestones within an agreed upon period and if the sales of product incorporating the acquired technology reach certain thresholds.

Goodwill and identified intangible assets relate to the Company's acquisition of Newave Semiconductor Corp. (Newave) in April 2001, Solidum Systems (Solidum) in October 2002, and the technology discussed above in August 2003. Balances as of September 28, 2003 and March 30, 2003 are summarized as follows:

	Sep. 28, 2003
*(in thousands)*	Gross assets		Accumulated amortization			Net assets
Goodwill	$	40,218	$	—		$	40,218
Identified intangible assets:
Existing technology		8,986		(769	)		8,217
Customer relationship		3,452		(58	)		3,394
Trademark		2,240		(770	)		1,470
Non-compete agreement		1,625		(676	)		949
Backlog and training		63		(33	)		30

Subtotal, identified intangible assets		16,366		(2,306	)		14,060

Total goodwill and identified intangible assets	$	56,584	$	(2,306	)	$	54,278

	Mar. 30, 2003
*(in thousands)*	Gross assets		Accumulated amortization			Net assets
Goodwill	$	40,218	$	—		$	40,218
Identified intangible assets:
Existing technology		5,662		(246	)		5,416
Trademark		2,240		(608	)		1,632
Non-compete agreement		650		(650	)		—

Subtotal, identified intangible assets		8,552		(1,504	)		7,048

Total goodwill and identified intangible assets	$	48,770	$	(1,504	)	$	47,266

The tables above exclude the effects of impairment charges of $13.5 million recorded in Q4 2003.

Amortization expense for identified intangibles is summarized below:

	Three months ended		Six months ended
*(in thousands)*	Sep. 28, 2003	Sep. 29, 2002	Sep. 28, 2003	Sep. 29, 2002
Existing technology	289	786	523	1,572
Customer relationship	58	—	58	—
Trademark	80	—	162	—
Other identified intangibles	59	156	59	312

Total	486	942	802	1,884

Based on the identified intangible assets recorded at September 28, 2003, the future amortization expense of identified intangibles for the next five fiscal years is as follows (in thousands):

Year ending March,		Amount
Remainder of fiscal 2004		1,493
2005		2,927
2006		2,927
2007		2,769
2008		2,611
Thereafter		1,333

Total		14,060

Note 8
Non-Marketable Equity Securities

Included in other assets as of September 28, 2003 and March 30, 2003 is a $30.0 million preferred-stock investment in a privately held technology company. This was an interest-bearing financial instrument which was converted by the issuer to preferred stock in the third quarter of fiscal 2003.

Note 9
Gain (Loss) on Equity Investments, Net

During the quarter ended September 28, 2003, the Company sold its remaining shares in PMC-Sierra, Inc. (PMC) and recorded a $3.2 million, net gain. During the quarter ended September 29, 2002, the Company recorded a $6.6 million pretax charge ($4.0 million net of tax benefits) related to its investment in PMC. The charge represented what the Company considered to be an other-than-temporary decline in the aggregate market value of its PMC shares.

Note 10
Comprehensive Loss

The components of comprehensive loss were as follows:

	Three months ended						Six months ended
*(in thousands)*	Sep. 28, 2003			Sep. 29, 2002			Sep. 28, 2003			Sep. 29, 2002
Net income (loss)	$	1,150		$	(4,882	)	$	(3,602	)	$	(12,472	)
Currency translation adjustments		388			59			809			1,009
Change in unrealized gain (loss) on derivatives, net of taxes		—			122			(31	)		41
Change in net unrealized gain (loss) on investments, net of taxes*		(4,109	)		3,677			(2,570	)		3,116

Comprehensive loss	$	(2,571	)	$	(1,024	)	$	(5,394	)	$	(8,306	)

* Realized gain on sale of PMCS shares		3,151			—			3,151			—
* Other-than-temporary loss realized on PMCS shares, net of tax		—			(4,000	)		—			(4,000	)

The components of accumulated other comprehensive income were as follows:

*(in thousands)*	Sep. 28, 2003			Mar. 30, 2003
Cumulative translation adjustments	$	(346	)	$	(1,155	)
Unrealized gain on derivatives		—			31
Unrealized gain on investments		3,238			5,808

Total accumulated other comprehensive income	$	2,892		$	4,684

Note 11
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. From time to time, 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 and six months of fiscal 2004 and 2003, the Company did not record any gains or losses related to forecasted transactions that became improbable or did not occur.

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 and six months of fiscal 2004 and 2003.

Firm commitments. As needed, 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 and six months of fiscal 2004 and 2003 were not significant.

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 and six months of fiscal 2004 and 2003, the time value of these contracts was recorded as other income and were 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 and six months of fiscal 2004 and 2003.

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 September 28, 2003, the Company had not entered into this type of hedge.

Note 12
Industry Segments

The Company operates in two segments: (1) Communications and High-Performance Logic and (2) SRAMs. 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 segment consists of high-speed SRAMs.

The tables below provide information about these segments for the three and six month periods ended September 28, 2003 and September 29, 2002:

Revenues by segment

	Three months ended				Six months ended
*(in thousands)*	Sep. 28, 2003		Sep. 29, 2002		Sep. 28, 2003		Sep. 29, 2002
Communications and High-Performance Logic	$	68,183	$	79,563	$	140,043	$	157,993
SRAMs		12,594		12,689		23,779		26,071

Total consolidated revenues	$	80,777	$	92,252	$	163,822	$	184,064

Income (Loss) by segment

	Three months ended						Six months ended
*(in thousands)*	Sep. 28, 2003			Sep. 29, 2002			Sep. 28, 2003			Sep. 29, 2002
Communications and High-Performance Logic	$	3,999		$	5,545		$	5,484		$	146
SRAMs		(7,579	)		(9,451	)		(16,881	)		(14,189	)
Restructuring and asset impairment		(752	)		—			(1,333	)		—
Amortization of intangible assets		(486	)		(942	)		(802	)		(1,884	)
Amortization of deferred stock-based compensation		(359	)		(495	)		(721	)		(990	)
Facility closure costs and other		(283	)		(1,053	)		(577	)		(5,493	)
Acquired in-process research and development		(264	)		—			(264	)		—
Gain (loss) on equity investments		3,151			(6,557	)		3,151			(6,557	)
Interest income and other		3,142			5,231			7,366			11,154
Interest expense		(118	)		(129	)		(210	)		(260	)

Income (loss) before income taxes	$	451		$	(7,851	)	$	(4,787	)	$	(18,073	)

Note 13
Guarantees

We indemnify certain customers, distributors, and subcontractors for attorney fees and damages awarded against these parties in certain circumstances in which our products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of our indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to our potential liability for indemnification relating to intellectual property infringement claims. We cannot estimate the amount of

potential future payments, if any, that we might be required to make as a result of these agreements. We have not paid any claim or been required to defend any claim related to our indemnification obligations, and accordingly, we have not accrued any amounts for our indemnification obligations. However, there can be no assurances that we will not have any future financial exposure under these indemnification obligations.

The Company maintains a reserve for obligations it incurs under its product warranty program. The standard warranty period offered is one year. Management estimates the fair value of its warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the program. Activity for the Company's warranty reserve, which is included as part of "Other accrued liabilities" on the Condensed Consolidated Balance Sheet, for the six months ended September 28, 2003, is summarized below:

*(In thousands)*
Balance as of March 30, 2003	$	468
Accruals for warranties issued		244
Settlements		(244	)
Accruals related to pre-existing warranties (including changes in estimates)		20

Balance as of September 28, 2003	$	488

Note 14
Subsequent Event

On October 24, 2003, the Company closed escrow on the sale of its decommissioned manufacturing facility in Salinas, California. In connection with the closing, the Company received $6.1 million. In addition, the Company received $10,000 for an additional 30 day option for the buyer to purchase an adjacent, vacant lot for an additional cost of $1.6 million.

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

All references are to our fiscal quarters ended September 28, 2003 (Q2 2004), June 29, 2003 (Q1 2004) and September 29, 2002 (Q2 2003), 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 matters; 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. Unless otherwise required by law, we undertake no obligation to publicly revise these statements for future events or new information after the date of this Report on Form 10-Q.

Forward-looking statements, which are generally identified by words such as "anticipates," "expects," "plans," and similar terms, include statements related to revenues and gross profit, research and development activities, selling, general, and administrative expenses, intangible expenses, 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.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates.

We believe that the following accounting policies are "critical" as defined by the Securities and Exchange Commission, in that they are both highly important to the portrayal of our financial condition and results, and require difficult management judgments and assumptions about matters that are inherently uncertain. We also have other important policies, including those related to revenue recognition and concentration of credit risk, however, these policies do meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are difficult or subjective. These policies are discussed in the Notes to the Consolidated Financial Statements, which are included in the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 2003.

Income Taxes. We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require us to evaluate the realizability of our net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, we consider various tax planning strategies, forecasts of future taxable income and our most recent operating results in assessing the need for a valuation allowance. In the consideration of the realizability of net deferred tax assets, recent losses must be given substantially more weight than any projections of future profitability. In the fourth quarter of fiscal 2003, we determined that, under applicable accounting principles, it was more likely than not that we

would not realize any value for any of our net deferred tax assets. Accordingly, we established a valuation allowance equal to 100% of the amount of these assets.

Inventories. Inventories are recorded at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. Among other inventory-related reserves, we record reserves for obsolete and excess inventory based on our forecasts of demand over specific future time horizons. Actual market conditions and demand levels in the volatile semiconductor markets that we serve may vary from our forecasts, potentially impacting our inventory reserves and resulting in material effects on our gross margin.

Valuation of Long-Lived Assets and Goodwill. We own and operate our own manufacturing facilities and have also acquired businesses in recent years. As a result, we have significant property, plant and equipment, goodwill and other intangible assets. We evaluate these items for impairment on an annual basis, or sooner if events or changes in circumstances indicate that carrying values may not be recoverable. Triggering events for impairment reviews may include adverse industry or economic trends, restructuring actions, lowered projections of profitability, or a sustained decline in our market capitalization. Evaluations of possible impairment and, if applicable, adjustments to carrying values, require us to estimate, among other factors, future cash flows, useful lives and fair market values of our reporting units and assets. Actual results may vary from our expectations. We recorded asset impairment charges of $121.4 million and $17.4 million in fiscal 2003 and 2002, respectively.

In connection with our adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," we completed a transitional goodwill impairment review as of the beginning of fiscal 2003 and an annual impairment review during the fourth quarter of fiscal 2003. Neither review found impairment. Under our accounting policy, we plan to perform an annual review in the fourth quarter of each future fiscal year, or more often if indicators of impairment exist. Our annual reviews consider estimates of the fair value of our reporting units, and may include analyses of projected discounted cash flows, using management's estimates of future revenues and expenses over a multi-year horizon. As of September 28, and March 30, 2003, our assets included $40.2 million in goodwill related to the acquisitions of Newave Semiconductor Corp. (Newave) and Solidum Systems Inc. (Solidum).

RESULTS OF OPERATIONS

Revenues (Q2 2004 compared to Q2 2003). Our revenues for Q2 2004 were $80.8 million, $11.5 million or 12.4% lower than the same quarter one year ago.

In Q2 2004, revenues for our Communications and High Performance Logic segment, (which includes FIFOs and multiports, communications applications-specific standard products (ASSPs), and high-performance logic and timing products) were down $11.4 million or 14.3% compared to Q2 2003. Though total units sold were up, the increase was more than offset by declines in average selling price (ASP) per unit. Revenues for the SRAMs segment were essentially flat on considerably higher units sold but lower ASP.

