Atmel Corporation Form 10-K 12/31/02

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MCGb2jgYBrhFB0ZaOFvFSc4wMxQ8G24/sfVltsFUKa5L50vrkD9aKZSJysNkgjDc wPFQp+bSpAWgk4GFFXdzxw== 0000891618-03-001385.txt : 20030324 0000891618-03-001385.hdr.sgml : 20030324 20030324164653 ACCESSION NUMBER: 0000891618-03-001385 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATMEL CORP CENTRAL INDEX KEY: 0000872448 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770051991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19032 FILM NUMBER: 03614302 BUSINESS ADDRESS: STREET 1: 2325 ORCHARD PKWY CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084410311 MAIL ADDRESS: STREET 1: 2325 ORCHARD PKWY CITY: SAN JOSE STATE: CA ZIP: 95131 10-K 1 f88663e10vk.htm FORM 10-K Atmel Corporation Form 10-K 12/31/02

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended December 31, 2002
OR


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

Commission file number: 0-19032

ATMEL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		77-0051991
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2325 Orchard Parkway, San Jose, California 95131
(Address of principal executive offices)

Registrant’s telephone number, including area code: (408) 441-0311

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
Preferred Share Right (currently attached to and trading only with the Common
Stock)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ 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. [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [X] NO [ ]

As of June 28, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter, there were 467,823,206 shares of the Registrant’s common stock outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant (based on the closing sale price of such shares on the NASDAQ National Market on June 28, 2002) was approximately $2,358,617,929. Shares of Common Stock held by each officer and director and by each entity that owns 5% or more of the Registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 10, 2003 Registrant had outstanding 468,321,525 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 2003 is incorporated by reference in Part III of this Report on Form 10-K to the extent stated herein.

TABLE OF CONTENTS


	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. CONTROLS AND PROCEDURES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants
Schedule II
INDEX TO EXHIBITS
EXHIBIT 3.2
EXHIBIT 10.2
EXHIBIT 10.4
EXHIBIT 10.6
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 99.1
EXHIBIT 99.2

ITEM 1. BUSINESS

FORWARD LOOKING STATEMENTS

Investors are cautioned that certain statements in this Annual Report on Form 10-K and in the documents incorporated herein by reference are forward looking statements that involve risks and uncertainties. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “views,” and variations of such words and similar expressions are intended to identify such forward looking statements. These statements are based on current expectations and projections about our business and the semiconductor industry and assumptions made by the management and are not guarantees of future performance. Therefore, actual events and results may differ materially from those expressed or forecasted in the forward looking statements due to risk factors identified in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section entitled “Trends, Uncertainties and Risks” on page 27, and similar discussions in our other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward looking statements in this Form 10-K. In this report, all share numbers and per share amounts have been adjusted to reflect our 2-for-1 stock split in the form of a 100% stock dividend to stockholders of record as of August 11, 2000.

BUSINESS

General

Semiconductor integrated circuits (ICs) are key components in almost all electronic products and systems produced today. Their capacity to process and store information gives manufacturers of electronic products a powerful ability to add new features, adapt to changing demands and quickly develop new products. As additional semiconductor elements are packed into smaller areas, ICs offer valuable new capabilities important to manufacturers of end products.

We design, develop, manufacture and sell a wide range of IC products. We develop and commercialize nonvolatile memory that continues to store information after power is turned off. We leverage our expertise in nonvolatile memories by combining them with microcontrollers, digital signal processors and other logic to meet the evolving and growing needs of our customers. These complex system-on-a-chip solutions for a broad array of markets are manufactured using our multiple leading edge process technologies, including complementary metal oxide semiconductor (CMOS), double-diffused metal oxide semiconductor (DMOS), logic, CMOS logic, bipolar, bipolar CMOS (BiCMOS), silicon germanium (SiGe), SiGe BiCMOS, analog, bipolar double diffused CMOS (BCDMOS) and radiation tolerant process technologies. We develop these process technologies ourselves to ensure they provide the maximum possible performance. We manufacture more than 90% of our products in our own wafer fabrication facilities, or fabs. We believe our broad portfolio of manufacturing capabilities allows us to produce ICs that enable our customers to rapidly introduce leading edge electronic products that are differentiated by higher performance, advanced features, lower cost, smaller size, longer battery life and more memory. Our products are used primarily in the following markets: communications, consumer electronics and computing, storage, automotive, security and imaging.

We were originally incorporated in California in December 1984. In October 1999 we were reincorporated in Delaware. Our principal offices are located at 2325 Orchard Parkway, San Jose, California 95131, and our telephone number is (408) 441-0311. Our internet address is: www.atmel.com; however, the information in, or that can be accessed through, our website is not part of this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports are available, free of charge, through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.

Products

Our products consist primarily of advanced logic, mixed-signal, nonvolatile memory, radio frequency and system-level integration semiconductor solutions.

Our business has four operating segments (see Note 13 of Notes to Consolidated Financial Statements). Each segment offers products that compete in one or more of the end markets described below under the caption “Principal Markets and Customers.”

• Application specific integrated circuit (ASIC) segment includes full custom application specific integrated circuits, semicustom gate arrays and semicustom cell-based integrated circuits (CBICs) designed to meet specialized single-customer requirements for their high performance devices in a broad variety of applications. In addition, this business unit includes field programmable gate arrays (FPGAs), programmable logic devices (PLDs), imaging sensors and processors, audio processors, data communication processors and data acquisition and control circuits for general sale to multiple customers who use them in products for telecommunications, computers, networking, image processing, industrial, automotive, avionics and smart card applications.

• Microcontrollers segment includes a variety of microcontrollers including microcontrollers containing embedded nonvolatile memory.

• Nonvolatile Memories segment includes Flash memories, electrically erasable programmable read only memories (EEPROMs), and erasable programmable read only memories (EPROMs) for use in a broad variety of customer applications.

• Radio Frequency (RF) and Automotive segment includes radio frequency and analog circuits for the telecommunications, automotive and industrial markets.

Within each operating segment, we offer our customers products with a range of speed, density, power usage, specialty packaging and other features.

ASIC

ASICs. We manufacture and market semicustom gate arrays and cell-based integrated circuits, as well as full custom ASICs, to meet customer requirements for high-performance logic devices in a broad variety of customer-specific applications. These logic devices are designed to achieve highly integrated solutions for particular applications by combining a variety of logic functions on a single chip rather than using a multi-chip solution.

Our CMOS gate array product family satisfies high gate count and high-performance requirements, primarily in computer, avionics and military applications. Our gate array family consists of devices ranging from 35,000 gates to more than 10,000,000 gates.

We design and manufacture CBICs in a range of products that includes standard digital and analog functions, as well as nonvolatile memory elements and large pre-designed macro functions all mixed on a single chip. Our ASIC products are targeted primarily at customers whose high-end applications require high-speed, high-density or low or mixed-voltage devices.

FPGAs. We believe our FPGA designs are well suited for data and computation intensive applications and afford our customers migration paths among various logic solutions as their volume and cost requirements change. Our AT6000 FPGAs are being used in graphics, image processing, networking and telecommunications applications, often as a co-processor to a digital signal processor (DSP) to speed-up certain software routines by implementing them in hardware. Our AT40K family of FPGAs with FreeRAM and Cache Logic® offer distributed RAM without loss of logic resources as well as a reconfigurable solution for adaptive DSP and other computationally intensive applications. The devices range in density from 2,000 to 150,000 usable gates. Our customers can use industry standard computer aided engineering (CAE) tools to design both the AT6000 and AT40K FPGA families into their products. We have also introduced a family of reconfigurable FPGA Serial Configuration EEPROMs that can replace one-time-programmable devices. These devices may be used for configuring not only our FPGAs but also those from other FPGA makers. Additionally, FPGA to gate array conversion (ULC) is available for both military and commercial applications.

The Field Programmable System Level Integrated Circuit (FPSLIC^TM ) family of devices combines an AVR microcontroller core, standard peripherals and SRAM program and data memory, along with significant amounts of AT40K FPGA cells which can be programmed by users to quickly and easily customize the IC’s function. These devices were the industry’s first such combination of so-called “hard macro” reduced instruction set (RISC)-based

microcontroller and memory functions with on-chip FPGA customizable functions. The family is offered with unique co-verification development tools that allow a system designer to perform microcontroller software verification concurrently with FPGA hardware verification.

Sensors. Our line-up of imaging and sensing products include CCD and CMOS image sensors and processors that cover the market from entry level to the high resolution required for professional, medical, automotive and military applications. Our portfolio of ICs covers innovative image processor technology needed to satisfy our customer’s needs for complex image processors and industrial grade image sensors, and can also be integrated into complete digital camera modules

PLDs. We have developed a line of PLDs, ranging from 500 to 15,000 gates that are reprogrammable and incorporate nonvolatile elements from our EEPROM technology. These devices are sometimes used as prototyping and pre-production devices and allow for later conversion to gate array products for volume production. For these situations, we offer customers the ability to migrate from FPGAs or PLDs (either their own or competitors’) to our gate arrays with minimal conversion effort. We offer CMOS PLDs with high performance and low power consumption.

Smart Cards. We offer a range of secure memory products that address the entire smart card market, from low complexity, serial products to highly complex Cryptocontroller products. These products provide customers with advanced security solutions, both for contact and contactless cards. Our contact smart cards range from 1Kbit to 256Kbit in memory density. Our contactless smart cards range from 1Kbit to 64Kbit in memory density.

Custom ASICs. We work closely with certain customers to develop and manufacture custom ASIC products so we can provide them ASIC products on a sole-source basis. To develop gate arrays and CBICs, our customers’ system designers require sophisticated development aids. These CAE tools include logic synthesizers, logic circuit simulators, timing analysis and verification tools, test pattern generators and testability graders, automated circuit placement and interconnection programs and mask tooling generators.

Microcontrollers

Our Microcontroller business unit offers a variety of products to serve the commercial and aerospace marketplaces for embedded controls. The cornerstone of the product portfolio is two 8-bit microcontroller architectures targeted at the high volume embedded control segment. They are the 8051 and AVR microcontrollers. The 8051 family consists of microcontrollers containing read only memory, one time programmable memory, or Flash memory and microcontrollers without memories plus application specific products designed to enable MP3, CAN or smart card reader systems. The AVR microcontroller family uses a RISC architecture that is optimized for C language code density and low power operation. Both microcontroller families are offered as standard products, as building blocks in our ASIC library or as application specific products. The microcontroller families offer a large variety of memory densities, package types and peripheral options including analog capability.

Additionally, under license agreements, we make and sell secure versions of an 8-bit microcontroller to serve smart card markets, standard and secure versions of ARM core-based 32-bit microcontrollers to serve high performance embedded processing applications, and high reliability versions of the Motorola Power PC and 68000 microprocessor families to serve military and industrial applications.

We are a supplier to the aerospace industry, delivering radiation-tolerant and radiation-hard SRAM, Dual Port RAM, FIFO, ASIC and 32-bit SPARC processors.

Nonvolatile Memories

EPROMs. The worldwide EPROM market is intensely competitive and characterized by commodity pricing. Our strategy is to target the high-performance end of this market by offering faster speed, higher density and lower power usage devices. We currently offer EPROMs with access speeds of 150 nanoseconds to 45 nanoseconds and densities of 256 kilobits to 8 megabits. These products are generally used to contain the operating programs of embedded microcontroller or DSP-based systems, such as hard disk drives, CD-ROM drives and modems.

Parallel-Interface EEPROMs. We supply high performance in-system programmable parallel-interface EEPROMs. We believe that our parallel-interface EEPROM products, all of which are full featured, represent the most complete parallel-interface EEPROM product family in the industry. We have maintained this leadership role through early introductions of high speed, high capacity and low power consumption CMOS devices. We are the

sole-source supplier for several customers for certain parallel-interface EEPROM devices. In the design of this product family, we have emphasized device reliability, achieved partly through the incorporation of on-chip error detection and correction features. These products are generally used to contain frequently updated data in communications infrastructure equipment and avionics navigation systems.

Serial-Interface EEPROMs. We used our parallel-interface EEPROM technology and sub-micron fabrication capability to enter the serial-interface EEPROM market. This move allowed us to substantially broaden our EEPROM product offerings to include most package and temperature configurations required by customers in certain segments of the serial-interface EEPROM market such as the 2-wire, 3-wire, 4-wire and serial peripheral interface (SPI) market segments. As with the parallel-interface EEPROM family, we believe our serial-interface EEPROM products represent the most complete family in the industry. The serial-interface EEPROM product line incorporates many of the reliability, speed and other features of our parallel-interface EEPROM products. These products are generally used to contain user-preference data in cellular and cordless telephones, home appliances, automotive applications and computer peripherals or stored value data in smart cards.

Flash Memories. Flash memories represent the latest technology in nonvolatile devices that can be reprogrammed in-system. Flash memories offer a middle ground in price and features between EPROMs, which can be reprogrammed only a few times and only if removed from a system, and relatively more expensive parallel-interface EEPROMs, in which any individual byte of data can be reprogrammed on the device in-system tens to hundreds of thousands of times. Our Flash memories, based on our EEPROM technology, were the industry’s first Flash memories that could be reprogrammed using only a single 5-volt power source, a single 3-volt power source, a single 2.7-volt power source or a single 1.8-volt power source as opposed to the heavier, larger and more expensive 12-volt power sources typically utilized by many EPROM-based Flash memories. These lower power requirements are particularly important in portable telecommunications and consumer electronic products and other systems where small size and weight and longer battery life are critical customer requirements. We have expanded our Flash product offerings by introducing a range of products based on our more cost-effective Flash technology. We currently offer Flash memories with capacities of 256 kilobits to 64 megabits in each IC.

