0001095811-01-505061.txt : 20011009 0001095811-01-505061.hdr.sgml : 20011009 ACCESSION NUMBER: 0001095811-01-505061 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXIM INTEGRATED PRODUCTS INC CENTRAL INDEX KEY: 0000743316 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942896096 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16538 FILM NUMBER: 1742587 BUSINESS ADDRESS: STREET 1: 120 SAN GABRIEL DR CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087377600 MAIL ADDRESS: STREET 1: 120 SAN GABRIEL DR CITY: SUNNYVALE STATE: CA ZIP: 94086 10-K 1 f75694e10-k.txt FORM 10-K PERIOD ENDED JUNE 30, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _______________ COMMISSION FILE NUMBER 0-16538 MAXIM INTEGRATED PRODUCTS, INC. (Exact name of Registrant as specified in its charter) Delaware 94-2896096 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 120 San Gabriel Drive Sunnyvale, California 94086 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (408) 737-7600 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any Amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of August 31, 2001 was approximately $10,656,000,000. Shares of voting stock held by executive officers, directors and holders of more than 5% of the outstanding voting stock have been excluded from this calculation because such persons may be deemed to be affiliates. Exclusion of such shares should not be construed to indicate that any of such persons possesses the power, direct or indirect, to control the Registrant, or that any such person is controlled by or under common control with the Registrant. 2 Number of shares outstanding of the Registrant's Common Stock, $.001 par value, as of August 31, 2001: 331,387,831. Documents Incorporated By Reference: Part II of this Report on Form 10-K incorporates information by reference from the Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 2001. Part III of this Report on Form 10-K incorporates information by reference from the Registrant's Proxy Statement for its 2001 Annual Meeting of Stockholders. 2 3 FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. All Statements included or incorporated by reference in this Annual Report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements may include (a) projections relevant to future revenue, income, earnings, cash flows, costs, cost savings, capital expenditures, capital structure or other financial items, (b) statements of plans, strategies or objectives of the Company's management for future operations, including, without limitation, plans, strategies or objectives relating to the Company's products and their development, manufacture, marketing and sale, and to personnel matters such as recruiting, training and retaining employees (c) statements of future economic performance, and (d) statements of any assumptions underlying or relating to any of the foregoing. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on the Company's current outlook, expectations, estimates, projections, beliefs and plans or objectives about its business and its industry. These statements are not guarantees of future performance and are subject to risk and uncertainty. Actual results may differ materially from those predicted or implied in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Form 10-K and in the documents incorporated herein by reference. Particular attention should be paid to the section entitled "Trends, Risks and Uncertainties" at pages 12 through 18 below and to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Stockholders, which is incorporated herein by reference. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Annual Report on Form 10-K. Readers should carefully review future reports and documents that the Company files from time to time with the Securities and Exchange Commission, such as its quarterly reports on Form 10-Q (particularly Management's Discussion and Analysis of Financial Condition and Results of Operations) and any current reports on Form 8-K. 3 4 PART I ITEM 1. BUSINESS Maxim Integrated Products, Inc. ("Maxim" or the "Company") designs, develops, manufactures, and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The Company also provides a range of high-frequency design processes and capabilities that can be used in custom design. The analog market is highly fragmented and characterized by many diverse applications, a great number of product variations, and, as to many circuit types, relatively long product life cycles. Maxim's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. Based on product announcements by its competitors, Maxim believes that in the past 18 years it has developed more products for the analog market, including proprietary and second-source products, than any of its competitors over the same period. On April 11, 2001, the Company acquired Dallas Semiconductor Corporation. The Company issued approximately 41.0 million shares of its common stock in exchange for all the outstanding common stock of Dallas Semiconductor. In addition, the Company assumed all stock options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9 million shares of the Company's common stock. The transaction has been accounted for as a pooling-of-interests. Accordingly, unless specifically stated otherwise, all financial data of the Company has been restated to include the historical financial data of Dallas Semiconductor. See Note 3 "Business Combination" of the Notes to Consolidated Financial Statements as set forth in the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001. At the time of the acquisition, Dallas Semiconductor's product line consisted of 390 proprietary base products sold to over 15,000 customers worldwide. Applications for those products include battery management, broadband telecommunications, wireless handsets, cellular base stations, networking, servers, data storage, and a wide variety of industrial equipment. The Company is a Delaware corporation that was originally incorporated in California in 1983. It is headquartered in Sunnyvale, California. The mailing address for the Company's headquarters is 120 San Gabriel Drive, Sunnyvale, California 94086, and the Company's telephone number is (408) 737-7600. Additional information about the Company is available on the Company's website at www.maxim-ic.com. THE ANALOG INTEGRATED CIRCUIT MARKET All electronic signals fall into one of two categories, linear or digital. Linear (or analog) signals represent real world phenomena, such as temperature, pressure, sound, or speed, and are continuously variable over a wide range of values. Digital signals represent the "ones" and "zeros" of binary arithmetic and are either on or off. Three general classes of semiconductor products arise from this partitioning of signals into linear or digital. There are those, such as memories and microprocessors, that operate only in the digital domain. There are linear devices such as amplifiers, references, analog multiplexers, and switches that operate primarily in the analog domain. Finally, there are mixed-signal devices that combine linear and digital functions on the same integrated circuit and interface between the analog and 4 5 digital worlds. Maxim's strategy has been to target both the linear and mixed-signal markets, often collectively referred to as the analog market. With the acquisition of Dallas Semiconductor, Maxim has expanded its product offerings in the mixed signal area, which represented more than 90% of the revenues of Dallas Semiconductor during its last three fiscal years. In addition, Maxim has added some Dallas Semiconductor products that are exclusively or principally digital as well as a significant number of engineers skilled in digital design and software development. Although the acquisition has not substantially affected Maxim's strong focus on the linear and mixed signal market, it has significantly supplemented Maxim's capabilities in the digital area in ways that should enable development of new products, mixed signal and other, with very sophisticated digital characteristics. Risks associated with fulfilling this expectation are discussed in "Item 1., Trends, Risks and Uncertainties" below. The Company believes that, compared to the digital integrated circuit market, the analog market has generally been characterized by a wider range of standard products used in smaller quantities by a larger number of customers, and in many cases, by longer product life cycles and lower capital requirements as a result of generally using more mature manufacturing technologies. The Company believes that the widespread application of low-cost microprocessor-based systems and of digital communication technologies has affected the market for analog integrated circuits by increasing the need for interfaces with the analog world. The analog market is a highly fragmented group of niche markets, serving numerous and widely differing applications for instrumentation, industrial control, data processing, communications, military, video, and selected medical equipment. For each application, different users may have unique requirements for circuits with specific resolution, accuracy, linearity, speed, power, and signal amplitude capability, which results in a high degree of market complexity. Maxim's products can be used in a variety of applications, but serve only certain portions of the total analog market. PRODUCTS AND APPLICATIONS The Company believes that it addresses the requirements of the market by providing competitively priced products that add value to electronic equipment with superior quality and reliability. The Company's research and development programs emphasize development of technically innovative proprietary products. In addition, the Company also develops second source products used for industry-standard parts. In the Company's fiscal year 2001 product introduction year ending July 28, 2001, the Company introduced over 500 products compared to over 400 products in the Company's fiscal year 2000 product introduction year. The Company's products are available with numerous packaging alternatives, including packages for surface mount technology. The following table illustrates the major industries served by the Company and typical applications for which the Company's products can be used: 5 6
Industry Typical Application ----------- ------------------- Communications ..................... Broadband Networks Cable Systems Cellular Base Stations Central Office Switches Direct Broadcast TV DSL Modems Fiber Optics Optical Transceivers Pagers PBXs Phones o Cellular/PCS o Cordless Satellite Communications T1/E1 and T3/E3 Video Communications Wireless Communications Industrial Control ................... Control of o Flow o Position o Pressure o Temperature o Velocity Robotics Instrumentation ...................... Automatic Test Equipment Analyzers Data Recorders Measuring Instruments o Electrical o Light o Pressure o Sound o Speed o Temperature o Time Testers
6 7 Data Processing ...................... Bar-code Readers Disk Drives Global Positioning Systems Hand-Held Computers/PDAs Mainframes Personal Computers Printers Point of Sale Terminals Servers Storage Systems Tape Drives Workstations
The Company also sells products for military, video, and selected medical equipment. While Maxim's proprietary products have received substantial market acceptance, Maxim has experienced additional competition as Maxim's competitors have developed second source products for some of Maxim's successful innovative proprietary products. Typically in the semiconductor industry, when a proprietary product becomes second sourced, the credibility of the original design is enhanced, and there is an opportunity to increase total revenues as the potential customers' reluctance to design in a sole-source product is removed, but gross margins may be adversely affected due to increased price competition. PRODUCT QUALITY Maxim places strong emphasis on product quality from initial design through final quality assurance for the end product. In the product design phase, Maxim applies a set of circuit design rules that it believes result in enhanced product reliability. Upon receipt from Maxim's own fabrication facilities or from silicon foundries, a majority of processed wafers are tested for conformance with specific parameters. Products are individually tested using specialized test equipment and complex programs to ensure that they meet data sheet performance levels. In addition, long-term operating life and mechanical stress tests are routinely performed on samples to assure continued, long-term product performance. Maxim is in the process of making the design, fabrication, test operations, and quality assurance of Dallas Semiconductor consistent with Maxim's methodologies. MANUFACTURING Maxim uses its own wafer fabrication and, to a small extent, silicon foundries to produce wafers. The majority of processed wafers are subjected to parametric and functional testing at the Company's facilities. As is customary in the industry, the Company ships most of its processed wafers to foreign assembly subcontractors, located in the Philippines, Malaysia, Thailand and South Korea, where wafers are separated into individual integrated circuits and assembled into a variety of packages. After assembly has been completed, the majority of the assembled product is shipped to the Company's test facilities located in Cavite, the Philippines. During fiscal 2001, the Company doubled the square footage, which tripled the manufacturing space at its test facilities in Cavite, the Philippines. This expansion provided space to accommodate Dallas Semiconductor's offshore test 7 8 and shipping operations. In addition, the Company established wafer sort operations at this facility with the capacity to electronically test and laser trim the majority of the Company's wafers. Prior to the merger, product assembled from wafers manufactured in the Dallas, Texas wafer fabrication facility was tested primarily at subcontractors located in the Philippines. Testing for Dallas product was also performed in a test facility located in Dallas, Texas. At the end of fiscal 2001, the majority of the testing of Dallas product was transferred to the Company's test facilities located in Cavite, the Philippines. Except for low volume Dallas product which will continue to be tested in Dallas, Texas, the Company intends to transfer the testing operations for remaining Dallas product to the Company's test facilities located in Cavite, the Philippines during the first quarter of fiscal 2002. The success of this move will depend in part on the Company's ability to effect the physical move of very sophisticated equipment and to bring that equipment into efficient operation quickly. In fiscal 2001, the Company hired employees and purchased capital equipment for a second test facility located in Samutprakam, Thailand. It is expected that this facility, as well as the facility in Cavite, the Philippines, will continue to expand test capacity as demand dictates. Currently, the Company's facilities located in Cavite, the Philippines and Samutprakam, Thailand combined have enough test manufacturing and shipping space to meet the Company's fiscal year 2002 plan, subject always to normal and to unforeseen challenges in effecting such expansions. Once testing has been completed, the finished product is either shipped directly to customers worldwide or to other Company locations for ultimate sale to end customers. The broad range of products demanded by the analog integrated circuit market requires multiple manufacturing process technologies. Many different process technologies are currently used for wafer fabrication of the Company's products. Historically, wafer fabrication of analog integrated circuits has not required the state-of-the-art processing equipment necessary for the fabrication of advanced digital integrated circuits, although newer processes do utilize and require some of these facilities and equipment. In addition, hybrid products are manufactured using a complex multichip technology featuring thin-film, thick-film, and laser-trimmed resistors. For the majority of these technologies, the Company relies on its fabrication facilities in San Jose, California, Beaverton, Oregon, Dallas, Texas and, to a small extent, manufacturing subcontractors. The Company currently uses four subcontract silicon foundries that represent less than 5% of wafer production. None of the subcontractors currently used by Maxim is affiliated with Maxim. Most of the wafers produced in fiscal 2001 were manufactured at one of the Company's three wafer fabrication facilities. The Company's wafer fabrication facility located in Dallas, Texas was originally built in 1986 and expanded in 1989, 1994 and 2001. This facility currently produces six-inch wafers. The Company is in the process of replacing six-inch production capacity at this facility with eight-inch wafer production. Once the production of eight-inch wafers has been fully implemented, it is the Company's intention to discontinue production of six-inch wafers at this facility. See Note 13 "Merger and Special Charges" of the Notes to Consolidated Financial Statements as set forth in the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001. In December 1989, the Company acquired a wafer fabrication facility in Sunnyvale, California capable of producing 3 micron CMOS and bipolar products. In May 1994, the Company acquired a mixed-class wafer fabrication facility in Beaverton, Oregon capable of producing CMOS and bipolar products. In November 1997, the company acquired a sub-micron wafer fabrication 8 9 facility in San Jose, California. The Company transferred production from the Sunnyvale facility to the Beaverton facility and suspended wafer production at the Sunnyvale facility in December 1998. The Beaverton, Oregon and San Jose, California wafer fabrication facilities currently manufacture six-inch wafers. The Company is in the process of expanding production capacity at its San Jose, California facility to include eight-inch wafer production. Once this has been completed, the Company intends to discontinue six-inch wafer production at this facility. See "Item 2., Properties" below. In the past and as sometimes happens in the semiconductor industry, the Company has experienced disruptions in the supply of processed wafers due to quality problems or failure to achieve satisfactory electrical yields. If the foundries used by the Company were unwilling or the Company's own internal wafer fabrication facilities were unable to produce adequate supplies of processed wafers conforming to the Company's quality standards, the Company's business and relationships with its customers could be adversely affected. Due to the relatively lengthy manufacturing cycle, the Company builds some of its inventory in advance of receiving orders from its customers. As a consequence of inaccuracies inherent in forecasting, inventory imbalances periodically occur that result in surplus amounts of some Company products and shortages of others. Such shortages can adversely affect customer relations and surpluses can result in larger-than-desired inventory levels, which can adversely affect the Company's financial position. Excess inventory issues can also arise when customers cancel orders. Finished products and work in process for those orders may be unsaleable. See "Item 1., Trends, Risks and Uncertainties - Factors Affecting Future Operating Results." SALES AND MARKETING In the United States and Canada, the Company sells its products through a direct sales and applications organization in nine regional sales offices and through its own and other unaffiliated distribution channels. As is customary in the industry, most domestic distributors are entitled to certain price rebates and product return privileges. International sales are conducted by 23 Maxim sales offices, 4 sales representative organizations and 62 distributors. The Company plans to consolidate and reorganize the Company's worldwide distribution channels in fiscal year 2002. The Company sells in both United States dollars and various foreign currencies. A majority of the Company's international sales are billed and payable in United States dollars and are therefore not directly subject to currency exchange fluctuations. A portion of the Company's sales from its United Kingdom, French, and German affiliates is denominated in the local currencies. The majority of the sales to customers and distributors located in Japan are denominated in yen. The Company enters into foreign currency forward contracts to protect the United States dollar value of its firm sales commitments and net monetary assets. Changes in the relative value of the dollar, however, may create pricing pressures for Maxim's products. In addition, various forms of protectionist trade legislation have been proposed in the United States and certain foreign countries. A change in current tariff structures or other trade policies could adversely affect the Company's foreign marketing strategies. In general, payment terms for foreign customers, distributors and others, are longer than for U.S. customers, and certain major foreign customers generally pay for product well beyond the scheduled payment dates. As is customary in the semiconductor industry, the Company's domestic distributors may market products competitive with Maxim's. 9 10 International sales accounted for approximately 57%, 53%, and 53% of net revenues in fiscal 2001, 2000 and 1999, respectively. (See Note 12 "Segment Information" of the Notes to Consolidated Financial Statements as set forth in the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001.) The Company also sells product directly to original equipment manufacturers. In particular, the Company has a long-term supply arrangement with Tektronix, Inc. for the supply of products manufactured by Tektronix prior to its sale in May 1994 of its integrated circuits operation ("ICO") to the Company and for new designs created by Tektronix. This arrangement expires in May 2004, after which it becomes a month to month arrangement. As of June 30, 2001, the Company's backlog was approximately $234 million as compared to approximately $587 million at June 24, 2000. The Company includes in its backlog customer-released orders with firm schedules for shipment within the next 12 months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to the customers. In addition, the Company's backlog includes orders from domestic distributors as to which revenues are not recognized until the products are sold by the distributors. Accordingly, the Company believes that its backlog at any time should not be used as a measure of future revenues. All of the backlog numbers have been adjusted to be net of cancellations and estimated future U.S. distribution ship and debit pricing adjustments. The Company warrants its products to its customers generally for 12 months from shipment, but in certain cases for longer periods. Warranty expense to date has been minimal. RESEARCH AND DEVELOPMENT The Company believes that research and development is critical to its future success. Objectives for the research and development function include definition and design of innovative proprietary products that meet customer needs, development of second-source products, design of parts for high yield and reliability, and development of manufacturing processes and advanced packaging to support an expanding product line. Due to the research and development plans of the Company and the shortage of qualified design engineering talent, the Company does not always have the number of engineers required to meet its research and development goals. Research and development expenses were approximately $280.2 million, $216.8 million, and $145.8 million in fiscal 2001, 2000, and 1999, respectively. COMPETITION The analog integrated circuit industry is intensely competitive, and virtually all major semiconductor companies presently compete with, or conceivably could compete with, some segment of the Company's business. Maxim's competitors are Anadigics Inc., Analog Devices, Inc., Applied Micro Circuits Corporation, Conexant Systems Inc., Infineon Technologies AG, Intersil Corporation, Linear 10 11 Technology Corporation, Lucent Technologies, Micrel Inc., Microchip Technology Inc., Mitsubishi Corporation, Mitsui & Co. Ltd., Motorola Inc., National Semiconductor Corporation, ON Semiconductor Corporation, Philips Electronics N.V., RF Micro Devices Inc., Ricoh Company Ltd., Seiko Corporation, Semtech Corporation, STMicroelectronics N.V., Siliconix Inc., Sipex Corporation, Texas Instruments Inc., Vitesse Semiconductor Corporation and others, including start-up companies. Some of Maxim's competitors have substantially greater financial, manufacturing, and marketing resources than the Company, and some of Maxim's competitors have greater technical resources. The Company believes it competes favorably with these corporations primarily on the basis of technical innovation, product definition, quality, and service. There can be no assurance that competitive factors will not adversely affect the Company's future business. PATENTS, LICENSES, AND OTHER INTELLECTUAL PROPERTY RIGHTS The Company relies primarily upon know-how, rather than on patents, to develop and maintain its competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer the Company's products or that the confidentiality agreements with employees, consultants, silicon foundries and other suppliers and vendors will be adequate to protect the Company's interests. The Company currently owns 420 U.S. patents and 90 foreign patents with expiration dates ranging from 2001 to 2019. In addition, the Company has applied for 163 U.S. patents, a large number of which have corresponding patent applications in multiple foreign jurisdictions. It is the Company's policy to seek patent protection for significant inventions that may be patented, though the Company may elect, in appropriate cases, not to seek patent protection even for significant inventions if other protection, such as maintaining the invention as a trade secret, is considered more advantageous. In addition, the Company has registered certain of its mask sets under the Semiconductor Chip Protection Act of 1984. There can be no assurance that any patent will issue on pending applications or that any patent issued will provide substantive protection for the technology or product covered by it. The Company believes that patent and mask work protection is of less significance in its business than experience, innovation, and management skill. Maxim has registered several of its trademarks with the U.S. Patent and Trademark Office and in foreign jurisdictions. Maxim is a party to a number of licenses, including patent licenses and other licenses obtained from Tektronix in connection with its acquisition of Tektronix's ICO in May 1994. Due to the many technological developments and the technical complexity of the semiconductor industry, it is possible that certain of the Company's designs or processes may involve infringement of patents or other intellectual property rights held by others. From time to time, the Company has received, and in the future may receive, notice of claims of infringement by its products on intellectual property rights of third parties. (See "Item 1., Trends, Risks and Uncertainties - Intellectual Property Litigation and Claims," and "Legal Proceedings") If any such infringements were to exist, the Company might be obligated to seek a license from the holder of the rights and 11 12 might have liability for past infringement. In the past, it has been common semiconductor industry practice for patent holders to offer licenses on reasonable terms and rates. Although in some situations, typically where the patent directly relates to a specific product or family of products, patent holders have refused to grant licenses, though the practice of offering licenses appears to be generally continuing. However, no assurance can be given that the Company will be able to obtain licenses as needed in all cases or that the terms of any license that may be offered will be acceptable to Maxim. In those circumstances where an acceptable license is not available, the Company would need either to change the process or product so that it no longer infringes or else stop manufacturing the product or products involved in the infringement. ENVIRONMENTAL REGULATION Federal, state, and local regulations impose a variety of environmental controls on the storage, handling, discharge and disposal of certain chemicals and gases used in semiconductor manufacturing. The Company's facilities have been designed to comply with these regulations, and it believes that its activities are conducted in material compliance with such regulations. There can be no assurance, however, that interpretation and enforcement of current or future environmental regulations will not impose costly requirements upon the Company. Any failure of the Company to control adequately the storage, use, and disposal of regulated substances could result in future liabilities. Increasing public attention has been focused on the environmental impact of electronic manufacturing operations. While the Company to date has not experienced any materially adverse effects on its business from environmental regulations, there can be no assurance that changes in such regulations will not have a materially adverse effect on the Company's financial position or results of operations. EMPLOYEES The supply of skilled engineers required for Maxim's business is limited, and competition for such personnel is intense. The Company's growth also requires the hiring or training of additional middle-level managers. If the Company is unable to hire, retain, and motivate qualified technical and management personnel, its operations and financial results will be adversely affected. None of the Company's employees is subject to a collective bargaining agreement. As of June 30, 2001, Maxim had 6,317 employees, including Dallas Semiconductor employees. TRENDS, RISKS AND UNCERTAINTIES An investment in the securities of Maxim involves certain risks. In evaluating the Company and its business, prospective investors should give careful consideration to the factors listed below, in addition to the information provided elsewhere in this Annual Report on Form 10-K, in the documents incorporated herein by reference and in other documents filed with the Securities and Exchange Commission. 12 13 Factors Affecting Future Operating Results The Company's future operating results are difficult to predict and may be affected by a number of factors. The semiconductor market has historically been cyclical and subject to significant economic downturns at various times. After a period of increasing demand that extended through fiscal 2000, more recently the semiconductor industry, including the portions in which the Company participates, has been experiencing dramatically decreased demand. Although some of the causes of this decrease are known, including significant excess inventories in the hands of equipment manufacturers and other potential customers, it remains unclear what all the causes may be and for what period the decrease in demand will continue. Maxim's ability to achieve future revenue growth depends on whether, and the extent to which, demand for its products increases and reflects real end user demand and whether customer cancellations and delays of outstanding orders decrease. Other key factors affecting the Company's revenues and operating results that could cause actual results to differ materially from past or predicted results include the timing of new product announcements or introductions by the Company and its competitors, competitive pricing pressures, fluctuations in manufacturing yields and manufacturing efficiency, adequate availability of wafers and other materials and manufacturing capacity, changes in product mix, and economic conditions in the United States and international markets. As a result of these and other factors, there can be no assurance that the Company will not experience material fluctuations in its future operating results on a quarterly or annual basis. The Company's ability to realize its quarterly revenue goals and projections is affected to a significant extent by its ability to match inventory and current production mix with the product mix required to fulfill orders on hand and orders received within a quarter for delivery in that quarter (referred to as "turns business"). This issue, which has been one of the distinguishing characteristics of the analog integrated circuit industry, results from the very large number of individual parts offered for sale and the very large number of customers combined with limitations on Maxim's and its customers' ability to forecast orders accurately and relatively lengthy manufacturing cycles. Because of this extreme complexity in the Company's business, no assurance can be given that the Company will achieve a match of inventory on hand, production units, and shippable orders sufficient to realize quarterly or annual revenue goals. In addition, in certain markets where end-user demand may be particularly volatile and difficult to predict, such as notebook computers and telephones, some Maxim customers place orders that require Maxim to manufacture product and have it available for shipment, even though the customer is unwilling to make a binding commitment to purchase all, or even any, of the product. At any given time, this situation could affect a portion of the Company's backlog. As a result, in any quarterly fiscal period, the Company is subject to the risk of cancellation of orders leading to a sharp fall-off of sales and backlog. Further, those orders may be for products that meet the customer's unique requirements so that those cancelled orders would, in addition, result in an inventory of unsaleable products, resulting in potential inventory write-offs. Because of lengthy manufacturing cycles for certain of the products subject to these uncertainties, the amount of unsaleable product could be substantial. The Company routinely estimates inventory reserves required for such product. Actual 13 14 results may differ from these reserve estimates, and such differences may be material to Maxim's financial condition, gross margins, and results of operations. Dependence on New Products and Process Technologies The Company's future success will continue to depend on its continued ability to introduce new products and to develop new process technologies. Semiconductor design and process technology are subject to rapid technological change, requiring a high level of expenditures for research and development. Design and process development for the portions of the semiconductor market in which the Company participates are particularly challenging. The success of new product introductions is dependent on several factors, including proper new product selection, timely product introduction, achievement of acceptable production yields, and market acceptance. From time to time, Maxim has not fully achieved its new product introduction and process development goals. There can be no assurance that the Company will successfully develop or implement new process technologies or that new products will be introduced on a timely basis or receive substantial market acceptance. In addition, the Company's growth is dependent on its continued ability to penetrate new markets where the Company has limited experience and competition is intense. There can be no assurance that the markets being served by the Company will grow (in fact, it is natural, for example, that older markets do saturate and decline); that the Company's existing and new products will meet the requirements of such markets; that the Company's products will achieve customer acceptance in such markets; that competitors will not force prices to an unacceptably low level or take market share from the Company; or that the Company can achieve or maintain profitability in these markets. Manufacturing Risks The fabrication of integrated circuits is a highly complex and precise process. Minute impurities, contaminants in the manufacturing environment, difficulties in the fabrication process, defects in the masks used in the wafer manufacturing process, manufacturing equipment failures, wafer breakage, or other factors can cause a substantial percentage of wafers to be rejected or numerous dice on each wafer to be nonfunctional. The Company has from time to time experienced lower-than-expected production yields, which have delayed product shipments and adversely affected gross margins. There can be no assurance that the Company will not experience a decrease in manufacturing yields or that the Company will be able to maintain acceptable manufacturing yields in the future. The number of shippable dice per wafer for a given product is critical to the Company's results of operations. To the extent the Company does not achieve acceptable manufacturing yields or experiences delays in its wafer fabrication, assembly or final test operations, its results of operations could be adversely affected. During periods of decreased demand, fixed wafer fabrication costs could have an adverse effect on the Company's financial condition, gross margins, and results of operations. The Company is currently in the process of upgrading and expanding its wafer manufacturing capacity at its existing wafer manufacturing facilities in order to convert to eight-inch wafers and develop new processes in anticipation of increased customer demand for its products. Should the Company be unsuccessful in completing this expansion on time or should customer demand fail to 14 15 increase and the Company no longer needs the additional capacity, the Company's financial position and results of operations could be adversely impacted. The Company manufactures over 95% of its wafer production requirements internally. Given the nature of the Company's products, it would be difficult to arrange for independent manufacturing facilities to supply such products. Any prolonged inability to utilize one of the Company's manufacturing facilities as a result of fire, natural disaster, unavailability of electric power or otherwise, would have a material adverse effect on the Company's results of operations. Competition The Company experiences intense competition from a number of companies, some of which have significantly greater financial, manufacturing, and marketing resources than the Company and some of which have greater technical resources than the Company and have intellectual property rights to which the Company is not privy. To the extent that the Company's proprietary products become more successful, competitors will offer second source products for some of those products, possibly causing some erosion of profit margins. See "Item 1., Business - Competition." Dependence on Independent Distributors and Sales Representatives A significant portion of the Company's sales is realized through independent electronics distributors and a limited portion of the Company's sales is realized through independent sales representatives that are not under the control of the Company. A larger percentage of the sales of Dallas Semiconductor have been through distribution channels than the percentage for pre-acquisition Maxim. These independent sales organizations generally represent product lines offered by several companies and thus could reduce their sales efforts applied to the Company's products or terminate their representation of the Company. Payment terms for foreign distributors are substantially longer, either according to contract or by practice, than for U.S. customers. The inability to collect open accounts could adversely affect the Company's results of operations. Termination of a significant distributor, whether at the Company's or the distributor's initiative, could be disruptive to the Company's current business. If the Company were unable to find suitable replacements, terminations by significant distributors or representatives could have a material adverse impact on the Company. See "Item 1., Business - Sales and Marketing." Dependence on Independent Foundries, Subcontractors, and the Philippines Test Facility Although the Company has an internal capability to fabricate most of its wafers, Maxim remains dependent on outside silicon foundries for a small but important portion of its wafer fabrication. None of the foundries currently used by Maxim is affiliated with Maxim. As is typical in the semiconductor industry, from time to time, the Company has experienced disruptions in the supply of processed wafers from these foundries due to quality problems, failure to achieve satisfactory electrical yields, and capacity limitations. Procurement from foundries is done by purchase order and long-term contracts. If these foundries are unable or unwilling to produce adequate supplies of processed wafers conforming to the Company's quality standards, the Company's business and relationships with its customers for the limited quantities of products produced by these foundries would be adversely affected. Finding alternate sources of supply or initiating internal wafer processing for these products would not be economically feasible. 15 16 Maxim relies on subcontractors located in the Philippines, Malaysia, Thailand, and South Korea to separate wafers into individual integrated circuits and package them. The Company performs wafer sort operations for the majority of its pre-acquisition wafers and final testing for about two-thirds of its pre-acquisition Maxim products at a Philippines facility owned by the Company. Product assembled from wafers manufactured in the Dallas, Texas wafer fabrication facility was tested primarily at subcontractors located in the Philippines. Although the Company has transferred the majority of the testing of Dallas Semiconductor product to the Company's Philippines test facility, no assurance can be given that the remaining transition will be completed on its planned schedule and cost. In the past, South Korea and the Philippines have experienced political disorders, labor disruptions, and natural disasters. Although the Company has been affected by these problems, none has materially affected the Company's revenues or costs to date. However, similar problems in the future or more aggravated consequences of current problems, could affect deliveries to Maxim of assembled, tested product, possibly resulting in substantial delayed or lost sales and/or increased expense. The Thailand test facility performs about one-third of the Company's final testing for pre-acquisition Maxim products but would not provide sufficient capacity to make up for a significant disruption in the Philippines test facility. See "Item 1., Business - Manufacturing." Availability of Materials, Supplies, and Subcontract Services Over the past few years, the semiconductor industry has experienced a very large expansion of fabrication capacity and production worldwide. As a result of increasing demand from semiconductor manufacturers, availability of certain basic materials and supplies, such as polysilicon, silicon wafers, ultra-pure metals, lead frames and molding compounds, and of subcontract services, like epitaxial growth and ion implantation and assembly of integrated circuits into packages, have from time to time, over the past few years, been in short supply and may be expected to come into short supply again if overall industry demand increases in the future. Maxim devotes continuous efforts to maintain availability of all required materials, supplies, and subcontract services. However, Maxim does not have long-term agreements providing for all of these materials, supplies, and services, and shortages could occur as a result of capacity limitations or production constraints on suppliers that could have a materially adverse effect on Maxim's ability to achieve its planned production. A number of Dallas Semiconductor products, including nonvolatile SRAMs, use static memory circuits that are acquired from third parties. The Company anticipates that from time to time supplies of these circuits may not be sufficient to meet all customer requested delivery dates for products containing the circuits. As a result of any such shortages, future sales and earnings from products using these memory circuits, primarily nonvolatile SRAMs, could be adversely affected. Additionally, significant fluctuations in the purchase price for these circuits could affect gross margins for the products involved. In addition, suppliers of semiconductor manufacturing equipment are sometimes unable to deliver test and/or fabrication equipment to a schedule that meets the Company's requirements. Delays in delivery of equipment needed for planned growth could adversely affect the Company's ability to achieve its manufacturing and revenue plans in the future. 16 17 Protection of Proprietary Information The Company relies primarily upon know-how, rather than on patents, to develop and maintain its competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer the Company's products or that the confidentiality agreements upon which the Company relies will be adequate to protect its interests. Other companies have obtained patents covering a variety of semiconductor designs and processes, and the Company might be required to obtain licenses under some of these patents or be precluded from making and selling the infringing products, if such patents are found to be valid. There can be no assurance that Maxim would be able to obtain licenses, if required, upon commercially reasonable terms. See "Item 1., Business - Patents, Licenses, and Other Intellectual Property Rights," and "Item 1., Trends, Risks and Uncertainties - Intellectual Property Litigation and Claims." Intellectual Property Litigation and Claims The Company is subject to various legal proceedings (See "Item 3., Legal Proceedings") and other similar claims that involve possible infringement of patent or other intellectual property rights of third parties. Maxim is currently a defendant in a lawsuit brought by Linear Technology Corporation in which Linear alleges that Maxim has willfully infringed Linear Technology Corporation's patent relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit. Linear Technology Corporation seeks unspecified actual and treble monetary damages and a permanent injunction against Maxim. In addition to the above, from time to time, the Company receives notices that its products or processes may be infringing the intellectual property rights of others. See "Item 1., Business - Patents, Licenses, and Other Intellectual Property Rights." If one or more of the Company's products or processes were determined to infringe any such intellectual property rights, a court might enjoin the Company from further manufacture and/or sale of the affected products. The Company would then need to obtain a license from the holders of the rights and/or to reengineer the Company's products or processes in such a way as to avoid the alleged infringement. In any of those cases, there can be no assurance that the Company would be able to obtain any necessary license on commercially reasonable terms or that the Company would be able to reengineer its products or processes to avoid infringement. An adverse result in litigation arising from such a claim could involve an injunction to prevent the sales of a material portion of the Company's products, a reduction or the elimination of the value of related inventories, and the assessment of a substantial monetary award for damages related to past sales. Foreign Trade and Currency Exchange Many of the materials and manufacturing steps in the Company's products are supplied by foreign companies or by the Company's operations abroad, such as its test operations in the Philippines. Approximately 57% of the Company's net revenues in fiscal year 2001 were from foreign customers. Accordingly, both manufacturing and sales of the Company's products may be adversely affected by political or economic conditions abroad. In addition, various forms of protectionist trade legislation have been proposed in the United States and certain foreign countries. A change in current tariff structures or other trade policies could adversely affect the Company's foreign manufacturing or marketing strategies. Currency exchange fluctuations could also increase the cost of components 17 18 manufactured abroad and the cost of the Company's products to foreign customers or decrease the costs of products from the Company's foreign competitors. Although export sales are subject to government regulation, those regulations have not caused the Company significant difficulties to date. See "Item 1., Business - Manufacturing" and "Item 1., Business - Sales and Marketing." Dependence on Key Personnel The Company's success depends to a significant extent upon the continued service of its president, John F. Gifford, its other executive officers, and key management and technical personnel, particularly its experienced engineers, and on its ability to continue to attract, retain, and motivate qualified personnel. The competition for such employees is intense. The loss of the services of Mr. Gifford or several of the Company's executive officers could have a material adverse effect on the Company. In addition, there could be a material adverse effect on the Company should the turnover rates for engineers and other key personnel increase significantly or should the Company be unable to continue to attract qualified personnel. The Company does not maintain any key person life insurance policy on any of its officers or employees. Merger Transition and Integration The Company acquired Dallas Semiconductor on April 11, 2001. Since that time, the Company has been in the process of integrating the personnel and operations of Dallas Semiconductor, with the goals of reducing cost and increasing efficiency and productivity. That process has been proceeding well in most regards, but no assurance can be given that the integration will be completed according to the Company's schedule or that the results of the integration will be successful. ITEM 2. PROPERTIES Maxim's headquarters is located in Sunnyvale, California. Manufacturing and other operations are conducted in several locations worldwide. The following table provides certain information as to the Company's principal general offices and manufacturing facilities.
OWNED PROPERTY LOCATION USE FLOOR SPACE ----------------- --- ----------- Sunnyvale, Corporate headquarters, office space, 319,000 sq. ft. California engineering, manufacturing, administration, customer service, shipping, and other San Jose, Wafer fabrication, office space, and 80,000 sq. ft California administration Chelmsford, Engineering, office space, and 30,000 sq. ft Massachusetts administration
18 19
OWNED PROPERTY LOCATION USE FLOOR SPACE ----------------- --- ----------- Beaverton, Wafer fabrication, engineering, 226,000 sq. ft Oregon office space, shipping, and administration Hillsboro, Engineering, office space, and 325,000 sq. ft Oregon administration Dallas, Dallas corporate headquarters, office space, 711,000 sq. ft. Texas engineering, manufacturing, administration, wafer fabrication, customer service, warehousing, shipping, and other Cavite, Testing, engineering, office space, 234,000 sq. ft the Philippines shipping, and administration LEASED PROPERTY LOCATION USE FLOOR SPACE ----------------- --- ----------- Sunnyvale, Engineering and office space 30,000 sq. ft. California Dallas, Warehousing and offices 62,000 sq. ft. Texas Samutprakarn Province, Testing, office space, and administration 25,000 sq. ft. Thailand
In addition to the leased property listed in the table, the Company also leases sales offices and other premises at various locations in the United States and overseas under operating leases. These leases expire at various dates through the year 2010. The Company anticipates no difficulty in retaining occupancy of any of its manufacturing, office or sales facilities through lease renewals prior to expiration or through month-to-month occupancy or in replacing them with equivalent facilities. In October of 1999, the Company began construction of a 120,000 square foot office building at its headquarters, with a parking structure adjacent to the building. These structures became available for use at the end of fiscal 2001. The Company expects these buildings and the contiguous land to be adequate for its business purposes through fiscal year 2002. 19 20 ITEM 3. LEGAL PROCEEDINGS Linear Technology Corporation vs. Maxim Integrated Products, Inc. et al., Action No. C-98-1727 FMS in the Federal District Court for the Northern District of California. On June 26, 1997, a complaint was filed by Linear Technology Corporation ("LTC") naming the Company and certain other unrelated parties as defendants. The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC's United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount. The complaint further alleges that the Company's actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys fees. The Company answered the complaint on October 20, 1997, denying all of LTC's substantive allegations and counterclaiming for a declaration that LTC's patent is invalid and not infringed. The parties are still involved in discovery proceedings. The case has been bifurcated into separate liability and damages trials, with the issues of liability and willfulness likely to go to jury trial in calendar year 2002. The Company has asserted in its answer, and continues to believe, that the allegations in the complaint are without merit. Although the outcome of a jury trial involving patents and intellectual property involves complex issues of law and fact and is therefore inherently uncertain, the Company does not believe that the ultimate outcome of the matter will have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the headings "Financial Information - Financial Highlights by Quarter" and "Corporate Data, Stockholder Information." 20 21 ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the heading "Financial Information - Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the heading "Financial Information - Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the subheading "Interest Income and Other, Net," and under the heading "Financial Information - Management's Discussion and Analysis of Financial Condition and Results of Operations. " ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the headings: "Financial Information" o Consolidated Balance Sheets o Consolidated Statements of Income o Consolidated Statements of Stockholders' Equity o Consolidated Statements of Cash Flows o Notes to Consolidated Financial Statements o Report of Ernst & Young LLP, Independent Auditors o Financial Highlights by Quarter o The report of KPMG LLP with respect to the consolidated financial statements of Dallas Semiconductor Corporation for the year ended December 31, 2000 is part of this item and is included in Exhibit 99.1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 22 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Other than as follows, the information required by this item is incorporated by reference from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders under the headings "Proposal 1 - Election of Directors" and "Compliance with Section 16(A) of the Securities Exchange Act of 1934." The officers of the Company, including executive officers and other Vice Presidents, are as follows:
Name Age Position ---- --- -------- John F. Gifford 60 President, Chief Executive Officer and Chairman of the Board Frederick G. Beck 63 Vice President Tunc Doluca 43 Vice President Laszlo V. Gal, Ph.D. 53 Vice President Robi B. Georges 43 Vice President Parviz Ghaffaripour 38 Vice President Jennifer E. Gilbert 35 Vice President Alan P. Hale 40 Vice President Richard C. Hood 51 Vice President Kenneth J. Huening 40 Vice President Carl W. Jasper 45 Vice President and Chief Financial Officer Nasrollah Navid, Ph. D. 52 Vice President Pirooz Parvarandeh 41 Vice President Charles G. Rigg 57 Vice President Robert F. Scheer 48 Vice President
22 23
Name Age Position ---- --- -------- Sharon E. Smith-Lenox 49 Corporate Controller and Principal Accounting Officer Vijay Ullal 42 Vice President
Mr. Gifford, a founder of the Company, has served as Maxim's President, Chief Executive Officer and Chairman of the Board since the Company's incorporation in April 1983. Mr. Beck, a founder of the Company, has served as Vice President since May 1983, except for a medical leave between December 1991 and January 1994. Mr. Doluca joined Maxim in October 1984 and was promoted to Vice President in July 1994. Prior to July 1994, he served in a number of integrated circuit development positions. Dr. Gal joined Maxim in April 1999 as Vice President. Prior to joining Maxim, he was with Applied Micro Circuits Corporation where he served as Vice President of Engineering from January 1997 to April 1999. Before joining Applied Micro Circuits Corporation, Dr. Gal's tenure included eleven years at Unisys Corporation (1983-1994) and three years at Motorola Inc. (1994-1997) in various technical and management positions. Mr. Georges joined Maxim in June 1983 and was promoted to Vice President in June 2000. Mr. Ghaffaripour joined Maxim in March 1999 and was promoted to Vice President in January 2001. Prior to joining Maxim, he was with National Semiconductor Corporation from 1990 to 1999 where he held various technical and management positions, most recently including that of Product line director for the Audio Business Unit. Ms. Gilbert joined Maxim in November 1986 and was promoted to Vice President in July 2001. Mr. Hale joined Dallas Semiconductor Corporation in June 1987 and served as Vice President and Chief Financial Officer of Dallas Semiconductor Corporation since 1992. He became an officer of Maxim upon the consummation of the merger between the Company and Dallas Semiconductor Corporation in April 2001. Mr. Hood, a founder of the Company, joined the Company in June 1983 and was promoted to Vice President in February 1997. Prior to February 1997, he served in a number of engineering and manufacturing positions. Mr. Huening joined Maxim in December 1983 and was promoted to Vice President in December 1993. Prior to December 1993, he served in a number of quality assurance positions. Mr. Jasper joined Maxim in May 1998 as the Principal Accounting Officer and was promoted in April 1999 to Vice President and Chief Financial Officer. Prior to joining Maxim, he was with Read-Rite Corporation from November 1995 to April 1998, where he held the position of Vice President, 23 24 Corporate Controller, and prior to that was with Ernst & Young LLP from September 1983 to November 1995. Dr. Navid joined Maxim in May 1997 as Vice President. Prior to joining Maxim and since 1980, he was with Philips Semiconductors, where he served in a number of wireless communications product line management positions. Mr. Parvarandeh joined Maxim in August 1988 and was promoted to Vice President in July 1997. Prior to July 1997, he served in a number of integrated circuit development positions. Mr. Rigg joined Maxim in August 1996 as managing director and general counsel and was promoted to Vice President in April 1999. Prior to joining Maxim, he was with Ropers, Majeski, Kohn and Bentley from 1970 to 1996 where he held various positions, including director. Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President in June 1992. Ms. Smith-Lenox joined Maxim in October 1999 as Principal Accounting Officer. Prior to joining Maxim, she was with Hewlett Packard Company from September 1983 to October 1999, where she held various management positions in Accounting and Finance, most recently that of Controller. Prior to that she was with KPMG, San Francisco from 1980 to 1983. Mr. Ullal joined Maxim in December 1989 and was promoted to Vice President in March 1996. Prior to March 1996, he served in a number of wafer fab operation positions. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders under the headings "Executive Compensation" and "Performance Graph." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders under the heading "Certain Relationships and Related Transactions." 24 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following financial statements are included in the Company's 2001 Annual Report to Stockholders and are incorporated herein by reference pursuant to Item 8: (1) Consolidated Balance Sheets at June 30, 2001 and June 24, 2000. Consolidated Statements of Income for each of the three years in the period ended June 30, 2001. Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 2001. Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2001. Notes to Consolidated Financial Statements. (2) The following financial statement schedule is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the financial statements. Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits. See attached Exhibit Index. (b) Reports on Form 8-K (1) In the fourth quarter of fiscal 2001, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K. The Current Report was dated April 11, 2001 and was filed in connection with the merger with Dallas Semiconductor Corporation. No financial statements were filed with this Current Report. (2) In the fourth quarter of fiscal 2001, the Company filed with the Securities and Exchange Commission Amendment No. 1 to its Current Report on Form 8-K dated April 11, 2001. This Current Report on Form 8-K/A was dated June 8, 2001. Filed with this Current Report on Form 8-K/A were the audited financial statements and notes thereto included in Dallas Semiconductor Corporation's Annual Report on Form 10-K for the year ended December 31, 2000 and the Unaudited Pro Forma Combined Financial Statements that give effect to the merger of the Company and Dallas Semiconductor on a pooling-of-interests basis. 25 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: September 21, 2001 MAXIM INTEGRATED PRODUCTS, INC. By: /s/ Carl W. Jasper ------------------------------------------ Carl W. Jasper Vice President and Chief Financial Officer (For the Registrant and as Principal Financial Officer) By: /s/ Sharon E. Smith-Lenox ------------------------------------------ Sharon E. Smith-Lenox Corporate Controller (Principal Accounting Officer) 26 27 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of John F. Gifford, Carl W. Jasper and Sharon E. Smith-Lenox as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 27 28
Signature Title Date --------- ----- ---- /s/ John F. Gifford President, Chief September 21, 2001 ---------------------------- Executive Officer and John F. Gifford Chairman of the Board (Principal Executive Officer) /s/ Carl W. Jasper Vice President and Chief September 21, 2001 ---------------------------- Financial Officer Carl W. Jasper (Principal Financial Officer) /s/ Sharon E. Smith-Lenox Corporate Controller September 21, 2001 -------------------------- (Principal Accounting Sharon Smith-Lenox Officer) /s/ James R. Bergman Director September 21, 2001 ------------------------ James R. Bergman /s/ B. Kipling Hagopian Director September 21, 2001 ------------------------ B. Kipling Hagopian /s/ Eric P. Karros Director September 21, 2001 ----------------------------- Eric P. Karros /s/ M.D. Sampels Director September 21, 2001 --------------------------- M.D. Sampels /s/ A.R. Wazzan Director September 21, 2001 ---------------------------- A.R. Wazzan
28 29 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 2.1 (1) Agreement and Plan of Merger, dated as of January 28, 2001, by and among the Company, MI Acquisition Sub, Inc. and Dallas Semiconductor Corporation 3.1 (2) Restated Certificate of Incorporation of the Company, as amended 3.3 (3) Amendment to Restated Certificate of Incorporation of the Company as filed with the Delaware Secretary of State on November 18, 1999 3.4 (4) Amended and Restated Bylaws of the Company, as amended 4.1 Reference is made to Exhibits 3.1, 3.3 and 3.4 10.5 (5) Agreement between John F. Gifford and the Company, dated as of July 14, 1987, as amended and restated(A) 10.6 (6) Agreement between John F. Gifford and the Company, dated as of March 7, 1991(A) 10.8 (7) The Company's Form of Indemnity Agreement 10.9 (8) Asset Purchase Agreement by and between the Company and Tektronix, Inc., dated as of March 31, 1994, as amended, with certain attachments(B) 10.10(5) Technology Transfer Agreement by and between the Company and Tektronix, Inc., dated May 27, 1994(B) 10.11(5) The Company's Incentive Stock Option Plan, as amended(A) 10.12(9) The Company's 1987 Supplemental Stock Option Plan, as amended(A)
------------ (A) Management contract or compensatory plan or arrangement. (B) Schedules and certain attachments omitted pursuant to Item 601(b) of Registration S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Commission. Certain material omitted pursuant to the request for confidential treatment by the Company. 29 30
Exhibit Number Description ------- ----------- 10.13(9) The Company's Supplemental Nonemployee Stock Option Plan, as amended(A) 10.14 The Company's 1987 Employee Stock Participation Plan, as amended(A) 10.15(9) The Company's 1988 Nonemployee Director Stock Option Plan, as amended(A) 10.16 The Company's 1996 Stock Incentive Plan, as amended(A) 10.17 Dallas Semiconductor Corporation - 1993 Officer and Director Stock Option Plan, as amended, together with forms of stock option agreements thereunder 10.18 Dallas Semiconductor Corporation Amended 1987 Stock Option Plan, together with forms of stock option agreements thereunder 10.19 Assumption Agreement relating to the Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated July 20, 2000, as amended 10.20 Assumption Agreement relating to the Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and M.D. Sampels, dated July 20, 2000, as amended 10.21 Form of Shareholder Agreements between Dallas Semiconductor Corporation and employee stockholders, as amended 10.22 Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated May 20, 1999, as amended 10.23 Employment Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated April 11, 2001 10.24 Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated July 20, 2000, as amended
30 31
Exhibit Number Description ------- ----------- 10.25 Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and M.D. Sampels, dated July 20, 2000, as amended 10.26 Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor Corporation Executives Retiree Medical Plan, as amended 10.27 Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor Corporation stock options 10.28 Dallas Semiconductor Corporation Executives Retiree Medical Plan, as amended 10.29 Form of Indemnification Agreement between Dallas Semiconductor Corporation and its directors and officers 13.1 Portions of the Annual Report to Stockholders for the fiscal year ended June 30, 2001, incorporated by reference into the Form 10-K 21.1 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2 Consent of KPMG LLP, Independent Certified Public Accountants 24.1 Power of Attorney (see page 28) 99.1 Report of KPMG LLP
-------------------------- (1) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Report on Form 8-K filed with the Securities and Exchange Commission on April 12, 2001. (2) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Annual Report on Form 10-K for the year ended June 30, 1995 and the Company's Quarterly Report on Form 10-Q for the quarter ended December 25, 1999. (3) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Quarterly Report on Form 10-Q for the quarter ended December 30, 2000. (4) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Quarterly Report on Form 10-Q for the quarter ended September 23, 2000. 31 32 (5) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Annual Report on Form 10-K for the year ended June 30, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1991. (7) Incorporated by reference to the Company's Registration Statement on Form S-1 No. 33-19561. (8) Incorporated by reference to the Company's Report on Form 8-K filed with the Securities and Exchange Commission on June 11, 1994. (9) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Annual Report on Form 10-K for the year ended June 27, 1998. 32 33 MAXIM INTEGRATED PRODUCTS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
Additions Charged Balance at to Costs Balance at Beginning and End of Period Expenses Deductions (1) of Period --------- -------- -------------- --------- Allowance for doubtful accounts: Year ended June 26, 1999 $ 2,322 $ 259 $ 616 $ 1,965 Year ended June 24, 2000 $ 1,965 $ 501 $ 218 $ 2,248 Year ended June 30, 2001 $ 2,248 $ 1,032 $ 0 $ 3,280
(1) Uncollectible accounts written off. 33 EX-10.14 3 f75694ex10-14.txt EXHIBIT 10.14 1 EXHIBIT 10.14 MAXIM INTEGRATED PRODUCTS, INC. 1987 EMPLOYEE STOCK PARTICIPATION PLAN Adopted August 26, 1987 Approved by Shareholders on October 19, 1987 Amended January 29 and August 23, 1988 Approved by Stockholders on October 26, 1988 Amended August 24, 1989 Approved by Stockholders on November 3, 1989 Amended August 9, 1990 Approved by Stockholders on October 26, 1990 Amended May 8, 1991 Approved by Stockholders on November 7, 1991 Amended August 13, 1992 Approved by Stockholders on November 5, 1992 Amended August 25, 1993 Approved by Stockholders on November 5, 1993 Amended February 17, 1994, March 23, 1994, April 21, 1994, and May 12, 1994 Approved by Stockholders on November 10, 1994 Amended November 10, 1994 Amended August 10, 1995 Approved by Stockholders on November 16, 1995 Amended August 16, 1996 Approved by Stockholders on November 14, 1996 Amended August 13, 1998 Approved by Stockholders on November 19, 1998 Amended August 12, 1999 Approved by Stockholders on November 18, 1999 Amended August 17, 2000 Approved by Stockholders on November 16, 2000 Amended August 23, 2001 1. PURPOSE (a) The purpose of the Plan is to provide a means by which employees of Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: 2 (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13 (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than three (3) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate 263,440,000 shares of the Company's $.001 par value common stock [adjusted to reflect stock dividends effective in 1994, 1995, 1997 and 1999] (the "Common Stock"); provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's Common Stock that has been sold under, or may be sold pursuant to outstanding options granted under, the Company's 1983 Incentive Stock Option Plan, 1987 Supplemental Stock Option Plan, Supplemental Nonemployee Stock Option Plan and 1996 Stock Incentive Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. The shares to be issued pursuant to the Plan may be authorized, but unissued or reacquired Common Stock. 4. GRANT OF RIGHTS; OFFERING The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. If an employee has more than one right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the Offering or otherwise) the substance of the provisions contained in paragraphs 5 through 8, inclusive. 5. ELIGIBILITY 2 3 (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is at least twenty (20) hours per week and at least five (5) months per calendar year. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the Purchase Period (as defined below) for such right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Purchase Period (as defined below) for such Offering, he or she will not receive any right under that Offering. (c) Directors and executive officers of the Company or an Affiliate who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code are not eligible to be granted rights under the Plan. (d) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(d), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (e) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. 6. RIGHTS; PURCHASE PRICE 3 4 (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase the number of shares of Common Stock of the Company purchasable with up to twenty percent (20%) of such employee's Compensation (as defined in Section 7(a)) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no more than twenty-seven (27) months after the Offering Date (the "Purchase Period"). In connection with each Offering made under this Plan, the Board or the Committee shall specify a maximum number of shares which may be purchased by any employee as well as a maximum aggregate number of shares which may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each such Offering, the Board or the Committee may specify the maximum fair market value of Common Stock which may be purchased by any employee pursuant to such Offering as well as a maximum aggregate number of shares which may be purchased by all eligible employees on any given Exercise Date (as defined in the Offering) under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (b) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Exercise Date. 7. PARTICIPATION; WITHDRAWAL; TERMINATION (a) An eligible employee may become a participant in an Offering by delivering an agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to twenty percent (20%) of such employee's Compensation during the Purchase Period. Compensation is defined as total cash compensation, including commissions, bonuses, overtime and other cash compensation, and amounts elected to be deferred by the employee (that would otherwise have been paid) under the Company's Cash or Deferred Savings Plan. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. At any time during the Purchase Period a participant may terminate his or her payroll deductions. A participant may reduce, increase or begin such payroll deductions after the beginning of any Purchase Period only as provided for in the Offering. If specifically allowed pursuant to the terms of an Offering, a participant may make direct payments into his or her account to the extent that such participant has not had the maximum amount withheld during the Purchase Period. (b) If a participant terminates his or her payroll deductions, such participant may withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Purchase Period. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in other Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company or an Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), without interest. 4 5 (d) Rights granted under the Plan shall not be transferable, and shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE (a) On each exercise date, as defined in the relevant Offering (an "Exercise Date"), each participant's accumulated payroll deductions (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Exercise Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to such participant after such Exercise Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Exercise Date of an Offering shall be distributed in full to such participant after such Exercise Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the Plan (including rights granted thereunder) is covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act"). If, on an Exercise Date of any Offering hereunder, the Plan is not so registered, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Purchase Period (reduced to the extent, if any, such deductions have been used to acquire stock for the participants) shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 11. RIGHTS AS A STOCKHOLDER A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until certificates representing such shares shall have been issued. 12. ADJUSTMENTS UPON CHANGES IN STOCK (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property 5 6 other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding rights will be appropriately adjusted in the class(es) and the maximum number of shares subject to the Plan and the class(es) and the number of shares and price per share of stock subject to outstanding rights. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, as determined by the Board in its sole discretion, any surviving corporation shall assume outstanding rights or substitute similar rights for those under the Plan, such rights shall continue in full force and effect, or such rights shall be exercised immediately prior to such event. 13. AMENDMENT OF THE PLAN (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the vote of a majority of the shares of the Company represented and voting at a duly held meeting within 12 months before or after the adoption of the amendment, where the amendment will: (iii) Increase the number of shares reserved for rights under the Plan; (iv) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code); or (v) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted. 14. TERMINATION OR SUSPENSION OF THE PLAN (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on August 25, 2007. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom such rights were granted. 15. EFFECTIVE DATE OF PLAN The Plan as amended and restated herein shall become effective as determined by the Board, but no rights granted after the date of this amendment and restatement of the Plan shall be exercised unless and until this amended and restated Plan has been approved by the vote of the holders of a majority of the outstanding shares of the Company entitled to vote or by the written consent of the holders of the outstanding shares of the Company entitled to vote to the extent necessary to obtain employee stock purchase plan treatment under Section 423 of the Code, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 6 EX-10.16 4 f75694ex10-16.txt EXHIBIT 10.16 1 EXHIBIT 10.16 MAXIM INTEGRATED PRODUCTS, INC. 1996 STOCK INCENTIVE PLAN Adopted August 16, 1996 Approved by Shareholders November 14, 1996 As further amended by the Board of Directors on April 16, 1997 and May 15, 1997 Approved by Shareholders November 13, 1997 As further amended by the Board of Directors on March 10, 1998, May 14, 1998, and August 13, 1998 Approved by Shareholders November 19, 1998 As further amended by the Board of Directors on August 12, 1999. Approved by Shareholders November 18, 1999 As further amended by the Board of Directors on June 8, 2000, and August 17, 2000. Approved by Shareholders November 16, 2000 As further amended by the Board of Directors on August 23, 2001 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of the Committees appointed to administer the Plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. (c) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Options granted to residents therein. (d) "Board" means the Board of Directors of the Company. 1 2 (e) "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or (ii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means any committee appointed by the Board to administer the Plan. (h) "Common Stock" means the common stock of the Company. (i) "Company" means Maxim Integrated Products, Inc., a Delaware corporation. (j) "Consultant" means any person who is a consultant, advisor, independent contractor, vendor, customer or other person having a past, current or prospective business relationship with the Company or any Parent or Subsidiary. (k) "Continuing Directors" means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. (l) "Continuous Status as an Employee, Director or Consultant" means that the employment, director or consulting relationship with the Company, any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an Employee, Director or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. 2 3 (m) "Corporate Transaction" means any of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with complete liquidation or dissolution of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. (n) "Covered Employee" means any person who is a "covered employee" under Section 162(m)(3) of the Code. (o) "Director" means a member of the Board. (p) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Parent or Subsidiary of the Company for purposes of Section 422 of the Code. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. Except for purposes of grants of Incentive Stock Options, "Employee" also includes any person whom an officer identifies as a prospective employee of the Company or any Parent or Subsidiary of the Company. (q) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (r) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value of a share of Common Stock shall be (A) the closing sale price of the Common Stock for the last market trading day prior to the date of the determination or on the date of the determination, as determined by the Administrator at the time of the determination (or, if no sales were reported on either such date, on the last trading date on which sales were reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the closing price of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such price was reported on that date, on the last date on which such price was reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market of the type described in (i), above, for the Common Stock, the Fair Market Value thereof shall be determined by the Administrator in good faith. 3 4 (s) "Grantee" means an Employee, Director or Consultant who receives an Option under the Plan. (t) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (u) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (v) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (w) "Option" means a stock option granted pursuant to the Plan. (x) "Option Agreement" means the written agreement evidencing the grant of an Option executed by the Company and the Grantee, including any amendments thereto. (y) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (z) "Performance-Based Compensation" means compensation qualifying as "performance-based compensation" under Section 162(m) of the Code. (aa) "Plan" means this 1996 Stock Incentive Plan. (bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor thereto. (cc) "Share" means a share of the Common Stock. (dd) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. (ee) "Subsidiary Disposition" means the disposition by the Company of its equity holdings in any subsidiary corporation effected by a merger or consolidation involving that subsidiary corporation, the sale of all or substantially all of the assets of that subsidiary corporation or the Company's sale or distribution of substantially all of the outstanding capital stock of such subsidiary corporation. 3. Stock Subject to the Plan. (a) Subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to this Plan is 81,200,000 Shares [adjusted to reflect the stock dividend effective December 5, 1997, and November 30, 1999]; provided, however, that such maximum aggregate number of Shares shall be increased by the number of Shares or options returned to the Company's Incentive Stock Option Plan, 1987 Employee Stock Participation Plan, and Supplemental Nonemployee Stock Option Plan. Notwithstanding the foregoing, the maximum aggregate number of Shares available for grant of Incentive Stock Options shall be 81,200,000 Shares, and such number shall not be subject to increase as a result 4 5 of return of Shares or options to the Company's Incentive Stock Option Plan, 1987 Employee Stock Participation Plan, and 1987 Supplemental Nonemployee Stock Option Plan. The Shares to be issued pursuant to the Plan may be authorized, but unissued, or reacquired Common Stock. (b) If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option exchange program, or if any unissued Shares are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option or any withholding taxes due with respect to such Option, such unissued or retained Shares shall become available for future grant under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan pursuant to an Option shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Plan Administrator. (i) Administration with Respect to Directors and Officers. With respect to grants of Options to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Options to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Options and may limit such authority by requiring that such Options must be reported to and ratified by the Board or a Committee within six (6) months of the grant date, and if so ratified, shall be effective as of the grant date. (iii) Administration With Respect to Covered Employees. Notwithstanding the foregoing, grants of Options to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Options qualifying as Performance-Based Compensation. In the case of such Options granted to Covered Employees, references to the "Administrator" or to a "Committee" shall be deemed to be references to such Committee or subcommittee. (iv) Administration Errors. In the event an Option is granted in a manner inconsistent with the provisions of this subsection (a), such Option shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws. 5 6 (b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Options may be granted from time to time hereunder; (ii) to determine whether and to what extent Options are granted hereunder; (iii) to determine the number of Shares or the amount of other consideration to be covered by each Option granted hereunder; (iv) to determine the Fair Market Value of the Common Stock in accordance with Section 2(r) of the Plan; (v) to approve forms of Option Agreement for use under the Plan; (vi) to determine the terms and conditions of any Option granted hereunder; (vii) to amend the terms of any outstanding Option granted under the Plan in any lawful way, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Option shall not be made without the Grantee's written consent and provided, further, that any provision of the Plan to the contrary notwithstanding, the Administrator shall not have the authority to reprice any outstanding option, it being understood that "reprice" shall mean to amend any outstanding Option to reduce the exercise price; (viii) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan; (ix) Notwithstanding any provision of the Plan to the contrary, in order to facilitate compliance with the tax, securities, foreign exchange, probate or other applicable provisions of the laws in other countries in which the Company or its Affiliates operate or have key employees or non-employee directors, the Committee, in its discretion, shall have the power and authority to (A) determine which (if any) Employees, Directors, and/or Consultants rendering services or employed outside the U.S. are eligible to participate in the Plan or to receive any type of award hereunder; (B) determine which non-U.S.-based Affiliates or operations (e.g., branches, representative offices) participate in the Plan or any type of award hereunder; (C) modify the terms and conditions of any awards made to such Employees, Directors, and/or Consultants, or with respect to such non-U.S.-based Affiliates or operations; and (D) establish sub-plans, modify methods of exercise, modify payment restrictions on sale or transfer of shares and other terms and procedures to the extent deemed necessary or desirable by the Committee to comply with applicable laws of the non-U.S. jurisdiction. The Committee shall not, however, have the power or authority to amend the Plan with respect to the maximum aggregate number of Shares that may be issued under the Plan as set forth in Section 3.(a); 6 7 increase the Individual Option Limit as set forth in Section 6.(c); or lengthen the Term of the Option set forth in Section 6.(d). and (x) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be conclusive and binding on all persons. 5. Eligibility. Non-Qualified Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees. An Employee, Director or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. Options may be granted to such Employees of the Company and its subsidiaries who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Options. (a) Designation of Option. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. (b) Conditions of Option. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms and conditions of each Option including, but not limited to, the Option vesting schedule, form of payment upon exercise of the Option and satisfaction of any performance criteria. (c) Individual Option Limit. The maximum number of Shares with respect to which Options may be granted to any individual in any fiscal year of the Company shall be 12,000,000 [adjusted to reflect the stock dividend effective December 5, 1997 and November 30, 1999]. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization pursuant to Section 10, below. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to an individual, if any Option is canceled, the canceled Option shall continue to count against the maximum number of Shares with respect to which Options may be granted to the individual. For this purpose, the repricing of an Option shall be treated as the cancellation of the existing Option and the grant of a new Option. (d) Term of Option. The term of each Option shall be ten (10) years from the date of grant for all Grantees other than Directors who are not Employees, in whose case the term shall be five (5) years from the date of grant. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than 7 8 ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. (e) Transferability of Options. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution, and may be exercised during the lifetime of the Grantee only by the Grantee. Non-Qualified Stock Options shall be transferable to the extent provided in the Option Agreement. (f) Time of Granting Options. The date of grant of an Option shall for all purposes be the date on which the Administrator makes the determination to grant such Option, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. (g) Vesting During Leave of Absence. During any leave of absence from employment, directorship or consulting arrangement with the Company or any Parent or Subsidiary, vesting of such Grantee's Options shall cease, and shall resume upon the Grantee's return to his or her relationship with the Company, Parent or Subsidiary. The dates on which such Grantee's Options vest shall thereafter be adjusted by the duration of the leave of absence. 