Revenues (Q2 2004 compared to Q1 2004). Our revenues for Q2 2004 were sequentially lower by $2.3 million or 2.7%.

Between Q1 2004 and Q2 2004 revenues in our Communications and High Performance Logic segment declined by approximately 5%. Despite unit growth in certain product areas, such as our IP Coprocessors, overall units were lower due to declines in other segment products, such as our industry standard logic. Adjusting for product mix, ASP declined sequentially, but at a lower rate than in previous quarters. SRAM revenues increased $1.4 million in Q2 2004 compared to Q1 2004 on higher unit volumes, despite lower ASP.

Revenues (First six months of fiscal 2004 compared to first six months of fiscal 2003). Our revenues year-to-date for fiscal 2004 were $163.8 million compared with $184.1 million for the first six months of fiscal 2003, a $20.2 million, or 11.0% decline.

For both of our product segments, increases in unit volumes shipped were more than offset by declines in ASP. Revenue for our Communications and High Performance Logic segment declined by $17.9 million or 11.4%, while revenues for our SRAMs segment declined by $2.3 million or 8.8%.

Revenues (recent trends and outlook). While there are some indications of stabilization in certain markets we serve, customers continue to defer placing firm purchase orders for as long as possible and demand that products be delivered on very short lead times. These customer patterns, combined with a growing percentage of revenue generated through consignment programs, reduce our firm order backlog for immediately recognizable revenue and limit the visibility we might otherwise have on revenue in future periods. In the near-term, however, we currently anticipate that revenues in our third quarter of fiscal 2004 will be slightly higher from the levels recorded in Q2 2004.

Gross Profit (Q2 2004 compared to Q2 2003). Gross profit for Q2 2004 decreased to $38.6 million from $43.0 million in Q2 2003. Gross profit margin as a percentage of revenue increased to 47.8% in Q2 2004 versus 46.6% in Q2 2003.

Gross profit was adversely impacted by lower revenue levels in Q2 2004, as discussed above, and by lower allocations of manufacturing costs to R&D. From a gross margin percentage perspective, these adverse impacts were offset by:

•: Lower manufacturing spending (including lower depreciation expenses of approximately $7 million related to the asset impairment charges taken in Q4 2003); and
•: Better manufacturing utilization related to ramping capacity at our Hillsboro, Oregon wafer-fabrication facility.

Gross Profit (Q2 2004 compared to Q1 2004) Gross profit for Q2 2004 increased to $38.6 million from $34.3 million in Q1 2004. As a percentage of revenue, gross profit margin improved to 47.8% in Q2 2004 versus 41.3% in Q1 2004.

Although gross profit was adversely impacted by the lower revenue levels in Q2 2004, it benefited from better utilization of our manufacturing infrastructure.

Gross Profit (first six months of 2004 compared to the first six months of 2003). Gross profit for the first six months of 2004 decreased to $72.9 million from $77.8 million in the first six months of 2003. However, gross profit margin as a percentage of revenue increased to 44.5% for the first six months of 2004 versus 42.3% for the first six months of 2003 despite the lower revenue base.

Gross profit was adversely impacted by lower revenue levels in the first six months of 2004, as discussed above, and by lower allocations of manufacturing costs to R&D. From a gross margin percentage perspective, these adverse impacts were offset by:

•: Lower manufacturing spending (including lower depreciation expenses of approximately $7 million per quarter related to the asset impairment charges taken in Q4 2003);
•: Lower non-recurring costs, as charges of $3.6 million (primarily retention bonuses) related to closing our Salinas manufacturing facility in Q1 2003 did not recur in 2004; and
•: Better manufacturing utilization, as a result of having ceased operations at the Salinas site and consolidated wafer manufacturing in our Hillsboro wafer-fabrication facility.

In Q2 2004, we estimate that gross profit received zero benefit from the sale of inventory previously reserved as excess. For the first six months of 2004, we estimate that gross profit benefited by approximately $2 million from the sale of inventory previously reserved as excess.

Throughout fiscal 2004, any further improvement in gross profit will remain primarily dependent on better business conditions, increases in revenue, and improved levels of capacity utilization.

Research and development. For Q2 2004, research and development (R&D) expenses totaled $25.7 million, a decrease of $3.7 million and an increase of $0.4 million compared to Q2 2003 and Q1 2004, respectively.

R&D spending in Q2 2004 was lower than the same quarter one year ago primarily due to asset impairments and restructuring and other cost control measures implemented by the company in the second half of fiscal year 2003, including the closure of our Dallas Design Center. We realized savings in depreciation, labor and manufacturing expense allocations as a result of these actions. Partially offsetting these benefits were higher costs attributable to our acquisition of Solidum Systems in Q3 2003. R&D spending in Q2 2004 was higher than in Q1 2004 mostly due to higher costs incurred for outside design services.

For the first six months of fiscal 2004, R&D spending decreased by $8.5 million compared to the same period in fiscal 2003. In addition to those changes for Q2 2004 compared to Q2 2003, further described above, deferred stock-based compensation expense in connection with our acquisition of Newave was also lower in the first six months of fiscal 2004 than the same period for fiscal 2003.

We currently expect R&D spending to remain essentially flat or decrease slightly in Q3 2004 compared with Q2 2004.

Selling, general and administrative. In Q2 2004, selling, general and administrative (SG&A) expenses were $18.3 million, a decrease of $1.7 million compared to Q2 2003 and essentially flat compared to Q1 2004.

SG&A spending in Q2 2004 includes restructuring and other exit related charges of $0.7 million, compared with zero comparable charges in the same quarter one year ago. The charges (mostly severance) relate to a reduction in force and lease exit and moving costs realized in the period, some of which relate to our Q4 2003 restructuring plan. Compared with Q2 2003, bad debt reserves were also higher in Q2 2004. These increased costs were essentially offset by savings resulting from restructuring and other cost reduction actions taken in Q3 and Q4 of fiscal year 2003.

For the first six months of fiscal 2004, SG&A spending decreased by $4.0 million compared to the same period in fiscal 2003. The decrease is due primarily to the same reasons as those described above in the comparison between Q2 2004 and Q2 2003.

We currently anticipate SG&A spending to remain essentially flat in Q3 2004 compared with Q2 2004.

Acquired in-process research and development. In connection with our acquisition of technology from IBM during the quarter ended September 28, 2003, we recorded a $0.3 million charge for acquired in-process research and development (IPR&D). 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.

Gain (Loss) on equity investments During the quarter ended September 28, 2003, the Company sold its remaining shares of PMC Sierra (PMC). In connection with the sale, the Company recorded a net gain of $3.2 million. During the quarter ended September 29, 2002, the Company recorded a $6.6 million pretax charge ($4.0 million net of tax benefits) also related to its investment in PMC. The

charge represented what the Company considered to be an other-than-temporary decline in the aggregate market value of its PMC shares.

Interest income and other, net. In Q2 2004, interest income and other, net, was $3.1 million, a decrease of $2.1 million compared to Q2 2003 and down $1.1 million compared to Q1 2004. The decrease in Q2 2004 as compared to Q1 2004 was primarily driven by lower average interest rates on our investment portfolio and was slightly offset by a non-recurring benefit of $0.2 million in connection with interest on a tax refund. From Q2 2003 to Q2 2004, interest income and other, net, declined primarily due to lower average interest rates and, to a lesser extent, due to lower invested balances.

Provision for taxes. We recorded a 100% valuation allowance in the fourth quarter of fiscal 2003 against our net deferred tax assets and, accordingly, we recorded no tax benefit for tax losses and tax credits generated during Q2 2004 or the six months then ended. The tax benefit for Q2 and Q1 2004 includes, however, $1.3 million and $0.8 million, respectively, for tax refunds we received related to previous tax years. We do not expect to recognize tax benefits on future operating losses until a sufficient level of profitability is achieved. Going forward, we currently expect to record a quarterly tax expense which relates to income generated in certain foreign tax jurisdictions.

Liquidity and Capital Resources

Our cash, cash equivalents and investments were $567.9 million at September 28, 2003, an increase of $13.1 million compared to March 30, 2003. Long and short-term debt, excluding operating leases, was $7.7 million as of September 28, 2003, a decrease of $2.0 million compared to March 30, 2003.

Net cash provided by operating activities was $36.9 million for the first six months of fiscal 2004, compared to $11.1 million for the same period in fiscal 2003. During the first six months of fiscal 2004, cash provided by non-cash related adjustments to net income, such as depreciation, and by changes in working capital balances more than offset our net loss. The adverse year-to-date impact on cash provided by operating activities due to deferred distributor income declined from $15.7 million in 2003 to $1.8 million in 2004, due to stabilizing levels of distributor channel inventory.

Net cash used for investing activities was $8.8 million in the first six months of fiscal 2004, compared to $84.8 million for the same period in fiscal 2003. In Q2 2004, we made the initial payment in relation to the acquisition of technology from IBM. In Q1 2003, we invested $30.0 million in preferred shares of a privately held technology related company. In addition, in Q2 2003, we terminated the synthetic lease related to our Hillsboro, Ore., manufacturing site and exercised our option to purchase approximately $64.4 million in additional fixed assets. These amounts were partially offset by net proceeds of $16.4 million and $25.7 million from sales and maturities of marketable securities during the first six months of fiscal 2004 and fiscal 2003, respectively.

Net cash provided by financing activities was $4.0 million for the first six months of fiscal 2004, compared to $37.1 million used for financing activities for the same period in fiscal 2003. Significant financing activities in the first six months of fiscal 2003 included repurchases of common stock of $40.4 million. In addition, payments on capital leases and other debt decreased by $1.1 million in the first six months of fiscal 2004, versus the comparable period of 2003.

We anticipate capital expenditures of approximately $35.0 million during fiscal 2004, depending upon business conditions, to be financed primarily through cash generated from operations and existing cash and investments. This estimate includes $17.1 million in capital expenditures during the first six months of fiscal 2004.

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 2004 and 2005. We may choose to investigate other financing alternatives; however, we cannot be certain that additional financing will be available on satisfactory terms.

Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. This statement is effective for contracts entered into or modified after September 29, 2003. The Company's adoption did not have a material impact on its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAF No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003. As of September 28, 2003, the Company had no financial instruments within the scope of this pronouncement.

Factors Affecting Future Results

Our operating results can fluctuate dramatically. We recorded net losses of $277.9 million and $46.2 million in fiscal 2003 and 2002, respectively, after reporting net income of $415.2 million in fiscal 2001. Fluctuations in operating results can result from a wide variety of factors, including:

•: the cyclicality of the semiconductor industry and industry-wide wafer processing capacity;
•: changes in demand for our products and in the markets we serve;
•: the success and timing of new product and process technology announcements and introductions from us or our competitors;
•: potential loss of market share among a concentrated group of customers;
•: competitive pricing pressures;
•: changes in the demand for and mix of our products;
•: complex manufacturing and logistics operations;
•: availability and costs of raw materials, and of foundry and other manufacturing services;
•: costs associated with other events, such as intellectual property disputes, or other litigation; and
•: political and economic conditions in various geographic areas.

In addition, many of these factors also impact our ability to recover the carrying value of certain manufacturing, tax, goodwill, and other tangible and intangible assets. As business conditions change,

future writedowns or abandonment of these assets may occur. In fiscal 2003, we recorded impairment charges totaling $197.2 million for certain manufacturing, research and development, intangible and tax assets.