The flexibility and ease of use of our Flash memories make them an attractive alternative to EPROMs in systems where program information stored in memory must be rewritten after the system leaves its manufacturing environment. In addition, many customers use Flash memories within their system manufacturing cycle, affording them in-system diagnostic and test programming prior to reprogramming for final shipment configuration. The reprogrammability of Flash memories also serves to support later system upgrades, field diagnostic routines and in-system reconfiguration, as well as capturing voice and data messages for later review.

DataFlash. The DataFlash product family represents one of our newest innovations in nonvolatile memory. DataFlash products are designed to easily and efficiently handle large amounts of frequently changing data, ideally addressing the needs of digital voice storage, digital image storage, and text/data storage applications such as digital answering machines, cellular phones, fax machines, digital cameras and computer peripherals where small size is an important factor.

To minimize cost, footprint size and power consumption, DataFlash products utilize our latest Flash technology for the core memory array combined with the simple SPI from the serial-interface EEPROMs. Other architectural features include dual on-chip SRAM buffers and error detection logic, as well as additional command and device status logic.

Our memory products are used to provide nonvolatile program and data storage in digital systems for a variety of applications and markets, including computing, telecommunications, data communications, consumer electronics, automotive, industrial/instrumentation and military/avionics.

RF and Automotive

Our RF products are designed to service the automotive, telecommunications, consumer and industrial markets. Our focus is to design and supply high-frequency products for many types of wireless communications devices in the frequency range of 0.1 to 4.8 GHz. These products, manufactured using SiGe technology, are used in two-way pagers, digitally enhanced cordless telecommunications, mobile telephones, and cellular base stations, among other applications.

For automotive applications, this segment offers a family of read, read/write and encryption identification ICs, which are used for wireless access control and operate at a frequency in the range of 100 kHz to 800 MHz.

These ICs are used in combination with a reader IC to make possible contactless identification for a wide variety of applications. Typical applications include access control and tracking of consumer goods.

Within this segment another product family uses RF technology for remote keyless entry for automobiles, as well as for many other remote control applications, such as air conditioning control, garage door openers, outside wireless temperature monitoring and security home alarm systems.

We also specialize in providing intelligent load driver ICs suited for the rugged automotive environment. These ICs are manufactured in BCDMOS technology, a 0.8-micron mixed signal high voltage technology providing analog-bipolar, high voltage DMOS power and CMOS logic function on a single chip. The applications for these automotive products are primarily motor and actuator drivers and smart valve controls.

Technology

From our inception, we have focused our efforts on developing advanced CMOS processes that can be used to manufacture reliable nonvolatile elements for memory and logic integrated circuits. We believe we are a leader in single and multiple-layer metal CMOS processing, which enables us to produce high-density, high-speed and low-power memory and logic products.

We attempt to meet customers’ demands for constantly increasing functionality on ever-smaller ICs by increasing the number of layers we use to build the circuits on a wafer and by reducing the size of the transistors and other components in the circuit. To accomplish this we develop and introduce new wafer manufacturing techniques as necessary. For example, to allow smaller circuit dimensions by smoothing out surface irregularities between layers, we introduced chemical-mechanical planarization to our wafer manufacturing process and now use it in all our fabrication facilities. We also provide our fabrication facilities with state-of-the-art manufacturing equipment and development resources that allow us to produce ICs with increasingly smaller feature sizes. Our current ICs incorporate effective feature sizes as small as 0.18-microns. We are developing processes that support effective feature sizes as small as 0.13-microns.

We broadened our technology focus by developing expertise for designing and manufacturing high frequency RF products, which are used primarily in cellular telephones and cordless applications. In order to achieve high frequency with high efficiency and very low noise, a SiGe technology was developed. This technology is based on well-established bipolar silicon process technology, with one of the key process steps, the epitaxial layer, modified by adding germanium to the silicon. The current minimum feature size supports the design of very small RF receivers and transceivers as well as power amplifiers. This technology is designed to replace galium arsenide (GaAs) technology, which is commonly used for power amplifiers in cellular telephones.

In order to extend the capabilities of SiGe, Atmel has begun to combine the high-frequency features of SiGe with CMOS in order to integrate high-density logic parts and RF analog functions on a single integrated circuit. We believe this SiGe/CMOS technology will enable Atmel to provide single-chip system solutions to the marketplace.

Principal Markets and Customers

Communications. Communications, including wireless and wireline telecommunications and data networking, is currently our largest end user market. For the wireless market, we provide nonvolatile memory, standard and secure microcontrollers, and baseband and RF ASICs that are used in global standard for mobile communications (GSM) and code-division multiple access (CDMA) mobile phones and their base stations, as well as two-way pagers, mobile radios, 900 MHz cordless phones and their base stations. We also have a range of products based on the IEEE 802.11 wireless LAN standard, and on Bluetooth, a new short-range wireless protocol that enables instant connectivity between electronic devices. Our principal customers in the wireless market include Ericsson, Motorola, Nokia, Philips, Qualcomm, Samsung and Siemens.

We also serve the data networking and wireline telecommunications markets, which continue to evolve due to the rapid adoption of new technologies. For these markets, we provide ASIC, nonvolatile memory and programmable logic products that are used in the switches, routers, cable modem termination systems and digital subscriber line (DSL) access multiplexers, that are currently being used to build internet infrastructure. Our principal data networking and wireline telecommunications customers include Alcatel, and Siemens.

Consumer Electronics. Our products are also used in a broad variety of consumer electronics products. We provide multimode audio processors and MPEG2-based decoders with programmable transport for complex digital audio streams used in digital TVs, set top boxes and DVD players. For digital cameras, we provide a single chip digital camera processor solution, as well as medium and high-resolution image sensors. We provide demodulators and decoders for cable modems. We also offer media access controllers for wireless local area networks (LANs) and baseband controllers and network protocol stacks for voice-over-internet-protocol (VoIP) telephone terminals. In addition, we provide secure, encryption enabled, tamper resistant circuits for smart cards and embedded PC security applications. Our principal consumer electronics customers include FujiFilm, GemPlus, Invensys, LG Electronics, Matsushita, Philips, Samsung and Schlumberger.

Computing, Storage and Printing. The computing and computing peripherals markets are also growing because of the growth of the Internet. For computing applications, we provide Flash memory, universal serial bus (USB) hubs and ASICs for personal computers and servers. Our biometric security IC verifies a user’s identity by scanning a finger. In today’s security conscious environment we believe this IC is finding applications where access to information, equipment and similar resources needs to be controlled or monitored. For storage applications, we provide servo controllers, laser drivers, read channels, and data interfaces for data storage subsystems, hard drives and DVD players. We provide ASICs, nonvolatile memory and microcontrollers for laser printers, inkjet printers, copy machines and scanners. Our principal customers in these markets include Hewlett-Packard, IBM, Intel and Seagate.

Manufacturing

We currently manufacture our products at our wafer fabrication facilities located in Colorado Springs, Colorado; Heilbronn, Germany; Nantes, France; and Rousset, France. We have an additional facility in North Tyneside, UK, which was kept in a low state of operational readiness during 2002 due to excess manufacturing capacity. We are currently developing fabrication processes in our North Tyneside facility.

As a result of the economic downturn in the semiconductor industry that began in the fourth quarter 2000, we have taken actions to suspend or reduce our manufacturing capacity and costs to a level that meets demand for our products in order to achieve profitability. Expensive manufacturing equipment has been underutilized or sold at significantly discounted prices, and employee and other manufacturing costs reduced. In the third quarter 2002 we announced closure of the Company’s 8-inch wafer fabrication facility at Irving, Texas. This facility was acquired in 2000, and the Company originally intended to commence commercial production in the second half of 2002. However, given the market conditions in the semiconductor industry, we reassessed our overall manufacturing capacity against the potential anticipated demand and decided to close the facility. The fabrication facility is available for sale and was placed on the market in August 2002. We intend to complete a sale as soon as possible; however the timing of a final sale is uncertain given the current market for semiconductor manufacturing facilities. See Note 6 of Notes to Consolidated Financial Statements.

Reducing our wafer fabrication capacity involves significant potential costs and delays, including approvals and requirements of various governmental and judicial bodies and loss of governmental subsidies. We may experience labor union or other difficulties when implementing any additional downsizing that we may be required to make if the current downturn continues or worsens. Any such difficulties that we experience would harm our business and operating results.

The deteriorating market conditions we experienced in 2001 and 2002 may continue or worsen, causing our wafer fabrication capacity to continue to be underutilized, and our inability to quickly reduce fixed costs such as depreciation and other fixed operating expenses necessary to operate our wafer manufacturing facilities would continue to harm our operating results. If net revenues do not increase sufficiently in future periods to meet these costs, our business would be harmed.

If market demand for our products increases during 2003 and 2004, we believe that we will be able to substantially meet our production needs from our wafer fabrication facilities through the end of 2004, although this date may vary depending on, among other things, our rate of growth. We will need to hire, train and manage additional production personnel in order to increase our production capacity from current levels. To remain technologically and economically competitive, we must continuously implement new manufacturing technologies such as 0.13-micron line widths in our wafer manufacturing facilities regardless of demand for our products. If the recent downturn continues beyond the first or second half of 2003 or worsens, our efforts to implement these new technologies while reducing costs consistent with demand may be significantly impaired.

The cost of expanding our manufacturing capacity at our existing facilities, acquiring additional facilities, maintaining existing or additional facilities and implementing new manufacturing technologies is typically funded through a combination of available cash resources, cash from operations and additional lease, debt or equity financing. We may not be able to generate the cash from operations or obtain the additional financing necessary to fund the maintenance or expansion of our manufacturing facilities or the implementation of new manufacturing technologies.

The fabrication of our integrated circuits is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer, or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. We may experience problems in achieving acceptable yields in the manufacture of wafers, particularly in connection with the expansion of our manufacturing capacity and related transitions. The interruption of wafer fabrication or the failure to achieve acceptable manufacturing yields at any of our wafer fabrication facilities would harm our business.

As a result of these and other factors we may be unable to achieve adequate wafer manufacturing output in any expanded or new facility in a timely manner, and our revenues may not increase in proportion to the anticipated increase in manufacturing capacity associated with any expanded or new facility.

Once we have fabricated the wafers, we test the individual circuits on them to identify those that do not function. This saves us the cost of putting mechanical packages around circuits whose failure can be determined in advance. After this initial testing we send the wafers to one of our independent assembly contractors, located in China, Hong Kong, Japan, Malaysia, the Philippines, South Korea, or Taiwan where they are cut into individual chips, assembled into packages and in some cases given a final test. Most of the packaged integrated circuits, however, are shipped back to our production facilities where we perform final testing before shipping them to customers. Our reliance on independent subcontractors to assemble our products into packages involves significant risks, including reduced control over quality and delivery schedules, a potential lack of capacity at our subcontractors and a risk the subcontractor may abandon assembly processes we need. We cannot be sure that our current assembly subcontractors will continue to assemble, package and test products for us. In addition, because our assembly subcontractors are located in foreign countries, we are subject to some risks commonly associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions and changes in tariff and freight rates. As a result, we may experience production delays, insufficient volumes or inadequate quality of assembled products, any of which could harm our operations. To mitigate these risks we execute a strategy of qualifying multiple subcontractors in different countries. However, there can be no guarantee that any strategy will eliminate our risk.

We reduce the unit cost of our products by producing as many wafers as possible in each plant, by shrinking circuits to fit the most possible on each wafer and by keeping production expenses low. We normally expect to produce at unit costs low enough to provide satisfactory profit margins.

The raw materials and equipment we use to produce our integrated circuits are available from several suppliers and we are not dependent upon any single source of supply. Some materials have been in short supply in the past and lead times for new equipment have lengthened on occasion, but we did not experience serious difficulties in obtaining raw materials or equipment in 2002.

Environmental Compliance. We are subject to a variety of federal, state and local governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. Increasing public attention has been focused on the environmental impact of semiconductor operations. Although we have not experienced any material adverse effect on our operations from environmental regulations, any changes in such regulations or in their enforcement may impose the need for additional capital equipment or other requirements. If for any reason we fail to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations, we could be subject to substantial liability or our manufacturing operations could be suspended.

Marketing and Sales

We market our products worldwide to a diverse base of original equipment manufacturers (OEMs) serving primarily commercial markets. In the United States and Canada, we sell our products to large OEM accounts primarily through manufacturers’ representatives and through national and regional distributors. Our agreements with our representatives and distributors are generally terminable by either party on short notice, subject to local

laws. We support this sales network from our headquarters in San Jose, California and through North American regional offices in Southern California, Colorado, Florida, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Oregon, Texas and Ontario, Canada. Sales to North American OEMs and distributors, as a percentage of worldwide net revenues, were 15% and 7% in 2002, 17% and 8% in 2001 and 26% and 10% in 2000, respectively. Additionally, we have 17 sales offices outside of North America.

We generate our revenue by selling our products to original equipment manufacturers (OEMs) and distributors. Our policy is to recognize revenue from sales to customers when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured.

We allow certain distributors, primarily based in the United States, extensive rights of return and other credits for price protection. Given the uncertainties associated with the levels of returns and other credits issuable to these distributors, we defer recognition of revenue from sales to these distributors until they have resold our products. Sales to certain other primarily non-US based distributors carry either no or very limited rights of return. We have historically been able to estimate returns and other credits from these distributors and accordingly have historically recognized revenue from sales to these distributors on shipment, with a related allowance for potential returns established at the time of our sale.