7. Option Exercise Price, Consideration and Taxes. (a) Exercise Price. The exercise price for an Option shall be as follows: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator; provided, however, that in the case the per Share exercise price is less than one hundred percent (100%) of the Fair Market Value per Share on the date of the grant, the Administrator determines in writing and in good faith that (A) such grants are made infrequently, (B) there is a good business reason for the grant that outweighs the normal presumption of a per Share exercise price of not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant, and (C) the aggregate number of Shares subject to such Options does not exceed five percent (5%) of the aggregate maximum number of Shares under Section 3(a), above, as amended from time to time. 8 9 (iii) In the case of Options intended to qualify as Performance-Based Compensation, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise of an Option including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following: (i) cash; (ii) check; (iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) surrender of Shares (including withholding of Shares otherwise deliverable upon exercise of the Option) which have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised (but only to the extent that such exercise of the Option would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); (v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (vi) any combination of the foregoing methods of payment. (c) Taxes. In connection with each option granted pursuant to this Plan, at any time when the Company could have any withholding obligation (whether for Federal, state, local or foreign income, disability, Medicare, employment or other taxes or otherwise) as a result of exercise of an option, the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise, or the disposition of shares acquired upon such exercise, the Company shall have no obligation to permit exercise of such option or to issue any shares upon exercise of the option unless and until either the exercise of the option is accompanied by sufficient payment, as determined by the Company in its absolute discretion, to meet those withholding obligations on such exercise, lapse or disposition or other arrangements are made that are satisfactory to the Company in its absolute discretion to provide otherwise for such payment. The Company shall have no liability to any optionee or transferee for exercising the foregoing right not to permit exercise or issue shares. 9 10 8. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. (i) Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Option Agreement. (ii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Option, notwithstanding the exercise of an Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Option Agreement or Section 10, below. (b) Exercise of Option Following Termination of Employment, Director or Consulting Relationship. (i) An Option may not be exercised after the termination date of such Option set forth in the Option Agreement and may be exercised following the termination of a Grantee's Continuous Status as an Employee, Director or Consultant only to the extent that the Grantee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such option as set forth in the Option Agreement). Options shall be exercisable for a period of ninety (90) days following termination generally, and for a period of five hundred forty-seven (547) days following termination due to death of the Grantee or three hundred sixty-five (365) days following termination due to the disability of the Grantee (or, in each case, such other period of time as is determined by the Administrator, which such determination in the case of an Incentive Stock Option shall be made at the time of grant of the Option). (ii) All Options shall terminate to the extent not exercised on the last day of the period specified in paragraph (i) above or the last day of the original term of the Option, whichever occurs first. (iii) Any Option designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Status as an Employee, Director or Consultant shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Option Agreement. (c) Exercise of Option Following Termination of Employment, Director or Consulting Relationship. In the event of termination of a Grantee's Continuous Status as an Employee, Director or Consultant with the Company for any reason other than disability or death 10 11 (but not in the event of an Grantee's change of status from Employee to Consultant or from Consultant to Employee), such Grantee may, but only within ninety (90) days after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Grantee was entitled to exercise it at the date of such termination or to such other extent as may be determined by the Administrator. If the Grantee should die within ninety (90) days after the date of such termination, the Grantee's estate or the person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option to the extent that the Grantee was entitled to exercise it at the date of such termination within five hundred forty-seven (547) days of the Grantee's date of death, but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement. In the event of an Grantee's change of status from Employee to Consultant, an Employee's Incentive Stock Option shall convert automatically to a Non-Qualified Stock Option on the ninety-first (91st) day following such change of status. If the Grantee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (d) Disability of Grantee. In the event of termination of a Grantee's Continuous Status as an Employee, Director or Consultant as a result of his or her disability, Grantee may, but only within three hundred sixty-five (365) days from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Non-Qualified Stock Option on the day three (3) months and one day following such termination. To the extent that Grantee is not entitled to exercise the Option at the date of termination, or if Grantee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) Death of Grantee. In the event of the death of a Grantee, the Option may be exercised at any time within five hundred forty-seven (547) days following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement), by the Grantee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Grantee was entitled to exercise the Option at the date of death. If, at the time of death, the Grantee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Grantee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate. (f) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made. 9. Conditions Upon Issuance of Shares. (a) Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with 11 12 all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. 10. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other similar event resulting in an increase or decrease in the number of issued shares of Common Stock. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Option. 11. Corporate Transactions/Changes in Control/Subsidiary Dispositions. (a) The Administrator shall have the authority, exercisable either in advance of any actual or anticipated Corporate Transaction, Change in Control or Subsidiary Disposition or at the time of an actual Corporate Transaction, Change in Control or Subsidiary Disposition and exercisable at the time of the grant of an Option under the Plan or any time while an Option remains outstanding, to provide for the full automatic vesting and exercisability of one or more outstanding unvested Options under the Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Options in connection with a Corporate Transaction, Change in Control or Subsidiary Disposition, on such terms and conditions as the Administrator may specify. The Administrator also shall have the authority to condition any such Option vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Status as an Employee or Consultant of the Grantee within a specified period following the effective date of the Change in Control or Subsidiary Disposition. The Administrator may provide that any Options so vested or released from such limitations in connection with a Change in Control or Subsidiary Disposition, shall remain fully exercisable until the expiration or sooner termination of the Option. Effective upon the consummation of a Corporate Transaction, all outstanding Options under the Plan shall terminate unless assumed by the successor company or its Parent. (b) The portion of any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction, Change in Control or Subsidiary Disposition shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the extent such dollar 12 13 limitation is exceeded, the accelerated excess portion of such Option shall be exercisable as a Non-Qualified Stock Option. 12. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated. 13. Amendment, Suspension or Termination of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan. To the extent required to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such manner and to such a degree as required. (b) No Option may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. 14. Reservation of Shares. (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. No Effect on Terms of Employment. The Plan shall not confer upon any Grantee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 13 EX-10.17 5 f75694ex10-17.txt EXHIBIT 10.17 1 Exhibit 10.17 AS APPROVED BY THE STOCKHOLDERS ON APRIL 25, 2000 DALLAS SEMICONDUCTOR CORPORATION 1993 OFFICER AND DIRECTOR STOCK OPTION PLAN, AS AMENDED 1. Purpose. The Dallas Semiconductor Corporation 1993 Officer and Director Stock Option Plan (the "Plan") is intended to advance the interests of Dallas Semiconductor Corporation, a Delaware corporation (the "Company"), and its stockholders, by encouraging and enabling selected officers, directors and employees, upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its stock. It is intended that options which do not qualify for treatment as "incentive stock options" under Section 422A of the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder (collectively the "Code"), may be granted under the Plan. 2. Definitions. (a) "Board" means the Board of Directors of the Company or a Committee of the Board to whom its authority has been delegated. (b) "Change of Control" means a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change of Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the effective date of the Plan, as hereby amended), individuals who at the beginning of such period constitute the Board and any new director, whose election to the Board or nomination for election to the Board by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting 2 securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, except that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 15% of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control of the Company; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the election of any person other than C. V. Prothro as Chief Executive Officer of the Company. (c) "Common Stock" means the Company's Common Stock, $.02 par value per share. (d) "Date of Grant" means the date on which an Option is granted under the Plan, which will be the date the Board authorizes the Option unless the Board specifies a later date. (e) "Date of Exercise" means the date on which an Option is validly exercised pursuant to the Plan. (f) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (g) "Fair Market Value" of the Company's Common Stock means, as long as the Company's Common Stock is traded on the New York Stock Exchange, the closing price of such stock on the New York Stock Exchange on such date (or if such date is not a trading day, on the last trading day immediately preceding such date) or, if not so traded, on the NASDAQ National Market System or another national exchange upon which the Company's Common Stock is traded or as otherwise determined by the Board, based on any reasonable valuation method. (h) "Option" means an option granted under the Plan. (i) "Optionee" means a person to whom an Option, which has not expired, has been granted under the Plan. (j) "Successor" means the legal representative of the estate of a deceased optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by reason of the death of an Optionee. 3 (k) "Stock Option Agreement" means the agreement between the Company and the Optionee, in such form as may from time to time be adopted by the Board, under which the Optionee may purchase Common Stock pursuant to the terms of an Option granted under the Plan. 3. Administration and Interpretation of Plan. The Plan shall be administered by the Board. The Board shall have full and final authority in its discretion, subject to the provisions of the Plan: (i) to determine the individuals to whom, and the time or times at which, Options shall be granted and the number of shares of Common Stock covered by each Option; (ii) to construe and interpret the Plan; and (iii) to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations by the Board shall be final and conclusively binding for all purposes and upon all persons. 4. Common Stock Subject to Options. The maximum number of shares of the Company's Common Stock which may be issued upon the exercise of Options granted under the Plan is 6,600,000, increased on and as of January 1 of each calendar year from and including January 1, 1994, by a number of shares equal to one-percent (1%) of the number of shares of Common Stock outstanding on December 31 of the preceding year; subject to adjustment by the Board to reflect, as deemed appropriate by the Board, any stock dividend, stock split, reverse stock split, share combination, reorganization, recapitalization or the like, of or by the Company. The shares of Common Stock to be issued upon the exercise of Options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the open market for the purposes of the Plan. In the event any Option shall, for any reason, terminate or expire or be canceled or surrendered without having been exercised in full, the shares subject to such Option, but not purchased thereunder, shall again be available for Options to be granted under the Plan. 5. Participants. Options may be granted under the Plan to any person who is an officer or director of the Company or an employee of the Company designated by the Board whose responsibilities are functionally equivalent to those of the Company's officers. 6. Terms and Conditions of Options. Any Option granted under the Plan shall be evidenced by a Stock Option Agreement executed by the Company and the Optionee. Such agreement shall be subject to the following limitations and conditions: (a) Option Price. The option price per share with respect to each Option shall be determined by the Board but in no instance shall the option price for an Option be less than 100% of the Fair Market Value of a share of the Common Stock on the Date of Grant. (b) Payment of Option Price. Full payment for shares purchased upon exercising an Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or by check and 4 partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the Fair Market Value of such shares on the Date of Exercise of the Option. (c) Term of Option. The expiration date of each Option shall not be more than ten (10) years from the Date of Grant. (d) Vesting of Stockholder Rights. Neither an Optionee nor his Successor shall have any of the rights of a stockholder of the Company until the certificate or certificates evidencing the shares purchased pursuant to the exercise of an Option are properly delivered to such Optionee or his Successor. (e) Exercise of an Option. Each Option shall be exercisable at any time, and from time to time, and in no particular order if the Optionee holds more than one Option, throughout a period commencing on or after the Date of Grant, as specified by the Board, and ending upon the earliest of the expiration, cancellation, surrender or termination of the Option. Furthermore, the exercise of each Option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the report to, or consent or approval of, the Company's stockholders or any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. (f) Tax Offset Bonus. The Board may grant a Tax Offset Bonus to such Optionees and on such bases as the Board shall determine, and a provision relating thereto shall be included in the stock option agreement. A Tax Offset Bonus may be granted concurrently with or after the grant of an Option. A Tax Offset Bonus shall entitle an Optionee to receive from the Company an amount in cash no greater than the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individuals multiplied by the amount of ordinary income, if any, realized by the Optionee for Federal income tax purposes as a result of the exercise of the Option. The Board may cancel or place a limit on the term of, or the amount payable for, any Tax Offset Bonus at any time. The Board shall determine all other terms and provisions of any Tax Offset Bonus grant. The Company shall not be required to fund such Tax Offset Bonus prior to the due date for such taxes, and the proceeds of such Tax Offset Bonus shall be advanced to the Optionee in the form of a check payable to the Internal Revenue Service for the account of the Optionee or such other method as the Board may determine. The Board shall have the right to require an Optionee to present reasonable proof of the amount of such taxes as a condition 5 precedent to the making of such payment. The Company shall be under no obligation of any nature to grant any Tax Offset Bonus to any Optionee at any time. (g) Company Loans. The Company may make stock purchase loans in connection with Option exercises upon the following terms and conditions: (i) Upon the exercise by an Optionee of an Option, or any part thereof, and the Optionee's request for a loan pursuant hereto, the Company, upon approval by the Board, may loan said Optionee, for the sole purpose of purchasing Common Stock from the Company pursuant to the exercise of such Option, an amount equal to the excess of the exercise price of the Option over the aggregate par value of the Common Stock which the Optionee has elected to purchase pursuant to such exercise; provided, however, that the Optionee shall execute concurrently a promissory note in form satisfactory to the Board for such amount payable to the order of the Company; (ii) The Company shall have no obligation to make any loan to any Optionee at any time; (iii) The promissory note referenced hereinbefore shall provide for interest to be payable upon the outstanding principal balance thereof at such rate and times as the Board may determine. Such note shall also provide that the Board may require the Optionee to secure the payment thereof at any time with collateral deemed adequate by the Board in its sole discretion. Such note shall mature, and all outstanding principal and interest shall become immediately due and payable in installments or in lump sum at such time or times as the Board shall provide. The note will provide for prepayment of principal and accrued interest in whole or in part from time to time without premium or penalty and may be extended or modified, from time to time, at the Board's discretion. The note shall provide for acceleration of maturity by the Company upon the happening of any events determined appropriate by the Board. (h) Transferability of Option. Other than by will or by laws of descent and distribution, an option granted under the Plan shall be transferable or assignable by an Optionee only if and under terms and conditions approved by the Board in its sole discretion. No Option or the shares covered thereby shall be pledged or hypothecated in any way and no Option or the shares covered thereby shall be subject to execution, attachment, or similar process except with the prior express written consent of the Board. (i) Termination of Employment or Directorship. Unless otherwise specified by the Board, upon termination of an Optionee's employment with the Company for any reason other than retirement, permanent disability or death, or 6 upon removal of a non-employee director of the Company from office, any and all outstanding Option(s) of such Optionee shall immediately thereupon be null and void. Unless otherwise specified by the Board, upon termination of an Optionee's employment with the Company by reason of his retirement or permanent disability, but excluding his death, his option privileges shall be limited to the shares which were immediately purchasable by him at the date of its expiration or three (3) months after the date of such termination, whichever occurs first. Upon the resignation or retirement of a non-employee director who has served as a director of the Company for more than three (3) years, any unvested options shall immediately accelerate, so that all unexercised options shall become immediately exercisable, and such option privileges will expire unless exercised by him or (in the event of his subsequent death) his Successor, on or before the date any such Option expires by its own terms. Upon the resignation or retirement of a non-employee director who has served as a director of the Company for less than three (3) years, such Optionee or (in the event of his subsequent death) his Successor, will be entitled to exercise all unexercised option privileges exercisable by the Optionee at the time of his resignation or retirement on or before the date any such Option expires by its own terms. Neither the adoption of this Plan nor the grant of an Option to an eligible person shall alter in any way the Company's rights to terminate such person's employment or directorship at any time with or without cause nor does it confer upon such person any rights or privileges to continued employment, or any other rights and privileges, except as specifically provided in the Plan. (j) Death of Optionee. Unless otherwise specified by the Board, if an Optionee (other than a non-employee director) dies while in the employ of the Company, his option privileges shall be limited to the shares which were immediately purchasable by him at the date of death and such option privileges shall expire unless exercised by his Successor prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. If a non-employee director who is an Optionee dies while a director of the Company, any vesting of his option privileges shall immediately accelerate, so that all unexercised option privileges shall become immediately exercisable, and such option privileges shall expire unless exercised by his Successor, on or before the such option expires by its terms. (k) Other Terms. Each Stock Option Agreement may contain such other provisions as the Board in its discretion may determine, including, without limitation: (i) any provision which shall condition the exercise of all or part of an Option upon such matters as the Board may deem appropriate (if any) such as the passage of time, or the attainment of certain performance goals, appropriate to reflect the contribution of the Optionee to the performance of the Company; 7 (ii) any provision which shall accelerate the exercisability of an Option upon the occurrence of a Change of Control or under such other circumstances as the Board may deem appropriate in spite of any provision contained in an Option pursuant to clause (i) above or otherwise; and (iii) the manner in which an Option is to be exercised. 7. Allotment of Shares. The Board shall, in its discretion, determine the number of shares of Common Stock to be offered from time to time by grant of Options to officers, directors and other selected employees of the Company as provided in Section 5, provided that during any three-year period, options may not be granted under this Plan for an aggregate number of shares of Common Stock in excess of 2,500,000 shares, in the case of the Company's chief executive officer, and 1,000,000 shares, in the case of any other officer, subject to adjustment by the Board to reflect, as deemed appropriate by the Board, any stock dividend, stock split, reverse stock split, share combination, reorganization or the like, of or by the Company. The grant of an Option shall not be deemed either to entitle the Optionee to, or disqualify the Optionee from, participation in any other grant of options under this Plan or any other stock option plan of the Company. 8. Adjustments. The number of shares of Common Stock covered by each outstanding Option granted under the Plan and the option price shall be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, reverse stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on all Optionees. 9. Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Company or an Optionee may change, at any time and from time to time, by written notice to the other, the address which it or he had theretofore specified for receiving notices. Until changed in accordance herewith, the Company and each Optionee shall specify as its and his address for receiving notices the address set forth in the option agreement pertaining to the shares to which such notice relates. 10. Amendment or Discontinuance. This Plan may be amended or discontinued by the Board without the approval of the stockholders of the Company, provided that the Board may not, except as expressly provided in the Plan, increase the aggregate number of shares which may be issued under Options granted pursuant to the Plan, materially amend the eligibility requirements of the Plan or materially increase the 8 benefits which may accrue to participants under the Plan, without such approval (if any) as may be required by applicable law or the requirements of any national stock exchange upon which the Company's Common Stock is traded. 11. Effect of the Plan. Neither the adoption of this Plan nor any action of the Board shall be deemed to give any officer, director or employee any right to be granted an option to purchase Common Stock of the Company or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Board and executed on behalf of the Company and then only to the extent and on the terms and conditions expressly set forth therein. 12. Stock Split. The share numbers set forth in Sections 4 and 7 hereof have been adjusted to reflect the two-for-one split of the Company's Common Stock in the form of a 100% stock dividend, declared by the Board of Directors on January 25, 2000, and distributable on February 28, 2000, to stockholders of record on February 7, 2000. Such share numbers are subject to further adjustment as provided for in said Sections. 9 DALLAS SEMICONDUCTOR CORPORATION AMENDMENT TO 1993 OFFICER AND DIRECTOR STOCK OPTION PLAN, AS AMENDED (ADOPTED BY THE BOARD OF DIRECTORS ON NOVEMBER 18, 2000) RESOLVED, that, effective immediately, clause (v) of Section 2(b) of the Corporation's 1993 Officer and Director Stock Option Plan be, and the same hereby is, deleted. 10 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this ___ day of __________, 199_ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________, an officer of the Company ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides that certain officers of the Company may from time to time be granted an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock"), as therein provided, in furtherance of the purposes of the Plan; NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to Section 7(a) of the Plan, the terms and provisions of which Plan are incorporated herein by reference, an option (the "Option") to purchase all or any part of __________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be __________ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the 11 "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. Subject to the provisions of Paragraph 14 hereof, this Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph 1 hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, 2 12 listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Board in its sole discretion may determine. Any such payment shall otherwise be 3 13 made upon such terms and conditions as may from time to time be determined by the Board and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 4 14 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company for any reason other than his death or retirement, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment by the Company shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. Death of Option. If Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its 5 15 discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of employment or tenure as an officer of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1993 Officer & Director Stock Option Plan (and as amended if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Stockholder Approval. This Option has been granted subject to the approval of the Plan by stockholders of the Company. Notwithstanding the provisions of Paragraph 4 hereof, this Option may not be exercised unless and until the Plan has been duly approved by the stockholders of the Company. 15. Shareholders Agreement. The shares of Common Stock issued to Optionee upon the exercise of this Option shall be deemed to be issued pursuant to a "fully vested stock option" under the terms of any Shareholder's Agreement previously entered into between the Company and Optionee. 6 16 16. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: ______________________________ Title: ______________________________ ______________________________________ ______________________________ Optionee ______________________________________ 7 17 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this ______ day of ________________, 19___ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and _______________, a director of the Company ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides for the automatic grant of an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock") to each of the Company's non-employee directors in office on the date of adoption of the Plan or subsequently elected, as therein provided, in furtherance of the purposes of the Plan; NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby confirms the automatic grant to Optionee, pursuant to Section 7(b) of the Plan, the terms and provisions of which Plan are incorporated herein by reference, of an option (the "Option") to purchase all or any part of ______________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall $______________ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the 18 Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. Subject to the provisions of Paragraph 14 hereof, this Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph 1 hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such 2 19 withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee, may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Board in its sole discretion may determine. Any such payment shall otherwise be 3 20 made upon such terms and conditions as may from time to time be determined by the Board and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. Any grant of such a bonus to Optionee shall be on such terms and conditions, if any, as may be permitted under Rule l6b-3 without adversely affecting any requirement of such rule that the Plan be administered by disinterested persons. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. Any loan hereunder to Optionee shall be on such terms and conditions, if any, as may be permitted by Rule 16b-3 without adversely affecting any requirement of such rule that the Plan be administered by disinterested persons. 4 21 (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Directorship. In the event that Optionee shall at any time hereafter cease to be a director of the Company by reason of his removal from office, any part of the Option granted hereunder which has not been exercised by the date of such removal shall immediately terminate on the date of such removal. In the event that Optionee's services as a director of the Company shall terminate by reason of his resignation or retirement and Optionee shall have then served as a director of the Company for more than three (3) years, the vesting of any unexercised portion of this Option shall immediately accelerate, so that any such unexercised portion of this Option may thereafter be exercised by Optionee (or in the event of his subsequent death, by his Successor), at any time prior to the date of its expiration. In the event Optionee has not served as a director of the Company for more than three (3) years at the time of his resignation or retirement, he (or, in the event of his subsequent death, his Successor) shall be entitled to exercise, at any time prior to the date of expiration of this Option, any 5 22 unexercised portion of this Option exercisable by Optionee at the time of his resignation or retirement. 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having fully exercised the Option, the vesting of any unexercised portion of this Option shall immediately accelerate, so that any such unexercised portion of this Option may thereafter be exercised by the Optionee's Successor, provided this Option is exercised prior to the date of its expiration. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of service or tenure as a director of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1993 Officer & Director Stock Option Plan (and as amended if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 6 23 14. Stockholder Approval. This Option has been granted subject to the approval of the Plan by stockholders of the Company. Notwithstanding the provisions of Paragraph 4 hereof, this Option may not be exercised unless and until the Plan has been duly approved by the stockholders of the Company. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway By: ______________________________ Dallas, Texas 75244 Title: ______________________________ ______________________________________ ______________________________________ ______________________________ Optionee 7 24 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this _____ day of __________, 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of __________shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $______ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 1 25 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. This Option shall be exercisable in full or in part at any time, and from time to time, during the term hereof, at any time after the Date of Grant. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any `regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and 2 26 payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 8 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 7. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 8. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option 3 27 could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 9. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 10. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 11. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 12. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 4 28 13. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 14. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ______________________________ Title: ______________________________ ______________________________________ _____________________________________ ______________________________________ 5 29 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this _____ day of __________, 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of __________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $______ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 30 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. This Option shall be exercisable in full or in part at any time, and from time to time, during the term hereof, at any time commencing on the last day of the first completed calendar quarter following the Date of Grant. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or. certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option 2 31 shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Committee in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the 3 32 Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Committee shall have thereafter cancelled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the 4 33 shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). 5 34 In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 15. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 16. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued pursuant to a "fully vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 17. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 6 35 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ______________________________ Title: ______________________________ ______________________________________ _____________________________________ ______________________________________ 7 36 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this _____ day of __________, 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of __________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $______ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 37 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 6.25% of the aggregate number of shares provided in Paragraph 1 hereof during each calendar quarter during the term hereof commencing at the end of the first completed calendar quarter (until it shall become fully vested at the end of sixteen (16) calendar quarters). To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and 2 38 shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Committee in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, 3 39 or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Committee shall have thereafter cancelled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. 4 40 In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange or shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 5 41 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 15. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 16. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall be deemed to be issued pursuant to a "fully vested stock option" and shall not be subject to the repurchase rights as provided in such agreement. 17. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 6 42 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ______________________________ Title: ______________________________ ______________________________________ _____________________________________ ______________________________________ 7 43 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this _____ day of __________, 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of ________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $_____ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 44 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. This Option shall be exercisable in full or in part at any time, and from time to time, during the term hereof, at any time commencing on the last day of the first completed calendar quarter following the Date of Grant. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option 2 45 shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Committee in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the 3 46 Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Committee shall have thereafter cancelled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the 4 47 shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). 5 48 In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 15. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 16. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued pursuant to a "fully vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 17. Stockholder Approval. This Option has been granted pursuant to an amendment to the Plan adopted by the Board of Directors and subject to the approval of the stockholders of the Company. Notwithstanding the provisions of Section 4 hereof, this Option may not be exercised unless and until such amendment to the Plan has been duly approved by the stockholders of the Company. 18. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 6 49 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ______________________________ Title: ______________________________ ______________________________________ _____________________________________ ______________________________________ 7 50 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this _____ day of __________ 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of ________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $_____ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 51 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. This Option shall be exercisable in fun or in part at any time, and from time to time, during the term hereof, at any time after the Date of Grant. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option 2 52 shall be exercised, pursuant to Paragraph 8 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 7. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 8. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by 3 53 reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 9. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 10. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 11. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 12. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 13. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 4 54 14. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued pursuant to a "fully vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 15. Stockholder Approval. This Option has been granted pursuant to an amendment to the Plan adopted by the Board of Directors and subject to the approval of the stockholders of the Company. Notwithstanding the provisions of Section 4 hereof, this Option may not be exercised unless and until such amendment to the Plan has been duly approved by the stockholders of the Company. 16. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ______________________________ Title: ______________________________ ______________________________________ _____________________________________ ______________________________________ 5 EX-10.18 6 f75694ex10-18.txt EXHIBIT 10.18 1 EXHIBIT 10.18 As Amended Effective 10-26-99 DALLAS SEMICONDUCTOR CORPORATION AMENDED 1987 STOCK OPTION PLAN 1. Purpose. The Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan") is intended to advance the interests of Dallas Semiconductor Corporation, a Delaware corporation (the "Company"), and its stockholders, by encouraging and enabling selected officers, directors, consultants, agents and employees, upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its stock. It is intended that options which may qualify for treatment as "incentive stock options" under Section 422A of the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder (collectively the "Code"), as well as options which may not so qualify, may be granted under the Plan. 2. Definitions. (1) "Board" means the Board of Directors of the Company or a Committee of the Board to whom its authority has been delegated. (2) "Common Stock" means the Company's Common Stock, $.02 par value per share. (3) "Date of Grant" means the date on which an Option is granted under the Plan, which will be the date the Board authorizes the Option unless the Board specifies a later date. 1 2 (4) "Date of Exercise" means the date on which an Option is validly exercised pursuant to the Plan. (5) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (6) "Fair Market Value" of the Company's Common Stock means, as long as the Company's Common Stock is traded on the New York Stock Exchange, the closing price of such stock on the New York Stock Exchange on such date (or if such date is not a trading day, on the last trading day immediately preceding such date) or, if not so traded, on the NASDAQ National Market System or another national exchange upon which the Company's Common Stock is traded or as otherwise determined by the Board, based on any reasonable valuation method. (7) "Option" means an option granted under the Plan. (8) "Optionee" means a person to whom an Option, which has not expired, has been granted under the Plan. (9) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or corporations of the Company as defined in Section 425(f) of the Code. (10) "Successor" means the legal representative of the estate of a deceased optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by reason of the death of an Optionee. (11) "Incentive Stock Option" means an option that qualifies as an incentive stock option under all of the requirements of the Code. 2 3 (12) "Incentive Stock Option Agreement" means the agreement between the Company and the Optionee, in such form as may from time to time be adopted by the Board, under which the Optionee may purchase Common Stock pursuant to the terms of an Incentive Stock Option granted under the Plan. (13) "Non-Qualified Stock Option" means an option to purchase Common Stock granted pursuant to the provisions of the Plan that does not qualify as an Incentive Stock Option. (14) "Non-Qualified Stock Option Agreement" means the agreement between the Company and the Optionee, in such form as may from time to time be adopted by the Board, under which the Optionee may purchase Common Stock pursuant to the terms of a Non-Qualified Stock Option granted under the Plan. 3. Administration and Interpretation of Plan. The Plan shall be administered by the Board. The Board shall have full and final authority in its discretion, subject to the provisions of the Plan: (i) to determine the individuals to whom, and the time or times at which, Options shall be granted and the number of shares of Common Stock covered by each Option; (ii) to construe and interpret the Plan; and (iii) to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations by the Board shall be final and conclusively binding for all purposes and upon all persons. 3 4 4. Common Stock Subject to Options. The maximum number of shares of Common Stock of the Company which may be issued upon the exercise of Options granted under the Plan is 6,797,339, computed from the date of the adoption of the Company's 1987 Stock Option Plan through the effective date of this amended Plan (which number includes 850,000 shares authorized by the Board of Directors on October 26, 1999, for issuance upon the exercise of Options under the Plan), increased on and as of January 1 of each calendar year from and including January 1, 2000, by a number of shares equal to one percent (1%) of the number of shares of Common Stock outstanding on December 31 of the preceding year; subject to appropriate adjustment by the Board to reflect any stock dividend, stock split, reverse stock split, share combination, reorganization, recapitalization or the like, of or by the Company. The shares of Common Stock to be issued upon the exercise of Options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the open market for the purposes of the Plan. In the event any Option shall, for any reason, terminate or expire or be canceled or surrendered without having been exercised in full, the shares subject to such Option, but not purchased thereunder, shall again be available for Options to be granted under the Plan. 5. Participants. Options may be granted under the Plan to any person who is an officer, director, employee or consultant of the Company or any of its Subsidiaries. 6. Terms and Conditions of Options. Any Option granted under the Plan shall be evidenced by either an Incentive Stock Option Agreement or a Non- 4 5 Qualified Stock Option Agreement executed by the Company and the Optionee. Such agreement shall be subject to the following limitations and conditions: (1) Option Price. The option price per share with respect to each Option shall be determined by the Board but in no instance shall the option price for an Option which is intended to qualify as an Incentive Stock Option be less than 100% of the Fair Market Value of a share of the Common Stock on the Date of Grant. (2) Payment of Option Price. Full payment for shares purchased upon exercising an Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or by check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the Fair Market Value of such shares on the Date of Exercise of the Option. (3) Term of Option. The expiration date of each Incentive Stock Option shall not be more than ten (10) years from the Date of Grant. The expiration date of each Non-Qualified Stock Option shall not be more than eleven (11) years from the Date of Grant. (4) Vesting of Stockholder Rights. Neither an Optionee nor his Successor shall have any of the rights of a stockholder of the Company until the certificate or certificates evidencing the shares purchased pursuant to the exercise of an Option are properly delivered to such Optionee or his Successor. 5 6 (5) Exercise of an Option. Each Option shall be exercisable at any time, and from time to time, and in no particular order if the Optionee holds more than one Option, throughout a period commencing on or after the Date of Grant, as specified by the Board, and ending upon the earliest of the expiration, cancellation, surrender or termination of the Option; provided however, that no Option shall be exercisable in whole or in part prior to the date of stockholder approval of the Plan. Furthermore, the exercise of each Option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the report to, or consent or approval of, stockholders or any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. (6) Stock Appreciation Rights. Any Option may include a Stock Appreciation Right, either at the Date of Grant or later by amendment approved by the Board, and provision therefor shall be included in the stock option agreement at such time consistent with the terms hereof. Such Stock Appreciation Right shall be subject to such terms and conditions not 6 7 inconsistent with the Plan as the Board shall impose, including the following: (1) It shall be exercisable only when and to the extent the Option is exercisable and only at such time as the value of the Company's Common Stock is equal to or greater than the option price specified in such Option. (2) It shall entitle the Optionee to surrender unexercised the Option in which the Stock Appreciation Right is included (or any portion of such Option) to the Company and to receive from the Company in exchange therefor that number of shares of Common Stock having an aggregate value equal to the excess of the Fair Market Value of one share, on the day immediately preceding the date on which the Stock Appreciation Right is exercised, over the purchase price per share specified in such option, times the number of shares called for by the Option, or portion thereof, which is so surrendered. The Company, in its discretion, shall be entitled to elect to settle its obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash equal to the aggregate value of the shares it would otherwise be obligated to deliver. The Company may also elect to settle such obligation partly in cash and partly in Common Stock. In lieu thereof, the Company shall have the right, in its discretion, to the extent it shall deem advisable to consent to or disapprove the 7 8 election of the Optionee to receive cash in full or partial settlement of a Stock Appreciation Right. (3) No fractional shares shall be delivered pursuant to exercise of a Stock Appreciation Right but in lieu thereof a cash adjustment shall be made. (4) Notwithstanding the other provisions hereof, to the extent that a Stock Appreciation Right included in an Option is exercised, such Option shall be deemed to have been exercised to the extent of the number of shares of Common Stock called for by the Option or portion thereof which is surrendered on exercise of the Stock Appreciation Right, so that such shares shall no longer be reserved for issuance upon the exercise of Options to be granted under the Plan. (5) The Board shall have the right, without the consent or approval of the Optionee, at any time after the grant of a Stock Appreciation Right to limit the time within or extent to which such Stock Appreciation Right may be exercisable, to limit the maximum amount of appreciation that may be recognized in connection with the exercise thereof or to in any other manner it, in its discretion, shall deem advisable amend or terminate such Stock Appreciation Right. (6) A Stock Appreciation Right granted pursuant to the Plan shall not be exercisable unless and until the Optionee shall have 8 9 completed one (1) continuous year of full time employment with the Company subsequent to the time of grant of such Stock Appreciation Right. For the purposes hereof, full time employment shall be such as may be established by the Board. (7) The Company shall have the right at any time to amend this provision of the Plan dealing with Stock Appreciation Rights, and the provisions of any stock option agreement pursuant to the Plan dealing with a Stock Appreciation Right, to the extent that it, in its discretion, shall deem to be necessary in order to comply with the provisions of Rule 16b-3. (7) Non-ISO Tax Offset Bonus. The Board may grant a Tax Offset Bonus to such Optionees and on such bases as the Board shall determine, including, but not limited to, a Tax Offset Bonus which becomes exercisable only upon an Optionee's being subject to the restrictions of Section 16 of the Exchange Act. A Tax Offset Bonus may be granted only with respect to a Non-Qualified Stock Option under the Plan, and may be granted concurrently with or after the grant of the Non-Qualified Stock Option. A Tax Offset Bonus shall entitle an Optionee to receive from the Company or a Subsidiary an amount in cash no greater than the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individuals multiplied by the amount of ordinary income, if any, realized by the Optionee for Federal income tax purposes as a result of the exercise of the Non-Qualified Stock Option. The Board may cancel or 9 10 place a limit on the term of, or the amount payable for, any Tax Offset Bonus at any time. The Board shall determine all other terms and provisions of any Tax Offset Bonus grant. The Company shall not be required to fund such Tax Offset Bonus prior to the due date for such taxes, and the proceeds of such Tax Offset Bonus shall be advanced to the Optionee in the form of a check payable to the Internal Revenue Service for the account of the Optionee or such other method as the Board may determine. The Board shall have the right to require an Optionee to present reasonable proof of the amount of such taxes as a condition precedent to the making of such payment. The Company shall be under no obligation of any nature to grant any Tax Offset Bonus to any Optionee at any time. (8) Company Loans. The Company may make stock purchase loans in connection with Option exercises upon the following terms and conditions: (1) Upon the exercise by an Optionee of his Option, or any part thereof, and the Optionee's request for a loan pursuant hereto, the Company, upon approval by the Board, may loan said Optionee, for the sole purpose of purchasing Common Stock from the Company pursuant to the exercise of such Option, an amount equal to the excess of the exercise price of the Option over the aggregate par value of the Common Stock which the Optionee has elected to purchase pursuant to such exercise; provided, however, that the Optionee shall 10 11 execute concurrently a promissory note in form satisfactory to the Board for such amount payable to the order of the Company; (2) The Company shall have no obligation to make any loan to any Optionee at any time; (3) The promissory note referenced hereinbefore shall provide for interest to be payable upon the outstanding principal balance thereof at such rate and times as the Board may determine. Such note shall also provide that the Board may require the Optionee to secure the payment thereof at any time with collateral deemed adequate by the Board in its sole discretion. Such note shall mature, and all outstanding principal and interest shall become immediately due and payable in installments or in lump sum at such time or times as the Board shall provide. The note will provide for prepayment of principal and accrued interest in whole or in part from time to time without premium or penalty and may be extended or modified, from time to time, at the Board's discretion. The note shall provide for acceleration of maturity by the Company upon the happening of any events determined appropriate by the Board, including without limitation, any of the following events: (1) failure of the Optionee to pay or perform any term or provision thereof; or 11 12 (2) termination of the Optionee's employment with the Company or a Subsidiary for any reason, except retirement, disability or death; or (3) if the Optionee shall execute an assignment for the benefit of creditors, or admit in writing his ability to pay his debts generally as they become due, or voluntarily seek the benefit of, or have a petition filed against him seeking the benefit of, a judgment, order or decree filed against him pursuant to any bankruptcy, insolvency, reorganization, or similar debtor relief law affecting the rights of creditors generally; or (4) failure of the Optionee to have discharged within a period of thirty (30) days after the commencement thereof any attachment, sequestration, or similar proceeding against any of the assets of the Optionee; or (5) failure of the Optionee to pay any money judgment against him at least thirty (30) days prior to the date on which any of his assets may be lawfully sold to satisfy such judgment; or (6) failure or refusal of the Optionee to comply with any of the terms and conditions of his stock option agreement or any other oral or written agreement with the Company; or 12 13 (7) failure or refusal of the Optionee to provide adequate security for payment of the promissory note immediately upon request for collateral by the Board; or (8) the divorce of the Optionee, unless arrangements satisfactory to the Board are agreed to prior to the entry of the divorce decree. (9) Nontransferability of Option. Other than by will or by laws of descent and distribution, an Option granted under the Plan shall be transferable or assignable by an Optionee only if and under terms and conditions approved by the Board, in its sole discretion. Subject to the foregoing sentence, each Option shall be exercisable, during the Optionee's lifetime, only by him. No Option or the shares covered thereby shall be pledged or hypothecated in any way and no Option or the shares covered thereby shall be subject to execution, attachment, or similar process except with the prior express written consent of the Board. (10) Termination of Employment. Except as may otherwise be authorized by the Board, upon termination of an Optionee's employment with the Company or with any of its Subsidiaries for any reason other than retirement, permanent disability or death, any and all outstanding Option(s) of such Optionee shall immediately thereupon be null and void. Neither the adoption of this Plan nor the grant of an Option to an eligible person shall alter in any way the Company's or the relevant Subsidiary's rights to terminate such person's employment or directorship at any time with or 13 14 without cause nor does it confer upon such person any rights or privileges to continued employment, or any other rights and privileges, except as specifically provided in the Plan. (11) Death of Optionee. Except as may otherwise be authorized by the Board, if an Optionee dies while in the employ of the Company or any Subsidiary, his option privileges shall be limited to the shares which were immediately purchasable by him at the date of death and such option privileges shall expire unless exercised by his Successor prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. (12) Ten Percent Stockholder. Notwithstanding anything herein to the contrary, an Option which is intended to qualify as an Incentive Stock Option shall be granted hereunder to any Optionee who, immediately before such Option is granted, beneficially owns, directly or indirectly, more than 10% of the total voting power of all classes of stock of the Company only if both of the following conditions are met: (1) The option price per share shall be no less than 110% of the Fair Market Value of a share of Common Stock on the Date of Grant; and (2) The expiration date of the Option shall be not more than five (5) years from the Date of Grant. (13) Other Terms. Each Incentive Stock Option Agreement or Non-Qualified Stock Option Agreement, as the case may be, may contain such 14 15 other provisions as the Board in its discretion may determine, including, without limitation: (1) in the event that an Option shall be immediately exercisable, any provision which shall provide that the shares acquired pursuant thereto shall not be deemed to have been issued pursuant to a fully vested stock option and thereby subject to repurchase rights (if any) contained in the shareholder's agreement with the Optionee, entered into pursuant to Paragraph 10 hereof; (2) any provision which shall condition the exercise of all or part of an Option upon such matters as the Board may deem appropriate (if any) such as the passage of time, or the attainment of certain performance goals, appropriate to reflect the contribution of the Optionee to the performance of the Company; (3) any provision which would accelerate the exercisability of an Option in spite of any provision contained in an Option pursuant to clause (2) above or otherwise, under such circumstances as the Board may deem appropriate; and (4) the manner in which an Option is to be exercised. 7. Allotment of Shares. The grant of an Option shall not be deemed either to entitle the Optionee to, or disqualify the Optionee from, participation in any other grant of options under this Plan or any other stock option plan of the Company. The number of shares allotted to each Optionee shall be determined as follows: The Board shall, in its discretion, determine the number of shares of 15 16 Common Stock to be offered from time to time by grant of Options to officers, key employees and consultants of the Company or its Subsidiaries; provided that the aggregate Fair Market Value (determined as of the time the option is granted) of the Common Stock with respect to which Options which are intended to qualify as Incentive Stock Options are exercisable for the first time by such Optionee during any calendar year (under all such plans of the Optionee's employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. 8. Adjustments. The number of shares of Common Stock covered by each outstanding Option granted under the Plan and the option price shall be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, reverse stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on all Optionees. 9. Designation of Incentive Stock Options. The Board shall cause each Option granted hereunder to be clearly designated in the agreement evidencing such Option, at the time of grant, as to whether or not it is intended to qualify as an Incentive Stock Option. 10. Execution of Shareholder's Agreement. Options may only be exercised hereunder by employees who have executed a Shareholder's Agreement in such form as the Board may adopt from time to time. 16 17 11. Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Company or an Optionee may change, at any time and from time to time, by written notice to the other, the address which it or he had theretofore specified for receiving notices. Until changed in accordance herewith, the Company and each Optionee shall specify as its and his address for receiving notices the address set forth in the option agreement pertaining to the shares to which such notice relates. 12. Amendment or Discontinuance. The Plan and any Option outstanding hereunder may be amended or discontinued by the Board without the approval of the stockholders of the Company, except that the Board may not, except as expressly provided in the Plan, increase the aggregate number of shares which may be issued under Options granted pursuant to the Plan, materially amend the eligibility requirements of the Plan or materially increase the benefits which may accrue to participants under the Plan, without such approval (if any) as may be required pursuant to applicable law or the requirements of any national stock exchange upon which the Company's Common Stock is traded. 17 18 13. Effect of the Plan. Neither the adoption of this Plan nor any action of the Board shall be deemed to give any officer or employee any right to be granted an option to purchase Common Stock of the Company or any of its Subsidiaries, or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Board and executed on behalf of the Company and then only to the extent and on the terms and conditions expressly set forth therein. 14. Grant of Incentive Stock Options. No Incentive Stock Options shall be granted pursuant to this Plan after the expiration of ten years from the date of the earlier of: (i) the date the Plan is adopted, or (ii) the date the Plan is approved by the stockholders of the Company. 18 19 DALLAS SEMICONDUCTOR CORPORATION AMENDMENT TO AMENDED 1987 STOCK OPTION PLAN (Adopted by the Board of Directors on November 27, 2000) RESOLVED, that, subject to such approval (if any) as may be required pursuant to the provisions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or applicable law or the requirements of the New York Stock Exchange, the Amended 1987 Stock Option Plan of the Corporation be, and the same hereby is further amended, effective November 27, 2000, so as to increase the number of shares of Common Stock available for the grant of options thereunder by 1,250,000 shares. EX-10.19 7 f75694ex10-19.txt EXHIBIT 10.19 1 EXHIBIT 10.19 ASSUMPTION AGREEMENT THIS ASSUMPTION AGREEMENT is executed and delivered pursuant to that certain Agreement and Plan of Merger, dated as of January 28, 2001 (the "Merger Agreement"), by and among Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), MI Acquisition Sub, Inc., a Delaware corporation, and Dallas Semiconductor Corporation, a Delaware corporation ("Dallas Semiconductor"), pursuant to which Dallas Semiconductor will become a wholly owned subsidiary of the Company. Pursuant to Section 6.3(c) of the Merger Agreement, the Company is required to expressly assume the obligations of that certain Split-Dollar Insurance Agreement, dated as of January 23, 2001, by and between Alan Hale and Dallas Semiconductor, as amended ("Split-Dollar Agreement"), a copy of which is attached hereto as Exhibit A. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, in accordance with the provisions of Section 14(a) of the Split-Dollar Agreement, the Company hereby assumes and agrees to pay, perform and discharge in accordance with the terms thereof, all of the duties, liabilities and obligations of Dallas Semiconductor under the Split-Dollar Agreement. This Assumption Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 2 IN WITNESS WHEREOF, each party hereto has caused this instrument to be executed by its duly authorized officer this the 11th day of April, 2001. MAXIM INTEGRATED PRODUCTS, INC. By: /s/ Carl W. Jasper ------------------------------------ Name: Carl W. Jasper Title: Chief Financial Officer DALLAS SEMICONDUCTOR CORPORATION By: /s/ Chao C. Mai ------------------------------------ Name: Chao C. Mai Title: President 2 3 EXHIBIT A 3 4 DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AGREEMENT is entered into as of this 20th day of July, 2000, by and between Alan Hale ("Participant"), whose address is 5616 Walnut Spring Court, Dallas, Texas 75252, and Dallas Semiconductor Corporation, a Delaware corporation ("Company"), having its principal office and place of business located at 4401 South Beltwood Parkway, Dallas, Texas 75244. WHEREAS, the Company by resolution of the Board of Directors duly adopted on December 17, 1993 ("Date of Adoption") has adopted the Dallas Semiconductor Corporation Split-Dollar Insurance Plan to promote the interests of the Company in retaining the officers and directors of the Company who have made, and are capable of continuing to make, valuable contributions to the Company's performance by providing life insurance protection; and WHEREAS, Participant is a director of the Company who had completed at least five (5) years of service as a director of the Company on the Date of Adoption and has expressed a willingness to continue his services as a director of the Company, or is an officer of the Company at the Vice President level or above on the Date of Adoption; and WHEREAS, Participant entered into an agreement with the Company dated the 15th day of February, 1994, concerning a split-dollar life insurance arrangement with the Company (the "Prior Agreement"); and WHEREAS, this Agreement amends, restates and supersedes in its entirety the terms of the Prior Agreement, effective the date of this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Policy. Participant has applied for, and the Company has caused to be issued, a policy or policies of permanent life insurance described on Exhibit "A" attached hereto, with the attributes described in Section 2 hereof (such policy or policies, together with any additional policy or policies issued with the consent of Participant in substitution or replacement for any such policy or policies, are collectively referred to herein as the "Policy") from an insurance company selected by the Company as described on Exhibit "A" ("Insurer"). The Company will take all such action as may be necessary or appropriate to cause the Policy to be maintained in force at all times, so as to provide Participant with all of the benefits of the Policy and this Agreement. 2. Benefits. The Policy has been structured, based on a specified interest rate, mortality and other assumptions, to provide Participant (over and above benefits payable to the Company) with the benefits, during each year in which the Policy is in force, provided in the 5 Policy and those benefits described on Exhibit "A" attached hereto. The Company assumes no responsibility or liability with respect to the actual performance of the Policy. 3. Ownership of Policy. With respect to any Policy, the Participant (or if Participant so elects, an individual or entity designated by Participant) shall be the owner of the Policy, and the Participant, subject to the limited collateral assignment of such Policy to the Company as provided in Section 7 hereof, may exercise all the rights of ownership with respect to the Policy, including, but not limited to: (a) the right to designate, or change the designation of, any beneficiary or beneficiaries of the Policy, (b) the right to pledge the Policy as security for a loan or to obtain from the Insurer a loan against the surrender or cash value, and in accordance with the terms, of the Policy, (c) the right to assign or transfer the Policy, in whole or in part, and (d) the right to sell, surrender or terminate the Policy. 4. Payment of Premiums. All premiums on the Policy shall be paid by the Company (or in the discretion of the Company, on behalf of the Company by the trustee [the "Trustee"] of the Dallas Semiconductor Corporation Executive Split-Dollar Insurance Trust [the "Trust"]). The Company shall never permit the Policy to lapse. Premium payments paid by the Trustee shall be considered as payments by the Company for all purposes under this Agreement. While all premiums on the Policy shall be paid by or on behalf of the Company, that portion of the premium equal to the amount of income imputed to Participant for federal and state income tax purposes on the value of the economic benefit of the life insurance protection provided to Participant shall be deemed to have been paid by the Company to the Participant and immediately paid by Participant to the Insurer. If the Company elects to pay the premiums to the Trust, such payment shall constitute sufficient funds to pay all premiums which may become due on each such Policy. 5. Change of Control. In the event of the occurrence of a Change of Control (as hereinafter defined): (a) the Company (or if so directed by the Company, the Trustee) shall immediately pay to the Insurer all remaining premiums on the Policy, regardless of whether such premiums are then due, and (b) the collateral assignment of the Policy to the Company, as provided in Section 7 hereof shall immediately and fully terminate, and the Participant shall become fully vested in the entire cash value and death benefit payable under the Policy. For purposes of this Agreement, a "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; (ii) at any time following the date of execution of this Agreement individuals who are directors of the Company at such date cease for any reason to constitute a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 2 6 voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, except that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 15% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the election of any person other than C. V. Prothro as Chairman of the Board and Chief Executive Officer of the Company. 6. Tax Offset Payments. To the extent that the Participant may be deemed to have realized gross income in any year for federal and state income tax purposes or gift tax purposes by reason of this Agreement, including the value of the insurance protection or other benefits thereunder provided by the Policy or otherwise as a consequence of the Plan (including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise), the Company shall pay to Participant an additional amount such that the after-tax cost to the Participant is zero. 7. Collateral Assignment of Policy. The Participant shall, and does hereby, collaterally assign to the Company an interest in the cash values and death benefit of the Policy as follows: (a) If the Participant surrenders or sells the Policy, he shall pay the Company, out of the proceeds of the Policy, an amount equal to the lesser of (i) the cash value of the Policy, or (ii) the aggregate amount of premiums paid by the Company with respect to the Policy; (b) The Company shall be entitled to receive the cumulative premiums paid for the Policy (the amount indicated in the column headed Death Benefits Payable to the Company shown on Exhibit "A" attached hereto) from the death benefits under the Policy. All death benefits payable under the Policy that exceed the amount paid to the Company under the preceding sentence shall be paid to the beneficiary or beneficiaries of the Participant. The amount payable to such beneficiary or beneficiaries is indicated in the column headed Death Benefit Payable to Participant's Beneficiary: Individual Coverage shown on Exhibit "A" attached hereto. If the death benefits payable under this Agreement exceed the aggregate amount of premiums paid by the Company as set forth on Exhibit "A," such excess death benefits shall be payable to the Participant's beneficiary or beneficiaries. The collateral assignment of the Policy shall not be altered or changed without the consent of the Company and the Participant. 8. Adjustment of Benefits; Additional Policy Benefits or Riders. The Company and the Participant may from time to time enter into agreements which may adjust the value of each party's interests in the Policy. The Participant may add any rider or endorsement to the Policy. 3 7 If any such rider or endorsement is added upon the written request of the Company, all premiums with respect to such rider or endorsement shall be paid by the Company. A Participant shall not be required to withdraw any benefits payable under the Policy and may elect to apply the value attributable to such benefits to the purchase of additional benefits payable to the beneficiary or beneficiaries named by Participant under the Policy, if the Participant so elects, or to treat such benefits as additional insurance payable to the beneficiary or beneficiaries of such Policy upon the death of the Participant. 9. Amendment. This Agreement may be amended by the Board of Directors of the Company; provided, however, that no such amendment shall diminish, abrogate or change any rights or benefits of the Participant under the Policy or this Agreement without the Participant's prior written consent, and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant. 10. Benefits Cumulative. The benefits to the Participant under this Agreement shall be cumulative with, and shall not reduce or be deemed to be in substitution of, any benefits, payments or compensation to which Participant may otherwise be entitled under any other compensation, benefit, welfare, savings, retirement or compensation plan of, or for the employees, officers or directors of, the Company. 11. Further Assurances. The Company and Participant shall enter into, execute and deliver all such documents, instruments, and other agreements as the other party may reasonably request, or as the Insurer or Participant may reasonably require, in order to carry out the intent and purposes of this Agreement. 12. ERISA Requirements. (a) Funding Policy. All premiums on the Policy shall be remitted by, or on behalf of, the Company to the Insurer. The benefits provided by the Policy shall be paid by the Insurer in accordance with the terms of the Policy and this Agreement. The payment of such benefits is predicated on the payment of the required premiums. (b) Claims and Review Procedures. The following claims procedure shall apply for purposes of this Agreement. The claims procedure in subparagraph (b)(1) below shall be followed with respect to benefits provided by the Insurer under the terms of the Policy. The claims procedure in subparagraph (b)(2) below shall be followed with respect to benefits, if any, provided directly by the Company. The Participant (or the other owner of the Policy designated by the Participant) that owns the Policy (the "Policy Owner") and the Policy Owner's successors, beneficiaries or representatives, as appropriate (individually or collectively, "Claimant"), must follow both procedures, if necessary. (i) Filing a Claim for Insurance Benefits. A Claimant shall make a claim for benefits provided by the Insurer by submitting a written claim and proof of claim to the Insurer in accordance with procedures and guidelines established from time to time by the Insurer. On written request, the Company, acting as the "Plan Administrator," shall provide copies of any claim forms or instructions, or advise the Claimant how to obtain 4 8 such forms or instructions. The Insurer shall decide whether the claim shall be allowed. If a claim is denied in whole or in part, the Insurer shall notify the Claimant and explain the procedure for reviewing a denied claim. (ii) Filing a Claim for Any Other Benefit. The following claims procedure shall apply with respect to all benefits other than those provided by the Insurer: (A) Filing a Claim; Notification to Claimant of Decision: The Claimant shall make a claim in writing in accordance with procedures and guidelines established from time to time by the Plan Administrator, which claim shall be delivered to the Plan Administrator. The Plan Administrator shall review and make the decision with respect to any claim. If a claim is denied in whole or in part, written notice thereof shall be furnished to the Claimant within thirty days after the claim has been filed. Such notice shall set forth: (1) the specific reason or reasons for the denial; (2) specific reference to the provisions of this Agreement on which denial is based; (3) a description of any additional material or information necessary for the Claimant to perfect a claim and an explanation of why such material or information is necessary; and (4) an explanation of the procedure for review of the denied claim. (B) Procedure for Review: Any Claimant whose claim has been denied in full or in part may individually, or through the Claimant's duly authorized representative, request a review of the claim denial by delivering a written application for review to the Plan Administrator at any time within sixty days after receipt by the Claimant of written notice of the denial of the claim. Such request shall set forth in reasonable detail: (1) the grounds upon which the request for review is based and any facts in support thereof; and (2) any issues or comments which the Claimant considers pertinent to the claim. Following such request for review, the Plan Administrator fully and fairly shall review the decision denying the claim. Prior to the decision of the Plan Administrator, the Claimant shall be given an opportunity to review pertinent documents. 5 9 (C) Decision on Review: A decision on the review of a claim denied in whole or in part shall be made in the following manner: (1) The decision on review shall be made by the Plan Administrator, which shall consider the application and any written materials submitted by the Claimant in connection therewith. The Plan Administrator, in its sole discretion, may require the Claimant to submit such additional documents or evidence as the Plan Administrator may deem necessary or advisable in making such review. (2) The Plan Administrator will render a decision upon a review of a denied claim within sixty days after receipt of a request for review. If special circumstances (such as the need to hold a hearing on any matter pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as possible, but not later than one hundred twenty days after receipt of a request for review. Written notice of any such extension will be furnished to the Claimant prior to the commencement of the extension. (3) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, and specific references to the provisions of this Agreement on which the decision is based. The decision of the Plan Administrator on review shall be final and conclusive upon all persons. If the decision on review is not furnished to the Claimant within the time limits prescribed in subparagraph (c)(2) above, the claim will be deemed denied on review. 13. Legal Fees. The Company shall pay to the Participant and his beneficiary or beneficiaries upon demand all legal fees and expenses incurred by the Participant or his beneficiary or beneficiaries in seeking to obtain or enforce any right or benefit provided by the Policy and this Agreement. 14. Successors; Binding Agreement. (a) In addition to the requirements of Section 5 of this Agreement, the Company will, upon the request of Participant, require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession were to take place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Participant to all rights, compensation and other benefits from the Company in the same amount and on the same terms as the Participant would otherwise be entitled hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any such successor to its business and/or assets as aforesaid, by operation of law, or otherwise. 6 10 (b) Subject to the provisions of Section 14(a) above, the terms and provisions of this Agreement shall inure to the benefit of and be binding upon (a) the Company and its successors and assigns and (b) the Participant and his respective heirs, executors, administrators and legal representatives. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. The obligations of the Company under this Agreement shall survive the expiration of this Agreement. 17. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer with a copy to the Chief Financial Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 18. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless the Participant and any beneficiary or beneficiaries of Participant against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by Participant or any beneficiary or beneficiaries or Participant in connection with any threatened, pending or completed action, suit, or proceeding, whether formal or informal, or civil, criminal, administrative, legislative, arbitrative or investigative (hereinafter a "Proceeding") to which the Participant or any beneficiary or beneficiaries of Participant is, was, or at any time becomes a party, or is threatened to be made a party, in any way arising out of, based upon or incident to this Agreement or any of the rights, benefits and obligations provided for herein. (b) The expenses (including attorneys' fees) incurred by Participant or any beneficiary or beneficiaries of Participant in defending any Proceeding shall be advanced by the Company at the request of the Participant or any such beneficiary or beneficiaries. Any 7 11 judgments, fines or amounts to be paid in settlement shall also be advanced by the Company to the Participant or any beneficiary or beneficiaries of Participant upon request. 19. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware. 20. Headings. Headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement. 21. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the 20th day of July , 2000. DALLAS SEMICONDUCTOR CORPORATION By: /s/ C. V. Prothro ------------------------------------ /s/ Alan Hale ------------------------------------ Alan Hale, Participant 8 12 EXHIBIT "A" NAME OF PARTICIPANT: Alan Hale NAME OF INSURED: Alan Hale INSURER: Nationwide Policy No. N056104180
Death Benefit Payable to Participant's Death Benefit Policy Year Beneficiary: Payable to Ending, April 15 Individual Coverage Company ---------------- ------------------- ------- 2001 3,434,000 194,462 2002 3,434,000 284,683 2003 3,434,000 284,683 2004 3,434,000 284,683 2005 3,434,000 284,683 2006 3,434,000 284,683 2007 3,434,000 284,683 2008 3,434,000 284,683 2009 3,434,000 284,683 2010 3,434,000 284,683 2011 3,434,000 284,683 2012 3,434,000 284,683 2013 3,434,000 284,683 2014 3,434,000 284,683 2015 3,434,000 284,683 2016 3,434,000 284,683 2017 3,434,000 284,683 2018 3,434,000 284,683 2019 3,434,000 284,683 2020 3,434,000 284,683