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. Substantial changes in demand for our products have occurred rapidly and suddenly in the past. In addition, market conditions characterized by excess supply relative to demand and resulting pricing declines have also occurred in the past. Significant shifts in demand for our products and pricing declines resulting from excess supply may occur in the future. Large and rapid swings in demand and pricing for our products can result in significantly lower revenues and underutilization of our fixed cost infrastructure, both of which would cause material fluctuations in our gross margins and our operating results.

Demand for our products depends primarily on demand in the communications markets. The majority of our products are incorporated into customers' systems in enterprise/carrier class network, wireless infrastructure and access network applications. A smaller percentage of our products also 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 revenue, depends on 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 markets could materially adversely affect our operating results, as evidenced by conditions in fiscal 2002 and 2003.

Our results are dependent on the success of new products. New products and wafer processing technology will continue to require significant R&D expenditures. If we are unable to develop, produce and successfully market 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. In addition, our future revenue growth is also partially dependent on our ability to penetrate new markets, where we have limited experience and where competitors are already entrenched. Even if we are able to develop, produce and successfully market new products in a timely manner, such new products may not achieve market acceptance.

We are dependent on a concentrated group of customers for a significant part of our revenues. We are dependent on a limited number of original equipment manufacturer (OEM) end-customers, and our future results depend significantly on the strategic relationships we have formed with them. If these relationships were to diminish, and if these customers were to develop their own solutions or adopt a competitor's solution instead of buying our products, our results could be adversely affected. For example, any diminished relationship with Cisco or other key customers could adversely affect our results. We estimate that when all channels of distribution are considered, Cisco represented approximately 20-25% of our total revenues for fiscal 2003.

Many of our end-customer OEMs has outsourced their manufacturing to a concentrated group of global contract electronic manufacturers (CEMs) who then buy product directly from us on behalf of the OEM. CEMs are achieving more autonomy in the design win, product qualification and product purchasing decisions, especially for commodity products. Furthermore, these CEMs have generally been centralizing their global procurement processes. This has had the effect of concentrating a significant percentage of our revenue with a small number of companies. Competition for the business of these

CEMs is intense and there is no assurance we can remain competitive and retain our existing market share within these customers. If these companies were to allocate a higher share of commodity or second source business to our competitors instead of buying our products, our results would be adversely affected. Furthermore, as these CEMs represent a growing percentage of our overall business, our concentration of credit and other business risks with these customers has increased. Competition among global CEMs is intense, they operate on extremely thin margins, and their financial condition, on average, has declined during the current industry downturn. If any one or more of these global CEMs were to file for bankruptcy or otherwise experience significantly adverse financial conditions, our business would be adversely impacted as well. One CEM, Celestica, accounted for approximately 15% of our revenue for fiscal 2003.

Finally, we utilize a relatively small number of global and regional distributors around the world, who buy product directly from us on behalf of their customers. If our business relationships were to diminish or any one or more of these global distributors were to file for bankruptcy or otherwise experience significantly adverse financial conditions, our business could be adversely impacted. One distributor represented 13% of revenues for fiscal 2003.

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, quality problems, and possibly lost revenue opportunities. While 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, Oregon, 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.

We are dependent upon electric power generated by public utilities where we operate our manufacturing facilities and we have periodically experienced electrical power interruptions. 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 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.

Much of our manufacturing capability is relatively fixed in nature. Much of our manufacturing cost structure remains relatively fixed and large and rapid swings in demand for our products can make it difficult to efficiently utilize this capacity on a consistent basis. Significant downturns, as we have recently experienced, will result in material under utilization of our manufacturing facilities while sudden upturns could leave us short of capacity and unable to capitalize on incremental revenue opportunities. These swings and the resulting under utilization of our manufacturing capacity or inability to procure sufficient capacity to meet end customer demand for our products will cause material fluctuations in the gross margins we report and could have a material adverse affect thereon.

We build most of our products based on estimated demand forecasts. Demand for our products can change rapidly and without advance notice. Demand and our visibility on demand for our products can

also be affected by changes in our customer's levels of inventory and differences in the timing and order patterns between them and their end customers. If demand forecasts are inaccurate or change suddenly, we may be left with large amounts of unsold products, may not be able to fill all orders in the short term and may not be able to accurately forecast capacity utilization and other important business metrics. This can leave us holding excess and obsolete inventory or unable to meet customer short-term demands all of which can have an adverse impact on our operating results.

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 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. Although we currently fabricate most of our wafers internally, we are dependent on outside foundries for a small but growing portion of our wafer requirements. Our results of operations would be materially 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, or if foundry capacity were not available or was only available at uncompetitive prices.

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 adequately control the use or discharge of hazardous materials under present or future regulations could subject us to substantial costs or liabilities or cause our manufacturing operations to be suspended.

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 materially adversely affect our business.

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 six months of fiscal 2004		Twelve months of fiscal 2003		Twelve months of fiscal 2002
Americas	29	%	37	%	48	%
Asia Pacific	37	%	30	%	18	%
Japan	18	%	14	%	14	%
Europe	16	%	19	%	20	%

Total	100	%	100	%	100	%

In addition, our assembly and test facilities in Malaysia and the Philippines, our design centers in Canada, China and Australia, and our foreign sales offices incur payroll, facility and other expenses in local currencies. Accordingly, movements in foreign currency exchange rates can impact our revenues

and costs of goods sold, as well as both pricing and demand for our products. Our offshore 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 and equipment used in the fabrication and assembly processes, as well as for foundry and subcontract assembly services, can also be impacted by currency exchange rate fluctuations.

Finally, in support of our international operations, a portion of our cash and investment portfolio resides offshore. At September 28, 2003, we had cash and investments of approximately $48.8 million invested overseas in accounts belonging to various IDT foreign operating entities. While these amounts are primarily invested in US dollars, a portion is held in foreign currencies, and all offshore balances are exposed to local political, banking, and other risks.

We depend on the ability of our personnel, raw materials, equipment and products to move reasonably unimpeded around the world. Any political, military, world health (e.g., SARS) or other issue which hinders this movement or restricts the import or export of materials could lead to significant business disruptions. Furthermore, any strike, economic failure, or other material disruption on the part of major airlines or other transportation companies could also adversely affect our ability to conduct business. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on information technology, or directly impact our marketing, manufacturing, financial and logistics functions our results of operations and financial condition could be materially adversely affected.

We are exposed to potential impairment charges on investments. From time to time, we have made strategic investments in other companies, both public and private. If the companies that we invest in are unable to execute their plans and succeed in their respective markets, we may not benefit from such investments, and we could potentially lose all of the amounts we invest. In addition, we evaluate our portfolio, including non-marketable equity securities, on a regular basis to determine if impairments have occurred. Impairment charges could have a material impact on our results of operations in any period. As of September 28, 2003, we carried approximately $30 million of such investments, all of which is included in other assets.

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. Stock price volatility may also result from product announcements by us or our competitors, or from changes in perceptions about the various types of products we manufacture and sell. In addition, our stock price may fluctuate due to price and volume fluctuations in the stock market, especially in the technology sector.

We are dependent on key personnel. Our performance is substantially dependent on the performance of our executive officers and key employees. The loss of the services of any our executive officers, technical personnel or other key employees could adversely affect our business. In addition, our future success depends on our ability to successfully compete with other technology firms in attracting and retaining key technical and management personnel. If we are unable to identify and hire highly qualified technical and managerial personnel, our business could be harmed.

We may have difficulty integrating acquired companies. From time to time, the Company has made acquisitions of businesses and technologies. Failure to successfully integrate acquired companies and

technologies 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, including goodwill impairment charges.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our interest rate risk relates primarily to our investment portfolio, which consisted of $176.5 million in cash and cash equivalents and $391.4 million in short-term investments as of September 28, 2003. By policy, we limit our exposure to longer-term investments, and a substantial majority of our investment portfolio has maturities of less than two years. As a result of the relatively short duration of our portfolio, a hypothetical 10% change 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 September 28, 2003 includes only $7.7 million in debt.

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 2003 and the first six months of fiscal 2004 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.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 28, 2003, the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level. There have been no significant changes in our internal controls over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On September 12, 2003, we held our 2003 Annual Meeting of Stockholders. On the record date, 104,108,459 shares of our Common Stock were outstanding and entitled to be voted. Tabulated proxies at the meeting represented 97,697,302 shares, or 94% of the total eligible. Voting results are summarized below:

Proposal I: Election of one director;

Name		Votes For		Withheld
Gregory Lang		94,931,996		2,765,306

Proposal II: To approve an amendment to the Company's 1984 Employee Stock Purchase Plan.

Votes For		Against		Abstained
92,267,548		5,328,366		101,388

Proposal III: To ratify the selection of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ended March 30, 2004.

Votes For		Against		Abstained
63,404,991		34,244,955		47,356

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): The following exhibits are filed herewith:

Exhibit number		Description
10.24		Master purchase agreement between Cisco Systems, Inc. and Integrated Device Technology, Inc. dated May 7, 2003
10.25		1984 Employee Stock Purchase Plan, as amended and restated effective September 29, 2003.
31.1		Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated November 5, 2003.
31.2		Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated November 5, 2003.
32.1		Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, dated November 5, 2003.
32.2		Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, dated November 5, 2003.

(b): Reports on Form 8-K:

Date Filed		Description
7/17/03		Financial Information for Integrated Device Technology, Inc. for the quarter ended June 29, 2003, its first quarter of fiscal 2004, and forward-looking statements relating to fiscal year 2004 as presented in a press release of July 17, 2003.

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: November 5, 2003		/s/ GREGORY S. LANG Gregory S. Lang President and Chief Executive Officer (duly authorized officer)
Date: November 5, 2003		/s/ CLYDE R. HOSEIN Clyde R. Hosein Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

QuickLinks

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

ITEM 4. CONTROLS AND PROCEDURES

PART II OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
EX-10.24 3 a2121838zex-10_24.htm EXHIBIT 10.24

Exhibit 10.24

MASTER PURCHASE AGREEMENT

This Master Purchase Agreement (“MPA”) is made as of May 7, 2003 (“Effective Date”) between Cisco Systems Inc., a California corporation, having its principal place of business at 170 West Tasman Drive, San Jose, CA 95134 on behalf of itself and its Subsidiaries (collectively, “Cisco”), and Integrated Device Technology, Inc., a Delaware corporation having a place of business at 2975 Stender Way, Santa Clara, California 95054, (“Supplier”).

This MPA has the following attachments, which are incorporated into this MPA by this reference and made a part hereof:

	Exhibit A		Product Schedule
	Exhibit B		Business Reviews
	Exhibit C		Failure Analysis Procedure
	Exhibit D		Product Change Notification
	Exhibit E		Reschedules and Cancellations
	Exhibit F		[*]
	Exhibit G		Cisco Authorized Contract Manufacturers
	Exhibit H		Dispute Escalation
	Exhibit I		Competitor List

PRELIMINARY UNDERSTANDING

A. Supplier is in the business of developing, manufacturing and selling components that are required to achieve the desired functionality of some of Cisco’s products.

B. Cisco desires to purchase from Supplier, and Supplier desires to supply to Cisco, the Products (as defined herein) pursuant to the terms and conditions herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows:

1. DEFINITIONS

1.1 “Cisco CMs” shall mean those contract manufacturers engaged in the manufacture of Cisco products who are identified in Exhibit G, as it may be amended by Cisco, in its sole discretion, throughout the Term.

Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [*]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

Page 1 of 30

1.2 “Custom”: A Product that is not standard and (i) is customized expressly for Cisco product requirements, or (ii) for which Supplier has no alternative redistribution channel.

1.3 “Delivery Date” shall mean the date agreed to by the Parties for receipt of goods at the specified delivery location identified in the applicable purchase order (per INCO terms 2000) for any order for Products.

1.4 “e-Hub” shall mean Cisco’s online supply chain management tool.

1.5 “Intellectual Property” means any and all tangible and intangible: (i) rights associated with works of authorship throughout the world, including but not limited to copyrights, neighboring rights, moral rights, and maskworks, and all derivative works thereof (ii) trademark and trade name rights and similar rights, (iii) trade secret rights, (iv) patents, designs, algorithms and other industrial property rights, (v) all other intellectual and industrial property rights (of every kind and nature throughout the world and however designated) whether arising by operation of law, contract, license, or otherwise, and (vi) all registrations, initial applications, renewals, extensions, continuations, divisions or reissues thereof now or hereafter in force (including any rights in any of the foregoing).

1.6 “Lead Time” shall mean the period from the time Supplier accepts an order for Products until delivery to Cisco or Cisco CM as quoted by Supplier for entry into Combat. Such Lead Time however, shall not exceed [*]. “Combat” shall mean Cisco’s Outsource Manufacturing Business Analysis Tool.

1.7 [*]

1.8 “Products” shall mean the products listed in each Product Schedule attached hereto as Exhibit A, and shall include hardware products and Software, user documentation (where applicable) and Supplier’s standard packaging. Products shall also include progeny of or replacements for such Products.

1.9 “Product Price” shall mean the mutually agreed to net price that Cisco and Cisco CMs shall pay for each Product as listed in the then applicable Cisco enterprise resource planning database (“Cisco ERP”) or other database, including, but not limited to Combat.

1.10 “Product Schedule” shall mean the schedule, one for each Product, attached hereto as Exhibit A. Product Schedules agreed upon after the Effective Date shall be executed by the parties and copies shall be appended hereto. The Product Schedules may be amended from time to time in accordance with the mutual agreement of the parties.

1.11 “Rolling Forecast” shall mean a non-binding twelve (12) month forecast of Cisco’s estimated requirements for Products for itself, Subsidiaries, and Cisco Systems International B.V. as updated periodically.

1.12 “Semi-Custom” shall mean those Products which may be modified in part to meet Cisco’s requirements and for which there are limited alternative distribution channels.

Page 2 of 30

1.13 “Software” shall mean any computer code in object code format and whether embedded in or bundled with the Products in any manner, including as firmware, and even if provided separately on disks or other media or by electronic transmission, together with all bug fixes, revisions and upgrades thereto.

1.14 “Specifications” shall mean the Product-specific specifications that are set forth or referenced in the applicable Product Schedule.

1.15 “Subsidiary” shall mean a corporation, excluding Cisco Systems International B.V., in which a party effectively owns or controls, directly or indirectly, more than fifty percent (50%) of the voting stock or shares.

1.16 “Term” shall have the meaning set forth in Section 18.1.

1.17 “Warranty Period” shall mean the duration of warranty as specified in each Product Schedule, commencing upon delivery of the Product to Cisco, Cisco CMs or other authorized delivery site in compliance with the conditions required in Section 11.2

2. SALES AND PURCHASES OF PRODUCT

2.1 Products. Supplier agrees to supply and Cisco agree to purchase Supplier’s Products pursuant to the terms and conditions of this MPA. Supplier hereby agrees to supply to Cisco and/or Cisco CMs the Products listed in each Product Schedule in compliance with the Specifications and for the exclusive purpose of incorporation into a final Cisco product. Supplier’s use of data contained in or entry of data into the Combat tool shall not alter the terms of this MPA.

2.2 Purchase Orders. Supplier agrees that it shall handle purchase orders placed by Cisco CMs identified in Exhibit I. Supplier shall accept and acknowledge in writing all purchase orders from Cisco or Cisco CMs within three (3) business days after receipt thereof, identifying a firm shipping date in compliance with the applicable Lead Time with each such acknowledgment. [*]. All purchase orders placed with Supplier by Cisco shall be subject to the terms and conditions of this MPA without specific reference hereto in any such Cisco purchase order. Cisco shall not be liable for any verbal commitments made by Cisco or Cisco CMs, although Supplier may proceed based upon an authorized Cisco buyer/planner’s provision of a Cisco purchase order number which shall be followed by a written or electronic purchase order to be accepted by Supplier as called for in this Section 2.2.

2.3 Flexibility. Supplier shall ensure that it has the capacity to increase or decrease production of any Products from any given volume as set in the Rolling Forecast as follows:

• [*] if the increase or decrease is to be effected within four (4) weeks; and

• [*] if the increase or decrease is to be effected within eight (8) weeks.

Supplier shall be capable of sustaining such flexibility percentages as measured against a baseline to be refreshed every four weeks. Additionally, such flexibility capability shall be in accordance with goals and/or Lead Time parameters established by Supplier with Cisco CMs, including the implementation of a supplier managed inventory program (“SMI”). [*]. Supplier shall coordinate with Cisco and all applicable Cisco CMs to meet

Page 3 of 30

any such Rolling Forecast increase or decrease by effectively managing its inventory at the lowest, longest lead time component or raw material level to minimize risk throughout the supply chain while ensuring maximum flexibility and scalability to Cisco’s demand. Supplier hereby acknowledges that neither Cisco nor Cisco CMs shall bear any liability or responsibility for any costs incurred by Supplier to meet such volume increase or decrease unless otherwise provided for in this MPA.

2.4 Reschedules and Cancellations. Cisco CMs may cancel or reschedule purchase orders issued to Supplier in the manner agreed upon with Supplier by each of them. Cisco may cancel or reschedule purchase orders issued by Cisco directly to Supplier, as set forth in Exhibit E.

2.5 Non-Cancellable/Non-Returnable Products. No Product shall be treated as Non-Cancellable/Non-Returnable (“NCNR”) unless so designated in the applicable Product Schedule. Purchase orders for any such NCNR Product may be cancelled by either Cisco or Cisco CMs and shall be paid for in the manner and subject to the terms as set forth in Exhibit E.

2.6 Disaster Recovery and Business Continuity Plan. Within sixty (60) days after the Effective Date, Supplier shall submit to Cisco a formalized plan for disaster recovery and business continuity specific to location(s) relating in any way to the manufacture and sale of Products to Cisco contemplated by this MPA (the “Plan”). Such Plan, at a minimum, shall identify available alternate facilities, infrastructure and logistics, and provide for security and protective measures necessary to ensure minimal impact to Cisco’s supply of Products from Supplier.

2.7 Benefits to Cisco CMs. Supplier shall ensure that all terms relating to the Products and their purchase set forth in the following Sections of this MPA shall be adhered to with Cisco CMs in the course of their purchase of Products for inclusion in Cisco products. Those terms to be afforded or adhered to with Cisco CMs shall include Sections 2.1-2.3, 2.5, 3.1, 4.2, 5 (entirely), 7 (entirely), 8.4, 10 (entirely), 11.1, and 11.2.

3. PRICING

3.1 Prices. The Product Prices shall be set forth in the then applicable Cisco ERP or other database, including, but not limited to Combat, to be updated on a quarterly basis unless otherwise agreed by the Parties. Transportation and all sales, property, excise and other applicable taxes (other than those based on Supplier’s net income) shall be paid by Cisco. No additional fees or charges of any sort shall be charged to Cisco, unless the subject of a written Supplier request accepted by a Cisco commodity manager in writing. Invoices submitted to Cisco shall be paid within thirty (30) days from the receipt of a valid invoice. If not received earlier, invoices submitted to Cisco shall be deemed received seven days after their issuance. Supplier shall use its best efforts to meet Cisco’s quarterly cost reduction targets, as they are communicated to Supplier and Supplier will extend to Cisco all price decreases achieved by Supplier. Cisco shall have the right to alter any percentage of Total Available Purchases (“TAP”) if agreed upon herein, in the event that: (i) Supplier’s pricing is not competitive; (ii) the Products do not comply with the applicable Specifications; (iii) Supplier has failed to or is unable to meet Delivery Dates; or (iv) Supplier is not in compliance with any other material provision hereof. Prices stated in the Product Schedules are in U.S. dollars and do not include applicable Taxes. “Taxes” mean any tax or other charge that Supplier is liable to collect on behalf of any governmental authority as a result of the sale, use or delivery of Products, including without limitation, duties, value added and other withholding taxes. Taxes do not include taxes on Supplier’s net income.

Page 4 of 30

3.2 Lowest Price Warranty. Supplier represents and warrants to Cisco that throughout the Term of this MPA, the Product Prices are and will be no higher than the lowest net prices offered by Supplier [*]. Cisco shall have the right upon reasonable notice to Supplier and reasonable justification for wanting to so, to have a representative examine such applicable books and records of Supplier as are necessary to verify Supplier’s compliance with this Section 3.2. If the audit reveals that Supplier has not complied, then Supplier shall issue, in Cisco’s discretion, a credit against outstanding future payment obligations for the total difference between the price paid and the lowest price. If such audit reveals that Supplier’s pricing to Cisco for the Products has been more than five percent (5%) higher than pricing for the Products to any of Supplier’s other customers, Supplier shall pay the reasonable fees and expenses of such audit. For the purpose of this section, the determination of Product pricing shall not take into account any incentive or marketing programs that may be offered by IDT to CM customers.

4. FORECASTS AND PRODUCT ALLOCATION

4.1 Forecasts. On a periodic basis, Supplier will receive, by any means approved by Cisco including via e-Hub, a Rolling Forecast of Cisco’ estimated needs. These forecasts are for planning purposes only and do not constitute any commitment to purchase, unless otherwise explicitly set forth in this MPA. No request for Products shall be binding unless contained in a purchase order in compliance with the requirements of this MPA and pursuant to Exhibit E.

4.2 Allocation of Products. In the event Supplier’s manufacturing capacity for any Product is in short supply, Supplier shall deliver to Cisco an allocation no less favorable than any of its other customers, whether internal or external. Supplier shall provide Cisco with as much notice as reasonably possible if it anticipates or has reason to believe that Supplier’s output of the Product will not be sufficient to meet all of Cisco’s requirements for any period. Supplier shall notify Cisco in writing upon reaching a product capacity utilization of [*]. This capacity allocation right shall be in addition to any other rights and remedies of Cisco.

5. SHIPMENT AND DELIVERY

5.1 Delivery. Delivery shall be FCA point of shipment. Delivery Dates shall be based on the Lead Time shown in each Product Schedule.

5.2 Late Delivery. If Supplier is unable to deliver to a Cisco CM any Products on the Delivery Date, Supplier shall notify the applicable Cisco CM. If Supplier is unable to deliver Products ordered by Cisco on the Delivery Date, Supplier shall (i) notify a Cisco buyer/planner within twenty four (24) hours of Supplier’s knowledge of late delivery and (ii) make reasonable commercial efforts to allow no less than forty eight (48) hours notice of any such late delivery. In the event that the parties cannot agree on a revised Delivery Date or the late delivery has impacted a Cisco customer order, (i) Cisco or Cisco CMs may cancel the affected purchase orders without penalty, or (ii) Supplier shall accept any reschedule or change in the affected purchase order as Cisco or Cisco CMs may require. Regardless of whether an order was placed by Cisco or Cisco CMs, Supplier shall immediately notify Cisco and, if relevant, all affected Cisco CMs of any known or anticipated delays that may cause a manufacturing line to go down, or of any circumstances that may cause disruption in deliveries.