We sell to foreign customers primarily through international representatives, who are managed from our foreign sales offices. We maintain sales offices in Finland, France, Germany, Hong Kong, Italy, Japan, Korea, Singapore, Sweden, Switzerland, Taiwan and U.K. Our sales outside North America were approximately 78%, 75% and 64% of total revenues in 2002, 2001 and 2000. See Note 13 of Notes to Consolidated Financial Statements. Although the U.S. government imposes some restrictions on export sales we have not experienced any serious difficulties because of them. We expect revenues from our international sales will continue to represent a significant portion of our total revenues. International sales are subject to a variety of risks, including those arising from currency fluctuations, tariffs, trade barriers, taxes, export license requirements and foreign government regulations.

Research and Development

We believe significant investment in research and development is vital to our success, growth and profitability, and we will continue to devote substantial resources, including management time, to this activity. Our primary objectives are to increase performance of our existing products, to develop new wafer processing and design technologies, and to draw upon these technologies to create new products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product development, process development, or marketing and sales efforts may not be successful, our new products may not achieve market acceptance, and price expectations for our new products may not be achieved.

During 2002, 2001 and 2000 we spent $253 million, $268 million and $252 million, on research and development. Research and development expenses are charged to operations as incurred. We expect these expenditures will increase in the future as and when business conditions improve.

Competition

We compete in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as AMD, Fujitsu, Hitachi, Intel, LSI Logic, Microchip, Sharp and STMicroelectronics. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we have introduced new products we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. In 2002 and 2001 we experienced significant price competition in our nonvolatile memory business and especially for EPROM and Flash products. We expect continuing competitive pressures in our markets from existing competitors and new entrants, new technology and weak demand, which, among other factors, will likely maintain the recent trend of declining average selling prices for our products.

In addition to the factors described above, our ability to compete successfully depends on a number of factors, including the following:

• our success in designing and manufacturing new products that implement new technologies and processes

• our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies

• the rate at which customers incorporate our products into their systems

• product introductions by our competitors

• the number and nature of our competitors in a given market, and

• general market and economic conditions.

Many of these factors are outside of our control, and we may not be able to compete successfully in the future.

Patents and Licenses

We maintain a portfolio of United States patents and we have patent applications on file with the U.S. Patent and Trademark Office. We also operate an internal program to identify patentable developments and we file patent applications wherever necessary to protect our proprietary technologies. However, because technology changes very rapidly in the semiconductor industry, we believe our continued success depends primarily on the technological and innovative skills of our employees and their abilities to rapidly commercialize discoveries.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have on occasion resulted in significant and often protracted and expensive litigation. We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products or processes. In the past, we have received specific allegations from major companies alleging that certain of our products infringe patents owned by such companies. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and be required to make corresponding royalty payments, which may harm our operating results.

We have in the past been involved in intellectual property infringement lawsuits which harmed our operating results, and we are currently involved in two lawsuits alleging patent infringement. See Item 3, Legal Proceedings. Although we intend to vigorously defend against any such lawsuits, we may not prevail given the complex technical issues and inherent uncertainties in patent and intellectual property litigation. Moreover, the cost of defending against such litigation, in terms of management time and attention, legal fees and product delays, could be substantial, whatever the outcome. If any patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims, and if we are unable to obtain a license on acceptable terms, license a substitute technology, or design new technology to avoid infringement, our business and operating results may be significantly harmed.

We have several cross-license agreements with other companies. In the future, it may be necessary or advantageous for us to obtain additional patent licenses from existing or other parties, but these license agreements may not be available to us on acceptable terms, if at all.

Employees

At December 31, 2002, we employed approximately 7,550 persons. Our future success depends in large part on the continued service of our key technical and management personnel and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees, none of whom is subject to an employment agreement for a specified term or a post-employment non-competition agreement, could harm our business.

Backlog

We make a significant portion of our sales to satisfy recently received purchase orders. We also accept purchase orders for deliveries covering periods up to approximately one year. However, all purchase orders can be revised or cancelled by the customer without penalty. Considering these practices and our experience, we do not believe our record of customer purchase orders provides meaningful backlog figures or that it is reliable enough to predict actual sales for future periods.

Geographic Areas

In 2002, 22% of our sales were made to customers in North America, 43% to customers in Asia, 33% to customers in Europe, and 2% to customers in other regions. As described in Note 13 of Notes to Consolidated Financial Statements, 21% of our sales were made to customers in the United States. We determine where our sales are made by the destination of our products when they are shipped. At the end of 2002 we owned long-lived assets in the United States amounting to $351 million, in France, $448 million, in Germany, $25 million and in the UK, $215 million.

ITEM 2. PROPERTIES

At December 31, 2002 we owned the major facilities described below:


Number of Buildings	Location	Total Sq Ft		Use

1	San Jose, CA		291,000	Headquarters offices, research and development, sales and marketing, product design, final product testing
6	Colorado Springs, CO		603,000	Wafer fabrication, research and development, marketing, product design, final product testing
1	Irving, TX		650,000	Available for sale; wafer fabrication, research and development facility
5	Rousset, France		815,000	Wafer fabrication, research and development, marketing, product design, final product testing
5	Nantes, France		131,000	Wafer fabrication, research and development, marketing, product design, final product testing
2	Grenoble, France		196,000	Wafer fabrication, research and development, marketing, product design, assembly and final product testing
4	Heilbronn, Germany		778,000	Wafer fabrication, research and development, marketing, product design, final product testing (74% of square footage is leased to other companies)
9	North Tyneside, UK		753,000	Wafer fabrication, research and development

In addition to the facilities we own, we lease numerous research and development facilities and sales offices in North America, Europe and Asia. We believe that suitable additional or alternative space will be available as needed on commercially reasonable terms to meet our current and foreseeable requirements.

ITEM 3. LEGAL PROCEEDINGS

We currently are a party to various legal proceedings, including those noted below. While management, including internal counsel, currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net income and financial position of Atmel. The estimate of the potential impact on our financial position or overall results of operations or cash flow for the above legal proceedings could change in the future.

Agere Systems, Inc. (“Agere”) filed suit in the United States District Court, Eastern District of Pennsylvania in February 2002, alleging patent infringement regarding certain semiconductor and related devices manufactured by Atmel. The complaint seeks unspecified damages, costs and attorney fees. The parties are currently engaged in discovery. The Court held a Markman claims construction hearing on December 5 and 6, 2002, and the parties submitted final briefs on December 20, 2002. The Court has set a trial date of July 28, 2003. Atmel disputes plaintiff’s claims and intends to defend the lawsuit vigorously.

Philips Corporation (“Philips”) filed suit against Atmel in the United States District Court, Southern District of New York, on October 30, 2001 for infringement of its patent, seeking injunctive relief against the alleged infringement and damages. Atmel answered Philips’ complaint alleging invalidity, unenforceability, and non-infringement of the patent, which Atmel continues to maintain with the substantial completion of fact discovery. Atmel disputes plaintiff’s claims and intends to defend the lawsuit vigorously.

Seagate Technology (“Seagate”) filed suit against Atmel on July 31, 2002. Seagate contends that certain semiconductor chips sold by Atmel to Seagate between April 1999 and some indefinite date in 2001 were defective. Seagate contends that this defect has caused millions of disk drives manufactured by Seagate to fail. Though the complaint does not describe the nature of the defect, discovery from Seagate suggests that Seagate believes that the plastic casings of the Atmel chips contain red phosphorus, which in certain highly specific and rare situations can result in an electrical short between the pins in the leadframe of the chip. Seagate seeks unspecified damages as well as disgorgement of profits related to these particular chips. Atmel disputes plaintiff’s claims and intends to defend the lawsuit vigorously.

On February 7, 2003, a class action entitled Pyevich v. Atmel Corporation, et al., was filed in the United States District Court for the Northern District of California, against Atmel and certain of its current officers and a former officer. The Complaint alleges that Atmel made false and misleading statements concerning its financial results and business during the period from January 20, 2000 to July 31, 2002 as a result of sales of allegedly defective product to a customer and alleges that Atmel violated Section 10(b) of the Securities Exchange Act of 1934. Additional, virtually identical complaints were subsequently filed and will be consolidated into this action. The Complaints do not identify the alleged monetary damages. Atmel disputes plaintiffs’ claims and intends to defend the lawsuit vigorously.

On February 19, 2003, a derivative class action entitled Cappano v. Perlegos, et al., was filed in the Superior Court for the State of California for the County of Santa Clara. The Complaint names as defendants certain directors, officers and a former officer of Atmel, and Atmel is also named as a nominal defendant. The Complaint alleges that between January 2000 and July 31, 2002, defendants breached their fiduciary duties to Atmel by permitting it to sell defective products to customers. The Complaint alleges claims for breach of fiduciary duty, mismanagement, abuse of control, waste, and unjust enrichment. The Complaint seeks unspecified damages and equitable relief as against the individual defendants. An additional, virtually identical complaint making the same allegations also was filed. Atmel disputes plaintiffs’ claims and intends to defend the lawsuit vigorously.

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

There were no matters submitted to a vote of security holders during the fourth quarter of 2002.

Executive Officers of the Registrant

The executive officers of Atmel, who are elected by and serve at the discretion of the Board of Directors, and their ages, are as follows (ages are as of December 31, 2002):


Name	Age		Position

George Perlegos		52	Chairman of the Board, President and Chief Executive Officer
Gust Perlegos		55	Executive Vice President, Office of the President
Tsung-Ching Wu		52	Executive Vice President, Office of the President
Donald Colvin¹		49	Vice President, Finance and Chief Financial Officer
Robert C. Avery²		54	Interim Vice President, Finance and Chief Financial Officer
B. Jeffrey Katz		59	Vice President, Marketing
Mikes N. Sisois		57	Vice President, Planning and Information Systems

1.		Donald Colvin resigned as our Vice President Finance and Chief Financial Officer effective January 10, 2003.

2.		Robert Avery was appointed Interim Vice President, Finance and Chief Financial Officer effective January 10, 2003.

George Perlegos has served as Atmel’s President and Chief Executive Officer and a director from its inception in 1984. George Perlegos holds degrees in electrical engineering from San Jose State University (B.S.) and Stanford University (M.S.). George Perlegos is a brother of Gust Perlegos.

Gust Perlegos has served as Vice President, General Manager and a director of Atmel since 1985, as Executive Vice President since 1996, and as Executive Vice President, Office of the President since 2001. Gust Perlegos holds degrees in electrical engineering from San Jose State University (B.S.), Stanford University (M.S.)

and Santa Clara University (Ph.D.). Gust Perlegos is a brother of George Perlegos.

Tsung-Ching Wu has served as a director of Atmel since 1985, as Vice President, Technology since 1986, as Executive Vice President since 1996, and as Executive Vice President, Office of the President since 2001. Mr. Wu holds degrees in electrical engineering from the National Taiwan University (B.S.), the State University of New York at Stony Brook (M.S.) and the University of Pennsylvania (Ph.D.).

Donald Colvin joined Atmel in 1995 as Chief Financial Officer of the Atmel Rousset S.A. subsidiary, and was promoted to Vice President Finance and Chief Financial Officer of Atmel in 1998. Before joining Atmel through the Company’s acquisition of Atmel Rousset S.A., Mr. Colvin spent nine years with Motorola Inc., in Europe in various financial positions. He left Motorola in 1985 to join European Silicon Structures (ES2) as Financial Director for France. He became Vice President and Chief Financial Officer of ES2 in 1991. Mr. Colvin holds a B.A. in Economics and an M.B.A. from the University of Strathclyde, Scotland.

Robert C. Avery joined Atmel in 1989 as Finance Manager in the Company’s Colorado Springs Operations. He served as Corporate Director of Finance from 1998 to 2003, prior to his appointment as Interim Vice President, Finance and Chief Financial Officer in January 2003. Before joining Atmel, Mr. Avery spent six years with Honeywell, Inc. in various financial positions and six years providing audit services with Peat, Marwick, Mitchell & Co. He holds a B.S. degree in Accounting from Michigan State University.

B. Jeffrey Katz has served Atmel as Vice President, Marketing since 1988. From 1987 to 1988 Mr. Katz was Vice President of Marketing and Sales at Mosaic Systems, Inc., a multichip module supplier. Mr. Katz was employed by Intel from 1977 to 1987 where he held various marketing positions, including Director of Marketing. Mr. Katz holds a B.S. in computer engineering from Case Western University.

Mikes N. Sisois joined Atmel in 1985 as Director of Information Systems and has served as Vice President, Planning and Information Systems since 1986. Mr. Sisois holds a B.S. in engineering from San Jose State University, and an M.B.A. and Ph.D. from Santa Clara University.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Atmel’s common stock is traded on the Nasdaq Stock Market’s National Market under the symbol “ATML.”

As of March 10, 2003, there were approximately 2,356 stockholders of record of Atmel’s common stock. Since many holders’ shares are listed under their brokerage firms’ names, the actual number of stockholders is estimated by the Company to be approximately 238,000.

No cash dividends have been paid on the common stock, and we currently have no plans to pay cash dividends in the future.

Price Range of Common Stock

The last reported price for our stock on March 18, 2003, was $2.05. The following table presents the high and low closing sales price per share for our common stock as quoted on the NASDAQ National Market for the periods indicated.