9 13 AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT is entered into as of this 23rd day of January, 2001, by and between Alan Hale ("Participant") and Dallas Semiconductor Corporation, a Delaware corporation ("Company"). WHEREAS, Participant entered into a Split-Dollar Insurance Agreement with the Company dated July 20, 2000 ("Agreement"); and WHEREAS, the Company desires to amend the Agreement in the manner set forth below and has requested the consent of Participant to such amendment; NOW, THEREFORE, in consideration of the payment by the Company to Participant of the sum of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Participant, Participant and the Company agree as follows: 1. Section 4. Section 4 is divided into subsections (a) and (b). Existing Section 4 entitled "Payment of Premiums" is designated as Section 4(a), and the following language is inserted as Section 4(b): "(b) All premiums on the Policy shall be paid upon request or demand by Participant or Participant's Insurer without regard to whether or not the Participant is an employee or director of the Company, the Participant's responsibilities to the Company or any other circumstance, such obligation to pay to be absolute, continuing, irrevocable and unconditional and not subject to any set-off, counterclaim, recoupment, reduction, diminution or any defense of any kind or nature whatsoever." 2. Section 5. Section 5 is deleted in its entirety and the following is substituted in its place: "Reserved." 3. Section 6. The words "(including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise)" appearing in lines 4, 5 and 6 of Section 6 are deleted. 4. Section 9. The words "and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant" found in lines 4 and 5 of Section 9 are deleted. 5. Section 14. Subsection (a) of Section 14 is amended to delete the words "In addition to the requirements of Section 5 of this Agreement" appearing in line 1 thereof. 14 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 23rd day of January, 2001. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Chao C. Mai ------------------------------------ /s/ Alan P. Hale ------------------------------------ Alan Hale, Participant 2 EX-10.20 8 f75694ex10-20.txt EXHIBIT 10.20 1 EXHIBIT 10.20 ASSUMPTION AGREEMENT THIS ASSUMPTION AGREEMENT is executed and delivered pursuant to that certain Agreement and Plan of Merger, dated as of January 28, 2001 (the "Merger Agreement"), by and among Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), MI Acquisition Sub, Inc., a Delaware corporation, and Dallas Semiconductor Corporation, a Delaware corporation ("Dallas Semiconductor"), pursuant to which Dallas Semiconductor will become a wholly owned subsidiary of the Company. Pursuant to Section 6.3(c) of the Merger Agreement, the Company is required to expressly assume the obligations of that certain Split-Dollar Insurance Agreement, dated as of January 23, 2001, by and between M. D. Sampels and Dallas Semiconductor, as amended ("Split-Dollar Agreement"), a copy of which is attached hereto as Exhibit A. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, in accordance with the provisions of Section 14(a) of the Split-Dollar Agreement, the Company hereby assumes and agrees to pay, perform and discharge in accordance with the terms thereof, all of the duties, liabilities and obligations of Dallas Semiconductor under the Split-Dollar Agreement. This Assumption Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 2 IN WITNESS WHEREOF, each party hereto has caused this instrument to be executed by its duly authorized officer this the 11th day of April, 2001. MAXIM INTEGRATED PRODUCTS, INC. By: /s/ Carl W. Jasper ------------------------------------ Name: Carl W. Jasper Title: Chief Financial Officer DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale ------------------------------------ Name: Alan P. Hale Title: Chief Financial Officer 2 3 EXHIBIT A 3 4 DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AGREEMENT is entered into as of this 20th day of July, 2000, by and between Merlyn D. Sampels ("Participant"), whose address is 7718 Caruth Boulevard, Dallas, Texas 75225, and Dallas Semiconductor Corporation, a Delaware corporation ("Company"), having its principal office and place of business located at 4401 South Beltwood Parkway, Dallas, Texas 75244. WHEREAS, the Company by resolution of the Board of Directors duly adopted on December 17, 1993 ("Date of Adoption") has adopted the Dallas Semiconductor Corporation Split-Dollar Insurance Plan to promote the interests of the Company in retaining the officers and directors of the Company who have made, and are capable of continuing to make, valuable contributions to the Company's performance by providing life insurance protection; and WHEREAS, Participant is a director of the Company who had completed at least five (5) years of service as a director of the Company on the Date of Adoption and has expressed a willingness to continue his services as a director of the Company, or is an officer of the Company at the Vice President level or above on the Date of Adoption; and WHEREAS, Participant entered into an agreement with the Company dated the 15th day of February, 1994, concerning a split-dollar life insurance arrangement with the Company (the "Prior Agreement"); and WHEREAS, this Agreement amends, restates and supersedes in its entirety the terms of the Prior Agreement, effective the date of this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Policy. Participant has applied for, and the Company has caused to be issued, a policy or policies of permanent life insurance described on Exhibit "A" attached hereto, with the attributes described in Section 2 hereof (such policy or policies, together with any additional policy or policies issued with the consent of Participant in substitution or replacement for any such policy or policies, are collectively referred to herein as the "Policy") from an insurance company selected by the Company as described on Exhibit "A" ("Insurer"). The Participant has also applied for and the Company has caused to be issued a policy or policies of permanent life insurance in which another Plan participant is the named insured, such policy being identified on Exhibit "A" as the Nationwide Policy. The term "Policy" shall also include such policy. The Company will take all such action as may be necessary or appropriate to cause the Policy to be maintained in force at all times, so as to provide Participant with all of the benefits of the Policy and this Agreement. 5 2. Benefits. The Policy has been structured, based on a specified interest rate, mortality and other assumptions, to provide Participant (over and above benefits payable to the Company) with the benefits, during each year in which the Policy is in force, provided in the Policy and those benefits described on Exhibit "A" attached hereto. The Company assumes no responsibility or liability with respect to the actual performance of the Policy, but the Company agrees to timely pay to the insurer such amounts as may be needed for the cash value in Nationwide Policy No. N056117510 to always be at least $250,000. 3. Ownership of Policy. With respect to any Policy, the Participant (or if Participant so elects, an individual or entity designated by Participant) shall be the owner of the Policy, and the Participant, subject to the limited collateral assignment of such Policy to the Company as provided in Section 7 hereof, may exercise all the rights of ownership with respect to the Policy, including, but not limited to: (a) the right to designate, or change the designation of, any beneficiary or beneficiaries of the Policy, (b) the right to pledge the Policy as security for a loan or to obtain from the Insurer a loan against the surrender or cash value, and in accordance with the terms, of the Policy, (c) the right to withdraw, during the Participant's lifetime, all or any part of the Policy's cash value (specifically including the cash value in Nationwide Policy No. 56117510) on the date of Participant's withdrawal, (d) the right to assign or transfer the Policy, in whole or in part, and (e) the right to sell, surrender or terminate the Policy. 4. Payment of Premiums. All premiums on the Policy shall be paid by the Company (or in the discretion of the Company, on behalf of the Company by the trustee [the "Trustee"] of the Dallas Semiconductor Corporation Executive Split-Dollar Insurance Trust [the "Trust"]). The Company shall never permit the Policy to lapse. Premium payments paid by the Trustee shall be considered as payments by the Company for all purposes under this Agreement. While all premiums on the Policy shall be paid by or on behalf of the Company, that portion of the premium equal to the amount of income imputed to Participant for federal and state income tax purposes on the value of the economic benefit of the life insurance protection provided to Participant shall be deemed to have been paid by the Company to the Participant and immediately paid by Participant to the Insurer. If the Company elects to pay the premiums to the Trust, such payment shall constitute sufficient funds to pay all premiums which may become due on each such Policy. 5. Change of Control. In the event of the occurrence of a Change of Control (as hereinafter defined): (a) the Company (or if so directed by the Company, the Trustee) shall immediately pay to the Insurer all remaining premiums on the Policy, regardless of whether such premiums are then due, and (b) the collateral assignment of the Policy to the Company, as provided in Section 7 hereof shall immediately and fully terminate, and the Participant shall become fully vested in the entire cash value and death benefit payable under the Policy. For purposes of this Agreement, a "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of 2 6 the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; (ii) at any time following the date of execution of this Agreement individuals who are directors of the Company at such date cease for any reason to constitute a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, except that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 15% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the election of any person other than C. V. Prothro as Chairman of the Board and Chief Executive Officer of the Company. 6. Tax Offset Payments. To the extent that the Participant may be deemed to have realized gross income in any year for federal and state income tax purposes or gift tax purposes by reason of this Agreement, including the value of the insurance protection or other benefits thereunder provided by the Policy or otherwise as a consequence of the Plan (including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise), the Company shall pay to Participant an additional amount such that the after-tax cost to the Participant is zero. 7. Collateral Assignment of Policy. The Participant shall, and does hereby, collaterally assign to the Company an interest in the cash values and death benefit of the Policy as follows: (a) If the Participant surrenders or sells the Policy, he shall pay the Company, out of the proceeds of the Policy, an amount equal to the lesser of (i) the cash value of the Policy, or (ii) the aggregate amount of premiums paid by the Company with respect to the Policy; (b) The Company shall be entitled to receive the cumulative premiums paid for MetLife Policies Nos. 940250361 E3 and 940250367 E3 (the amount of which is a portion of the amount indicated in the column headed Death Benefits Payable to the Company shown on Exhibit "A" attached hereto) from the death benefit paid under Nationwide Policy No. N056117510, and the Company shall be entitled to receive the cumulative premiums paid for John Hancock Policy No. 534889 (the amount of which is the remainder of the amount indicated in the column headed Death Benefits Payable to the Company shown on Exhibit "A" attached hereto) from the death benefits payable under such policy upon the death of the survivor of the insured covered under such policy. All death benefits payable under MetLife Policies Nos. 940250361 E3 and 940250367 E3 shall be paid to the beneficiary or beneficiaries of the Participant, and all 3 7 death benefits payable under John Hancock Policy No. 534889 that exceed the premiums reimbursed to the Company out of such policy's proceeds under the preceding sentence shall be paid to the beneficiary or beneficiaries of Participant. (The death benefits payable under the MetLife policies are indicated in the column headed Death Benefit Payable to Participant's Beneficiary: Individual Coverage, and the death benefits payable under the John Hancock policy are indicated in the column headed Death Benefit Payable to Participant's Beneficiary: Survivorship Coverage, both columns as shown on Exhibit "A" attached hereto.) All death benefits payable under Nationwide Policy No. N056117510 that exceed the premiums reimbursed to the Company out of such policy's proceeds under the first sentence of this paragraph shall be paid as follows: (1) to Participant's beneficiary or beneficiaries, the excess of (A) 1,300,000 over (B) the amounts, if any, paid to Participant, in Participant's sole discretion, from Nationwide Policy No. N056117510 during Participant's lifetime, and (2) the balance to the Company. If the death benefits payable under this Agreement exceed the sum of (i) the aggregate amount of premiums paid by the Company as set forth on Exhibit "A" and (ii) the other amounts payable to the Company under this paragraph, such excess death benefits shall be payable to the Participant's beneficiary or beneficiaries. The collateral assignment of the Policy shall not be altered or changed without the consent of the Company and the Participant. 8. Adjustment of Benefits; Additional Policy Benefits or Riders. The Company and the Participant may from time to time enter into agreements which may adjust the value of each party's interests in the Policy. The Participant may add any rider or endorsement to the Policy. If any such rider or endorsement is added upon the written request of the Company, all premiums with respect to such rider or endorsement shall be paid by the Company. A Participant shall not be required to withdraw any benefits payable under the Policy and may elect to apply the value attributable to such benefits to the purchase of additional benefits payable to the beneficiary or beneficiaries named by Participant under the Policy, if the Participant so elects, or to treat such benefits as additional insurance payable to the beneficiary or beneficiaries of such Policy upon the death of the Participant. 9. Amendment. This Agreement may be amended by the Board of Directors of the Company; provided, however, that no such amendment shall diminish, abrogate or change any rights or benefits of the Participant under the Policy or this Agreement without the Participant's prior written consent, and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant. 10. Benefits Cumulative. The benefits to the Participant under this Agreement shall be cumulative with, and shall not reduce or be deemed to be in substitution of, any benefits, payments or compensation to which Participant may otherwise be entitled under any other compensation, benefit, welfare, savings, retirement or compensation plan of, or for the employees, officers or directors of, the Company. 11. Further Assurances. The Company and Participant shall enter into, execute and deliver all such documents, instruments, and other agreements as the other party may reasonably 4 8 request, or as the Insurer or Participant may reasonably require, in order to carry out the intent and purposes of this Agreement. 12. ERISA Requirements. (a) Funding Policy. All premiums on the Policy shall be remitted by, or on behalf of, the Company to the Insurer. The benefits provided by the Policy shall be paid by the Insurer in accordance with the terms of the Policy and this Agreement. The payment of such benefits is predicated on the payment of the required premiums. (b) Claims and Review Procedures. The following claims procedure shall apply for purposes of this Agreement. The claims procedure in subparagraph (b)(1) below shall be followed with respect to benefits provided by the Insurer under the terms of the Policy. The claims procedure in subparagraph (b)(2) below shall be followed with respect to benefits, if any, provided directly by the Company. The Participant (or the other owner of the Policy designated by the Participant) that owns the Policy (the "Policy Owner") and the Policy Owner's successors, beneficiaries or representatives, as appropriate (individually or collectively, "Claimant"), must follow both procedures, if necessary. (i) Filing a Claim for Insurance Benefits. A Claimant shall make a claim for benefits provided by the Insurer by submitting a written claim and proof of claim to the Insurer in accordance with procedures and guidelines established from time to time by the Insurer. On written request, the Company, acting as the "Plan Administrator," shall provide copies of any claim forms or instructions, or advise the Claimant how to obtain such forms or instructions. The Insurer shall decide whether the claim shall be allowed. If a claim is denied in whole or in part, the Insurer shall notify the Claimant and explain the procedure for reviewing a denied claim. (ii) Filing a Claim for Any Other Benefit. The following claims procedure shall apply with respect to all benefits other than those provided by the Insurer: (A) Filing a Claim; Notification to Claimant of Decision: The Claimant shall make a claim in writing in accordance with procedures and guidelines established from time to time by the Plan Administrator, which claim shall be delivered to the Plan Administrator. The Plan Administrator shall review and make the decision with respect to any claim. If a claim is denied in whole or in part, written notice thereof shall be furnished to the Claimant within thirty days after the claim has been filed. Such notice shall set forth: (1) the specific reason or reasons for the denial; (2) specific reference to the provisions of this Agreement on which denial is based; 5 9 (3) a description of any additional material or information necessary for the Claimant to perfect a claim and an explanation of why such material or information is necessary; and (4) an explanation of the procedure for review of the denied claim. (B) Procedure for Review: Any Claimant whose claim has been denied in full or in part may individually, or through the Claimant's duly authorized representative, request a review of the claim denial by delivering a written application for review to the Plan Administrator at any time within sixty days after receipt by the Claimant of written notice of the denial of the claim. Such request shall set forth in reasonable detail: (1) the grounds upon which the request for review is based and any facts in support thereof; and (2) any issues or comments which the Claimant considers pertinent to the claim. Following such request for review, the Plan Administrator fully and fairly shall review the decision denying the claim. Prior to the decision of the Plan Administrator, the Claimant shall be given an opportunity to review pertinent documents. (C) Decision on Review: A decision on the review of a claim denied in whole or in part shall be made in the following manner: (1) The decision on review shall be made by the Plan Administrator, which shall consider the application and any written materials submitted by the Claimant in connection therewith. The Plan Administrator, in its sole discretion, may require the Claimant to submit such additional documents or evidence as the Plan Administrator may deem necessary or advisable in making such review. (2) The Plan Administrator will render a decision upon a review of a denied claim within sixty days after receipt of a request for review. If special circumstances (such as the need to hold a hearing on any matter pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as possible, but not later than one hundred twenty days after receipt of a request for review. Written notice of any such extension will be furnished to the Claimant prior to the commencement of the extension. (3) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be 6 10 understood by the Claimant, and specific references to the provisions of this Agreement on which the decision is based. The decision of the Plan Administrator on review shall be final and conclusive upon all persons. If the decision on review is not furnished to the Claimant within the time limits prescribed in subparagraph (c)(2) above, the claim will be deemed denied on review. 13. Legal Fees. The Company shall pay to the Participant and his beneficiary and beneficiaries upon demand all legal fees and expenses incurred by the Participant or by his beneficiary or beneficiaries, respectively, in seeking to obtain or enforce any right or benefit provided by the Policy and this Agreement. 14. Successors; Binding Agreement. (a) In addition to the requirements of Section 5 of this Agreement, the Company will, upon the request of Participant, require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession were to take place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Participant to all rights, compensation and other benefits from the Company in the same amount and on the same terms as the Participant would otherwise be entitled hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any such successor to its business and/or assets as aforesaid, by operation of law, or otherwise. (b) Subject to the provisions of Section 14(a) above, the terms and provisions of this Agreement shall inure to the benefit of and be binding upon (a) the Company and its successors and assigns and (b) the Participant and his respective heirs, executors, administrators and legal representatives. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. The obligations of the Company under this Agreement shall survive the expiration of this Agreement. 7 11 17. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer with a copy to the Chief Financial Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 18. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless the Participant and any beneficiary or beneficiaries of Participant against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by Participant or any beneficiary or beneficiaries or Participant in connection with any threatened, pending or completed action, suit, or proceeding, whether formal or informal, or civil, criminal, administrative, legislative, arbitrative or investigative (hereinafter a "Proceeding") to which the Participant or any beneficiary or beneficiaries of Participant is, was, or at any time becomes a party, or is threatened to be made a party, in any way arising out of, based upon or incident to this Agreement or any of the rights, benefits and obligations provided for herein. (b) The expenses (including attorneys' fees) incurred by Participant or any beneficiary or beneficiaries of Participant in defending any Proceeding shall be advanced by the Company at the request of the Participant or any such beneficiary or beneficiaries. Any judgments, fines or amounts to be paid in settlement shall also be advanced by the Company to the Participant or any beneficiary or beneficiaries of Participant upon request. 19. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware. 20. Headings. Headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement. 21. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 8 12 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the 20th day of July, 2000. DALLAS SEMICONDUCTOR CORPORATION By: /s/ C. V. Prothro ------------------------------------ /s/ Merlyn D. Sampels ---------------------------------------- Merlyn D. Sampels, Participant 9 13 EXHIBIT "A" NAME OF PARTICIPANT: Merlyn Sampels NAME OF INSURED: Merlyn Sampels & Anita Sampels INSURER: MetLife Policy No. 940 250 361 E3 & 940 250 367 E3 INSURER: John Hancock Policy No. 20 050 266 INSURER: Nationwide Policy No. N056117510
Death Benefit Death Benefit Payable to Participant's Payable to Participant's Death Benefit Policy Year Beneficiary: Beneficiary: Payable to Ending April 15 Individual Coverage Survivorship Coverage Company --------------- ------------------- --------------------- ------- 2001 3,246,991 3,735,000 5,519,000 2002 3,293,365 3,678,000 5,914,000 2003 3,342,192 3,759,354 6,309,000 2004 3,390,719 4,001,519 6,541,657 2005 3,438,994 4,001,519 6,671,285 2006 3,489,342 4,001,519 6,801,284 2007 3,542,630 4,001,519 6,931,284 2008 3,450,183 4,001,519 3,877,657 2009 3,362,307 4,001,519 3,877,657 2010 3,281,168 4,001,519 3,877,657 2011 3,204,682 4,001,519 3,877,657 2012 3,132,924 4,001,519 3,747,382 2013 1,755,900 4,001,519 3,747,097 2014 1,724,966 4,001,519 3,746,804 2015 1,674,852 4,001,519 3,746,501 2016 1,623,153 4,001,519 2,848,531 2017 1,570,472 4,001,519 2,848,208 2018 1,516,905 4,001,519 2,848,874 2019 1,462,431 4,001,519 2,848,530 2020 1,406,824 4,001,519 2,847,174
10 14 AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT is entered into as of this 23rd day of January, 2001, by and between Merlyn D. Sampels ("Participant") and Dallas Semiconductor Corporation, a Delaware corporation ("Company"). WHEREAS, Participant entered into a Split-Dollar Insurance Agreement with the Company dated July 20, 2000 ("Agreement"); and WHEREAS, the Company desires to amend the Agreement in the manner set forth below and has requested the consent of Participant to such amendment; NOW, THEREFORE, in consideration of the payment by the Company to Participant of the sum of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Participant, Participant and the Company agree as follows: 1. Section 4. Section 4 is divided into subsections (a) and (b). Existing Section 4 entitled "Payment of Premiums" is designated as Section 4(a), and the following language is inserted as Section 4(b): "(b) All premiums on the Policy shall be paid upon request or demand by Participant or Participant's Insurer without regard to whether or not the Participant is an employee or director of the Company, the Participant's responsibilities to the Company or any other circumstance, such obligation to pay to be absolute, continuing, irrevocable and unconditional and not subject to any set-off, counterclaim, recoupment, reduction, diminution or any defense of any kind or nature whatsoever." 2. Section 5. Section 5 is deleted in its entirety and the following is substituted in its place: "Reserved." 3. Section 6. The words "(including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise)" appearing in lines 4, 5 and 6 of Section 6 are deleted. 4. Section 9. The words "and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant" found in lines 4 and 5 of Section 9 are deleted. 5. Section 14. Subsection (a) of Section 14 is amended to delete the words "In addition to the requirements of Section 5 of this Agreement" appearing in line 1 thereof. 15 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 23rd day of January, 2001. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Chao C. Mai ------------------------------------ /s/ Merlyn D. Sampels ---------------------------------------- Merlyn D. Sampels, Participant 2 EX-10.21 9 f75694ex10-21.txt EXHIBIT 10.21 1 EXHIBIT 10.21 SHAREHOLDER'S AGREEMENT THIS AGREEMENT is made as of the ___ day of ________________, 19__, by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and _________________________________ (the "Purchaser"). WHEREAS, the Purchaser has been granted an option under the Company's 1987 Stock Option Plan to purchase shares of Common Stock, $.02 par value per share (the "Common Stock"), of the Company; and WHEREAS, the Purchaser and the Company desire to set forth certain rights and obligations of the parties with respect to the Common Stock which may from time to time be purchased by the Purchaser; NOW, THEREFORE, IT IS HEREBY AGREED: 1. Sale and Purchase of Shares. Pursuant to the terms and conditions of this Agreement, the Purchaser has been granted an option to purchase up to ______ shares of the Common Stock of the Company (the "Shares") for a consideration of $_________ per share to be paid by Purchaser to the Company upon exercise of such option in accordance with the terms of such option. 2. Company's Right to Repurchase. The Shares shall be subject to the following right ("Repurchase Right"): (a) If the Purchaser should cease to be employed by the Company, for any reason or no reason, with or without cause, as determined by and in the sole discretion of the Board of Directors of the Company (excluding leave(s) of absence authorized in writing by the Company, specifying the date on which Purchaser shall return to work), the Company shall have the right to repurchase from the Purchaser, or the Purchaser's personal representative as the case may be, all of the Shares subject to the Repurchase Right. For purposes of determining this Repurchase Right, the parties hereby acknowledge and agree that the Commencement Date (as used herein) with respect to the Shares shall be deemed to be _________________, 19__. (b) The percentage of the Shares which are subject to the Repurchase Right shall be determined as follows:
Length of Time Employee Has Been Employed by the Percentage of Company Since the Shares Subject to Commencement Date Repurchase Right ----------------- ---------------- Less than 4 completed quarters 100% 4 completed quarters 75% 5 completed quarters 68.75% 6 completed quarters 62.50%
2
Length of Time Employee Has Been Employed by the Percentage of Company Since the Shares Subject to Commencement Date Repurchase Right ----------------- ---------------- 7 completed quarters 56.25% 8 completed quarters 50% 9 completed quarters 43.75% 10 completed quarters 37.50% 11 completed quarters 31.25% 12 completed quarters 25% 13 completed quarters 18.75% 14 completed quarters 12.50% 15 completed quarters 6.25% 16 or more completed quarters None
A completed quarter excludes the specified time during which Purchaser is on any approved leave(s) of absence and the measurement of time from the Commencement Date shall abate during such specified time. (c) Within sixty (60) days after the later of the date when Purchaser's active employment ceases or the date any approved leave terminates, Purchaser having failed to return to work within the time specified (the "Termination Date"), upon notice to Purchaser specifying the time, place and date for settlement, the Company may, at the Company's option, repurchase from the Purchaser, in cash, the Shares which are subject to the Repurchase Right at a total price equal to Purchaser's original purchase price per share as set forth in Paragraph 1 above. If the Company expressly elects not to exercise its Repurchase Right, or fails to exercise its Repurchase Right for whatever reason with respect to such shares within such sixty day period, the Company's Repurchase Right with respect to such shares shall expire. (d) The Purchaser understands that he Is an employee at will and that nothing in this Agreement shall interfere with or limit in any manner whatsoever the right or power of the Company to terminate Purchaser's employment with or without cause. 3. Rights as Stockholder; Escrow. (a) From and after the date of issuance of the Shares and subject to the terms and conditions of this Agreement, the Purchaser shall have all of the rights of a stockholder of the Company with respect to the Shares unless and until repurchased by the Company as provided hereinbefore or other disposition of the Shares by Purchaser in accordance with the provisions of this Agreement. (b) The parties hereby agree that all certificates representing the Shares shall be held by either the Secretary of the Company or in an appropriate safekeeping account maintained by the Company with a bank or other financial institution ("Agent"). The Purchaser shall deliver to the Secretary of the Company, for each such certificate, a duly executed stock power authorizing any officer of the Company to effect the transfer of such Shares on the books 3 of the Company in accordance with the terms of this Agreement. Upon the written request of Purchaser delivered to the Secretary of the Company, the Company will cause the Secretary or the Agent to deliver to Purchaser a certificate or certificates representing such number of Shares as are not then subject to the Repurchase Right. Within five business days after the exercise or lapse without exercise of the Repurchase Right, the Company will direct the Secretary or the Agent to deliver to Purchaser a certificate or certificates representing the aggregate number of Shares, if any, not repurchased by the Company. 4. Stock Splits, Recapitalizations, Etc. In the event of any of the following: (a) Any stock dividend, stock split, reverse stock split, share combination, exchange of shares, recapitalization or other change in the character or amount of the outstanding securities of the Company; or (b) Any consolidation, separation, reorganization, liquidation, merger, sale of all, or substantially all, of the assets of the Company or like event or transaction; then any and all new, substituted or additional securities or property to which the Purchaser is entitled by reason of ownership of the Shares shall be immediately subject to this Agreement and be included in the term "Shares" for all purposes of this Agreement, and the repurchase price per share specified in Paragraph 2(c) shall be appropriately adjusted by the Board of Directors of the Company. 5. Purchase of Additional Stock. If the Purchaser at any time after the date of this Agreement acquires any capital stock of the Company, in addition to that described in Paragraphs 1 and 4 above (other than capital stock acquired on the open market and capital stock acquired from the Company which the Board of Directors of the Company, in its sole discretion, expressly designates as not being subject to this Agreement), or any options, rights or warrants therefor ("Additional Stock"), such Additional Stock shall be immediately subject to this Agreement and included in the term "Shares" for all purposes of this Agreement; provided, however, that: (a) The repurchase price per share of such Additional Stock shall be the purchase price per share paid or to be paid by the Purchaser therefor; (b) Any such Additional Stock purchased pursuant to an option that conditions the right to exercise all or part of such option upon the passage of an amount of time in excess of three (3) years shall be deemed to be fully vested and not subject to the Repurchase Right; and (c) The Commencement Date for purposes of the Repurchase Right with respect to such Additional Stock shall be the date expressly designated as such by the Board of Directors of the Company, in its sole discretion, or absent such a designation shall be, in the case of Additional Stock acquired pursuant to the exercise of an option, warrant or similar right, the date of grant of such option, warrant or right, or, in the case of Additional Stock otherwise purchased from the Company, the date of such purchase. 4 6. Investment Representations by Purchaser. The purchase of the Shares and any Additional Stock shall be subject to the condition that, if required by the Board of Directors of the Company, in its sole discretion, the Purchaser shall make each of the following representations: (a) That Purchaser is acquiring the Shares with his own funds and not with a view to the sale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same. (b) That Purchaser has no contract, undertaking, agreement or arrangement of any kind to sell, transfer or grant participations to any third person with respect to the Shares or any part thereof. (c) That Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his investment and is able to fend for himself in the transaction contemplated by this Agreement. That Purchaser has the ability to bear the economic risks of his investment and has been furnished with and has had access to such information as would be made available in the form of a registration statement, together with such additional information as is necessary to verify the accuracy of the information supplied and to have all questions answered by the Company. (d) That Purchaser is familiar with Rule 144 under the Securities Act of 1933, as amended (the "Act"), and understands that the Shares constitute "restricted securities" within the meaning of that Rule. That sale of the Shares may be made only after completing certain forms of representation letters promulgated for such sales, which may be obtained from the Secretary of the Company. That Purchaser understands that any sale of the Shares which might be made by him in reliance upon Rule 144 may be made only in limited amounts in accordance with the terms and conditions of that Rule and that he may not be able to sell the Shares at the time or in the amount Purchaser so desires. (e) Such other representations and warranties as the Company may, in its discretion, require. The parties hereby acknowledge, however, that such representations shall be deemed inapplicable to any purchase of Shares, or any part thereof, made in accordance with the terms of a registration statement covering such purchase, which has been filed and has become effective under the Act, and with respect to which no stop order suspending the effectiveness thereof has been issued. 7. Restrictive Legends. (a) All certificates representing any Shares subject to the Repurchase Rights provided for in this Agreement shall have endorsed thereon substantially the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER'S AGREEMENT WHICH, AMONG OTHER 5 THINGS, RESTRICTS THE TRANSFER OF SUCH SECURITIES AND GRANTS THE CORPORATION THE RIGHT TO REPURCHASE THESE SECURITIES UNDER CERTAIN CONDITIONS. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION." (b) In addition to the foregoing legend, any certificate representing any shares, other than shares which have been registered with the Securities and Exchange Commission (the "Commission") pursuant to an effective registration statement under the Act with respect to which no stop order suspending the effectiveness thereof has been issued, shall have endorsed thereon substantially the following legends: (i) "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 19331 AS AMENDED (THE ACT") NOR UNDER ANY APPLICABLE STATE LAW, AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER THE ACT WITH RESPECT TO SUCH DISPOSITION SHALL THEN BE IN EFFECT AND ALL APPLICABLE STATE AND BLUE SKY LAWS HAVE BEEN COMPLIED WITH, OR UNLESS THE PERSON REQUESTING THE TRANSFER OF SUCH SHARES SHALL FURNISH AN OPINION OF COUNSEL (BOTH COUNSEL AND OPINION TO BE SATISFACTORY TO THE CORPORATION) TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR DISPOSITION WILL NOT INVOLVE ANY VIOLATION OF THE ACT OR ANY SUPERSEDING STATUTE OR ANY APPLICABLE STATE OR BLUE SKY LAWS." (ii) Any legend required to be placed thereon by applicable state securities laws. 8. No Obligation to Transfer. The Company shall not be required W to transfer or have transferred on its books any Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (ii) to treat as the owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 9. Further Assurances. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 10. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage prepaid, addressed to the other party 6 hereto at the address shown below his signature or at such other address as such party may designate from time to time by advance written notice to the other party hereto. 11. Governing Law. This Agreement shall be construed, and the provisions hereof shall be enforced, in accordance with the laws of the State of Delaware. 12. Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and, subject to the restrictions set forth herein on Purchaser's transfer of the Shares, shall be binding upon and inure to the benefit of Purchaser, his heirs, executors, administrators, guardians, transferees and assigns. 13. Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended, modified or supplemented only by a written agreement signed by both of the parties hereto. 14. Titles and Headings. The section titles and headings herein are for convenience only and are not to be considered in construing or interpreting this Agreement. 15. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed for all purposes to be an original and all of which together shall be deemed for all purposes to be one agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. DALLAS SEMICONDUCTOR CORPORATION Address for notices: 4350 Beltwood Parkway South Dallas, Texas 75244 By: ------------------------------------ PURCHASER ---------------------------------------- Address: ------------------------------- ---------------------------------------- 7 [87SOP/V5-3/89] SHAREHOLDER'S AGREEMENT THIS AGREEMENT is made as of the ___ day of _________________, 19__, by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ____________________________ (the "Purchaser"). WHEREAS, the Purchaser has been granted an option under the Company's 1987 Stock Option Plan to purchase shares of Common Stock, $.02 par value per share (the "Common Stock"), of the Company; and WHEREAS, the Purchaser and the Company desire to set forth certain rights and obligations of the parties with respect to the Common Stock which may from time to time be purchased by the Purchaser; NOW, THEREFORE, IT IS HEREBY AGREED: 1. Sale and Purchase of Shares. Pursuant to the terms and conditions of this Agreement, the Purchaser has been granted an option to purchase up to _____ shares of the Common Stock of the Company (the "Shares") for a consideration of $___________ per share to be paid by Purchaser to the Company upon exercise of such option in accordance with the terms of such option. 2. Company's Right to Repurchase. The Shares shall be subject to the following right ("Repurchase Right"): (a) If the Purchaser should cease to be employed by the Company, for any reason or no reason, with or without cause, as determined by and in the sole discretion of the Board of Directors of the Company (excluding leave(s) of absence authorized in writing by the Company, specifying the date on which Purchaser shall return to work), the Company shall have the right to repurchase from the Purchaser, or the Purchaser's personal representative as the ease may be, all of the Shares subject to the Repurchase Right. For purposes of determining this Repurchase Right, the parties hereby acknowledge and agree that the Commencement Date (as used herein) with respect to the Shares shall be deemed to be ___________________, 20__. (b) The percentage of the Shares which are subject to the Repurchase Right shall be determined as follows:
Length of Time Employee Has Been Employed by the Percentage of Company Since the Shares Subject to Commencement Date Repurchase Right ----------------- ---------------- Less than 4 completed quarters 100% 4 completed quarters 80% 5 completed quarters 75%
8
Length of Time Employee Has Been Employed by the Percentage of Company Since the Shares Subject to Commencement Date Repurchase Right ----------------- ---------------- 6 completed quarters 70% 7 completed quarters 65% 8 completed quarters 60% 9 completed quarters 55% 10 completed quarters 50% 11 completed quarters 45% 12 completed quarters 40% 13 completed quarters 35% 14 completed quarters 30% 15 completed quarters 25% 16 completed quarters 20% 17 completed quarters 15% 18 completed quarters 10% 19 completed quarters 5% 20 or more completed quarters None
A completed quarter excludes the specified time during which Purchaser is on any approved leave(s) of absence and the measurement of time from the Commencement Date shall abate during such specified time. (c) Within sixty (60) days after the later of the date when Purchaser's active employment ceases or the date any approved leave terminates, Purchaser having failed to return to work within the time specified (the "Termination Date"), upon notice to Purchaser specifying the time, place and date for settlement, the Company may, at the Company's option, repurchase from the Purchaser, in cash, the Shares which are subject to the Repurchase Right at a total price equal to Purchaser's original purchase price per share as set forth in Paragraph 1 above. If the Company expressly elects not to exercise its Repurchase Right, or fails to exercise its Repurchase Right for whatever reason with respect to such shares within such sixty day period, the Company's Repurchase Right with respect to such shares shall expire. (d) The Purchaser understands that he is an employee at will and that nothing in this Agreement shall interfere with or limit in any manner whatsoever the right or power of the Company to terminate Purchaser's employment with or without cause. 3. Rights as Stockholder; Escrow. (a) From and after the date of issuance of the Shares and subject to the terms and conditions of this Agreement, the Purchaser shall have an of the rights of a stockholder of the Company with respect to the Shares unless and until repurchased by the Company as provided hereinbefore or other disposition of the Shares by Purchaser in accordance with the provisions of this Agreement. 9 (b) The parties hereby agree that all certificates representing the Shares shall be held by either the Secretary of the Company or in an appropriate safekeeping account maintained by the Company with a bank or other financial institution ("Agent"). The Purchaser shall deliver to the Secretary of the Company, for each such certificate, a duly executed stock power authorizing any officer of the Company to effect the transfer of such Shares on the books of the Company in accordance with the terms of this Agreement. Upon the written request of Purchaser delivered to the Secretary of the Company, the Company will cause the Secretary or the Agent to deliver to Purchaser a certificate or certificates representing such number of Shares as are not then subject to the Repurchase Right. Within five business days after the exercise or lapse without exercise of the Repurchase Right, the Company will direct the Secretary or the Agent to deliver to Purchaser a certificate or certificates representing the aggregate number of Shares, if any, not repurchased by the Company. 4. Stock Splits, Recapitalizations, Etc. In the event of any of the following: (a) Any stock dividend, stock split, reverse stock split, share combination, exchange of shares, recapitalization or other change in the character or amount of the outstanding securities of the Company; or (b) Any consolidation, separation, reorganization, liquidation, merger, sale of all, or substantially all, of the assets of the Company or like event or transaction; then any and all new, substituted or additional securities or property to which the Purchaser is entitled by reason of ownership of the Shares shall be immediately subject to this Agreement and be included in the term "Shares" for all purposes of this Agreement, and the repurchase price per share specified in Paragraph 2(c) shall be appropriately adjusted by the Board of Directors of the Company. 5. Purchase of Additional Stock. If the Purchaser at any time after the date of this Agreement acquires any capital stock of the Company, in addition to that described in Paragraphs 1 and 4 above (other than capital stock acquired on the open market and capital stock acquired from the Company which the Board of Directors of the Company, in its sole discretion, expressly designates as not being subject to this Agreement), or any options, rights or warrants therefor ("Additional Stock"), such Additional Stock shall be immediately subject to this Agreement and included in the term "Shares" for an purposes of this Agreement; provided, however, that: (a) The repurchase price per share of such Additional Stock shall be the purchase price per share paid or to be paid by the Purchaser therefor; (b) Any such Additional Stock purchased pursuant to an option that conditions the right to exercise all or part of such option upon the passage of an amount of time in excess of three (3) years shall be deemed to be fully vested and not subject to the Repurchase Right; and (c) The Commencement Date for purposes of the Repurchase Right with respect to such Additional Stock shall be the date expressly designated as such by the Board of 10 Directors of the Company, in its sole discretion, or absent such a designation shall be, in the case of Additional Stock acquired pursuant to the exercise of an option, warrant or similar right, the date of grant of such option, warrant or right, or, in the case of Additional Stock otherwise purchased from the Company, the date of such purchase. 6. Investment Representations by Purchaser. The purchase of the Shares and any Additional Stock shall be subject to the condition that, if required by the Board of Directors of the Company, in its sole discretion, the Purchaser shall make each of the following representations: (a) That Purchaser is acquiring the Shares with his own funds and not with a view to the sale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same. (b) That Purchaser has no contract, undertaking, agreement or arrangement of any kind to sell, transfer or grant participations to any third person with respect to the Shares or any part thereof. (c) That Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his investment and is able to fend for himself in the transaction contemplated by this Agreement. That Purchaser has the ability to bear the economic risks of his investment and has been furnished with and has had access to such Information as would be made available in the form of a registration statement, together with such additional information as is necessary to verify the accuracy of the information supplied and to have all questions answered by the Company. (d) That Purchaser is familiar with Rule 144 under the Securities Act of 1933, as amended (the "Act"), and understands that the Shares constitute "restricted securities" within the meaning of that Rule. That sale of the Shares may be made only after completing certain forms of representation letters promulgated for such sales, which may be obtained from the Secretary of the Company. That Purchaser understands that any sale of the Shares which might be made by him in reliance upon Rule 144 may be made only in limited amounts in accordance with the terms and conditions of that Rule and that he may not be able to sell the Shares at the time or in the amount Purchaser so desires. (e) Such other representations and warranties as the Company may, in its discretion, require. The parties hereby acknowledge, however, that such representations shall be deemed inapplicable to any purchase of Shares, or any part thereof, made in accordance with the terms of a registration statement covering such purchase, which has been filed and has become effective under the Act, and with respect to which no stop order suspending the effectiveness thereof has been issued. 11 7. Restrictive Legends. (a) All certificates representing any Shares subject to the Repurchase Rights provided for in this Agreement shall have endorsed thereon substantially the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER'S AGREEMENT WHICH, AMONG OTHER THINGS, RESTRICTS THE TRANSFER OF SUCH SECURITIES AND GRANTS THE CORPORATION THE RIGHT TO REPURCHASE THESE SECURITIES UNDER CERTAIN CONDITIONS. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION." (b) In addition to the foregoing legend, any certificate representing any shares, other than shares which have been registered with the Securities and Exchange Commission (the "Commission") pursuant to an effective registration statement under the Act with respect to which no stop order suspending the effectiveness thereof has been issued, shall have endorsed thereon substantially the following legends: (i) "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933v AS AMENDED (THE "ACT") NOR UNDER ANY APPLICABLE STATE LAW, AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER THE ACT WITH RESPECT TO SUCH DISPOSITION SHALL THEN BE IN EFFECT AND ALL APPLICABLE STATE AND BLUE SKY LAWS HAVE BEEN COMPLIED WITH, OR UNLESS THE PERSON REQUESTING THE TRANSFER OF SUCH SHARES SHALL FURNISH AN OPINION OF COUNSEL (BOTH COUNSEL AND OPINION TO BE SATISFACTORY TO THE CORPORATION) TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR DISPOSITION WILL NOT INVOLVE ANY VIOLATION OF THE ACT OR ANY SUPERSEDING STATUTE OR ANY APPLICABLE STATE OR BLUE SKY LAWS." (ii) Any legend required to be placed thereon by applicable state securities laws. 8. No Obligation to Transfer. The Company shall not be required (i) to transfer or have transferred on its books any Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (ii) to treat as the owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 12 9. Further Assurances. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 10. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage prepaid, addressed to the other party hereto at the address shown below his signature or at such other address as such party may designate from time to time by advance written notice to the other party hereto. 11. Governing Law. This Agreement shall be construed, and the provisions hereof shall be enforced, in accordance with the laws of the State of Delaware. 12. Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and, subject to the restrictions set forth herein on Purchaser's transfer of the Shares, shall be binding upon and Inure to the benefit of Purchaser, his heirs, executors, administrators, guardians, transferees and assigns. 13. Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended, modified or supplemented only by a written agreement signed by both of the parties hereto. 14. Titles and Headings. The section titles and headings herein are for convenience only and are not to be considered in construing or interpreting this Agreement. 15. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed for all purposes to be an original and all of which together shall be deemed for all purposes to be one agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. DALLAS SEMICONDUCTOR CORPORATION Address for notices: 4350 Beltwood Parkway South Dallas, Texas 75244 By: ------------------------------------ PURCHASER ---------------------------------------- Address: ------------------------------- ---------------------------------------- 13 AMENDMENT TO SHAREHOLDER'S AGREEMENT THIS AMENDMENT is made as of the ____ day of ____________, 19__, by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ______________________________________________________________ (the "Purchaser"). WHEREAS, the Company and Purchaser entered into that certain Shareholder's Agreement ("Agreement") dated as of _________________, 19__. WHEREAS, on _________________, 19__, subsequent to the execution and delivery of said Agreement, Purchaser was granted an additional option to purchase up to _______ shares of the Company's Common Stock ("New Shares") under the Company's 1987 Stock Option Plan, which are included within the definition of "Additional Stock" as provided in Paragraph 5 of the Agreement; WHEREAS, Purchaser and the Company desire to alter the terms under the Agreement as it relates to the New Shares; NOW, THEREFORE, IT IS HEREBY AGREED: 1. Defined Terms. Terms used herein and not otherwise defined herein shall have the same meanings as defined for such terms in the Agreement. 2. Repurchase Right. The New Shares shall be subject to the Repurchase Right as provided in Paragraph 2 of the Agreement, except that the terms thereof (as they relate only to the New Shares, but to no other Shares) shall be amended as follows: (a) For purposes of determining the Repurchase Right with respect to the New Shares, the parties hereby acknowledge and agree that the Commencement Date (only with respect to the New Shares) shall be deemed to be ______________, 19__. (b) The percentage of the New Shares which are subject to the Repurchase Right shall be determined as follows:
Length of Time Employee Has Been Employed by the Percentage of Company Since the Shares Subject to Commencement Date Repurchase Right ----------------- ---------------- Less than 4 completed quarters 100% 4 completed quarters 75% 5 completed quarters 68.75% 6 completed quarters 62.50% 7 completed quarters 56.25%
14
Length of Time Employee Has Been Employed by the Percentage of Company Since the Shares Subject to Commencement Date Repurchase Right ----------------- ---------------- 8 completed quarters 50% 9 completed quarters 43.75% 10 completed quarters 37.50% 11 completed quarters 31.25% 12 completed quarters 25% 13 completed quarters 18.75% 14 completed quarters 12.50% 15 completed quarters 6.25% 16 or more completed quarters None
3. Agreement Ratified. Except as expressly amended hereby, the Agreement is and shall remain in full force and effect and is hereby ratified and confirmed in all respects. 4. Entire Agreement. This Amendment, together with the Agreement, constitute the entire agreement of the parties with respect to the subject matter hereof. The Agreement may be further amended, modified and supplemented only by a written agreement signed by both of the parties hereto. 5. Titles and Headings. The section titles and headings herein are for convenience only and are not to be considered in construing or interpreting this Amendment or the Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. DALLAS SEMICONDUCTOR CORPORATION By: ------------------------------------ PURCHASER: ---------------------------------------- 2 EX-10.22 10 f75694ex10-22.txt EXHIBIT 10.22 1 EXHIBIT 10.22 CONFIDENTIAL May 20, 1999 Mr. Alan P. Hale Vice President - Finance Dallas Semiconductor Corporation 4401 South Beltwood Parkway Dallas, Texas 75244 Dear Mr. Hale: Dallas Semiconductor Corporation (the "Company") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, should the Company receive a proposal from a third party, whether solicited by the Company or unsolicited, concerning a possible business combination with, or the acquisition of a substantial share of the equity or voting securities of, the Company, the Board of Directors of the Company (the "Board") has determined that it is imperative that it and the Company be able to rely upon your continued services without concern that you might be distracted by the personal uncertainties and risks that such a proposal might otherwise entail. Accordingly, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including you, to their assigned duties without distraction in the face of potentially disturbing circumstances that could arise out of a possible change in control of the Company. In order to induce you to remain in the employ of the Company and its subsidiaries, the Company agrees that you shall receive the benefits set forth in this letter agreement ("Agreement") in the event of a Change in Control (as defined in Section 1.3 hereof). SECTION ONE -- DEFINITIONS 1.1 "Annual Compensation" shall mean the sum of: (i) your annualized base salary, as determined by the payroll records of the Company, in effect on the date that immediately precedes a Change in Control; plus (ii) (solely for purposes of Section 3.1(b) the amounts payable to you under any Deferred Compensation Plan determined as if, upon a Change in Control, you were fully vested and entitled to payment of all deferred compensation earned or accrued by you under any Deferred Compensation Plan; plus (iii) a bonus, as determined by the payroll records of the Company, equal to the greater of (a) any bonus paid or payable to you for personal services rendered during the Company's 2 fiscal year in which a Change in Control occurs, or (b) the highest annual bonus paid to you for personal services rendered for any of four (4) fiscal years of the Company preceding the Company's fiscal year in which a Change in Control occurs. 1.2 "Beneficiary" shall mean the person(s) described in Section 5 of this Agreement. 1.3 "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director, whose election to the Board or nomination for election to the Board by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, except that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 15% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the election of any person other than C. V. Prothro as Chief Executive Officer of the Company. 1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.5 "Deferred Compensation Plan" shall mean any of the Company's nonqualified deferred compensation plans, programs or arrangements in which you are a participant upon a Change in Control. 1.6 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 2 3 1.7 "Stock Option Plans" shall mean, collectively, any stock option granted to you by the Company, the Company's 1987 Stock Option Plan, the Company's 1993 Officer and Director Stock Option Plan, and such other Company stock option plans under which grants of options are made to you during the term of this Agreement. SECTION 2 -- TERM AND TERMINATION Subject to the provisions of Section 6 below, this Agreement shall commence on the date set forth above and shall terminate on the earlier of: (a) the tenth (10th) anniversary of the date of execution of this Agreement; or (b) the date on which the Board designates as long as a Change in Control shall not have occurred. SECTION THREE - BENEFITS 3.1 Upon the occurrence of a Change in Control, you shall be entitled to the benefits provided below: (a) Compensation. No later than the tenth (10th) calendar day following the Change in Control or such earlier date as may be approved by the Board, the Company shall pay you (or your Beneficiary, if applicable) your full base salary through the date immediately preceding a Change in Control at the rate in effect at such time, plus all other amounts to which you are entitled under any benefit or compensation plan of the Company applicable to you, including those benefits and compensation payable pursuant to Section 3.1(c) - (g) below; (b) Severance Payment. You (or your Beneficiary, if applicable) shall receive from the Company a cash lump sum payment equal to 299% of your Annual Compensation, payable within ten calendar (10) days after the Change in Control or such earlier date as may be approved by the Board. The Severance Payment shall not be reduced by the amount of any other payment or the value of any benefit received or to be received by you (whether payable pursuant to the terms of this Agreement or any other agreement, plan or arrangement with the Company or an affiliate, predecessor or successor of the Company or any person whose actions result in a Change in Control of the Company or an affiliate of such person). 3 4 (c) Incentives and Awards. (i) You (or your Beneficiary, if applicable) shall own and be immediately vested in all incentives, awards and perquisites previously made available to you by the Company. To the extent that an incentive, award or perquisite subject to this paragraph is based upon other than stock, you shall receive an amount in cash equal to the fair market value, as determined by you and the Company as of the first business day immediately preceding the Change in Control, of such non-stock based incentive, award or perquisite determined as if such incentive, award or perquisite were payable under the respective plan as of the Change in Control, which amount shall be payable in a single lump sum payment within ten (10) calendar days after the Change in Control or such earlier date as may be approved by the Board; (or at your sole option, you may retain all such non-cash incentives, awards and perquisites.) (ii) Your stock-based incentives or awards subject to this Section 3.1(c) shall exercisable upon the Change in Control to the extent and manner and within the time period, provided by the respective Stock Options and awards; (d) Employee Benefit Plans. Within ten (10) calendar days of the Change in Control or such earlier date as may be approved by the Board, you (or your Beneficiary, if applicable) shall also be paid an additional lump sum payment equal to the sum of: (1) any accrued, unpaid vacation pay which you have earned under any of the Company's vacation policies and (2) the amounts payable to you under the terms of any Deferred Compensation Plan determined as if, upon the Change in Control, you were fully vested and entitled to payment to all deferred compensation earned or accrued by you under any Deferred Compensation Plan. If upon the Change in Control, any Deferred Compensation Plan has not been amended by the Company to provide for vesting and payment as provided in this Agreement, you shall have the choice, in your sole discretion and without objection by the Company, (A) to consider this Agreement as having amended the respective Deferred Compensation Plan (and related documents) to make the changes to the respective Deferred Compensation Plan (and related documents) that are described in this Agreement, or (B) to receive from the Company a cash lump sum payment in lieu of any payments which he would be entitled to receive in the future under any Deferred Compensation Plan. If an election is made under subsection (B) above, you shall forfeit any and all of your rights to receive payment of benefits from any Deferred Compensation Plan, and in lieu of that forfeited right, you shall receive an amount equal to the fair market value, as determined by the Company and you, as of the first business day immediately preceding the Change in Control, of the vested and earned or accrued amount thereunder, in a cash lump sum payment payable within ten (10) calendar days after the Change in Control or such earlier date as may be approved by the Board; 4 5 (e) Welfare Benefit Plans and Life Insurance. From and after the Change in Control, you (for your lifetime) and your spouse (for her lifetime) shall, in your sole discretion, continue to participate, at no cost to you or your spouse, in all health, dental, disability, accident and life insurance plans or arrangements of the Company in which you or your spouse were participating immediately prior to the Change in Control as if you continued to be an employee of the Company; (f) Retirement Benefit. (i) Within ten (10) calendar days following your fifty-fifth (55th) birthday, and within ten (10) calendar days of each successive birthday thereafter until your death, the Company shall pay to you the sum of $65,000; (g) Legal Fees. The Company shall also pay to you all legal fees and expenses incurred by you as a result of the Change in Control (including all such fees and expenses, if any, incurred in seeking to obtain or enforce any right or benefit provided by this Agreement). (h) Mitigation. You shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 3 be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after the Change in Control, or otherwise except as specifically provided in this Section 3. 5 6 3.2 Tax Liability Gross Up. (a) In the event that any amount paid under this Agreement is determined to be an "excess parachute payment" under section 280G of the Code (or any successor provision), which is subject to the excise tax imposed by section 4999 of the Code (or any successor provision) (the "Excise Tax"), the Company agrees to pay to you an additional sum (the "Excise Tax Gross Up") in an amount such that the net amount retained by you, after both (i) receiving all payments under Section Three of this Agreement other than under this paragraph ("Payment") and the Excise Tax Gross Up, and (ii) paying (y) any Excise Tax on the Payment and (z) any Federal, state and local income taxes on the Excise Tax Gross Up, equals the amount of the Payment. (b) For purposes of determining the Excise Tax Gross Up, you shall be deemed to pay Federal, state and local income taxes at the highest marginal rate of taxation in your filing status for the calendar year in which the Payment is to be made, based upon your domicile at the time of the Change in Control. The determination of whether such Excise Tax is payable and the amount of such Excise Tax shall be based upon the opinion of tax counsel selected by you and the Company. If such opinion is not finally accepted by the Internal Revenue Service, then appropriate adjustments shall be calculated (with an additional Excise Tax Gross Up, if applicable) by such tax counsel based upon the final amount of Excise Tax so determined, together with any applicable penalties and interest. (c) You shall not have any obligation to pay the Company any sums allegedly due to the Internal Revenue Service by reason of excise tax or otherwise. SECTION FOUR -- RESTRICTIONS UPON FUNDING 4.1 The Company shall have no obligation to set aside or entrust any money with which to pay its obligations under this Agreement; however, the Company shall take and maintain all actions as are necessary to insure the payment and performance of all of the benefits and obligations provided for in Section 3 above. 4.2 The Company intends that this Agreement not be subject to ERISA. If this Agreement is deemed subject to ERISA, it is intended to be an unfunded arrangement for the benefit of a select member of management who is a highly compensated employee of the Company, for the purpose of qualifying this Agreement for the "top hat" plan exception under sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. 4.3 Should the Company elect to purchase life insurance, mutual funds, disability policies or annuities pursuant to this Agreement, the Company reserves the absolute right, in its sole discretion, to terminate such investments at any time, in whole or in part. At no time shall you have, or be deemed to have, any lien, right, title or interest in or to any specific investment or to any assets of the Company as a result of this Agreement; rather, you shall remain a general unsecured creditor of the Company. 6 7 4.4 If the Company elects to invest in a life insurance, disability or annuity policy upon your life, you shall assist the Company by freely submitting to a physical examination and supplying such additional information necessary to obtain such insurance or annuities. SECTION FIVE -- DESIGNATION OF BENEFICIARY 5.1 Should you die prior to full payment of amounts due under Section Three, payment shall be made to your Beneficiary. Your written designation of one or more persons or entities as your Beneficiary shall operate to designate your Beneficiary under this Agreement. You shall file with the Company a copy of your Beneficiary designation on the form supplied to you by the Company. The last such designation form received by the Company shall be controlling, and no designation, or change or revocation of a designation shall be effective unless received by the Company prior to your death. 5.2 If no Beneficiary designation is in effect at the time of your death, if no designated Beneficiary survives you or if the otherwise applicable Beneficiary designation conflicts with applicable law, your estate shall be the Beneficiary. SECTION SIX -- INTERPRETATION, AMENDMENT AND TERMINATION 6.1 Prior to the occurrence of a Change in Control, the Board shall have exclusive authority to amend, suspend or terminate this Agreement, as determined in its sole discretion. After the occurrence of a Change in Control, other than as provided in Section Two, this Agreement may be amended, suspended or terminated, in whole or in part, only by a written instrument signed by both a duly authorized officer of the Company other than you, and by you. SECTION SEVEN -- MISCELLANEOUS 7.1 Alienability and Assignment Prohibition. Neither you, your spouse nor any other Beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable under this Agreement nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by you or your Beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. 7.2 Gender. Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. 7.3 Effect on Other Corporate Benefit Plans. Nothing contained in this Agreement shall affect your right to participate in or be covered by any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation or 7 8 fringe benefit plan constituting a part of the Company's existing or future compensation structure. 7.4 Headings. Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement. 7.5 No Employment Agreement. No provision of this Agreement shall be deemed or construed to create specific employment rights to you or limit the right of the Company to discharge you at any time with or without cause. In a similar fashion, no provision shall limit your rights to voluntarily sever your employment at any time. 7.6 Withholding of Taxes. Except as may otherwise be specifically provided for in this Agreement, the Company shall deduct from the amount of any payment made pursuant to this Agreement any amounts required to be paid or withheld by the Company with respect to applicable Federal income, Federal Insurance Contributions Act or Federal Unemployment Tax Act taxes or applicable state taxes. By executing this Agreement, you agree to all such deductions. 7.7 Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder upon a Change in Control. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any such successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 7.8 Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer with a copy to the Chief Financial Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8 9 7.9. Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior to subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. The obligations of the Company under Section 3 shall survive the expiration of the term of this Agreement. 7.10 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7.11 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Very truly yours, DALLAS SEMICONDUCTOR CORPORATION By: /s/ C. V. Prothro ----------------------------------------- C. V. Prothro Chairman of the Board, President and Chief Executive Officer /s/ Alan P. Hale -------------------------------------- Alan P. Hale 9 10 AMENDMENT TO AGREEMENT, DATED MAY 20, 1999, WITH ALAN P. HALE (Adopted by the Board of Directors on November 18, 2000) RESOLVED, that, a "Change in Control" as defined in Section 1.3 thereof having not occurred, the May 1999 Agreement between the Corporation and Mr. Alan P. Hale, be, and the same hereby is, amended, pursuant to Section 6.1 thereof, effective immediately, by: (i) the insertion of the word "or" immediately preceding clause (iv) in Section 1.3 and the deletion of clause (v) of Section 1.3; (ii) the insertion of the words "after a Change in Control" between the words "die" and "prior" in the first line of Section 5.1; and (iii) the deletion of the last sentence of Section 7.9; and, further, by the adoption of this resolution, said amendments shall have the same force and effect as if set forth in a separately executed amendment to said May 1999 Agreement. 11 AMENDMENT TO AGREEMENT, DATED MAY 20, 1999, WITH ALAN P. HALE (ADOPTED BY THE BOARD OF DIRECTORS ON JANUARY 28, 2001) RESOLVED, that, a "Change in Control" as defined in Section 1.3 thereof having not occurred, the May 1999 Agreement between the Corporation and Mr. Alan P. Hale, as heretofore amended on November 18, 2000, be and the same hereby is, further amended, pursuant to Section 6.1 thereof, effective immediately, by deleting Section 3.2 thereof in its entirety; and, further, by the adoption of this resolution, said amendment shall have the same force and effect as if set forth in a separately executed amendment to said May 1999 Agreement. 12 AMENDMENT TO AGREEMENT DATED MAY 20, 1999, WITH ALAN P. HALE Dallas Semiconductor Corporation, a Delaware corporation (the "Company"), and Alan P. Hale, an individual (the "Executive"), enter into this Amendment to Agreement Dated May 20, 1999, dated as of April 11, 2001 (this "Amendment"). RECITALS WHEREAS, the Company and the Executive previously entered into that certain Agreement, dated May 20, 1999, as amended on November 18, 2000 and on January 28, 2001 (as amended, the "Agreement"); WHEREAS, the Company has entered into that certain Agreement and Plan of Merger, dated as of January 28, 2001 (the "Merger Agreement"), by and among the Company, Maxim Integrated Products, Inc., a Delaware corporation ("Maxim"), and MI Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Maxim; and WHEREAS, the Merger Agreement requires that, as a condition to the consummation of the transactions contemplated by the Merger Agreement, the Company amend the Agreement in the manner specified in the Merger Agreement. NOW THEREFORE, the parties hereto agree as follows: 1. AMENDMENT TO THE AGREEMENT. (a) Section 3.1 of the Agreement is amended by adding a new subsection (i) in its entirety as follows: "(i) Payments. Notwithstanding anything to the contrary herein contained, the aggregate of the total cash payments due to you hereunder upon a Change in Control shall be reduced by $247,978." (b) Section 3.2 of the Agreement is deleted in its entirety. 2. EFFECTIVE DATE. This Amendment will become effective upon the execution hereof by each of the parties set forth on the signature page hereto. 3. MISCELLANEOUS. (a) Except as expressly amended or waived herein, all terms, covenants and provisions of the Agreement shall remain in full force and effect. 13 (b) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE AND APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, OTHER THAN THE CONFLICTS OF LAWS RULES THEREOF. (c) This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2 14 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Chao C. Mai -------------------------------- Name: Chao C. Mai Title: President EXECUTIVE /s/ Alan P. Hale ---------------------------------------- Name: Alan P. Hale 3 EX-10.23 11 f75694ex10-23.txt EXHIBIT 10.23 1 EXHIBIT 10.23 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of April 11, 2001, by and between Dallas Semiconductor Corporation, a Delaware corporation (the "Company"), and Alan P. Hale ("Executive"). 1. Employment. 1.1 Engagement of Executive. The Company agrees to employ Executive as a member of the senior management of the Company and Executive will be charged with the supervision of such activities of the Company as delegated by the Board of Directors of the Company (the "Board," which such terms shall be deemed to also include the board of directors of Parent (as defined below)), and Executive agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as defined herein), Executive will serve as a member of the Company's senior management and will be charged with the supervision and management of such activities of the Company as delegated by the Board and will have such responsibilities, titles, duties and authorities, and will render such services for the Company and its affiliates as the Board shall from time to time reasonably direct. 1.3 Employment Period. Executive's employment under this Agreement shall be for a period of one (1) year beginning on the date hereof (the "Employment Period"). Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination by the mutual written consent of Executive and the Company. In addition, subject to the provisions of Section 1.4, either party may terminate this Agreement on thirty (30) days written notice. 1.4 Cash Payment. Subject to Executive's continuous employment with the Company or its ultimate parent corporation (the "Parent"), or an affiliate thereof, Executive shall be entitled to receive a cash payment in the amount of $247,978 on the first anniversary of the date of this Agreement; provided, however, that, notwithstanding the foregoing, the Executive shall be immediately entitled to such payment in the event that the Executive is terminated by the Company, Parent or any affiliate thereof (i) for any reason (other than Executive's voluntary termination), (ii) as the result of a Constructive Termination (as defined below) or (iii) as a result of the Executive's death or Disability (as defined below). For purposes hereof, "Constructive Termination" means (A) an adverse change in Executive's responsibilities or the person to whom Executive directly reports subsequent to the date of this Agreement; or (B) a decrease in Executive's salary, benefits or perquisites (other than equity-based awards or grants), other than as a result of any amendment or termination of any employee and/or executive benefit plan or arrangement, which amendment or termination is applicable to all qualifying executives of the Company or the Parent. For purposes hereof, "Disability" means Executive's inability to perform, by reason of physical or mental incapacity, Executive's material duties or obligations to the Company, 2 the Parent or an affiliate thereof, as applicable, with or without reasonable accommodation, for a total period of 21 consecutive days in any 90-day period, as determined by the board of directors of the Parent (such determination not to be arbitrary or unreasonable). 2. Compensation and Benefits. 2.1 Salary. In consideration of Executive performing his duties under this Agreement during the Employment Period, the Company will pay Executive a base salary at a rate of $208,650 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried executives. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Board in its sole discretion. If the Employment Period is terminated pursuant to Section 1.4 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Executive. 2.2 Bonus. At the end of the Employment Period, Executive shall be eligible to participate in the bonus plan applicable to the Company's senior executives. The criteria and/or goals for such bonus plan shall be established by the Board. All bonuses awarded to Executive hereunder shall be payable in accordance with Company policy. 2.3 Stock Options. Executive shall be eligible to participate in the stock option plans applicable to the Company's senior executives and shall receive grants thereunder as may be determined by the Board from time to time. 2.4 Benefits, Expenses and Pension Plan. During the Employment Period, the Company agrees to provide to Executive such fringe and other employee benefits as are generally provided, from time to time, to senior executives of the Company, including, without limitation, vacation, health and insurance benefits. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Executive in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Noncompetition; Nonsolicitation; Confidentiality. 3.1 Noncompetition; Nonsolicitation. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees as follows: (a) During the Employment Period and, for a period of one year following the date Executive ceases to be employed by the Company (the "Restricted Period"), Executive will not, whether on Executive's own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly solicit or assist in soliciting in competition with the Company, the business of any client or prospective client: (i) with whom Executive had personal contact or dealings on 2 3 behalf of the Company during the one year period preceding Executive's termination of employment; (ii) with whom employees reporting to Executive have had personal contact or dealings on behalf of the Company during the one year immediately preceding the Executive's termination of employment; or (iii) for whom Executive had direct or indirect responsibility during the one year immediately preceding Executive's termination of employment. (b) During the Restricted Period, Executive will not directly or indirectly: (i) engage in any business that competes with the business of the Company or its affiliates (including, without limitation, businesses which the Company or its affiliates have specific plans to conduct in the future and as to which Executive is aware of such planning) in any geographical area that is within 100 miles of any geographical area where the Company or its affiliates manufactures, produces, sells, leases, rents, licenses or otherwise provides its products or services (a "Competitive Business"); (ii) enter the employ of, or render any services to, any person or entity (or any division of any person or entity) who or which engages in a Competitive Business; (iii) acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or (iv) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between the Company or any of its affiliates and customers, clients, suppliers of the Company or its affiliates. Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any person engaged in the business of the Company or its affiliates which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (x) is not a controlling person of, or a member of a group which controls, such person and (y) does not, directly or indirectly, own 5% or more of any class of securities of such person. (c) During the Restricted Period, Executive will not, whether on Executive's own behalf or on behalf of, or in conjunction with, any person, company, business entity or other organization whatsoever, directly or indirectly: 3 4 (i) solicit or encourage any employee of the Company or its affiliates to leave the employment of the Company or its affiliates; or (ii) hire any such employee who was employed by the Company or its affiliates as of the date of Executive's termination of employment with the Company or who left the employment of the Company or its affiliates coincident with, or within six months prior to or one year after, the termination of Executive's employment with the Company. (d) During the Restricted Period, Executive will not, directly or indirectly, solicit or encourage to cease to work with the Company or its affiliates any consultant then under contract with the Company or its affiliates. It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 3.1 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 3.2 Confidentiality. Executive will not at any time (whether during or after Executive's employment with the Company) disclose, retain, or use for Executive's own benefit, purposes or account or the benefit, purposes or account of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, know-how, software developments, inventions, formulae, technology, designs and drawings or any Company property or confidential information relating to research, operations, finances, current and proposed products and services, vendors, customers, advertising, costs, marketing, trading, investment, sales activities, promotion, manufacturing processes, or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company ("Confidential Information") without the written authorization of the Board; provided, however, that the foregoing shall not apply to information that is not unique to the Company or that is generally known to the industry or the public, other than as a result of Executive's breach of this covenant or the wrongful acts of others who were under confidentiality obligations as to the item or items involved. Except as required by law, Executive will not disclose to anyone, other than his immediate family and legal or financial advisors, the existence or contents of this Agreement. Executive agrees that, upon termination of Executive's employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the 4 5 Company, its affiliates and subsidiaries, except that he may retain only those portions of personal notes, notebooks and diaries that do not contain Confidential Information of the type described in the preceding sentence. Executive further agrees that he will not retain or use for Executive's own benefit, purposes or account or the benefit, purposes or account of any other person, firm, partnership, joint venture, association, corporation or other business designation, entity or enterprise, other than the Company and any of its subsidiaries or affiliates, at any time any trade names, trademark, service mark, other proprietary business designation, patent, or other intellectual property used or owned in connection with the business of the Company or its affiliates. 4. Miscellaneous. 4.1 Assignment. No party hereto may assign or delegate any of its rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement (a) to any affiliate of the Company to which the business of the Company is assigned at any time, any subsidiary or affiliate of the Company or any surviving entity following any merger or consolidation of any of those entities with any entity other than the Company, or (b) in connection with the sale of the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, successors and assigns of the parties hereto whether so expressed or not. 4.2 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof set forth the entire understanding of the parties, and supersede and preempt all prior oral or written understandings and agreements with respect to the subject matter hereof. 4.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 4.4 Amendment; Modification. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 4.5 Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Texas, without giving effect to provisions thereof regarding conflict of laws. 5 6 4.6 Notices. All notices, demands or other communications to be given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission. Such notices, demands and other communications shall be sent to the addresses indicated below: If to Executive: Alan P. Hale 5616 Walnut Spring Court Dallas, Texas 75252 with a copy to: Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attn: Ronald J. Frappier, Esq. If to the Company: Dallas Semiconductor Corporation 4401 South Beltwood Parkway Dallas, Texas 75244 Attn: General Counsel 6 7 with a copy to: Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attn: M. D. Sampels, Esq. or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three business days after the date of mailing if sent by certified or registered mail or, (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 4.7 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 4.8 Descriptive Headings; Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. 4.9 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 4.10 Specific Performance. Executive acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 3.1 or Section 3.2 would be inadequate and the Company would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. [SIGNATURE PAGE FOLLOWS] 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: DALLAS SEMICONDUCTOR CORPORATION By: /s/ Chao C. Mai ---------------------------- Name: Chao C. Mai Title: President EXECUTIVE: /s/ Alan P. Hale ----------------------------------- Alan P. Hale 8 EX-10.24 12 f75694ex10-24.txt EXHIBIT 10.24 1 EXHIBIT 10.24 DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AGREEMENT is entered into as of this 20th day of July, 2000, by and between Alan Hale ("Participant"), whose address is 5616 Walnut Spring Court, Dallas, Texas 75252, and Dallas Semiconductor Corporation, a Delaware corporation ("Company"), having its principal office and place of business located at 4401 South Beltwood Parkway, Dallas, Texas 75244. WHEREAS, the Company by resolution of the Board of Directors duly adopted on December 17, 1993 ("Date of Adoption") has adopted the Dallas Semiconductor Corporation Split-Dollar Insurance Plan to promote the interests of the Company in retaining the officers and directors of the Company who have made, and are capable of continuing to make, valuable contributions to the Company's performance by providing life insurance protection; and WHEREAS, Participant is a director of the Company who had completed at least five (5) years of service as a director of the Company on the Date of Adoption and has expressed a willingness to continue his services as a director of the Company, or is an officer of the Company at the Vice President level or above on the Date of Adoption; and WHEREAS, Participant entered into an agreement with the Company dated the 15th day of February, 1994, concerning a split-dollar life insurance arrangement with the Company (the "Prior Agreement"); and WHEREAS, this Agreement amends, restates and supersedes in its entirety the terms of the Prior Agreement, effective the date of this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Policy. Participant has applied for, and the Company has caused to be issued, a policy or policies of permanent life insurance described on Exhibit "A" attached hereto, with the attributes described in Section 2 hereof (such policy or policies, together with any additional policy or policies issued with the consent of Participant in substitution or replacement for any such policy or policies, are collectively referred to herein as the "Policy") from an insurance company selected by the Company as described on Exhibit "A" ("Insurer"). The Company will take all such action as may be necessary or appropriate to cause the Policy to be maintained in force at all times, so as to provide Participant with all of the benefits of the Policy and this Agreement. 2. Benefits. The Policy has been structured, based on a specified interest rate, mortality and other assumptions, to provide Participant (over and above benefits payable to the Company) with the benefits, during each year in which the Policy is in force, provided in the 2 Policy and those benefits I described on Exhibit "A" attached hereto. The Company assumes no responsibility or liability with respect to the actual performance of the Policy. 3. Ownership of Policy. With respect to any Policy, the Participant (or if Participant so elects, an individual or entity designated by Participant) shall be the owner of the Policy, and the Participant, subject to the limited collateral assignment of such Policy to the Company as provided in Section 7 hereof, may exercise all the rights of ownership with respect to the Policy, including, but not limited to: (a) the right to designate, or change the designation of, any beneficiary or beneficiaries of the Policy, (b) the right to pledge the Policy as security for a loan or to obtain from the Insurer a loan against the surrender or cash value, and in accordance with the terms, of the Policy, (c) the right to assign or transfer the Policy, in whole or in part, and (d) the right to sell, surrender or terminate the Policy. 