5.3 Shipping Documents and Markings; Packing.

5.3.1 Documentation. Shipping documentation must be complete and accurate and include all required information including commercial invoice, packing list, all applicable export and transportation documents and declarations. An itemized packing list must accompany each shipment and shall prominently identify (i) the purchase order number, (ii) the description, part number, revision level, and quantity of the Products shipped, (iii) the number of shipping containers in the delivery, (iv) the status of the shipment as complete or partial, and (v) the waybill/bill of lading number.

5.3.2 Packaging. Unless otherwise specified by Cisco or Cisco CMs, Supplier will package and pack all goods in a manner which (i) is in accordance with good commercial practice, (ii) is acceptable to common carriers for shipment, (iii) follows procedures taking into

Page 5 of 30

account the then most current I.C.C. regulations, and (iv) is adequate to ensure undamaged arrival of the Products at the identified destination.

5.3.3 Markings. Supplier will mark all containers with necessary lifting, handling and shipping information and with purchase order numbers, date of shipment, and the names of the consignee and consignor.

6. SUPPLIER PERFORMANCE CRITERIA

6.1 The ultimate evaluation of Supplier’s performance hereunder for purposes of continued or additional purchases shall be made exclusively by Cisco, in their sole discretion; provided that Cisco will communicate a variety of criteria which may be considered in such evaluation, including Cisco’s “Scorecard” process. The Scorecard process is Cisco’s formal process for identification of supplier strengths and areas for improvement. Supplier performance will be discussed during QBRs or SBRs as shown in Exhibit B.

7. PRODUCT INSPECTION AND QUALITY

7.1 Inspection by Cisco. Products shall be subject to inspection and testing by Cisco or Cisco CMs for (i) conformance to Product Specifications, (ii) warranty defects and (iii) any other form of damage.

7.2 Return. In case any Product is found not to conform to the mutually agreed upon Specifications, or is in any way defective in material or workmanship, or otherwise damaged (“Non-Conforming Product”), Cisco or Cisco CMs may return the Product and will (i) promptly notify Supplier in writing of the basis of such return and (ii) comply with the Supplier’s Return Materials Authorization (“RMA”) process for the return of the Non-Conforming Products, provided that such RMA process has been given in writing to Cisco or Cisco CM. The Non-Conforming Product will be processed according to the warranty procedure specified in Section 11 herein.

7.3 Failure Analysis. At Cisco’s request, Supplier will adhere to the failure analysis procedure as set forth in Exhibit C and provide to Cisco a failure analysis report specifying the reason for failure of any Non-Conforming Product. [*]

8. PRODUCT SPECIFICATIONS AND CHANGES

8.1 Specifications. Supplier agrees to supply Products that conform to the applicable Specifications. Supplier shall not make changes to any Specifications for any Product, or any changes to a Product or process characteristics which could potentially result in a change to the form, fit, or function of the Product without prior written notice given to Cisco in accordance with the Product change notification process in Exhibit D.

8.2 Pre-Shipment Testing. Supplier shall follow pre-delivery test procedures as the parties may agree upon for each Product.

8.3 Product Corrections. Within one (1) working day after verifying any bug or other problem in a Product which may result or already has resulted in an adverse impact to Cisco’s installed customer base of such Product, any party may submit a request to make a corrective

Page 6 of 30

change. The requesting party shall provide all applicable data in support of the request. Within ten (10) business days (unless such time is mutually extended) the parties shall agree upon a course of corrective action and the time for its implementation.

8.4 Product Discontinuation. [*]. If Supplier intends to discontinue the manufacture and sale of any Product (“EOL”), Supplier shall give at least [*] written prior notice to Cisco (the “EOL Period”). During the EOL Period, orders may be placed orders for such Product pursuant to this MPA, but such orders may not request delivery of such Product on a date later than [*] after the end of the EOL Period. Supplier shall provide support for the EOL Product pursuant to Section 10.1 of this MPA. In no event shall Supplier accept purchase orders for such Product from any third party after the last day of the EOL Period, without offering the same opportunity for Product procurement to Cisco or Cisco CMs on behalf of Cisco. Throughout the EOL Period, Supplier shall assist Cisco in identifying alternative products or sources for the affected Products’ functionality.

8.5 Plant Move or Closure. If Supplier intends to relocate or close any of its manufacturing plants, it shall provide Cisco a minimum of one hundred twenty (120) days advance written notice. If the closure causes the Supplier to EOL a product, the term of notice shall be as stated in Section 8.4 above. In addition, if Supplier intends to open a new manufacturing plant, Cisco shall receive the same minimum notice as for a move or closure

9. OWNERSHIP OF SOFTWARE; GRANT OF RIGHTS

9.1 Ownership. Supplier and its licensors shall retain title to and ownership of the Software.

9.2 Software License. Supplier hereby grants to Cisco, Cisco CMs and Cisco’s end-users a non-exclusive, perpetual, worldwide, royalty-free license to use the Software and grants to Cisco and Cisco CMs the right to authorize others to use the Software in connection with the manufacture, sale, license, loan or distribution of Cisco’s products through resellers and multiple tiers of distribution. Except as expressly set forth herein or as permitted by law, Cisco shall not (i) modify, reproduce, copy, reverse engineer, decompile or disassemble all or any portion of the Software, or (ii) create derivative works thereof.

9.3 Upgrades. All bug fixes, revisions to and upgrades of the Software, which Supplier makes available to any of its customers at no charge will be made available to Cisco and Cisco CMs at no charge. All other upgrades or Product enhancements will be offered to Cisco and Cisco CMs on mutually agreeable terms and conditions.

10.0 SUPPORT

10.1 Support. Supplier agrees to provide reasonable technical assistance, and failure analysis services (collectively, “Support Services”) with respect to each Product individually, including discontinued Products ordered, delivered and paid for by Cisco or Cisco CMs, for a period of [*] after the later of the last date of shipment to Cisco or Cisco CMs or termination or expiration of this MPA. Products requiring support shall be returned pursuant to Supplier’s RMA process as agreed upon by the parties. Support Services shall include, but may not be limited to, the following:

Page 7 of 30

10.1.1 Technical Support. Upon Cisco’s reasonable request, Supplier will provide to Cisco or Cisco CMs in electronic form or other acceptable form, all bug notes or other documentation, and defining the relevant information, symptoms, solutions or workarounds for identified Product problems, including accurate records of Product deficiencies. During the Term of this MPA, Supplier will provide such support to Cisco and Cisco CMs at no charge.

10.1.2 Emergency Replacement. Supplier shall utilize its reasonable efforts to provide emergency replacement Products functionally equivalent replacement products within [*] of receipt of Cisco’s or Cisco CMs’ request therefor. If no replacement is available, Supplier will provide replacement Products as soon as reasonably possible and will notify Cisco or Cisco CMs of the estimated delivery date for such replacement.

11.0 REPRESENTATION AND WARRANTIES

11.1 Warranty of Title. Supplier warrants and represents that (i) it shall convey to Cisco and/or Cisco CMs good and clear title to the Products, free and clear of all liens and encumbrances, (ii) at the Effective Date and on the date each Product is shipped, Supplier is not aware of any claims for infringement of Intellectual Property rights with respect to any of the Products, and (iii) it has the full authority to enter into this MPA, to carry out its obligations under this MPA, and (iv) its compliance with the terms and conditions of this MPA will not violate any applicable federal, state or local laws, regulations or ordinances or any third party agreements in effect at the time of manufacture of a particular Product.

11.2 Product Warranty. Supplier warrants to Cisco that, for [*] from the date of shipment the Products whether ordered by Cisco or Cisco CMs (i) will be new and unused, (ii) will comply in all respects with the applicable Specifications, ULA or CSA requirements, (iii) will be free from defects in materials design (to the extent it may cause death or serious bodily harm), and workmanship. Supplier will, at its expense, repair or replace all Non-Conforming Products with new and unused Products, and deliver the repaired or replacement Products to a location designated by Cisco or Cisco CMs within [*] days after receipt of Cisco’s request for replacement. In the event Supplier is unable to repair or replace the Product, Supplier will refund the price paid by Cisco. Any Product repaired or replaced under warranty is warranted for the period of time remaining in the original warranty for the Product, [*]. Supplier will adhere to the failure analysis procedure as set forth in Exhibit C and provide to Cisco a failure analysis report specifying the reason for failure of any Non-Conforming Product [*]. Unless Supplier reasonably demonstrates that a returned Product is not a Non-Conforming Product, Supplier will pay the cost of shipping and insurance for the returned and replacement Products.

11.3 Epidemic Failure. For the purposes of this MPA, epidemic failure will be deemed to have occurred if [*] a substantially similar repetitive defect occurs in a significant number of Product indicating a common or systemic failure (“Epidemic Failure”). An Epidemic Failure shall not include failures due to customer misapplication, utilization of parts not approved by Supplier, or chain failures induced by internally or externally integrated sub-assemblies.

In the event of a claimed Epidemic Failure, Supplier and Cisco will cooperate to implement the following procedure:

(i) The discovering party will promptly notify the other upon discovery of the failure;

Page 8 of 30

(ii) Supplier shall inform Cisco of its preliminary plan for problem diagnosis within one (1) business day of such notification;

(iii) Supplier and Cisco will jointly endeavor to verify the Epidemic Failure and immediately diagnose the problem, plan an initial work-around and effect a permanent solution. If necessary, Product changes will be implemented in the manner set forth in Exhibit D; and

(iv) Supplier and Cisco will mutually agree on a recovery plan (the “Recovery Plan”) which may address any or all of the following, as appropriate: customer notification and replacement scheduling, field removal, return and reinstallation, and work in process (“WIP”) and inventory replacement, repair, or retrofitting. The Recovery Plan shall also specify Supplier’s financial responsibility for any activities to be performed. The parties agree to use good faith in expediting the execution of the Recovery Plan.

11.4 [*].

12. SECURITY OF SUPPLY

12.1 The parties agree that the Products to be purchased under this MPA may be unique and unobtainable from an alternate source, and that apart from other breaches of this MPA which may give cause to Cisco’s right to injunctive relief and/or specific performance, Supplier’s failure to deliver any such unique Products will cause Cisco irreparable injury for which there is no adequate remedy at law. Supplier shall maintain an upside flexibility within a quarter based on rolling forecast as specified in Section 2.3 of this MPA.

13. [*]

14. INDEMNIFICATION

14.1 Indemnification by Supplier. Supplier will indemnify, defend, and hold harmless each of Cisco, Cisco CMs, Cisco resellers, distributors and other sales agents and their respective officers, directors, employees, shareholders, agents, direct and indirect customers, and successors and assigns (collectively the “Indemnified Parties”) from and against all claims, suits, and actions (collectively “Claims”) brought against the Indemnified Parties, and for all resulting damages, losses, costs and expenses (including reasonable attorney and professional fees) (collectively “Losses”) that result or arise from Claims, relating to: (i) any allegation that one or more Products or their manufacture, use, import, or sale infringe, misappropriate, or violate any Intellectual Property rights of [*] or (ii) allege that one or more Products, or any part thereof, have caused personal injury or damage to tangible property. The Supplier will pay all amounts agreed to in a monetary settlement of the Claims and all Losses that result or arise from the Claims.