	High		Low

Fiscal Year 2001
First Quarter		17.94		9.69
Second Quarter		14.29		7.84
Third Quarter		12.94		5.50
Fourth Quarter		9.54		6.32
Fiscal Year 2002
First Quarter		10.14		6.90
Second Quarter		10.85		5.82
Third Quarter		6.12		1.06
Fourth Quarter		4.05		0.70

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

FINANCIAL HIGHLIGHTS


		Year ended December 31,

(In thousands, except per share data)		2002			2001			2000			1999			1998

Net revenues		$	1,193,814		$	1,472,268		$	2,012,672		$	1,330,161		$	1,111,092
Income (loss)
	Before taxes		(551,567	)		(531,393	)		415,586			128,821			(50,931	)
	Net		(641,796	)		(418,348	)		265,976			53,379			(50,038	)
	Basic net income (loss) per share		(1.37	)		(0.90	)		0.59			0.14			(0.12	)
	Diluted net income (loss) per share		(1.37	)		(0.90	)		0.55			0.13			(0.12	)
Cash			346,371			331,131			448,281			251,272			161,721
Cash plus short term investments			445,802			593,008			962,544			412,462			323,565
Fixed assets, net			1,049,031			1,651,475			1,927,817			938,562			964,126
Total assets			2,302,559			3,024,197			3,824,887			2,014,910			1,962,737
Long term debt, net of current portion			453,509			693,212			668,503			654,033			771,069
Stockholders’ equity			969,143			1,486,527			1,894,857			801,479			732,195
Long term debt as a percentage of stockholders’ equity			46.8	%		46.6	%		35.3	%		81.6	%		105.3	%
Return on revenues
	Before taxes *		-46.2	%		-36.1	%		20.6	%		9.7	%		-4.6	%
	Net **		-53.8	%		-28.4	%		13.2	%		4.0	%		-4.5	%
Return on average stockholders’ equity ***			-52.3	%		-24.7	%		19.7	%		7.0	%		-6.6	%

*		Income (loss) before taxes divided by Net revenues

**		Income (loss), net divided by Net revenues

***		Income (loss), net divided by average of beginning and ending stockholder’s equity

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the Consolidated Financial Statements and related Notes contained elsewhere in this Report. We urge you to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the SEC, including our quarterly reports on Forms 10-Q that also discuss our business. In this report, all share numbers and per share amounts have been retroactively adjusted to reflect our 2-for-1 stock splits, each in the form of a 100% stock dividend to stockholders of record as of August 11, 2000.

OVERVIEW

Beginning late in the fourth quarter 2000, the global semiconductor industry began to experience a downturn that has continued through 2002. Our business has been impacted by this downturn with the effect that our net revenues have declined sequentially for two years. Revenues in 2002 declined 19% from 2001 and revenue in 2001 declined 27% from 2000. Our revenues decreased in 2002 as our average selling prices dropped in comparison with those in 2001. While our ASIC business segment experienced some revenue growth in 2002 from higher unit shipments, we experienced larger declines in the other segments resulting in lower revenue levels in 2002. Our revenues decreased in 2001 because we shipped fewer units than in 2000 although our average selling prices during 2001 were approximately the same as during 2000.

Rapid declines in revenue had an adverse impact on our profitability in 2002 and 2001 because significant portions of our costs are fixed, resulting in operating losses in 2002 and 2001. In response to these market conditions we made several reductions in our workforce and recorded impairment charges for our wafer fabrication facilities, which further adversely impacted our results.

We incurred a loss before taxes of $552 million in 2002 compared to a loss before taxes of $531 million in 2001. We recorded asset impairment and restructuring charges of $341 million, $40 million and $3 million during the second, third and fourth quarters of 2002, respectively. We incurred a loss before taxes of $531 million in 2001 compared to income before taxes of $416 million in 2000. We recorded an asset impairment and restructuring charge of $481 million in the third quarter 2001. The asset impairment and restructuring charges that were incurred represent a large portion of the losses before taxes for 2001 and 2002. The remainder of our loss is primarily due to our inability to reduce fixed costs such as depreciation and other fixed operating expenses necessary to operate our wafer manufacturing facilities as quickly as demand for our products declined.

We reorganized our structure during the fourth quarter 2001 to better manage our business. Our operating segments now comprise: (1) application specific integrated circuits (ASICs); (2) microcontroller products (Microcontroller); (3) nonvolatile memory products (Nonvolatile Memory); and (4) radio frequency and automotive products (RF and Automotive). As a result, operating segments have changed from prior years and all years have been restated to reflect the new organization.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and the results of our operations are based upon our consolidated financial statements and the data used to prepare them. Atmel’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States. On an ongoing basis we re-evaluate our judgments and estimates including those related to product returns, bad debts, inventories, long-lived assets, investments, restructuring charges, income taxes, litigation and contingencies. We base our estimates and judgments on our historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies.

Revenue recognition

We must make estimates of potential future product returns and revenue adjustments related to current period product revenue. Management analyzes historical returns, current economic trends in the semiconductor industry, changes in customer demand and acceptance of our products when evaluating the adequacy of our allowance for sales returns. If management made different judgments or utilized different estimates, material differences in the amount of our reported revenue may result. We provide for these situations based on our experience with specific customers and our expectations for revenue adjustments based on economic conditions within the semiconductor industry. At December 31, 2002 our reserve for sales returns was $10.4 million and at December 31, 2001 it was $12.6 million.

We maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers’ inability to make required payments. We make our estimates of the uncollectibility of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends. At December 31, 2002 the allowance for doubtful accounts was $22.4 million and at December 31, 2001 it was $20.2 million.

Accounting for income taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that we determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination is made.

Valuation of inventory

We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, selling prices and market conditions. Our inventories include high-technology parts that may be subject to rapid technological obsolescence and which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than we estimate we may be required to take additional inventory write-downs.

Valuation of long-lived assets

Our business requires heavy investment in manufacturing facilities that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand for semiconductors produced in those facilities.

We estimate the useful life of our manufacturing equipment, which is the largest component of our long-lived assets, to be five years. We base our estimate on our experience with acquiring, using and disposing of equipment over time. Depreciation expense is a major element of our manufacturing cost structure. We begin depreciation on new equipment when it is put into use for production.

We have significant investments in new manufacturing equipment installed at our wafer manufacturing facilities in North Tyneside, UK, which commenced commercial production efforts in the third quarter of 2002. Accordingly, these assets were not being depreciated prior to the third quarter of 2002. Excluding net assets held for sale of $175 million on December 31, 2002, the aggregate amount of fixed assets under construction for which depreciation was not being recorded amounted to $30 million at December 31, 2002 and $763 million at December 31, 2001.

We assess the impairment in value to our company of long-lived assets whenever events or circumstances indicate that their carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

• significant negative industry trends

• significant underutilization of the assets

• significant changes in how we use the assets or our plans for their use.

If during our impairment review we determine that the future undiscounted cash flows related to these assets will not be sufficient to recover their carrying value we will reduce the carrying values of these assets down to our estimate of fair market value and continue depreciating them over their remaining useful lives. Our estimates of fair market value are based on outside appraisals that assume the assets will continue in use at their current locations.

In the third quarter 2001 we recorded a $463 million asset impairment charge related to the manufacturing assets in the fabrication facilities in Colorado Springs, Colorado, Rousset, France and Nantes, France. We determined that due to excess capacity, the future undiscounted cash flows related to these facilities would not be sufficient to recover the carrying value of the manufacturing equipment in those facilities. The carrying values of these assets were written down to their estimated market value. We also recorded an asset impairment charge of $341 million in the second quarter 2002 to write down to current fair value the book value of our fabrication equipment in Irving, Texas and North Tyneside, U.K. The estimate of current fair value underlying the charge was based on an outside appraisal that assumed the assets would continue in use at their current locations. We recorded an additional asset impairment and restructuring charge in the third quarter of 2002 of $40 million, primarily in connection with our decision to close our Irving, Texas 8-inch wafer fabrication facility and make it available for sale. The charges consisted of costs for reduction in headcount, asset write-downs, and expenses associated with our decision to close the facility. If the difficult conditions that exist in the semiconductor industry do not improve, we may not be able to realize the current carrying value for the facility and equipment held for sale. (See Notes 6 and 15 of Notes to Consolidated Financial Statements.)

RESULTS OF OPERATIONS

Net Revenues

We normally expect a steady, predictable rate of price decline throughout a product’s life cycle. However, the semiconductor industry historically has been cyclical and characterized by wide fluctuations in product supply and demand. As a result, the industry experiences significant downturns from time to time. These downturns are marked by diminished product demand, production overcapacity and accelerated erosion of average selling prices, all of which impacted us during 2002 and 2001.

Total net revenue declined 19% to $1,194 million in 2002 from $1,472 in 2001. The decline was caused largely by reductions in average selling prices for most of the Company’s products. The commodity memory portion of the semiconductor industry, in which we sell our nonvolatile memory products, has suffered from excess capacity since late in the fourth quarter 2000, which led to greater than normal price erosion during these periods.

Total net revenues declined 27% to $1,472 million in 2001 from $2,013 million in 2000. The decline was caused by fewer unit shipments. Average selling prices over the course of 2001 were comparable to 2000, although they decreased consistently throughout the year.

Net Revenues By Operating Segment

Net revenues in our Nonvolatile Memory, Microcontroller and RF and Automotive segments decreased in 2002 while net revenues in our ASIC segment rose in 2002 compared to 2001. Net revenues in our Nonvolatile Memory and RF and Automotive segments decreased significantly in 2001 while net revenues in our ASIC and Microcontroller segments rose in 2001 compared to 2000.

Our net revenues by segment are summarized as follows (in thousands):


Segment	2002				2001				2000

ASIC	$	379,758	32	%	$	332,624	22	%	$	329,127	16	%
Microcontroller		234,394	20	%		260,636	18	%		220,384	11	%
Nonvolatile Memory		359,641	30	%		615,056	42	%		1,050,869	52	%
RF and Automotive		220,021	18	%		263,952	18	%		412,292	21	%

	$	1,193,814	100	%	$	1,472,268	100	%	$	2,012,672	100	%

ASIC

ASIC segment revenues increased by 14% or $47 million in 2002 compared to 2001 because of higher unit shipments, partially offset by lower average selling prices. The majority of this growth came from increased revenues in our Smart Card and Multimedia product families within the ASIC segment. Smart Card IC revenue increased due to growing demand for applications requiring small memory with high security, such as banking and government applications. Multimedia product family revenue increased in 2002 due to the introduction of new products for the wireless local area network (WLAN) market.

ASIC segment revenues were approximately the same in 2001 compared to 2000. Unit shipments declined from 2000 but the decrease was offset by stronger average selling prices, which held firm over the course of the year. In addition, a subsidiary we acquired in May 2000, Atmel Grenoble S.A., generated $49 million more revenue for the full year of 2001 than it did in 2000 (see Note 2 of Notes to Consolidated Financial Statements).

Microcontroller

The Microcontroller segment revenues decreased by 10% or $26 million in 2002 compared to 2001 due to decreases in average selling prices, partially offset by increases in unit shipments. The decline was caused primarily by a decrease in revenues from product families based on the C51 microcontroller architecture.

The Microcontroller segment increased by 18% or $40 million in 2001 compared to 2000 due to increases in unit shipments. Most of the revenue increase in 2001 occurred from growth in the military and aerospace product families.

Nonvolatile Memory

Nonvolatile Memory (NVM) segment revenues declined by 42% or $255 million in 2002 compared to 2001. The decrease was caused primarily by a decline in average selling prices, partially offset by higher unit shipments. While all product families registered lower revenues in 2002 compared to 2001, the largest dollar declines occurred in the Flash, Data Flash and Serial EEPROM product families. Because NVM products are commodity oriented, they are subject to greater declines in average selling prices than other product areas within our company.

NVM segment revenues declined by 41% or $436 million in 2001 compared to 2000. The decrease was caused primarily by a decline in unit shipments and also by lower average selling prices during 2001. All product families registered declines in revenues in 2001 compared to 2000.

RF and Automotive

RF and Automotive segment revenues declined by 17% or $44 million in 2002 compared to 2001. This decrease in revenue was primarily due to an overall decrease in unit shipments and average selling prices in 2002. Weakness in the RF BiCMOS and Secure Product businesses were the major contributors to the revenue decline in 2002, compared to 2001.

RF and Automotive segment revenues declined by 36% or $148 million in 2001 compared to 2000. This decrease in revenue was primarily due to a decrease in unit shipments. The decline of revenues in 2001 adversely affected all major product families.

Net Revenues By Geographic Area

Our net revenues by geographic delivery location (see Note 13 of Notes to Consolidated Financial Statements) for the three years ended December 31, 2002, 2001 and 2000 are summarized as follows (in thousands):


Area	2002		2001		2000

North America	$	260,447	$	365,602	$	717,265
Europe		397,585		496,875		562,349
Asia		510,040		552,267		675,919
Other		25,742		57,524		57,139

	$	1,193,814	$	1,472,268	$	2,012,672

Sales in North America declined $105 million or by 29% in 2002 compared to 2001 primarily due to lower average selling prices as a result of the industry downturn and prevailing overcapacity. Sales within North America declined $352 million or 49% in 2001 compared to 2000 primarily due to lower unit shipments.

Sales outside North America accounted for 78% of our revenues in 2002, 75% of our revenues in 2001, and 64% in 2000. Many of our customers, particularly in the communication and telecommunication industries, have either moved or outsourced their production operations to low cost regions in Asia resulting in a larger percentage of our product shipments and revenue based on shipments to Asia in the past 2 years.

Our sales to Europe decreased by 20% or $99 million in 2002 compared to 2001 primarily due to lower unit shipments. Sales in Germany, UK, and France registered declines in 2002. Our sales to Europe decreased by 12% or $65 million in 2001 compared to 2000. European revenues declined primarily in Germany but were partially offset by an increase in revenue in France.

Our sales to Asia decreased by 8% or $42 million in 2002 compared to 2001 primarily due to lower average selling prices, partially offset by higher unit volumes. During 2002, sales into China, Hong Kong, Singapore and Taiwan registered increases, while sales to Korea and Malaysia declined. Our sales to Asia declined by 18% or $124 million in 2001 compared to 2000.

Net Revenues By Currency

Sales in Japanese yen accounted for 3% of our total sales in 2002, 5% in 2001 and 6% in 2000. Sales in European currencies amounted to 22%, 16% and 19% of total sales in 2002, 2001 and 2000.