4. Payment of Premiums. All premiums on the Policy shall be paid by the Company (or in the discretion of the Company, on behalf of the Company by the trustee [the "Trustee"] of the Dallas Semiconductor Corporation Executive Split-Dollar Insurance Trust [the "Trust"]). The Company shall never permit the Policy to lapse. Premium payments paid by the Trustee shall be considered as payments by the Company for all purposes under this Agreement. While all premiums on the Policy shall be paid by or on behalf of the Company, that portion of the premium equal to the amount of income imputed to Participant for federal and state income tax purposes on the value of the economic benefit of the life insurance protection provided to Participant shall be deemed to have been paid by the Company to the Participant and immediately paid by Participant to the Insurer. If the Company elects to pay the premiums to the Trust, such payment shall constitute sufficient funds to pay all premiums which may become due on each such Policy. 5. Change of Control. In the event of the occurrence of a Change of Control (as hereinafter defined): (a) the Company (or if so directed by the Company, the Trustee) shall immediately pay to the Insurer all remaining premiums on the Policy, regardless of whether such premiums are then due, and (b) the collateral assignment of the Policy to the Company, as provided in Section 7 hereof shall immediately and fully terminate, and the Participant shall become fully vested in the entire cash value and death benefit payable under the Policy. For purposes of this Agreement, a "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; (ii) at any time following the date of execution of this Agreement individuals who are directors of the Company at such date cease for any reason to constitute a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 2 3 voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, except that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 15% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the election of any person other than C. V. Prothro as Chairman of the Board and Chief Executive Officer of the Company. 6. Tax Offset Payments. To the extent that the Participant may be deemed to have realized gross income in any year for federal and state income tax purposes or gift tax purposes by reason of this Agreement, including the value of the insurance protection or other benefits thereunder provided by the Policy or otherwise as a consequence of the Plan (including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise), the Company shall pay to Participant an additional amount such that the after-tax cost to the Participant is zero. 7. Collateral Assignment of Policy. The Participant shall, and does hereby, collaterally assign to the Company an interest in the cash values and death benefit of the Policy as follows: (a) If the Participant surrenders or sells the Policy, he shall pay the Company, out of the proceeds of the Policy, an amount equal to the lesser of (i) the cash value of the Policy, or (ii) the aggregate amount of premiums paid by the Company with respect to the Policy; (b) The Company shall be entitled to receive the cumulative premiums paid for the Policy (the amount indicated in the column headed Death Benefits Payable to the Company shown on Exhibit "A" attached hereto) from the death benefits under the Policy. All death benefits payable under the Policy that exceed the amount paid to the Company under the preceding sentence shall be paid to the beneficiary or beneficiaries of the Participant. The amount payable to such beneficiary or beneficiaries is indicated in the column headed Death Benefit Payable to Participant's Beneficiary: Individual Coverage shown on Exhibit "A" attached hereto. If the death benefits payable under this Agreement exceed the aggregate amount of premiums paid by the Company as set forth on Exhibit "A," such excess death benefits shall be payable to the Participant's beneficiary or beneficiaries. The collateral assignment of the Policy shall not be altered or changed without the consent of the Company and the Participant. 8. Adjustment of Benefits; Additional Policy Benefits or Riders. The Company and the Participant may from time to time enter into agreements which may adjust the value of each party's interests in the Policy. The Participant may add any rider or endorsement to the Policy. 3 4 If any such rider or endorsement is added upon the written request of the Company, all premiums with respect to such rider or endorsement shall be paid by the Company. A Participant shall not be required to withdraw any benefits payable under the Policy and may elect to apply the value attributable to such benefits to the purchase of additional benefits payable to the beneficiary or beneficiaries named by Participant under the Policy, if the Participant so elects, or to treat such benefits as additional insurance payable to the beneficiary or beneficiaries of such Policy upon the death of the Participant. 9. Amendment. This Agreement may be amended by the Board of Directors of the Company; provided, however, that no such amendment shall diminish, abrogate or change any rights or benefits of the Participant under the Policy or this Agreement without the Participant's prior written consent, and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant. 10. Benefits Cumulative. The benefits to the Participant under this Agreement shall be cumulative with, and shall not reduce or be deemed to be in substitution of, any benefits, payments or compensation to which Participant may otherwise be entitled under any other compensation, benefit, welfare, savings, retirement or compensation plan of, or for the employees, officers or directors of, the Company. 11. Further Assurances. The Company and Participant shall enter into, execute and deliver all such documents, instruments, and other agreements as the other party may reasonably request, or as the Insurer or Participant may reasonably require, in order to carry out the intent and purposes of this Agreement. 12. ERISA Requirements. (a) Funding Policy. All premiums on the Policy shall be remitted by, or on behalf of, the Company to the Insurer. The benefits provided by the Policy shall be paid by the Insurer in accordance with the terms of the Policy and this Agreement. The payment of such benefits is predicated on the payment of the required premiums. (b) Claims and Review Procedures. The following claims procedure shall apply for purposes of this Agreement. The claims procedure in subparagraph (b)(1) below shall be followed with respect to benefits provided by the Insurer under the terms of the Policy. The claims procedure in subparagraph (b)(2) below shall be followed with respect to benefits, if any, provided directly by the Company. The Participant (or the other owner of the Policy designated by the Participant) that owns the Policy (the "Policy Owner") and the Policy Owner's successors, beneficiaries or representatives, as appropriate (individually or collectively, "Claimant"), must follow both procedures, if necessary. (i) Filing a Claim for Insurance Benefits. A Claimant shall make a claim for benefits provided by the Insurer by submitting a written claim and proof of claim to the Insurer in accordance with procedures and guidelines established from time to time by the Insurer. On written request, the Company, acting as the "Plan Administrator," shall provide copies of any claim forms or instructions, or advise the Claimant how to obtain 4 5 such forms or instructions. The Insurer shall decide whether the claim shall be allowed. If a claim is denied in whole or in part, the Insurer shall notify the Claimant and explain the procedure for reviewing a denied claim. (ii) Filing a Claim for Any Other Benefit. The following claims procedure shall apply with respect to all benefits other than those provided by the Insurer: (A) Filing a Claim; Notification to Claimant of Decision: The Claimant shall make a claim in writing in accordance with procedures and guidelines established from time to time by the Plan Administrator, which claim shall be delivered to the Plan Administrator. The Plan Administrator shall review and make the decision with respect to any claim. If a claim is denied in whole or in part, written notice thereof shall be furnished to the Claimant within thirty days after the claim has been filed. Such notice shall set forth: (1) the specific reason or reasons for the denial; (2) specific reference to the provisions of this Agreement on which denial is based; (3) a description of any additional material or information necessary for the Claimant to perfect a claim and an explanation of why such material or information is necessary; and (4) an explanation of the procedure for review of the denied claim. (B) Procedure for Review: Any Claimant whose claim has been denied in full or in part may individually, or through the Claimant's duly authorized representative, request a review of the claim denial by delivering a written application for review to the Plan Administrator at any time within sixty days after receipt by the Claimant of written notice of the denial of the claim. Such request shall set forth in reasonable detail: (1) the grounds upon which the request for review is based and any facts in support thereof; and (2) any issues or comments which the Claimant considers pertinent to the claim. Following such request for review, the Plan Administrator fully and fairly shall review the decision denying the claim. Prior to the decision of the Plan Administrator, the Claimant shall be given an opportunity to review pertinent documents. 5 6 (C) Decision on Review: A decision on the review of a claim denied in whole or in part shall be made in the following manner: (1) The decision on review shall be made by the Plan Administrator, which shall consider the application and any written materials submitted by the Claimant in connection therewith. The Plan Administrator, in its sole discretion, may require the Claimant to submit such additional documents or evidence as the Plan Administrator may deem necessary or advisable in making such review. (2) The Plan Administrator will render a decision upon a review of a denied claim within sixty days after receipt of a request for review. If special circumstances (such as the need to hold a hearing on any matter pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as possible, but not later than one hundred twenty days after receipt of a request for review. Written notice of any such extension will be furnished to the Claimant prior to the commencement of the extension. (3) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, and specific references to the provisions of this Agreement on which the decision is based. The decision of the Plan Administrator on review shall be final and conclusive upon all persons. If the decision on review is not furnished to the Claimant within the time limits prescribed in subparagraph (c)(2) above, the claim will be deemed denied on review. 13. Legal Fees. The Company shall pay to the Participant and his beneficiary or beneficiaries upon demand all legal fees and expenses incurred by the Participant or his beneficiary or beneficiaries in seeking to obtain or enforce any right or benefit provided by the Policy and this Agreement. 14. Successors; Binding Agreement. (a) In addition to the requirements of Section 5 of this Agreement, the Company will, upon the request of Participant, require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession were to take place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Participant to all rights, compensation and other benefits from the Company in the same amount and on the same terms as the Participant would otherwise be entitled hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any such successor to its business and/or assets as aforesaid, by operation of law, or otherwise. 6 7 (b) Subject to the provisions of Section 14(a) above, the terms and provisions of this Agreement shall inure to the benefit of and be binding upon (a) the Company and its successors and assigns and (b) the Participant and his respective heirs, executors, administrators and legal representatives. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. The obligations of the Company under this Agreement shall survive the expiration of this Agreement. 17. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer with a copy to the Chief Financial Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 18. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless the Participant and any beneficiary or beneficiaries of Participant against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by Participant or any beneficiary or beneficiaries or Participant in connection with any threatened, pending or completed action, suit, or proceeding, whether formal or informal, or civil, criminal, administrative, legislative, arbitrative or investigative (hereinafter a "Proceeding") to which the Participant or any beneficiary or beneficiaries of Participant is, was, or at any time becomes a party, or is threatened to be made a party, in any way arising out of, based upon or incident to this Agreement or any of the rights, benefits and obligations provided for herein. (b) The expenses (including attorneys' fees) incurred by Participant or any beneficiary or beneficiaries of Participant in defending any Proceeding shall be advanced by the Company at the request of the Participant or any such beneficiary or beneficiaries. Any 7 8 judgments, fines or amounts to be paid in settlement shall also be advanced by the Company to the Participant or any beneficiary or beneficiaries of Participant upon request. 19. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware. 20. Headings. Headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement. 21. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the 20th day of July, 2000. DALLAS SEMICONDUCTOR CORPORATION By: /s/ C. V. Prothro ------------------------------------ /s/ Alan Hale ------------------------------------ Alan Hale, Participant 8 9 EXHIBIT "A" NAME OF PARTICIPANT: Alan Hale NAME OF INSURED: Alan Hale INSURER: Nationwide Policy No. N056104180
Death Benefit Payable to Participant's Death Benefit Policy Year Beneficiary: Payable to Ending, April 15 Individual Coverage Company ---------------- ------------------------ ------------- 2001 3,434,000 194,462 2002 3,434,000 284,683 2003 3,434,000 284,683 2004 3,434,000 284,683 2005 3,434,000 284,683 2006 3,434,000 284,683 2007 3,434,000 284,683 2008 3,434,000 284,683 2009 3,434,000 284,683 2010 3,434,000 284,683 2011 3,434,000 284,683 2012 3,434,000 284,683 2013 3,434,000 284,683 2014 3,434,000 284,683 2015 3,434,000 284,683 2016 3,434,000 284,683 2017 3,434,000 284,683 2018 3,434,000 284,683 2019 3,434,000 284,683 2020 3,434,000 284,683
9 10 AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT is entered into as of this 23rd day of January, 2001, by and between Alan Hale ("Participant") and Dallas Semiconductor Corporation, a Delaware corporation ("Company"). WHEREAS, Participant entered into a Split-Dollar Insurance Agreement with the Company dated July 20, 2000 ("Agreement"); and WHEREAS, the Company desires to amend the Agreement in the manner set forth below and has requested the consent of Participant to such amendment; NOW, THEREFORE, in consideration of the payment by the Company to Participant of the sum of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Participant, Participant and the Company agree as follows: 1. Section 4. Section 4 is divided into subsections (a) and (b). Existing Section 4 entitled "Payment of Premiums" is designated as Section 4(a), and the following language is inserted as Section 4(b): "(b) All premiums on the Policy shall be paid upon request or demand by Participant or Participant's Insurer without regard to whether or not the Participant is an employee or director of the Company, the Participant's responsibilities to the Company or any other circumstance, such obligation to pay to be absolute, continuing, irrevocable and unconditional and not subject to any set-off, counterclaim, recoupment, reduction, diminution or any defense of any kind or nature whatsoever." 2. Section 5. Section 5 is deleted in its entirety and the following is substituted in its place: "Reserved." 3. Section 6. The words "(including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise)" appearing in lines 4, 5 and 6 of Section 6 are deleted. 4. Section 9. The words "and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant" found in lines 4 and 5 of Section 9 are deleted. 5. Section 14. Subsection (a) of Section 14 is amended to delete the words "In addition to the requirements of Section 5 of this Agreement" appearing in line 1 thereof. 11 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 23rd day of January, 2001. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Chao C. Mai ------------------------------------- /s/ Alan P. Hale ---------------------------------------- Alan Hale, Participant 2 EX-10.25 13 f75694ex10-25.txt EXHIBIT 10.25 1 EXHIBIT 10.25 DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AGREEMENT is entered into as of this 20th day of July, 2000, by and between Merlyn D. Sampels ("Participant"), whose address is 7718 Caruth Boulevard, Dallas, Texas 75225, and Dallas Semiconductor Corporation, a Delaware corporation ("Company"), having its principal office and place of business located at 4401 South Beltwood Parkway, Dallas, Texas 75244. WHEREAS, the Company by resolution of the Board of Directors duly adopted on December 17, 1993 ("Date of Adoption") has adopted the Dallas Semiconductor Corporation Split-Dollar Insurance Plan to promote the interests of the Company in retaining the officers and directors of the Company who have made, and are capable of continuing to make, valuable contributions to the Company's performance by providing life insurance protection; and WHEREAS, Participant is a director of the Company who had completed at least five (5) years of service as a director of the Company on the Date of Adoption and has expressed a willingness to continue his services as a director of the Company, or is an officer of the Company at the Vice President level or above on the Date of Adoption; and WHEREAS, Participant entered into an agreement with the Company dated the 15th day of February, 1994, concerning a split-dollar life insurance arrangement with the Company (the "Prior Agreement"); and WHEREAS, this Agreement amends, restates and supersedes in its entirety the terms of the Prior Agreement, effective the date of this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Policy. Participant has applied for, and the Company has caused to be issued, a policy or policies of permanent life insurance described on Exhibit "A" attached hereto, with the attributes described in Section 2 hereof (such policy or policies, together with any additional policy or policies issued with the consent of Participant in substitution or replacement for any such policy or policies, are collectively referred to herein as the "Policy") from an insurance company selected by the Company as described on Exhibit "A" ("Insurer"). The Participant has also applied for and the Company has caused to be issued a policy or policies of permanent life insurance in which another Plan participant is the named insured, such policy being identified on Exhibit "A" as the Nationwide Policy. The term "Policy" shall also include such policy. The Company will take all such action as may be necessary or appropriate to cause the Policy to be maintained in force at all times, so as to provide Participant with all of the benefits of the Policy and this Agreement. 2 2. Benefits. The Policy has been structured, based on a specified interest rate, mortality and other assumptions, to provide Participant (over and above benefits payable to the Company) with the benefits, during each year in which the Policy is in force, provided in the Policy and those benefits described on Exhibit "A" attached hereto. The Company assumes no responsibility or liability with respect to the actual performance of the Policy, but the Company agrees to timely pay to the insurer such amounts as may be needed for the cash value in Nationwide Policy No. N056117510 to always be at least $250,000. 3. Ownership of Policy. With respect to any Policy, the Participant (or if Participant so elects, an individual or entity designated by Participant) shall be the owner of the Policy, and the Participant, subject to the limited collateral assignment of such Policy to the Company as provided in Section 7 hereof, may exercise all the rights of ownership with respect to the Policy, including, but not limited to: (a) the right to designate, or change the designation of, any beneficiary or beneficiaries of the Policy, (b) the right to pledge the Policy as security for a loan or to obtain from the Insurer a loan against the surrender or cash value, and in accordance with the terms, of the Policy, (c) the right to withdraw, during the Participant's lifetime, all or any part of the Policy's cash value (specifically including the cash value in Nationwide Policy No. 56117510) on the date of Participant's withdrawal, (d) the right to assign or transfer the Policy, in whole or in part, and (e) the right to sell, surrender or terminate the Policy. 4. Payment of Premiums. All premiums on the Policy shall be paid by the Company (or in the discretion of the Company, on behalf of the Company by the trustee [the "Trustee"] of the Dallas Semiconductor Corporation Executive Split-Dollar Insurance Trust [the "Trust"]). The Company shall never permit the Policy to lapse. Premium payments paid by the Trustee shall be considered as payments by the Company for all purposes under this Agreement. While all premiums on the Policy shall be paid by or on behalf of the Company, that portion of the premium equal to the amount of income imputed to Participant for federal and state income tax purposes on the value of the economic benefit of the life insurance protection provided to Participant shall be deemed to have been paid by the Company to the Participant and immediately paid by Participant to the Insurer. If the Company elects to pay the premiums to the Trust, such payment shall constitute sufficient funds to pay all premiums which may become due on each such Policy. 5. Change of Control. In the event of the occurrence of a Change of Control (as hereinafter defined): (a) the Company (or if so directed by the Company, the Trustee) shall immediately pay to the Insurer all remaining premiums on the Policy, regardless of whether such premiums are then due, and (b) the collateral assignment of the Policy to the Company, as provided in Section 7 hereof shall immediately and fully terminate, and the Participant shall become fully vested in the entire cash value and death benefit payable under the Policy. For purposes of this Agreement, a "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of 2 3 the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; (ii) at any time following the date of execution of this Agreement individuals who are directors of the Company at such date cease for any reason to constitute a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, except that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 15% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the election of any person other than C. V. Prothro as Chairman of the Board and Chief Executive Officer of the Company. 6. Tax Offset Payments. To the extent that the Participant may be deemed to have realized gross income in any year for federal and state income tax purposes or gift tax purposes by reason of this Agreement, including the value of the insurance protection or other benefits thereunder provided by the Policy or otherwise as a consequence of the Plan (including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise), the Company shall pay to Participant an additional amount such that the after-tax cost to the Participant is zero. 7. Collateral Assignment of Policy. The Participant shall, and does hereby, collaterally assign to the Company an interest in the cash values and death benefit of the Policy as follows: (a) If the Participant surrenders or sells the Policy, he shall pay the Company, out of the proceeds of the Policy, an amount equal to the lesser of (i) the cash value of the Policy, or (ii) the aggregate amount of premiums paid by the Company with respect to the Policy; (b) The Company shall be entitled to receive the cumulative premiums paid for MetLife Policies Nos. 940250361 E3 and 940250367 E3 (the amount of which is a portion of the amount indicated in the column headed Death Benefits Payable to the Company shown on Exhibit "A" attached hereto) from the death benefit paid under Nationwide Policy No. N056117510, and the Company shall be entitled to receive the cumulative premiums paid for John Hancock Policy No. 534889 (the amount of which is the remainder of the amount indicated in the column headed Death Benefits Payable to the Company shown on Exhibit "A" attached hereto) from the death benefits payable under such policy upon the death of the survivor of the insured covered under such policy. All death benefits payable under MetLife Policies Nos. 940250361 E3 and 940250367 E3 shall be paid to the beneficiary or beneficiaries of the Participant, and all 3 4 death benefits payable under John Hancock Policy No. 534889 that exceed the premiums reimbursed to the Company out of such policy's proceeds under the preceding sentence shall be paid to the beneficiary or beneficiaries of Participant. (The death benefits payable under the MetLife policies are indicated in the column headed Death Benefit Payable to Participant's Beneficiary: Individual Coverage, and the death benefits payable under the John Hancock policy are indicated in the column headed Death Benefit Payable to Participant's Beneficiary: Survivorship Coverage, both columns as shown on Exhibit "A" attached hereto.) All death benefits payable under Nationwide Policy No. N056117510 that exceed the premiums reimbursed to the Company out of such policy's proceeds under the first sentence of this paragraph shall be paid as follows: (1) to Participant's beneficiary or beneficiaries, the excess of (A) 1,300,000 over (B) the amounts, if any, paid to Participant, in Participant's sole discretion, from Nationwide Policy No. N056117510 during Participant's lifetime, and (2) the balance to the Company. If the death benefits payable under this Agreement exceed the sum of (i) the aggregate amount of premiums paid by the Company as set forth on Exhibit "A" and (ii) the other amounts payable to the Company under this paragraph, such excess death benefits shall be payable to the Participant's beneficiary or beneficiaries. The collateral assignment of the Policy shall not be altered or changed without the consent of the Company and the Participant. 8. Adjustment of Benefits; Additional Policy Benefits or Riders. The Company and the Participant may from time to time enter into agreements which may adjust the value of each party's interests in the Policy. The Participant may add any rider or endorsement to the Policy. If any such rider or endorsement is added upon the written request of the Company, all premiums with respect to such rider or endorsement shall be paid by the Company. A Participant shall not be required to withdraw any benefits payable under the Policy and may elect to apply the value attributable to such benefits to the purchase of additional benefits payable to the beneficiary or beneficiaries named by Participant under the Policy, if the Participant so elects, or to treat such benefits as additional insurance payable to the beneficiary or beneficiaries of such Policy upon the death of the Participant. 9. Amendment. This Agreement may be amended by the Board of Directors of the Company; provided, however, that no such amendment shall diminish, abrogate or change any rights or benefits of the Participant under the Policy or this Agreement without the Participant's prior written consent, and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant. 10. Benefits Cumulative. The benefits to the Participant under this Agreement shall be cumulative with, and shall not reduce or be deemed to be in substitution of, any benefits, payments or compensation to which Participant may otherwise be entitled under any other compensation, benefit, welfare, savings, retirement or compensation plan of, or for the employees, officers or directors of, the Company. 11. Further Assurances. The Company and Participant shall enter into, execute and deliver all such documents, instruments, and other agreements as the other party may reasonably 4 5 request, or as the Insurer or Participant may reasonably require, in order to carry out the intent and purposes of this Agreement. 12. ERISA Requirements. (a) Funding Policy. All premiums on the Policy shall be remitted by, or on behalf of, the Company to the Insurer. The benefits provided by the Policy shall be paid by the Insurer in accordance with the terms of the Policy and this Agreement. The payment of such benefits is predicated on the payment of the required premiums. (b) Claims and Review Procedures. The following claims procedure shall apply for purposes of this Agreement. The claims procedure in subparagraph (b)(1) below shall be followed with respect to benefits provided by the Insurer under the terms of the Policy. The claims procedure in subparagraph (b)(2) below shall be followed with respect to benefits, if any, provided directly by the Company. The Participant (or the other owner of the Policy designated by the Participant) that owns the Policy (the "Policy Owner") and the Policy Owner's successors, beneficiaries or representatives, as appropriate (individually or collectively, "Claimant"), must follow both procedures, if necessary. (i) Filing a Claim for Insurance Benefits. A Claimant shall make a claim for benefits provided by the Insurer by submitting a written claim and proof of claim to the Insurer in accordance with procedures and guidelines established from time to time by the Insurer. On written request, the Company, acting as the "Plan Administrator," shall provide copies of any claim forms or instructions, or advise the Claimant how to obtain such forms or instructions. The Insurer shall decide whether the claim shall be allowed. If a claim is denied in whole or in part, the Insurer shall notify the Claimant and explain the procedure for reviewing a denied claim. (ii) Filing a Claim for Any Other Benefit. The following claims procedure shall apply with respect to all benefits other than those provided by the Insurer: (A) Filing a Claim; Notification to Claimant of Decision: The Claimant shall make a claim in writing in accordance with procedures and guidelines established from time to time by the Plan Administrator, which claim shall be delivered to the Plan Administrator. The Plan Administrator shall review and make the decision with respect to any claim. If a claim is denied in whole or in part, written notice thereof shall be furnished to the Claimant within thirty days after the claim has been filed. Such notice shall set forth: (1) the specific reason or reasons for the denial; (2) specific reference to the provisions of this Agreement on which denial is based; 5 6 (3) a description of any additional material or information necessary for the Claimant to perfect a claim and an explanation of why such material or information is necessary; and (4) an explanation of the procedure for review of the denied claim. (B) Procedure for Review: Any Claimant whose claim has been denied in full or in part may individually, or through the Claimant's duly authorized representative, request a review of the claim denial by delivering a written application for review to the Plan Administrator at any time within sixty days after receipt by the Claimant of written notice of the denial of the claim. Such request shall set forth in reasonable detail: (1) the grounds upon which the request for review is based and any facts in support thereof; and (2) any issues or comments which the Claimant considers pertinent to the claim. Following such request for review, the Plan Administrator fully and fairly shall review the decision denying the claim. Prior to the decision of the Plan Administrator, the Claimant shall be given an opportunity to review pertinent documents. (C) Decision on Review: A decision on the review of a claim denied in whole or in part shall be made in the following manner: (1) The decision on review shall be made by the Plan Administrator, which shall consider the application and any written materials submitted by the Claimant in connection therewith. The Plan Administrator, in its sole discretion, may require the Claimant to submit such additional documents or evidence as the Plan Administrator may deem necessary or advisable in making such review. (2) The Plan Administrator will render a decision upon a review of a denied claim within sixty days after receipt of a request for review. If special circumstances (such as the need to hold a hearing on any matter pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as possible, but not later than one hundred twenty days after receipt of a request for review. Written notice of any such extension will be furnished to the Claimant prior to the commencement of the extension. (3) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to 6 7 be understood by the Claimant, and specific references to the provisions of this Agreement on which the decision is based. The decision of the Plan Administrator on review shall be final and conclusive upon all persons. If the decision on review is not furnished to the Claimant within the time limits prescribed in subparagraph (c)(2) above, the claim will be deemed denied on review. 13. Legal Fees. The Company shall pay to the Participant and his beneficiary and beneficiaries upon demand all legal fees and expenses incurred by the Participant or by his beneficiary or beneficiaries, respectively, in seeking to obtain or enforce any right or benefit provided by the Policy and this Agreement. 14. Successors; Binding Agreement. (a) In addition to the requirements of Section 5 of this Agreement, the Company will, upon the request of Participant, require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession were to take place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Participant to all rights, compensation and other benefits from the Company in the same amount and on the same terms as the Participant would otherwise be entitled hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any such successor to its business and/or assets as aforesaid, by operation of law, or otherwise. (b) Subject to the provisions of Section 14(a) above, the terms and provisions of this Agreement shall inure to the benefit of and be binding upon (a) the Company and its successors and assigns and (b) the Participant and his respective heirs, executors, administrators and legal representatives. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. The obligations of the Company under this Agreement shall survive the expiration of this Agreement. 7 8 17. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer with a copy to the Chief Financial Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 18. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless the Participant and any beneficiary or beneficiaries of Participant against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by Participant or any beneficiary or beneficiaries or Participant in connection with any threatened, pending or completed action, suit, or proceeding, whether formal or informal, or civil, criminal, administrative, legislative, arbitrative or investigative (hereinafter a "Proceeding") to which the Participant or any beneficiary or beneficiaries of Participant is, was, or at any time becomes a party, or is threatened to be made a party, in any way arising out of, based upon or incident to this Agreement or any of the rights, benefits and obligations provided for herein. (b) The expenses (including attorneys' fees) incurred by Participant or any beneficiary or beneficiaries of Participant in defending any Proceeding shall be advanced by the Company at the request of the Participant or any such beneficiary or beneficiaries. Any judgments, fines or amounts to be paid in settlement shall also be advanced by the Company to the Participant or any beneficiary or beneficiaries of Participant upon request. 19. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware. 20. Headings. Headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement. 21. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 8 9 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the 20th day of July, 2000. DALLAS SEMICONDUCTOR CORPORATION By: /s/ C. V. Prothro ------------------------------------- /s/ Merlyn D. Sampels ---------------------------------------- Merlyn D. Sampels, Participant 9 10 EXHIBIT "A" NAME OF PARTICIPANT: Merlyn Sampels NAME OF INSURED: Merlyn Sampels & Anita Sampels INSURER: MetLife Policy No. 940 250 361 E3 & 940 250 367 E3 INSURER: John Hancock Policy No. 20 050 266 INSURER: Nationwide Policy No. N056117510
Death Benefit Death Benefit Payable to Participant's Payable to Participant's Death Benefit Policy Year Beneficiary: Beneficiary: Payable to Ending April 15 Individual Coverage Survivorship Coverage Company --------------- ------------------------ ------------------------ ------------- 2001 3,246,991 3,735,000 5,519,000 2002 3,293,365 3,678,000 5,914,000 2003 3,342,192 3,759,354 6,309,000 2004 3,390,719 4,001,519 6,541,657 2005 3,438,994 4,001,519 6,671,285 2006 3,489,342 4,001,519 6,801,284 2007 3,542,630 4,001,519 6,931,284 2008 3,450,183 4,001,519 3,877,657 2009 3,362,307 4,001,519 3,877,657 2010 3,281,168 4,001,519 3,877,657 2011 3,204,682 4,001,519 3,877,657 2012 3,132,924 4,001,519 3,747,382 2013 1,755,900 4,001,519 3,747,097 2014 1,724,966 4,001,519 3,746,804 2015 1,674,852 4,001,519 3,746,501 2016 1,623,153 4,001,519 2,848,531 2017 1,570,472 4,001,519 2,848,208 2018 1,516,905 4,001,519 2,848,874 2019 1,462,431 4,001,519 2,848,530 2020 1,406,824 4,001,519 2,847,174
10 11 AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT THIS AMENDMENT TO DALLAS SEMICONDUCTOR CORPORATION SPLIT-DOLLAR INSURANCE AGREEMENT is entered into as of this 23rd day of January, 2001, by and between Merlyn D. Sampels ("Participant") and Dallas Semiconductor Corporation, a Delaware corporation ("Company"). WHEREAS, Participant entered into a Split-Dollar Insurance Agreement with the Company dated July 20, 2000 ("Agreement"); and WHEREAS, the Company desires to amend the Agreement in the manner set forth below and has requested the consent of Participant to such amendment; NOW, THEREFORE, in consideration of the payment by the Company to Participant of the sum of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Participant, Participant and the Company agree as follows: 1. Section 4. Section 4 is divided into subsections (a) and (b). Existing Section 4 entitled "Payment of Premiums" is designated as Section 4(a), and the following language is inserted as Section 4(b): "(b) All premiums on the Policy shall be paid upon request or demand by Participant or Participant's Insurer without regard to whether or not the Participant is an employee or director of the Company, the Participant's responsibilities to the Company or any other circumstance, such obligation to pay to be absolute, continuing, irrevocable and unconditional and not subject to any set-off, counterclaim, recoupment, reduction, diminution or any defense of any kind or nature whatsoever." 2. Section 5. Section 5 is deleted in its entirety and the following is substituted in its place: "Reserved." 3. Section 6. The words "(including, but not limited to the vesting of benefits to the Participant upon the occurrence of a Change of Control or otherwise)" appearing in lines 4, 5 and 6 of Section 6 are deleted. 4. Section 9. The words "and no amendment of the Policy or this Agreement shall be made upon or after the occurrence of a Change of Control without the prior written consent of each Participant" found in lines 4 and 5 of Section 9 are deleted. 5. Section 14. Subsection (a) of Section 14 is amended to delete the words "In addition to the requirements of Section 5 of this Agreement" appearing in line 1 thereof. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 23rd day of January, 2001. DALLAS SEMICONDUCTOR CORPORATION By: /s/ C. V. Prothro ------------------------------------- /s/ Merlyn D. Sampels ---------------------------------------- Merlyn D. Sampels, Participant 12 EX-10.26 14 f75694ex10-26.txt EXHIBIT 10.26 1 EXHIBIT 10.26 ASSUMPTION AGREEMENT THIS ASSUMPTION AGREEMENT is executed and delivered pursuant to that certain Agreement and Plan of Merger, dated as of January 28, 2001 (the "Merger Agreement"), by and among Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), MI Acquisition Sub, Inc., a Delaware corporation, and Dallas Semiconductor Corporation, a Delaware corporation ("Dallas Semiconductor"), pursuant to which Dallas Semiconductor will become a wholly owned subsidiary of the Company. Pursuant to Section 6.3(c) of the Merger Agreement, the Company is required to expressly assume the obligations of that certain Dallas Semiconductor Executives Retiree Medical Plan, effective as of October 1, 1999, as amended (the "Plan"), a copy of which is attached hereto as Exhibit A. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, in accordance with the provisions of Section 13.11 of the Plan, the Company hereby assumes and agrees to pay, perform, and discharge in accordance with the terms thereof, all of the duties, liabilities and obligations of Dallas Semiconductor under the Plan. This Assumption Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 1 2 IN WITNESS WHEREOF, each party hereto has caused this instrument to be executed by its duly authorized officer this the 11th day of April, 2001. MAXIM INTEGRATED PRODUCTS, INC. By: /s/ Carl W. Jasper ------------------------------------ Name: Carl W. Jasper Title: Chief Financial Officer DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale ------------------------------------ Name: Alan P. Hale Title: Chief Financial Officer 2 3 Exhibit A 3 4 DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN (EFFECTIVE OCTOBER 1, 1999) 1 5 TABLE OF CONTENTS
PAGE ARTICLE I - INTRODUCTION.....................................................................1 1.1 Purpose of Plan...............................................................1 1.2 Medical Care Plan Status......................................................1 ARTICLE II - DEFINITIONS.....................................................................2 2.1 "Administrator"...............................................................2 2.2 "Board".......................................................................2 2.3 "Board Member"................................................................2 2.4 "Code"........................................................................2 2.5 "Covered Dependent"...........................................................2 2.6 "Creditable Coverage".........................................................2 2.7 "Dependent"...................................................................3 2.8 "Director"....................................................................3 2.9 "Effective Date"..............................................................3 2.10 "Eligible Employee"...........................................................3 2.11 "Eligible Individual".........................................................3 2.12 "Eligible Retiree"............................................................3 2.13 "Employer"....................................................................3 2.14 "Enrollment Date".............................................................3 2.15 "Enrollment Period"...........................................................4 2.16 "ERISA".......................................................................4 2.17 "Excepted Benefits":..........................................................4 2.18 "FMLA"........................................................................5 2.19 "Genetic Information".........................................................5 2.20 "Health Status - Related Factor"..............................................5 2.21 "Late Enrollee"...............................................................5 2.22 "Manager".....................................................................5 2.23 "Military Leave"..............................................................5 2.24 "Officer".....................................................................5 2.25 "Participant".................................................................6 2.26 "Participating Employer"......................................................6 2.27 "Placed for Adoption".........................................................6 2.28 "Plan"........................................................................6 2.29 "Plan Year"...................................................................6 2.30 "Policy"......................................................................6 2.31 "Pre-existing Condition"......................................................6 2.32 "Pre-existing Condition Exclusion"............................................6 2.33 "Qualified Medical Child Support Order".......................................6
i 6 2.34 "Qualified Medical Expense"...................................................6 2.35 "Retirement" and "Retire".....................................................7 2.36 "Sponsor".....................................................................7 2.37 "Spouse"......................................................................7 2.38 "USERRA"......................................................................7 2.39 "Waiting Period"..............................................................7 ARTICLE III - PARTICIPATION..................................................................7 3.1 Eligibility to Participate....................................................7 3.2 Commencement of Participation.................................................8 3.3 Cessation of Participation....................................................8 3.4 USERRA Reinstatement Rules....................................................9 3.5 FMLA Compliance...............................................................9 3.6 Reinstatement of Former Participant..........................................10 3.7 No Eligibility Discrimination Due to Health..................................10 3.8 Special Enrollments..........................................................10 ARTICLE IV - ELECTION TO RECEIVE MEDICAL CARE BENEFITS......................................11 4.1 Election of Benefit Options..................................................11 4.2 Election Procedure...........................................................12 4.3 No Premium Discrimination Due to Health......................................12 ARTICLE V - MEDICAL CARE BENEFITS...........................................................12 5.1 Benefits.....................................................................12 5.2 Pre-existing Conditions......................................................12 5.3 Notification of Enrollment Rights............................................14 5.4 Newborns' and Mothers' Health Protection Act of 1996.........................14 5.5 Mental Health Parity Act of 1996.............................................14 5.6 Women's Health and Cancer Rights Act of 1998.................................15 ARTICLE VI - PAYMENT OF MEDICAL CARE EXPENSE REIMBURSEMENTS.................................15 6.1 Claims Procedure.............................................................15 6.2 Reimbursement of Expenses....................................................15 ARTICLE VII - COORDINATION OF BENEFITS......................................................15 7.1 Explanation..................................................................15 7.2 Definitions..................................................................16
ii 7 7.3 Coordination of Benefits Procedure...........................................16 7.4 Existence of Other Group Plans...............................................18 7.5 Recovery and Payment of Benefits.............................................18 7.6 Coordination with Medicare, Medicaid and CHAMPUS.............................19 7.7 Subrogation..................................................................20 ARTICLE VIII - TERMINATION OF PARTICIPATION.................................................21 8.1 Limitation on Covered Expenses...............................................21 8.2 Date of Policy Coverage Termination..........................................21 ARTICLE IX - CONTINUATION COVERAGE UNDER "COBRA"............................................22 9.1 Special Definitions..........................................................22 9.2 Entitlement to Continuation Coverage.........................................23 9.3 Notice Required..............................................................23 9.4 Election of Continuation Coverage............................................24 9.5 Premiums.....................................................................24 9.6 Period of Continuation Coverage..............................................24 9.7 Expiration of Continuation Coverage..........................................26 ARTICLE X - FUNDING.........................................................................26 ARTICLE XI - ADMINISTRATION.................................................................27 11.1 Named Fiduciary..............................................................27 11.2 Allocation of Fiduciary Responsibilities.....................................27 11.3 Records......................................................................27 11.4 Appointment of Committee.....................................................28 11.5 Actions of Committee.........................................................28 11.6 Other Powers and Duties of the Administrator.................................28 11.7 Indemnification..............................................................29 11.8 Reliance on Tables, Etc......................................................30 11.9 Claims and Review Procedures.................................................30 11.10 Participant's Responsibilities...............................................31 11.11 Missing Persons..............................................................31 11.12 Nondiscriminatory Exercise of Authority......................................31 11.13 Expenses.....................................................................31 ARTICLE XII - AMENDMENT OR TERMINATION OF PLAN..............................................32 12.1 Amendment of Plan............................................................32 12.2 Termination of Plan..........................................................32
iii 8 ARTICLE XIII - MISCELLANEOUS................................................................32 13.1 Information to be Furnished..................................................32 13.2 Limitation of Rights.........................................................32 13.3 Benefits Not Solely from Policy..............................................32 13.4 Nonassignability of Rights...................................................33 13.5 No Guarantee of Tax Consequences.............................................33 13.6 Severability.................................................................33 13.7 Construction of Terms........................................................33 13.8 Choice of Law/Jurisdiction and Venue.........................................33 13.9 No Vested Interest...........................................................33 13.10 No Guarantee of Employment...................................................33 13.11 Adoption by Successor Employer or Affiliates.................................34 13.12 Bonding......................................................................34 ARTICLE XIV - QUALIFIED MEDICAL CHILD SUPPORT ORDERS........................................34 14.1 Notification of Receipt of Child Support Order...............................34 14.2 Procedures to Determine if Medical Child Support Order is a Qualified Medical Child Support Order..................................................35 14.3 Treatment of Alternate Recipient under Qualified Medical Child Support Order........................................................................36 14.4 Cost of Qualified Medical Child Support Order Benefits.......................36 14.5 Qualified Medical Child Support Order and Medicaid...........................37 14.6 Payments or Reimbursements under a Qualified Medical Child Support Order........................................................................37 14.7 Alternate Recipient..........................................................37 ARTICLE XV - POLICY.........................................................................37 ARTICLE XVI - PARTICIPATING EMPLOYERS.......................................................37 16.1 Adoption by Other Employers..................................................37 16.2 Requirements of Participating Employers......................................38 16.3 Designation of Agent.........................................................38 16.4 Transfers....................................................................38 16.5 Participating Employer's Contribution........................................38 16.6 Discontinuance of Participation..............................................38 16.7 Administrator's Authority....................................................39
iv 9 ARTICLE I INTRODUCTION 1.1 PURPOSE OF PLAN. The purpose of this Plan is to enable the Sponsor to provide retiree (and limited other) medical care benefits to (a) Board Members during the term of their service as a Board Member on behalf of the Sponsor, and (b) to Board Members and to Eligible Retirees upon their Retirement from the employment, or service as a Board Member, as applicable, of the Sponsor or any other Participating Employers. On the Effective Date, the Plan makes available to Participants the medical insurance described in the Policy attached as Exhibit A. Board Members, Officers and Spouses are to get lifetime coverage and benefits under this Plan. Each other Participant and his spouse are to get coverage and benefits under the Plan until the covered individual reaches his (or her, as appropriate) 65th birthday. Covered Dependents (other than a spouse) of a Participant who is not a Board Member or Officer are to get coverages and benefits until the Participant's 65th birthday. The specific medical coverages and benefits available to Participants are identified in the Policy. In the event a Policy is not in effect at the time a qualifying expense was incurred, the specific medical coverages and benefits available at that time will be those identified in the Policy most recently in effect immediately prior to the date the expense was incurred. Notwithstanding anything in the Plan to the contrary, the Plan is intended to provide medical coverage and benefits without regard to whether a Policy is in effect at a particular time. Except for the coordination of benefits as required by ARTICLE VII, the benefits and coverages under this Plan shall not decrease or be reduced in the aggregate or individually by more than an immaterial amount during the life of this Plan, except as provided in SECTION 12.1 The Sponsor will select and utilize a Policy or Policies that provides medical coverages and benefits that are not worse than the coverages and benefits provided by Sponsor to active employees of the Sponsor outside of this Plan at the time the Policy or Policies were selected, and in the event that it is determined the Sponsor has attempted to reduce benefits and coverages in an effort to circumvent the restrictions of this Section and its obligations under the Plan, notwithstanding anything to the contrary in this Plan, (i) the Plan shall provide, for the remainder of the Plan's existence, the most valuable benefits and coverages the Plan provided at any time during the Plan's existence up to that time, and (ii) the Sponsor shall obtain and maintain insurance providing coverage and benefits at least as good as those required under this paragraph. 1.2 MEDICAL CARE PLAN STATUS. This Plan is intended to qualify as a "medical care plan" under sections 105 and 106 of the Code, and is to be interpreted in a manner consistent with the requirements of sections 105 and 106 of the Code. It is intended that the value of medical coverage be excluded from the Participants' income under Code section 106, to the extent applicable. 1 10 The Plan is intended to satisfy all applicable requirements of the Code and its regulations. This Plan is also intended to satisfy those requirements of ERISA which are applicable to employee medical plans. Nothing in the Plan shall be construed as requiring compliance with Code or ERISA provisions that do not otherwise apply. ARTICLE II DEFINITIONS Whenever used in this document, the following terms have the following meanings unless a different meaning is clearly required by the context, and defined terms from the Policy are incorporated in this document by reference, but only to the extent that such terms are not inconsistent with the following definitions: 2.1 "ADMINISTRATOR" means the Sponsor, which shall be the plan administrator within the meaning of ERISA section 3(16). 2.2 "BOARD" means the Board of Directors of the Sponsor. 2.3 "BOARD MEMBER" means each person listed on Exhibit D to the Plan. 2.4 "CODE" means the Internal Revenue Code of 1986, as amended. 2.5 "COVERED DEPENDENT" means an individual who qualifies as a Dependent or as a Spouse under this Plan and who was enrolled by a Participant under this Plan when he was a Participant under this Plan. 2.6 "CREDITABLE COVERAGE" means, with respect to an individual, coverage of the individual under any of the following: (a) A group health plan; (b) Health insurance coverage-, (c) Part A or part B of title XVIII of the Social Security Act; (d) Title XIX of the Social Security Act, other than coverage consisting solely of benefits under section 1928; (e) Chapter 55 of title 10, United States Code; (f) A medical care program of the Indian Health Service or of a tribal organization; (g) A State health benefits risk pool; (h) A health plan offered under chapter 99 of title 5, United States Code; 2 11 (i) A public health plan (as defined in Federal regulations); (j) A health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e); or (k) A state uninsured children's health insurance program. Such term does not include coverage consisting solely of coverage of Excepted Benefits. 2.7 "DEPENDENT" means any person who is a dependent of a Participant (including, without limitation, a Participant's spouse on the date of his Retirement) and who satisfies the definition of "dependent" in the Policy in effect on the date of the Participant's Retirement, or if none, in the last Policy in effect immediately prior to the Participant's Retirement. 2.8 "DIRECTOR" means the title awarded by an Employer to employees (who are not members of the Board) in certain job classifications as specified on its books and records. 2.9 "EFFECTIVE DATE" means October 1, 1999, the effective date of the Plan, except where expressly stated otherwise in this document. 2.10 "ELIGIBLE EMPLOYEE" means (i) each Officer of the Sponsor on the Effective Date, (ii) each common-law employee of an Employer who was designated on the books and records of the Employer as a "functionally equivalent" officer on the Effective Date and who shared in the contribution made on June 12, 1998, to the Dallas Semiconductor Corporation Executive Deferred Compensation Plan, (iii) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date (or within the five (5) calendar year period preceding the Effective Date), also held the title of Director or was the Sponsor's corporate controller, and (iv) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date, held the position of Manager and was required to report for operating purposes directly to the Sponsor's President and Chief Executive Officer. Each person who was an Eligible Employee on the Effective Date is listed on either Exhibit C or Exhibit F to the Plan. 2.11 "ELIGIBLE INDIVIDUAL" means a Board Member or an Eligible Retiree, as appropriate, who has satisfied (i) the requirements of Article III to be eligible to participate in the Plan, and (ii) the eligibility requirements stated in the Policy. 2.12 "ELIGIBLE RETIREE" means an Eligible Employee who has Retired after the Effective Date. 2.13 "EMPLOYER" means the Sponsor and each Participating Employer which shall adopt this Plan under Article XVI. 2.14 "ENROLLMENT DATE" means the earlier of (i) the last day of an Enrollment Period during which an Eligible Individual did not elect under SECTION 3.2 to not be a Participant, or (ii) the first day of the period that must pass under ARTICLE III, if any, before an Eligible Employee, Board Member or Dependent, as appropriate, is eligible to be covered for benefits under the Plan. 3 12 2.15 "ENROLLMENT PERIOD" means (i) in the case of an Eligible Retiree, the thirty (30) day period occurring after the Eligible Retiree's Retirement during which an Eligible Retiree may refuse in writing under Section 3.2 to participate under the Plan, and (ii) in the case of a Board Member, the thirty (30) day period occurring immediately after the Effective Date. 2.16 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.17 "EXCEPTED BENEFITS" means the following: (a) benefits not subject to the requirements regarding Creditable Coverage: (1) coverage only for accident or disability income insurance or any combination thereof, (2) coverage issued as a supplement to liability insurance; (3) liability insurance, including general liability insurance and automobile liability insurance; (4) workers' compensation or similar insurance, (5) automobile medical payment insurance; (6) credit-only insurance; (7) coverage for on-site medical clinics; and (8) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. (b) If offered separately: (1) limited scope dental or vision benefits; (2) benefits for long-term care, nursing home care, home health care, community based care, or any combination thereof, (3) other similar limited benefits as specified in regulations. (c) If offered as independent non-coordinated benefits (separate consent or policy, no coordination of benefits with any other plan sponsored by the employer): (1) coverage for a specified disease or illness; (2) hospital indemnity or other fixed indemnity insurance. 4 13 (d) If offered as separate insurance policy, Medicare supplemental health insurance and similar supplemental coverage. 2.18 "FMLA" means the Family and Medical Leave Act of 1993, as amended. 2.19 "GENETIC INFORMATION" means information about genes, gene products, and inherited characteristics that may derive from the individual or a family member. This includes information regarding carrier status and information derived from laboratory tests that identify mutations in specific genes or chromosomes, physical medical examinations, family histories, and direct analysis of genes or chromosomes. 2.20 "HEALTH STATUS - RELATED FACTOR" means the following factors: (a) health status, (b) medical condition (include both physical and mental illnesses), (c) claims experience, (d) receipt of health care, (e) medical history, (f) Genetic Information, (g) evidence of insurability (including conditions arising out of acts of domestic violence), and (h) disability. 2.21 "LATE ENROLLEE" means a Participant or Covered Dependent who enrolled under this Plan other than during his first Enrollment Period or a Special Enrollment Period. 2.22 "MANAGER" means the title awarded by an Employer to employees in certain job classifications as specified on its books and records. 2.23 "MILITARY LEAVE" means the absence due to the performance of duty on a voluntary or involuntary basis under competent authority in (i) the Armed Forces, (ii) the Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty, (iii) the commissioned corps of the Public Health Service, and (iv) other categories of persons designated by the President in time of war or emergency for a period of up to thirty (30) days during which a person who previously qualified as an employee is not employed on a full-time basis solely because the person is engaged in active military service for the United States government. 2.24 "OFFICER" means each person listed on Exhibit C to the Plan. 5 14 2.25 "PARTICIPANT" means any Eligible Individual who has elected to participate in the Plan in accordance with ARTICLE III. 2.26 "PARTICIPATING EMPLOYER" means any entity which has adopted this Plan pursuant to ARTICLE XVI. 2.27 "PLACED FOR ADOPTION" means the assumption and retention by an Eligible Employee of a legal obligation for the total or partial support of an individual in anticipation of adoption of a child prior to the date on which such child attains age eighteen (18). A child's status as having been Placed for Adoption ends on the date that the Eligible Employee's legal obligation described in this Section ends. 2.28 "PLAN" means the Dallas Semiconductor Corporation Executives Retiree Medical Plan, as set forth in this document, and any and all amendments, schedules and supplements to this document. 2.29 "PLAN YEAR" means the period beginning on the Effective Date and ending on the following December 31 and, thereafter, the fiscal year beginning on each January 1 (starting on January 1, 2000) and ending on the following December 31. 2.30 "POLICY" means the fully-insured medical insurance policy or policies described on Exhibit A attached to this Plan, as such Exhibit A existed on the Effective Date or as it may be amended in the future. 2.31 "PRE-EXISTING CONDITION" means a condition (whether physical or mental), regardless of the cause of the condition, for which medical advice, diagnosis, care or treatment was recommended or received within the six (6) month period ending on the Enrollment Date. 2.32 "PRE-EXISTING CONDITION EXCLUSION" means with respect to coverage, a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for such coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before such date. Genetic Information is not a Pre-existing Condition in the absence of a diagnosis of the condition related to such information. 2.33 "QUALIFIED MEDICAL CHILD SUPPORT ORDER" means any judgment, decree, order (including a settlement agreement), administrative notice or National Medical Support Notice (defined in section 609(a)(5)(C) of ERISA) which satisfies the requirements set forth in ARTICLE XIV. 2.34 "QUALIFIED MEDICAL EXPENSE" means an expense incurred by a Participant, by the Participant's spouse or by a Dependent of such Participant for medical care as defined in Code section 213, including, without limitation, amounts paid for hospital bills and doctor bills, but only to the extent that (i) the Participant or other person is not reimbursed for the expense through insurance or otherwise, other than under the Plan, and (ii) the expense is not taken into account as a deduction by the Participant on his Internal Revenue Service Form 1040; provided, however, that notwithstanding anything in this document to the contrary, a Qualified Medical 6 15 Expense shall be limited to only those expenses covered under the Policy, if a Policy is in effect, and if no Policy is in effect so that the expense is covered by Policy, to only those expenses covered under the Policy last in effect immediately prior to the date the expense was incurred. 2.35 "RETIREMENT" and "RETIRE" mean (i) an Eligible Employee's termination of employment with an Employer, voluntarily or involuntarily, after the Effective Date when the Eligible Employee has at least (10) ten years of employment by the Sponsor or its affiliates and has reached the age of at least fifty (50) and (ii) an Officer's termination of employment with an Employer, voluntarily or involuntarily, after the Effective Date when the Officer has at least ten (10) years of employment by, and five (5) years as an Officer of, the Sponsor or its affiliates. A Board Member shall be deemed to be Retired for purposes of only this Plan on the Effective Date of the Plan. 2.36 "SPONSOR" means Dallas Semiconductor Corporation, a Delaware corporation, or any successor or assign which shall adopt the Plan. Throughout the Plan, a purposeful distinction is drawn between the Sponsor and the Employers. The powers and responsibilities assigned to the Sponsor by the Plan shall apply exclusively to the Sponsor, unless specifically delegated in writing by the Sponsor. 2.37 "SPOUSE" means the wife of an Officer or of a Board Member on the date of his Retirement. Each person who was a Spouse on the Effective Date is listed on Exhibit E, but being listed on Exhibit E does not make an individual a Spouse for purposes of this Plan. 2.38 "USERRA" means the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. 2.39 "WAITING PERIOD" means with respect to a group health plan and an individual who is a potential Participant or beneficiary in the plan, the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. Any period of time before a Late Enrollee enrolls under a Special Enrollment Period is not a Waiting Period. Special definitions used only for particular purposes are found in ARTICLE VII and ARTICLE IX. ARTICLE III PARTICIPATION 3.1 ELIGIBILITY TO PARTICIPATE. Eligible Employees and Board Members shall become Eligible Individuals on the Effective Date. No other individual may become a Participant (or an Eligible Individual) under the Plan. The Policy in effect on the date of a Participant's Retirement determines (i) the Plan's Eligible Individuals, (ii) the Plan's Spouses and (iii) those Dependents, if any, of an Eligible Individual who will be eligible to be covered under its terms. When an Eligible Individual's 7 16 eligible Dependents satisfy the eligibility requirements of the Policy in effect on the date of a Participant's Retirement, those eligible Dependents shall also be eligible to participate at that time under the Plan. If, at the date of a Participant's Retirement, no Policy is then in effect, the Participant's eligible Dependents shall be determined under the terms of the Policy last in effect with respect to the Plan. 3.2 COMMENCEMENT OF PARTICIPATION. An Eligible Individual shall become a Participant automatically when he becomes an Eligible Individual unless he refuses in writing in a form acceptable to the Administrator that is received by the Administrator before the Eligible Individual's Enrollment Date. 3.3 CESSATION OF PARTICIPATION. Subject to Section 12.2, a Board Member and an Officer shall be a Participant and receive coverage under this Plan for his life. A Participant (other than a Board Member or an Officer) shall be a Participant and receive coverage under the Plan until his 65th birthday and such a Participant's spouse shall be a Covered Dependent and receive coverage under the Plan until her 65th birthday; provided, however, that notwithstanding anything in this Plan to the contrary, a Participant (other than a Board Member or an Officer) shall also cease to be a Participant (and his spouse shall also cease to be a Covered Dependent) as of the earliest of (a) the date on which the Plan terminates as provided in Section 12.2; (b) the date on which the Participant (other than a Board Member or an Officer) or his spouse fails to satisfy the eligibility criteria of the Plan; or (c) the date on which his election to receive medical care under this Plan terminates or expires according to its written terms. Subject to Section 12.2, a Spouse shall receive coverage under the Plan for her life. A Covered Dependent (other than a Spouse and the spouse of a Participant who is neither a Board Member nor an Officer) shall receive coverage under the Plan until his or her Participant reaches his 65th birthday; provided, however, that notwithstanding anything in this Plan to the contrary, a Covered Dependent (other than a Spouse and the spouse of a Participant who is neither a Board Member nor an Officer) shall also cease to be a Covered Dependent as of the earliest of: (a) the date on which the Plan terminates as provided in Section 12.2; (b) the date on which the Covered Dependent fails to satisfy the eligibility criteria of the Plan; or (c) the date on which his election to receive medical care under this Plan terminates or expires according to its written terms. 8 17 3.4 USERRA REINSTATEMENT RULES. (a) This Plan shall provide any health benefits otherwise available to Eligible Employees, if any, in accordance with USERRA and this Section, effective with respect to Military Leaves that began on or after October 13, 1994. (b) The maximum period of Plan coverage available to an Eligible Employee and his Dependents under this Section will not exceed the lesser of (i) eighteen months or (ii) the period ending on the day after the date upon which the person fails to apply for a return to a position of employment under section 4312(a) of USERRA. The period of Plan coverage available under this Section shall begin on the date on which the person's qualifying absence begins. (c) Only for purposes of determining eligibility for medical benefits and only if the Eligible Employee pays all amounts that the Employer is permitted to charge under USERRA for coverage while on a qualifying leave, an Eligible Employee who experiences a reduction in hours or termination of employment solely due to a Military Leave shall be deemed to continue to be an employee until the earliest date that the termination of his Plan benefits is permitted by USERRA and this Section. 3.5 FMLA COMPLIANCE. (a) This Plan shall provide any health benefits otherwise available to Eligible Employees, if any, in accordance with FMLA for Eligible Employees. (b) Unless an Eligible Employee chose not to retain health coverage, the Employer must maintain medical coverage under the Plan, if any, for such an Eligible Employee on FMLA leave for the duration of his FMLA leave, at the level and under the conditions that coverage would have been provided if the Eligible Employee had continued working and had not taken a FMLA leave. (c) An Eligible Employee on FMLA leave shall have the same opportunity as active employees to change Plan coverage, such as from single coverage to family coverage on the birth of a child, as required by FMLA. (d) The Employer's obligation to continue to maintain health coverage under FMLA and this Section ends on the earliest of the following dates: (1) the date the Eligible Employee informs the Employer of his intent not to return from a FMLA leave; 9 18 (2) the date the Eligible Employee's employment relationship would be terminated but for the FMLA leave (such as during a reduction in force); (3) the date the Eligible Employee fails to return from the FMLA leave; or (4) the date the Eligible Employee fails to pay a required employee contribution when due. (e) Former Participants who lose eligibility during a FMLA leave will have their benefits reinstated upon their return at the end of the FMLA leave at the same levels as were provided to them under the Plan when their FMLA leave began, but subject to any changes in benefit levels that may have occurred during the leave that affected the entire work force. Participants returning from FMLA leave shall not be required to requalify for any benefits. 3.6 REINSTATEMENT OF FORMER PARTICIPANT. A former Participant who again meets the eligibility requirements under Section 3.1 will receive medical coverages and benefits under the Plan and become a Participant in this Plan again on the first day the former Participant satisfies the requirements of Section 3. 1, unless the former Participant is (i) reinstated as a Participant in the Plan as provided by Sections 3.4 and 3.5 or (ii) declines participation as provided under Section 3.2. 3.7 NO ELIGIBILITY DISCRIMINATION DUE TO HEALTH. The Plan shall not establish rules for eligibility (including continued eligibility) for any individual under the Plan that are based on one or more Health Status-Related Factors of the individual or his Dependent. 3.8 SPECIAL ENROLLMENTS. (a) Notwithstanding any provision to the contrary, an Eligible Individual or an eligible Dependent of an Eligible Individual may elect health care coverage under Special Enrollment, but only if (1) the Eligible Individual (or the eligible Dependent) was covered under a group health plan or health insurance at the time coverage was offered under this Plan; (2) the Eligible Individual (or the eligible Dependent) declined coverage under the Plan in writing for the stated reason that he had the other health coverage; (3) the Eligible Individual (or the eligible Dependent) has "Exhausted COBRA Coverage" or the other health coverage (or the individual's former employer's contribution toward the cost of such coverage) has terminated; and 10 19 (4) the Eligible Individual (or the eligible Dependent) requests Special Enrollment under this Section in writing within thirty (30) days after the date he or she lost his or her other health coverage. For purposes of this Plan, a person shall be treated as if they have "Exhausted COBRA Coverage" if that individual's COBRA coverage ceased for any reason other than either failure of the individual to pay premiums on a timely basis or for cause (such as making a fraudulent claim or an intentional misrepresentation of a material fact in connection with the plan). A person has "Exhausted COBRA Coverage" if the COBRA coverage ceases because either (a) the employer or other responsible entity fails to remit the premiums on a timely basis, or (b) the individual no longer resides in the service area of an HMO or a similar program (whether or not within the choice of the individual) and there is no other COBRA coverage available to the individual. (b) Special Enrollment must be offered to Dependents if. (a) the Plan offers Dependent coverage, (b) the Eligible Individual is a Participant under the Plan or has met the Waiting Period and is eligible for coverage but for his failure to enroll during a previous enrollment period, and (c) the Dependent became a new Dependent as -a result of marriage, birth, adoption or being Placed for Adoption. A thirty (30) day Special Enrollment period shall be offered to such Dependent beginning on the later of (i) the date Dependent coverage is made available or (ii) the date of marriage, birth, adoption or being Placed for Adoption, as the case may be. If a Special Enrollment period is offered to a new Dependent under the Plan, the Eligible Individual who has the new Dependent may also enroll under the Plan during that Special Enrollment period if he is not already a Participant. Coverage that is timely elected during a Special Enrollment period shall be effective (i) if due to loss of coverage, on the first day of the month after receipt of the completed enrollment request under the Plan, (ii) if due to birth, on the date of birth, (iii) if due to adoption or being Placed for Adoption, the date it occurred and (iv) if due to marriage, on the first day of the month after receipt of the completed enrollment request under the Plan. A person who enrolls during a Special Enrollment period is not a Late Enrollee. ARTICLE IV ELECTION TO RECEIVE MEDICAL CARE BENEFITS 4.1 ELECTION OF BENEFIT OPTIONS. An Eligible Individual shall be deemed to have elected to receive medical care coverages and benefits under the Plan as described in the Policy in effect on his Enrollment Date. If no Policy is in effect on his Enrollment Date, an Eligible Individual will be deemed to have elected to receive medical coverage and benefits under the 11 20 Plan as described in the Policy in effect immediately prior to his Enrollment Date. An Eligible Individual who declined participation during an Enrollment Period will become a Participant in the subsequent Enrollment Period, if any, during which he does not refuse to become a Participant. 4.2 ELECTION PROCEDURE. An Eligible Individual may decline to participate in this Plan by filing a properly completed election form with the Administrator. 4.3 NO PREMIUM DISCRIMINATION DUE TO HEALTH. The Plan shall not require an individual (as a condition of enrollment or continued enrollment under the Plan) to pay a premium or otherwise contribute an amount which exceeds the amount paid by a similarly situated individual solely due to a Health Status - Related Factor of the individual; provided, however, that the rules regarding Health Status-Related Factors do not restrict the amount an Employer may charge for coverage or prevent premium discounts or rebates or modified deductibles and co-payments in return for adherence to programs of health promotion and disease prevention. ARTICLE V MEDICAL CARE BENEFITS 5.1 BENEFITS. The Administrator shall offer to each Eligible Individual, at the time he becomes eligible under ARTICLE III and at each subsequent Enrollment Period applicable to that Eligible Individual, if any, the opportunity to participate in the Plan. Subject to SECTION 12.1, the specific coverages and benefits available to Participants are set forth in the Policy or if there is no Policy, in the Policy last in effect in connection with the Plan. The benefits and coverages under this Plan shall continue for the lifetime of each Board Member, each Officer and each Spouse. 5.2 PRE-EXISTING CONDITIONS. (a) PRE-EXISTING CONDITIONS. The Plan will not pay any benefits for the care or treatment of pre-existing conditions (as defined in the Policy) for the period of time set forth in the Policy; provided, however, that (i) notwithstanding anything in this Plan or any Policy to the contrary, a pre-existing condition in the Policy shall not include any condition that does not fall within the definition of a Pre-existing Condition, (ii) no pre-existing condition shall include a condition for which Genetic Information was used as a basis for asserting the existence of the condition if there has been no diagnosis of the condition related to such information, and (iii) the period during which any exclusion or limitation of benefits (relating to a condition based on the fact that the condition was present before a person's Enrollment Date) in the Plan or the Policy will be enforced shall not be longer than the excess of twelve (12) months (eighteen (18) months for a Late Enrollee), beginning on his Enrollment Date, over the aggregate 12 21 of the periods of Creditable Coverage (if any) applicable to the Participant as of his Enrollment Date. For purposes of this subsection, a period of Creditable Coverage shall not be counted, with respect to enrollment of an individual under the Plan, if, after such period and before his Enrollment Date, there was a 63 -day period for all of which the individual was not credited with Creditable Coverage. However, any period that an individual is required to wait before becoming covered under the Plan pursuant to the Policy or ARTICLE III shall not be taken into account in determining the continuous 63-day period described in the preceding sentence. The individual seeking to become a Participant and who seeks to establish a period of Creditable Coverage must obtain and provide to the Administrator a written certification from the prior health insurance plan or the prior health insurance issuer regarding each period of Creditable Coverage of the individual under such prior health insurance plan and COBRA continuation provisions. Such certification should detail the Waiting Period, if any, imposed with respect to the individual for any coverage under such other health insurance plan. If a written certification cannot be produced, Creditable Coverage may be demonstrated through the presentation of other documentation or through other means satisfactory to the Administrator. (b) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS. The Plan shall not impose any pre-existing condition exclusion (as defined in the Policy) in the case of an individual who, as of the last day of the thirty (30) day period beginning with the date of birth, is covered under Creditable Coverage. However, this exclusion shall no longer apply to an individual after the end of the first 63-day period during all of which the individual was not covered under any Creditable Coverage. (c) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHILDREN. The Plan shall not impose any pre-existing condition exclusion (as defined in the Policy) in the case of a child who is adopted or Placed for Adoption before attaining eighteen (18) years of age and who, as of the last day of the thirty (30) day period beginning on the date of the adoption or Placement of Adoption, is covered under Creditable Coverage. The previous sentence shall not apply to coverage before the date of such adoption or Placement for Adoption. However, this exclusion shall no longer apply to an individual after the end of the first 63-day period during all of which the individual was not covered under any Creditable Coverage. (d) EXCLUSION NOT APPLICABLE TO PREGNANCY. The Plan shall not impose any exclusion relating to pregnancy as a pre-existing condition. 13 22 (e) NOTICE OF CREDITABLE COVERAGE. The Administrator or its designee shall provide written certification of Creditable Coverage to any individual whose coverage terminates under the Plan (i) at the time of the Qualifying Event or other termination of coverage, (ii) at the time COBRA coverage ceases, and (iii) upon any written request made by an individual not later than twenty-four (24) months after his Plan coverage ceased. The written certification will include (i) the date the certificate is issued, (ii) the name of the plan that provided the coverage, (iii) the name of the participant and/or dependents to whom the certificate applies, (iv) the name, address, and telephone number of the plan administrator, (v) the telephone number of the person to contact for additional information, and (vi) either (a) a statement that the individual has at least 18 months of Creditable Coverage without a 63-day break in coverage, or (b) state (A) the Waiting Period (if any) imposed on the individual for coverage under the plan, (B) the date coverage began, and (C) the date coverage ended (or indicate if it is continuing). (f) NOTICE TO INDIVIDUAL OF PRE-EXISTING CONDITION EXCLUSION. After the Plan receives a Creditable Coverage certificate from a prior plan, the Plan will make a determination and notify individuals within a reasonable period of time regarding the length of any Pre-Existing Condition Exclusion period that applies to them. If no Pre-Existing Condition Exclusion applies to the individual, the Plan will not send a notice. The notice shall explain the basis of the Plan's determination, including the source and substance of any information that the Plan relied on, and the Plan's appeal procedures. 5.3 NOTIFICATION OF ENROLLMENT RIGHTS. All Eligible Individuals shall be provided with a notice of his or her enrollment rights in writing at or before the time the Eligible Individual elects to enroll, and such notification shall be substantially in the same form as provided in Temp. Treas. Reg.ss. 54.9801-6T(c) and Interim U.S. Department of Labor Regulations.2590.701-6(c). 5.4 NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT OF 1996. Notwithstanding the precertification requirements of the Plan to the contrary, the Plan shall provide maternity care benefits in accordance with the Newborns' and Mothers' Health Protection Act of 1996 (the "Newborns' Act"), effective on the date specified in the Newborns' Act. In accordance with the Newborns' Act, the Plan shall provide benefits for a minimum of 48 hours of inpatient hospital stay following a normal vaginal delivery and a minimum of 96 hours of inpatient hospital stay following caesarean section delivery unless the health care provider and the mother agree that discharge from the hospital shall occur earlier. 