14.2 Continued Use. If Cisco or any of Cisco CMs or any of Cisco’s customers are prevented or are likely to be prevented from obtaining, selling, importing, or using Products by reason of any Claims relating to actual or potential infringement, then Supplier will, at its sole expense, use its best efforts to: (i) obtain all rights required to permit the manufacture and sale of such Products by Supplier, and the sale, import, and use of the Products by Cisco, Cisco CMs and their customers; or (b) modify or replace such Products to make them non-infringing, provided

Page 9 of 30

that any replacement of such Products is satisfactory to Cisco. If Supplier is unable to achieve any option above within thirty (30) days after issuance of an injunction, then Supplier will promptly refund to Cisco the price, and all shipping, storage, and related costs, of all affected Products that are returned or destroyed and Supplier shall assist Cisco in identifying alternative sources for the affected Products’ functionality.

14.3 Limitations. The Supplier will pay all amounts agreed to in a monetary settlement of the Claims and all Losses that result or arise from the Claims. Cisco will promptly notify Supplier, in writing, of any Claim for which Cisco believes that it is entitled to indemnification (provided that Cisco’s failure to provide such notice will relieve Supplier of its indemnification obligations only if and to the extent that such failure prejudices Supplier’s ability to defend the Claim). Cisco will permit Supplier to control, in a manner not adverse to Cisco, the defense and settlement of any such Claim using counsel reasonably acceptable to Cisco. Cisco may employ counsel, at its own expense, with respect to any such Claim (provided that if counsel is employed due to a conflict of interest or because Supplier does not assume control, Supplier will bear such expense). Supplier will not enter into any settlement that affects Cisco’s rights or interests without Cisco’s prior written approval.

14.4 Exceptions to Supplier’s Indemnity. Supplier shall have no obligation under Section 14.1 to the extent any claim of infringement is caused by (i) use of the Product in combination with any other products not intended by or understood by Supplier, if the infringement would not have occurred but for such combination, or (ii) any alteration or modification of the Product not provided or authorized by Supplier, if the infringement would not have occurred but for such alteration or modification.

15. CONFIDENTIALITY

15.1 MPA As Confidential Information. The parties shall treat the terms and conditions and the existence of this MPA as Confidential Information (as such term is defined in the NDA referenced below).

15.2 Confidential Information. Upon execution hereof, the parties shall comply with the provisions of that Non-Disclosure Agreement executed by Supplier and Cisco Systems, Inc. on September 6, 2001 (the “NDA”). Notwithstanding any identification of information exchanged hereunder as Confidential Information as defined in the NDA, Supplier specifically acknowledges that in order to manage, monitor, and resolve demand, inventory, supply and production issues directly relating to the manufacture and fulfillment of Cisco’s products, Cisco must share a variety of Supplier’s information and data, as well as some or all of this MPA, with other third parties involved in the manufacture of Cisco’s products, including the Cisco CMs. Accordingly, Cisco must be and Supplier acknowledges that Cisco is free to disclose to those necessary third parties data and information provided to Cisco by Supplier on condition that such third parties have entered into a confidentiality agreement with Cisco which will limit the use of the information and obligate the third party to keep Supplier’s information confidential.

16. LIMITATION OF LIABILITY

16.1 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS MPA, [*] UNDER NO CIRCUMSTANCES WILL ANY PARTY, ITS EMPLOYEES, OFFICERS OR DIRECTORS, AGENTS, SUCCESSORS OR ASSIGNS BE LIABLE TO ANOTHER PARTY AND ITS EMPLOYEES, OFFICERS

Page 10 of 30

OR DIRECTORS AGENTS, SUCCESSORS OR ASSIGNS UNDER ANY CONTRACT, STRICT LIABILITY, TORT (INCLUDING NEGLIGENCE) OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY, INDIRECT OR CONSEQUENTIAL COSTS OR DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, LITIGATION COSTS, LOSS OF DATA, PRODUCTION OR PROFIT, ARISING OUT OF OR RELATING IN ANY WAY TO THE SUBJECT MATTER OF THIS MPA. THIS SECTION DOES NOT LIMIT EITHER PARTY’S LIABILITY FOR BODILY INJURY OF A PERSON, DEATH, OR PHYSICAL DAMAGE TO PROPERTY.

17. INSURANCE

Supplier shall, at its own expense, at all times during the term of this MPA and after its termination as required in Section 17.1, provide and maintain in effect those insurance policies and minimum limits of coverage as designated below together with any other insurance required by law in any jurisdiction where Supplier provides Products and/or services under this MPA. Such policies shall be issued by insurance companies (i) authorized to do business in the jurisdiction where Suppliers endeavors are to be performed and (ii) reasonably acceptable to Cisco. In no way do these minimum requirements limit the liability assumed elsewhere in this MPA, including but not limited to Supplier’s defense and indemnity obligations. The required insurance shall be subject to the approval of Cisco, but any acceptance of insurance certificates by Cisco shall not limit or relieve Supplier of the duties and responsibilities with respect to maintaining insurance assumed by it under this MPA.

17.1 Workers’ Compensation, Social Scheme and Employer’s Liability Insurance. Workers’ Compensation insurance shall be provided as required by any applicable law or regulation and, in accordance with the provisions of the laws of the nation, state, territory or province having jurisdiction over Supplier’s employees. If any such applicable jurisdiction has a social scheme to provide insurance or benefits to injured workers, Supplier must be in full compliance with all laws thereof. Employer’s Liability insurance shall be provided in amounts not less than the local currency equivalent of US [*].

17.2 General Liability Insurance. Supplier shall carry Public Liability or Commercial General Liability insurance covering all operations by or on behalf of Supplier arising out of or connected with this MPA including coverage for products liability and products/completed operations liability, claims by one insured against another insured, and Supplier’s defense and indemnity obligations under this MPA, with limits of not less than [*] per occurrence. Such insurance shall also provide, by endorsement or otherwise, for contractual liability and cross liability and provide a Vendors Broad Form Additional Insured Endorsement. If “claims made” policies are provided, Supplier shall maintain such policies for at least one year after the expiration of this MPA.

17.3 Automobile Liability Insurance. Supplier shall carry Comprehensive Business Automobile Liability insurance, including bodily injury and property damage for all vehicles used in the performance of Supplier’s obligations under this MPA, including but not limited to all owned, hired (or rented) and non-owned vehicles. The limits of liability shall not be less than the local currency equivalent of [*] combined single limit for each incident, or whatever is required by local law or statute, whichever is higher. If injury to third-party passengers of such vehicles is not covered by the above insurance, then Supplier shall also maintain separate insurance to cover injury to such passengers.

Page 11 of 30

17.4 Errors and Omissions Liability Insurance (Professional Liability). Supplier shall carry insurance for design and/or professional liability (errors and omissions) with limits of not less than [*] per occurrence or per claim and [*] aggregate annual.

[*].

17.5 Certificates of Insurance. Certificates of Insurance or other formalized evidence of the coverages required above shall be furnished by Supplier to Cisco when this MPA is signed, or within a reasonable time thereafter, and within a reasonable time after such coverage is renewed or replaced. If requested by Cisco, a certified copy of the actual policy(s) with appropriate endorsement(s) shall be provided to Cisco. Certificates shall be delivered to:

Global Risk Management

Cisco Systems, Inc.

170 W. Tasman Drive, M/S SJC-11/3

San Jose, CA 95134

17.6 Cisco Can Provide Insurance. If Supplier does not comply with the insurance requirements of this Section 17, Cisco may, at its option, provide insurance coverage to protect Cisco and Supplier and charge Supplier for the cost of that insurance.

17.7 Waiver of Subrogation. Except where prohibited by law, Supplier, its subcontractor(s) (regardless of tier) and their respective insurers waive all rights of recovery or subrogation against Cisco, its officers, directors, employees, agents, and insurers for Workers’ Compensation.

17.8 Policies to be Primary. The policies provided under this MPA shall provide that Supplier’s insurance will be primary to and noncontributory with any and all other insurance maintained or otherwise afforded to Cisco.

18. TERM AND TERMINATION

18.1 Term. Unless terminated earlier as provided herein, this MPA shall have an initial term of three (3) years from the Effective Date (the “Initial Term”) and shall automatically renew for additional periods of one (1) year each (the “Extended Term”, and together with the Initial Term, referred to herein collectively as the “Term”) unless the appropriate written notice of non-renewal is received as follows: (i) Supplier shall provide to Cisco notice of any such non-renewal at least one hundred and twenty (120) days prior to the expiration of the then applicable term; or (i) Cisco shall provide to Supplier notice of any such non-renewal sixty (60) days prior to the expiration of the then applicable term.

Page 12 of 30

18.2 Termination For Convenience. Either party may terminate this MPA for no reason or any reason upon providing to the other the notice required hereunder. Cisco may so terminate upon sixty (60) days notice to Supplier. Supplier may so terminate upon the one hundred twenty (120) days notice if approved by Cisco or such other time period agreed upon by the parties as necessary to implement a transition plan.

18.3. Termination By Cisco. Cisco may independently terminate this MPA or any of the Products included herein as follows:

18.3.1 Upon Supplier’s failure to comply with any of the material provisions of this MPA which failure is not remedied during the thirty (30) days (or other extended period as may be agreed to by the parties) following written notice to Supplier of such failure.

18.3.2 Notwithstanding Cisco’s rights in Section 18.3.1, upon fifteen (15) days notice, if Cisco (i) determines that Supplier’s performance under this MPA is deficient; and (ii) identifies to Supplier those deficiency(ies); and (iii) provides to Supplier a reasonable opportunity to correct the same give the nature of the deficiency and/or utilize appropriate paths of escalation; and (iv) determines that such identified deficiencies still remain.

18.3.3 Upon thirty (30) days notice, if Supplier has failed to deliver Products for a minimum of thirty (30) days due to force majeure causes as set forth in Section 20.7.

18.3.4 Immediately upon any transfer by sale, merger or other working combination of ownership of or control over more than [*] of the voting securities or control of Supplier.

18.4 Termination By Supplier. Supplier may terminate this MPA as follows:

18.4.1 Upon Cisco’s failure to comply with any of the material provisions of this MPA which failure is not remedied during the sixty (60) days (or other extended period as may be agreed to by the parties) following written notice to Cisco of such failure.

18.5 Termination By Either Party. Either party may terminate this MPA as follows:

18.5.1 Upon notice to the other party upon the occurrence of any one of the following events: (i) a receiver is appointed for either party or its property; (ii) either makes a general assignment for the benefit of its creditors; (iii) either party commences, or has commenced against it, proceedings under any bankruptcy, insolvency or debtor’s relief law, which proceedings are not dismissed within sixty (60) days; or (iv) either party is liquidated, dissolved or ceases business operations.

18.6 Survival; Support After Termination. Sections 1, 9.2, 10, 11, 13, 14, 15, 16, 18 and 20, all end user licenses and Cisco’s right to distribute Product shall survive termination or expiration of this MPA for a period of []. Supplier shall continue to provide support in accordance with Section 10 at Supplier’s then standard rates offered to any other customer for the Products for a period of []. Termination shall be in addition to all other rights and remedies.