If our 2002 sales denominated in yen had been converted to dollars at the 2001 average yen exchange rate, 2002 net revenue would have been $2 million higher. If our 2001 sales denominated in yen had been converted to dollars at the 2000 average yen exchange rate, 2001 net revenue would have been $6 million higher. Using the same calculation for 2000 at the 1999 rate, 2000 sales would also have been approximately $13 million lower.

If our 2002 sales denominated in European currencies had been converted to dollars at their average 2001 exchange rates, our 2002 sales would have been approximately $12 million lower. If our 2001 sales denominated in European currencies had been converted to dollars at their average 2000 exchange rates, our 2001 sales would have been approximately $9 million higher. If our 2000 sales denominated in European currencies had been converted to dollars at their average 1999 exchange rates, our 2000 sales would have been approximately $34 million higher.

Cost of Revenues and Gross Margin

Our cost of revenues represents the costs of our wafer fabrication, assembly and test operations and freight costs, including the cost of shipping our products to subcontractors. Our cost of revenues as a percentage of net revenues fluctuates, depending on product mix, manufacturing yields, the level of utilization of manufacturing capacity and average selling prices, among other factors. Cost of revenues as a percentage of net revenues in 2002 was 81%, compared with 72% in 2001 and 56% in 2000.

The increase in our cost of revenue as a percentage of net revenue in 2002 compared to 2001 was caused primarily by decreases in average selling prices of our products. However, our gross margin benefited in 2002 from a reduction of inventory reserves that had been established in previous periods. The parts for which these reserves had been established were sold in 2002. The increase in our cost of revenues as a percentage of net revenues in

2001 compared to 2000 was caused primarily by a significant reduction in the volume of units sold. We were unable to reduce our manufacturing costs, such as depreciation, maintenance, supplies and labor, as quickly as customer demand declined, and these costs remained while revenue decreased, reducing our gross margin. During 2000 we put in place additional manufacturing capacity, and corresponding costs, in anticipation of continuing growth in demand for our products. When demand decreased starting in 2001, the additional costs associated with our expansion exacerbated the decline in our gross margins.

At present it is not certain how long the downturn in our business, which began late in the fourth quarter 2000, will continue or when market conditions will improve sufficiently to permit us to more fully utilize our wafer fabrication capacity. The increase in fixed costs and operating expenses that we put in place during 2000 to increase manufacturing capacity may continue to harm our gross margins and operating results if net revenues do not increase or we are unable to reduce our costs sufficiently in future periods.

We plan to continue to develop and implement wafer-manufacturing technologies that allow us to obtain greater output from our existing manufacturing facilities while controlling costs and increasing shipments. However, production delays, difficulties in achieving acceptable yields at any of our manufacturing facilities, or overcapacity could materially and adversely affect our gross margin and future operating results.

Research and Development

Research and development (R&D) expenses decreased 6% to $253 million in 2002 from $268 million in 2001. The decrease in expenses was caused by various cost control measures, including termination of development at our fabrication facility in Irving, Texas in connection with making it available for sale in the third quarter of 2002 and headcount reductions.

R&D expenses increased 6% to $268 million in 2001, from $252 million in 2000. The increase was primarily due to our continuing investment in shrinking the die size of our integrated circuits, enhancement of mature products, development of new products, including smartcard products, and development of new manufacturing techniques.

We believe that continued strategic investments in process technology and product development are essential for us to remain competitive in the markets we serve, and we are committed to appropriate levels of expenditures for R&D.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses declined 30% to $127 million in 2002 from $182 million in 2001. As a percentage of net revenues, SG&A expenses decreased to 11% in 2002 compared to 12% in 2001. Selling costs, which declined by $41 million in 2002 from 2001, were the primary cause of the decrease in SG&A. The decreases were primarily due to cost controls, reductions from lower sales and marketing activities, declines in selling commissions related to lower sales and headcount reductions. General and administrative costs decreased by $14 million in 2002 compared to 2001 due to cost controls and headcount reductions.

SG&A expenses declined 13% to $182 million in 2001 from $210 million in 2000. As a percentage of net revenues, SG&A expenses increased to 12% in 2001 compared to 10% in 2000. Selling costs, which declined by $19 million in 2001 from 2000, are responsible for the majority of the SG&A decrease. The decline in selling costs was the result of cost control measures combined with a reduction of costs, such as commissions, that vary with the level of revenue. General and administrative costs decreased by $9 million in 2001 compared to 2000 as the result of reduced labor costs and lower fees for legal and accounting services.

Restructuring Charges

During the period from fiscal 1998 to fiscal 2000, our sales volume grew significantly, from $1.1 billion to $2.0 billion. As business conditions improved during this time, the Company took steps to significantly expand its manufacturing capacity. In March 1998 we acquired the integrated circuit business of Temic Telefunken Microelectronic, including its two fabrication facilities in Heilbronn, Germany and Nantes, France. In May 2000 we acquired Thomson-CSF Semiconducteurs Specifique in Grenoble, France. In addition, during 2000 we acquired fabrication facilities in Irving, Texas and North Tyneside, U.K. We also invested in fabrication facilities to upgrade technology. During the period from January 1998 to September 2001, we spent approximately $2.0 billion for

acquisitions of property and equipment in anticipation of significant growth in our business during 2001, 2002 and beyond from the historical levels achieved in 2000.

Beginning late in the fourth quarter 2000, business conditions in the semiconductor industry deteriorated rapidly. Global semiconductor sales declined from $204 billion in 2000 to $139 billion in 2001 and then stabilized at $141 billion in 2002. Our quarterly revenues have also declined rapidly from $574 million in the fourth quarter 2000 to $285 million in the fourth quarter 2001. Our quarterly revenues were $305 million in the fourth quarter of 2002 and our plants are currently operating significantly below their capacity. We do not expect a rapid improvement in market conditions.

As a result of the difficult operating conditions that existed in the semiconductor industry, we performed asset impairment reviews of our fixed assets during the third quarter of 2001. In assessing the impairment, we grouped manufacturing assets at the lowest level from which there were identifiable cash flows that were largely independent of the cash flows of other groups of assets. We determined that projected production volumes and related cash flows from the fabrication facilities would not be sufficient to recover the carrying value of those facilities. We concluded that these assets were impaired and wrote down the carrying values of these facilities to our estimate of their fair market value. Our estimate of fair market value was done by management, which considered an outside appraisal that assumed the assets would continue in use at their current locations. During the third quarter 2001, we recorded a $462.8 million asset impairment charge related to certain of its fabrication facilities in Colorado Springs, Colorado, Rousset, France and Nantes, France and a $18.5 million charge related to a headcount reduction in Europe. The charges were part of a restructuring plan that included a workforce reduction and the consolidation of manufacturing operations in both the U.S. and Europe.

As a result of the downturn experienced in 2001, we delayed the completion of construction of our fabrication facilities in North Tyneside, UK, and Irving, Texas, to 2002, when we anticipated the industry to rebound. We failed to meet our revenue projections in the first half of 2002 and concluded that the recovery in the industry would be slower and take longer than previous estimated. In light of these conditions, we determined that the carrying amount of these assets may not be recoverable and performed an asset impairment review. We determined that projected production volumes and related cash flows from the fabrication facilities would not be sufficient to recover the carrying value of those facilities. We concluded that these assets were impaired and have written down the carrying values of these facilities to our estimate of their fair market value. Our estimate of fair market value was done by management, which considered an outside appraisal that assumed the assets would continue in use at their current locations. In the second quarter 2002, we recorded a $341.4 million asset impairment charge related to the equipment in our wafer fabrication facilities in Irving, Texas and North Tyneside, U.K.

In the third quarter of 2002 we reassessed the overall manufacturing capacity of the Irving facility against the potential anticipated demand and decided to close the Irving, Texas facility, without conducting any commercial production there. The facility was placed on the market for sale in August 2002. We are actively marketing this facility for sale, but the timing of a final sale is uncertain given the current market for semiconductor manufacturing facilities. As a result of the decision to close the facility and make it available for sale, we recorded $42.2 million of charges in the third quarter of 2002, offset by a $2.6 million reversal of restructuring charges accrued in the third quarter of 2001, consisting of:

• an asset impairment charge of $23.5 million for the write down of assets held for sale to their estimated net realizable value of $174.4 million. The estimate of net realizable value was made by management, which considered an outside appraisal of the fabrication facility. Although we believe we can sell the facility at our carrying value, there can be no assurance we can do so. If the difficult operating conditions that exist in the semiconductor industry do not improve, we may not be able to realize the current carrying value.

• costs for terminating contracts with suppliers of $13.9 million, $0.5 million of which was paid before December 31, 2002, while the remaining will be paid in future periods.

• employee termination costs of $3.7 million for 297 employees. Approximately 272 employees were terminated and $3.6 million of the charge was paid before December 31, 2002, while the remaining amounts will be paid through September 2003.

• a $1.1 million charge related to the repayment of a property tax abatement to be paid by January 2003. Approximately $0.6 million of the charge was paid before December 31, 2002, while the remaining amount was paid in the first quarter of 2003.

We also recorded an asset impairment and restructuring charge of $2.8 million in the fourth quarter of 2002. This charge relates to plans for reorganizing certain programs and a 50-person workforce reduction in Europe. The restructuring charges consist of:

• a $0.9 million asset impairment charge for the write down of certain assets held for sale to their estimated realizable value of approximately $0.5 million. The fair values were estimated and prepared based on comparative market values for similar equipment.

• a $1.9 million charge related to reductions of force in Europe. Approximately 18 employees were terminated and $0.3 million of the charge was paid before December 31, 2002, while the remaining amounts will be paid through December 2003.

The impaired assets, other than the Irving, Texas facility and certain assets in Europe, which are currently being held for sale, will continue to be depreciated over their remaining useful lives.

The restructuring actions underlying the asset impairment and restructuring charges are proceeding as planned. The 2001 asset impairment and restructuring actions resulted in expense reductions of $107 million in 2002, consisting in $105 million reduction in cost of revenue and $2 million reduction in operating expenses. We believe that the 2002 asset impairment and restructuring actions will result in expense reductions of $96 million in 2003, consisting of $95 million reduction in cost of revenue and $1 million reduction in operating expenses.

If business conditions do not improve, we may take actions to further reduce our costs, which will result in additional restructuring charges. See Note 15 of Notes to Consolidated Financial Statements.

In February 2003, we decided to evaluate various strategic alternatives available to us, including a potential sale of the plant, with respect to the Nantes, France, fabrication facility. This facility was acquired in 1998, when we purchased the IC business of Temic Telefunken Microelectronic. The fabrication facility will remain active and continue to manufacture products until a final decision is made about its future. Given the current market for semiconductor manufacturing facilities, it is not clear if we will be able to sell the operations. We may be required to record an impairment charge if estimated cash flow from these operations are not sufficient to recover the carrying value of the assets and if we determine the in-use fair value of the facility is less than our current carrying value of $17 million. In the event a buyer cannot be found, we will consider various alternatives, including ceasing manufacturing operations in the fabrication facility, which may require us to take further restructuring charges for terminating employees and decommissioning equipment, and additional impairment charges if the liquidation value of assets is less than our carrying value.

Interest and Other Income and Interest Expense

Interest and other income decreased by $11 million to $31 million in 2002 compared to $42 million in 2001. The decline is due to a combination of a lower level of invested funds, lower interest rates received and higher losses realized on foreign exchange transactions, partially offset by larger gains recognized in 2002, primarily on the repurchase of convertible notes of $15 million and sale of land in San Jose of $3 million. Interest expense decreased by $7 million in 2002 from 2001 due to a decrease in outstanding borrowings.

Interest and other income decreased by $12 million to $42 million in 2001 compared to $54 million in 2000. The decline is due to a combination of a lower level of invested funds and lower interest rates received. Interest expense increased by $3 million in 2001 from 2000 due to an increase in outstanding borrowings.

Taxes on Income

We recorded a tax expense of $90.2 million and an income tax benefit of $113 million for the fiscal years ended December 31, 2002 and 2001, respectively. This resulted in an effective tax rate of 16.36% for 2002 and an effective tax benefit rate of 21.30% for 2001.

The significant increase in income tax expense recorded for 2002 can be attributed primarily to an increase in the valuation allowance recorded against deferred tax assets during the year. We have realized cumulative losses for the 2002 and 2001 years. Based on this and all other available evidence, management has determined that it is not more likely than not that the deferred tax assets will be realized. As a result, substantially all of deferred tax assets are reserved, resulting in income tax expense for the year ended December 31, 2002. The income tax expense is partially offset by tax refunds of $60 million expected to be realized in the U.S. and increased further by additional tax liabilities incurred by our foreign subsidiaries.

Our 2000 and 2001 U.S. federal tax returns are currently under examination by the Internal Revenue Service (IRS). The IRS has completed its examination of our 1994 through 1999 tax years and we are currently

pursuing resolution of all tax issues with the IRS Appeals Division. In addition, we have various tax audits in progress in certain states that we conduct business. Further, certain of our foreign subsidiaries with operations in France and Germany have tax audits in progress in those jurisdictions. We believe that we have adequately provided for all tax, interest and penalties that may arise upon resolution of the respective tax issues.

Net (Loss) Income

We reported a net loss of $642 million for 2002 compared to net loss of $418 million for 2001. The loss in 2002 was caused by a combination of the $384 million restructuring and asset impairment charges we recorded in the second, third, and fourth quarters (see Note 15 of Notes to Consolidated Financial Statements), the valuation allowance on deferred tax assets we provided and by the decline in net revenues of $278 million in 2002 compared to 2001 which we were not able to match with corresponding reductions in costs.