5.5 MENTAL HEALTH PARITY ACT OF 1996. In accordance with the Mental Health Parity Act of 1996, the lifetime maximum limit and the annual maximum limit on mental health benefits under the Plan shall be at least equal to the lifetime maximum limit and the annual 14 23 maximum limit, respectively, for medical and surgical benefits under the Plan, unless one or more of the exceptions set forth in the Mental Health Parity Act of 1996 apply 5.6 WOMEN'S HEALTH AND CANCER RIGHTS ACT OF 1998. Medical and surgical benefits provided for mastectomies under the Plan will be provided in accordance with the Women's Health and Cancer Rights Act of 1998 (the "Women's Health Act"). In accordance with the Women's Health Act, coverage will be provided for the following: (a) reconstruction of the breast on which the mastectomy has been performed; (b) surgery and reconstruction of the other breast to produce a symmetrical appearance; and (c) prostheses and coverage for any complications in all stages of mastectomy, including lymphedema. ARTICLE VI PAYMENT OF MEDICAL CARE EXPENSE REIMBURSEMENTS 6.1 CLAIMS PROCEDURE. Participants and Covered Dependents seeking benefits under the Plan shall follow the claims procedures established by the Policy under which they are covered, if any, at the time and the procedures set forth in SECTION 11.9. Notwithstanding the claim filing procedures established by this Plan or the applicable Policy, the Health Care Financing Administration shall have three years from the date a claim is filed to seek recovery of a mistaken payment when this Plan should have paid as the "Primary Plan" and Medicare should have paid as the "Secondary Plan" pursuant to ARTICLE VII. 6.2 REIMBURSEMENT OF EXPENSES. All Qualified Medical Expenses of a Participant or Covered Dependent that are covered under the Policy shall be reimbursed as set forth in the Policy. ARTICLE VII COORDINATION OF BENEFITS 7.1 EXPLANATION. When a Participant is covered under this Plan and by one or more other Group Plans, the benefits of this Plan shall be coordinated and determined in accordance with the provisions of this Article. This Article is intended to prevent the payment of medical benefits which exceed expenses. Determination of benefits shall be made in relation to the services furnished to a Participant during any one calendar year. 15 24 7.2 DEFINITIONS. The following definitions apply to this Article. (a) "Group Plan" means any group or group-type arrangement of coverage whether insured or uninsured which provides health benefits or services to a Participant (including the Policy under this Plan), either by indemnity or prepaid services, by means of (i) group or blanket insurance, (ii) franchise insurance that terminates upon cessation of employment, (iii) group hospital or medical service plans and other group prepayment coverage, or (iv) any coverage under labor-management trusteed arrangements, union medical arrangements, employer organization arrangements, government benefit arrangements or government programs (excluding Medicare). (b) "Allowable Expenses" means any necessary, reasonable, and customary item of expense for health care when the item of expense is covered at least in part by one or more Group Plans covering the Participant for whom claim is made. An Allowable Expense does not include (i) differences between the cost of an average semiprivate hospital room and a private hospital room unless the private hospital room is medically necessary (as defined in the Policy), or (ii) the amount of any reduction in benefits because a Participant does not comply with the Group Plat) provisions. (c) "Primary Plan" means the Group Plan whose benefits for a Participant's health care coverage must be determined without consideration of the existence of any other plan. (d) "Secondary Plan" means a Group Plan which is not a Primary Plan. If a Participant is covered by more than one Secondary Plan, the order of benefit determination rules decide the order in which their benefits are determined in relation to each other. 7.3 COORDINATION OF BENEFITS PROCEDURE. Without regard to what is stated in the Policy, this Plan determines its order of benefits using the first of the following rules which applies: (a) The benefits of a Group Plan which covers the Participant (on whose expenses the claim is based) other than as a Dependent shall be determined before the benefits of a Group Plan which covers the Participant as a Dependent. (b) The benefits of a Group Plan which covers the Participant (on whose expenses the claim is based) as a Dependent of a person whose birthday occurs earlier in a calendar year shall be determined before the benefits of a Group Plan which covers such Participant as a Dependent of a person whose birthday occurs later in a calendar year. However, if either Group Plan does not have the provisions of this subsection (b) and the omission results either in each Group Plan determining its benefits before the other, 16 25 or in each Group Plan determining its benefits after the other, the provisions of this subsection (b) shall not apply, and the rule set forth in the other Group Plan shall determine the order of benefits; provided, however, that notwithstanding anything to the contrary in the Plan, in the case of a Participant for whom claim is made as a Dependent child: (1) When the parents are separated or divorced and the parent with custody of the child has not remarried, the benefits of a Group Plan which covers the child as a Dependent of the parent with custody of the child will be determined before the benefits of a Group Plan which covers the child as a Dependent of the parent without custody. (2) When the parents are divorced and the parent with custody of the child has remarried, the benefits of a Group Plan which covers the child as a Dependent of the parent with custody shall be determined before the benefits of a Group Plan which covers that child as a Dependent of the stepparent, and the benefits of a Group Plan which covers that child as a Dependent of the stepparent will be determined before the benefits of a Group Plan which covers that child as a Dependent of the parent without custody. (3) Notwithstanding subparagraphs (1) and (2) of this subsection (b), when the parents are divorced or separated and there is a court decree which would otherwise establish financial responsibility for the health care expenses of the child, the benefits of a Group Plan which covers the child as a Dependent of the person with such financial responsibility shall be determined before the benefits of any other Group Plan which covers the child as a Dependent. (c) When subsections (a) and (b) above do not establish an order of benefits determination, the benefits of a Group Plan which has covered the Participant (on whose expenses the claim is based) for the longer period of time shall be determined before the benefits of a Group Plan which has covered such Participant for the shorter period of time, except that: (1) The benefits of a Group Plan covering the Participant (on whose expenses the claim is based) as a laid-off or retired employee or as a Dependent of such a Participant shall be determined after the benefits of any other Group Plan covering such Participant as an employee other than as a laid-off or retired employee or a dependent of such a person; and (2) If either Group Plan does not have a provision regarding laid-off or retired employees and as a result each Group Plan determines its 17 26 benefits after the other, the provisions of this subsection (c) do not apply. (d) When another Group Plan is a Primary Plan under the order of benefit determination rules contained in this Article but such Group Plan contains "excess" or "always secondary" provisions, the Group Plan which has been in force for the longest period of time will be the Primary Plan. (e) When this Plan is the Secondary Plan, the benefits of the other Group Plan shall be deducted from the charges for all items of Allowable Expenses for which any benefit is provided under this Plan or the other Group Plan and this Plan will pay the remainder of the charges for such items; provided, however, that in no event shall the provisions of this Article be construed to increase the amount of total benefits which would be available under the Plan in the absence of another Group Plan. (f) If this Plan is the Secondary Plan under this Article, but is unable to determine the benefits of the other Group Plan, this Plan may estimate in good faith the benefits of the other Group Plan and provide the benefits of this Plan on the basis of that estimate. Payment under this subsection shall constitute full discharge of the liability of the Plan for the charges involved, subject only to adjustment in the event the Plan later determines the actual benefits of the other Group Plan. 7.4 EXISTENCE OF OTHER GROUP PLANS. This Plan assumes no obligation to discover the existence of another Group Plan or the benefits available under it if discovered. This Plan will give effect to the provisions of this Article in accordance with information furnished it by an authoritative source. This Plan shall, however, be entitled to obtain and to release such information as reasonably necessary to give effect to these provisions without the consent of or notice to any person, and any person claiming benefits under this Article shall, as a condition precedent to his right of recovery, furnish to the Plan full information concerning the existence of other Group Plans, their benefits, and any other information as may be necessary to implement this Article. 7.5 RECOVERY AND PAYMENT OF BENEFITS. The Plan shall be entitled at any time to recover benefits paid in excess of its obligation determined under the provisions of this Article, irrespective of to whom such benefits were paid, from an issuer, insurer, provider under the other Group Plan, hospital, physician or other provider, any person or firm to (or for) whom such payment was made, or from any combination of such sources. When benefits have been paid under another Group Plan, the Plan shall have the right, in its discretion, to pay to the issuer or provider of such other Group Plan any portion of the benefits available under this Plan which the Plan may determine to be due in order to give effect to the intent of this Article and corresponding coordination of benefits provisions in such other Group Plan. The amount so paid shall be deemed to be benefits provided under this Plan and to the extent the Plan shall be fully discharged from liability. 18 27 7.6 COORDINATION WITH MEDICARE, MEDICAID AND CHAMPUS. The term "Group Plan" as used in this Article includes Medicare, Medicaid and CHAMPUS, and the statutes, regulations, and other laws governing these programs take precedence over the order of determination set forth in this Plan. Any Participant eligible for Medicare has the following rights to coordinate the coverage under this Plan with Medicare coverage and should see the Administrator to determine what elections may be available with respect to primary and secondary Medicare coverage and to obtain election forms. (a) AGE SIXTY-FIVE (65) AND OLDER. Individuals and their eligible spouses age sixty-five (65) or older are entitled to receive the same Plan benefits, under the same conditions, as those Individuals and Covered Dependents under age sixty-five (65). The Plan is the Primary Plan and Medicare is the Secondary Plan unless the Participant elects otherwise, as set forth below. (b) DISABLED INDIVIDUALS AND COVERED DEPENDENTS. Individuals and their Covered Dependents who become eligible for Medicare by reason of disability rather than by age (even though they are not sixty-five (65) years of age) are entitled to the same Plan benefits, under the same conditions, as other Participants. The Plan is the Primary Plan and Medicare is the Secondary Plan with respect to these disabled persons. (c) PARTICIPANTS WITH END STAGE RENAL DISEASE. Participants who are medically determined to have end stage renal disease (as defined by Medicare) are entitled to the same Plan benefits, under the same conditions, as other Participants for the first thirty (30) month period following the earlier of (i) initiation of renal dialysis, or (ii) eligibility for Medicare benefits due to such condition. The Plan is the Primary Plan and Medicare is the Secondary Plan with respect to these Participants. (d) MEDICARE ELECTION NOTICE. Each Individual who is eligible for Medicare upon attainment of age sixty-five (65) must complete a Medicare Election Notice Form notifying the Employer that they want Medicare as the Primary Plan with this Plan as the Secondary Plan. If the Individual's spouse is age sixty-five (65) or older, such spouse will also be subject to the Individual's election of the Primary Plan. (e) COORDINATION WITH MEDICARE. Subject to the above provisions and to the extent permitted by Medicare, medical benefits payable under this Plan will be coordinated with Medicare. Such coordination will apply whether or not the Participant has or has not applied for or is receiving Medicare. (f) MEDICAID BENEFICIARY. When enrolling an individual or making any payments for medical benefits to a Participant or on a Participant's behalf, 19 28 the Plan shall not take into account the Participant's eligibility for medical assistance or benefits payable under a plan under 42 U.S.C.ss. 1396, et seq. The effective date for this subsection (f) was October 1, 1993. 7.7 SUBROGATION. If a Participant incurs charges for any sickness, injury or other condition through the acts or omissions of another person or organization, the Plan shall pay the medical benefits which are medically necessary and provided by this Plan, subject to the following conditions: (a) The Participant shall advise the Administrator of any claim against a third party or insurance carrier within sixty (60) days of the occurrence of the sickness or injury, shall provide the Plan with any information necessary to pursue its rights and shall cooperate with the Administrator and shall do whatever is necessary to secure those rights. The Participant agrees to do nothing which would prejudice those rights; (b) The Plan shall be subrogated, to the extent of payments made for medical benefits, to all of the Participant's rights of recovery of those medical benefits against any person or organization who, by reason of such person's acts or omissions, is responsible for the sickness or injury in question; (c) It is agreed that if the Participant fails to take the necessary legal action to recover from a responsible party within one (1) year after the date of the sickness or injury, the Plan may proceed in the name of the Participant against the responsible party and will be entitled to the recovery of the amount of medical benefits paid and the expenses for that recovery; (d) The Plan will have a lien against the proceeds of a settlement or judgment resulting from a Participant's claim or suit against a third party in an amount equal to all sums paid by the Plan with respect to the illness or injury in question, regardless of whether the proceeds of such settlement or judgment are designated as payment for other specified damages. The Employer shall be entitled to notify third parties, including insurance carriers, of this lien. The Employer may deduct the amount covered by the lien from any future claims payable to the Participant if the lien has not been previously satisfied or the Participant fails to notify the Employer of payment received from the third party; and (e) The Participant must agree in writing, prior to his entitlement to medical benefits: (1) To reimburse the Plan for medical benefits paid under the Plan immediately upon receipt of any damages collected from a third party, whether pursuant to judgment, settlement or otherwise, net of reasonable expenses incurred in collecting such amount, such as 20 29 reasonable attorneys' fees, and any amounts which are allocated under the terms of any judgment for payment of unreimbursed medical expenses; (2) To execute and deliver such instruments and do whatever else is reasonably necessary to secure the Plan's right to reimbursement of medical payments and to provide the Plan such information as is necessary to enforce its rights under this provision; (3) To agree to a credit against payments to be made under the Plan in the future equal to the amount of any damages collected by the Participant from a third party, less any amount paid to the Plan; (4) If a covered person fails to comply with these requirements, he will not be eligible to receive any further medical benefits under the Plan until he complies; and (5) The Plan has the right to intervene at its own expense in any suit or other proceeding to protect these reimbursement rights. The Participant is responsible for all fees and expenses of the attorney handling his or her claim against the third party. In the event the Plan recovers an amount greater than the medical benefit paid, the excess over the expenses of recovery will be paid to the Participant. The Plan reserves the right to compromise the amount of its claim if, in its opinion, it is appropriate to do so. The Administrator may, in its sole discretion, elect not to enforce this provision. ARTICLE VIII TERMINATION OF PARTICIPATION 8.1 LIMITATION ON COVERED EXPENSES. In the event that an individual ceases to be a Participant or Covered Dependent in this Plan for any reason, the individual (or his estate) shall be entitled to reimbursement only for Qualified Medical Expenses incurred and submitted for reimbursement (following the date the expense was incurred) in accordance with the terms of the Policy, but only if the expense was incurred while the individual was a Participant or Covered Dependent, and only if the individual (or his estate) applies for such reimbursement in the time and manner provided in the Policy. Except to the extent required in Article IX, no such reimbursement shall exceed the coverage limitations provided by the Policy. 8.2 DATE OF POLICY COVERAGE TERMINATION. Coverage provided by a Policy shall terminate according to the terms of the Policy unless continued pursuant to SECTION 3.4, SECTION 3.5, or ARTICLE IX. Termination of a Policy shall not terminate this Plan or its obligations. 21 30 ARTICLE IX CONTINUATION COVERAGE UNDER "COBRA" 9.1 SPECIAL DEFINITIONS. For purposes of this Article, the following terms shall have the meaning given them as follows: (a) "Qualified Beneficiary" means any individual who was the spouse of a Participant or the dependent child of a Participant whose expenses were eligible for reimbursement under the Plan on the day before a Qualifying Event, unless that individual was entitled to benefits under Title XVIII of the Social Security Act on the day before the Qualifying Event. Notwithstanding anything to the contrary in the preceding sentence, the term "Qualified Beneficiary" shall also include a child who is born to, or Placed for Adoption with the Participant during the COBRA continuation period as determined under SECTION 9.6. (1) In the case of a Qualifying Event described in SECTION 9.1(b)(2), the term "Qualified Beneficiary" also includes the Participant, unless the Participant is not an employee or was entitled to benefits under Title XVIII of the Social Security Act on the day before the Qualifying Event. (2) In the case of a Qualifying Event described in SECTION 9.1(b)(6), the term "Qualified Beneficiary" includes a Participant who had retired on or before the date of substantial elimination of coverage under this Plan and any other individual who on the day before such Qualifying Event was a beneficiary under this Plan as a spouse, surviving spouse or dependent child of the Participant. (b) "Qualifying Event" means any of the following events which would result in the loss of coverage under this Plan for a Qualified Beneficiary: (1) The death of the Participant, (2) The termination of the Participant's employment with an Employer (for reasons other than the Participant's gross misconduct), the reduction of hours of the Participant's employment, or a Participant's notice to the Administrator he will not return to work from a leave of absence under FMLA, (3) The divorce or legal separation of the Participant, (4) The Participant's becoming entitled to benefits under Title XVIII of the Social Security Act, 22 31 (5) A dependent child ceasing to be a dependent child under this Plan, or (6) A proceeding under Title II of the United States Code with respect to the Employer from whose employment the Participant retired at any time. 9.2 ENTITLEMENT TO CONTINUATION COVERAGE. (a) Notwithstanding any other provision of this Plan, a Qualified Beneficiary who would otherwise lose coverage under this Plan as a result of a Qualifying Event is entitled to elect continuation coverage from the Employer under this Plan. (b) The continuation coverage will consist of coverage which, as of the time the coverage is being provided, is identical to the coverage provided under the Plan to similarly situated beneficiaries under the Plan with respect to whom a Qualifying Event has not occurred. If coverage under the Plan is modified for any group of similarly situated beneficiaries, coverage will be modified in the same manner for the Qualified Beneficiaries. (c) The continuation coverage provided in this Article will not be conditioned upon or discriminate on the basis of lack of evidence of insurability. 9.3 NOTICE REQUIRED. (a) At the time that coverage commences under this Plan, Participants and their spouses, if any, shall be given written notice of their rights under this Article. (b) The Employer of any affected Participant shall notify the Administrator of any Qualifying Event described in SECTION 9.1(b)(1), (2), (4) or (6) within thirty (30) days after the date of such Qualifying Event. (c) Each Qualified Beneficiary shall notify the Administrator of the occurrence of a Qualifying Event described in SECTION 9.1(b)(3) or (5) within sixty (60) days after the later of the date of such Qualifying Event or the date as of which the Qualified Beneficiary would otherwise lose coverage under the Plan as a result of that Qualifying Event. If the Qualified Beneficiary fails to notify the Administrator of such a Qualifying Event within such sixty (60) day period, such Qualified Beneficiary shall forfeit his right to elect continuation coverage under this Article. (d) Any Qualified Beneficiary who is determined, under Titles II or XVI of the Social Security Act, to have been disabled at any time during the first sixty (60) days of continuation coverage that began as a result of a 23 32 Qualifying Event described in SECTION 9.1(b)(2) shall so notify the Administrator within sixty (60) days of such determination; provided, however, that such notice must occur in any event before the expiration of the initial eighteen (18) month period following the Qualifying Event. In addition, such Qualified Beneficiary shall notify the Administrator within thirty (30) days of any final determination that he is no longer disabled. (e) Within fourteen (14) days after the Administrator is notified of a Qualifying Event, the Administrator shall notify any Qualified Beneficiary of his or her rights under this Article. Notice to a Qualified Beneficiary who is the spouse or former spouse of a Participant will be treated as notice to all other Qualified Beneficiaries residing with such spouse at the time such notice is given. 9.4 ELECTION OF CONTINUATION COVERAGE. Any Qualified Beneficiary who desires continuation coverage under this Plan must make an election during the applicable "election period" which begins on the date coverage would otherwise terminate under the Plan by reason of a Qualifying Event, and ends sixty (60) days after such date or sixty (60) days after the date the Qualified Beneficiary receives notice of his or her fight to elect continuation coverage, whichever is later. Unless specified otherwise in the election, any election by a Participant or spouse to continue coverage under this Plan shall be deemed to be an election of continuation coverage on behalf of any other Qualified Beneficiary who would otherwise lose coverage under the Plan by reason of the same Qualifying Event. 9.5 PREMIUMS. The Qualified Beneficiary may be required to pay premiums for any period of continuation coverage up to one hundred two percent (102%) of the applicable premium, as defined under and determined in accordance with Code section 498013(f)(4) and ERISA section 604; provided, however, that notwithstanding the foregoing, that a Qualified Beneficiary who is entitled to extended coverage under SECTION 9.6(a)(1)(A) may be required to pay premiums up to one hundred fifty percent (150%) of the applicable premium for the coverage period following the initial eighteen (18) month period. Premiums shall be payable in monthly installments on the first day of every month; provided, however, that the premium payment for the period of coverage prior to the date of the participant's initial election shall not be required prior to forty-five (45) days after the date of the election. 9.6 PERIOD OF CONTINUATION COVERAGE. Continuation of coverage timely and properly elected by any Qualified Beneficiary under this Article shall extend for a period that begins on the date of the Qualifying Event, and ends on the earliest of the following dates: (a) Maximum Period. (1) In the case of a Qualifying Event described in SECTION 9.1(b)(2), the date which is eighteen (18) months after the date of the Qualifying Event; provided, however, (A) if the Qualified Beneficiary is. determined to have been disabled at any time during the first 60 days of continuation 24 33 coverage following the Qualifying Event under Titles 11 or XVI of the Social Security Act, and if the Qualified Beneficiary has timely notified the Administrator of such determination in accordance with SECTION 9.3(d), the maximum period for that Qualified Beneficiary and the covered members of the Qualified Beneficiary's family shall end on the earlier of (i) the date which is 29 months after the date of the Qualifying Event, or (ii) the first day of the month commencing more than thirty (30) days after a final determination that the Qualified Beneficiary is no longer disabled; (B) if another Qualifying Event, other than the one described in SECTION 9.1(b)(6), occurs during such eighteen (18) month period, the date which is thirty-six (36) months after the date of the original Qualifying Event; and (2) In the case of a Qualifying Event described in Section 9.1(b)(2) that occurs less than 18 months after the date the Covered Individual became entitled to benefits under Article XVIII of the Social Security Act, the period of coverage for Qualified Beneficiaries other than the Participant shall not terminate before the date which is thirty-six (36) months after the date the Participant became entitled to benefits under Title XVIII of the Social Security Act, regardless of whether such entitlement was the sole Qualifying Event or if entitlement preceded the Qualifying Event. (3) In the case of a Qualifying Event described in SECTION 9.1(b)(6), the date of death of the former Participant; or if the Qualifying Event occurs after the death of the former Participant, the date of death of the surviving spouse of the former participant; or with regard to the surviving spouse or dependent children of a former Participant who dies after the Qualifying Event, the date which is thirty-six (36) months after the date of the former Participant's death. (4) In the case of any other Qualifying Event, the date which is thirty-six (36) months after the date of the Qualifying Event; (b) The date on which the Employer of the Participant ceases to provide any group health plan to any employee; (c) If a premium is unpaid when due, the date that is thirty (30) days after the first day on which the premium is due under this Plan, or, if later, the date 25 34 on which Participants would lose their coverage under this Plan due to failure to pay premiums when due; (d) The first date after a valid COBRA election is made that the Qualified Beneficiary becomes entitled to benefits under Title XVIII of the Social Security Act; or (e) The first date after a valid COBRA election is made that the Qualified Beneficiary becomes covered under any other group health plan, as an employee or otherwise; provided, however, that in order for this to stop a continuation of coverage period, such other plan may not contain any exclusion or limitation for pre-existing conditions with respect to the Qualified Beneficiary, and provided, however, that for any period commencing after December 31, 1996, the coverage provided under a group health plan with respect to a Qualified Beneficiary who has continuation coverage under the Plan shall not be considered to contain any exclusion or limitation with respect to any Pre-Existing Condition of that person by reason of the existence of any limitation or exclusion which does not apply to (or is satisfied by) such person continuing the coverage by reason of Chapter 100 of the Code, part 7 of the subtitle B of Title I of ERISA or Title XXVII of the Public Health Service. 9.7 EXPIRATION OF CONTINUATION COVERAGE. In the case of any Qualified Beneficiary whose continuation coverage expires under Section 9.6(a), the Administrator shall, during the thirty-one (31) day period ending on such expiration date, provide to the Qualified Beneficiary the option of enrolling in a conversion plan otherwise generally available to Participants under the Plan, if any. No conversion coverage shall be available to Participants under this Plan. ARTICLE X FUNDING Except for Board Members, Officers and Spouses, the Plan shall be funded solely by contributions from Participants and Covered Dependents. In the case of a Board Member, an Officer or a Spouse, notwithstanding anything in the Plan or any other agreement to the contrary, the Sponsor will pay (i) all of the cost of all of the Plan's benefits and coverages for that individual for that individual's lifetime and (ii) to the individual, an additional sum in the amount necessary to reimburse such individual for any federal income tax liability resulting from (or associated with) the Sponsor's payments to or for the benefit of the individual under this Plan, so that the benefits and coverages under this Plan for that individual are provided at no cost to that individual. The Employers shall have no obligation, but shall have the right, to establish a special trust or fund out of which benefits shall be paid. The Employers shall have no obligation, but shall have the right, to reinsure, or to purchase any type of additional coverage with respect to 26 35 any benefits under the Plan. To the extent the Employer elects to purchase insurance for any benefits under the Plan, any such benefits shall be the sole responsibility of the insurer, and the Employer shall have no responsibility for the payment of such benefits (except for refunding any Participant contributions that were not remitted to an insurer). ARTICLE XI ADMINISTRATION 11.1 NAMED FIDUCIARY. The Named Fiduciaries of the Plan shall be the Administrator, and any insurer or other persons, to the extent of its or their discretionary authority with regard to the administration of the Plan. Except as otherwise provided in the Policy, the Administrator shall have complete authority to control and manage the operation and administration of the Plan. The Administrator, subject to the succeeding provisions of this ARTICLE XI, is authorized to take such actions as may be necessary to carry out the provisions and purposes of the Plan and shall have the authority to control and manage the operation and administration of the Plan. In order to effectuate the purposes of the Plan, the Administrator shall have the discretionary power to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors made in the administration of the Plan. All such actions or determinations made by the Named Fiduciaries, and the application of rules and regulations to a particular case or issue by the Named Fiduciaries, in good faith, shall not be subject to review by anyone, but shall be final, binding, and conclusive on all persons ever interested hereunder, subject only to the claims review procedures set forth in SECTION 11.9. In construing the Plan and in exercising its power under provisions requiring Administrator approval, the Administrator shall attempt to ascertain the purpose of the provisions in question and when such purpose is known or reasonably ascertainable, such purpose shall be given effect to the extent feasible. Likewise, the Administrator is authorized to determine all, questions with respect to the individual rights of the Participants or Beneficiaries under this Plan, including, but not limited to, all issues with respect to eligibility. The Named Fiduciary in the exercise of any discretionary powers hereunder, shall exercise such discretion in a uniform manner with respect to all similarly situated Participants. 11.2 ALLOCATION OF FIDUCIARY RESPONSIBILITIES. The Administrator may allocate certain of its fiduciary responsibilities among others and/or may designate other persons to carry out certain of its fiduciary responsibilities in accordance with and subject to the limitations of ERISA section 405. Any person or group of persons may serve in more than one fiduciary capacity with regard to the Plan. The Administrator and any fiduciary designated by the Administrator may employ one or more persons to render advice concerning their responsibilities under the Plan. 11.3 RECORDS. The Administrator shall exercise such authority as it deems appropriate in order to comply with the terms of the Plan relating to the records of Participants and the amounts which are payable under the Plan. The Administrator shall make available to each 27 36 Participant such of its records under the Plan as pertain to him for examination at reasonable times during normal business hours. 11.4 APPOINTMENT OF COMMITTEE. The day-to-day administration of the Plan shall be handled by a Committee comprised of at least one individual, if such a Committee is appointed by the Administrator as its agent. If no Committee is appointed, the Administrator shall be the Committee. Each member of the Committee shall serve until his successor is appointed by the Administrator or until he otherwise resigns. All expenses of the Committee shall be paid by the Sponsor. A member of the Committee who is an employee shall not receive any additional compensation for his or her services on the Committee, but shall be reimbursed by the Sponsor for expenses incurred. 11.5 ACTIONS OF COMMITTEE. A majority of the members of the Committee appointed pursuant to Section 11.4 shall constitute a quorum for the transaction of business, and shall have full power to act hereunder. Action by the Committee shall be official if approved by a vote of a majority of the members present at any official meeting. The Committee may, without a meeting, authorize or approve any action by written instrument signed by a majority of all of the members. Any written memorandum signed by the Chairman, any other member of the Committee, or any other person duly authorized by the Committee to act regarding the subject matter of the memorandum, shall have the same force and effect as a formal resolution adopted in open meeting. A member of the Committee may not vote or decide upon any matter relating solely to him or vote in any case in which his individual fight or claim to any benefit under the Plan is specifically involved. If a Committee member is so disqualified to act and the remaining members then present cannot, by majority vote, act or decide, the Sponsor will appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which he is disqualified. The Committee shall maintain minutes of its meetings and written records of its actions. Members may participate and hold a meeting of the Committee by means of telephone conference or similar communications equipment which permits all persons participating in the meeting to hear each other; however, minutes and written records must be maintained of such meeting. Participation in such a meeting constitutes presence in person at such meeting. 11.6 OTHER POWERS AND DUTIES OF THE ADMINISTRATOR. The Administrator, the Committee and any persons or entities designated by the Administrator, except as otherwise set forth in the Policy, shall have all powers necessary or desirable to administer the Plan, including, but not limited to, the following: (a) in its sole discretion, to construe and interpret the Plan, reconcile errors and supply omissions in the Plan, and decide all questions of eligibility; (b) to prescribe procedures to be followed by Participants in making elections under the Plan and in filing claims under the Plan; (c) to prepare and distribute information explaining the Plan to Participants; 28 37 (d) to obtain from Participants such information as shall be necessary for the proper administration of the Plan; (e) to keep records of elections, claims, and disbursements for claims under the Plan; (f) to appoint individuals or committees to assist in the administration of the Plan and to engage any other agents it deems advisable, including legal and actuarial counsel; (g) to purchase any insurance deemed necessary for providing benefits under the Plan; (h) to accept, modify, or reject elections under the Plan; (i) to promulgate election forms and claims forms to be used by Participants; (j) to prepare and file any reports or returns regarding the Plan required by the Code, ERISA, or any other laws; (k) to determine and announce any Participant contributions required hereunder; (l) to determine and enforce any limits on benefits elected hereunder; (m) to take such action as may be necessary to cause the payroll deduction of any Participant contributions required hereunder; (n) to, notwithstanding any other provision of the Plan, in the event the Administrator determines that as a result of administrative or arithmetic error, it has, with respect to one or more Individuals, incorrectly determined eligibility for participation, job classification, or other items involving or concerning the continued qualification of the, Plan under the Code, and determines further that such error has resulted in one or more Individuals receiving a smaller (or greater) benefit provided by the Plan than they would have in the absence of the error, take such steps as shall be necessary or appropriate to correct such error with respect to the affected individuals, utilizing whatever method will result in the least overall cost to the Plan; and (o) to recover overpayments erroneously made from the Plan to Participants, Beneficiaries, or others utilizing whatever method will result in the least overall cost to the Plan. 11.7 INDEMNIFICATION. The Sponsor and the Employers agree to and shall indemnify and hold harmless each Indemnified Person (as defined in this Section) from and against any and all claims, losses, damages, causes of action, suits, and liability of every kind, including all 29 38 expenses of litigation, court costs and reasonable attorney's fees, incurred in connection with the Plan. "Indemnified Person" shall mean each member of the Committee, and each employee, officer, or director of the Sponsor or of an Employer acting as a fiduciary of the Plan. Such indemnity shall apply regardless of whether the claims, losses, damages, causes of action, suits, or liability arise in whole or in part from the negligence or other fault on the part of the Indemnified Person, except to the extent there has been a final adjudication that the claim or liability results from the gross negligence or willful misconduct of the Indemnified Person. 11.8 RELIANCE ON TABLES, ETC. In administering the Plan, the Administrator will be entitled, to the extent permitted by law, to rely conclusively upon all tables, valuations, certificates, opinions and reports which are furnished by accountants, counsel or other experts employed or engaged by the Administrator. 11.9 CLAIMS AND REVIEW PROCEDURES. (a) CLAIMS PROCEDURE. If any person believes he is being denied any rights or benefits under the Plan, such person may file a written claim with the Administrator. If the claim is wholly or partially denied, the Administrator will notify the claimant of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain: (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for the person to perfect his claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Notification of a claim denial will be given within ninety (90) days after the claim is received by the Administrator, or within one hundred eighty (180) days if special circumstances require an extension of time for processing the claim, in which case written notice of such extension and the circumstances shall be given to the claimant within the initial ninety (90) day period. If the claimant does not receive written notice that the claim has been denied within the initial ninety (90) day period, or within the one hundred eighty (180) day period, if applicable, the claim will be deemed to have been denied as of the last day of such period, and such person may request a review of his claim. (b) REVIEW PROCEDURE. Within sixty (60) days after the date on which a person receives written notice of a claim denial, or if applicable, within sixty (60) days after the date on which such denial is deemed to have occurred, such person or his duly authorized representative may file a written request with the Administrator for a review of his denied claim. The claimant and/or his authorized representative may inspect pertinent documents and submit written issues and comments to the Administrator. The Administrator will notify the claimant of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision, as well as 30 39 specific references to pertinent Plan provisions. The decision on review will be made within sixty (60) days after the request for review is received by the Administrator, or within one hundred twenty (120) days if special circumstances require an extension of time. If such an extension of time is taken, the Administrator shall notify the claimant in writing within the initial sixty (60) day period and shall state the circumstances and the date on which a decision is expected. If the claimant does not receive written notice of the decision within the initial sixty (60) day period, or within the one hundred twenty (120) day period if applicable, the claim shall be deemed to have been denied on review. 11.10 PARTICIPANT'S RESPONSIBILITIES. Each Participant shall be responsible for providing the Administrator and the Sponsor with the Participant's and his beneficiary's current address. Any notices required or permitted to be given under this Section shall be deemed given if directed to such address and mailed by regular United States mail. Neither the Administrator nor the Sponsor shall have any obligation or duty to locate a Participant or beneficiary. In the event that a Participant or beneficiary becomes entitled to a payment under the Plan and such payment is delayed or cannot be made because: (a) the current address according to Sponsor records is incorrect; (b) the Participant or beneficiary fails to respond to the notice sent to the current address according to Sponsor records; (c) of conflicting claims to such payments; or (d) of any other reason. The amount of such payment, if and when made, shall be that determined under the provisions of the Plan without consideration of any interest which may have accrued. 11.11 MISSING PERSONS. If any amount becomes payable under the Plan to a Participant or beneficiary and the same shall not have been claimed, or if any check issued under the Plan remains uncashed, and reasonable care shall have been exercised by the Administrator in attempting to make such payments, the amount shall be forfeited within such period as is necessary to prevent escheat under any applicable law and shall cease to be a liability of the Plan. 11.12 NONDISCRIMINATORY EXERCISE OF AUTHORITY. In the administration of the Plan, whenever any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner in order that all persons similarly situated will receive substantially the same treatment. 11.13 EXPENSES. The Employer shall bear all costs and expenses associated with the administration of this Plan which are not paid by an established trust, if any. 31 40 ARTICLE XII AMENDMENT OR TERMINATION OF PLAN 12.1 AMENDMENT OF PLAN. The Sponsor expressly reserves the right to amend the elections, terms and conditions of the Plan, if necessary; provided, however, that without the express, prior written consent of each Participant and Covered Dependent at the time the amendment is signed (or, if earlier, is effective), no amendment to this Plan shall reduce the coverages available or benefits payable under the Plan or decrease the individuals who may be Participants or Covered Dependents under this Plan. Any amendment that is necessary with respect to the Plan and permitted under this Section shall be made only by a written instrument signed by the appropriate person or persons and shall be binding upon and effective with respect to each Employer and its Participants, Dependents, and Eligible Individuals. 12.2 TERMINATION OF PLAN. The Sponsor may terminate or discontinue this Plan at any time, if necessary, only by a written instrument signed by its authorized officer and only with the express, prior written consent of all Participants and Covered Dependents at the effective date of the termination or discontinuation. Notwithstanding anything in the Plan to the contrary, coverages and benefits provided under this Plan are to be continued for the life of each Board Member, each Officer and each Spouse, and the Plan and the Sponsor's obligations under the Plan may not be terminated or discontinued without the express, prior written consent of each Board Member, Officer and Spouse. Upon termination or discontinuance of the Plan as permitted by this Section, all elections shall terminate, and reimbursements or payments of Qualified Medical Expenses shall be made only in accordance with ARTICLE VI. ARTICLE XIII MISCELLANEOUS 13.1 INFORMATION TO BE FURNISHED. Participants shall provide the Employer and Administrator with such information and evidence as may reasonably be requested from time to time for the purpose of administering the Plan. 13.2 LIMITATION OF RIGHTS. Neither the establishment of the Plan, nor any amendment of the Plan, nor the payment of any benefits shall be construed as giving to any Participant or other person any legal or equitable right against the Employer or Administrator or their respective officers and directors, as an employee or otherwise, except as expressly provided in this Plan, and in no event will the terms of employment or service of any Participant or employee be modified or in any way affected by this Plan. 13.3 BENEFITS NOT SOLELY FROM POLICY. Except as required by law, applicable regulation or elsewhere in this Plan, the benefits provided under the Plan shall be paid solely from the Policy so long as there is a Policy. If there is no Policy, benefits payable under this Plan shall be paid from the general assets of the Sponsor. Nothing in this Plan shall be construed to 32 41 require (except as required by law and applicable regulation) any Fiduciary or the Administrator to maintain any fund or segregate any amount for the benefit of any Participant. 13.4 NONASSIGNABILITY OF RIGHTS. The right of any Participant to receive any reimbursement under the Plan shall not be alienable by the Participant by assignment or any other method and shall not be subject to being taken by his creditors by any process whatsoever, and any attempt to cause such right to be so subjected will not be recognized, except to such extent as may be required by law. 13.5 NO GUARANTEE OF TAX CONSEQUENCES. Neither the Employer nor the Administrator makes any commitment or guarantee that any amounts paid to or for the benefit of a Participant under ARTICLES V or VI will be excludable from the Participant's gross income for federal or state income employment tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant. It shall be the obligation of each Participant to determine whether each payment under ARTICLES V or VI is excludable from the Participant's gross income for federal and state income and employment tax purposes, and to notify the Employer if the Participant has reason to believe that any such payment is not so excludable. 13.6 SEVERABILITY. If any provision of this Plan is held invalid, unenforceable or inconsistent with any law, regulation or requirement for a medical plan governed by Code sections 104 or 105 or ERISA, its invalidity, unenforceability or inconsistency shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such provision were not a part of the Plan. 13.7 CONSTRUCTION OF TERMS. Words of gender shall include persons and entities of any gender, the plural shall include the singular and the singular shall include the plural. Section headings exist for reference purposes only and shall not be construed as part of the Plan. 13.8 CHOICE OF LAW/JURISDICTION AND VENUE. THIS PLAN SHALL BE CONSTRUED, ADMINISTERED, AND GOVERNED IN ALL RESPECTS (i) UNDER APPLICABLE FEDERAL LAW, INCLUDING, WITHOUT LIMITATION, THE PROVISIONS OF ERISA AND THE CODE AND RELEVANT INTERPRETATIONS OF BOTH, AND (ii) TO THE EXTENT NOT PREEMPTED BY FEDERAL LAW, UNDER THE LAWS OF THE STATE OF TEXAS. EXCLUSIVE JURISDICTION AND VENUE OF ALL DISPUTES ARISING OUT OF OR RELATING TO THIS PLAN SHALL BE IN ANY COURT OF APPROPRIATE JURISDICTION IN DALLAS COUNTY, TEXAS. THE PROVISIONS OF THIS SECTION SHALL SURVIVE AND REMAIN IN EFFECT UNTIL ALL OBLIGATIONS ARE SATISFIED, NOTWITHSTANDING ANY TERMINATION OF THE PLAN. 13.9 NO VESTED INTEREST. Except for the right to receive any benefit payable under the Plan in regard to a previously incurred claim, no person shall have any right, title, or interest in or to the assets of any Employer because of the Plan. 13.10 NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan shall be construed as a (i) contract of employment between an Employer and any Individual, (ii) guarantee that any 33 42 Individual will be continued in the employment or service of an Employer, or (iii) limitation on the right of an Employer to discharge any of its employees with or without cause. 13.11 ADOPTION BY SUCCESSOR EMPLOYER OR AFFILIATES. In the event of the reorganization, purchase, merger, dissolution, or reconstitution, whether direct or indirect, of the Sponsor, any successor entity shall be required to adopt and continue the Plan; in which event, the Plan shall continue without any gap or lapse in coverage or benefits. Failure of the Sponsor to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this agreement and shall entitle the Participants and Covered Dependents at that time to a lump sum payment from the Sponsor as liquidated damages that will be an amount equal to the sum of (i) the total value of the coverages and benefits under the Plan to such individual and (ii) the cost to obtain identical (or better) replacement coverage for Plan coverage for such individual. The Sponsor shall pay to each Participant and Covered Dependent all legal fees and expenses incurred by that individual, if any, in seeking to obtain or enforce any right, coverage or benefit provided by this Agreement. An individual entitled to a payment under this Section shall not be required to mitigate the amount of a payment due to him under this Section, and notwithstanding anything in the Plan to the contrary, payments due under this Section shall not be reduced by any coverage or benefits received by a payment's recipient from any other source. Throughout the Plan, a purposeful distinction is drawn between the Sponsor and the Employers. The powers and responsibilities assigned to the Sponsor by the Plan shall apply exclusively to the Sponsor. 13.12 BONDING. Every Fiduciary, except a bank or an insurance company, unless exempted by ERISA and its regulations, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by a Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in section 412(a)(2) of ERISA), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid by the Employer. ARTICLE XIV QUALIFIED MEDICAL CHILD SUPPORT ORDERS 14.1 NOTIFICATION OF RECEIPT OF CHILD SUPPORT ORDER. Upon receipt by the Administrator of a medical child support order, an administrative notice, or a National Medical Support Notice as set forth in ERISA, the Administrator shall tell the Participant and the 34 43 potential alternate recipient of the medical child support order, administrative notice or National Medical Support Notice that it has received the medical child support order, administrative notice, or National Medical Support Notice within fifteen (15) days of the Administrator's receipt of the medical child support order, administrative notice, or National Medical Support Notice. The notification shall also describe the procedures for determining whether the medical child support order, administrative notice, or National Medical Support Notice is a "Qualified Medical Child Support Order"as defined in section 609 of ERISA. The procedures shall permit a potential alternate recipient to designate a representative to receive copies of notices with respect to a medical child support order, administrative notice, or National Medical Support Notice. The Administrator shall determine if the medical child support order, the administrative notice or the National Medical Support Notice is a Qualified Medical Child Support Order within sixty (60) days of receipt of such order or notice, unless circumstances cause a delay. If a delay is required, the potential alternate recipient shall be notified of any such delay in writing. 14.2 PROCEDURES TO DETERMINE IF MEDICAL CHILD SUPPORT ORDER IS A QUALIFIED MEDICAL CHILD SUPPORT ORDER. The Administrator shall review the medical child support order, the administrative notice, or the National Medical Support Notice (or request legal counsel to review the medical child support order, administrative notice or National Medical Support Notice) and verify that the following items are appropriately addressed in the medical child support order, administrative notice, or National Medical Support Notice: (a) The medical child support order, administrative notice or National Medical Support Notice must create or recognize the existence of an alternate recipient's right to receive benefits for which the Participant or beneficiary is eligible under the Plan or to assign those rights; (b) The medical child support order, administrative notice or National Medical Support Notice must identify the parties responsible for paying for the benefits that are the subject of the order, notice or National Medical Support Notice; (c) The medical child support order, administrative notice, or National Medical Support Notice must clearly specify the name and last known mailing address of each alternate recipient covered by the order, administrative notice or National Medical Support Notice or must provide the name and address of any state official or political subdivision that will be substituted for that of the alternate recipient. Payment made to any such selected official shall be treated as payment made to the alternate recipient; (d) The medical child support order, administrative notice, or National Medical Support Notice must specify in a reasonable description the type of coverage to be provided by the Plan to each alternate recipient or the manner in which the type of coverage is to be determined; 35 44 (e) The medical child support order, administrative notice or National Medical Support Notice must specify the period to which the order, administrative notice or National Medical Support Notice applies; (f) The medical child support order, administrative notice, or National Medical Support Notice must not require the Plan to provide any type or form of benefit not otherwise provided under the Plan; and (g) The medical child support order, administrative notice or National Medical Support Notice must clearly be an order, administrative notice, judgment, decree, approval of a settlement or a National Medical Support Notice. If the Administrator determines the medical child support order, administrative notice or National Medical Support Notice satisfies all of the above requirements, the medical child support order, administrative notice or National Medical Support Notice shall, subject to SECTION 14.4, be a Qualified Medical Child Support Order, and the Administrator shall notify, in writing, each of the alternate recipient(s) or the alternate recipient(s)' selected official or political subdivision, if applicable, and the Participant or beneficiary related to such alternate recipient(s) that the order, administrative notice, or National Medical Support Notice is a Qualified Medical Child Support Order. The Administrator shall also notify the Participant that he must execute a new enrollment form to cover the cost of such coverage or otherwise notify the party responsible for paying for the coverage of their obligations with respect to payment for the coverage. If the Administrator determines that the order or administrative notice, or National Medical Support Notice is not a Qualified Medical Child Support Order, the Administrator shall notify, in writing, each of the proposed alternate recipient(s) or the alternate recipient(s)' selected official or political subdivision, if applicable, and the related Participant or beneficiary that the order, administrative notice, or National Medical Support Notice is not a Qualified Medical Child Support Order, why the order, administrative notice or National Medical Support Notice failed to qualify as such and their rights, if any, to appeal such decision. 14.3 TREATMENT OF ALTERNATE RECIPIENT UNDER QUALIFIED MEDICAL CHILD SUPPORT ORDER. The Administrator shall treat each alternate recipient under a Qualified Medical Child Support Order as a Participant under the Plan, but only for purposes of the reporting and disclosure requirements imposed by ERISA. 14.4 COST OF QUALIFIED MEDICAL CHILD SUPPORT ORDER BENEFITS. The cost of the coverage provided under the Qualified Medical Child Support Order shall be paid by the party designated as responsible for paying for such coverage in the order, administrative notice or National Medical Support Notice. In the event a medical child support order, administrative notice, or National Medical Support Notice does not specify the party responsible for payment for the alternate recipient's coverage under the medical child support order, administrative notice, or National Medical Support Notice, the Administrator shall either deny the medical child support order's, administrative notice's, or National Medical Support Notice's qualified status and send copies of 36 45 the Qualified Medical Child Support Order procedures to the parties, or file an appropriate pleading in either the Federal district court or in the domestic relations court requesting revisions of the issued order, administrative notice or National Medical Support Notice in such a manner as to qualify the order, administrative notice, or National Medical Support Notice as a Qualified Medical Child Support Order. 14.5 QUALIFIED MEDICAL CHILD SUPPORT ORDER AND MEDICAID. The Administrator shall not consider the alternate recipient's eligibility for Medicaid when enrolling the alternate recipient in the Plan. The Plan shall comply with the alternate recipient's assignment rights under Medicaid, if any. 14.6 PAYMENTS OR REIMBURSEMENTS UNDER A QUALIFIED MEDICAL CHILD SUPPORT ORDER. The Administrator is permitted to pay or reimburse the alternate recipient, the alternate recipient's custodial parent, or any state official or political subdivision selected by the alternate recipient to receive payments for any benefit payments due under the Plan to or on behalf of the alternate recipient. 14.7 ALTERNATE RECIPIENT. "Alternate recipient" means the individual designated as the person entitled to receive health care coverage under the Qualified Medical Child Support Order. ARTICLE XV POLICY The Policy set forth on Exhibit A to this Plan is incorporated by this reference as part of the Plan document. Any amendment or replacement of any of the documents comprising the Policy may be certified by a duty authorized officer of the Sponsor, and may be updated as required, without any need to amend this document. But, to the extent any part of the Policy conflicts with or contradicts the provisions of this document, this document shall govern in determining (i) the rights of Participants, their Covered Dependents and, if any, their other covered beneficiaries, and (ii) the obligations of the Employers, Administrator, and any Fiduciary to Participants, Covered Dependents and, if any, other covered beneficiaries. ARTICLE XVI PARTICIPATING EMPLOYERS 16.1 ADOPTION BY OTHER EMPLOYERS. Notwithstanding anything in this document to the contrary, with the written consent of the Sponsor, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and become a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. Participating Employers who have adopted the Plan are listed on Exhibit B to this Plan, as it may be amended from time to time. 37 46 16.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS. (a) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an employee of the Sponsor or a Participating Employer, shall not affect such Participant's rights under the Plan, and his length of participation in the Plan shall continue to his credit. (b) Any expenses of the Plan which are to be paid by the Employer or borne by the Plan shall be paid by each Participating Employer in the same proportion that the total number of all Participants employed by such Employer bears to the total number of all Participants. 16.3 DESIGNATION OF AGENT. Each Participating Employer shall be deemed to be a part of this Plan-, provided, however, that with respect to all of its relations with the Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Sponsor as its agent. 16.4 TRANSFERS. It is anticipated that an Individual who is an employee may be transferred between Participating Employers, and in the event of any such transfer, the employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment under this Plan, and the Participating Employer to which the employee is transferred shall become obligated under this Plan with respect to such employee in the same manner as was the Participating Employer from whom the employee was transferred. 16.5 PARTICIPATING EMPLOYER'S CONTRIBUTION. All contributions made by a Participating Employer, as provided for in this Plan, shall be determined separately by each Participating Employer and shall be paid for the exclusive benefit of the employees of such Participating Employer and the Beneficiaries of such employees, subject to all the terms and conditions of this Plan. On the basis of the information furnished by the Employers to the Administrator, the Administrator shall keep separate books and records concerning the Plan affairs of each Participating Employer and as to the accounts and credits of the employees of each Participating Employer. The Administrator may, but need not, register contracts so as to evidence that a particular Participating Employer is the interested Employer, but in the event of an employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Administrator. 16.6 DISCONTINUANCE OF PARTICIPATION. Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence of such action and of any applicable conditions imposed shall be delivered to the Administrator. The Administrator shall thereafter transfer, deliver and assign the contracts and other assets allocable to the Participants of such Participating Employer to such new Administrator as shall have been designated by such Participating Employer, in the event that it has established a separate medical care plan for its employees. If no successor is designated, the Administrator shall retain such assets for the employees of said Participating Employer. In no such event shall any part of the corpus or income of the Trust as it relates to 38 47 such Participating Employer be used for or diverted for purposes other than for the exclusive benefit of the employees of such Participating Employer. 16.7 ADMINISTRATOR'S AUTHORITY. The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed in its name and on its behalf this 23rd day of June, 2000 authorized representative. "SPONSOR" DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale ------------------------------------ Title: V. P. Finance & CFO 39 48 EXHIBIT A POLICY 40 49 EXHIBIT B PARTICIPATING EMPLOYERS 41 50 EXHIBIT C OFFICERS C. V. Prothro Chao C. Mai Michael L. Bolan Alan P. Hale Jack Von Gillern 42 51 EXHIBIT D BOARD MEMBERS Richard L. King Merlyn D. Sampels Carmelo J. Santoro Adm. E.R. Zumwalt, Jr. 43 52 EXHIBIT E SPOUSES Nancy J. Santoro Anita R. Sampels Carolyn Leftwich Karen L. Hale Shao S. Mai Caren H. Prothro Elizabeth L. Von Gillern 44 53 EXHIBIT F ELIGIBLE EMPLOYEES (OTHER THAN OFFICERS) Matt Adams Philip A. Adams G. Malcom Bayless Heber L. Clement Met Cruz Stephen M. Curry Don Dias Jeffrey L. Hannon Tom Harrington, III David L. Heim Jerry L. Housden Joe Hundt Reynold W. Kelm Hal Kurkowski Robert D. Lee John E. Manton, III Wayne Mendenhall Kenneth B. Molitor Joe Monroe David J. Rapier John Rea Sandy Scherpenberg Michael D. Smith Gay T. Vencill Clark R. Williams 45 54 AMENDMENT ONE TO THE DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN Amendment made to the Dallas Semiconductor Corporation Executives Retiree Medical Plan, Effective October 1, 1999 (the "Plan"), by Dallas Semiconductor Corporation (the "Corporation"). W I T N E S S E T H WHEREAS, the Corporation sponsors the Plan to provide retiree (and limited other) medical care benefits to board members, officers, certain other eligible retirees, and the eligible spouses of board members and officers; and WHEREAS, the Corporation desires to amend the Plan to permit the spouse of Richard King, Carol Edgar, to participate in the Plan, effective June 24, 2000, the date of their marriage; and WHEREAS, by the terms of Section 12.1 of the Plan, the Plan may be amended by the Corporation. NOW, THEREFORE, effective June 24, 2000, the Plan is hereby amended as follows: 1. Section 2.37 is deleted in its entirety and the following is substituted in its place: "2.37 'SPOUSE' means the wife of an Officer or of a Board Member on the date of his Retirement, and in the case of only Richard King, means Carol Edgar, effective June 24, 2000. Carol Edgar, effective June 24, 2000 and each person who was a spouse of an Officer or of a Board Member on the Effective Date are listed on Exhibit E, but being listed on Exhibit E does not make an individual a Spouse for purposes of this Plan." 2. Existing Exhibit E to the Plan is deleted in its entirety, and the attached Exhibit E is substituted in its place. 55 IN WITNESS WHEREOF, the Corporation, has caused this instrument to be executed by its duly authorized officer on this 23rd day of June, 2000, to be effective June 24, 2000. DALLAS SEMICONDUCTOR CORPORATION BY: /S/ ALAN P. HALE ---------------------------------------- Title: Vice President - Finance and Chief Financial Officer 2 56 EXHIBIT E SPOUSES Nancy J. Santoro Anita R. Sampels Carolyn Leftwich Karen L. Hale Shao S. Mai Caren H. Prothro Elizabeth L. Von Gillern Carol Edgar 3 57 AMENDMENT TWO TO THE DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN Amendment made to the Dallas Semiconductor Corporation Executives Retiree Medical Plan, effective October 1, 1999 (the "Plan"), by Dallas Semiconductor Corporation (the "Corporation"). W I T N E S S E T H WHEREAS, the Corporation sponsors the Plan to provide retiree (and limited other) medical care benefits to board members, officers, certain other eligible retirees, and the eligible spouses of board members and officers; and WHEREAS, the Corporation desires to amend the Plan to clarify that the Plan will not impose a pre-existing condition limitation; and WHEREAS, by the terms of SECTION 12.1 of the Plan, the Plan may be amended by the Corporation. NOW, THEREFORE, effective October 1, 1999, the Plan is hereby amended as follows: 1. SECTION 2.34 is deleted in its entirety, and the following is substituted in its place: "2.34 `QUALIFIED MEDICAL EXPENSE' means an expense incurred by a Participant, by the Participant's spouse or by a Dependent of such Participant for medical care as defined in Code section 213, including, without limitation, amounts paid for hospital bills and doctor bills, but only to the extent that (i) the participant or other person is not reimbursed for the expense through insurance or otherwise, other than under the Plan, and (ii) the expense is not taken into account as a deduction by the Participant on his Internal Revenue Service Form 1040." 2. The second sentence of SECTION 5.1 is deleted in its entirety, and the following is substituted in its place: "Subject to SECTIONS 5.2(A) and 12.1, the specific coverages and benefits available to Participants are set forth in the Policy or if there is no Policy, in the Policy last in effect in connection with the Plan." 3. SECTION 5.2(A) is deleted in its entirety, and the following is substituted in its place: "5.2 PRE-EXISTING CONDITIONS. 58 (a) PRE-EXISTING CONDITIONS. Notwithstanding anything in the Plan or any Policy to the contrary, the Plan shall not impose any type of pre-existing condition exclusion. Notwithstanding anything in any Policy to the contrary, a pre-existing condition in a Policy shall not include any condition that does not fall within the definition of a Pre-existing Condition, no pre-existing condition shall include a condition for which Genetic Information was used as a basis for asserting the existence of the condition if there has been no diagnosis of the condition related to such information, and the period during which any exclusion or limitation of benefits (relating to a condition based on the fact that the condition was present before a person's Enrollment Date) in the Policy would be enforced (if the Plan allowed pre-existing condition exclusions) for no longer than the excess of twelve (12) months (eighteen (18) months for a Late Enrollee), beginning on his Enrollment Date, over the aggregate of the periods of Creditable Coverage (if any) applicable to the Participant as of his Enrollment Date." 5. The last sentence of SECTION 8.1 is amended to delete the words "coverage limitations" in that sentence and to substitute "coverage maximums" in their place. IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed by its duly authorized officer effective October 1, 1999. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale ------------------------------------ Title: --------------------------------- 2 59 AMENDMENT THREE TO THE DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN Amendment made to the Dallas Semiconductor Corporation Executives Retiree Medical Plan, effective October 1, 1999 (the "Plan"), by Dallas Semiconductor Corporation (the "Corporation"). W I T N E S S E T H WHEREAS, the Corporation sponsors the Plan to provide retiree (and limited other) medical care benefits to board members, officers, certain other eligible retirees, and the eligible spouses of board members and officers; and WHEREAS, the Corporation desires to amend the Plan to permit three Directors appointed after October 19, 1999, Jeffrey A. Koch, John K. Foley and Larry N. Bright, to participate in the Plan, effective on the date each was appointed as a Director; and WHEREAS, by the terms of Section 12.1 of the Plan, the Plan may be amended by the Corporation. NOW, THEREFORE, effective as provided below, the Plan is amended as follows: 1. SECTION 2.10 is deleted in its entirety, effective October 9, 2000, and the following is substituted in its place: "ELIGIBLE EMPLOYEE" means (i) each Officer of the Sponsor on the Effective Date, (ii) each common-law employee of an Employer who was designated on the books and records of the Employer as a "functionally equivalent" officer on the Effective Date and who shared in the contribution made on June 12, 1998, to the Dallas Semiconductor Corporation Executive Deferred Compensation Plan, (iii) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date (or within the five (5) calendar year period preceding the Effective Date), also held the title of Director or was the Sponsor's corporate controller, (iv) effective October 9, 2000, Larry N. Bright, John K. Foley and Jeffrey A. Koch, and (v) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date, held the position of Manager and was required to report for operating purposes directly to the Sponsor's President and Chief Executive Officer. Each person who was an Eligible Employee on the Effective Date or become an Eligible Employee as a result of an amendment to the Plan after the Effective Date is listed on either Exhibit C or Exhibit F to the Plan." 1 60 2. Effective October 9, 2000, existing Exhibit F is deleted in its entirety, and the attached Exhibit F is substituted in its place. IN WITNESS WHEREOF, the Corporation, has caused this instrument to be executed by its duly authorized officer on this 10th day of April, 2001. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale ------------------------------------ Name: Alan P. Hale Title: Chief Financial Officer 2 61 EXHIBIT F ELIGIBLE EMPLOYEES (OTHER THAN OFFICERS) (EFFECTIVE OCTOBER 9, 2000) Matt Adams Philip A. Adams G. Malcom Bayless Larry N. Bright Heber L. Clement Mel Cruz Stephen M. Curry Don Dias John K. Foley Jeffrey L. Hannon Tom Harrington, III David L. Heim Jerry L. Housden Joe Hundt Reynold W. Kelm Jeff Koch Hal Kurkowski Robert D. Lee 3 62 John E. Manton, III Wayne Mendenhall Kenneth B. Molitor Joe Monroe David J. Rapier John Rea Sandy Scherpenberg Michael D. Smith Gay T. Vencill Clark R. Williams 4 EX-10.27 15 f75694ex10-27.txt EXHIBIT 10.27 1 EXHIBIT 10.27 ASSUMPTION AGREEMENT THIS ASSUMPTION AGREEMENT is executed and delivered pursuant to that certain Agreement and Plan of Merger, dated as of January 28, 2001 (the "Merger Agreement"), by and among Maxim Integrated Products, Inc., a Delaware corporation (the "Company"), MI Acquisition Sub, Inc., a Delaware corporation, and Dallas Semiconductor Corporation, a Delaware corporation ("Dallas Semiconductor"), pursuant to which Dallas Semiconductor will become a wholly owned subsidiary of the Company. Pursuant to Sections 1.8(a) and 5.5(a) of the Merger Agreement, the Company is required at the Effective Time to expressly assume all options to purchase the common stock, par value $.02 per share (the "Common Stock"), of Dallas Semiconductor then outstanding, whether vested or unvested, under Dallas Semiconductor's (i) 1984 Stock Option Plan, (ii) Amended 1987 Stock Option Plan and (iii) 1993 Officer and Director Stock Option Plan (each as amended, collectively, the "Option Plans"), and the various option agreements (the "Option Agreements"), including notice of grants thereto (each a "Notice"), issued under such Option Plans. By way of example, and not by way of limitation, a copy of the form of Notice and forms of Option Agreements are attached hereto as Exhibit A. The failure to attach to this Assumption Agreement all forms of Notice and all forms of Option Agreements that may be outstanding shall in no way limit the Company's obligations under Sections 1.8(a) and 5.5(a) of the Merger Agreement with respect to the assumptions addressed herein. All capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Merger Agreement. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged the Company hereby assumes and agrees to pay, perform, and discharge in accordance with the terms thereof, all of the duties, liabilities and obligations of Dallas Semiconductor under the Option Plans, the Option Agreements and the Notice. This Assumption Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 2 IN WITNESS WHEREOF, each party hereto has caused this instrument to be executed by its duly authorized officer this the 11th day of April, 2001. MAXIM INTEGRATED PRODUCTS, INC. By: /s/ Carl W. Jasper ------------------------------------- Name: Carl W. Jasper Title: Chief Financial Officer DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale ------------------------------------- Name: Alan P. Hale Title: Chief Financial Officer 2 3 Exhibit A 3 4 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this ____ day of _____________, 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ________________________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of ___________ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $_____ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value 4 5 of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option This Option shall be exercisable in full or in part at any time, and from time to time, during the term hereof, at any time after the Date of Grant. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for 5 6 hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 8 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 7. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 6 7 8. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 9. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 10. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 11. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 7 8 12. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 13. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 14. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 8 9 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ---------------------------------- Title: ---------------------------------- ------------------------------ ---------------------------------------- Optionee ------------------------------ 9 10 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this ____ day of _______________, 19__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ___________________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, an option (the "Option") to purchase all or any part of ______ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $_____ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 10 11 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. This Option shall be exercisable in full or in part at any time, and from time to time, during the term hereof, at any time commencing on the last day of the first completed calendar quarter following the Date of Grant. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for 11 12 hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Committee in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, 12 13 or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Committee shall have thereafter cancelled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by the laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company or its subsidiaries for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been 13 14 exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company or its subsidiary shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise the Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a shareholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option does not confer on Optionee any continued right of employment or 14 15 directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Incentive Stock Option. This option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 15. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 16. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement, as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns shall be determined by such agreement and the Optionee and his heirs, successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued pursuant to a "fully vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 17. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 15 16 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4350 Beltwood Parkway South Dallas, Texas 75244 By: ----------------------------- Title: ----------------------------- ----------------------------------- ----------------------------------- Optionee ----------------------------------- 16 17 Form of Stock Option Agreement under the 1993 Officer and Director Stock Option Plan for grants on July 9, 1993, and October 3, 1996, to executive officers and certain key employees 17 18 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this ____ day of ____________,199__ (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and __________________, [an employee of the Company who has been determined by the Compensation Committee of the Board of Directors of the Company to hold a position functionally equivalent to a vice president of the Company (exclusive of policy-making functions](1) ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides that certain officers of the Company may from time to time be granted an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock"), as therein provided, in furtherance of the purposes of the Plan. NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Optionee, pursuant to Section 7(a) of the Plan, the terms and provisions of which Plan are incorporated herein by reference, an option (the "Option") to purchase all or any part of _______ shares of the Common Stock of the Company on the terms and conditions herein set forth. ---------- (1) Provision used in key employee options granted in 1996 18 19 2. PURCHASE PRICE. The purchase price of each share of Common Stock subject to this Option shall be $_______ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. EXERCISE OF THE OPTION. Subject to the provisions of Paragraph 14 hereof, this Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph 1 hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise 19 20 of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. NOTICE OF ELECTION. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 20 21 6. TAX BENEFIT RIGHT. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Board in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Board and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. 7. COMPANY LOAN. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should 21 22 be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 8. NON-TRANSFERABILITY. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. TERMINATION OF EMPLOYMENT. In the event that Optionee shall at any time hereafter cease to be an employee of the Company for any reason other than his death or retirement, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment by the Company shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 22 23 10. DEATH OF OPTIONEE. If the Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. ADJUSTMENTS. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 12. NO OTHER RIGHTS OR OBLIGATIONS. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered thereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right to employment or tenure as an officer of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. SUBJECT TO PLAN. This Option is subject to all of the terms and conditions of the Company's 1993 Officer & Director Stock Option Plan (and as amended if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 23 24 14. STOCKHOLDER APPROVAL. This Option has been granted subject to the approval of the Plan by stockholders of the Company. Notwithstanding the provisions of Paragraph 4 hereof, this Option may not be exercised unless and until the Plan has been duly approved by the stockholders of the Company.(2) 15. SHAREHOLDERS AGREEMENT. The shares of Common Stock issued to Optionee upon the exercise of this Option shall be deemed to be issued pursuant to a "fully vested stock option" under the terms of any Shareholder's Agreement previously entered into between the Company and Optionee. 16. DEFINED TERMS. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: ----------------------------- C. V. Prothro Title: ----------------------------- Chairman of the Board and President ----------------------------------- ----------------------------------- Optionee ---------- (2) Stockholder approval of the 1993 Officer and Director Stock Option Plan was obtained on April 26, 1994. 24 25 ----------------------------------- 25 26 Form of Stock Option Agreement used for grants under the 1993 Officer and Director Stock Option Plan on October 5, 1998 to employees who were both officers and directors 26 27 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 5th day of October, 1998 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and C. V. Prothro, an officer and director of the Company ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides that certain officers of the Company may from time to time be granted an option to purchase shares of the Company's Common Stock, par value S.02 per share (the "Common Stock"), as therein provided, in furtherance of the purposes of the Plan. NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Optionee, pursuant to Section 7(a) of the Plan, an option (the "Option") to purchase all or any part of 270,000 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. PURCHASE PRICE. The purchase price of each share of Common Stock subject to this Option shall be $23.75 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such c heck and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 27 28 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. EXERCISE OF THE OPTION. This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph 1 hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 28 29 5. NOTICE OF ELECTION. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 9 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. TAX BENEFIT RIGHT. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Board in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Board and 29 30 such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. 7. COMPANY LOAN. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 30 31 8. TRANSFERABILITY. Other than by will or by laws of descent and distribution, this Option shall be assignable or transferable by Optionee, only if and under terms and conditions approved by the Board in its sole discretion. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP. (a) In the event that Optionee shall at any time hereafter cease to be an employee of the Company for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment by the Company shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination, prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. If the Optionee ceases to be an employee of the Company by reason of his death prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 31 32 (b) Notwithstanding the provisions of Paragraph 9(a) above, in the event that Optionee shall at any time hereafter cease to be a director of the Company (whether or not remaining an employee of the Company) for any reason, including, but not limited to, his retirement, permanent disability or death, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall, on the date of such cessation, become immediately exercisable and may be exercised by Optionee, or by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration. 10. ADJUSTMENTS. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 11. NO OTHER RIGHTS OR OBLIGATIONS. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered thereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right to employment or tenure as an officer of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 12. SUBJECT TO PLAN. In the event of any conflict between the terms and conditions of the Plan and those set forth herein, the terms of this Option shall govern and be determinative. 32 33 13. SHAREHOLDERS AGREEMENT. The shares of Common Stock issued to Optionee upon the exercise of this Option shall be deemed to be issued pursuant to a "fully vested stock option" under the terms of any Shareholder's Agreement previously entered into between the Company and Optionee. 14. DEFINED TERMS. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: ----------------------------- Alan P. Hale Title: ----------------------------- Vice President -- Finance ----------------------------------- ----------------------------------- C. V. Prothro, Optionee ----------------------------------- 33 34 Form of Stock Option Agreement used in 1998 and in 1999 (except as to exercise price) for grants under the 1993 Stock Officer and Director Stock Option Plan to non-director officers and employees 34 35 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 5th day of October, 1998 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and Michael D. Smith ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides that certain officers of the Company may from time to time be granted an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock"), as therein provided, in furtherance of the purposes of the Plan. NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Optionee, pursuant to Section 7(a) of the Plan, the terms and provisions of which Plan are incorporated herein by reference, an option (the "Option") to purchase all or any part of 36,000 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. PURCHASE PRICE. The purchase price of each share of Common Stock subject to this Option shall be $23.75 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 35 36 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. EXERCISE OF THE OPTION. This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph 1 hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such 36 37 withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. NOTICE OF ELECTION. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. TAX BENEFIT RIGHT. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other 37 38 manner as the Board in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Board and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. 7. COMPANY LOAN. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 38 39 8. NON-TRANSFERABILILTY. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. TERMINATION OF EMPLOYMENT. In the event that Optionee shall at any time hereafter cease to be an employee of the Company for any reason other than his death or retirement, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment by the Company shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. DEATH OF OPTIONEE. If the Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. ADJUSTMENTS. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its 39 40 discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 12. NO OTHER RIGHTS OR OBLIGATIONS. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered thereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer oil Optionee any continued right to employment or tenure as an officer of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. SUBJECT TO PLAN. This Option is subject to all of the terms and conditions of the Company's 1993 Officer & Director Stock Option Plan (and as amended if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. SHAREHOLDERS AGREEMENT. The shares of Common Stock issued to Optionee upon the exercise of this Option shall be deemed to be issued pursuant to a "fully vested stock option" under the terms of any Shareholder's Agreement previously entered into between the Company and Optionee. 15. DEFINED TERMS. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. 