Page 13 of 30

19. COMPLIANCE WITH LAWS; IMPORT/EXPORT

19.1 Compliance with Laws. Supplier warrants it has complied and shall comply with all applicable laws, regulations and ordinances in effect at the time of manufacture of each of the Products. Upon Cisco’s reasonable request, Supplier agrees to provide reasonable assistance to Cisco and Cisco CMs to facilitate compliance with such laws.

19.2 Import and Export. Supplier shall provide Cisco with information and assistance as may be reasonably required in connection with executing import, export, sales, and trade programs, including but not limited to, manufacturer’s affidavits, harmonized tariff schedule, export control classification number, qualification information (e.g. origin), and U.S. Federal Communications Commission’s identifier when applicable.

19.3 Compliance with Environmental Laws. Supplier shall comply with all applicable environmental federal, state and local laws, regulations and ordinances, including but not limited to the laws and regulations of the United States, relating to this MPA and the Products provided hereunder. In the event that Supplier’s performance of its obligations under this MPA requires the delivery to or handling by Cisco or Cisco CMs of hazardous materials as specified in the U.S. Department of Transportation, Title 49 or OSHA standards or regulations, Supplier will promptly notify in writing Cisco or Cisco CMs and upon request will provide Cisco or Cisco CMs with material safety data sheets and other documentation reasonably necessary for compliance with applicable laws and regulations. Notwithstanding the foregoing, Supplier shall be fully responsible under this MPA for any liability resulting from its actions in supplying or transporting hazardous materials or otherwise failing to comply with environmental laws and regulations.

20.0 GENERAL

20.1 Assignment. Either party may not assign or transfer this MPA, in whole or in part without the prior written consent of the other party. Any attempt to assign or transfer without such consent is void. For purposes of this Section 20.1, any transfer by sale, merger or other working combination of ownership of or control over more than [*] of the voting securities or control of Supplier shall constitute an assignment.

20.2 Notices. All notices shall be personally delivered, delivered by telecopy, delivered by a major commercial rapid delivery courier service or mailed by certified or registered mail, return receipt requested, to either party as provided below or such other address as such party may provide by notice pursuant to this Section. Notice shall be effective upon the earlier of (i) receipt or (ii) twenty-four (24) hours after submission by any such method.

Cisco Systems, Inc.		“Supplier”
170 West Tasman Drive		2975 Stender Way
San Jose, CA 95134		Santa Clara, CA 95054

Attn: V.P., Manufacturing		Attn: V.P. Worldwide Sales

with a copy to:		with a copy to:
Cisco Systems, Inc.		“Supplier”
170 West Tasman Drive		2975 Stender Way
San Jose, CA 95134		Santa Clara, CA 95054

Attn: General Counsel		Attn: General Counsel
Fax: (408) 526-7019		Fax: (408) 492-8454

Page 14 of 30

20.3 Controlling Law and Jurisdiction. This MPA and all action related hereto shall be governed, controlled, interpreted, and enforced by and under the laws of the State of California and the United States, without regard to the conflict of laws provisions thereof. Unless waived by Cisco, the exclusive jurisdiction and venue of any action with respect to the subject matter of this MPA shall be the state courts of the State of California for the County of Santa Clara or the United States District Court for the Northern District of California and each of the parties hereto submits itself to the exclusive jurisdiction and venue of such courts for the purpose of any such action. The parties hereby agree to expressly exclude application of the United Nations Convention on Contracts for the International Sale of Goods.

20.4 Waivers and Amendments. No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial waiver have effect on any other right, power or privilege. This MPA may not be altered or amended except by a written document signed by duly authorized representatives of the parties.

20.5 Severability. If any provision of this MPA is found unenforceable or invalid under any applicable law or judicial or administrative decision, only that provision will be affected. This MPA shall remain in effect and such unenforceable or invalid provision shall be modified or interpreted so as to best accomplish its objective.

20.6 Relationship of the Parties. The parties acknowledge that they are independent contractors and no other relationship, including partnership, joint venture, employment, franchise, master/servant or principal/agent is intended by this MPA. Neither party shall have the right to bind or obligate the other.

20.7 Force Majeure. Neither of the parties shall be considered in default of performance under this MPA to the extent that performance of such obligations is delayed or prevented by fire, flood, earthquake or similar natural disasters, riot, war, terrorism or civil strife, or any other event beyond the reasonable control of such party. Notwithstanding the foregoing, in the event Supplier fails to deliver Products due to such causes, Cisco may either:

• Terminate this MPA in whole or in part after thirty (30) days prior written notice where Supplier fails to deliver for thirty (30) days due to the force majeure event; and/or

• Suspend this MPA in whole or in part for the duration of the delaying cause, and, at Cisco’ option, buy the Products elsewhere and deduct from or apply to any commitment to Supplier the quantity so purchased. Supplier shall resume performance under this MPA immediately after the delaying cause ceases and, at Cisco’ option, extend the then current term period for a period equivalent to the length of time the excused delay continued.

20.8 Dispute Resolution. The parties shall use their best efforts to amicably resolve any disputes arising from the activities undertaken in the course of performing or fulfilling this MPA, including but not limited to utilization of the dispute escalation path as set forth in Exhibit H.

Page 15 of 30

20.9 Third Party Beneficiaries. Unless expressly provided, no provisions of this MPA are intended or shall be construed to confer upon or give to any person or entity other than Cisco, Supplier and Cisco CMs any rights, remedies or other benefits under or by reason of this MPA.

20.10 Entire Agreement. Together with any non-disclosure agreement, this MPA and its exhibits contain the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements relating thereto, written or oral, between the parties.

20.11 Signatures and Counterparts. This MPA will be valid upon the initial exchange of signatures by facsimile from both parties.

The parties shall, however, ensure that a fully executed original hereof is provided to each party. Each such fully executed original shall together constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this MPA by persons duly authorized as of the date and year first above written.

SUPPLIER:			CISCO SYSTEMS, INC.

By	William Franciscovich		By	Linda Park
(print)			(print)

/s/ WILLIAM FRANCISCOVICH			/s/ LINDA PARK
(signature)			(signature)

Title		V.P. Worldwide Sales	Title		VP of Commodity Management

Date		5/7/03	Date		6/17/03

Page 16 of 30

EXHIBIT A

Product Schedule

As of Effective Date of MPA

Supplier Part #	Cisco Part #	Supplier Spec. #	Cisco Spec. #	Description	Price	Warranty	NCNR	Sole Source	Required Test	Non-Standard T&C	Additional Costs

1. CONFLICT WITH MPA

The terms and conditions of the MPA shall govern this Product Schedules unless specific alternative terms are set forth above. In the event of any conflict or inconsistency between this Product Schedule and the MPA, the terms in this Product Schedule will apply.

Page 17 of 30

EXHIBIT A

Product Schedule

Executed After Effective Date of MPA

Supplier Part #	Cisco Part #	Supplier Spec. #	Cisco Spec. #	Description	Price	Warranty	NCNR	Sole Source	Required Test	Non-Standard T&C	Additional Costs

1. CONFLICT WITH MPA

2. SIGNATURES AND COUNTERPARTS

This Product Schedule will be valid upon the initial exchange of signatures by facsimile from all parties. The parties shall, however, ensure that a fully executed original hereof is provided to each party.

The parties hereto have executed this Product Schedule intending it to be incorporated into Exhibit A of the MPA with an Effective Date of __________.

Supplier					Cisco Systems, Inc.

By:					By:
Name:					Name:
Title:					Title:
Date:					Date:

Cisco Systems International B.V.

By:
Name:
Title:
Date:

Page 18 of 30

EXHIBIT B

BUSINESS REVIEWS

A. Quarterly Business Reviews (“QBR”)

1. Target Business Level of Attendees: Account Manager level.

2. Frequency: Once per quarter, if practicable, at a time and location to be mutually agreed upon. The location may be a teleconference.

3. Focus: The quarterly business reviews will, at a minimum, cover the following topics:

(i) Product quality;

(ii) Review and discussion of supplier performance criteria including those set forth in the Cisco “Scorecard”;

(iii) Discussion of price reductions and/or key factors relating to the pricing model;

(iv) Lead Time updates per product, with a focus on improvements needed or offered;

(v) The most current Rolling Forecasts and future outlook;

(vi) Support issues, if any;

(vii) New Product opportunities and Cisco requirements, if relevant; and

(viii) Cisco’ product roadmap reviews, if relevant.

B. Semi-Annual Business Reviews (“SBR”).

1. Target Business Level of Attendees: Account management and where possible, senior management level.

2. Frequency: Twice annually, if practicable, at a time and location to be mutually agreed upon.

3. Focus: The semi-annual business reviews will, at a minimum, cover the following topics:

(i) Status and strategic direction of the business relationship, including any open issues;

(ii) Products which may be added to the MPA;

(iii) Product roadmaps of any party;

(iv) Pricing review; discussions of price reductions and key factors relating to the pricing model; and

(v) Forecast outlook.

Page 19 of 30

EXHIBIT C

FAILURE ANALYSIS PROCEDURE

Cisco will return failed Products to Supplier for failure analysis to resolve observed problems found while used in Cisco products.

Supplier is responsible for performing failure analysis on all returned Products suspected of being defective. Analysis work shall be performed in a manner necessary to fully determine the root cause for each failure and to identify corrective actions to prevent reoccurrence.

Cisco will classify failure analysis requests into two categories — urgent and normal. Urgent requests are made when the component failure impacts Cisco’s ability to ship products or when the failure impacts the performance of Cisco equipment installed at a customer location. All other requests shall be within the normal category.

Supplier will use its best efforts to respond to, identify root cause and implement correction for all failure analysis requests in a timely manner. Supplier failure analysis responsiveness will be measured using the following standard criteria:

Failure Analysis Type	Normal	Urgent	Deliverables
Initial response	[*]	[*]	Functional status If fail, outline of analysis steps and timeline If pass, return parts to Cisco via overnight carrier
Preliminary failure analysis	[*]	[*]	Preliminary identification of root cause Recommendations for containment of problem
Completed failure analysis	[*]	[*]	Completed failure analysis summary If appropriate, corrective action plan and timeline
Update schedule	[*]	[*]	Progress report on work completed Projection on next actions Updated timelines

Page 20 of 30

EXHIBIT D

PRODUCT CHANGE NOTIFICATION

Cisco Component Engineering must have prior written notification for all changes to product or process characteristics which could potentially result in non-compliance to Cisco physical, mechanical, optical and/or electrical requirements. The types of changes, which require advance notification, if they could potentially result in non-compliance to Cisco requirements, include, but are not be limited to:

• Design changes

• Layout changes

• Changes to dimensions of any layer

• Die shrinks or revision

• Material change (e.g. plating, UBM, Resin, base metal, dopants)

• Change in internal sub-component design, manufacture, part number or sourcing

• Manufacturing Process & Procedure change (e.g. wafer fab, assembly or test)

• Manufacturing site (e.g. wafer fab, assembly, test facility change)

• Product from new, “identical” equipment with known impact to reliability (i.e. Epitaxial systems, deposition/etching tools, burn-in system and so forth)

• Changes to burn-in or reliability screen processes for component and constituent sub-components

• Form, Fit or Function change

• Part numbering convention

• EOL/Product Discontinuation

This PCN requirement will apply to Cisco-specified as well as supplier-specified part numbers.