We reported a net loss of $418 million for 2001 compared to net income of $266 million for 2000. The loss in 2001 was caused by a combination of the $481 restructuring charge we recorded in the third quarter (see Note 15 of Notes to Consolidated Financial Statements) and by the decline in net revenues of $540 million in 2001 compared to 2000 which we were not able to match with corresponding reductions in costs.

At December 31, 2002, we had approximately three million shares remaining in our 1991 Employee Stock Purchase Plan (ESPP). In February 2003 we issued approximately 2.6 million shares under our ESPP to participating employees, leaving approximately 380,000 shares available for issuance under the ESPP. The current ESPP offering period commenced in February, 2003, and we do not have sufficient shares in the ESPP to fund the purchases that would be made at the close of the current offering period in August, 2003. On March 14, 2003, our Board of Directors authorized, subject to shareholder approval, an increase in the authorized shares available under the ESPP by 20 million shares. If the shareholders do not approve the increase, we will pro rate the number of shares issued under the plan at the end of the current offering period so that the number issued does not exceed the number currently available under the plan. If the shareholders approve the increase in the number of authorized shares available under the ESPP, we may incur accounting charges in the form of compensation expense with respect to those shares approved by the stockholders that are purchased under the ESPP at the end of the current offering period. This charge would equal the amount by which the fair market value of such shares on the date of stockholder approval exceeds their purchase price. (See Note 11 of Notes to Consolidated Financial Statements)

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002 we had $346 million of cash and cash equivalents, compared to $333 million at December 31, 2001. Total current assets exceeded total current liabilities by 1.4 times at December 31, 2002, compared to 1.6 times at December 31, 2001. Short-term investments decreased to $99 million at December 31, 2002 from $260 million at December 31, 2001, as funds have been used to help reduce our debt obligations by $200 million from $949 million to $749 million and trade accounts payable to $95 million at December 31, 2002 from $147 million at December 31, 2001, offset by income tax refunds received of $80 million. Our working capital decreased by $137 million to $317 million during 2002 as we used funds to service our debt obligations. Our current liabilities decreased by only $30 million even though accounts payable and the current portion of long-term debt decreased by $52 million and $94 million respectively. This is primarily because we have classified the carrying amount of the 2018 convertible notes, which were included in non-current liabilities at December 31, 2001, as a current liability for $132 million at December 31, 2002. The 2018 convertible notes are redeemable at the option of the holders as of April 21, 2003, 2008, and 2013, at prices equal to the issue price plus the accrued interest. If the holders exercise this “put” option, we may, at our option, choose to redeem the debt, which will be approximately $135 million in April 2003, for cash or with our common stock, or any combination of the two. On March 4, 2003, we announced our intention to use cash to repurchase the 2018 convertible notes if redeemed by note holders in April 2003. If the note-holders submit all these notes for redemption in April 2003, as we currently expect, we will use approximately $135 million of our cash and cash equivalents and short-term investments to redeem them.

The Company’s accounts receivable increased 5% to $195 million at December 31, 2002 from $187 million at December 31, 2001. The average days of accounts receivable outstanding was 58 days at the end of the fourth quarter 2002 as compared to 60 days at the end of fourth quarter 2001. Average days outstanding could increase if the current downturn in the semiconductor industry, which began late in 2000, continues. We monitor collection risks and provide an adequate allowance for doubtful accounts related to these risks. While there can be

no guarantee of collecting these receivables, we believe that substantially all net receivables will be collected given customers’ current credit ratings.

Inventories decreased by $26 million to $276 million at December 31, 2002 from $302 million at December 31, 2001. Days sales in inventory were 106 days at December 31, 2002 compared to 119 days at December 31, 2001. We are continuing to take measures to reduce manufacturing costs and balance production rates in line with reduced demand, but the fixed nature of many manufacturing costs and the long semiconductor production cycle time limits our ability to respond as quickly as demand for our products changes.

The following table describes our commitments to settle contractual obligations in cash as of December 31, 2002. (see Note 7 of Notes to Consolidated Financial Statements)


(In thousands)
	Principal payments due by period (excluding future interest)

Contractual Obligations	Up to 1 year			2-3 years		4-5 years			After 5 years		Total

Notes payable	$	14,571		$	20,049	$	1,985		$	713	$	37,318
Capital leases		148,873			191,766		30,373			14,375		385,387
Convertible notes		132,485	^a		—		194,248	^b		—		326,733

Subtotal debt obligations		295,929			211,815		226,606			15,088		749,438
Operating leases		10,919			10,982		5,194			666		27,761
Other long-term obligations		—			29,494		20,000			64,668		114,162

Total contractual cash obligations	$	306,848		$	252,291	$	251,800		$	80,422	$	891,361

(a)		Zero coupon convertible debt issued in April 1998 is not redeemable by us prior to April 21, 2003. Thereafter, the debt will be redeemable for cash, at our option in whole at any time or in part from time to time at redemption prices equal to the issue price plus accrued interest. In addition, the debt is redeemable at the option of the holder as of April 21, 2003, 2008 and 2013, at prices equal to the issue price plus accrued interest. If redeemed at the option of the holder, we may, at our option, elect to redeem the debt for cash or our common stock, or any combination thereof (see Note 7 of Notes to Consolidated Financial Statements). On March 4, 2003, we announced our intention to use cash to repurchase the 2018 convertible notes, if redeemed by note holders in April 2003.

(b)		Zero coupon convertible debt issued in May 2001 is redeemable for cash, at our option, at any time on or after May 23, 2006 in whole or in part at redemption prices equal to the issue price plus accrued original issue discount. At the option of the holders on May 23, 2006, 2011 and 2016, we may be required to redeem the debt at prices equal to the issue price plus accrued original issue discount through date of repurchase. If redeemed at the option of the holder, we may elect to pay the repurchase price in cash, in shares of common stock or in any combination of the two (see Note 7 of Notes to Consolidated Financial Statements). We estimate that the redemption price of these notes in May 2006 would be approximately $228 million.

Other long-term obligations consist principally of future repayments of $115 million of advances from customers, of which $10 million have been classified as current liabilities (see Note 3 of Notes to Consolidated Financial Statements).

We have $52 million of debt obligations that require compliance with certain financial covenants and approximately $34 million of debt obligations with cross default provisions. With the economic downturn, we were required to renegotiate and amend certain of these covenants with the lenders, requiring us to maintain restricted cash balance of $22 million with them. We were in compliance with covenants at the end of the year. If we need to renegotiate any of these covenants in the future, and the lenders refuse and we are unable to comply with the covenants, then we may immediately be required to repay the loans concerned. In the event we are required to repay these loans ahead of their due dates, we believe that we have the resources to make such repayments, but such payments could adversely impact our liquidity.

Our ability to service long-term debt in the US or to obtain cash for other needs from our foreign subsidiaries may be structurally impeded. Since a substantial portion of our operations are conducted through our foreign subsidiaries, our cash flow and ability to service debt are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to the US parent corporation. These foreign subsidiaries are separate and distinct legal entities and may have limited or no obligation, contingent or otherwise, to pay any amounts to us, whether by dividends,

distributions, loans or other payments. However, the US parent corporation owes much of our consolidated long-term debt, including our two outstanding issues of convertible notes.

During 2003 we expect our operations to generate positive cash flow; however, cash will be used to repay debt and make capital investments during 2003. The amount of cash we use in 2003 will depend largely on the amount of cash generated from our operations. Currently, we expect our 2003 capital expenditures to be approximately $60 million. In 2004 and future years, our capacity to make significant capital investments will depend on our ability to generate substantial cash flow from operations and on our ability to obtain adequate financing.

Cash Flow

Operating Activities: During the year ended December 31, 2002, net cash provided by operating activities was $196 million, compared to $297 million in the same period of 2001, a decrease of $101 million, or 34%. The decrease in cash provided by operating activities is primarily due to increased net loss, offset by cash provided from tax refunds and inventory reductions. Depreciation and amortization, a cost not requiring cash, decreased by $48 million compared to the same period of 2001.

During the year ended December 31, 2001, net cash provided by operating activities was $297 million, compared to $694 million in the same period of 2000, a decrease of $397 million, or 57%. The decrease in cash provided by operating activities is primarily due to reduced net income and because cash was used to reduce accounts payable and other accrued liabilities, offset by cash provided from collections of accounts receivable. Depreciation and amortization, a cost not requiring cash, increased by $54 million compared to the same period of 2000.

Investing Activities: Net cash provided by investing activities was $52 million during 2002, compared to cash used in investing activity of $509 million during 2001, a decrease of $561 million. This decrease in cash used in investing activities was primarily due to reduction in acquisition of fixed assets to $104 million in 2002 from $818 million in 2001, increase in sales of fixed assets to $22 million in 2002 from $2 million in 2001, as well as a net liquidation of investments of $156 million in 2002 compared to $257 million of net liquidation of investments in 2001.

Cash used in investing activities was $509 million during 2001, compared to $1.3 billion during 2000, a decrease of $811 million. This decrease in cash used in investing activities was primarily due to a net liquidation of investments of $257 million in 2001 compared to a net growth of investments of $348 million in 2000. Also, our acquisition of fixed assets in 2001 was $143 million lower than in 2000.

Financing Activities: Net cash used by financing activities totaled $270 million in 2002 compared with $105 million net cash flows generated by financing activities in 2001. The principal reason for the decline was our receipt of $200 million in proceeds from convertible notes in 2001, and no proceeds from convertible debt financings in 2002. We also engaged in lease financing of $6 million in 2002 compared to $105 million in 2001, a decrease of $99 million. Additionally, we repurchased our convertible notes for $22 million and common stock for $8 million in 2002, and made no such repurchases in 2001. In October 2002, the Board of Directors authorized the repurchase of up to 100 million shares of the Company’s common stock. See Note 8 of Notes to Consolidated Financial Statements.

Net cash flows generated by financing activities totaled $105 million in 2001 compared with $844 million in 2000. The principal reason for the decline was our receipt of $683 million in net proceeds from public stock offerings in the first and third quarters 2000, and no equity financings in 2001. Additionally, we engaged in lease financing of $105 million in 2001 compared to $307 million in 2000, a decrease of $202 million.

Whenever possible, capacity improvements and expansions have been funded from our operating results. However, since 2001 our gross margins came under pressure because we sold fewer units and generated less revenue while many costs we put in place during 2000 continued at their previous levels, harming our results.

Cash flow from operations is currently the principal source of our liquidity and our funding for capacity enhancement or expansion and it will decrease if our revenues continue to decline. Our ability to borrow funds on favorable terms, or at all, is reduced when our operating cash flow declines. We believe that our existing balance of cash, cash equivalents and short-term investments, together with anticipated cash flow from operations, sale of assets, equipment lease financing, and other short- and medium-term bank borrowings, will be sufficient to meet

our liquidity and capital requirements for the next 12 months. In the longer term, we believe our ability to access additional equity or debt financings to fund our liquidity needs and planned capital expenditures will be dependent on increased revenues and improved operating results. The timing and amount of such liquidity and the capital requirements cannot be precisely determined at this time and will depend upon a number of factors, including demand for products, product mix, improved semiconductor industry conditions and competitive factors. If additional debt or equity financing was not available when needed or, if available, not available on satisfactory terms, we would be dependent on cash flow from operations to meet our working capital requirements.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued FASB Statements Nos. 141 and 142 (SFAS 141 and SFAS 142), “Business Combinations” and “Goodwill and Other Intangible Assets.” SFAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating the goodwill might be impaired. SFAS 141 and SFAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of SFAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceases, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS 141 are reclassified to goodwill. Companies are required to adopt SFAS 142 for fiscal years beginning after December 15, 2001. We adopted SFAS 142 on January 1, 2002, the beginning of fiscal 2002. The implementation of these standards did not have a material impact on our results of operations, as amortization of goodwill was approximately $2,000 in 2001.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. We expect that the initial application of SFAS No. 143 will not have a material impact on our financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for us for all financial statements issued in calendar 2002 and was used as the guidance for the asset impairment charges recorded by us in 2002.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates Statement No. 4 (and Statement No. 64, as it amends Statement No. 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB’s goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition, SFAS No. 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is effective for fiscal years beginning after May 2002 for the provisions related to the rescission of Statements No. 4 and No. 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13 although early adoption is permitted. We have early adopted SFAS No. 145, and the gain on the repurchase of convertible notes is not shown as an extraordinary item in our Statement of Operations.

In June 2002 the FASB adopted FASB Statement No. 146 (SFAS 146), “Accounting for Exit or Disposal Activities”, effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring).” A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The scope of FAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement or an individual deferred-compensation contract. We do not expect the implementation of this standard to have a material impact on our results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We are required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in our annual financial statements for the year ending December 31, 2002 and must also provide the disclosures in our quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ended March 31, 2003. We have included additional disclosures in accordance with SFAS No. 148 in Notes 1 and 11 of Notes to Consolidated Financial Statements.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about guarantees that an entity has issued, including a rollforward of the entity’s product warranty liabilities. We will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 31, 2002. We do not expect the implementation of this standard to have a material impact on our results of operations. We have included additional disclosures in accordance with FIN 45 in Note 9 of Notes to Consolidated Financial Statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity, if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are currently evaluating the effect that the adoption of FIN 46 will have on our results of operations and financial condition.

TRENDS, UNCERTAINTIES AND RISKS

OUR REVENUES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY DUE TO A VARIETY OF FACTORS, WHICH MAY RESULT IN VOLATILITY OR A DECLINE IN OUR STOCK PRICE.

Our future operating results will be subject to quarterly variations based upon a wide variety of factors, many of which are not within our control. These factors include:

• the cyclical nature of both the semiconductor industry and the markets addressed by our products

• fluctuations in manufacturing yields

• the timing of introduction of new products

• the timing of customer orders

• price erosion

• changes in mix of products sold

• the extent of utilization of manufacturing capacity

• product obsolescence

• availability of supplies and raw materials

• price competition and other competitive factors, and

• fluctuations in currency exchange rates.