40 41 IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: ----------------------------- C. V. Prothro Title: ----------------------------- Chairman of the Board, President and Chief Executive Officer ----------------------------------- ----------------------------------- Michael D. Smith, Optionee ----------------------------------- 41 42 Form of Stock Option Agreement used in 1998 in connection with "repricing" of options under the 1987 Stock Option Plan to non-director employees 42 43 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 5th day of October, 1998 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ____________________________, an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Optionee, pursuant to the Plan, the terms and provisions of which are incorporated herein by reference, of an option (the "Option") to purchase all or any part of _______ shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $23.75 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall not be less than 100% of the fair market value of such shares as determined by the Board of Directors of the Company (the 43 44 "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period equal to the unexpired term of the Prior Option (as defined in Paragraph 15 hereof) but in no event greater than ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. Subject to the provisions of Paragraph 14 of this Agreement and the Shareholder's Agreement referenced therein, this Option shall be exercisable, after the expiration of one (1) year from the Date of Grant, in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 5.0% of the aggregate number of shares provided in Paragraph I hereof during each calendar quarter during the term hereof commencing on the last day of the first completed calendar quarter following the Date of Grant until the end of twenty (20) calendar quarters. [NOTE: CHANGE TO 6.25% AND 16 CALENDAR QUARTERS FOR GRANTS THAT VEST IN FOUR YEARS.] To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine, in its sole discretion, that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in 44 45 connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company, in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 8 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to execution, attachment, or similar process except with the prior written consent of the Board. 45 46 7. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with the Company shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 8. Death of Optionee. If Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 19. Adjustment. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 46 47 10. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of employment with or service to the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 11. Subject to Plan. This Option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan, as amended (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. Unless otherwise defined herein, each capitalized term used herein shall have the same meaning given such term in the Plan. 12. Incentive Stock Option. This Option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 13. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. Neither this Option nor any term or provision hereof may be amended, supplemented, waived or modified orally, but only by an instrument in writing signed by a duly authorized officer of the Company. 14. Shareholder's Agreement. The exercise of this Option is expressly conditioned upon the prior or contemporaneous execution by the Optionee and the Company of a Shareholder's Agreement as provided in the Plan. All rights of the Optionee and his heirs, successors and assigns, shall be determined by such agreement and the Optionee and his heirs, 47 48 successors and assigns shall be bound thereby. The shares of Common Stock issued pursuant to the exercise hereof shall not be deemed to be issued pursuant to a "fully vested stock option" and shall be subject to the repurchase rights as provided in such agreement. 15. Cancellation of Prior Option. The grant of this Option is expressly conditioned upon, and Optionee by his signature hereto, acknowledges, the cancellation of that certain option (the "Prior Option") granted to Optionee on _____________, 199__, covering ________ shares of Common Stock of the Company with an exercise price of $________ per share. Optionee agrees to deliver to the Company the original document evidencing the Prior Option, but the cancellation of the Prior Option shall be effective regardless of whether or not such delivery is made by Optionee. IN WITNESS WBEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway By: Dallas, Texas 75244 ----------------------------- Title: ----------------------------- ----------------------------------- ----------------------------------- Optionee ----------------------------------- 48 49 Form of Stock Option Agreement used in 1998 in connection with "repricing" of options under the 1987 Stock Option Plan to non-employee directors 49 50 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 5th day of October, 1998 (the "Date of Grant") (October 4 being a non-business day), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and Richard L. King, a director of the Company ("Optionee"). WHEREAS, the Company's 1987 Stock Option Plan, as amended (the "Plan") provides for the automatic annual grant of options to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock") to certain of the Company's non-employee directors, as hereinafter provided, in furtherance of the purposes of the Plan; NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. Subject to the provisions of Paragraph 16 hereof, the Company hereby confirms the automatic grant to Optionee, pursuant to Section 7(b) of the Plan, of an option (the "Option") to purchase all or any part of 10,000 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $23.75 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 50 51 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period equal to the unexpired term of the Prior Option (as defined in Paragraph 16 hereof but in no event greater than ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein. 4. Exercise of the Option. This Option shall be exercisable, after the expiration of one (1) year from the Date of Grant, in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 6.25% of the aggregate number of shares provided in Paragraph 1 hereof during each calendar quarter during the term hereof, commencing on the last day of the first completed calendar quarter following the Date of Grant (until it shall become fully vested at the end of sixteen (16) calendar quarters). To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine, in its sole discretion, that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, 51 52 qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company, in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 9 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may, in its sole discretion, at any time prior to the exercise of this Option, grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may 52 53 determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Committee, in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined, in its sole discretion prior to the exercise date, that such loan should be made, but shall have no such obligation if the Committee shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 53 54 8. Transferability. Other than by will or by laws of descent and distribution, this Option shall be assignable or transferable by Optionee, only if and under terms and conditions approved by the Board in its sole discretion. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Directorship. In the event that Optionee shall at any time hereafter cease to be a director of the Company for any reason, including, but not limited to, his retirement, permanent disability or death, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall, on the date of such cessation, become immediately exercisable and may be exercised by Optionee, or by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration. 10. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 11. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of service or tenure 54 55 as a director of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 12. Option to Control. In the event of any conflict between the terms and conditions of the Plan and those set forth herein, the terms of this Option shall govern and be determinative. 13. Incentive Stock Option. This Option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 14. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof Any such action by the Board shall be final and binding on Optionee. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. 16. Cancellation of Prior Option. The grant of this Option is expressly conditioned upon, and Optionee by his signature hereto, acknowledges, the cancellation of that certain option (the "Prior Option") granted to Optionee on October 3, 1997, covering 10,000 shares of Common Stock of the Company with an exercise price of $47.625 per share. Optionee agrees to deliver to the Company the original document evidencing the Prior Option, but the cancellation of the Prior Option shall be effective regardless of whether or not such delivery is made by Optionee. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 55 56 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: ------------------------------------- C. V. Prothro Chairman of the Board, President and Chief Executive Officer 809 Jeffrey Court ---------------------------------------- P. O. Box 4251 Richard L. King, Optionee Incline Village, Nevada 89450 56 57 Form of Stock Option Agreement in use prior to 1998 for automatic grants under the 1987 Stock Option Plan to non-employee directors 57 58 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 4th day of October, 1996 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ________________________ a director of the Company ("Optionee"). WHEREAS, the Company's 1987 Stock Option Plan, as amended (the "Plan") provides for the automatic annual grant of options to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock") to certain of the Company's non-employee directors, as hereinafter provided, in furtherance of the purposes of the Plan; NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby confirms the automatic grant to Optionee, pursuant to Section 7(b) of the Plan, the terms and provisions of which Plan are incorporated herein by reference, of an option (the "Option") to purchase all or any part of _________ shares of the Common Stock of the company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $_________ per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. the value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the 58 59 "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 6.25% of the aggregate number of shares provided in Paragraph 1 hereof during each calendar quarter during the term hereof, commencing on the last day of the first completed calendar quarter following the Date of Grant (until it shall become fully vested at the end of sixteen (16) calendar quarters). To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine, in its sole discretion, that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 59 60 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company, in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may, in its sole discretion, at any time prior to the exercise of this Option, grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as 60 61 to term, amount, or otherwise) and to cancellation at any time by the Committee, in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined, in its sole discretion prior to the exercise date, that such loan should be made, but shall have no such obligation if the Committee shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, 61 62 voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Directorship. In the event that Optionee shall at any time hereafter cease to be a director of the Company for any reason other than his death or retirement, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's services as a director of the Company shall terminate by reason of his retirement, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions 62 63 by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued fight of service or tenure as a director of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This Option is subject to all of the terms and conditions of the Company's 1987 Stock Option Plan, as amended (and as amended hereafter if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Incentive Stock Option. This Option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 15. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof Any such action by the Board shall be final and binding on Optionee. 16. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. 63 64 Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway By: Dallas, Texas 75244 ------------------------------------- C. V. Prothro Chairman of the Board, President and Chief Executive Officer ---------------------------------------- Optionee 64 65 Form of Stock Option Agreement used in 1998 for automatic grants under the 1987 Stock Option Plan to non-employee directors 65 66 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 5th day of October, 1998 (the "Date of Grant") (October 4 being a non-business day), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and ___________, a director of the Company ("Optionee"). WHEREAS, the Company's 1987 Stock Option Plan, as amended (the "Plan") provides for the automatic annual grant of options to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock") to certain of the Company's non-employee directors, as hereinafter provided, in furtherance of the purposes of the Plan; NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby confirms the automatic grant to Optionee, pursuant to Section 7(b) of the Plan, of an option (the "Option') to purchase all or any part of 10,000 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 66 67 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein. 4. Exercise of the Option. This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 6.25% of the aggregate number of shares provided in Paragraph 1 hereof during each calendar quarter during the term hereof, commencing on the last day of the first completed calendar quarter following the Date of Grant (until it shall become fully vested at the end of sixteen (16) calendar quarters). To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine, in its sole discretion, that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company, in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and 67 68 shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 9 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Compensation Committee (the "Committee") of the Board may, in its sole discretion, at any time prior to the exercise of this Option, grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of ordinary income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Committee in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Committee and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Committee, in its sole discretion. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the 68 69 Company may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Committee. (b) The Company shall have an obligation to make a loan to Optionee only if the Committee shall have determined, in its sole discretion prior to the exercise date, that such loan should be made, but shall have no such obligation if the Committee shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Committee in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Committee and the execution by Optionee of such stock powers or other instruments which the Committee may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Transferability. Other than by will or by laws of descent and distribution, this Option shall be assignable or transferable by Optionee, only if and under terms and conditions approved by the Board in its sole discretion. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to execution, attachment, or similar process except with the prior written consent of the Board. 69 70 9. Termination of Directorship. In the event that Optionee shall at any time hereafter cease to be a director of the Company for any reason, including, but not limited to, his retirement, permanent disability or death, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall, on the date of such cessation, become immediately exercisable and may be exercised by Optionee, or by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration. 10. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 11. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of service or tenure as a director of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 12. Option to Control. In the event of any conflict between the terms and conditions of the Plan and those set forth herein, the terms of this Option shall govern and be determinative. 70 71 13. Incentive Stock Option. This Option is not intended to qualify as an "incentive stock option" under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 14. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof. Any such action by the Board shall be final and binding on Optionee. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway By: Dallas, Texas 75244 ------------------------------------- C. V. Prothro Chairman of the Board, President and Chief Executive Officer ---------------------------------------- Optionee 71 72 Form of Stock Option Agreement under the 1993 Officer and Directors Stock Option Plan used for July 1999 grants to non-employee directors and the Corporate Secretary 72 73 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 21st day of July, 1999 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and M. D. Sampels, a director of the Company ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides that certain officers and directors of the Company may from time to time be granted an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock"), as therein provided, in furtherance of the purposes of the Plan. NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Optionee, pursuant to Section 5 of the Plan, an option (the "Option") to purchase all or any part of 30,000 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. PURCHASE PRICE. The purchase price of each share of Common Stock subject to this Option shall be $50.5625 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 73 74 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. EXERCISE OF THE OPTION. This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph I hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such 74 75 withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. NOTICE OF ELECTION. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereto by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the fight of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. TAX BENEFIT RIGHT. Optionee is hereby granted a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Such payment(s) shall be made by the Company on the exercise date(s) in the form of a check payable to the Internal Revenue Service for the account of Optionee.(3) -------- (3) This provision is not contained in the Corporate Secretary's Option Agreement. 75 76 7. COMPANY LOAN. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 8. NON-TRANSFERABILITY. Other than by will or by laws of descent and distribution, this Option shall be assignable or transferable by Optionee only if and under terms and conditions approved by the Board in its sole discretion. Neither this Option nor the shares covered hereby 76 77 shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. TERMINATION OF DIRECTORSHIP. In the event that Optionee shall at any time hereafter cease to be a director of the Company for any reason, including, but not limited to, his retirement, permanent disability or death, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall, on the date of such cessation, become immediately exercisable and may be exercised by Optionee, or by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration. 10. ADJUSTMENTS. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 11. NO OTHER RIGHTS OR OBLIGATIONS. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered thereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right to tenure as a director of the Company or any additional rights other than as expressly provided for herein.' There is no obligation upon Optionee to exercise this Option or any part thereof 77 78 12. DEFINED TERMS. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: By: ---------------------------------- C. V. Prothro Title: /s/ C. V. Prothro ---------------------------------- Chairman of the Board, President and Chief Executive Officer /s/ M. D. Sampels ----------------------------------- ---------------------------------- M. D. Sampels, Optionee ----------------------------------- 78 79 FORM OF STOCK OPTION AGREEMENT PURSUANT TO 1987 STOCK OPTION PLAN FOR USE WITH 12-15-00 GRANTS NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the -'Agreement") is made and entered into this 15th day of December, 2000 (the "Date of Grant"), by and between DALLAS SEM[ICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and . an employee of the Company ("Optionee"). WHEREAS, the Company desires, by affording Optionee an opportunity to purchase shares of its Common Stock, par value $.02 per share (the "Common Stock"), as hereinafter provided, to carry out the purposes of the Dallas Semiconductor Corporation 1987 Stock Option Plan, as amended (the "Plan"); NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1 . Grant of Option. The Company hereby grants to Optionee option (the "Option") to purchase all or any part of shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $24.6875 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 79 80 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein. 4. Exercise of the Option. This Option shall be exercisable in full or in part at any time, and from time to time, during the term hereof, in accordance with the vesting schedule contained in the "Notice of Grant of Stock Options and Option Agreement" attached hereto and made a part hereof. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine, in its sole discretion, that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, the Company's stockholders or any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company, in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for 80 81 hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 8 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Non-Transferability. Except as may otherwise be approved by the Board, during the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to execution, attachment, or similar process except with the prior written consent of the Board. 7. Termination of Employment. In the event that Optionee shall at any time hereafter cease to be an employee of the Company for any reason other than his death, retirement or permanent disability, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall immediately terminate on the date of such cessation. In the event that Optionee's employment with of the Company shall terminate by reason of his retirement or permanent disability, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of such termination prior to 81 82 the date of its expiration or three (3) months after the date of such termination, whichever occurs first. 8. Death of Optionee. If Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having totally exercised the Option, the Option may be exercised, to the extent of the shares with respect to which the Option could have been exercised by Optionee on the date of Optionee's death, by the Optionee's estate or by the person who acquires the right to exercise the Option by bequest, inheritance, or by reason of the death of the Optionee, provided the Option is exercised prior to the date of its expiration or one (1) year from the date of the Optionee's death, whichever occurs first. 9. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 10. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to Optionee for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of employment or directorship with the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 82 83 11. Option to Control. In the event of any conflict between the terms and conditions of the Plan (as amended and as further amended if the Plan is amended hereafter) and those set forth herein, the terms of this Agreement shall govern and be determinative, it being distinctly understood and agreed that Optionee has no rights with respect to the Option granted hereby other than as specifically set forth in this Agreement and in the Stockholder's Agreement provided for in Paragraph 14 below. 12. Incentive Stock Option. This Option is not intended to qualify as an "incentive Stock option7 under the Internal Revenue Code of 1986, as amended, and applicable regulations and rulings promulgated thereunder, and shall not be so construed. 13. Amendment. The Board shall have the right, without the consent or approval of the Optionee, to amend, modify, limit or terminate this Option or any term or provision hereof Any such action by the Board shall be final and binding on Optionee. 14. Shareholders Agreement. The grant of this Option is expressly conditioned upon the contemporaneous execution by the Optionee and the Company of a Stockholder Agreement, as provided in the Plan. All rights of Optionee as a stockholder and heirs, successors and assigns shall be determined by such agreement and the Optionee and heirs, successors and assigns shall be bound thereby, including but not limited to the repurchase rights as provided in such agreement. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. 83 84 IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Non-Qualified Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 84 85 Form of Notice of Grant of Stock Options and Option Agreement 85 86 ------------------------------------------------------------------------------- DALLAS SEMICONDUCTOR NOTICE OF GRANT OF STOCK OPTIONS ID: 75 19357 15 0 AND OPTION AGREEMENT 4401 Beltwood Parkway South Dallas, TX 75244-3292 ------------------------------------------------------------------------------- OPTION NUMBER: PLAN: ID: ------------------------------------------------------------------------------- Effective , you have been granted a(n) Non-Qualified Stock Option to buy shares of Dallas Semiconductor (the Company) stock at $ per share. The total option price of the shares granted is $ Shares in each period will become fully vested on the date shown. Shares Vest Type Full Vest Expiration ------ --------- --------- ---------- -------------------------------------------------------------------------------- By your signature and the Company's signature below, you and the Company agree that these options are granted under and governed by the terms and conditions of the Company's Stock Option Plan as amended and the Option Agreement all of which are attached and made a part of this document. -------------------------------------------------------------------------------- ----------------------------------- ------------------------------ Dallas Semiconductor Date ----------------------------------- ------------------------------ Date 86 87 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 9th day of July, 1993 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and Richard L. King, a director of the Company ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides for the automatic grant of an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock") to each of the Company's non-employee directors in office on the date of adoption of the Plan or subsequently elected, as therein provided, in furtherance of the purposes of the Plan; NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. Grant of Option. The Company hereby confirms the automatic grant to Optionee, pursuant to Section 7(b) of the Plan, the terms and provisions of which Plan are incorporated herein by reference, of an option (the "Option") to purchase all or any part of 100,000 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of each share of Common Stock subject to this Option shall be $14.75 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such 87 88 determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. Exercise of the Option. Subject to the provisions of Paragraph 14 hereof, this Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25 % of the aggregate number of shares provided in Paragraph 1 hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant hereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, 88 89 qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 5. Notice of Election. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event, the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. Tax Benefit Right. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Board in its sole discretion may determine. Any such payment shall otherwise be 89 90 made upon such terms and conditions as may from time to time be determined by the Board and such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. Any grant of such a bonus to Optionee shall be on such terms and conditions, if any, as may be permitted under Rule l6b-3 without adversely affecting any requirement of such rule that the Plan be administered by disinterested persons. 7. Company Loan. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Man, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. Any loan hereunder to Optionee shall be on such terms and conditions, if any, as may be permitted by Rule 16b-3 without adversely affecting any requirement of such rule that the Plan be administered by disinterested persons. 90 91 (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 8. Non-Transferability. During the lifetime of Optionee, this Option shall be exercisable only by Optionee. This Option shall not be assignable or transferable by Optionee, voluntarily or by operation of law, other than by will or by laws of descent and distribution. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. Termination of Directorship. In the event that Optionee shall at any time hereafter cease to be a director of the Company by reason of his removal from office, any part of the Option granted hereunder which has not been exercised by the date of such removal shall immediately terminate on the date of such removal. In the event that Optionee's services as a director of the Company shall terminate by reason of his resignation or retirement and Optionee shall have then served as a director of the Company for more than three (3) years, the vesting of any unexercised portion of this Option shall immediately accelerate, so that any such unexercised portion of this Option may thereafter be exercised by Optionee (or in the event of his subsequent death, by his Successor), at any time prior to the date of its expiration. In the event Optionee has not served as a director of the Company for more than three (3) years at the time of his resignation or retirement, he (or, in the event of his subsequent death, his Successor) shall be entitled to exercise, at any time prior to the date of expiration of this Option, any unexercised portion of this Option exercisable by Optionee at the time of his resignation or retirement. 91 92 10. Death of Optionee. If Optionee dies prior to the termination of his right to exercise this Option in accordance with the provisions hereof without having fully exercised the Option, the vesting of any unexercised portion of this Option shall immediately accelerate, so that any such unexercised portion of this Option may thereafter be exercised by the Optionee's Successor, provided this Option is exercised prior to the date of its expiration. 11. Adjustments. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionees. 12. No Other Rights or Obligations. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered hereby until the date of the issuance of one or more stock certificates to him for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right of service or tenure as a director of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 13. Subject to Plan. This option is subject to all of the terms and conditions of the Company's 1993 Officer & Director Stock Option Plan (and as amended if the Plan is amended hereafter). In the event of any conflict between such terms and conditions and those set forth herein, the terms of the Plan shall govern and be determinative. 14. Stockholder Approval. This Option has been granted subject to the approval of the Plan by stockholders of the Company. Notwithstanding the provisions of Paragraph 4 hereof, this 92 93 Option may not be exercised unless and until the Plan has been duly approved by the stockholders of the Company. 15. Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: /s/ /C. V. Prothro --------------------------------- Title: --------------------------------- Carnegie Hall Tower /s/ Richard L. King 152 West 57th St. - 18th Floor --------------------------------- New York, New York 10019 Optionee 93 94 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into this 21st day of July, 1999 (the "Date of Grant"), by and between DALLAS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), and MARLA K. SUGGS ("Optionee"). WHEREAS, the Company's 1993 Officer and Director Stock Option Plan (the "Plan") provides that certain officers and directors of the Company may from time to time be granted an option to purchase shares of the Company's Common Stock, par value $.02 per share (the "Common Stock"), as therein provided, in furtherance of the purposes of the Plan. NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto have agreed and do hereby agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the "Option") to purchase all or any part of 7,500 shares of the Common Stock of the Company on the terms and conditions herein set forth. 2. PURCHASE PRICE. The purchase price of each share of Common Stock subject to this Option shall be $50.5625 per share. Full payment for shares purchased upon exercise of this Option shall be made in cash or by check, or by delivery of previously owned shares of Common Stock, or partly in cash or such check and partly in such stock. The value of shares of Common Stock delivered in connection with the payment of the option price shall be the fair market value of such shares as determined by the Board of Directors of the Company (the "Board") and such determinations shall be binding upon the Optionee. No shares may be issued until full payment of the purchase price therefor has been made. 94 95 3. TERM OF OPTION. The term of the Option shall be for a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided herein and in the Plan. 4. EXERCISE OF THE OPTION. This Option shall be exercisable in installments (subject to the right of accumulation described below) so that this Option shall be exercisable for 25% of the aggregate number of shares provided in Paragraph I hereof at the end of first year of the term hereof and thereafter shall be exercisable for 6.25% of such aggregate number of shares during each calendar quarter during the term hereof (until it shall become fully vested at the end of sixteen (16) calendar quarters from the Date of Grant); provided, however, that this Option, or any unexercised portion hereof, shall become immediately exercisable in full upon the occurrence of a Change of Control. To the extent an installment is not exercised during the time stated, such installment shall accumulate and be exercisable, in whole or in part, in any subsequent period during the term of this Option. No fractional shares may be issued pursuant to the exercise of this Option. Furthermore, the exercise of this Option shall be subject to the condition that if at any time the Company shall determine in its sole discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any share otherwise deliverable upon such exercise upon any national securities exchange or under any state or federal law, or that the report to, or consent or approval of, any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, report, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 95 96 5. NOTICE OF ELECTION. Subject to the terms and conditions hereof, Optionee may exercise this Option by delivering written notice to the Secretary of the Company in person or by registered or certified mail, postage prepaid. Such notice shall state the election to partially or totally exercise this Option and the number of shares in respect of which it is being exercised, and shall be signed by Optionee. Such notice shall be accompanied by payment as provided for hereinbefore, in which event the Company shall deliver a certificate or certificates, as may be requested by Optionee, representing such shares as soon as practicable after the notice and payment shall be received. The certificate or certificates for the shares as to which the Option shall have been exercised shall be registered as designated in the notice. In the event the Option shall be exercised, pursuant to Paragraph 10 hereof, by any person or persons other than the Optionee, such notice shall be accompanied by proof deemed appropriate by the Company of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and non-assessable. 6. TAX BENEFIT RIGHT. The Board may in its sole discretion at any time prior to the exercise of this Option grant to Optionee a bonus in an amount in cash not to exceed the then existing maximum statutory Federal income tax rate (including any surtax or similar charge or assessment) for individual taxpayers multiplied by the amount of income, if any, realized by Optionee for Federal income tax purposes as a result of the exercise of this Option. Any such payment, if granted, shall be made by the Company upon the due date for such taxes in the form of a check payable to the Internal Revenue Service for the account of Optionee, or in such other manner as the Board in its sole discretion may determine. Any such payment shall otherwise be made upon such terms and conditions as may from time to time be determined by the Board and 96 97 such right shall be subject to limitation (as to term, amount, or otherwise) and to cancellation at any time by the Board in its sole discretion. 7. COMPANY LOAN. (a) Subject to the provisions of subparagraph (b) below, upon request of Optionee made at least three (3) business days prior to the intended exercise date, the Board may (on such exercise date) loan to Optionee an amount equal to the excess of the aggregate option price of the Common Stock which Optionee is then electing to purchase pursuant to the exercise of this Option, or any part hereof, over the aggregate par value of such Common Stock, less any other consideration delivered by Optionee upon such exercise, provided that Optionee shall execute a promissory note for such amount, payable to the order of the Company, in such form as is in accordance with the provisions of the Plan and as is otherwise satisfactory to the Board. (b) The Company shall have an obligation to make a loan to Optionee only if the Board shall have determined in its sole discretion prior to the exercise date that such loan should be made, but shall have no such obligation if the Board shall have thereafter canceled or suspended the operation of the loan provisions of the Plan, or if the loan and/or other loans to be made at such time would exceed any limit on the maximum amount of loans that may be made under the Plan established from time to time by the Board in its discretion. (c) Such loan shall further be conditioned upon the delivery by Optionee of such collateral as may be required by the Board and the execution by Optionee of such stock powers or other instruments which the Board may deem necessary or advisable in connection with such loan and creation of such security interest. 97 98 8. NON-TRANSFERABILITY. Other than by will or by laws of descent and distribution, this Option shall be assignable or transferable by Optionee only if and under terms and conditions approved by the Board in its sole discretion. Neither this Option nor the shares covered hereby shall be pledged or hypothecated in any way. Neither this Option nor the shares covered hereby shall be subject to the execution, attachment, or similar process except with the prior written consent of the Board. 9. TERMINATION OF SERVICE AS CORPORATE SECRETARY. In the event that Optionee shall at any time hereafter cease to serve as Corporate Secretary of the Company for any reason, including, but not limited to, her retirement, permanent disability or death, any part of the Option granted hereunder which has not been exercised by the date of such cessation shall, on the date of such cessation, become immediately exercisable and may be exercised by Optionee, or by the Optionee's Successor, provided the Option is exercised prior to the date of its expiration. 10. ADJUSTMENTS. The number of shares of Common Stock covered by this Option and the option price may be adjusted to reflect, as deemed appropriate by the Board in its discretion, any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like of or by the Company. Decisions by the Board as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive on Optionee. 11. NO OTHER RIGHTS OR OBLIGATIONS. Optionee shall have no rights by reason of this Option as a stockholder with respect to any shares covered thereby until the date of the issuance of one or more stock certificates to her for such shares pursuant to the due exercise of the Option. The granting of this Option shall not confer on Optionee any continued right to employment or 98 99 tenure as an officer of the Company or any additional rights other than as expressly provided for herein. There is no obligation upon Optionee to exercise this Option or any part thereof. 12. DEFINED TERMS. Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning given to such terms in the Plan. IN WITNESS WHEREOF, Dallas Semiconductor Corporation and Optionee have executed this Stock Option Agreement as of the date first above written. Address for Notices: DALLAS SEMICONDUCTOR CORPORATION 4401 South Beltwood Parkway Dallas, Texas 75244 By: By: /s/ C. V. Prothro ---------------------------------- C. V. Prothro Title: ---------------------------------- Chairman of the Board, President and Chief Executive Officer 501 Brian Drive /s/ Marla K. Suggs ------------------------------ ---------------------------------------- Marla K. Suggs, Optionee Grand Prairie, TX 75052 ------------------------------ Address of Optionee 99 EX-10.28 16 f75694ex10-28.txt EXHIBIT 10.28 1 EXHIBIT 10.28 DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN (EFFECTIVE OCTOBER 1, 1999) 1 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I - INTRODUCTION.....................................................................1 1.1 Purpose of Plan...............................................................1 1.2 Medical Care Plan Status......................................................1 ARTICLE II - DEFINITIONS.....................................................................2 2.1 "Administrator"...............................................................2 2.2 "Board".......................................................................2 2.3 "Board Member"................................................................2 2.4 "Code"........................................................................2 2.5 "Covered Dependent"...........................................................2 2.6 "Creditable Coverage".........................................................2 2.7 "Dependent"...................................................................3 2.8 "Director"....................................................................3 2.9 "Effective Date"..............................................................3 2.10 "Eligible Employee"...........................................................3 2.11 "Eligible Individual".........................................................3 2.12 "Eligible Retiree"............................................................3 2.13 "Employer"....................................................................3 2.14 "Enrollment Date".............................................................3 2.15 "Enrollment Period"...........................................................4 2.16 "ERISA".......................................................................4 2.17 "Excepted Benefits":..........................................................4 2.18 "FMLA"........................................................................5 2.19 "Genetic Information".........................................................5 2.20 "Health Status - Related Factor"..............................................5 2.21 "Late Enrollee"...............................................................5 2.22 "Manager".....................................................................5 2.23 "Military Leave"..............................................................5 2.24 "Officer".....................................................................5 2.25 "Participant".................................................................6 2.26 "Participating Employer"......................................................6 2.27 "Placed for Adoption".........................................................6 2.28 "Plan"........................................................................6 2.29 "Plan Year"...................................................................6 2.30 "Policy"......................................................................6 2.31 "Pre-existing Condition"......................................................6 2.32 "Pre-existing Condition Exclusion"............................................6 2.33 "Qualified Medical Child Support Order".......................................6
i 3 2.34 "Qualified Medical Expense"...................................................6 2.35 "Retirement" and "Retire".....................................................7 2.36 "Sponsor".....................................................................7 2.37 "Spouse"......................................................................7 2.38 "USERRA"......................................................................7 2.39 "Waiting Period"..............................................................7 ARTICLE III - PARTICIPATION..................................................................7 3.1 Eligibility to Participate....................................................7 3.2 Commencement of Participation.................................................8 3.3 Cessation of Participation....................................................8 3.4 USERRA Reinstatement Rules....................................................9 3.5 FMLA Compliance...............................................................9 3.6 Reinstatement of Former Participant..........................................10 3.7 No Eligibility Discrimination Due to Health..................................10 3.8 Special Enrollments..........................................................10 ARTICLE IV - ELECTION TO RECEIVE MEDICAL CARE BENEFITS......................................11 4.1 Election of Benefit Options..................................................11 4.2 Election Procedure...........................................................12 4.3 No Premium Discrimination Due to Health......................................12 ARTICLE V - MEDICAL CARE BENEFITS...........................................................12 5.1 Benefits.....................................................................12 5.2 Pre-existing Conditions......................................................12 5.3 Notification of Enrollment Rights............................................14 5.4 Newborns' and Mothers' Health Protection Act of 1996.........................14 5.5 Mental Health Parity Act of 1996.............................................14 5.6 Women's Health and Cancer Rights Act of 1998.................................15 ARTICLE VI - PAYMENT OF MEDICAL CARE EXPENSE REIMBURSEMENTS.................................15 6.1 Claims Procedure.............................................................15 6.2 Reimbursement of Expenses....................................................15 ARTICLE VII - COORDINATION OF BENEFITS......................................................15 7.1 Explanation..................................................................15 7.2 Definitions..................................................................16
ii 4 7.3 Coordination of Benefits Procedure...........................................16 7.4 Existence of Other Group Plans...............................................18 7.5 Recovery and Payment of Benefits.............................................18 7.6 Coordination with Medicare, Medicaid and CHAMPUS.............................19 7.7 Subrogation..................................................................20 ARTICLE VIII - TERMINATION OF PARTICIPATION.................................................21 8.1 Limitation on Covered Expenses...............................................21 8.2 Date of Policy Coverage Termination..........................................21 ARTICLE IX - CONTINUATION COVERAGE UNDER "COBRA"............................................22 9.1 Special Definitions..........................................................22 9.2 Entitlement to Continuation Coverage.........................................23 9.3 Notice Required..............................................................23 9.4 Election of Continuation Coverage............................................24 9.5 Premiums.....................................................................24 9.6 Period of Continuation Coverage..............................................24 9.7 Expiration of Continuation Coverage..........................................26 ARTICLE X - FUNDING.........................................................................26 ARTICLE XI - ADMINISTRATION.................................................................27 11.1 Named Fiduciary..............................................................27 11.2 Allocation of Fiduciary Responsibilities.....................................27 11.3 Records......................................................................27 11.4 Appointment of Committee.....................................................28 11.5 Actions of Committee.........................................................28 11.6 Other Powers and Duties of the Administrator.................................28 11.7 Indemnification..............................................................29 11.8 Reliance on Tables, Etc......................................................30 11.9 Claims and Review Procedures.................................................30 11.10 Participant's Responsibilities...............................................31 11.11 Missing Persons..............................................................31 11.12 Nondiscriminatory Exercise of Authority......................................31 11.13 Expenses.....................................................................31 ARTICLE XII - AMENDMENT OR TERMINATION OF PLAN..............................................32 12.1 Amendment of Plan............................................................32 12.2 Termination of Plan..........................................................32
iii 5 ARTICLE XIII - MISCELLANEOUS................................................................32 13.1 Information to be Furnished..................................................32 13.2 Limitation of Rights.........................................................32 13.3 Benefits Not Solely from Policy..............................................32 13.4 Nonassignability of Rights...................................................33 13.5 No Guarantee of Tax Consequences.............................................33 13.6 Severability.................................................................33 13.7 Construction of Terms........................................................33 13.8 Choice of Law/Jurisdiction and Venue.........................................33 13.9 No Vested Interest...........................................................33 13.10 No Guarantee of Employment...................................................33 13.11 Adoption by Successor Employer or Affiliates.................................34 13.12 Bonding......................................................................34 ARTICLE XIV - QUALIFIED MEDICAL CHILD SUPPORT ORDERS........................................34 14.1 Notification of Receipt of Child Support Order...............................34 14.2 Procedures to Determine if Medical Child Support Order is a Qualified Medical Child Support Order..................................................35 14.3 Treatment of Alternate Recipient under Qualified Medical Child Support Order........................................................................36 14.4 Cost of Qualified Medical Child Support Order Benefits.......................36 14.5 Qualified Medical Child Support Order and Medicaid...........................37 14.6 Payments or Reimbursements under a Qualified Medical Child Support Order........................................................................37 14.7 Alternate Recipient..........................................................37 ARTICLE XV - POLICY.........................................................................37 ARTICLE XVI - PARTICIPATING EMPLOYERS.......................................................37 16.1 Adoption by Other Employers..................................................37 16.2 Requirements of Participating Employers......................................38 16.3 Designation of Agent.........................................................38 16.4 Transfers....................................................................38 16.5 Participating Employer's Contribution........................................38 16.6 Discontinuance of Participation..............................................38 16.7 Administrator's Authority....................................................39
iv 6 ARTICLE I INTRODUCTION 1.1 PURPOSE OF PLAN. The purpose of this Plan is to enable the Sponsor to provide retiree (and limited other) medical care benefits to (a) Board Members during the term of their service as a Board Member on behalf of the Sponsor, and (b) to Board Members and to Eligible Retirees upon their Retirement from the employment, or service as a Board Member, as applicable, of the Sponsor or any other Participating Employers. On the Effective Date, the Plan makes available to Participants the medical insurance described in the Policy attached as Exhibit A. Board Members, Officers and Spouses are to get lifetime coverage and benefits under this Plan. Each other Participant and his spouse are to get coverage and benefits under the Plan until the covered individual reaches his (or her, as appropriate) 65th birthday. Covered Dependents (other than a spouse) of a Participant who is not a Board Member or Officer are to get coverages and benefits until the Participant's 65th birthday. The specific medical coverages and benefits available to Participants are identified in the Policy. In the event a Policy is not in effect at the time a qualifying expense was incurred, the specific medical coverages and benefits available at that time will be those identified in the Policy most recently in effect immediately prior to the date the expense was incurred. Notwithstanding anything in the Plan to the contrary, the Plan is intended to provide medical coverage and benefits without regard to whether a Policy is in effect at a particular time. Except for the coordination of benefits as required by ARTICLE VII, the benefits and coverages under this Plan shall not decrease or be reduced in the aggregate or individually by more than an immaterial amount during the life of this Plan, except as provided in SECTION 12.1 The Sponsor will select and utilize a Policy or Policies that provides medical coverages and benefits that are not worse than the coverages and benefits provided by Sponsor to active employees of the Sponsor outside of this Plan at the time the Policy or Policies were selected, and in the event that it is determined the Sponsor has attempted to reduce benefits and coverages in an effort to circumvent the restrictions of this Section and its obligations under the Plan, notwithstanding anything to the contrary in this Plan, (i) the Plan shall provide, for the remainder of the Plan's existence, the most valuable benefits and coverages the Plan provided at any time during the Plan's existence up to that time, and (ii) the Sponsor shall obtain and maintain insurance providing coverage and benefits at least as good as those required under this paragraph. 1.2 MEDICAL CARE PLAN STATUS. This Plan is intended to qualify as a "medical care plan" under sections 105 and 106 of the Code, and is to be interpreted in a manner consistent with the requirements of sections 105 and 106 of the Code. It is intended that the value of medical coverage be excluded from the Participants' income under Code section 106, to the extent applicable. 1 7 The Plan is intended to satisfy all applicable requirements of the Code and its regulations. This Plan is also intended to satisfy those requirements of ERISA which are applicable to employee medical plans. Nothing in the Plan shall be construed as requiring compliance with Code or ERISA provisions that do not otherwise apply. ARTICLE II DEFINITIONS Whenever used in this document, the following terms have the following meanings unless a different meaning is clearly required by the context, and defined terms from the Policy are incorporated in this document by reference, but only to the extent that such terms are not inconsistent with the following definitions: 2.1 "ADMINISTRATOR" means the Sponsor, which shall be the plan administrator within the meaning of ERISA section 3(16). 2.2 "BOARD" means the Board of Directors of the Sponsor. 2.3 "BOARD MEMBER" means each person listed on Exhibit D to the Plan. 2.4 "CODE" means the Internal Revenue Code of 1986, as amended. 2.5 "COVERED DEPENDENT" means an individual who qualifies as a Dependent or as a Spouse under this Plan and who was enrolled by a Participant under this Plan when he was a Participant under this Plan. 2.6 "CREDITABLE COVERAGE" means, with respect to an individual, coverage of the individual under any of the following: (a) A group health plan; (b) Health insurance coverage-, (c) Part A or part B of title XVIII of the Social Security Act; (d) Title XIX of the Social Security Act, other than coverage consisting solely of benefits under section 1928; (e) Chapter 55 of title 10, United States Code; (f) A medical care program of the Indian Health Service or of a tribal organization; (g) A State health benefits risk pool; (h) A health plan offered under chapter 99 of title 5, United States Code; 2 8 (i) A public health plan (as defined in Federal regulations); (j) A health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e); or (k) A state uninsured children's health insurance program. Such term does not include coverage consisting solely of coverage of Excepted Benefits. 2.7 "DEPENDENT" means any person who is a dependent of a Participant (including, without limitation, a Participant's spouse on the date of his Retirement) and who satisfies the definition of "dependent" in the Policy in effect on the date of the Participant's Retirement, or if none, in the last Policy in effect immediately prior to the Participant's Retirement. 2.8 "DIRECTOR" means the title awarded by an Employer to employees (who are not members of the Board) in certain job classifications as specified on its books and records. 2.9 "EFFECTIVE DATE" means October 1, 1999, the effective date of the Plan, except where expressly stated otherwise in this document. 2.10 "ELIGIBLE EMPLOYEE" means (i) each Officer of the Sponsor on the Effective Date, (ii) each common-law employee of an Employer who was designated on the books and records of the Employer as a "functionally equivalent" officer on the Effective Date and who shared in the contribution made on June 12, 1998, to the Dallas Semiconductor Corporation Executive Deferred Compensation Plan, (iii) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date (or within the five (5) calendar year period preceding the Effective Date), also held the title of Director or was the Sponsor's corporate controller, and (iv) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date, held the position of Manager and was required to report for operating purposes directly to the Sponsor's President and Chief Executive Officer. Each person who was an Eligible Employee on the Effective Date is listed on either Exhibit C or Exhibit F to the Plan. 2.11 "ELIGIBLE INDIVIDUAL" means a Board Member or an Eligible Retiree, as appropriate, who has satisfied (i) the requirements of Article III to be eligible to participate in the Plan, and (ii) the eligibility requirements stated in the Policy. 2.12 "ELIGIBLE RETIREE" means an Eligible Employee who has Retired after the Effective Date. 2.13 "EMPLOYER" means the Sponsor and each Participating Employer which shall adopt this Plan under Article XVI. 2.14 "ENROLLMENT DATE" means the earlier of (i) the last day of an Enrollment Period during which an Eligible Individual did not elect under SECTION 3.2 to not be a Participant, or (ii) the first day of the period that must pass under ARTICLE III, if any, before an Eligible Employee, Board Member or Dependent, as appropriate, is eligible to be covered for benefits under the Plan. 3 9 2.15 "ENROLLMENT PERIOD" means (i) in the case of an Eligible Retiree, the thirty (30) day period occurring after the Eligible Retiree's Retirement during which an Eligible Retiree may refuse in writing under Section 3.2 to participate under the Plan, and (ii) in the case of a Board Member, the thirty (30) day period occurring immediately after the Effective Date. 2.16 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.17 "EXCEPTED BENEFITS" means the following: (a) benefits not subject to the requirements regarding Creditable Coverage: (1) coverage only for accident or disability income insurance or any combination thereof, (2) coverage issued as a supplement to liability insurance; (3) liability insurance, including general liability insurance and automobile liability insurance; (4) workers' compensation or similar insurance, (5) automobile medical payment insurance; (6) credit-only insurance; (7) coverage for on-site medical clinics; and (8) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. (b) If offered separately: (1) limited scope dental or vision benefits; (2) benefits for long-term care, nursing home care, home health care, community based care, or any combination thereof, (3) other similar limited benefits as specified in regulations. (c) If offered as independent non-coordinated benefits (separate consent or policy, no coordination of benefits with any other plan sponsored by the employer): (1) coverage for a specified disease or illness; (2) hospital indemnity or other fixed indemnity insurance. 4 10 (d) If offered as separate insurance policy, Medicare supplemental health insurance and similar supplemental coverage. 2.18 "FMLA" means the Family and Medical Leave Act of 1993, as amended. 2.19 "GENETIC INFORMATION" means information about genes, gene products, and inherited characteristics that may derive from the individual or a family member. This includes information regarding carrier status and information derived from laboratory tests that identify mutations in specific genes or chromosomes, physical medical examinations, family histories, and direct analysis of genes or chromosomes. 2.20 "HEALTH STATUS - RELATED FACTOR" means the following factors: (a) health status, (b) medical condition (include both physical and mental illnesses), (c) claims experience, (d) receipt of health care, (e) medical history, (f) Genetic Information, (g) evidence of insurability (including conditions arising out of acts of domestic violence), and (h) disability. 2.21 "LATE ENROLLEE" means a Participant or Covered Dependent who enrolled under this Plan other than during his first Enrollment Period or a Special Enrollment Period. 2.22 "MANAGER" means the title awarded by an Employer to employees in certain job classifications as specified on its books and records. 2.23 "MILITARY LEAVE" means the absence due to the performance of duty on a voluntary or involuntary basis under competent authority in (i) the Armed Forces, (ii) the Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty, (iii) the commissioned corps of the Public Health Service, and (iv) other categories of persons designated by the President in time of war or emergency for a period of up to thirty (30) days during which a person who previously qualified as an employee is not employed on a full-time basis solely because the person is engaged in active military service for the United States government. 2.24 "OFFICER" means each person listed on Exhibit C to the Plan. 5 11 2.25 "PARTICIPANT" means any Eligible Individual who has elected to participate in the Plan in accordance with ARTICLE III. 2.26 "PARTICIPATING EMPLOYER" means any entity which has adopted this Plan pursuant to ARTICLE XVI. 2.27 "PLACED FOR ADOPTION" means the assumption and retention by an Eligible Employee of a legal obligation for the total or partial support of an individual in anticipation of adoption of a child prior to the date on which such child attains age eighteen (18). A child's status as having been Placed for Adoption ends on the date that the Eligible Employee's legal obligation described in this Section ends. 2.28 "PLAN" means the Dallas Semiconductor Corporation Executives Retiree Medical Plan, as set forth in this document, and any and all amendments, schedules and supplements to this document. 2.29 "PLAN YEAR" means the period beginning on the Effective Date and ending on the following December 31 and, thereafter, the fiscal year beginning on each January 1 (starting on January 1, 2000) and ending on the following December 31. 2.30 "POLICY" means the fully-insured medical insurance policy or policies described on Exhibit A attached to this Plan, as such Exhibit A existed on the Effective Date or as it may be amended in the future. 2.31 "PRE-EXISTING CONDITION" means a condition (whether physical or mental), regardless of the cause of the condition, for which medical advice, diagnosis, care or treatment was recommended or received within the six (6) month period ending on the Enrollment Date. 2.32 "PRE-EXISTING CONDITION EXCLUSION" means with respect to coverage, a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for such coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before such date. Genetic Information is not a Pre-existing Condition in the absence of a diagnosis of the condition related to such information. 2.33 "QUALIFIED MEDICAL CHILD SUPPORT ORDER" means any judgment, decree, order (including a settlement agreement), administrative notice or National Medical Support Notice (defined in section 609(a)(5)(C) of ERISA) which satisfies the requirements set forth in ARTICLE XIV. 2.34 "QUALIFIED MEDICAL EXPENSE" means an expense incurred by a Participant, by the Participant's spouse or by a Dependent of such Participant for medical care as defined in Code section 213, including, without limitation, amounts paid for hospital bills and doctor bills, but only to the extent that (i) the Participant or other person is not reimbursed for the expense through insurance or otherwise, other than under the Plan, and (ii) the expense is not taken into account as a deduction by the Participant on his Internal Revenue Service Form 1040; provided, however, that notwithstanding anything in this document to the contrary, a Qualified Medical 6 12 Expense shall be limited to only those expenses covered under the Policy, if a Policy is in effect, and if no Policy is in effect so that the expense is covered by Policy, to only those expenses covered under the Policy last in effect immediately prior to the date the expense was incurred. 2.35 "RETIREMENT" and "RETIRE" mean (i) an Eligible Employee's termination of employment with an Employer, voluntarily or involuntarily, after the Effective Date when the Eligible Employee has at least (10) ten years of employment by the Sponsor or its affiliates and has reached the age of at least fifty (50) and (ii) an Officer's termination of employment with an Employer, voluntarily or involuntarily, after the Effective Date when the Officer has at least ten (10) years of employment by, and five (5) years as an Officer of, the Sponsor or its affiliates. A Board Member shall be deemed to be Retired for purposes of only this Plan on the Effective Date of the Plan. 2.36 "SPONSOR" means Dallas Semiconductor Corporation, a Delaware corporation, or any successor or assign which shall adopt the Plan. Throughout the Plan, a purposeful distinction is drawn between the Sponsor and the Employers. The powers and responsibilities assigned to the Sponsor by the Plan shall apply exclusively to the Sponsor, unless specifically delegated in writing by the Sponsor. 2.37 "SPOUSE" means the wife of an Officer or of a Board Member on the date of his Retirement. Each person who was a Spouse on the Effective Date is listed on Exhibit E, but being listed on Exhibit E does not make an individual a Spouse for purposes of this Plan. 2.38 "USERRA" means the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. 2.39 "WAITING PERIOD" means with respect to a group health plan and an individual who is a potential Participant or beneficiary in the plan, the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. Any period of time before a Late Enrollee enrolls under a Special Enrollment Period is not a Waiting Period. Special definitions used only for particular purposes are found in ARTICLE VII and ARTICLE IX. ARTICLE III PARTICIPATION 3.1 ELIGIBILITY TO PARTICIPATE. Eligible Employees and Board Members shall become Eligible Individuals on the Effective Date. No other individual may become a Participant (or an Eligible Individual) under the Plan. The Policy in effect on the date of a Participant's Retirement determines (i) the Plan's Eligible Individuals, (ii) the Plan's Spouses and (iii) those Dependents, if any, of an Eligible Individual who will be eligible to be covered under its terms. When an Eligible Individual's 7 13 eligible Dependents satisfy the eligibility requirements of the Policy in effect on the date of a Participant's Retirement, those eligible Dependents shall also be eligible to participate at that time under the Plan. If, at the date of a Participant's Retirement, no Policy is then in effect, the Participant's eligible Dependents shall be determined under the terms of the Policy last in effect with respect to the Plan. 3.2 COMMENCEMENT OF PARTICIPATION. An Eligible Individual shall become a Participant automatically when he becomes an Eligible Individual unless he refuses in writing in a form acceptable to the Administrator that is received by the Administrator before the Eligible Individual's Enrollment Date. 3.3 CESSATION OF PARTICIPATION. Subject to Section 12.2, a Board Member and an Officer shall be a Participant and receive coverage under this Plan for his life. A Participant (other than a Board Member or an Officer) shall be a Participant and receive coverage under the Plan until his 65th birthday and such a Participant's spouse shall be a Covered Dependent and receive coverage under the Plan until her 65th birthday; provided, however, that notwithstanding anything in this Plan to the contrary, a Participant (other than a Board Member or an Officer) shall also cease to be a Participant (and his spouse shall also cease to be a Covered Dependent) as of the earliest of (a) the date on which the Plan terminates as provided in Section 12.2; (b) the date on which the Participant (other than a Board Member or an Officer) or his spouse fails to satisfy the eligibility criteria of the Plan; or (c) the date on which his election to receive medical care under this Plan terminates or expires according to its written terms. Subject to Section 12.2, a Spouse shall receive coverage under the Plan for her life. A Covered Dependent (other than a Spouse and the spouse of a Participant who is neither a Board Member nor an Officer) shall receive coverage under the Plan until his or her Participant reaches his 65th birthday; provided, however, that notwithstanding anything in this Plan to the contrary, a Covered Dependent (other than a Spouse and the spouse of a Participant who is neither a Board Member nor an Officer) shall also cease to be a Covered Dependent as of the earliest of: (a) the date on which the Plan terminates as provided in Section 12.2; (b) the date on which the Covered Dependent fails to satisfy the eligibility criteria of the Plan; or (c) the date on which his election to receive medical care under this Plan terminates or expires according to its written terms. 8 14 3.4 USERRA REINSTATEMENT RULES. (a) This Plan shall provide any health benefits otherwise available to Eligible Employees, if any, in accordance with USERRA and this Section, effective with respect to Military Leaves that began on or after October 13, 1994. (b) The maximum period of Plan coverage available to an Eligible Employee and his Dependents under this Section will not exceed the lesser of (i) eighteen months or (ii) the period ending on the day after the date upon which the person fails to apply for a return to a position of employment under section 4312(a) of USERRA. The period of Plan coverage available under this Section shall begin on the date on which the person's qualifying absence begins. (c) Only for purposes of determining eligibility for medical benefits and only if the Eligible Employee pays all amounts that the Employer is permitted to charge under USERRA for coverage while on a qualifying leave, an Eligible Employee who experiences a reduction in hours or termination of employment solely due to a Military Leave shall be deemed to continue to be an employee until the earliest date that the termination of his Plan benefits is permitted by USERRA and this Section. 3.5 FMLA COMPLIANCE. (a) This Plan shall provide any health benefits otherwise available to Eligible Employees, if any, in accordance with FMLA for Eligible Employees. (b) Unless an Eligible Employee chose not to retain health coverage, the Employer must maintain medical coverage under the Plan, if any, for such an Eligible Employee on FMLA leave for the duration of his FMLA leave, at the level and under the conditions that coverage would have been provided if the Eligible Employee had continued working and had not taken a FMLA leave. (c) An Eligible Employee on FMLA leave shall have the same opportunity as active employees to change Plan coverage, such as from single coverage to family coverage on the birth of a child, as required by FMLA. (d) The Employer's obligation to continue to maintain health coverage under FMLA and this Section ends on the earliest of the following dates: (1) the date the Eligible Employee informs the Employer of his intent not to return from a FMLA leave; 9 15 (2) the date the Eligible Employee's employment relationship would be terminated but for the FMLA leave (such as during a reduction in force); (3) the date the Eligible Employee fails to return from the FMLA leave; or (4) the date the Eligible Employee fails to pay a required employee contribution when due. (e) Former Participants who lose eligibility during a FMLA leave will have their benefits reinstated upon their return at the end of the FMLA leave at the same levels as were provided to them under the Plan when their FMLA leave began, but subject to any changes in benefit levels that may have occurred during the leave that affected the entire work force. Participants returning from FMLA leave shall not be required to requalify for any benefits. 3.6 REINSTATEMENT OF FORMER PARTICIPANT. A former Participant who again meets the eligibility requirements under Section 3.1 will receive medical coverages and benefits under the Plan and become a Participant in this Plan again on the first day the former Participant satisfies the requirements of Section 3. 1, unless the former Participant is (i) reinstated as a Participant in the Plan as provided by Sections 3.4 and 3.5 or (ii) declines participation as provided under Section 3.2. 3.7 NO ELIGIBILITY DISCRIMINATION DUE TO HEALTH. The Plan shall not establish rules for eligibility (including continued eligibility) for any individual under the Plan that are based on one or more Health Status-Related Factors of the individual or his Dependent. 3.8 SPECIAL ENROLLMENTS. (a) Notwithstanding any provision to the contrary, an Eligible Individual or an eligible Dependent of an Eligible Individual may elect health care coverage under Special Enrollment, but only if (1) the Eligible Individual (or the eligible Dependent) was covered under a group health plan or health insurance at the time coverage was offered under this Plan; (2) the Eligible Individual (or the eligible Dependent) declined coverage under the Plan in writing for the stated reason that he had the other health coverage; (3) the Eligible Individual (or the eligible Dependent) has "Exhausted COBRA Coverage" or the other health coverage (or the individual's former employer's contribution toward the cost of such coverage) has terminated; and 10 16 (4) the Eligible Individual (or the eligible Dependent) requests Special Enrollment under this Section in writing within thirty (30) days after the date he or she lost his or her other health coverage. For purposes of this Plan, a person shall be treated as if they have "Exhausted COBRA Coverage" if that individual's COBRA coverage ceased for any reason other than either failure of the individual to pay premiums on a timely basis or for cause (such as making a fraudulent claim or an intentional misrepresentation of a material fact in connection with the plan). A person has "Exhausted COBRA Coverage" if the COBRA coverage ceases because either (a) the employer or other responsible entity fails to remit the premiums on a timely basis, or (b) the individual no longer resides in the service area of an HMO or a similar program (whether or not within the choice of the individual) and there is no other COBRA coverage available to the individual. (b) Special Enrollment must be offered to Dependents if. (a) the Plan offers Dependent coverage, (b) the Eligible Individual is a Participant under the Plan or has met the Waiting Period and is eligible for coverage but for his failure to enroll during a previous enrollment period, and (c) the Dependent became a new Dependent as -a result of marriage, birth, adoption or being Placed for Adoption. A thirty (30) day Special Enrollment period shall be offered to such Dependent beginning on the later of (i) the date Dependent coverage is made available or (ii) the date of marriage, birth, adoption or being Placed for Adoption, as the case may be. If a Special Enrollment period is offered to a new Dependent under the Plan, the Eligible Individual who has the new Dependent may also enroll under the Plan during that Special Enrollment period if he is not already a Participant. Coverage that is timely elected during a Special Enrollment period shall be effective (i) if due to loss of coverage, on the first day of the month after receipt of the completed enrollment request under the Plan, (ii) if due to birth, on the date of birth, (iii) if due to adoption or being Placed for Adoption, the date it occurred and (iv) if due to marriage, on the first day of the month after receipt of the completed enrollment request under the Plan. A person who enrolls during a Special Enrollment period is not a Late Enrollee. ARTICLE IV ELECTION TO RECEIVE MEDICAL CARE BENEFITS 4.1 ELECTION OF BENEFIT OPTIONS. An Eligible Individual shall be deemed to have elected to receive medical care coverages and benefits under the Plan as described in the Policy in effect on his Enrollment Date. If no Policy is in effect on his Enrollment Date, an Eligible Individual will be deemed to have elected to receive medical coverage and benefits under the 11 17 Plan as described in the Policy in effect immediately prior to his Enrollment Date. An Eligible Individual who declined participation during an Enrollment Period will become a Participant in the subsequent Enrollment Period, if any, during which he does not refuse to become a Participant. 4.2 ELECTION PROCEDURE. An Eligible Individual may decline to participate in this Plan by filing a properly completed election form with the Administrator. 4.3 NO PREMIUM DISCRIMINATION DUE TO HEALTH. The Plan shall not require an individual (as a condition of enrollment or continued enrollment under the Plan) to pay a premium or otherwise contribute an amount which exceeds the amount paid by a similarly situated individual solely due to a Health Status - Related Factor of the individual; provided, however, that the rules regarding Health Status-Related Factors do not restrict the amount an Employer may charge for coverage or prevent premium discounts or rebates or modified deductibles and co-payments in return for adherence to programs of health promotion and disease prevention. ARTICLE V MEDICAL CARE BENEFITS 5.1 BENEFITS. The Administrator shall offer to each Eligible Individual, at the time he becomes eligible under ARTICLE III and at each subsequent Enrollment Period applicable to that Eligible Individual, if any, the opportunity to participate in the Plan. Subject to SECTION 12.1, the specific coverages and benefits available to Participants are set forth in the Policy or if there is no Policy, in the Policy last in effect in connection with the Plan. The benefits and coverages under this Plan shall continue for the lifetime of each Board Member, each Officer and each Spouse. 5.2 PRE-EXISTING CONDITIONS. (a) PRE-EXISTING CONDITIONS. The Plan will not pay any benefits for the care or treatment of pre-existing conditions (as defined in the Policy) for the period of time set forth in the Policy; provided, however, that (i) notwithstanding anything in this Plan or any Policy to the contrary, a pre-existing condition in the Policy shall not include any condition that does not fall within the definition of a Pre-existing Condition, (ii) no pre-existing condition shall include a condition for which Genetic Information was used as a basis for asserting the existence of the condition if there has been no diagnosis of the condition related to such information, and (iii) the period during which any exclusion or limitation of benefits (relating to a condition based on the fact that the condition was present before a person's Enrollment Date) in the Plan or the Policy will be enforced shall not be longer than the excess of twelve (12) months (eighteen (18) months for a Late Enrollee), beginning on his Enrollment Date, over the aggregate 12 18 of the periods of Creditable Coverage (if any) applicable to the Participant as of his Enrollment Date. For purposes of this subsection, a period of Creditable Coverage shall not be counted, with respect to enrollment of an individual under the Plan, if, after such period and before his Enrollment Date, there was a 63 -day period for all of which the individual was not credited with Creditable Coverage. However, any period that an individual is required to wait before becoming covered under the Plan pursuant to the Policy or ARTICLE III shall not be taken into account in determining the continuous 63-day period described in the preceding sentence. The individual seeking to become a Participant and who seeks to establish a period of Creditable Coverage must obtain and provide to the Administrator a written certification from the prior health insurance plan or the prior health insurance issuer regarding each period of Creditable Coverage of the individual under such prior health insurance plan and COBRA continuation provisions. Such certification should detail the Waiting Period, if any, imposed with respect to the individual for any coverage under such other health insurance plan. If a written certification cannot be produced, Creditable Coverage may be demonstrated through the presentation of other documentation or through other means satisfactory to the Administrator. (b) EXCLUSION NOT APPLICABLE TO CERTAIN NEWBORNS. The Plan shall not impose any pre-existing condition exclusion (as defined in the Policy) in the case of an individual who, as of the last day of the thirty (30) day period beginning with the date of birth, is covered under Creditable Coverage. However, this exclusion shall no longer apply to an individual after the end of the first 63-day period during all of which the individual was not covered under any Creditable Coverage. (c) EXCLUSION NOT APPLICABLE TO CERTAIN ADOPTED CHILDREN. The Plan shall not impose any pre-existing condition exclusion (as defined in the Policy) in the case of a child who is adopted or Placed for Adoption before attaining eighteen (18) years of age and who, as of the last day of the thirty (30) day period beginning on the date of the adoption or Placement of Adoption, is covered under Creditable Coverage. The previous sentence shall not apply to coverage before the date of such adoption or Placement for Adoption. However, this exclusion shall no longer apply to an individual after the end of the first 63-day period during all of which the individual was not covered under any Creditable Coverage. (d) EXCLUSION NOT APPLICABLE TO PREGNANCY. The Plan shall not impose any exclusion relating to pregnancy as a pre-existing condition. 13 19 (e) NOTICE OF CREDITABLE COVERAGE. The Administrator or its designee shall provide written certification of Creditable Coverage to any individual whose coverage terminates under the Plan (i) at the time of the Qualifying Event or other termination of coverage, (ii) at the time COBRA coverage ceases, and (iii) upon any written request made by an individual not later than twenty-four (24) months after his Plan coverage ceased. The written certification will include (i) the date the certificate is issued, (ii) the name of the plan that provided the coverage, (iii) the name of the participant and/or dependents to whom the certificate applies, (iv) the name, address, and telephone number of the plan administrator, (v) the telephone number of the person to contact for additional information, and (vi) either (a) a statement that the individual has at least 18 months of Creditable Coverage without a 63-day break in coverage, or (b) state (A) the Waiting Period (if any) imposed on the individual for coverage under the plan, (B) the date coverage began, and (C) the date coverage ended (or indicate if it is continuing). (f) NOTICE TO INDIVIDUAL OF PRE-EXISTING CONDITION EXCLUSION. After the Plan receives a Creditable Coverage certificate from a prior plan, the Plan will make a determination and notify individuals within a reasonable period of time regarding the length of any Pre-Existing Condition Exclusion period that applies to them. If no Pre-Existing Condition Exclusion applies to the individual, the Plan will not send a notice. The notice shall explain the basis of the Plan's determination, including the source and substance of any information that the Plan relied on, and the Plan's appeal procedures. 5.3 NOTIFICATION OF ENROLLMENT RIGHTS. All Eligible Individuals shall be provided with a notice of his or her enrollment rights in writing at or before the time the Eligible Individual elects to enroll, and such notification shall be substantially in the same form as provided in Temp. Treas. Reg. Section 54.9801-6T(c) and Interim U.S. Department of Labor Regulation Section 2590.701-6(c). 5.4 NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT OF 1996. Notwithstanding the precertification requirements of the Plan to the contrary, the Plan shall provide maternity care benefits in accordance with the Newborns' and Mothers' Health Protection Act of 1996 (the "Newborns' Act"), effective on the date specified in the Newborns' Act. In accordance with the Newborns' Act, the Plan shall provide benefits for a minimum of 48 hours of inpatient hospital stay following a normal vaginal delivery and a minimum of 96 hours of inpatient hospital stay following caesarean section delivery unless the health care provider and the mother agree that discharge from the hospital shall occur earlier. 