Notification for any of the above changes must be provided a minimum of [*] prior to changed part or component delivery to allow time for analysis. The [*] advance notice may be given in the form of a Horizon Report. Samples of the new device, formal written PCN, and data supporting continued compliance to Cisco requirements for the proposed PCN must be provided a minimum of [*] prior to changed part or component delivery to allow time for qualification and review. The Cisco qualification time will not and cannot begin until all requested samples of the new component arrive at the affected Cisco Business Units. In the case of an End-of-Life announcement or Discontinuance Notice, a formal written EOL PCN or Discontinuance Notice must be provided [*] in advance of the Last Time Buy Date.

Supporting data and qualification data must be submitted with the Part Change Notification to Cisco Component Engineering.

Page 21 of 30

The supporting data and qualification data must include the following information at a minimum:

• Effected supplier part numbers (current and new) and effected Cisco part numbers

• Reason for change

• Description of change including any modifications to test, burn-in, or reliability processes used for assembled component and sub-components if any

• Traceability information for changed part or component

• Specification or datasheet update

• Supplier PCN tracking number

• Samples Availability date

• PCN Effective Date of shipment of changed part or component

• Last Time Buy Date of the unchanged or obsolete product

• Fit-Form-Function changes between changed and unchanged part or component

• Applicable test/qualification reports (per Cisco 1st and 2nd level component qualification requirements) and anticipated date for completion of final qualification data

The above information may be provided in the form shown in the PCN Template shown in Figure 1 in Section 5.0.

Cisco requires suppliers to assign new ordering part numbers for the following types of changes: Form, Fit or Function change, Die shrinks or revisions, Part numbering convention change, Design change, Layout changes, changes to lead-free plating including and not limited to BGA packages.

All change notices must be emailed to: component-pcn@cisco.com, and all change notices must be approved by Cisco GCSM Component Engineering department.

Page 22 of 30

EXHIBIT E

RESCHEDULES AND CANCELLATIONS

The following terms shall apply to Cisco’s direct orders of Products from Supplier.

1. Reschedules. Upon notice to Supplier, Cisco may reschedule all or a portion of a purchase order for the Products at no charge as follows:

Number of Days

From Original

Delivery Date

[*] 60; Unlimited reschedules, providing that delivery is within [*] from original scheduled delivery date,

[*] 60; Unlimited reschedules

2. Cancellation. Cisco may cancel all or a portion of a purchase order as follows:

2.1 Standard Product

Cisco may cancel in writing some or all of any Purchase Order for Standard Products [*] prior to the ship date that is necessary for Supplier to meet the original Delivery Date (i.e. when the Product has been Pack Listed) [*]. “Standard Products”, for the purposes of this MPA, shall mean Products for which Supplier has other customers, in addition to Cisco.

2.2 Semi-Custom Products

2.2.1 If, [*] prior to the applicable original Delivery Date, Cisco needs to cancel all or a portion of a purchase order that is for semi-custom Product or is classified as NCNR as defined in Section 2.5 of the MPA, Cisco shall pay cancellation charges as provided below:

No. of Days before Original Delivery Date		Cancellation Charges for Semi-Custom Products
[*]		[*]
[*]		[*]

2.3 Custom (“NCNR”) Purchase Orders

2.3.1. Any purchase orders agreed to as NCNR may not be cancelled or returned by Cisco, unless otherwise agreed to by the parties.

Page 23 of 30

2.4 CAM Cancellations

2.4.1. Cisco shall be liable to Supplier for any cancellations of CAM Products as follows:

No. of Days before Original Delivery Date		Cancellation Charge
[*]		[*] of cancelled Product value
[*]		[*] of cancelled Product value
[*]		[*] of cancelled Product value
[*]		[*] of cancelled Product value
Greater than production order lead-time		None

2.5 At-Risk Production (CAM)

2.5.1 At-Risk ramp material may be started after Cisco verification sign-off. Cisco must complete Supplier’s “Risk Material Start Authorization Form”. “At-Risk” means that Cisco accepts all financial responsibilities for the Supplier’s material committed to meet Cisco orders. Should Cisco decide to scrap material during this phase, for any reason other than Supplier related process or manufacturing issues, Cisco will pay Supplier on a prorated basis for amount of process completed at the time of Supplier’s written cancellation. Cancellation charges are as follows for at-risk ramp parts:

At-Risk Product cancellation based on the originally scheduled delivery date, with two scenarios, 1) cancellation fee as a percentage of Cisco cost (as specified in current Schedule A) for Custom CAM products, and 2) cancellation fee as percentage of Cisco cost for Standard CAM products:

Scenario	At-Risk Custom CAM Products	At-Risk Standard CAM Products
After Tapeout	[*]	[*]
Prior to wafer start	[*]	[*]
After wafers have started & prior to metalization	[*] cancellation fee	[*]
After wafers have started metalization	[*] cancellation fee	[*]
after test/assembly start	[*] cancellation	[*]

Page 24 of 30

EXHIBIT F

[*]

Page 25 of 30

ATTACHMENT A

[*]

Page 26 of 30

ATTACHMENT B

[*]

Page 27 of 30

EXHIBIT G

CISCO AUTHORIZED CONTRACT MANUFACTURERS

Cisco hereby identifies the following authorized CMs who may purchase Supplier Products on behalf of Cisco. Cisco may withdraw each such authorization on [*] advance written notice to Supplier, provided that (i) any remedy Cisco may be entitled to or seek resulting from any shipments to any such withdrawn CM shall be between Cisco and the CM; (ii) in the event of such a withdrawal, Cisco may, at their election, cancel any open orders and pay any applicable cancellation charges or accept delivery of and pay for any Products then being manufactured by Supplier for the affected CM for the benefit of Cisco. Further, Cisco may expand unilaterally this list of authorized CMs upon written notice to Supplier.

[*]

Page 28 of 30

EXHIBIT H

CONTRACT DISPUTE ESCALATION

Level	Cisco	Supplier	Maximum period of time at attempted resolution before escalation to next level
1	Commodity Manager	Account Manager	10 business days or as otherwise mutually agreed
2	Director, Global Supply Management	Business Unit General Manager	10 business days or as otherwise mutually agreed
3	VP Global Supply Management	Group President	10 business days or as otherwise mutually agreed
4	Senior VP Manufacturing	CEO	10 business days or as otherwise mutually agreed

Page 29 of 30

Exhibit I

[*]

Page 30 of 30

EX-10.25 4 a2121838zex-10_25.htm EXHIBIT 10.25

Exhibit 10.25

INTEGRATED DEVICE TECHNOLOGY, INC.

1984 EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated Effective as of September 29, 2003)

TABLE OF CONTENTS

		Page
Section 1.	Establishment of the Plan	1
Section 2.	Definitions	1
Section 3.	Duration; Shares Authorized	3
Section 4.	Administration	3
Section 5.	Eligibility and Participation	4
Section 6.	Purchase Price	5
Section 7.	Employee Contributions	5
Section 8.	Plan Accounts; Purchase of Shares	5
Section 9.	Withdrawal From the Plan	6
Section 10.	Effect of Termination of Employment or Death	6
Section 11.	Rights Not Transferable	7
Section 12.	Recapitalization, Etc	7
Section 13.	Limitation on Stock Ownership	7
Section 14.	No Rights as an Employee	8
Section 15.	Rights as a Stockholder	8
Section 16.	Use of Funds	8
Section 17.	Amendment or Termination of the Plan	8
Section 18.	Governing Law	8

INTEGRATED DEVICE TECHNOLOGY, INC.

1984 EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated Effective as of September 29, 2003)

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 Purchase Periods, to increase the number of shares of common stock reserved for issuance under the Plan, to increase the percentage of a Participant’s compensation that may be subject to payroll deductions under the Plan, to increase the number of shares of stock that a Participant may purchase within any Purchase Period 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. Notwithstanding the foregoing, effective September 29, 2003, each Eligible Employee’s Date of Participation shall be the later of September 29, 2003 or 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 on the Company’s first and third fiscal quarters 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 six-month period commencing on the Company’s first and third fiscal quarters 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 11,100,000 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 submitting the prescribed enrollment form. The enrollment form 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 enrollment form 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 enrollment form is intended to be effective. The Eligible Employee shall designate on the enrollment form 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 15% 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 five thousand (5,000) 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 five thousand (5,000) 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 submitting the prescribed percentage change form with the Stock Administrator. Such decrease will be effective no later than the first day of the second period, which begins following the receipt of the new percentage change form. 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 submitting a new percentage change form 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 the enrollment form (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 submitting the prescribed withdrawal 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. Designation of a beneficiary is located on page 2 of the prescribed enrollment form.

(c) Such designation of beneficiary may be changed by the Participant at any time by submitting the prescribed designation of beneficiary change form with the Stock Administrator. 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 , 2003.

Integrated Device Technology, Inc.

	By:
	Its:

EX-31.1 5 a2121838zex-31_1.htm EXHIBIT 31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Gregory S. Lang, Chief Executive Officer of Integrated Device Technology, Inc. (the “registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2003

	/s/ Gregory S. Lang
	Gregory S. Lang
	Chief Executive Officer

EX-31.2 6 a2121838zex-31_2.htm EXHIBIT 31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Clyde R. Hosein, Chief Financial Officer of Integrated Device Technology, Inc. (the “registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2003

	/s/ Clyde R. Hosein
	Clyde R. Hosein
	Chief Financial Officer

EX-32.1 7 a2121838zex-32_1.htm EXHIBIT 32.1

Exhibit 32.1

Certification of Chief Executive Officer

I, Gregory S. Lang, Chief Executive Officer of Integrated Device Technology, Inc. (the “Company”), pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350, certify to my knowledge that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 28, 2003 (the “Report”) fully complies with the requirements of Section 13a of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2003	/s/ Gregory S. Lang
	Gregory S. Lang
	Chief Executive Officer

A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2 8 a2121838zex-32_2.htm EXHIBIT 32.2

Exhibit 32.2

Certification of Chief Financial Officer

I, Clyde R. Hosein, Chief Financial Officer of Integrated Device Technology, Inc. (the “Company”), pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350, certify to my knowledge that:

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2003	/s/ Clyde R. Hosein
	Clyde R. Hosein
	Chief Financial Officer

GRAPHIC 9 ex10-241824image002.gif EX10-241824IMAGE002.GIF begin 644 ex10-241824image002.gif M1TE&.#EA=``]`'<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y M!`$`````+`````!T`#T`A(&!@1A=;K8F,/___P$"`P$"`P$"`P$"`P$"`P$" M`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P$" M`P$"`P$"`P$"`P$"`P$"`P$"`P$"`P+_A"6FR^T/%8JTVBO1Q-SJU(6B\VWC M68+GRFTFVTT:3%>N6E]WSC/F^P+,%A_?$'+,''#)$C$I!$&A2R2SF#DZ(]AG M-/OK1H.SIKCZ`";":Y4,EYZVE61X<-F^?HU6KW%>===P]J9$8@>'-^9WV)?U M-PA(0:B6N`?V)T:%UOATE5CH48<(2FHJ9QG&^*C()^@W&HF8Z3-VM[EC>,!9 MYB89QQG\5<)7 MIV-#AIU85FE:I$5'KC7ZEBB#DW&%UGW95N1=GWLKGI785V?@B7\;=CT\F&[" MPT#S;F2,-;%)R`$D,RS,D/(`RWH7>S;K6*-FSB$U-YX+NSOQ\Z1UUMG&AI_ M^"677X'Q04=?@OZE5Y>:`,.V&```&C(H8(2+E8AA?J-Z.&% L#)+(X88JFKA@>22*:&"%+7YX8HP/:KAAAS.R"&./(