Any unfavorable changes in any of these factors could harm our operating results.

Beginning late in the fourth quarter 2000, the semiconductor industry began to experience a downturn. Our business has been impacted by this recent downturn, with the effect that our net revenues of $1,194 million in 2002 declined by $278 million, or 19% from $1,472 million in 2001. This decline was the second sequential annual decline in our revenue. In 2001, our revenue declined by $541 million, or 27%, from $2,013 million in 2000. We cannot predict with any degree of certainty when business conditions will improve.

We believe that our future sales will depend substantially on the success of our new products. Our new products are generally incorporated into our customers’ products or systems at the design stage. However, design wins may precede volume sales by a year or more. We may not be successful in achieving design wins or design wins may not result in future revenues, which depend in large part on the success of the customer’s end product or system. We expect the average selling price of each of our products to decline as individual products mature and competitors enter the market. To offset average selling price decreases, we rely primarily on reducing costs to manufacture those products, increasing unit sales to absorb fixed costs and introducing new, higher priced products which incorporate advanced features or integrated technologies to address new or emerging markets. Our operating results could be harmed if such cost reductions and new product introductions do not occur in a timely manner. From time to time, our quarterly revenues and operating results can become more dependent upon orders booked and shipped within a given quarter and, accordingly, our quarterly results can become less predictable and subject to greater variability.

In addition, our future success will depend in large part on the resurgence of various electronics industries that use semiconductors, including manufacturers of computers, telecommunications equipment, automotive electronics, industrial controls, consumer electronics, data networking equipment and military equipment, and economic growth generally. The semiconductor industry has the ability to supply more product than demand requires. Our successful return to profitability will depend heavily upon a better supply and demand balance within the semiconductor industry.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY CREATES FLUCTUATIONS IN OUR OPERATING RESULTS

The semiconductor industry has historically been cyclical, characterized by wide fluctuations in product supply and demand. The industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. The industry is currently experiencing this type of downturn. The semiconductor industry faced severe business conditions with global semiconductor revenues for the industry declining 32% to approximately $139 billion in 2001 compared to revenues in 2000. Global semiconductor revenues for 2002 were approximately $141 billion in 2002 which, while representing some level of stabilization, was an indication that demand in our business remains at a low ebb. These downturns have been characterized by diminished product demand, production overcapacity and accelerated decline of average selling prices. The current downturn is widely thought to be the worst that the semiconductor industry has ever experienced and has lasted for over two years. If the current downturn continues our results of operations would be further harmed. The commodity memory portion of the semiconductor industry, from which we derived 30% of our revenues in 2002, compared to 42% of our revenues in 2001, and 52% of our revenues in 2000, continued to suffer from excess capacity in 2002 and continued price reductions during those periods. We cannot predict with any degree of certainty when the current downturn will reverse.

During the current downturn and in the past, our operating results have also been harmed by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and declining gross margins. In 2001 we recorded a $463 million charge to recognize impairment in value of our manufacturing equipment in Colorado Springs, Colorado, Rousset, France and Nantes, France. In addition, we recorded a $18 million charge for the costs of reducing our workforce in our European manufacturing operations. We also recorded an asset impairment charge of $341 million in the second quarter 2002 to write down to fair value the book value of our fabrication equipment in Irving, Texas and North Tyneside, U.K. We recorded a restructuring and asset impairment charge in the third quarter of 2002 of $40 million, primarily in connection with the closing of our Irving, Texas 8-inch wafer fabrication facility and making it available for sale. The charges consisted of costs for reduction in headcount, asset write-downs, and expenses associated with our decision to close the facility. The additional asset write down of the Irving facility was necessary because the original charge was based on an outside appraisal that assumed that the assets would continue in use at their current location. If the difficult conditions that exist in the semiconductor industry do not improve, we may not be able to realize the current carrying value for the facility. Our business may be harmed in the future not only by cyclical conditions in the semiconductor industry as a whole but also by slower growth in any of the markets served by our customer products.

OUR LONG-TERM DEBT COULD HARM OUR ABILITY TO OBTAIN ADDITIONAL FINANCING, AND OUR ABILITY TO MEET OUR DEBT OBLIGATIONS WILL BE DEPENDENT UPON OUR FUTURE PERFORMANCE.

As of December 31, 2002, our long term convertible notes and long term debt less current portion was $454 million compared to $693 million at December 31, 2001, and $669 million at December 31, 2000. Our long-term debt (less current portion) to equity ratio at December 31, 2002 and December 31, 2001 was 0.5. Our current debt levels as well as any increase in our debt-to-equity ratio could adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and make us more vulnerable to industry downturns and competitive pressures.

Our ability to meet our debt obligations will depend upon our future performance and ability to generate substantial cash flow from operations, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to meet debt obligations or otherwise are obliged to repay any debt prior to its due date, our available cash would be depleted, perhaps seriously, and our ability to fund operations harmed.

Our ability to service long-term debt in the US or to obtain cash for other needs of the Atmel group from our foreign subsidiaries may be structurally impeded. Since a substantial portion of our operations is conducted through our subsidiaries, our cash flow and ability to service debt are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to the US parent corporation. These subsidiaries are separate and distinct legal entities and may have limited or no obligation, contingent or otherwise, to pay any amounts to us, whether by dividends, distributions, loans or other payments. However, the US parent corporation owes much of our consolidated long-term debt, including our two outstanding issues of convertible notes.

In addition, the payment of dividends or distributions and the making of loans and advances to the US parent corporation by any of our subsidiaries could in the future be subject to statutory or contractual restrictions or depend on other business considerations and be contingent upon the earnings of those subsidiaries. Any right held by the US parent corporation to receive any cash or other assets of any of our subsidiaries upon its liquidation or reorganization will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors. Although the US parent corporation may be recognized as a creditor, its interests will be subordinated to other creditors whose interests will be given higher priority.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.

Semiconductor companies that maintain their own fabrication facilities have substantial capital requirements. We made capital expenditures aggregating $1,951 million in 1999, 2000 and 2001, in large part preparing for expected increases in demand, and in light of falling demand have recognized asset impairment charges aggregating $828 million in 2001 and 2002. We intend to continue to make capital investments to support new products and manufacturing processes that achieve manufacturing cost reductions and improved yields. Currently, we expect our 2003 capital expenditures to be approximately $60 million. We may seek additional equity or debt financing to fund further enhancement of our wafer fabrication capacity or to fund other projects. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for products, product mix, changes in semiconductor industry conditions and competitive factors. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms.

IF WE DO NOT SUCCESSFULLY ADJUST OUR MANUFACTURING CAPACITY IN LINE WITH DOWNTURNS IN OUR INDUSTRY OR INCREASES IN DEMAND, OUR BUSINESS COULD BE HARMED.

In 2000 and 2001, we made substantial capital expenditures to increase our wafer fabrication capacity at our facilities in Colorado Springs, Colorado and Rousset, France. We also currently manufacture our products at our facilities in Heilbronn, Germany and Nantes, France.

During periods of economic downturn within the semiconductor industry, such as the current downturn that began late in the fourth quarter 2000, we need to suspend or reduce our manufacturing capacity to a level that meets demand for our products in order to achieve and maintain profitability. Expensive manufacturing machinery must be underutilized or even sold off at significantly discounted prices, although we continue to be liable to make payments on the debt that financed its purchase. At the same time, employee and other manufacturing costs must be reduced.

Since 2001, our gross margin declined significantly as a result of the increase in fixed costs and operating expenses related to the expansion of capacity in 2000 and 2001 and lower unit sales over which to spread these costs. If the most recent downturn in the semiconductor industry continues into 2003 or worsens, our inability to reduce fixed costs, such as depreciation, and employee and other expenses necessary to maintain and operate our wafer manufacturing facilities would further harm our operating results.

We announced in the third quarter 2001 that we were ceasing high volume production at one of our two wafer fabrication facilities in Colorado Springs, Colorado and at one of our facilities in Europe. We announced in July 2002 that we were closing, prior to beginning commercial production, our wafer fabrication facility located in Irving, Texas that we acquired in 2000, and we have put the facility on the market. In February 2003, we decided to evaluate the potential sale of our fabrication facility in Nantes, France. We continue to evaluate the current restructuring and asset impairment reserves as the restructuring plans are being executed. As a result, there may be additional charges/reversals.

Reducing our wafer fabrication capacity involves significant potential costs and delays, particularly in Europe, where we have substantial manufacturing facilities and where the extensive statutory protection of employees imposes substantial costs and delays on their employers when the market requires downsizing. Such costs and delays include compensation to employees and local government agencies, requirements and approvals of governmental and judicial bodies, and losses of governmental subsidies. We may experience labor union objections or other difficulties while implementing any additional downsizing that we may be required to make if the current downturn continues or worsens. Any such difficulties that we experience would harm our business and operating results, either by deterring needed downsizing or by the additional costs of accomplishing it in Europe relative to America or Asia.

If a rebound occurs in the worldwide semiconductor industry and we cannot expand our capacity on a timely basis, we could experience significant capacity constraints that would prevent us from meeting increased customer demand, which would also harm our business.

Expanding our wafer fabrication capacity involves significant risks, including shortages of materials and skilled labor, unavailability and high cost of semiconductor manufacturing and testing equipment, and requirements and approvals of governmental and judicial bodies. Any one of these risks could delay the building, equipping and production start-up of a new facility or the expansion of an existing facility, and could involve significant additional costs or reduce our anticipated revenues. In addition, the depreciation and other expenses that we incur in connection with the expansion of our manufacturing capacity may continue to reduce our gross margins in future periods.

The cost of expanding our manufacturing capacity at our existing facilities, acquiring additional facilities, maintaining existing or additional facilities or implementing new manufacturing technologies is typically funded through a combination of available cash resources, cash from operations and additional lease, debt or equity financing. Our available cash from operations has not been sufficient since the current downturn began to finance expansion of our facilities or the implementation of new technologies, and may remain insufficient if the downturn continues. In light of our recent losses since the middle of 2001, we may not be able to obtain from external sources the additional financing necessary to fund the maintenance or expansion of our manufacturing facilities or the implementation of new manufacturing technologies.

IF WE ARE UNABLE TO EFFECTIVELY UTILIZE OUR WAFER MANUFACTURING CAPACITY AND FAIL TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, OUR BUSINESS WOULD BE HARMED.

Whether demand for semiconductors is rising or falling, we are constantly required by competitive pressures in the industry to successfully implement new manufacturing technologies in order to reduce the geometries of our semiconductors and produce more integrated circuits per wafer. Currently we are working towards reducing the geometries of our semiconductors to 0.13-micron line widths.

Fabrication of our integrated circuits is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. We may experience problems in achieving acceptable yields in the manufacture of wafers, particularly when we expand our manufacturing capacity or during a transition in the manufacturing process technology that we use.

We have previously experienced production delays and yield difficulties in connection with earlier expansions of our wafer fabrication capacity or transitions in manufacturing process technology. Production delays or difficulties in achieving acceptable yields at any of our fabrication facilities could materially and adversely affect our operating results. We may not be able to obtain the additional cash from operations or external financing necessary to fund the implementation of new manufacturing technologies.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE DO NOT COMPETE EFFECTIVELY, WE MAY SUFFER PRICE REDUCTIONS, REDUCED REVENUES, REDUCED GROSS MARGINS, AND LOSS OF MARKET SHARE.

We compete in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as AMD, Fujitsu, Hitachi, Intel, LSI Logic, Microchip, Sharp and STMicroelectronics. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we have introduced our new products, we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability.

We are experiencing significant price competition in our nonvolatile memory business and especially for EPROM and Flash products. We expect continuing competitive pressures in our markets from existing competitors

and new entrants, which, among other things, will likely maintain the recent trend of declining average selling prices for our products.

In addition to the factors described above, our ability to compete successfully depends on a number of factors, including the following:

Many of these factors are outside of our control, and we may not be able to compete successfully in the future.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

The average selling prices of our products historically have decreased over the products’ lives and are expected to continue to do so. As a result, our future success depends on our ability to develop and introduce new products which compete effectively on the basis of price and performance and which address customer requirements. We are continually designing and commercializing new and improved products to maintain our competitive position. These new products typically are more technologically complex than their predecessors, and thus have increased potential for delays in their introduction.

The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. Our development of new products and our customers’ decision to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or by technologies serving the markets addressed by our products. Our qualification process involves multiple cycles of testing and improving a product’s functionality to ensure that our products operate in accordance with design specifications. If we experience delays in the introduction of new products, our future operating results could be harmed.

In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our future growth will depend in part upon the successful development and market acceptance of these process technologies. Our integrated solution products require more technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with smaller feature sizes, the fabrication of which will be substantially more complex than fabrication of our current products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product development, process development, or marketing and sales efforts may not be successful, our new products may not achieve market acceptance, and price expectations for our new products may not be achieved, any of which could harm our business.

OUR OPERATIONS AND FINANCIAL RESULTS COULD BE HARMED BY NATURAL DISASTERS OR TERRORIST ACTS.

Since the attacks on the World Trade Center and the Pentagon, insurance coverage has been reduced and made subject to additional conditions, and we have not been able to maintain all necessary insurance coverage at reasonable cost. Instead, we have relied to a greater degree on self-insurance. For example, we now cover the expense of property loss up to $10 million per event. Our headquarters, some manufacturing facilities and some of our major vendors’ and customers’ facilities are located near major earthquake faults and in potential terrorist target areas. If a major earthquake or other disaster or a terrorist act impacts us and insurance coverage is unavailable for

any reason, we may need to spend significant amounts to repair or replace our facilities and equipment, we may suffer a temporary halt in our ability to transport product and we could suffer damages of an amount sufficient to harm our business, financial condition and results of operations.