5.5 MENTAL HEALTH PARITY ACT OF 1996. In accordance with the Mental Health Parity Act of 1996, the lifetime maximum limit and the annual maximum limit on mental health benefits under the Plan shall be at least equal to the lifetime maximum limit and the annual 14 20 maximum limit, respectively, for medical and surgical benefits under the Plan, unless one or more of the exceptions set forth in the Mental Health Parity Act of 1996 apply 5.6 WOMEN'S HEALTH AND CANCER RIGHTS ACT OF 1998. Medical and surgical benefits provided for mastectomies under the Plan will be provided in accordance with the Women's Health and Cancer Rights Act of 1998 (the "Women's Health Act"). In accordance with the Women's Health Act, coverage will be provided for the following: (a) reconstruction of the breast on which the mastectomy has been performed; (b) surgery and reconstruction of the other breast to produce a symmetrical appearance; and (c) prostheses and coverage for any complications in all stages of mastectomy, including lymphedema. ARTICLE VI PAYMENT OF MEDICAL CARE EXPENSE REIMBURSEMENTS 6.1 CLAIMS PROCEDURE. Participants and Covered Dependents seeking benefits under the Plan shall follow the claims procedures established by the Policy under which they are covered, if any, at the time and the procedures set forth in SECTION 11.9. Notwithstanding the claim filing procedures established by this Plan or the applicable Policy, the Health Care Financing Administration shall have three years from the date a claim is filed to seek recovery of a mistaken payment when this Plan should have paid as the "Primary Plan" and Medicare should have paid as the "Secondary Plan" pursuant to ARTICLE VII. 6.2 REIMBURSEMENT OF EXPENSES. All Qualified Medical Expenses of a Participant or Covered Dependent that are covered under the Policy shall be reimbursed as set forth in the Policy. ARTICLE VII COORDINATION OF BENEFITS 7.1 EXPLANATION. When a Participant is covered under this Plan and by one or more other Group Plans, the benefits of this Plan shall be coordinated and determined in accordance with the provisions of this Article. This Article is intended to prevent the payment of medical benefits which exceed expenses. Determination of benefits shall be made in relation to the services furnished to a Participant during any one calendar year. 15 21 7.2 DEFINITIONS. The following definitions apply to this Article. (a) "Group Plan" means any group or group-type arrangement of coverage whether insured or uninsured which provides health benefits or services to a Participant (including the Policy under this Plan), either by indemnity or prepaid services, by means of (i) group or blanket insurance, (ii) franchise insurance that terminates upon cessation of employment, (iii) group hospital or medical service plans and other group prepayment coverage, or (iv) any coverage under labor-management trusteed arrangements, union medical arrangements, employer organization arrangements, government benefit arrangements or government programs (excluding Medicare). (b) "Allowable Expenses" means any necessary, reasonable, and customary item of expense for health care when the item of expense is covered at least in part by one or more Group Plans covering the Participant for whom claim is made. An Allowable Expense does not include (i) differences between the cost of an average semiprivate hospital room and a private hospital room unless the private hospital room is medically necessary (as defined in the Policy), or (ii) the amount of any reduction in benefits because a Participant does not comply with the Group Plat) provisions. (c) "Primary Plan" means the Group Plan whose benefits for a Participant's health care coverage must be determined without consideration of the existence of any other plan. (d) "Secondary Plan" means a Group Plan which is not a Primary Plan. If a Participant is covered by more than one Secondary Plan, the order of benefit determination rules decide the order in which their benefits are determined in relation to each other. 7.3 COORDINATION OF BENEFITS PROCEDURE. Without regard to what is stated in the Policy, this Plan determines its order of benefits using the first of the following rules which applies: (a) The benefits of a Group Plan which covers the Participant (on whose expenses the claim is based) other than as a Dependent shall be determined before the benefits of a Group Plan which covers the Participant as a Dependent. (b) The benefits of a Group Plan which covers the Participant (on whose expenses the claim is based) as a Dependent of a person whose birthday occurs earlier in a calendar year shall be determined before the benefits of a Group Plan which covers such Participant as a Dependent of a person whose birthday occurs later in a calendar year. However, if either Group Plan does not have the provisions of this subsection (b) and the omission results either in each Group Plan determining its benefits before the other, 16 22 or in each Group Plan determining its benefits after the other, the provisions of this subsection (b) shall not apply, and the rule set forth in the other Group Plan shall determine the order of benefits; provided, however, that notwithstanding anything to the contrary in the Plan, in the case of a Participant for whom claim is made as a Dependent child: (1) When the parents are separated or divorced and the parent with custody of the child has not remarried, the benefits of a Group Plan which covers the child as a Dependent of the parent with custody of the child will be determined before the benefits of a Group Plan which covers the child as a Dependent of the parent without custody. (2) When the parents are divorced and the parent with custody of the child has remarried, the benefits of a Group Plan which covers the child as a Dependent of the parent with custody shall be determined before the benefits of a Group Plan which covers that child as a Dependent of the stepparent, and the benefits of a Group Plan which covers that child as a Dependent of the stepparent will be determined before the benefits of a Group Plan which covers that child as a Dependent of the parent without custody. (3) Notwithstanding subparagraphs (1) and (2) of this subsection (b), when the parents are divorced or separated and there is a court decree which would otherwise establish financial responsibility for the health care expenses of the child, the benefits of a Group Plan which covers the child as a Dependent of the person with such financial responsibility shall be determined before the benefits of any other Group Plan which covers the child as a Dependent. (c) When subsections (a) and (b) above do not establish an order of benefits determination, the benefits of a Group Plan which has covered the Participant (on whose expenses the claim is based) for the longer period of time shall be determined before the benefits of a Group Plan which has covered such Participant for the shorter period of time, except that: (1) The benefits of a Group Plan covering the Participant (on whose expenses the claim is based) as a laid-off or retired employee or as a Dependent of such a Participant shall be determined after the benefits of any other Group Plan covering such Participant as an employee other than as a laid-off or retired employee or a dependent of such a person; and (2) If either Group Plan does not have a provision regarding laid-off or retired employees and as a result each Group Plan determines its 17 23 benefits after the other, the provisions of this subsection (c) do not apply. (d) When another Group Plan is a Primary Plan under the order of benefit determination rules contained in this Article but such Group Plan contains "excess" or "always secondary" provisions, the Group Plan which has been in force for the longest period of time will be the Primary Plan. (e) When this Plan is the Secondary Plan, the benefits of the other Group Plan shall be deducted from the charges for all items of Allowable Expenses for which any benefit is provided under this Plan or the other Group Plan and this Plan will pay the remainder of the charges for such items; provided, however, that in no event shall the provisions of this Article be construed to increase the amount of total benefits which would be available under the Plan in the absence of another Group Plan. (f) If this Plan is the Secondary Plan under this Article, but is unable to determine the benefits of the other Group Plan, this Plan may estimate in good faith the benefits of the other Group Plan and provide the benefits of this Plan on the basis of that estimate. Payment under this subsection shall constitute full discharge of the liability of the Plan for the charges involved, subject only to adjustment in the event the Plan later determines the actual benefits of the other Group Plan. 7.4 EXISTENCE OF OTHER GROUP PLANS. This Plan assumes no obligation to discover the existence of another Group Plan or the benefits available under it if discovered. This Plan will give effect to the provisions of this Article in accordance with information furnished it by an authoritative source. This Plan shall, however, be entitled to obtain and to release such information as reasonably necessary to give effect to these provisions without the consent of or notice to any person, and any person claiming benefits under this Article shall, as a condition precedent to his right of recovery, furnish to the Plan full information concerning the existence of other Group Plans, their benefits, and any other information as may be necessary to implement this Article. 7.5 RECOVERY AND PAYMENT OF BENEFITS. The Plan shall be entitled at any time to recover benefits paid in excess of its obligation determined under the provisions of this Article, irrespective of to whom such benefits were paid, from an issuer, insurer, provider under the other Group Plan, hospital, physician or other provider, any person or firm to (or for) whom such payment was made, or from any combination of such sources. When benefits have been paid under another Group Plan, the Plan shall have the right, in its discretion, to pay to the issuer or provider of such other Group Plan any portion of the benefits available under this Plan which the Plan may determine to be due in order to give effect to the intent of this Article and corresponding coordination of benefits provisions in such other Group Plan. The amount so paid shall be deemed to be benefits provided under this Plan and to the extent the Plan shall be fully discharged from liability. 18 24 7.6 COORDINATION WITH MEDICARE, MEDICAID AND CHAMPUS. The term "Group Plan" as used in this Article includes Medicare, Medicaid and CHAMPUS, and the statutes, regulations, and other laws governing these programs take precedence over the order of determination set forth in this Plan. Any Participant eligible for Medicare has the following rights to coordinate the coverage under this Plan with Medicare coverage and should see the Administrator to determine what elections may be available with respect to primary and secondary Medicare coverage and to obtain election forms. (a) AGE SIXTY-FIVE (65) AND OLDER. Individuals and their eligible spouses age sixty-five (65) or older are entitled to receive the same Plan benefits, under the same conditions, as those Individuals and Covered Dependents under age sixty-five (65). The Plan is the Primary Plan and Medicare is the Secondary Plan unless the Participant elects otherwise, as set forth below. (b) DISABLED INDIVIDUALS AND COVERED DEPENDENTS. Individuals and their Covered Dependents who become eligible for Medicare by reason of disability rather than by age (even though they are not sixty-five (65) years of age) are entitled to the same Plan benefits, under the same conditions, as other Participants. The Plan is the Primary Plan and Medicare is the Secondary Plan with respect to these disabled persons. (c) PARTICIPANTS WITH END STAGE RENAL DISEASE. Participants who are medically determined to have end stage renal disease (as defined by Medicare) are entitled to the same Plan benefits, under the same conditions, as other Participants for the first thirty (30) month period following the earlier of (i) initiation of renal dialysis, or (ii) eligibility for Medicare benefits due to such condition. The Plan is the Primary Plan and Medicare is the Secondary Plan with respect to these Participants. (d) MEDICARE ELECTION NOTICE. Each Individual who is eligible for Medicare upon attainment of age sixty-five (65) must complete a Medicare Election Notice Form notifying the Employer that they want Medicare as the Primary Plan with this Plan as the Secondary Plan. If the Individual's spouse is age sixty-five (65) or older, such spouse will also be subject to the Individual's election of the Primary Plan. (e) COORDINATION WITH MEDICARE. Subject to the above provisions and to the extent permitted by Medicare, medical benefits payable under this Plan will be coordinated with Medicare. Such coordination will apply whether or not the Participant has or has not applied for or is receiving Medicare. (f) MEDICAID BENEFICIARY. When enrolling an individual or making any payments for medical benefits to a Participant or on a Participant's behalf, 19 25 the Plan shall not take into account the Participant's eligibility for medical assistance or benefits payable under a plan under 42 U.S.C. Section 1396, et seq. The effective date for this subsection (f) was October 1, 1993. 7.7 SUBROGATION. If a Participant incurs charges for any sickness, injury or other condition through the acts or omissions of another person or organization, the Plan shall pay the medical benefits which are medically necessary and provided by this Plan, subject to the following conditions: (a) The Participant shall advise the Administrator of any claim against a third party or insurance carrier within sixty (60) days of the occurrence of the sickness or injury, shall provide the Plan with any information necessary to pursue its rights and shall cooperate with the Administrator and shall do whatever is necessary to secure those rights. The Participant agrees to do nothing which would prejudice those rights; (b) The Plan shall be subrogated, to the extent of payments made for medical benefits, to all of the Participant's rights of recovery of those medical benefits against any person or organization who, by reason of such person's acts or omissions, is responsible for the sickness or injury in question; (c) It is agreed that if the Participant fails to take the necessary legal action to recover from a responsible party within one (1) year after the date of the sickness or injury, the Plan may proceed in the name of the Participant against the responsible party and will be entitled to the recovery of the amount of medical benefits paid and the expenses for that recovery; (d) The Plan will have a lien against the proceeds of a settlement or judgment resulting from a Participant's claim or suit against a third party in an amount equal to all sums paid by the Plan with respect to the illness or injury in question, regardless of whether the proceeds of such settlement or judgment are designated as payment for other specified damages. The Employer shall be entitled to notify third parties, including insurance carriers, of this lien. The Employer may deduct the amount covered by the lien from any future claims payable to the Participant if the lien has not been previously satisfied or the Participant fails to notify the Employer of payment received from the third party; and (e) The Participant must agree in writing, prior to his entitlement to medical benefits: (1) To reimburse the Plan for medical benefits paid under the Plan immediately upon receipt of any damages collected from a third party, whether pursuant to judgment, settlement or otherwise, net of reasonable expenses incurred in collecting such amount, such as 20 26 reasonable attorneys' fees, and any amounts which are allocated under the terms of any judgment for payment of unreimbursed medical expenses; (2) To execute and deliver such instruments and do whatever else is reasonably necessary to secure the Plan's right to reimbursement of medical payments and to provide the Plan such information as is necessary to enforce its rights under this provision; (3) To agree to a credit against payments to be made under the Plan in the future equal to the amount of any damages collected by the Participant from a third party, less any amount paid to the Plan; (4) If a covered person fails to comply with these requirements, he will not be eligible to receive any further medical benefits under the Plan until he complies; and (5) The Plan has the right to intervene at its own expense in any suit or other proceeding to protect these reimbursement rights. The Participant is responsible for all fees and expenses of the attorney handling his or her claim against the third party. In the event the Plan recovers an amount greater than the medical benefit paid, the excess over the expenses of recovery will be paid to the Participant. The Plan reserves the right to compromise the amount of its claim if, in its opinion, it is appropriate to do so. The Administrator may, in its sole discretion, elect not to enforce this provision. ARTICLE VIII TERMINATION OF PARTICIPATION 8.1 LIMITATION ON COVERED EXPENSES. In the event that an individual ceases to be a Participant or Covered Dependent in this Plan for any reason, the individual (or his estate) shall be entitled to reimbursement only for Qualified Medical Expenses incurred and submitted for reimbursement (following the date the expense was incurred) in accordance with the terms of the Policy, but only if the expense was incurred while the individual was a Participant or Covered Dependent, and only if the individual (or his estate) applies for such reimbursement in the time and manner provided in the Policy. Except to the extent required in Article IX, no such reimbursement shall exceed the coverage limitations provided by the Policy. 8.2 DATE OF POLICY COVERAGE TERMINATION. Coverage provided by a Policy shall terminate according to the terms of the Policy unless continued pursuant to SECTION 3.4, SECTION 3.5, or ARTICLE IX. Termination of a Policy shall not terminate this Plan or its obligations. 21 27 ARTICLE IX CONTINUATION COVERAGE UNDER "COBRA" 9.1 SPECIAL DEFINITIONS. For purposes of this Article, the following terms shall have the meaning given them as follows: (a) "Qualified Beneficiary" means any individual who was the spouse of a Participant or the dependent child of a Participant whose expenses were eligible for reimbursement under the Plan on the day before a Qualifying Event, unless that individual was entitled to benefits under Title XVIII of the Social Security Act on the day before the Qualifying Event. Notwithstanding anything to the contrary in the preceding sentence, the term "Qualified Beneficiary" shall also include a child who is born to, or Placed for Adoption with the Participant during the COBRA continuation period as determined under SECTION 9.6. (1) In the case of a Qualifying Event described in SECTION 9.1(b)(2), the term "Qualified Beneficiary" also includes the Participant, unless the Participant is not an employee or was entitled to benefits under Title XVIII of the Social Security Act on the day before the Qualifying Event. (2) In the case of a Qualifying Event described in SECTION 9.1(b)(6), the term "Qualified Beneficiary" includes a Participant who had retired on or before the date of substantial elimination of coverage under this Plan and any other individual who on the day before such Qualifying Event was a beneficiary under this Plan as a spouse, surviving spouse or dependent child of the Participant. (b) "Qualifying Event" means any of the following events which would result in the loss of coverage under this Plan for a Qualified Beneficiary: (1) The death of the Participant, (2) The termination of the Participant's employment with an Employer (for reasons other than the Participant's gross misconduct), the reduction of hours of the Participant's employment, or a Participant's notice to the Administrator he will not return to work from a leave of absence under FMLA, (3) The divorce or legal separation of the Participant, (4) The Participant's becoming entitled to benefits under Title XVIII of the Social Security Act, 22 28 (5) A dependent child ceasing to be a dependent child under this Plan, or (6) A proceeding under Title II of the United States Code with respect to the Employer from whose employment the Participant retired at any time. 9.2 ENTITLEMENT TO CONTINUATION COVERAGE. (a) Notwithstanding any other provision of this Plan, a Qualified Beneficiary who would otherwise lose coverage under this Plan as a result of a Qualifying Event is entitled to elect continuation coverage from the Employer under this Plan. (b) The continuation coverage will consist of coverage which, as of the time the coverage is being provided, is identical to the coverage provided under the Plan to similarly situated beneficiaries under the Plan with respect to whom a Qualifying Event has not occurred. If coverage under the Plan is modified for any group of similarly situated beneficiaries, coverage will be modified in the same manner for the Qualified Beneficiaries. (c) The continuation coverage provided in this Article will not be conditioned upon or discriminate on the basis of lack of evidence of insurability. 9.3 NOTICE REQUIRED. (a) At the time that coverage commences under this Plan, Participants and their spouses, if any, shall be given written notice of their rights under this Article. (b) The Employer of any affected Participant shall notify the Administrator of any Qualifying Event described in SECTION 9.1(b)(1), (2), (4) or (6) within thirty (30) days after the date of such Qualifying Event. (c) Each Qualified Beneficiary shall notify the Administrator of the occurrence of a Qualifying Event described in SECTION 9.1(b)(3) or (5) within sixty (60) days after the later of the date of such Qualifying Event or the date as of which the Qualified Beneficiary would otherwise lose coverage under the Plan as a result of that Qualifying Event. If the Qualified Beneficiary fails to notify the Administrator of such a Qualifying Event within such sixty (60) day period, such Qualified Beneficiary shall forfeit his right to elect continuation coverage under this Article. (d) Any Qualified Beneficiary who is determined, under Titles II or XVI of the Social Security Act, to have been disabled at any time during the first sixty (60) days of continuation coverage that began as a result of a 23 29 Qualifying Event described in SECTION 9.1(b)(2) shall so notify the Administrator within sixty (60) days of such determination; provided, however, that such notice must occur in any event before the expiration of the initial eighteen (18) month period following the Qualifying Event. In addition, such Qualified Beneficiary shall notify the Administrator within thirty (30) days of any final determination that he is no longer disabled. (e) Within fourteen (14) days after the Administrator is notified of a Qualifying Event, the Administrator shall notify any Qualified Beneficiary of his or her rights under this Article. Notice to a Qualified Beneficiary who is the spouse or former spouse of a Participant will be treated as notice to all other Qualified Beneficiaries residing with such spouse at the time such notice is given. 9.4 ELECTION OF CONTINUATION COVERAGE. Any Qualified Beneficiary who desires continuation coverage under this Plan must make an election during the applicable "election period" which begins on the date coverage would otherwise terminate under the Plan by reason of a Qualifying Event, and ends sixty (60) days after such date or sixty (60) days after the date the Qualified Beneficiary receives notice of his or her fight to elect continuation coverage, whichever is later. Unless specified otherwise in the election, any election by a Participant or spouse to continue coverage under this Plan shall be deemed to be an election of continuation coverage on behalf of any other Qualified Beneficiary who would otherwise lose coverage under the Plan by reason of the same Qualifying Event. 9.5 PREMIUMS. The Qualified Beneficiary may be required to pay premiums for any period of continuation coverage up to one hundred two percent (102%) of the applicable premium, as defined under and determined in accordance with Code section 498013(f)(4) and ERISA section 604; provided, however, that notwithstanding the foregoing, that a Qualified Beneficiary who is entitled to extended coverage under SECTION 9.6(a)(1)(A) may be required to pay premiums up to one hundred fifty percent (150%) of the applicable premium for the coverage period following the initial eighteen (18) month period. Premiums shall be payable in monthly installments on the first day of every month; provided, however, that the premium payment for the period of coverage prior to the date of the participant's initial election shall not be required prior to forty-five (45) days after the date of the election. 9.6 PERIOD OF CONTINUATION COVERAGE. Continuation of coverage timely and properly elected by any Qualified Beneficiary under this Article shall extend for a period that begins on the date of the Qualifying Event, and ends on the earliest of the following dates: (a) Maximum Period. (1) In the case of a Qualifying Event described in SECTION 9.1(b)(2), the date which is eighteen (18) months after the date of the Qualifying Event; provided, however, (A) if the Qualified Beneficiary is. determined to have been disabled at any time during the first 60 days of continuation 24 30 coverage following the Qualifying Event under Titles 11 or XVI of the Social Security Act, and if the Qualified Beneficiary has timely notified the Administrator of such determination in accordance with SECTION 9.3(d), the maximum period for that Qualified Beneficiary and the covered members of the Qualified Beneficiary's family shall end on the earlier of (i) the date which is 29 months after the date of the Qualifying Event, or (ii) the first day of the month commencing more than thirty (30) days after a final determination that the Qualified Beneficiary is no longer disabled; (B) if another Qualifying Event, other than the one described in SECTION 9.1(b)(6), occurs during such eighteen (18) month period, the date which is thirty-six (36) months after the date of the original Qualifying Event; and (2) In the case of a Qualifying Event described in Section 9.1(b)(2) that occurs less than 18 months after the date the Covered Individual became entitled to benefits under Article XVIII of the Social Security Act, the period of coverage for Qualified Beneficiaries other than the Participant shall not terminate before the date which is thirty-six (36) months after the date the Participant became entitled to benefits under Title XVIII of the Social Security Act, regardless of whether such entitlement was the sole Qualifying Event or if entitlement preceded the Qualifying Event. (3) In the case of a Qualifying Event described in SECTION 9.1(b)(6), the date of death of the former Participant; or if the Qualifying Event occurs after the death of the former Participant, the date of death of the surviving spouse of the former participant; or with regard to the surviving spouse or dependent children of a former Participant who dies after the Qualifying Event, the date which is thirty-six (36) months after the date of the former Participant's death. (4) In the case of any other Qualifying Event, the date which is thirty-six (36) months after the date of the Qualifying Event; (b) The date on which the Employer of the Participant ceases to provide any group health plan to any employee; (c) If a premium is unpaid when due, the date that is thirty (30) days after the first day on which the premium is due under this Plan, or, if later, the date 25 31 on which Participants would lose their coverage under this Plan due to failure to pay premiums when due; (d) The first date after a valid COBRA election is made that the Qualified Beneficiary becomes entitled to benefits under Title XVIII of the Social Security Act; or (e) The first date after a valid COBRA election is made that the Qualified Beneficiary becomes covered under any other group health plan, as an employee or otherwise; provided, however, that in order for this to stop a continuation of coverage period, such other plan may not contain any exclusion or limitation for pre-existing conditions with respect to the Qualified Beneficiary, and provided, however, that for any period commencing after December 31, 1996, the coverage provided under a group health plan with respect to a Qualified Beneficiary who has continuation coverage under the Plan shall not be considered to contain any exclusion or limitation with respect to any Pre-Existing Condition of that person by reason of the existence of any limitation or exclusion which does not apply to (or is satisfied by) such person continuing the coverage by reason of Chapter 100 of the Code, part 7 of the subtitle B of Title I of ERISA or Title XXVII of the Public Health Service. 9.7 EXPIRATION OF CONTINUATION COVERAGE. In the case of any Qualified Beneficiary whose continuation coverage expires under Section 9.6(a), the Administrator shall, during the thirty-one (31) day period ending on such expiration date, provide to the Qualified Beneficiary the option of enrolling in a conversion plan otherwise generally available to Participants under the Plan, if any. No conversion coverage shall be available to Participants under this Plan. ARTICLE X FUNDING Except for Board Members, Officers and Spouses, the Plan shall be funded solely by contributions from Participants and Covered Dependents. In the case of a Board Member, an Officer or a Spouse, notwithstanding anything in the Plan or any other agreement to the contrary, the Sponsor will pay (i) all of the cost of all of the Plan's benefits and coverages for that individual for that individual's lifetime and (ii) to the individual, an additional sum in the amount necessary to reimburse such individual for any federal income tax liability resulting from (or associated with) the Sponsor's payments to or for the benefit of the individual under this Plan, so that the benefits and coverages under this Plan for that individual are provided at no cost to that individual. The Employers shall have no obligation, but shall have the right, to establish a special trust or fund out of which benefits shall be paid. The Employers shall have no obligation, but shall have the right, to reinsure, or to purchase any type of additional coverage with respect to 26 32 any benefits under the Plan. To the extent the Employer elects to purchase insurance for any benefits under the Plan, any such benefits shall be the sole responsibility of the insurer, and the Employer shall have no responsibility for the payment of such benefits (except for refunding any Participant contributions that were not remitted to an insurer). ARTICLE XI ADMINISTRATION 11.1 NAMED FIDUCIARY. The Named Fiduciaries of the Plan shall be the Administrator, and any insurer or other persons, to the extent of its or their discretionary authority with regard to the administration of the Plan. Except as otherwise provided in the Policy, the Administrator shall have complete authority to control and manage the operation and administration of the Plan. The Administrator, subject to the succeeding provisions of this ARTICLE XI, is authorized to take such actions as may be necessary to carry out the provisions and purposes of the Plan and shall have the authority to control and manage the operation and administration of the Plan. In order to effectuate the purposes of the Plan, the Administrator shall have the discretionary power to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors made in the administration of the Plan. All such actions or determinations made by the Named Fiduciaries, and the application of rules and regulations to a particular case or issue by the Named Fiduciaries, in good faith, shall not be subject to review by anyone, but shall be final, binding, and conclusive on all persons ever interested hereunder, subject only to the claims review procedures set forth in SECTION 11.9. In construing the Plan and in exercising its power under provisions requiring Administrator approval, the Administrator shall attempt to ascertain the purpose of the provisions in question and when such purpose is known or reasonably ascertainable, such purpose shall be given effect to the extent feasible. Likewise, the Administrator is authorized to determine all, questions with respect to the individual rights of the Participants or Beneficiaries under this Plan, including, but not limited to, all issues with respect to eligibility. The Named Fiduciary in the exercise of any discretionary powers hereunder, shall exercise such discretion in a uniform manner with respect to all similarly situated Participants. 11.2 ALLOCATION OF FIDUCIARY RESPONSIBILITIES. The Administrator may allocate certain of its fiduciary responsibilities among others and/or may designate other persons to carry out certain of its fiduciary responsibilities in accordance with and subject to the limitations of ERISA section 405. Any person or group of persons may serve in more than one fiduciary capacity with regard to the Plan. The Administrator and any fiduciary designated by the Administrator may employ one or more persons to render advice concerning their responsibilities under the Plan. 11.3 RECORDS. The Administrator shall exercise such authority as it deems appropriate in order to comply with the terms of the Plan relating to the records of Participants and the amounts which are payable under the Plan. The Administrator shall make available to each 27 33 Participant such of its records under the Plan as pertain to him for examination at reasonable times during normal business hours. 11.4 APPOINTMENT OF COMMITTEE. The day-to-day administration of the Plan shall be handled by a Committee comprised of at least one individual, if such a Committee is appointed by the Administrator as its agent. If no Committee is appointed, the Administrator shall be the Committee. Each member of the Committee shall serve until his successor is appointed by the Administrator or until he otherwise resigns. All expenses of the Committee shall be paid by the Sponsor. A member of the Committee who is an employee shall not receive any additional compensation for his or her services on the Committee, but shall be reimbursed by the Sponsor for expenses incurred. 11.5 ACTIONS OF COMMITTEE. A majority of the members of the Committee appointed pursuant to Section 11.4 shall constitute a quorum for the transaction of business, and shall have full power to act hereunder. Action by the Committee shall be official if approved by a vote of a majority of the members present at any official meeting. The Committee may, without a meeting, authorize or approve any action by written instrument signed by a majority of all of the members. Any written memorandum signed by the Chairman, any other member of the Committee, or any other person duly authorized by the Committee to act regarding the subject matter of the memorandum, shall have the same force and effect as a formal resolution adopted in open meeting. A member of the Committee may not vote or decide upon any matter relating solely to him or vote in any case in which his individual fight or claim to any benefit under the Plan is specifically involved. If a Committee member is so disqualified to act and the remaining members then present cannot, by majority vote, act or decide, the Sponsor will appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which he is disqualified. The Committee shall maintain minutes of its meetings and written records of its actions. Members may participate and hold a meeting of the Committee by means of telephone conference or similar communications equipment which permits all persons participating in the meeting to hear each other; however, minutes and written records must be maintained of such meeting. Participation in such a meeting constitutes presence in person at such meeting. 11.6 OTHER POWERS AND DUTIES OF THE ADMINISTRATOR. The Administrator, the Committee and any persons or entities designated by the Administrator, except as otherwise set forth in the Policy, shall have all powers necessary or desirable to administer the Plan, including, but not limited to, the following: (a) in its sole discretion, to construe and interpret the Plan, reconcile errors and supply omissions in the Plan, and decide all questions of eligibility; (b) to prescribe procedures to be followed by Participants in making elections under the Plan and in filing claims under the Plan; (c) to prepare and distribute information explaining the Plan to Participants; 28 34 (d) to obtain from Participants such information as shall be necessary for the proper administration of the Plan; (e) to keep records of elections, claims, and disbursements for claims under the Plan; (f) to appoint individuals or committees to assist in the administration of the Plan and to engage any other agents it deems advisable, including legal and actuarial counsel; (g) to purchase any insurance deemed necessary for providing benefits under the Plan; (h) to accept, modify, or reject elections under the Plan; (i) to promulgate election forms and claims forms to be used by Participants; (j) to prepare and file any reports or returns regarding the Plan required by the Code, ERISA, or any other laws; (k) to determine and announce any Participant contributions required hereunder; (l) to determine and enforce any limits on benefits elected hereunder; (m) to take such action as may be necessary to cause the payroll deduction of any Participant contributions required hereunder; (n) to, notwithstanding any other provision of the Plan, in the event the Administrator determines that as a result of administrative or arithmetic error, it has, with respect to one or more Individuals, incorrectly determined eligibility for participation, job classification, or other items involving or concerning the continued qualification of the, Plan under the Code, and determines further that such error has resulted in one or more Individuals receiving a smaller (or greater) benefit provided by the Plan than they would have in the absence of the error, take such steps as shall be necessary or appropriate to correct such error with respect to the affected individuals, utilizing whatever method will result in the least overall cost to the Plan; and (o) to recover overpayments erroneously made from the Plan to Participants, Beneficiaries, or others utilizing whatever method will result in the least overall cost to the Plan. 11.7 INDEMNIFICATION. The Sponsor and the Employers agree to and shall indemnify and hold harmless each Indemnified Person (as defined in this Section) from and against any and all claims, losses, damages, causes of action, suits, and liability of every kind, including all 29 35 expenses of litigation, court costs and reasonable attorney's fees, incurred in connection with the Plan. "Indemnified Person" shall mean each member of the Committee, and each employee, officer, or director of the Sponsor or of an Employer acting as a fiduciary of the Plan. Such indemnity shall apply regardless of whether the claims, losses, damages, causes of action, suits, or liability arise in whole or in part from the negligence or other fault on the part of the Indemnified Person, except to the extent there has been a final adjudication that the claim or liability results from the gross negligence or willful misconduct of the Indemnified Person. 11.8 RELIANCE ON TABLES, ETC. In administering the Plan, the Administrator will be entitled, to the extent permitted by law, to rely conclusively upon all tables, valuations, certificates, opinions and reports which are furnished by accountants, counsel or other experts employed or engaged by the Administrator. 11.9 CLAIMS AND REVIEW PROCEDURES. (a) CLAIMS PROCEDURE. If any person believes he is being denied any rights or benefits under the Plan, such person may file a written claim with the Administrator. If the claim is wholly or partially denied, the Administrator will notify the claimant of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain: (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for the person to perfect his claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Notification of a claim denial will be given within ninety (90) days after the claim is received by the Administrator, or within one hundred eighty (180) days if special circumstances require an extension of time for processing the claim, in which case written notice of such extension and the circumstances shall be given to the claimant within the initial ninety (90) day period. If the claimant does not receive written notice that the claim has been denied within the initial ninety (90) day period, or within the one hundred eighty (180) day period, if applicable, the claim will be deemed to have been denied as of the last day of such period, and such person may request a review of his claim. (b) REVIEW PROCEDURE. Within sixty (60) days after the date on which a person receives written notice of a claim denial, or if applicable, within sixty (60) days after the date on which such denial is deemed to have occurred, such person or his duly authorized representative may file a written request with the Administrator for a review of his denied claim. The claimant and/or his authorized representative may inspect pertinent documents and submit written issues and comments to the Administrator. The Administrator will notify the claimant of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision, as well as 30 36 specific references to pertinent Plan provisions. The decision on review will be made within sixty (60) days after the request for review is received by the Administrator, or within one hundred twenty (120) days if special circumstances require an extension of time. If such an extension of time is taken, the Administrator shall notify the claimant in writing within the initial sixty (60) day period and shall state the circumstances and the date on which a decision is expected. If the claimant does not receive written notice of the decision within the initial sixty (60) day period, or within the one hundred twenty (120) day period if applicable, the claim shall be deemed to have been denied on review. 11.10 PARTICIPANT'S RESPONSIBILITIES. Each Participant shall be responsible for providing the Administrator and the Sponsor with the Participant's and his beneficiary's current address. Any notices required or permitted to be given under this Section shall be deemed given if directed to such address and mailed by regular United States mail. Neither the Administrator nor the Sponsor shall have any obligation or duty to locate a Participant or beneficiary. In the event that a Participant or beneficiary becomes entitled to a payment under the Plan and such payment is delayed or cannot be made because: (a) the current address according to Sponsor records is incorrect; (b) the Participant or beneficiary fails to respond to the notice sent to the current address according to Sponsor records; (c) of conflicting claims to such payments; or (d) of any other reason. The amount of such payment, if and when made, shall be that determined under the provisions of the Plan without consideration of any interest which may have accrued. 11.11 MISSING PERSONS. If any amount becomes payable under the Plan to a Participant or beneficiary and the same shall not have been claimed, or if any check issued under the Plan remains uncashed, and reasonable care shall have been exercised by the Administrator in attempting to make such payments, the amount shall be forfeited within such period as is necessary to prevent escheat under any applicable law and shall cease to be a liability of the Plan. 11.12 NONDISCRIMINATORY EXERCISE OF AUTHORITY. In the administration of the Plan, whenever any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner in order that all persons similarly situated will receive substantially the same treatment. 11.13 EXPENSES. The Employer shall bear all costs and expenses associated with the administration of this Plan which are not paid by an established trust, if any. 31 37 ARTICLE XII AMENDMENT OR TERMINATION OF PLAN 12.1 AMENDMENT OF PLAN. The Sponsor expressly reserves the right to amend the elections, terms and conditions of the Plan, if necessary; provided, however, that without the express, prior written consent of each Participant and Covered Dependent at the time the amendment is signed (or, if earlier, is effective), no amendment to this Plan shall reduce the coverages available or benefits payable under the Plan or decrease the individuals who may be Participants or Covered Dependents under this Plan. Any amendment that is necessary with respect to the Plan and permitted under this Section shall be made only by a written instrument signed by the appropriate person or persons and shall be binding upon and effective with respect to each Employer and its Participants, Dependents, and Eligible Individuals. 12.2 TERMINATION OF PLAN. The Sponsor may terminate or discontinue this Plan at any time, if necessary, only by a written instrument signed by its authorized officer and only with the express, prior written consent of all Participants and Covered Dependents at the effective date of the termination or discontinuation. Notwithstanding anything in the Plan to the contrary, coverages and benefits provided under this Plan are to be continued for the life of each Board Member, each Officer and each Spouse, and the Plan and the Sponsor's obligations under the Plan may not be terminated or discontinued without the express, prior written consent of each Board Member, Officer and Spouse. Upon termination or discontinuance of the Plan as permitted by this Section, all elections shall terminate, and reimbursements or payments of Qualified Medical Expenses shall be made only in accordance with ARTICLE VI. ARTICLE XIII MISCELLANEOUS 13.1 INFORMATION TO BE FURNISHED. Participants shall provide the Employer and Administrator with such information and evidence as may reasonably be requested from time to time for the purpose of administering the Plan. 13.2 LIMITATION OF RIGHTS. Neither the establishment of the Plan, nor any amendment of the Plan, nor the payment of any benefits shall be construed as giving to any Participant or other person any legal or equitable right against the Employer or Administrator or their respective officers and directors, as an employee or otherwise, except as expressly provided in this Plan, and in no event will the terms of employment or service of any Participant or employee be modified or in any way affected by this Plan. 13.3 BENEFITS NOT SOLELY FROM POLICY. Except as required by law, applicable regulation or elsewhere in this Plan, the benefits provided under the Plan shall be paid solely from the Policy so long as there is a Policy. If there is no Policy, benefits payable under this Plan shall be paid from the general assets of the Sponsor. Nothing in this Plan shall be construed to 32 38 require (except as required by law and applicable regulation) any Fiduciary or the Administrator to maintain any fund or segregate any amount for the benefit of any Participant. 13.4 NONASSIGNABILITY OF RIGHTS. The right of any Participant to receive any reimbursement under the Plan shall not be alienable by the Participant by assignment or any other method and shall not be subject to being taken by his creditors by any process whatsoever, and any attempt to cause such right to be so subjected will not be recognized, except to such extent as may be required by law. 13.5 NO GUARANTEE OF TAX CONSEQUENCES. Neither the Employer nor the Administrator makes any commitment or guarantee that any amounts paid to or for the benefit of a Participant under ARTICLES V or VI will be excludable from the Participant's gross income for federal or state income employment tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant. It shall be the obligation of each Participant to determine whether each payment under ARTICLES V or VI is excludable from the Participant's gross income for federal and state income and employment tax purposes, and to notify the Employer if the Participant has reason to believe that any such payment is not so excludable. 13.6 SEVERABILITY. If any provision of this Plan is held invalid, unenforceable or inconsistent with any law, regulation or requirement for a medical plan governed by Code sections 104 or 105 or ERISA, its invalidity, unenforceability or inconsistency shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such provision were not a part of the Plan. 13.7 CONSTRUCTION OF TERMS. Words of gender shall include persons and entities of any gender, the plural shall include the singular and the singular shall include the plural. Section headings exist for reference purposes only and shall not be construed as part of the Plan. 13.8 CHOICE OF LAW/JURISDICTION AND VENUE. THIS PLAN SHALL BE CONSTRUED, ADMINISTERED, AND GOVERNED IN ALL RESPECTS (i) UNDER APPLICABLE FEDERAL LAW, INCLUDING, WITHOUT LIMITATION, THE PROVISIONS OF ERISA AND THE CODE AND RELEVANT INTERPRETATIONS OF BOTH, AND (ii) TO THE EXTENT NOT PREEMPTED BY FEDERAL LAW, UNDER THE LAWS OF THE STATE OF TEXAS. EXCLUSIVE JURISDICTION AND VENUE OF ALL DISPUTES ARISING OUT OF OR RELATING TO THIS PLAN SHALL BE IN ANY COURT OF APPROPRIATE JURISDICTION IN DALLAS COUNTY, TEXAS. THE PROVISIONS OF THIS SECTION SHALL SURVIVE AND REMAIN IN EFFECT UNTIL ALL OBLIGATIONS ARE SATISFIED, NOTWITHSTANDING ANY TERMINATION OF THE PLAN. 13.9 NO VESTED INTEREST. Except for the right to receive any benefit payable under the Plan in regard to a previously incurred claim, no person shall have any right, title, or interest in or to the assets of any Employer because of the Plan. 13.10 NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan shall be construed as a (i) contract of employment between an Employer and any Individual, (ii) guarantee that any 33 39 Individual will be continued in the employment or service of an Employer, or (iii) limitation on the right of an Employer to discharge any of its employees with or without cause. 13.11 ADOPTION BY SUCCESSOR EMPLOYER OR AFFILIATES. In the event of the reorganization, purchase, merger, dissolution, or reconstitution, whether direct or indirect, of the Sponsor, any successor entity shall be required to adopt and continue the Plan; in which event, the Plan shall continue without any gap or lapse in coverage or benefits. Failure of the Sponsor to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this agreement and shall entitle the Participants and Covered Dependents at that time to a lump sum payment from the Sponsor as liquidated damages that will be an amount equal to the sum of (i) the total value of the coverages and benefits under the Plan to such individual and (ii) the cost to obtain identical (or better) replacement coverage for Plan coverage for such individual. The Sponsor shall pay to each Participant and Covered Dependent all legal fees and expenses incurred by that individual, if any, in seeking to obtain or enforce any right, coverage or benefit provided by this Agreement. An individual entitled to a payment under this Section shall not be required to mitigate the amount of a payment due to him under this Section, and notwithstanding anything in the Plan to the contrary, payments due under this Section shall not be reduced by any coverage or benefits received by a payment's recipient from any other source. Throughout the Plan, a purposeful distinction is drawn between the Sponsor and the Employers. The powers and responsibilities assigned to the Sponsor by the Plan shall apply exclusively to the Sponsor. 13.12 BONDING. Every Fiduciary, except a bank or an insurance company, unless exempted by ERISA and its regulations, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by a Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in section 412(a)(2) of ERISA), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid by the Employer. ARTICLE XIV QUALIFIED MEDICAL CHILD SUPPORT ORDERS 14.1 NOTIFICATION OF RECEIPT OF CHILD SUPPORT ORDER. Upon receipt by the Administrator of a medical child support order, an administrative notice, or a National Medical Support Notice as set forth in ERISA, the Administrator shall tell the Participant and the 34 40 potential alternate recipient of the medical child support order, administrative notice or National Medical Support Notice that it has received the medical child support order, administrative notice, or National Medical Support Notice within fifteen (15) days of the Administrator's receipt of the medical child support order, administrative notice, or National Medical Support Notice. The notification shall also describe the procedures for determining whether the medical child support order, administrative notice, or National Medical Support Notice is a "Qualified Medical Child Support Order"as defined in section 609 of ERISA. The procedures shall permit a potential alternate recipient to designate a representative to receive copies of notices with respect to a medical child support order, administrative notice, or National Medical Support Notice. The Administrator shall determine if the medical child support order, the administrative notice or the National Medical Support Notice is a Qualified Medical Child Support Order within sixty (60) days of receipt of such order or notice, unless circumstances cause a delay. If a delay is required, the potential alternate recipient shall be notified of any such delay in writing. 14.2 PROCEDURES TO DETERMINE IF MEDICAL CHILD SUPPORT ORDER IS A QUALIFIED MEDICAL CHILD SUPPORT ORDER. The Administrator shall review the medical child support order, the administrative notice, or the National Medical Support Notice (or request legal counsel to review the medical child support order, administrative notice or National Medical Support Notice) and verify that the following items are appropriately addressed in the medical child support order, administrative notice, or National Medical Support Notice: (a) The medical child support order, administrative notice or National Medical Support Notice must create or recognize the existence of an alternate recipient's right to receive benefits for which the Participant or beneficiary is eligible under the Plan or to assign those rights; (b) The medical child support order, administrative notice or National Medical Support Notice must identify the parties responsible for paying for the benefits that are the subject of the order, notice or National Medical Support Notice; (c) The medical child support order, administrative notice, or National Medical Support Notice must clearly specify the name and last known mailing address of each alternate recipient covered by the order, administrative notice or National Medical Support Notice or must provide the name and address of any state official or political subdivision that will be substituted for that of the alternate recipient. Payment made to any such selected official shall be treated as payment made to the alternate recipient; (d) The medical child support order, administrative notice, or National Medical Support Notice must specify in a reasonable description the type of coverage to be provided by the Plan to each alternate recipient or the manner in which the type of coverage is to be determined; 35 41 (e) The medical child support order, administrative notice or National Medical Support Notice must specify the period to which the order, administrative notice or National Medical Support Notice applies; (f) The medical child support order, administrative notice, or National Medical Support Notice must not require the Plan to provide any type or form of benefit not otherwise provided under the Plan; and (g) The medical child support order, administrative notice or National Medical Support Notice must clearly be an order, administrative notice, judgment, decree, approval of a settlement or a National Medical Support Notice. If the Administrator determines the medical child support order, administrative notice or National Medical Support Notice satisfies all of the above requirements, the medical child support order, administrative notice or National Medical Support Notice shall, subject to SECTION 14.4, be a Qualified Medical Child Support Order, and the Administrator shall notify, in writing, each of the alternate recipient(s) or the alternate recipient(s)' selected official or political subdivision, if applicable, and the Participant or beneficiary related to such alternate recipient(s) that the order, administrative notice, or National Medical Support Notice is a Qualified Medical Child Support Order. The Administrator shall also notify the Participant that he must execute a new enrollment form to cover the cost of such coverage or otherwise notify the party responsible for paying for the coverage of their obligations with respect to payment for the coverage. If the Administrator determines that the order or administrative notice, or National Medical Support Notice is not a Qualified Medical Child Support Order, the Administrator shall notify, in writing, each of the proposed alternate recipient(s) or the alternate recipient(s)' selected official or political subdivision, if applicable, and the related Participant or beneficiary that the order, administrative notice, or National Medical Support Notice is not a Qualified Medical Child Support Order, why the order, administrative notice or National Medical Support Notice failed to qualify as such and their rights, if any, to appeal such decision. 14.3 TREATMENT OF ALTERNATE RECIPIENT UNDER QUALIFIED MEDICAL CHILD SUPPORT ORDER. The Administrator shall treat each alternate recipient under a Qualified Medical Child Support Order as a Participant under the Plan, but only for purposes of the reporting and disclosure requirements imposed by ERISA. 14.4 COST OF QUALIFIED MEDICAL CHILD SUPPORT ORDER BENEFITS. The cost of the coverage provided under the Qualified Medical Child Support Order shall be paid by the party designated as responsible for paying for such coverage in the order, administrative notice or National Medical Support Notice. In the event a medical child support order, administrative notice, or National Medical Support Notice does not specify the party responsible for payment for the alternate recipient's coverage under the medical child support order, administrative notice, or National Medical Support Notice, the Administrator shall either deny the medical child support order's, administrative notice's, or National Medical Support Notice's qualified status and send copies of 36 42 the Qualified Medical Child Support Order procedures to the parties, or file an appropriate pleading in either the Federal district court or in the domestic relations court requesting revisions of the issued order, administrative notice or National Medical Support Notice in such a manner as to qualify the order, administrative notice, or National Medical Support Notice as a Qualified Medical Child Support Order. 14.5 QUALIFIED MEDICAL CHILD SUPPORT ORDER AND MEDICAID. The Administrator shall not consider the alternate recipient's eligibility for Medicaid when enrolling the alternate recipient in the Plan. The Plan shall comply with the alternate recipient's assignment rights under Medicaid, if any. 14.6 PAYMENTS OR REIMBURSEMENTS UNDER A QUALIFIED MEDICAL CHILD SUPPORT ORDER. The Administrator is permitted to pay or reimburse the alternate recipient, the alternate recipient's custodial parent, or any state official or political subdivision selected by the alternate recipient to receive payments for any benefit payments due under the Plan to or on behalf of the alternate recipient. 14.7 ALTERNATE RECIPIENT. "Alternate recipient" means the individual designated as the person entitled to receive health care coverage under the Qualified Medical Child Support Order. ARTICLE XV POLICY The Policy set forth on Exhibit A to this Plan is incorporated by this reference as part of the Plan document. Any amendment or replacement of any of the documents comprising the Policy may be certified by a duty authorized officer of the Sponsor, and may be updated as required, without any need to amend this document. But, to the extent any part of the Policy conflicts with or contradicts the provisions of this document, this document shall govern in determining (i) the rights of Participants, their Covered Dependents and, if any, their other covered beneficiaries, and (ii) the obligations of the Employers, Administrator, and any Fiduciary to Participants, Covered Dependents and, if any, other covered beneficiaries. ARTICLE XVI PARTICIPATING EMPLOYERS 16.1 ADOPTION BY OTHER EMPLOYERS. Notwithstanding anything in this document to the contrary, with the written consent of the Sponsor, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and become a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. Participating Employers who have adopted the Plan are listed on Exhibit B to this Plan, as it may be amended from time to time. 37 43 16.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS. (a) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an employee of the Sponsor or a Participating Employer, shall not affect such Participant's rights under the Plan, and his length of participation in the Plan shall continue to his credit. (b) Any expenses of the Plan which are to be paid by the Employer or borne by the Plan shall be paid by each Participating Employer in the same proportion that the total number of all Participants employed by such Employer bears to the total number of all Participants. 16.3 DESIGNATION OF AGENT. Each Participating Employer shall be deemed to be a part of this Plan-, provided, however, that with respect to all of its relations with the Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Sponsor as its agent. 16.4 TRANSFERS. It is anticipated that an Individual who is an employee may be transferred between Participating Employers, and in the event of any such transfer, the employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment under this Plan, and the Participating Employer to which the employee is transferred shall become obligated under this Plan with respect to such employee in the same manner as was the Participating Employer from whom the employee was transferred. 16.5 PARTICIPATING EMPLOYER'S CONTRIBUTION. All contributions made by a Participating Employer, as provided for in this Plan, shall be determined separately by each Participating Employer and shall be paid for the exclusive benefit of the employees of such Participating Employer and the Beneficiaries of such employees, subject to all the terms and conditions of this Plan. On the basis of the information furnished by the Employers to the Administrator, the Administrator shall keep separate books and records concerning the Plan affairs of each Participating Employer and as to the accounts and credits of the employees of each Participating Employer. The Administrator may, but need not, register contracts so as to evidence that a particular Participating Employer is the interested Employer, but in the event of an employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Administrator. 16.6 DISCONTINUANCE OF PARTICIPATION. Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence of such action and of any applicable conditions imposed shall be delivered to the Administrator. The Administrator shall thereafter transfer, deliver and assign the contracts and other assets allocable to the Participants of such Participating Employer to such new Administrator as shall have been designated by such Participating Employer, in the event that it has established a separate medical care plan for its employees. If no successor is designated, the Administrator shall retain such assets for the employees of said Participating Employer. In no such event shall any part of the corpus or income of the Trust as it relates to 38 44 such Participating Employer be used for or diverted for purposes other than for the exclusive benefit of the employees of such Participating Employer. 16.7 ADMINISTRATOR'S AUTHORITY. The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed in its name and on its behalf this 23rd day of June, 2000 authorized representative. "SPONSOR" DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale -------------------------------------- Title: V. P. Finance & CFO 39 45 EXHIBIT A POLICY 40 46 EXHIBIT B PARTICIPATING EMPLOYERS 41 47 EXHIBIT C OFFICERS C. V. Prothro Chao C. Mai Michael L. Bolan Alan P. Hale Jack Von Gillern 42 48 EXHIBIT D BOARD MEMBERS Richard L. King Merlyn D. Sampels Carmelo J. Santoro Adm. E.R. Zumwalt, Jr. 43 49 EXHIBIT E SPOUSES Nancy J. Santoro Anita R. Sampels Carolyn Leftwich Karen L. Hale Shao S. Mai Caren H. Prothro Elizabeth L. Von Gillern 44 50 EXHIBIT F ELIGIBLE EMPLOYEES (OTHER THAN OFFICERS) Matt Adams Philip A. Adams G. Malcom Bayless Heber L. Clement Met Cruz Stephen M. Curry Don Dias Jeffrey L. Hannon Tom Harrington, III David L. Heim Jerry L. Housden Joe Hundt Reynold W. Kelm Hal Kurkowski Robert D. Lee John E. Manton, III Wayne Mendenhall Kenneth B. Molitor Joe Monroe David J. Rapier John Rea Sandy Scherpenberg Michael D. Smith Gay T. Vencill Clark R. Williams 45 51 AMENDMENT ONE TO THE DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN Amendment made to the Dallas Semiconductor Corporation Executives Retiree Medical Plan, Effective October 1, 1999 (the "Plan"), by Dallas Semiconductor Corporation (the "Corporation"). W I T N E S S E T H WHEREAS, the Corporation sponsors the Plan to provide retiree (and limited other) medical care benefits to board members, officers, certain other eligible retirees, and the eligible spouses of board members and officers; and WHEREAS, the Corporation desires to amend the Plan to permit the spouse of Richard King, Carol Edgar, to participate in the Plan, effective June 24, 2000, the date of their marriage; and WHEREAS, by the terms of Section 12.1 of the Plan, the Plan may be amended by the Corporation. NOW, THEREFORE, effective June 24, 2000, the Plan is hereby amended as follows: 1. Section 2.37 is deleted in its entirety and the following is substituted in its place: "2.37 'SPOUSE' means the wife of an Officer or of a Board Member on the date of his Retirement, and in the case of only Richard King, means Carol Edgar, effective June 24, 2000. Carol Edgar, effective June 24, 2000 and each person who was a spouse of an Officer or of a Board Member on the Effective Date are listed on Exhibit E, but being listed on Exhibit E does not make an individual a Spouse for purposes of this Plan." 2. Existing Exhibit E to the Plan is deleted in its entirety, and the attached Exhibit E is substituted in its place. 52 IN WITNESS WHEREOF, the Corporation, has caused this instrument to be executed by its duly authorized officer on this 23rd day of June, 2000, to be effective June 24, 2000. DALLAS SEMICONDUCTOR CORPORATION BY: /S/ ALAN P. HALE ----------------------------------------- Title: Vice President - Finance and Chief Financial Officer 2 53 EXHIBIT E SPOUSES Nancy J. Santoro Anita R. Sampels Carolyn Leftwich Karen L. Hale Shao S. Mai Caren H. Prothro Elizabeth L. Von Gillern Carol Edgar AMENDMENT TWO TO THE DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN Amendment made to the Dallas Semiconductor Corporation Executives Retiree Medical Plan, effective October 1, 1999 (the "Plan"), by Dallas Semiconductor Corporation (the "Corporation"). W I T N E S S E T H WHEREAS, the Corporation sponsors the Plan to provide retiree (and limited other) medical care benefits to board members, officers, certain other eligible retirees, and the eligible spouses of board members and officers; and WHEREAS, the Corporation desires to amend the Plan to clarify that the Plan will not impose a pre-existing condition limitation; and WHEREAS, by the terms of SECTION 12.1 of the Plan, the Plan may be amended by the Corporation. 3 54 NOW, THEREFORE, effective October 1, 1999, the Plan is hereby amended as follows: 1. SECTION 2.34 is deleted in its entirety, and the following is substituted in its place: "2.34 `QUALIFIED MEDICAL EXPENSE' means an expense incurred by a Participant, by the Participant's spouse or by a Dependent of such Participant for medical care as defined in Code section 213, including, without limitation, amounts paid for hospital bills and doctor bills, but only to the extent that (i) the participant or other person is not reimbursed for the expense through insurance or otherwise, other than under the Plan, and (ii) the expense is not taken into account as a deduction by the Participant on his Internal Revenue Service Form 1040." 2. The second sentence of SECTION 5.1 is deleted in its entirety, and the following is substituted in its place: "Subject to SECTIONS 5.2(a) and 12.1, the specific coverages and benefits available to Participants are set forth in the Policy or if there is no Policy, in the Policy last in effect in connection with the Plan." 3. SECTION 5.2(a) is deleted in its entirety, and the following is substituted in its place: "5.2 PRE-EXISTING CONDITIONS. (A) PRE-EXISTING CONDITIONS. Notwithstanding anything in the Plan or any Policy to the contrary, the Plan shall not impose any type of pre-existing condition exclusion. Notwithstanding anything in any Policy to the contrary, a pre-existing condition in a Policy shall not include any condition that does not fall within the definition of a Pre-existing Condition, no pre-existing condition shall include a condition for which Genetic Information was used as a basis for asserting the existence of the condition if there has been no diagnosis of the condition related to such information, and the period during which any exclusion or limitation of benefits (relating to a condition based on the fact that the condition was present before a person's Enrollment Date) in the Policy would be enforced (if the Plan allowed pre-existing condition exclusions) for no longer than the excess of twelve (12) months (eighteen (18) months for a Late Enrollee), beginning on his Enrollment Date, over the aggregate of the periods of Creditable Coverage (if any) applicable to the Participant as of his Enrollment Date." 2 55 5. The last sentence of SECTION 8.1 is amended to delete the words "coverage limitations" in that sentence and to substitute "coverage maximums" in their place. IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed by its duly authorized officer effective October 1, 1999. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale -------------------------------------- Title: ----------------------------------- 3 56 AMENDMENT THREE TO THE DALLAS SEMICONDUCTOR CORPORATION EXECUTIVES RETIREE MEDICAL PLAN Amendment made to the Dallas Semiconductor Corporation Executives Retiree Medical Plan, effective October 1, 1999 (the "Plan"), by Dallas Semiconductor Corporation (the "Corporation"). W I T N E S S E T H WHEREAS, the Corporation sponsors the Plan to provide retiree (and limited other) medical care benefits to board members, officers, certain other eligible retirees, and the eligible spouses of board members and officers; and WHEREAS, the Corporation desires to amend the Plan to permit three Directors appointed after October 19, 1999, Jeffrey A. Koch, John K. Foley and Larry N. Bright, to participate in the Plan, effective on the date each was appointed as a Director; and WHEREAS, by the terms of Section 12.1 of the Plan, the Plan may be amended by the Corporation. NOW, THEREFORE, effective as provided below, the Plan is amended as follows: 1. SECTION 2.10 is deleted in its entirety, effective October 9, 2000, and the following is substituted in its place: "ELIGIBLE EMPLOYEE" means (i) each Officer of the Sponsor on the Effective Date, (ii) each common-law employee of an Employer who was designated on the books and records of the Employer as a "functionally equivalent" officer on the Effective Date and who shared in the contribution made on June 12, 1998, to the Dallas Semiconductor Corporation Executive Deferred Compensation Plan, (iii) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date (or within the five (5) calendar year period preceding the Effective Date), also held the title of Director or was the Sponsor's corporate controller, (iv) effective October 9, 2000, Larry N. Bright, John K. Foley and Jeffrey A. Koch, and (v) each common-law employee of an Employer, on the Effective Date, who, on the Effective Date, held the position of Manager and was required to report for operating purposes directly to the Sponsor's President and Chief Executive Officer. Each person who was an Eligible Employee on the Effective Date or become an Eligible Employee as a result of an amendment to the Plan after the Effective Date is listed on either Exhibit C or Exhibit F to the Plan." 1 57 2. Effective October 9, 2000, existing Exhibit F is deleted in its entirety, and the attached Exhibit F is substituted in its place. IN WITNESS WHEREOF, the Corporation, has caused this instrument to be executed by its duly authorized officer on this 10th day of April, 2001. DALLAS SEMICONDUCTOR CORPORATION By: /s/ Alan P. Hale -------------------------------------- Name: Alan P. Hale Title: Chief Financial Officer 2 58 EXHIBIT F ELIGIBLE EMPLOYEES (OTHER THAN OFFICERS) (EFFECTIVE OCTOBER 9, 2000) Matt Adams Philip A. Adams G. Malcom Bayless Larry N. Bright Heber L. Clement Mel Cruz Stephen M. Curry Don Dias John K. Foley Jeffrey L. Hannon Tom Harrington, III David L. Heim Jerry L. Housden Joe Hundt Reynold W. Kelm Jeff Koch Hal Kurkowski Robert D. Lee 3 59 John E. Manton, III Wayne Mendenhall Kenneth B. Molitor Joe Monroe David J. Rapier John Rea Sandy Scherpenberg Michael D. Smith Gay T. Vencill Clark R. Williams 4 EX-10.29 17 f75694ex10-29.txt EXHIBIT 10.29 1 EXHIBIT 10.29 INDEMNIFICATION AGREEMENT THIS AGREEMENT is made as of the _____ day of __________, 19___, by and between Dallas Semiconductor Corporation, a Delaware corporation (the "Company"), and ________________________________________, a director and/or officer of the Company ("Indemnitee"). WHEREAS, the Company's Certificate of Incorporation and By-Laws provide for the indemnification of the directors and officers of the Company to the maximum extent authorized by Delaware law; and WHEREAS, Delaware law provides that indemnification under such statutes shall not be deemed exclusive and thereby contemplates that contracts may be entered into between the Company and its officers and directors with respect to indemnification of such persons; and WHEREAS, recent developments with respect to the substantial increase in litigation subjecting officers and directors to litigation risks and liabilities have indicated that it would be prudent to support and augment the protection afforded the Company's officers and directors in this regard; and WHEREAS, Indemnitee and other officers and directors may not be willing to serve as such without adequate protection and the Company desires to attach and retain the services of highly qualified individuals, such as Indemnitee, to serve as an officer and/or director of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law as an inducement to their continued service to the Company. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification in General. The Company shall indemnify and hold harmless Indemnitee to the fullest extent permitted or authorized by Applicable Law. For purposes hereof the term "Applicable Law" shall mean Section 145 of the General Corporation Law of the State of Delaware as in effect on the date hereof and as hereafter amended (but in the case of such amendment, only to the extent such amendment permits the Company to provide broader indemnification rights than permitted prior to such amendment). 2. Additional Indemnity. Subject only to the exclusions set forth in Section 3 hereof, the Company shall further indemnify and hold harmless Indemnitee: (a) Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by Indemnitee in connection with any threatened, pending or completed action, suit, or proceeding, whether formal or informal, or civil, criminal, administrative, legislative, arbitrative or investigative (including without limitation any action by or in the right of the Company) (hereinafter a "Proceeding") to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Indemnitee is, was or at any time becomes a director, officer 2 or agent of the Company, or is or was serving or at any time serves at the request of the Company (which request need not be in writing) or on behalf of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (hereinafter an "Enterprise"); and (b) Otherwise to the fullest extent as may be contractually provided to Indemnitee by the Company under Applicable Law consistent with any public policy limitations applicable thereto. 3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof shall be paid by the Company: (a) for amounts indemnified by the Company other than pursuant to Section 2 of this Agreement; (b) for amounts, if any, paid pursuant to any policies of directors and officers liability insurance maintained by the Company for the benefit of Indemnitee; (c) with respect to remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (d) on account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase and sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or any similar provision of federal, state or local statutory law; (e) on account of Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (f) if a final adjudication by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. 4, Notification and Defense of Claims. Promptly after the receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement of such Proceeding; provided however that the omission to so notify the Company will not relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such Proceeding as to which Indemnitee notifies the Company of the commencement thereof: (a) The Company shall be entitled to participate therein at its expense; and (b) Except as otherwise provided herein, to the extent it may elect to do so, the Company (jointly with any other indemnifying party similarly notified) will be entitled to 2 3 assume the defense thereof, with counsel of its own selection reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense thereof, Company will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than as otherwise provided below. Indemnitee shall have the right to employ separate counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense shall be at the expense of the Indemnitee unless (i) the Company has authorized Indemnitee to employ separate counsel and has agreed to assume the reasonable fees and expenses of such counsel; (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such Proceeding; or (iii) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (ii) above. (c) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceedings or claims effected without its prior written consent. The Company shall not settle any Proceeding or claim in any manner which might impose any penalty or limitation on Indemnitee without Indemnitee's prior written consent. Neither the Company nor Indemnitee will unreasonably withhold their consent to any proposed settlement. 5. Payment in Advance. The expenses (including attorneys' fees) incurred by Indemnitee in defending any Proceeding shall be advanced by the Company at the request of the Indemnitee. Any judgments, fines or amounts to be paid in settlement shall also be advanced by the Company to Indemnitee upon request. If it shall ultimately be determined that Indemnitee was not entitled to be indemnified, or was not entitled to be fully indemnified, Indemnitee shall repay to the Company all amounts advanced, or the appropriate portion thereof, so advanced. 6. Right of Indemnitee to Bring Suit. If a claim for indemnification or a claim for an advance under this Agreement is not paid in full by the Company within 90 or 15 days, respectively, after the Company has received a written claim therefor by Indemnitee, Indemnitee may bring suit against the Company to recover the unpaid amount of the claim. If Indemnitee is successful in whole or in part in such suit, Indemnitee shall also be paid the expense of prosecuting such claim (including without limitation reasonable attorneys' fees). 7. Continuation of Indemnity. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is a director, officer or agent of the Company (or is serving at the request of the Company or on behalf of the Company, as a director, officer, employee or agent of another Enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any possible Proceeding or claim by reason of the fact that Indemnitee was a director, officer or agent of the Company or serving in any other capacity referred to herein. 3 4 8. Nonexclusivity. The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any provision of statutory or common law, the Company's Certificate of Incorporation, any Company By-Law, other agreement, vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while occupying any of the positions or having any of the relationships referred to in this Agreement, and shall continue after Indemnitee has ceased to occupy such position or have such relationship. 9. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable (a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not be in any way affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Each section of this Agreement is a separate and independent portion of this Agreement. If the indemnification to which Indemnitee is entitled as respects any aspect of any claim varies between two or more sections of this Agreement, that section providing the most comprehensive indemnification shall apply. 10. Modification and Waiver. No supplement or amendment of this Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless executed in writing by the person making the waiver nor shall such waiver constitute a continuing waiver. 11. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or if (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (i) If to Indemnitee, to or to such other address as may be furnished to the Company by Indemnitee; (ii) If to the Company, to 4 5 Dallas Semiconductor Corporation 4401 South Beltwood Parkway Dallas, Texas 75244-3292 Attn: President or to such other address as may be furnished to Indemnitee by the Company. 12. GOVERNING LAW. THIS AGREEMENT IS MADE AND ENTERED INTO PURSUANT TO SECTION 145 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE AND THIS AGREEMENT SHALL BE GOVERNED BY, AND ITS PROVISIONS CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. 13. Heirs, Successors and Assigns. This Agreement shall insure to the benefit of, and be enforceable by the Indemnitee's personal or legal representatives, executors, administrators, heirs, devisees and legatees. This Agreement is binding on the successors and assigns of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place (the assumption by such successor shall be by written agreement in form and substance reasonably satisfactory to Indemnitee). 14. Miscellaneous. (a) This Agreement does not create any right in Indemnitee to employment or continued employment with the Company or any other Enterprise. (b) All references herein in the masculine gender shall, when appropriate, refer to the feminine gender. (c) The section headings contained herein are for convenience only and are not to be considered in construing or interpreting this Agreement. (d) In the event of any ambiguity, vagueness or other matter involving the interpretation or meaning of this Agreement, this Agreement shall be liberally construed so as to provide Indemnitee the full benefits set out herein. 5 6 ENTERED into as of the day and year first above written. DALLAS SEMICONDUCTOR CORPORATION ATTEST: By: ----------------------------- --------------------------------- ------------------------------------ Indemnitee 6 EX-13.1 18 f75694ex13-1.txt EXHIBIT 13.1 1 EXHIBIT 13.1 COVER 2 FORWARD-LOOKING STATEMENTS This Annual Report and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Annual Report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements include (a) projections relevant to future revenue, income, earnings, capital expenditures, capital structure, sufficiency of cash funds and other financial items, (b) statements of plans, strategies, or objectives of the Company's management for future operations, including, without limitation, facilities, personnel, operations, and balancing capacity with demand; composition of our customer base; plans or objectives relating to the Company's expenses, products, their development, manufacture, marketing, and sale, (c) statements of the expected benefits, both financial and nonfinancial, and synergies to be provided from the acquisition of Dallas Semiconductor Corporation, (d) statements of future economic performance including, without limitation, the Company's position to meet the demand for analog solutions, (e) statements regarding bookings and backlog, and (f) statements of any assumptions underlying or relating to any of the foregoing. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on the Company's current outlook, expectations, estimates, projections, beliefs, and plans or objectives about its business and its industry. These statements are not guarantees of future performance and are subject to risk and uncertainty. There are numerous factors that could cause the Company's actual results to differ materially from results predicted or implied. Important factors affecting the Company's ability to achieve future revenue growth include whether, and the extent to which, demand for the Company's products increases and reflects real end-user demand; whether customer cancellations and delays of outstanding orders increase; whether the Company is able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether the Company is able to achieve its new product development and introduction goals, including, without limitation, goals for recruiting, retaining, training, and motivating engineers, particularly design engineers, and goals for conceiving and introducing timely new products that are well received in the marketplace; and whether the Company is able to successfully commercialize its new technologies, such as its next-generation high-frequency technologies, that it has been investing in by designing and introducing new products based on these new technologies. Other important factors that could cause actual results to differ materially from those predicted include overall worldwide economic conditions; demand for electronic products and semiconductors generally; demand for the end-user products for which the Company's semiconductors are suited; timely availability of raw material, equipment, supplies, and services; unanticipated manufacturing problems; technological and product development risks; and competitors that may outperform the Company. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events, or otherwise. Readers are cautioned not to place undue reliance on such statements, which are only as of the date of the Annual Report. Readers should also carefully review future reports and documents that the Company files from time to time with the Securities and Exchange Commission, such as its Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q (particularly the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Trends, Risks, and Uncertainties") and any current reports on Form 8-K. 2 3 Established in 1983, Maxim Integrated Products, Inc., is a worldwide leader in design, development, manufacture, and marketing of linear and mixed-signal integrated circuits. Maxim circuits "connect" the real world and the digital world by detecting, measuring, amplifying, and converting real world signals, such as temperature, pressure, sound, voice, or light, into the digital signals necessary for computer processing. Products include data converters, interface circuits, real-time clocks, delay lines, microcontrollers, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, switches, battery chargers, battery management circuits, RF circuits, fiber optic transceivers, sensors, and voltage references. Our products are used in a wide variety of microprocessor-based communications, industrial control, instrumentation, and data processing equipment, including personal computers and peripherals, process control, test equipment, handheld devices, wireless and fiber communications, and video displays. Maxim markets over 3,000 products, of which over 2,500 are proprietary. Net revenues were $1,576.6 million for the year ended June 30, 2001. The Company has over 6,300 employees. Our headquarters is in Sunnyvale, California, and we have facilities in San Jose, California; Dallas, Texas; Beaverton, Oregon; Cavite, the Philippines; Samutprakam, Thailand; and other locations worldwide. In fiscal 2001, Maxim acquired Dallas Semiconductor Corporation, a leading provider of specialty semiconductors. The acquisition has broadened Maxim's product offerings, added engineering talent to Maxim's labor force, and positioned Maxim to more effectively increase stockholder value. The acquisition was accounted for as a pooling-of-interests. Accordingly, all financial data of Maxim has been restated to include the historical financial data of Dallas Semiconductor Corporation. Maxim's mission is to continuously invent high-quality analog and mixed-signal engineering solutions that add value to our customers' microprocessor-based electronics worldwide. We have consistently increased our stockholders' equity by meeting our cost and performance goals, minimizing time-to-market, and maximizing our engineering productivity. TABLE OF CONTENTS Financial Highlights..............................................4 Letter To Our Stockholders........................................5 Quarterly Highlights..............................................8 Financial Information............................................11 Board of Directors, Corporate Officers, and Vice Presidents .....41 Corporate Data, Stockholder Information..........................42
3 4 FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share data) FY2001 FY2000 FY1999 --------------------------------------------- ---------- ---------- ---------- Net revenues $1,576,613 $1,376,085 $1,002,849 Net income $ 334,939 $ 373,083 $ 265,281 Earnings per share--diluted $ 0.93 $ 1.04 $ 0.77
[GRAPH] [GRAPH] [GRAPH] 4 5 TO OUR STOCKHOLDERS [IMAGE] Fiscal 2001 has been one of the most challenging years in Maxim's history. We began the year closely monitoring what we determined to be exaggerated customer demand for our products, attempting to ship consistent with end equipment consumption rates without inventory accumulation in the channel. The subsequent dropoff in bookings levels, although certainly anticipated, was more precipitous and sustained than anyone could have predicted. I have commented previously on the effect that the rise and fall of DSL-driven telecom and dot com industries have had on demand for integrated circuits and other technology products. It has taken some time to get back to true demand levels. We estimate that 15 to 20 percent of our previous end market demand will need to be replaced because of the demise of some of these companies and equipment markets. Although no company relishes going through a period of inventory correction and market dislocation, it is in times such as these that our conservative management approach pays off; once again, Maxim has proven its ability to operate efficiently and profitably in a difficult business environment. FINANCIAL HIGHLIGHTS Maxim ended fiscal 2001 with net revenues of $1.6 billion. Operating income for fiscal 2001 was $445.2 million. The Company increased cash and short-term investments by $323.4 million after paying $250.7 million for 4.0 million shares of its common stock and acquiring $336.5 million of capital equipment. Diluted earnings per share for fiscal 2001 were $0.93. Total assets increased to $2.4 billion. Stockholders' equity grew to $2.1 billion in fiscal 2001 from $1.7 billion in fiscal 2000. Return on average stockholders' equity for 2001 was 17.5 percent. This return, one of the highest in the industry, confirms that the Company continues to make good product and capacity investment decisions with stockholders' assets. DALLAS SEMICONDUCTOR AND MAXIM COMBINE TALENT AND RESOURCES Maxim's acquisition of Dallas Semiconductor, completed on April 11, 2001, was not in our sights at the beginning of the fiscal year. Certainly Dallas would not have been a candidate for acquisition had it not been for the untimely death of the company's chief executive in November 2000. While Maxim has not historically chosen the path of growth through acquisition, the Dallas opportunity was unique from our perspective. It was clear to Maxim management that Dallas' innovative and proprietary product lines should be every bit as profitable as Maxim's and that it would be possible to impact the company's profitability by restructuring its sales, distribution, and manufacturing business models to align with Maxim's. We recognized a rare opportunity to increase our engineering headcount by approximately 30 percent with the addition of 250 skilled and experienced development engineers and were confident that we could improve Dallas' engineering productivity. The two companies' product lines were almost entirely complementary, with Dallas potentially adding six business units to Maxim's existing eight. In addition, Maxim's product development efforts would benefit from Dallas' excellent in-house microprocessor, packaging, and module technologies. 5 6 TO OUR STOCKHOLDERS Today, a few months after the acquisition, we are more enthusiastic than ever about the current performance and future potential of the combined company. Several of our goals for cost savings at Dallas have already been accomplished. Like Maxim, Dallas now sells its products through our direct Sales and Applications organization. A variety of manufacturing efficiencies have been achieved, including higher manufacturing yields and improved wafer fab productivity. Dallas products are being tested at the new Maxim facility in Cavite, the Philippines, significantly reducing the use of expensive on-shore labor and subcontractors. Our joint purchasing power is resulting in cost savings for the combined companies. The Dallas engineers and the products they have invented have met our high expectations. Dallas products that had little public exposure in the past are now benefiting from renewed, Maxim-style applications engineering and media attention, and customers are responding enthusiastically. Like Maxim, Dallas now distributes sample circuits to customers worldwide within 24 hours. OUR FOCUS ON NEW PRODUCT INTRODUCTIONS CONTINUED Maxim introduced over 500 products during the 12-month product announcement year ending in July 2001, a 30 percent increase over the previous year's record of over 400 products. Our emphasis on research and development activities continues to show tangible results. Included were several products from Dallas Semiconductor, whose six business units now have the same focus on product proliferation as their eight Maxim counterparts. We anticipate significantly increased product introduction activity from Dallas in the coming years, with 58 Dallas products scheduled to announce in the 2002 product announcement year. EXPANDED MANUFACTURING FACILITIES WILL IMPROVE EFFICIENCIES FOR BOTH MAXIM AND DALLAS Maxim and Dallas combined now have the facilities and equipment in place to ship approximately $550 million per quarter. Since this capacity and its variable expense exceeds the current needs of the Company, variable costs will be scaled back in the short term until this capacity can be cost effectively utilized. Our San Jose fabrication facility was expanded this year, with the addition of a 20,000-square-foot submicron Class 1 clean room and a 5,000-square-foot Class 10 clean room. The expansion area will run advanced technologies on 8-inch wafers. The expansion of Dallas Semiconductor's fabrication facility in Dallas, begun in calendar 2000, was completed and paid for in the fourth quarter of fiscal 2001, and a conversion to 8-inch product is underway. The shift to 8-inch wafers will result in significant wafer cost reduction when the facility becomes operational in 12 to 18 months. This year, we expanded our facility in Cavite, the Philippines, to 234,000 square feet of test, wafer sort, laser trim, and shipping operations. This facility now supports Dallas as well as Maxim and, along with our Thailand facility, is capable of testing and shipping 1 billion units per quarter. Significant cost savings have been achieved by installing a shipping operation at this facility. 6 7 TO OUR STOCKHOLDERS In July 2000, Maxim opened a test operation in Thailand, diversifying the Company's Asian manufacturing presence. The Thailand operation has the capacity to test more than 50 million units per quarter and is now testing approximately 25 percent of Maxim's units. MAXIM AND DALLAS GIVE DISTRIBUTION CUSTOMERS BETTER SERVICE The acquisition of Dallas Semiconductor afforded both Maxim and Dallas the opportunity to reexamine international distribution channels for their products to ensure that customers were being given the most attractive avenues for procurement and service. Several changes were made to distribution channels, including establishment of a captive worldwide Maxim/Dallas Direct! distribution organization; replacement of Dallas' sales representatives with Maxim's direct sales force; and plans to hone both companies' distributors worldwide to focus on the most effective in each region. Also, customers using Maxim's e-commerce website can order any quantity of parts online and have online access to a large team of Maxim and Dallas technical experts. WE ARE PREPARED FOR THE RECOVERY At the time of this writing, no one can forecast with confidence when demand for integrated circuits will return to the levels we saw at the beginning of fiscal 2001. What we at Maxim can say with confidence is that we have in place the new products and processes, capacity, and efficient sales channels to meet future demand for our circuits fueled by the global requirement for data communications and analog signal conditioning. The period of slowed demand at the end of the fiscal year was used effectively by Maxim and Dallas to align our operations, execute on cost saving initiatives, and capitalize on the proven synergies from the combined companies. Maxim and Dallas have the broadest of product offerings in the industry. These products are leading edge and very competitive in each market. Our customer and product reach is broad and unequalled by competitors. We are not overly dependent upon any equipment segment and, as an expected result, the depth of Maxim's setback will not be as deep and we expect our recovery to be sooner and more complete than most others. Thank you again for your continued support of Maxim and its management. Sincerely, /s/ JOHN F. GIFFORD John F. Gifford President, Chief Executive Officer and Chairman of the Board 7 8 QUARTERLY HIGHLIGHTS FIRST QUARTER FY01 - Net revenues of $422.3 million - Net income of $119.1 million ($0.33 diluted earnings per share) [GRAPH] [GRAPH] [GRAPH] SECOND QUARTER FY01 - Net revenues of $438.3 million - Net income of $122.2 million ($0.34 diluted earnings per share) [GRAPH] [GRAPH] [GRAPH] 8 9 QUARTERLY HIGHLIGHTS THIRD QUARTER FY01 - Net revenues of $397.8 million - Net income of $109.9 million ($0.31 diluted earnings per share) [GRAPH] [GRAPH] [GRAPH] FOURTH QUARTER FY01 - Net revenues of $318.1 million - Net loss of $(16.2) million [($0.05) diluted loss per share] [GRAPH] [GRAPH] [GRAPH] 9 10 10 11 FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations......12 Consolidated Balance Sheets................................................................20 Consolidated Statements of Income..........................................................21 Consolidated Statements of Stockholders' Equity............................................22 Consolidated Statements of Cash Flows......................................................23 Notes to Consolidated Financial Statements.................................................24 Report of Ernst & Young LLP, Independent Auditors..........................................38 Selected Financial Data....................................................................39 Financial Highlights by Quarter............................................................40
11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Business Combination In December 2000, Maxim Integrated Products, Inc., (the Company) entered into merger negotiations with Dallas Semiconductor Corporation (Dallas Semiconductor), a leading supplier of speciality semiconductors. Merger negotiations were undertaken as a result of the Company's belief that the engineering talent, product offerings, and management philosophy at Dallas Semiconductor, when combined with those of the Company, would lead to synergies that would positively impact operating results and increase stockholder value. On April 11, 2001, the stockholders of Dallas Semiconductor voted in favor of the merger, and the Company issued approximately 41.0 million shares of its common stock in exchange for all the outstanding common stock of Dallas Semiconductor. In addition, the Company exchanged all options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9 million shares of the Company's common stock. The transaction was accounted for as a pooling-of-interests and qualifies as a tax-free reorganization. All financial data of the Company presented in these financial statements has been restated to include the historical financial data of Dallas Semiconductor. Adjustments relating to deferral of income on shipments to distributors were required to conform the accounting policies of the acquired company. The Company and Dallas Semiconductor had certain differences in the classification of revenues and expenses in their historical statements of income and assets and liabilities in their historical balance sheets. Adjustments have been made to conform the combined company's income statement and balance sheet classifications. In addition, the lives of the property, plant and equipment acquired as part of the merger with Dallas Semiconductor were conformed to the lives used by the Company as appropriate. The change, which was prospective in nature, reflects the Company's anticipated economic benefit from those assets. As previously noted, all financial data of the Company presented in these financial statements has been restated to include the historical financial data of Dallas Semiconductor in accordance with accounting principles generally accepted in the United States and pursuant to Regulation S-X of the Securities and Exchange Commission. The Company's statement of income for the fiscal year ended June 26, 1999 has been combined with the Dallas Semiconductor statement of income for the fiscal year ended January 2, 2000. The Company's statement of income for the fiscal year ended June 24, 2000 has been combined with the Dallas Semiconductor statement of income for the fiscal year ended December 31, 2000. The Company's statement of income for the fiscal year ended June 30, 2001 includes the results of operation for Dallas Semiconductor for the 12 months ended June 30, 2001. This presentation has the effect of including Dallas Semiconductor's results of operations for the 6-month period ended December 31, 2000 in both the Company's fiscal years ended June 24, 2000 and June 30, 2001. Net revenues and net income for Dallas Semiconductor for the 6-month period ended December 31, 2000, were $270.4 million and $48.9 million, respectively. The net income for Dallas Semiconductor for the 6-month period ended December 31, 2000 of $48.9 million has been reported as a decrease to the Company's fiscal 2001 retained earnings. The Company's balance sheet as of June 24, 2000 was combined with Dallas Semiconductor's balance sheet as of December 31, 2000. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [GRAPH] Net Revenues The Company reported net revenues of $1,576.6 million in fiscal 2001, a 14.6% increase from net revenues of $1,376.1 million in fiscal 2000. This increase in net revenues for fiscal 2001 is related primarily to higher unit shipments resulting from continued introduction of new proprietary products, increased market acceptance of the Company's existing proprietary and second-source products, and an increase in market demand for analog semiconductor products in general. This increased demand resulted in net revenues' being greater in the first, second, and third quarters of fiscal 2001 than net revenues for the comparable quarters in fiscal 2000. While net revenues increased from fiscal year 2000 to fiscal year 2001, market demand for the Company's products decreased significantly in the third and fourth quarters of fiscal 2001 due to downturns in certain industry segments (particularly Internet and network-related businesses) and in the general economy. This resulted in net revenues' being less in the fourth quarter of fiscal 2001 than the fourth quarter of fiscal 2000. The Company's net revenues of $1,376.1 million for fiscal 2000 represented an increase of 37.2% from net revenues of $1,002.8 million for fiscal 1999. This increase was primarily related to higher unit shipments resulting from continued introduction of new proprietary products and increased market acceptance of the Company's existing proprietary and second-source products, and an increase in market demand for analog semiconductor products in general. Approximately 57%, 53%, and 53% of the Company's net revenues in fiscal 2001, 2000, and 1999, respectively, were derived from customers located outside the United States, primarily in the Pacific Rim and Europe. While the majority of these sales are denominated in U.S. dollars, the Company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies. The impact of changes in foreign exchange rates on net revenues and the Company's results of operations for fiscal 2001, 2000, and 1999 was immaterial. Gross Margin The Company's gross margin as a percentage of net revenues was 65.9% in fiscal 2001 compared to 63.4% in fiscal 2000. The improvement in gross margin from fiscal 2000 to fiscal 2001 was principally due to production efficiencies obtained through economies of scale and cost reductions. The increase in gross margin for 13 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS fiscal 2001 was offset by $39.2 million recorded to reduce the carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation and an increase of inventory reserves by $39.9 million. Gross margin for fiscal 2000 was negatively impacted by $27.1 million recorded to reduce the carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation and increased inventory reserves of $3.3 million. [GRAPH] The Company's gross margin as a percentage of net revenues was 63.4% in fiscal 2000 compared to 62.2% in fiscal 1999. The improvement in gross margin in fiscal 2000 was principally due to production efficiencies obtained through economies of scale and cost reductions. The increase in gross margin for fiscal 2000 was offset by the items previously noted. In addition, gross margin for fiscal 2000 reflects certain expenses that the Company did not incur in fiscal 1999. These include $3.0 million recorded for royalty expense and amounts recorded for Medicare taxes on realized gains from the exercise of employee stock options. Previously, the Medicare tax payments were recorded within Stockholders' Equity as an offset against the proceeds received from the exercise of stock options. Gross margin for fiscal 1999 was negatively impacted by an increase in inventory reserves of $8.0 million, $7.5 million expensed for negative manufacturing variances, charges of $3.6 million recorded to obsolete a 4-inch wafer fabrication facility, and $2.7 million recorded to reduce the carrying value of equipment. [GRAPH] Research and Development Research and development expenses were $280.2 million and $216.8 million for fiscal 2001 and 2000, respectively, which represented 17.8% and 15.8% of net revenues, respectively. The increase in research and development expenses both in terms of absolute dollars and as a percentage of net revenues is due to the Company's continuous efforts to introduce new products. Specifically, research and development expenses increased in fiscal 2001 due to increased headcount and related employee expenses to continue product development to support revenue growth, increased wafer and mask expenses to support new product development, and $11.2 million recorded to reduce the carrying value of equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation. Included in research and development expenses in fiscal 2000 was 14 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS $8.1 million recorded to reduce the carrying value of equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened resulting in accelerated depreciation. Research and development expenses were $216.8 million and $145.8 million in fiscal 2000 and 1999, respectively, which represented 15.8% and 14.5% of net revenues, respectively. The increase in research and development expenses both in terms of absolute dollars and as a percentage of net revenues in fiscal 2000 was due primarily to increased headcount and related employee expenses, wafer and mask expenses to support new product development, $8.1 million recorded to reduce the carrying value of equipment, and expenses for Medicare taxes on realized gains from the exercise of employee stock options. The level of research and development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of net revenues. [GRAPH] Selling, General and Administrative Selling, general and administrative expenses were $150.6 million and $146.9 million in fiscal 2001 and 2000, respectively, which represented 9.6% and 10.7% of net revenues, respectively. The increase in selling, general and administrative expenses in absolute dollars in fiscal 2001 is primarily due to increased headcount and related employee expenses to support the Company's higher revenues offset by a decrease of $9.5 million in charges recorded primarily for technology licensing. Selling, general and administrative expenses were $146.9 million and $107.6 million in fiscal 2000 and 1999, respectively, which represented 10.7% and 10.7% of net revenues, respectively. The increase in selling, general, and administrative expenses in absolute dollars in fiscal 2000 was primarily due to additional headcount and related employee expenses to support the Company's increased level of revenues, an increase of $12.5 million in charges recorded primarily for technology licensing, and expenses for Medicare taxes on realized gains from the exercise of employee stock options. Merger and Special Charges As a result of the merger with Dallas Semiconductor, during the fourth quarter of fiscal 2001, the Company recorded merger costs in connection with the acquisition of Dallas Semiconductor of approximately $26.4 million. These costs consist of approximately $14.1 million intended to satisfy the change in control payments under previously existing employment 15 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS contracts and other non-employee director arrangements for which there was no future economic benefit; a $5.8 million payment to be made under a change in control provision in a previously existing life insurance arrangement for which there was no future economic benefit; and $6.5 million for fees related to investment banking, legal, accounting, filings with regulatory agencies, financial printing, and other related costs. It is expected that substantially all of these direct transaction costs will be paid out of existing cash reserves within 12 months of the consummation of the merger. During the fourth quarter of fiscal 2001, the Company recorded special charges of $137.0 million. These special charges resulted from the significant decrease in demand that occurred during the fourth quarter of fiscal 2001 for Dallas Semiconductor's products in combination with the Company's intention to close Dallas Semiconductor's 6-inch wafer manufacturing facility and dispose of the related equipment. The Company intends to complete construction of an 8-inch wafer manufacturing facility located in Dallas, Texas, that was under construction when the merger was consummated between the Company and Dallas Semiconductor. Once complete, the 8-inch wafer manufacturing facility will serve as Dallas Semiconductor's primary wafer manufacturing facility. In addition, the Company is concentrating test operations of the combined company at the Company's test facilities located in the Philippines and Thailand. Once complete, certain Dallas Semiconductor test equipment will be disposed of. The Company concluded that the above facts indicated that Dallas Semiconductor's long-lived assets might be impaired, and as required by accounting principles generally accepted in the United States, performed a cash flow analysis of the related assets. Based on the cash flow analysis, the cash flows expected to be generated by Dallas Semiconductor's long-lived assets during their estimated remaining useful lives are not sufficient to recover the net book value of the assets. The Company obtained a valuation report from an independent appraiser of the estimated fair value of the equipment at June 30, 2001, and validated the report with its own knowledge of the semiconductor used equipment market. Based on the cash flow analysis and valuation report, an impairment charge of $124.4 million was recorded to reduce the net book value of Dallas Semiconductor's long-lived assets to fair value. In addition to the above, the Company recorded special charges of $12.6 million to reflect the reorganization of the Company's sales organization, purchase order cancellation fees, and the reduction in the Company's manufacturing workforce. The above actions directly impacted employees in the Company's sales, marketing, and manufacturing organizations. It is expected that 230 employees will be terminated by these actions, of which 93 were terminated and $2.0 million of termination benefits were paid by June 30, 2001. Interest Income and Other, Net Interest income and other, net increased to $59.8 million in fiscal 2001 from $52.7 million in fiscal 2000. This increase was due to significantly higher levels of invested cash, cash equivalents, and short-term investments and higher average interest rates. Included in interest income and other, net in fiscal 2000 was a $4.5 million gain from the cash sale of the Company's 50% interest in its high-frequency packaging and assembly subsidiary and a $5.6 million gain from the sale of an investment in an unrelated test equipment company. Interest income and other, net was $52.7 million in fiscal 2000 compared to $28.0 million in fiscal 1999. The increase in interest income and other, net in fiscal 2000 was primarily due to higher levels of invested cash, 16 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS cash equivalents, and short-term investments. In addition, included within interest income and other, net in fiscal 2000 is a $4.5 million gain and a $5.6 million gain as discussed above. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio, which includes U.S. Treasury and Federal Agency debt securities, corporate notes, and municipal bonds. Investments mature at frequent intervals during the year, at which time the funds are available for use in the business, or for reinvestment, as cash demands dictate. The Company places its investments only in high-quality financial instruments, limits the amount invested in any one institution or instrument, and limits portfolio duration. This policy is intended to reduce default risk, market risk, and reinvestment risk. The Company does not use derivative financial instruments in its investment portfolio. The fair value of the Company's investment portfolio or related interest income would not be significantly impacted by a material change in interest rates, due to the primarily short-term nature of the Company's investment portfolio. At June 30, 2001, the Company's investment portfolio had an expected weighted average return of 5.0% and a weighted maturity of 303 days. Provision for Income Taxes The effective tax rate was 33.7%, 33.5%, and 33.4% for fiscal 2001, 2000, and 1999, respectively. Foreign Currency Risk The Company is exposed to fluctuations in foreign currency exchange rates on accounts receivable from sales in foreign currency and the net monetary assets and liabilities of its foreign subsidiaries. The Company hedges its currency risk with forward exchange contracts. Gains and losses on these forward exchange contracts would generally be offset by corresponding losses and gains on the related hedged items, resulting in negligible exposure for the Company. OUTLOOK: In the third and fourth quarters of fiscal 2001, the Company experienced a steep decline in orders due to downturns in certain industry segments (particularly Internet and network-related businesses) and in the general economy. These decreases occurred in all geographic locations and product lines. At the end of the fourth quarter of fiscal 2001, backlog shippable within the next 12 months was approximately $234 million (compared to $587 million at the end of fiscal 2000), including approximately $185 million requested for shipment in the first quarter of fiscal 2002. Order cancellations decreased from $106 million in the third quarter of fiscal 2001 to $72 million in the fourth quarter of fiscal 2001. In addition, turns orders increased from $50 million in the third quarter of fiscal 2001 to $62 million in the fourth quarter of fiscal 2001. Turns orders are customer orders that are for delivery within the same quarter and may result in revenue within the same quarter if the Company has available inventory that matches those orders. Because the Company's backlog of orders at any point is not necessarily based on firm, noncancelable orders and because the Company's customers do in fact routinely cancel orders for their own convenience with little notice, backlog has limited value as a predictor of future revenues. In the short term, the Company's ability to accurately forecast net revenues remains limited as customers continue to decrease their inventory levels. As a result of decreased order and backlog levels, the Company expects net revenues to decline in the first quarter of fiscal 2002 from the fourth quarter of fiscal 2001. Net revenues for fiscal 2002 are expected to be significantly less than net revenues for fiscal 2001. 17 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION: Overview Total assets grew to $2,430.5 million at the end of fiscal 2001, up from $2,087.4 million at the end of fiscal 2000. The increase is primarily due to favorable operating results for fiscal 2001. Net accounts receivable decreased to $152.5 million at the end of fiscal 2001 from $228.9 million at the end of fiscal 2000, primarily due to a significant decrease in sales volume in the fourth quarter of fiscal 2001 compared to the fourth quarter of fiscal 2000. Net inventory grew to $162.7 million in fiscal 2001 from $139.7 million in fiscal 2000 primarily due to a decrease in demand for the Company's products that occurred in the third and fourth quarters of fiscal 2001. Income tax refund receivable increased to $50.2 million at the end of fiscal 2001 from $6.9 million at the end of fiscal 2000 primarily due to carryback claims resulting from tax losses incurred during fiscal 2001. Property, plant and equipment at cost increased to $1,408.5 million at the end of fiscal 2001 from $1,148.1 million at the end of fiscal 2000, reflecting the Company's efforts to expand future capacity and reduce costs. [GRAPH] Liquidity and Capital Resources The Company's primary source of funds for fiscal 2001, 2000, and 1999 has been from net cash generated from operating activities of approximately $809.6 million, $666.3 million, and $445.9 million, respectively. In addition, the Company received approximately $114.3 million, $99.1 million, and $69.2 million of proceeds from the exercises of stock options and purchases of common stock under the Employee Stock Participation Plan during fiscal 2001, 2000, and 1999, respectively. Another source of cash from the Company's stock option programs is the tax deductions that arise from exercise of options. These tax benefits amounted to $238.9 million, $155.0 million, and $137.1 million in fiscal 2001, 2000, and 1999, respectively. In the past, it was the Company's policy to reduce the dilution effect from stock options by repurchasing its common stock from time to time in amounts based on estimates of proceeds from stock option exercises and of tax benefits related to such exercises. That stock repurchase policy was discontinued in the third quarter of fiscal 2001. Following the extraordinary events that occurred in the United States on September 11, 2001, the Company has authorized the repurchase of up to 10 million shares of its common stock during the five business days following the reopening of the United States securities markets on September 17, 2001. 18 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The principal uses of funds for fiscal 2001, 2000, and 1999 were repurchases of $250.7 million, $270.2 million, and $131.5 million of the Company's common stock, and purchases of property, plant and equipment of $336.5 million, $292.1 million, and $123.7 million, respectively. As of June 30, 2001, the Company's available funds consisted of $1,220.4 million in cash, cash equivalents, and highly liquid investment securities. The Company anticipates that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including its anticipated level of capital expenditures, through the end of fiscal 2002. 19 20 CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data) JUNE 30, 2001 June 24, 2000 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 93,796 $ 82,217 Short-term investments 1,126,556 814,719 ---------- ----------- Total cash, cash equivalents and short-term investments 1,220,352 896,936 ---------- ----------- Accounts receivable (net of allowance for doubtful accounts of $3,280 in 2001 and $2,248 in 2000) 152,488 228,857 Inventories 162,656 139,677 Deferred tax assets 103,205 100,359 Income tax refund receivable 50,187 6,893 Other current assets 10,204 15,631 ---------- ----------- Total current assets 1,699,092 1,388,353 ---------- ----------- Property, plant and equipment, at cost, less accumulated depreciation 712,039 677,988 Other assets 19,400 21,097 ---------- ----------- Total assets $2,430,531 $ 2,087,438 ---------- ----------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 100,921 $ 110,468 Income taxes payable 8,963 15,292 Accrued salary and related expenses 75,992 95,580 Accrued expenses 94,105 83,261 Deferred income on shipments to distributors 45,396 38,204 ---------- ----------- Total current liabilities 325,377 342,805 ---------- ----------- Other liabilities 4,000 4,000 Deferred tax liabilities -- 20,694 Commitments and contingencies ---------- ----------- Total liabilities 329,377 367,499 ---------- ----------- Stockholders' equity: Preferred stock, $0.001 par value; Authorized: 2,000,000 shares; Issued and outstanding: none -- -- Common stock, $0.001 par value; Authorized: 960,000,000 shares; Issued and outstanding: 330,235,460 in 2001 and 322,439,307 in 2000 330 322 Additional paid-in capital 351,652 258,092 Retained earnings 1,745,638 1,461,618 Accumulated other comprehensive income (loss) 3,534 (93) ---------- ----------- Total stockholders' equity 2,101,154 1,719,939 ---------- ----------- Total liabilities and stockholders' equity $2,430,531 $ 2,087,438 ---------- -----------
See accompanying Notes to Consolidated Financial Statements. 20 21 CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data) For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------- ------------- ------------- Net revenues $1,576,613 $1,376,085 $1,002,849 Cost of goods sold 537,148 503,801 379,242 ---------- ---------- ---------- Gross margin 1,039,465 872,284 623,607 ---------- ---------- ---------- Operating expenses: Research and development 280,228 216,823 145,807 Selling, general and administrative 150,622 146,901 107,642 Merger and special charges 163,449 -- -- ---------- ---------- ---------- Total operating expenses 594,299 363,724 253,449 ---------- ---------- ---------- Operating income 445,166 508,560 370,158 Interest income and other, net 59,822 52,657 27,960 ---------- ---------- ---------- Income before provision for income taxes 504,988 561,217 398,118 Provision for income taxes 170,049 188,134 132,837 ---------- ---------- ---------- Net income $ 334,939 $ 373,083 $ 265,281 ---------- ---------- ---------- Earnings per share: Basic $ 1.03 $ 1.18 $ 0.88 Diluted $ 0.93 $ 1.04 $ 0.77 ---------- ---------- ---------- Shares used in the calculation of earnings per share: Basic 325,736 316,887 303,038 Diluted 361,620 359,548 344,360 ---------- ---------- ---------- Dividends declared per share $ 0.02 $ 0.02 $ 0.02 ---------- ---------- ----------
See accompanying Notes to Consolidated Financial Statements. 21 22 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Other -------------------------- Paid-In Retained Comprehensive (Amounts in thousands, except share data) Shares Par Value Capital Earnings Income Total ------------ --------- ---------- ----------- ------------- ----------- BALANCE, JUNE 27, 1998 298,281,653 $ 298 $ 199,414 $ 836,872 $(2,163) $ 1,034,421 Components of comprehensive income: Net income -- -- -- 265,281 -- 265,281 Translation adjustment -- -- -- -- 693 693 ----------- Total comprehensive income 265,974 ----------- Exercises under the Stock Option and Purchase Plans 18,233,079 18 69,211 -- -- 69,229 Repurchase of common stock (6,300,580) (6) (131,451) -- -- (131,457) Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans -- -- 137,062 -- -- 137,062 Dividends declared -- -- -- (5,781) -- (5,781) ------------ ----- --------- ----------- ------- ----------- BALANCE, JUNE 26, 1999 310,214,152 310 274,236 1,096,372 (1,470) 1,369,448 Components of comprehensive income: Net income -- -- -- 373,083 -- 373,083 Unrealized gain on available- for-sale investments -- -- -- -- 1,377 1,377 ----------- Total comprehensive income 374,460 ----------- Exercises under the Stock Option and Purchase Plans 18,130,266 18 99,111 -- -- 99,129 Repurchase of common stock (5,905,111) (6) (270,213) -- -- (270,219) Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans -- -- 154,958 -- -- 154,958 Dividends declared -- -- -- (7,837) -- (7,837) ------------ ----- --------- ----------- ------- ----------- BALANCE, JUNE 24, 2000 322,439,307 322 258,092 1,461,618 (93) 1,719,939 Components of comprehensive income: Net income -- -- -- 334,939 -- 334,939 Unrealized gain on forward- exchange contracts -- -- -- -- 406 406 Unrealized gain on available- for-sale investments -- -- -- -- 4,598 4,598 ----------- Total comprehensive income 339,943 ----------- Adjustments to conform fiscal year of pooled entity (384,103) -- (8,950) (44,942) (1,377) (55,269) Exercises under the Stock Option and Purchase Plans 12,206,590 12 114,257 -- -- 114,269 Repurchase of common stock (4,026,334) (4) (250,681) -- -- (250,685) Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans -- -- 238,934 -- -- 238,934 Dividends declared -- -- -- (5,977) -- (5,977) ------------ ----- --------- ----------- ------- ----------- BALANCE, JUNE 30, 2001 330,235,460 $ 330 $ 351,652 $ 1,745,638 $ 3,534 $ 2,101,154 ------------ ----- --------- ----------- ------- -----------
See accompanying Notes to Consolidated Financial Statements. 22 23 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) Increase (decrease) in cash and cash equivalents For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 334,939 $ 373,083 $ 265,281 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and other 90,861 79,267 67,883 Plant and equipment charges 50,365 35,200 2,700 Charge for impairment of long-lived assets 124,432 -- -- Adjustment to conform fiscal year of pooled entity 3,608 -- -- Changes in assets and liabilities: Accounts receivable 77,365 (92,307) 11,304 Inventories (27,939) (18,876) (3,704) Deferred taxes 27,385 (29,415) (4,758) Income tax refund receivable (43,937) 30,821 (36,649) Other current assets 7,225 (5,624) (3,359) Accounts payable (3,602) 41,147 18,717 Income taxes payable 163,263 163,743 110,278 Deferred income on shipments to distributors 7,428 4,911 (9,156) All other accrued liabilities (1,745) 84,302 27,364 ----------- --------- --------- Net cash provided by operating activities 809,648 666,252 445,901 ----------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment, net (336,545) (292,106) (123,652) Other non-current assets (4,845) (11,402) 1,318 Purchases of available-for-sale securities (1,352,264) (706,144) (669,652) Proceeds from sales/maturities of available-for-sale securities 1,037,978 553,335 444,348 ----------- --------- --------- Net cash used in investing activities (655,676) (456,317) (347,638) ----------- --------- --------- Cash flows from financing activities: Issuance of common stock 114,269 99,129 69,229 Repurchase of common stock (250,685) (270,219) (131,457) Dividends paid (5,977) (7,837) (5,781) ----------- --------- --------- Net cash used in financing activities (142,393) (178,927) (68,009) ----------- --------- --------- Net increase in cash and cash equivalents 11,579 31,008 30,254 Cash and cash equivalents: Beginning of year 82,217 51,209 20,955 ----------- --------- --------- End of year $ 93,796 $ 82,217 $ 51,209 ----------- --------- --------- Supplemental disclosures of cash flow information: Cash paid, net during the year for: ----------- --------- --------- Income taxes $ 21,796 $ 21,573 $ 59,505 ----------- --------- ---------
See accompanying Notes to Consolidated Financial Statements. 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations: Maxim Integrated Products, Inc. (the Company) designs, develops, manufactures, and markets linear and mixed-signal integrated circuits and is incorporated in the state of Delaware. The Company's products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches, battery chargers, battery management circuits, RF circuits, fiber optic transceivers, sensors, and voltage references. The Company is a global company with manufacturing facilities in the United States, testing facilities in the Philippines and Thailand, and sales offices throughout the world. The Company's products are sold to customers in numerous markets, including communications, industrial control, instrumentation, and data processing. On April 11, 2001, the Company acquired Dallas Semiconductor Corporation (Dallas Semiconductor), a leading supplier of specialty semiconductors. At the completion of the merger, Dallas Semiconductor became a wholly owned subsidiary of the Company. The transaction was accounted for as a pooling-of-interests for financial reporting purposes in accordance with accounting principles generally accepted in the United States, and accordingly, all financial data of the Company presented in these financial statements has been restated to include the historical financial data of Dallas Semiconductor. See Note 3 of the Notes to Consolidated Financial Statements regarding this transaction. 2. Summary of Significant Accounting Policies: Basis of presentation: The consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated. The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June. Accordingly, every sixth or seventh fiscal year will be a 53-week fiscal year. Fiscal years 2000 and 1999 were 52-week years. Fiscal year 2001 was a 53-week year. The impact of the additional week on the Company's operating results consisted primarily of additional salary-related expenses. These additional expenses were not material. Cash equivalents and short-term investments: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of demand accounts, government securities, and money market funds. Short-term investments consist of U.S. Treasury and Federal Agency debt securities, corporate notes, and municipal bonds with original maturities beyond three months. All of the Company's cash equivalents and short-term investments are considered available-for-sale. Such securities are carried at fair market value based on market quotes. Unrealized gains and losses, net of tax, on securities in this category are reported as a separate component of stockholders' equity. The cost of securities sold is based on the specific identification method. Interest earned on securities is included in interest income. 24 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivative financial instruments held for purposes other than trading: The Company enters into forward exchange contracts to hedge certain firm sales commitments denominated in foreign currencies and the net monetary assets and liabilities of its foreign subsidiaries. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash flows resulting from the sale of products to international customers will be adversely affected by changes in exchange rates. The Company accounts for its forward exchange contracts under the provisions of Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." The Company recognizes all derivatives on the balance sheet at fair value. The Company does not enter into any forward exchange contracts not designated as hedges. The criteria the Company uses for designating an instrument as a hedge includes the instrument's effectiveness in risk reduction, and one-to-one matching of derivative instruments to underlying transactions. Gains and losses on forward exchange contracts that are designated and effective as hedges of anticipated transactions, for which a firm commitment has been attained, are deferred and recognized in Other Comprehensive Income until the underlying transaction is recognized in earnings. Gains and losses on forward exchange contracts generally offset gains and losses on the underlying transactions. The Company adopted SFAS 133 as of the beginning of fiscal 2001. The effect of adopting SFAS 133 did not have a material effect on the Company's financial position or results of operations. Inventories: Inventories are stated at the lower of standard cost, which approximates actual costs using the first in, first out method, or market. Property, plant and equipment: Property, plant and equipment are stated at cost. Depreciation is computed on the straight line method over the estimated useful lives of the assets, which range from 2 to 40 years. Leasehold improvements are amortized over the lesser of their useful lives or the remaining term of the related lease. The Company evaluates its property, plant and equipment in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company performs periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amount of property, plant and equipment might not be fully recoverable. If facts and circumstances indicate that the carrying amount of property, plant and equipment might not be fully recoverable, the Company compares the projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful life against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Revenue recognition: Revenue from product sales direct to customers is generally recognized upon the transfer of title. A portion of the Company's sales are made to domestic distributors under agreements which provide for certain sales price rebates and limited product return privileges. As a result, the Company defers recognition of such sales until the merchandise is sold by the domestic distributors. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Securities and Exchange Commission (SEC) issued in December 1999 SEC Staff Accounting Bulletin No. 101 (SAB101), "Revenue Recognition in Financial Statements." SAB101 was adopted by the Company in the fourth quarter of fiscal 2001. The effect of adopting SAB101 did not have a material effect on the Company's financial position or results of operations. Foreign currency translation and remeasurement: The U.S. dollar is the functional currency for the Company's foreign operations. Using the U.S. dollar as the functional currency, monetary assets and liabilities are remeasured at the year-end exchange rates. Certain non-monetary assets and liabilities are remeasured using historical rates. Statements of operations are remeasured at the average exchange rates during the year. Net gains and losses from foreign currency remeasurements have been minimal and are included in selling, general and administrative expenses. During fiscal 1999, the Company changed the functional currency of its foreign operations having the local currency as the functional currency to the U.S. dollar to reflect the significance of U.S. dollar-based revenues for its foreign operations. This change did not have a material impact on the Company's financial position or results of operations. Employee stock plans: The Company accounts for its stock option and employee stock purchase plans in accordance with provisions of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In addition, the Company discloses pro forma information related to its stock plans according to Financial Accounting Standards Board Statement No. 123 (SFAS 123), "Accounting for Stock Based Compensation." See Note 9 of "Notes To Consolidated Financial Statements." Earnings per share: Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and other potentially dilutive securities. The number of incremental shares from the assumed issuance of stock options and other potentially dilutive securities is calculated applying the treasury stock method. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to the useful lives and fair value of fixed assets, allowances for doubtful accounts and customer returns, inventory reserves, potential reserves relating to litigation matters, accrued liabilities, and other reserves. Actual results may differ from those estimates, and such differences may be material to the financial statements. Concentration of credit risk: Due to the Company's credit evaluation and collection process, bad debt expenses have not been significant. Credit risk with respect to trade receivables is limited, because a large number of geographically diverse customers make up the Company's customer base, thus spreading the credit risk. While a significant portion 26 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of the Company's revenues is made through domestic and international distributors, no single customer has accounted for greater than 10% of net revenues in the last three fiscal years. The Company places its investments with high credit quality financial institutions, limits the amount of credit exposure to any one financial institution or instrument, and is exposed to credit risk in the event of default by these institutions to the extent of amounts recorded at the balance sheet date. To date, the Company has not experienced losses on any investments. Concentration of other risks: The semiconductor industry is characterized by rapid technological change, competitive pricing pressures, and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, both at home and abroad; economic conditions specific to the semiconductor industry and to the analog portion of that industry; demand for the Company's products; the timely introduction of new products; implementation of new manufacturing technologies; manufacturing capacity; the ability to manufacture efficiently; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on assembly and, to a small extent, wafer fabrication subcontractors and on independent distributors and sales representatives. As a result, the Company may experience substantial period-to-period fluctuations in future operating results due to the factors mentioned above or other factors. 3. Business Combination: On April 11, 2001, the Company acquired Dallas Semiconductor, a leading supplier of specialty semiconductors. The Company issued approximately 41.0 million shares of its common stock in exchange for all the outstanding common stock of Dallas Semiconductor. In addition, the Company exchanged all options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9 million shares of the Company's common stock. The transaction was accounted for as a pooling-of-interests and qualifies as a tax-free reorganization. As a result of the acquisition, during the fourth quarter of fiscal 2001, the Company recorded merger costs of $26.4 million. In addition, the Company recorded special charges of $137.0 million in the fourth quarter of fiscal 2001. The special charges resulted from the significant decrease in demand that occurred during the fourth quarter of fiscal 2001 for Dallas Semiconductor products in combination with the Company's plan for the utilization of Dallas Semiconductor's long-lived assets. See "Merger and Special Charges" in Note 13 of the Notes to Consolidated Financial Statements. All financial data of the Company presented in these financial statements has been restated to include the historical financial data of Dallas Semiconductor in accordance with accounting principles generally accepted in the United States and pursuant to Regulation S-X of the Securities and Exchange Commission. Adjustments relating to deferral of income on shipments to distributors were required to conform the accounting policies of the acquired company. Both the Company and Dallas Semiconductor have sales to domestic distributors under agreements that provide for certain price rebates, allowances and return privileges. The Company defers recognition of these sales until the merchandise is sold by the domestic distributors. Dallas Semiconductor recognized these sales, which were reduced by estimated future price reductions and returns, upon shipment to domestic distributors. These adjustments reflect the conformity of Dallas Semiconductor's accounting policies and presentation to that of the Company's. 27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company and Dallas Semiconductor had certain differences in the classification of revenues and expenses in their historical statements of operations and assets and liabilities in their historical balance sheets. Adjustments have been made to conform the combined companies' income statement and balance sheet classifications. In addition, the lives of the property, plant and equipment acquired as part of the merger with Dallas Semiconductor were conformed to the lives used by the Company as appropriate. The change, which was prospective in nature, reflects the Company's anticipated economic benefit from those assets. The Company's statement of income for the fiscal year ended June 26, 1999 has been combined with the Dallas Semiconductor statement of income for the fiscal year ended January 2, 2000. The Company's statement of income for the fiscal year ended June 24, 2000 has been combined with the Dallas Semiconductor statement of income for the fiscal year ended December 31, 2000. The Company's statement of income for the fiscal year ended June 30, 2001 includes the results of operations for Dallas Semiconductor for the 12 months ended June 30, 2001. This presentation has the effect of including Dallas Semiconductor's results of operations for the 6-month period ended December 31, 2000 in both the Company's fiscal years ended June 24, 2000 and June 30, 2001. Net revenues and net income for Dallas Semiconductor for the 6-month period ended December 31, 2000, were $270.4 million and $48.9 million, respectively. The net income for Dallas Semiconductor for the 6-month period ended December 31, 2000, of $48.9 million has been reported as a decrease to the Company's fiscal 2001 retained earnings within the Consolidated Statement of Stockholders' Equity for the year ended June 30, 2001. The Company's balance sheet as of June 24, 2000 was combined with Dallas Semiconductor's balance sheet as of December 31, 2000. The combining periods for the Consolidated Statements of Income are summarized as follows:
Fiscal 2001 Quarterly Periods Fiscal 1999 Fiscal 2000 --------------------------------------------------------------- Year Ended Year Ended First Second Third Fourth ------------- ------------- -------------- ------------- ------------- ------------- Maxim June 26, 1999 June 24, 2000 Sept. 23, 2000 Dec. 30, 2000 Mar. 31, 2001 June 30, 2001 Dallas Semiconductor Jan. 2, 2000 Dec. 31, 2000 Oct. 1, 2000 Dec. 31, 2000 Apr. 1, 2001 June 30, 2001
The results of operations previously reported by the separate entities and the combined amounts presented in the accompanying financial statements are summarized below:
(Amounts in thousands) For the years ended June 24, 2000 June 26, 1999 ------------- ------------- Net Revenues: Maxim $ 864,924 $ 606,965 Dallas Semiconductor 516,965 390,207 Adjustments to conform accounting policies (8,116) 3,443 Reclassifications to conform financial statement presentation 2,312 2,234 ----------- ---------- Combined $ 1,376,085 $1,002,849 ----------- ---------- Net Income: Maxim $ 280,619 $ 196,122 Dallas Semiconductor 95,415 68,338 Adjustments to conform accounting policies (2,951) 821 ----------- ---------- Combined $ 373,083 $ 265,281 ----------- ----------
28 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Financial Instruments: Investments: In accordance with Statement of Financial Accounting Standard No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," the Company recorded an unrealized holding gain of $7.2 million on short-term investments at June 30, 2001 ($2.2 million at June 24, 2000). The unrealized holding gain resulted from a decline in interest rates that occurred during the third and fourth quarters of fiscal 2001. Fair market values are calculated based upon prevailing market quotes at the end of each fiscal year. Available-for-sale investments at June 30, 2001 were as follows:
Unrealized Unrealized Estimated (Amounts in thousands) Cost Gain Loss Fair Value ---------- ---------- ---------- ---------- U.S. Treasury securities $ 424,014 $1,551 $ -- $ 425,565 Federal Agency Debt securities 525,097 2,018 -- 527,115 Corporate notes 98,455 2,076 -- 100,531 Municipal bonds 71,830 1,515 -- 73,345 ---------- ---------- ---------- ---------- $1,119,396 $7,160 $ -- $1,126,556 ---------- ---------- ---------- ----------
Available-for-sale investments at June 24, 2000 were as follows:
Unrealized Unrealized Estimated (Amounts in thousands) Cost Gain Loss Fair Value ---------- ---------- ---------- ---------- U.S. Treasury securities $ 290,023 $ -- $ -- $ 290,023 Federal Agency Debt securities 297,866 -- -- 297,866 Corporate notes 187,753 1,877 -- 189,630 Municipal bonds 36,891 309 -- 37,200 ---------- ---------- ---------- ---------- $ 812,533 $2,186 $ -- $ 814,719 ---------- ---------- ---------- ----------
Gross realized gains or losses for fiscal 2001, 2000, and 1999 were immaterial. The amortized cost and estimated fair value of investments in debt securities at June 30, 2001, by contractual maturity, were as follows:
Estimated (Amounts in thousands) Cost Fair Value ---------- ---------- Due in 1 year or less $ 969,643 $ 973,399 Due in 1-2 years 58,883 60,526 Due in 2-4 years 45,446 46,428 Due after 4 years 45,424 46,203 ---------- ---------- $1,119,396 $1,126,556 ---------- ----------
29 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Foreign exchange contracts: At June 30, 2001, the Company held forward exchange contracts, all having maturities of less than one year, to exchange various foreign currencies for U.S. dollars in the amount of $63.6 million. The table below summarizes, by currency, the notional amounts of the Company's forward exchange contracts and net unrealized gain or loss at the end of fiscal 2001 and 2000. The net unrealized gain or loss approximates the carrying value of these contracts.
JUNE 30, 2001 June 24, 2000 ----------------------------- ----------------------------- NOTIONAL UNREALIZED NOTIONAL UNREALIZED (Amounts in thousands) AMOUNTS GAIN/(LOSS) AMOUNTS GAIN/(LOSS) -------- ----------- -------- ----------- Currency: Japanese Yen $30,089 $ 1,084 $59,326 $ 1,593 British Pound Sterling 18,295 356 20,307 612 Euro 14,659 648 19,045 555 Swiss Franc 552 27 477 (8) ------- ------- ------- ------- $63,595 $ 2,115 $99,155 $ 2,752 ------- ------- ------- -------
The net unrealized gain is potentially subject to market and credit risk as it represents appreciation of the hedge position over spot exchange rates at year end. The Company controls credit risk through credit approvals and monitoring procedures. 5. Inventories: The components of inventories are:
(Amounts in thousands) JUNE 30, 2001 June 24, 2000 ------------- ------------- Raw materials $ 21,893 $ 21,333 Work-in-process 91,727 72,485 Finished goods 49,036 45,859 -------- -------- $162,656 $139,677 -------- --------
6. Property, Plant and Equipment: Property, plant and equipment consist of:
(Amounts in thousands) JUNE 30, 2001 June 24, 2000 ------------- ------------- Land $ 52,596 $ 51,344 Buildings and building improvements 307,774 247,932 Machinery and equipment 1,048,176 848,776 ----------- ----------- 1,408,546 1,148,052 ----------- ----------- Less accumulated depreciation (696,507) (470,064) ----------- ----------- $ 712,039 $ 677,988 ----------- -----------
During fiscal 2001, the Company recorded charges of $39.2 million to cost of goods sold and $11.2 million to research and development costs to reduce the carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation. In addition, in the fourth quarter of fiscal 2001, the Company recorded impairment charges of $124.4 million related to the long-lived assets of Dallas Semiconductor. See Note 13 of the Notes to Consolidated Financial Statements. During fiscal 2000, the Company recorded charges of $27.1 million to cost of goods sold and $8.1 million to research and development costs to reduce the carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation. 30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Commitments and Contingencies: The Company is a defendant in a patent infringement lawsuit that alleges that certain of the Company's products infringe a United States patent owned by the plaintiff in the lawsuit. The lawsuit is in the discovery phase, with a jury trial on the issues of liability and willfulness likely to occur in calendar 2002. In addition, the Company is subject to other legal proceedings and claims that arise in the normal course of its business. The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position of the Company. The Company leases certain of its facilities under various operating leases that expire at various dates through 2010. The lease agreements generally include renewal provisions and require the Company to pay property taxes, insurance, and maintenance costs. Future annual minimum lease payments for all leased facilities are as follows:
Fiscal Year (Amounts in thousands) ---------------------- 2002 $ 3,122 2003 2,436 2004 1,640 2005 1,054 2006 691 2007-2010 1,194 ------- $10,137 -------
Rent expense was approximately $3.7 million, $2.7 million and $2.0 million in fiscal 2001, 2000, and 1999, respectively. 8. Comprehensive Income: Comprehensive income consists of net income and net unrealized gains on available-for-sale investments and forward exchange contracts. The components of other comprehensive income and related tax effects were as follows:
(Amounts in thousands) For the years ended JUNE 30, 2001 June 24, 2000 ------------- ------------- Change in unrealized gains on investments, net of tax of $2,618 in 2001 and $809 in 2000 $ 4,598 $1,377 Change in unrealized gains on forward exchange contracts, net of tax of $209 in 2001 406 -- Adjustment to conform fiscal year of pooled entity (1,377) -- ------- ------ $ 3,627 $1,377 ------- ------
Accumulated other comprehensive income presented in the Consolidated Balance Sheets consists of the accumulated net unrealized gains on available-for-sale investments and forward exchange contracts and the accumulated foreign currency translation adjustments. Foreign currency translation adjustments are not tax affected. 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Employee Stock and Benefit Plans: Stock option and purchase plans: At June 30, 2001, the Company has reserved a total of 93,343,721 of its common shares for issuance to employees and certain others under its 1996 Stock Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1983 Incentive Stock Option Plan, 1987 Employee Stock Participation Plan (ESP Plan), 1988 Nonemployee Director Stock Option Plan, and Supplemental Nonemployee Stock Option Plan. Under the plans, options are generally granted at a price not less than fair market value as determined by the Board or Plan administrator at the date of grant. Subject to certain limitations, the Board or Plan administrator has authority to make grants at prices less than fair market value. Options granted under the stock option plans described above generally vest within 5 years and expire from 5 to 10 years from the date of the grant or such shorter term as may be provided in the agreement. Under the 1987 Employee Stock Participation Plan and the Dallas Semiconductor Stock Purchase Plan, employees of the Company may purchase shares of common stock at a price not less than the lesser of 85% of the fair market value of the stock on the date the purchase right is granted or the date the right is exercised. During fiscal 2001, the Company recorded $238,934,000 of tax benefit on the exercise of nonqualified stock options and on disqualifying dispositions under stock plans ($154,958,000 in fiscal 2000 and $137,062,000 in fiscal 1999). Information with respect to activity under the stock option plans and ESP Plan is set forth below:
Outstanding Options ----------------------------------- Shares Weighted Average Available Number of Price for Grant Shares Per Share ----------- ----------- ---------------- BALANCE, JUNE 27, 1998 3,073,242 96,761,269 $ 6.39 Shares reserved 16,878,418 -- -- Options granted (17,438,391) 17,438,391 $18.64 Options terminated 5,763,082 (5,763,082) $ 9.22 Options exercised -- (18,233,079) $ 3.40 ----------- ----------- ------ BALANCE, JUNE 26, 1999 8,276,351 90,203,499 $ 9.11 Shares reserved 14,910,256 -- -- Options granted (14,571,524) 14,571,524 $39.77 Options terminated 3,443,779 (3,443,779) $14.70 Options exercised -- (18,130,266) $ 4.75 ----------- ----------- ------ BALANCE, JUNE 24, 2000 12,058,862 83,200,978 $14.86 Adjustment to conform fiscal year of pooled entity (2,374,944) (941,841) -- Shares reserved 13,607,256 -- -- Options granted (23,022,427) 23,022,427 $46.78 Options terminated 3,789,540 (3,789,540) $25.31 Options exercised -- (12,206,590) $ 9.44 ----------- ----------- ------ BALANCE, JUNE 30, 2001 4,058,287 89,285,434 $24.20 ----------- ----------- ------
At June 30, 2001, 33,070,686 options to purchase shares of common stock were exercisable. Options exercisable at June 24, 2000 and June 26, 1999 were 32,811,193 and 36,716,962, respectively. 32 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about options outstanding at June 30, 2001:
Outstanding Options Options Exercisable ------------------------------------------------- -------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Prices June 30, 2001 Life (Years) Price June 30, 2001 Price --------------- -------------- ---------------- -------- -------------- -------- $ 0.45 - $7.47 18,705,447 3.03 $ 3.72 16,968,806 $ 3.52 $ 7.48 - $14.53 20,450,192 5.67 $11.48 10,713,391 $10.20 $14.68 - $33.50 19,487,013 7.27 $21.73 3,341,285 $20.32 $33.53 - $48.63 18,752,867 9.32 $39.57 1,403,294 $38.32 $48.96 - $87.06 11,889,915 9.08 $58.09 643,910 $58.53 --------------- ---------- ------ ------ ---------- ------ $ 0.45 - $87.06 89,285,434 6.69 $24.20 33,070,686 $ 9.93 --------------- ---------- ------ ------ ---------- ------
Stock-based compensation: Under SFAS 123, the Company may elect to continue to account for the grant of stock options under APB Opinion 25, in which options granted with an exercise price equal to the fair market value on the date of grant do not require recognition of expense in the Company's financial statements. Under SFAS 123, the Company is, however, required to provide pro forma disclosure regarding net income and earnings per share as if the Company had accounted for its employee stock options (including shares issued under the 1996 Stock Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1988 Nonemployee Director Stock Option Plan, and Supplemental Nonemployee Stock Option Plan, collectively called "options") granted subsequent to June 30, 1995, under the methodology prescribed by that statement. Since the Company has elected to account for the grant of options under APB Opinion No. 25, the following information is for disclosure purposes only and it will not affect the current or future earnings of the Company. The valuation of options granted in fiscal 2001, 2000, and 1999 reported below has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Stock Option Plans Employee Stock Participation Plan ----------------------------------- ----------------------------------- Fiscal year 2001 2000 1999 2001 2000 1999 ------- ------- ------- ------- ------- ------- Expected option holding period (in years) 4.5 4.6 4.6 0.5 0.5 0.5 Risk-free interest rate 5.1% 5.9% 6.0% 5.1% 5.6% 5.4% Stock price volatility 0.59 0.54 0.50 0.59 0.54 0.50 Dividend yield .04% .05% .05% .04% .05% .05%
The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate of value, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the value of the options. The following is a summary of weighted average grant date values generated by application of the Black-Scholes model: 33 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted Average Grant Date Value For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------------- ------------- ------------- ------------- Stock Option Plans $23.86 $20.93 $ 9.39 Employee Stock Participation Plan $12.29 $ 7.82 $ 4.88 ------ ------ ------
As required under SFAS 123, the reported net income and earnings per share have been presented to reflect the impact had the Company been required to include the amortization of the Black-Scholes option value as an expense. The adjusted amounts are as follows:
For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------------- ----------- ----------- ----------- Pro forma net income adjusted for SFAS 123 (in thousands) $ 205,414 $ 292,567 $ 221,219 ----------- ----------- ----------- Pro forma diluted earnings per share adjusted for SFAS 123 $ 0.57 $ 0.81 $ 0.64 ----------- ----------- -----------
401(k) retirement plan: The Company sponsors a 401(k) retirement plan [401(k) Plan] under which full-time U.S. employees may contribute, on a pretax basis, between 1% and 20% of their total annual income from the Company, subject to a maximum aggregate annual contribution imposed by the Internal Revenue Code. Company contributions to the 401(k) Plan were $3.0 million, $2.5 million, and $1.7 million in fiscal 2001, 2000, and 1999, respectively. 10. Earnings Per Share: The following table sets forth the computation of basic and diluted earnings per share: (Amounts in thousands, except per share data)
For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------------- ------------- ------------- ------------- Numerator for basic earnings per share and diluted earnings per share Net Income $334,939 $373,083 $265,281 -------- -------- -------- Denominator for basic earnings per share 325,736 316,887 303,038 Effect of dilutive securities: Stock options and warrants 35,884 42,661 41,322 -------- -------- -------- Denominator for diluted earnings per share 361,620 359,548 344,360 -------- -------- -------- Earnings per share: Basic $ 1.03 $ 1.18 $ 0.88 Diluted $ 0.93 $ 1.04 $ 0.77 -------- -------- --------
11. Income Taxes: The provision for income taxes consists of the following: (Amounts in thousands)
For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------------- --------- --------- --------- Federal Current $ 175,874 $ 192,570 $ 119,668 Deferred (22,800) (27,835) (4,667) State Current 16,195 21,010 13,754 Deferred (2,100) (1,845) (207) Foreign Current 3,313 4,260 4,289 Deferred (433) (26) -- --------- --------- --------- $ 170,049 $ 188,134 $ 132,837 --------- --------- ---------
34 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pretax income from foreign operations was approximately $9.2 million, $17.4 million, and $12.6 million for the years ended June 30, 2001, June 24, 2000, and June 26, 1999, respectively. The Company enjoys tax holidays with respect to its operations in the Philippines and Thailand that will expire in fiscal 2002 and 2004, respectively. The impact of these tax holidays was to increase net income by approximately $1.1 million ($0.003 diluted earnings per share), $2.7 million ($0.008 diluted earnings per share), and $1.1 million ($0.003 diluted earnings per share) during fiscal 2001, 2000, and 1999, respectively. At June 30, 2001, accumulated pretax earnings of approximately $12.5 million are intended to be permanently reinvested outside the United States, and no federal tax has been provided on these earnings. The provision for income taxes differs from the amount computed by applying the statutory rate as follows:
For the years ended JUNE 30, 2001 June 24, 2000 June 26, 1999 ------------------- ------------- ------------- ------------- Federal statutory rate 35.0% 35.0% 35.0% State tax, net of federal benefit 1.8 2.1 2.2 General business credits (1.3) (0.8) (0.9) Exempt earnings of Foreign Sales Corporation (2.5) (2.1) (2.1) Other 0.7 (0.7) (0.8) ---- ---- ---- 33.7% 33.5% 33.4% ---- ---- ----
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities are as follows:
(Amounts in thousands) JUNE 30, 2001 June 24, 2000 ---------------------- --------- --------- Deferred tax assets: Inventory valuation and reserves $ 64,087 $ 32,423 Distributor related accruals and sales return and allowance accruals 37,647 36,860 Deferred revenue 4,745 5,588 Accrued compensation 19,242 20,063 Net operating loss carryovers 84,120 84,087 Tax credit carryovers 52,325 19,100 Other reserves and accruals not currently deductible for tax reporting 22,538 15,787 Other 2,929 4,166 --------- --------- Total deferred tax assets 287,633 218,074 Deferred tax liabilities--fixed assets cost recovery (47,983) (30,496) --------- --------- Net deferred tax assets before valuation allowance 239,650 187,578 Valuation allowance (136,445) (107,913) --------- --------- Net deferred tax assets $ 103,205 $ 79,665 --------- ---------
The valuation allowance of $136.4 million is attributable to the tax benefits on gains realized from the exercise of stock options, and when realized, will be recorded as a credit to additional paid-in capital. Realization of the net deferred tax assets is dependent upon the Company's ability to generate future taxable income. 35 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Segment Information: The Company operates and tracks its results in one reportable segment. The Company designs, develops, manufactures, and markets a broad range of linear and mixed-signal integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." Enterprise-wide information is provided in accordance with SFAS 131. Geographical revenue information is based on the customer's ship-to location. Long-lived assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal year. Net revenues from unaffiliated customers by geographic region were as follows:
(Amounts in thousands) For the years ended JUNE 30 2001 June 24, 2000 June 26, 1999 ---------------------- ---------- ---------- ---------- United States $ 682,670 $ 648,921 $ 470,946 Europe 384,827 298,741 221,824 Pacific Rim 486,407 415,634 298,725 Rest of World 22,709 12,789 11,354 ---------- ---------- ---------- $1,576,613 $1,376,085 $1,002,849 ---------- ---------- ----------
Net long-lived assets by geographic region were as follows:
(Amounts in thousands) JUNE 30, 2001 June 24, 2000 ---------------------- -------- -------- United States $646,519 $622,782 Rest of World 65,520 55,206 -------- -------- $712,039 $677,988 -------- --------
13. Merger and Special Charges: During the fourth quarter of fiscal 2001, the Company recorded merger costs in connection with the acquisition of Dallas Semiconductor of approximately $26.4 million. These costs consist of approximately $14.1 million intended to satisfy the change in control payments under previously existing employment contracts and other non-employee director arrangements for which there was no future economic benefit; a $5.8 million payment to be made under a change in control provision in a previously existing life insurance arrangement for which there was no future economic benefit; and $6.5 million for fees related to investment banking, legal, accounting, filings with regulatory agencies, financial printing, and other related costs. It is expected that substantially all of these direct transaction costs will be paid out of existing cash reserves within 12 months of the consummation of the merger. During the fourth quarter of fiscal 2001, the Company recorded special charges of $137.0 million. These special charges resulted from the significant decrease in demand that occurred during the fourth quarter of fiscal 2001 for Dallas Semiconductor's products in combination with the Company's intention to close Dallas Semiconductor's 6-inch wafer manufacturing facility and dispose of the related equipment. The Company intends to complete construction of an 8-inch wafer manufacturing facility located in Dallas, Texas, that was under construction when the merger was consummated between the Company and Dallas Semiconductor. Once complete, the 8-inch wafer manufacturing facility will serve as Dallas 36 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Semiconductor's primary wafer manufacturing facility. In addition, the Company is concentrating test operations of the combined company at the Company's test facilities located in the Philippines and Thailand. Once complete, certain Dallas Semiconductor test equipment will be disposed of. The Company concluded that the above facts indicated that Dallas Semiconductor's long-lived assets might be impaired, and as required by accounting principles generally accepted in the United States, performed a cash flow analysis of the related assets. Based on the cash flow analysis, the cash flows expected to be generated by Dallas Semiconductor's long-lived assets during their estimated remaining useful lives are not sufficient to recover the net book value of the assets. The Company obtained a valuation report from an independent appraiser of the estimated fair value of the equipment at June 30, 2001, and validated the report with its own knowledge of the semiconductor used equipment market. Based on the cash flow analysis and valuation report, an impairment charge of $124.4 million was recorded to reduce the net book value of Dallas Semiconductor's long-lived assets to fair value. In addition to the above, the Company recorded special charges of $12.6 million to reflect the reorganization of the Company's sales organization, purchase order cancellation fees, and the reduction in the Company's manufacturing workforce. The above actions directly impacted employees in the Company's sales, marketing, and manufacturing organizations. It is expected that 230 employees will be terminated by these actions, of which 93 were terminated and $2.0 million of termination benefits were paid by June 30, 2001. The following table summarizes the activity related to the above actions for the year ended June 30, 2001:
Purchase Order Merger Impairment Cancellation (Amounts in thousands) Costs Charges Severance Fees Other Total -------------------------- -------- --------- ------- ------- ------ --------- Merger and special charges $ 26,434 $ 124,432 $ 2,542 $ 7,797 $2,244 $ 163,449 Non-cash charges (2,622) (124,432) -- -- -- (127,054) Cash payments (15,671) -- (1,989) (284) -- (17,944) -------- --------- ------- ------- ------ --------- Reserve balance at June 30, 2001 $ 8,141 $ -- $ 553 $ 7,513 $2,244 $ 18,451 -------- --------- ------- ------- ------ ---------
14. Subsequent Event (unaudited): Following the extraordinary events that occurred in the United States on September 11, 2001, the Company has authorized the repurchase of up to 10 million shares of its common stock during the five business days following the reopening of the United States securities markets on September 17, 2001. 37 38 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Maxim Integrated Products, Inc. We have audited the accompanying consolidated balance sheets of Maxim Integrated Products, Inc., as of June 30, 2001 and June 24, 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three fiscal years in the period ended June 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Dallas Semiconductor Corporation, a wholly owned subsidiary, which statements reflect total assets of $728.4 million as of December 31, 2000 and total revenues of $517.0 million for the year then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Dallas Semiconductor for the year ended December 31, 2000, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxim Integrated Products, Inc., at June 30, 2001 and June 24, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP San Jose, California August 14, 2001 38 39 SELECTED FINANCIAL DATA (Amounts in thousands, except per share data)
Fiscal Year 2001 2000 1999 1998 1997 ----------------------- ---------- ---------- ---------- ---------- -------- Net revenues $1,576,613 $1,376,085 $1,002,849 $ 904,438 $786,770 ---------- ---------- ---------- ---------- -------- Cost of goods sold $ 537,148 $ 503,801 $ 379,242 $ 346,071 $315,864 Gross margin % 65.9% 63.4% 62.2% 61.7% 59.9% ---------- ---------- ---------- ---------- -------- Operating income $ 445,166 $ 508,560 $ 370,158 $ 331,959 $281,687 % of net revenues 28.2% 37.0% 36.9% 36.7% 35.8% ---------- ---------- ---------- ---------- -------- Net income $ 334,939 $ 373,083 $ 265,281 $ 234,000 $197,048 ---------- ---------- ---------- ---------- -------- Earnings per share: Basic $ 1.03 $ 1.18 $ 0.88 $ 0.79 $ 0.69 Diluted $ 0.93 $ 1.04 $ 0.77 $ 0.69 $ 0.60 ---------- ---------- ---------- ---------- -------- Shares used in the calculation of earnings per share: Basic 325,736 316,887 303,038 296,151 286,309 Diluted 361,620 359,548 344,360 340,356 329,890 ---------- ---------- ---------- ---------- -------- Dividends declared per share $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.01 ---------- ---------- ---------- ---------- -------- Cash, cash equivalents and short-term investments $1,220,352 $ 896,936 $ 710,074 $ 453,302 $340,372 Working capital $1,373,715 $1,045,548 $ 886,697 $ 589,340 $469,382 Total assets $2,430,531 $2,087,438 $1,603,122 $1,242,190 $985,858 Stockholders' equity $2,101,154 $1,719,939 $1,369,449 $1,034,422 $804,845 ---------- ---------- ---------- ---------- --------
Net income for fiscal 2001 included merger and special charges of $163.4 million ($0.30 diluted earnings per share). Excluding the merger and special charges noted above, net income and diluted net income per share would have been $442.8 million and $1.22, respectively, for the year ended June 30, 2001. See Note 13 to the Notes to Consolidated Financial Statements for additional information on the "Merger and Special Charges." 39 40 FINANCIAL HIGHLIGHTS BY QUARTER Unaudited (Amounts in thousands, except per share data)
Quarter Ended Fiscal 2001 6/30/01 3/31/01 12/30/00 9/23/00 --------------------- ------------ ------------ ------------ ------------ Net revenues $ 318,147 $ 397,840 $ 438,317 $ 422,309 ------------ ------------ ------------ ------------ Cost of goods sold $ 96,231 $ 138,390 $ 154,112 $ 148,415 Gross margin % 69.8% 65.2% 64.8% 64.9% ------------ ------------ ------------ ------------ Operating income (loss) $ (40,671) $ 150,835 $ 169,259 $ 165,743 % of net revenues (12.8%) 37.9% 38.6% 39.2% ------------ ------------ ------------ ------------ Net income (loss) $ (16,166) $ 109,856 $ 122,176 $ 119,073 ------------ ------------ ------------ ------------ Earnings (loss) per share: Basic $ (0.05) $ 0.34 $ 0.38 $ 0.37 Diluted $ (0.05) $ 0.31 $ 0.34 $ 0.33 ------------ ------------ ------------ ------------ Shares used in calculation of earnings (loss) per share: Basic 328,789 326,716 324,491 322,946 Diluted 328,789 360,071 361,563 364,493 ------------ ------------ ------------ ------------ Dividends declared per share $ -- $ 0.006 $ 0.006 $ 0.006 ------------ ------------ ------------ ------------ Market price range - High $ 58.40 $ 69.06 $ 85.06 $ 87.69 - Low $ 34.92 $ 41.59 $ 47.75 $ 62.19 ------------ ------------ ------------ ------------
Quarter Ended Fiscal 2000 6/24/00 3/25/00 12/25/99 9/25/99 --------------------- ------------ ------------ ------------ ------------ Net revenues $ 389,823 $ 363,754 $ 324,678 $ 297,830 ------------ ------------ ------------ ------------ Cost of goods sold $ 141,084 $ 132,538 $ 119,066 $ 111,113 Gross margin % 63.8% 63.6% 63.3% 62.7% ------------ ------------ ------------ ------------ Operating income $ 141,574 $ 135,016 $ 120,904 $ 111,066 % of net revenues 36.3% 37.1% 37.2% 37.3% ------------ ------------ ------------ ------------ Net income $ 106,010 $ 100,503 $ 86,709 $ 79,861 ------------ ------------ ------------ ------------ Earnings per share: Basic $ 0.33 $ 0.32 $ 0.28 $ 0.26 Diluted $ 0.29 $ 0.28 $ 0.24 $ 0.22 ------------ ------------ ------------ ------------ Shares used in calculation of earnings per share: Basic 321,602 318,733 314,714 312,497 Diluted 363,358 361,834 357,537 355,463 ------------ ------------ ------------ ------------ Dividends declared per share $ 0.006 $ 0.006 $ 0.006 $ 0.006 ------------ ------------ ------------ ------------ Market price range - High $ 75.69 $ 73.69 $ 47.94 $ 36.91 - Low $ 50.31 $ 45.50 $ 31.55 $ 30.13 ------------ ------------ ------------ ------------
Net income for the quarter ended June 30, 2001, included merger and special charges of $163.4 million ($0.30 diluted earnings per share). Excluding the merger and special charges noted above, net income and diluted net income per share would have been $91.7 million and $0.25, respectively, for the quarter ended June 30, 2001. See Note 13 to the Notes to Consolidated Financial Statements for additional information on the "Merger and Special Charges." 40 41 BOARD OF DIRECTORS, CORPORATE OFFICERS, AND VICE PRESIDENTS BOARD OF DIRECTORS John F. Gifford Chairman of the Board, President and Chief Executive Officer James R. Bergman Director General Partner of DSV Partners B. Kipling Hagopian Director Special Limited Partner of Brentwood Venture Capital Partner, Apple/Oaks Partners LLC Eric P. Karros Director Los Angeles Dodgers Organization A. R. Frank Wazzan, Ph.D. Director Distinguished Professor and Dean Emeritus, School of Engineering & Applied Sciences at University of California, Los Angeles M.D. Sampels Director Shareholder in Jenkens & Gilchrist, a Professional Corporation CORPORATE OFFICERS AND VICE PRESIDENTS John F. Gifford Chairman of the Board, President and Chief Executive Officer Frederick G. Beck Vice President Tunc Doluca Vice President Laszlo V. Gal, Ph.D. Vice President Robi B. Georges Vice President Parviz Ghaffaripour Vice President Anthony C. Gilbert Corporate Secretary Jennifer E. Gilbert Vice President Alan P. Hale Vice President Richard C. Hood Vice President Kenneth J. Huening Vice President Carl W. Jasper Vice President and Chief Financial Officer Nasrollah Navid, Ph.D. Vice President Pirooz Parvarandeh Vice President Charles G. Rigg Vice President Robert F. Scheer Vice President Sharon E. Smith-Lenox Corporate Controller and Principal Accounting Officer Vijay Ullal Vice President 41 42 CORPORATE DATA STOCKHOLDER INFORMATION INDEPENDENT AUDITORS Ernst & Young LLP San Jose, California LEGAL COUNSEL Morrison & Foerster LLP Palo Alto, California REGISTRAR/TRANSFER AGENT EquiServe Trust Company, N.A. Boston, Massachusetts CORPORATE HEADQUARTERS 120 San Gabriel Drive Sunnyvale, California 94086 (408) 737-7600 FORM 10-K A copy of the Company's Form 10-K filed with the Securities & Exchange Commission, without exhibits, is available without charge upon writing to: Stockholder Relations Maxim Integrated Products, Inc. 120 San Gabriel Drive Sunnyvale, California 94086 STOCK LISTING At June 30, 2001, there were approximately 2,260 stockholders of record of the Company's common stock. Maxim common stock is traded on the Nasdaq National Market under the symbol MXIM. The Company has paid cash dividends on its common stock in the past but has no present plans to do so in the future. ANNUAL MEETING The annual meeting of stockholders will be on Thursday, November 15, 2001 at 11:00 a.m. at the Company's Event Center, 433 North Mathilda Avenue, Sunnyvale, California 94086. 42 EX-21.1 19 f75694ex21-1.txt EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY
Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- Maxim Integrated Products England UK Limited Maxim GmbH Germany Maxim SARL France Maxim Japan Co., Ltd. Japan Maxim Integrated Products Korea, Inc. Korea Maxim Phil. Assembly Corporation Philippines Maxim Phil. Operating Corporation Philippines Maxim Phil. Holding Corporation Philippines Maxim Phil. Land Corporation * Philippines * This Subsidiary is 40% owned by the Registrant. Maxim Integrated Products Switzerland Switzerland AG Maxim Integrated Products Thailand (Thailand) Co., Ltd. Maxim Dallas/Direct, Inc. United States Maxim International, Inc. U. S. Virgin Islands Dallas Semiconductor Corporation Delaware Dallas Semiconductor Corporation (Germany) Delaware Dallas Semiconductor Corporation (Taiwan) Delaware
2
Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- Dallas Semiconductor FSC Corporation Barbados Dallas Semiconductor Limited United Kingdom Dallas Semiconductor Philippines, Inc. Philippines Dallas Semiconductor GmbH Germany Dallas Semiconductor Asia Limited Hong Kong Proximity Devices Corporation Delaware Chartec Laboratories A/S Denmark Chartec Laboratories Holding ApS Denmark Chartec, Inc. Delaware
EX-23.1 20 f75694ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Maxim Integrated Products, Inc. of our report dated August 14, 2001, included in the 2001 Annual Report to Stockholders of Maxim Integrated Products, Inc. Our audits also included the consolidated financial statement schedule of Maxim Integrated Products, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. We did not audit the financial statement schedule of Dallas Semiconductor Corporation, a wholly-owned subsidiary, which schedule reflects Additions Charged to Costs and Expenses, Deductions, and a Balance at End of Period of $1,000, $4000, and $477,000 as of and for the year ended December 31, 2000, respectively. That schedule was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Dallas Semiconductor for the year ended December 31, 2000, is based solely on the report of the other auditors. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole and the report of other auditors, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-88535, 33-57849, 33-72186, 33-54026, 33-44485, 33-37470, 33-37469, 33-34728, 33-34519, 33-25639, 33-22147, and 333-58772) pertaining to the 1996 Stock Incentive Plan, the 1993 Incentive Stock Option Plan, the 1983 Supplemental Nonemployee Stock Option Plan, the 1987 Supplemental Stock Option Plan, the 1987 Employee Stock Option Participation Plan, the 1988 Nonemployee Director Stock Option Plan, the Amended and Restated 1987 Stock Option Plan, and the 1993 Officer and Director Stock Option Plan of Maxim Integrated Products, Inc. of our report dated August 14, 2001, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the consolidated financial statement schedule included in this Annual Report (Form 10-K) of Maxim Integrated Products, Inc. /s/ Ernst & Young LLP --------------------- San Jose, California September 21, 2001 EX-23.2 21 f75694ex23-2.txt EXHIBIT 23.2 1 EXHIBIT 23.2 Consent of KPMG LLP, Independent Certified Public Accountants The Board of Directors Maxim Integrated Products, Inc.: We consent to the incorporation by reference in the Registration Statements previously filed on Form S-8 (Nos. 333-88535, 33-57849, 33-72186, 33-54026, 33-44485, 33-37470, 33-37469, 33-34728, 33-34519, 33-25639, 33-22147, and 333-58772) of our report dated January 12, 2001, except for Note 7 which is as of January 28, 2001, with respect to the consolidated balance sheet of Dallas Semiconductor Corporation as of December 31, 2000, and the related consolidated statements of income, stockholders' equity, cash flows and financial statement schedule for the year then ended, which report appears in the December 31, 2000 annual report on Form 10-K of Dallas Semiconductor Corporation and has been filed as an exhibit to the annual report on Form 10-K of Maxim Integrated Products, Inc. for the fiscal year ended June 30, 2001. /s/ KPMG LLP Dallas, Texas September 21, 2001 EX-99.1 22 f75694ex99-1.txt EXHIBIT 99.1 1 EXHIBIT 99.1 REPORT OF KPMG LLP To the Board of Directors and Stockholders: We have audited the accompanying consolidated balance sheet of Dallas Semiconductor Corporation and subsidiaries as of December 31, 2000 and the related consolidated statements of income, stockholders' equity, and cash flows for the fiscal year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14(a) as of and for the year ended December 31, 2000. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dallas Semiconductor Corporation and subsidiaries at December 31, 2000, and the consolidated results of their operations and their cash flows for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related consolidated financial statement schedule as of and for the year ended December 31, 2000, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ KPMG LLP Dallas, Texas January 11, 2001, except for Note 7 which is as of January 28, 2001