OUR OPERATING RESULTS ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO VARIOUS POLITICAL AND ECONOMIC RISKS.

Sales to customers outside North America accounted for approximately 78%, 75% and 64% of net revenues in 2002, 2001 and 2000. We expect that revenues derived from international sales will continue to represent a significant portion of net revenues. In recent years we have significantly expanded our international operations, most recently through our acquisitions of a wafer fabrication facility in North Tyneside, U.K. in September 2000, and a subsidiary, Atmel Grenoble in May 2000. International sales and operations are subject to a variety of risks, including:

• greater difficulty in protecting intellectual property

• greater difficulty in staffing and managing foreign operations

• reduced flexibility and increased cost of staffing adjustments, particularly in France and Germany

• greater risk of uncollectible accounts

• longer collection cycles

• potential unexpected changes in regulatory practices, including export license requirements, trade barriers, tariffs and tax laws

• sales seasonality, and

• general economic and political conditions in these foreign markets.

Further, we purchase a significant portion of our raw materials and equipment from foreign suppliers, and we incur labor and other operating costs in foreign currencies, particularly at our French, German and U.K. manufacturing facilities. As a result, our costs will fluctuate along with the currencies and general economic conditions in the countries in which we do business, which could harm our operating results.

Approximately 75%, 79% and 75% of our sales in 2002, 2001 and 2000 were denominated in U.S. dollars. During these periods our products became less price competitive in countries with currencies declining in value against the dollar. In 1998, business conditions in Asia were severely affected by banking and currency issues that adversely affected our operating results. While these conditions stabilized in 2000 and 1999, any adverse developments in business and financial conditions in Asia, where 43%, 38% and 34% of our revenues were generated in 2002, 2001 and 2000, would likely harm our operating results.

WHEN WE TAKE FOREIGN ORDERS DENOMINATED IN LOCAL CURRENCIES, WE RISK RECEIVING FEWER DOLLARS WHEN THESE CURRENCIES WEAKEN AGAINST THE DOLLAR, AND MAY NOT BE ABLE TO ADEQUATELY HEDGE AGAINST THIS RISK.

When we take a foreign order denominated in a local currency we will receive fewer dollars than initially anticipated if that local currency weakens against the dollar before we collect our funds. In addition to reducing revenues, this risk will negatively affect our operating results. In Europe, where our significant operations have costs denominated in European currencies, these negative impacts on revenues can be partially offset by positive impacts on costs. However, in Japan, while our yen denominated sales are also subject to exchange rate risk, we do not have significant operations with which to counterbalance our exposure. Sales denominated in European currencies and yen were 22% and 3% of our revenues in 2002 compared to 16% and 5% in 2001, and 19% and 6% in 2000, respectively. We also face the risk that our accounts receivable denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar.

PROBLEMS THAT WE EXPERIENCE WITH KEY CUSTOMERS OR DISTRIBUTORS MAY HARM OUR BUSINESS.

Our ability to maintain close, satisfactory relationships with large customers is important to our business. A reduction, delay, or cancellation of orders from our large customers would harm our business. The loss of one or more of our key customers, or reduced orders by any of our key customers, could harm our business and results of operations. Moreover, our customers may vary order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods.

We sell many of our products through distributors. Our distributors could experience financial difficulties or otherwise reduce or discontinue sales of our products. Our distributors could commence or increase sales of our competitors’ products. In any of these cases, our business could be harmed.

WE ARE NOT PROTECTED BY LONG-TERM CONTRACTS WITH OUR CUSTOMERS.

We do not typically enter into long-term contracts with our customers, and we cannot be certain as to future order levels from our customers. When we do enter into a long-term contract, the contract is generally terminable at the convenience of the customer. In the event of an early termination by one of our major customers, it is unlikely that we will be able to rapidly replace that revenue source, which would harm our financial results.

OUR FAILURE TO SUCCESSFULLY INTEGRATE BUSINESSES OR PRODUCTS WE HAVE ACQUIRED COULD DISRUPT OR HARM OUR ONGOING BUSINESS.

We have from time to time acquired, and may in the future acquire additional, complementary businesses, products and technologies. Achieving the anticipated benefits of an acquisition depends, in part, upon whether the integration of the acquired business, products or technology is accomplished in an efficient and effective manner. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things, integration of product offerings, manufacturing operations and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations, the complexity of the technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining two different corporate cultures.

The integration of operations following an acquisition requires the dedication of management resources that may distract attention from the day-to-day business, and may disrupt key research and development, marketing or sales efforts. The inability of management to successfully integrate any future acquisition could harm our business. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions.

WE MAY FACE THIRD PARTY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO DEFEND AND RESULT IN LOSS OF SIGNIFICANT RIGHTS.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which on occasion, have resulted in significant and often protracted and expensive litigation. We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products or processes. In the past, we have received specific allegations from major companies alleging that certain of our products infringe patents owned by such companies. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and be required to make corresponding royalty payments, which may harm our operating results.

We have in the past been involved in intellectual property infringement lawsuits, which harmed our operating results. Although we intend to vigorously defend against any such lawsuits, we may not prevail given the complex technical issues and inherent uncertainties in patent and intellectual property litigation. Moreover, the cost of defending against such litigation, in terms of management time and attention, legal fees and product delays, could be substantial, whatever the outcome. If any patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims, and if we are unable to obtain a license on acceptable terms, license a substitute technology, or design new technology to avoid infringement, our business and operating results may be significantly harmed.

WE DEPEND ON INDEPENDENT ASSEMBLY CONTRACTORS WHICH MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS AND WHICH MAY NOT MEET OUR QUALITY AND DELIVERY OBJECTIVES.

We manufacture wafers for our products at our fabrication facilities, and the wafers are then sorted and tested at our facilities. After wafer testing, we ship the wafers to one of our independent assembly contractors located in China, Hong Kong, Japan, Malaysia, the Philippines, South Korea, or Taiwan where the wafers are separated into die, packaged and, in some cases, tested. Our reliance on independent contractors to assemble, package and test our products involves significant risks, including reduced control over quality and delivery schedules, the potential lack of adequate capacity and discontinuance or phase-out of the contractors’ assembly processes. These independent contractors may not continue to assemble, package and test our products for a variety of reasons. Moreover, because our assembly contractors are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions and changes in tariff and freight rates. Accordingly, we may experience problems in timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS, WHICH COULD IMPOSE UNANTICIPATED REQUIREMENTS ON OUR BUSINESS IN THE FUTURE. ANY FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS MAY SUBJECT US TO LIABILITY OR SUSPENSION OF OUR MANUFACTURING OPERATIONS.

We are subject to a variety of federal, state and local governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. Increasing public attention has been focused on the environmental impact of semiconductor operations. Although we have not experienced any material adverse effect on our operations from environmental regulations, any changes in such regulations or in their enforcement may impose the need for additional capital equipment or other requirements. If for any reason we fail to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations, we could be subject to substantial liability or our manufacturing operations could be suspended.

WE DEPEND ON CERTAIN KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY SERIOUSLY HARM OUR BUSINESS.

Our future success depends in large part on the continued service of our key technical and management personnel, and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and in the development of new products and processes. The competition for such personnel is intense, and the loss of key employees, none of whom is subject to an employment agreement for a specified term or a post-employment non-competition agreement, could harm our business.

BUSINESS INTERRUPTIONS COULD HARM OUR BUSINESS.

Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, business interruption insurance may not be enough to compensate us for losses that may occur and any losses or damages incurred by us as a result of business interruptions could significantly harm our business.

SYSTEM INTEGRATION DISRUPTIONS COULD HARM OUR BUSINESS.

We are currently making enhancements to our integrated financial and supply chain management system and transitioning some of our operational procedures at the same time. This transition process is complex, time-consuming and expensive. Operational disruptions during the course of this transition process or delays in the implementation of this new system could adversely impact our operations. Our ability to forecast sales demand, ship products, manage our product inventory and record and report financial and management information on a timely and accurate basis could be impaired during the transition period.

PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND PREFERRED SHARES RIGHTS AGREEMENT MAY HAVE ANTI-TAKEOVER EFFECTS.

Certain provisions of our Amended and Restated Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, voting rights, preferences and privileges and restrictions of those shares without the approval of our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, by making it more difficult for a third party to acquire a majority of our stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders. We have no present plans to issue shares of preferred stock.

We also have a preferred shares rights agreement with Equiserve Trust Company, N.A., as rights agent, dated as of September 4, 1996, amended and restated on October 18, 1999 and amended as of November 7, 2001, which gives our stockholders certain rights that would likely delay, defer or prevent a change of control of Atmel in a transaction not approved by our board of directors.

OUR STOCK PRICE HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO FLUCTUATE IN THE FUTURE.

The market price of our common stock has experienced significant fluctuations and may continue to fluctuate significantly. The market price of our common stock may be significantly affected by factors such as the announcement of new products or product enhancements by us or our competitors, technological innovations by us or our competitors, quarterly variations in our results of operations, changes in earnings estimates by market analysts and general market conditions or market conditions specific to particular industries. Statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the market in which we do business or relating to us specifically could result in an immediate and adverse effect on the market price of our stock. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. These fluctuations have had a substantial effect on the market prices for many high technology companies, often unrelated to the operating performance of the specific companies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We maintain investment portfolio holdings of various issuers, types and maturities whose values are dependent upon short-term interest rates. We generally classify these securities as available for sale, and consequently record them on the balance sheet at fair value with unrealized gains and losses being recorded as a separate part of stockholders’ equity. We do not currently hedge these interest rate exposures. Given our current profile of interest rate exposures and the maturities of its investment holdings, we believe that an unfavorable change in interest rates would not have a significant negative impact on our investment portfolio or statement of operations through December 31, 2003. In addition, some of our borrowings are at floating rates, so this would act as a natural hedge.

We have short-term debt, long-term debt, capital leases and convertible notes totaling approximately $749 million at December 31, 2002. Approximately $578 million of these borrowings have fixed interest rates. We have approximately $171 million of floating interest rate debt of which $120 million is Euro denominated. We do not hedge against this interest rate risk and could be negatively affected should either of these rates increase significantly. A hypothetical 100 basis point increase in interest rates would have a $1.7 million adverse impact on income before taxes on our Consolidated Statements of Operations for 2003. While there can be no assurance that both of these rates will remain at current levels, we believe that any rate increase will not cause significant negative impact to our operations and to our financial position.

Market Risk Sensitive Instruments

We did not use derivative financial instruments in our operations during 2002.

Foreign Currency Risk

When we take a foreign order denominated in a local currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we collect our funds. In addition to reducing revenue, this risk will negatively affect our operating results. In Europe, where our significant operations have costs denominated in European currencies, these negative impacts on revenue can be partially offset by positive impacts on costs. However, in Japan, while our yen denominated sales are also subject to exchange rate risk, we do not have significant operations with which to counterbalance our exposure. Sales denominated in yen were 3% of our revenue in 2002. Sales denominated in foreign currencies were 25% in 2002, compared to 21% in 2001. We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SELECTED QUARTERLY FINANCIAL DATA


(Unaudited, in thousands, except per share data)		First Quarter			Second Quarter			Third Quarter			Fourth Quarter

Year ended December 31, 2002
Net revenues		$	275,773		$	314,753		$	298,657		$	304,631
Gross margin			52,304			69,773			41,079			67,789
Net income (loss)			(44,333	)		(478,931	)		(102,325	)		(16,207	)
Basic net income per share			(0.09	)		(1.02	)		(0.22	)		(0.03	)
Diluted net income per share			(0.09	)		(1.02	)		(0.22	)		(0.03	)
Price range of common stock/share
	High		10.14			10.85			6.12			4.05
	Low		6.90			5.82			1.06			0.70
Year ended December 31, 2001
Net revenues		$	525,944		$	366,996		$	294,752		$	284,576
Gross margin			211,194			117,054			32,808			53,589
Net income (loss)			56,014			(31	)		(442,763	)		(31,568	)
Basic net income per share			0.12			0.00			(0.95	)		(0.07	)
Diluted net income per share			0.12			0.00			(0.95	)		(0.07	)
Price range of common stock/share
	High		17.94			14.29			12.94			9.54
	Low		9.69			7.84			5.50			6.32

Other information required by this Item regarding Consolidated Financial Statements and supplementary data is set forth in the Consolidated Financial Statements and related notes, and Report of the Independent Accountants, which appear on pages 47 to 72 of this Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Information required by this Item regarding directors and executive officers set forth under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 2003 (the “2003 Proxy Statement”), is incorporated herein by reference. Information regarding Registrant’s executive officers is set forth at the end of Part I of this Report on Form 10-K under the caption “Executive Officers of the Registrant.”

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item regarding compensation of Registrant’s directors and executive officers set forth under the captions “Director Compensation” and “Executive Compensation” in the 2003 Proxy Statement is incorporated herein by reference (except to the extent allowed by Item 402 (a)(8) of Regulation S-K).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item regarding beneficial ownership of Registrant’s common stock by certain beneficial owners and management of Registrant, as well as equity compensation plans, set forth under the captions “Security Ownership” and “Equity Compensation Plan Information” in the 2003 Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item regarding certain relationships and related transactions with management set forth under the caption “Transactions with Management” in the 2003 Proxy Statement is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Within 90 days prior to the filing date of this Annual Report on Form 10-K (the “Evaluation Date”), we evaluated under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal controls.

Our review of our internal controls was made within the context of the relevant professional auditing standards defining “internal controls, “ “significant deficiencies,” and “material weaknesses.” “Internal controls” are processes designed to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. “Significant deficiencies” are referred to as “reportable conditions,” or control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. A “material weakness” is a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions. As part of our internal controls procedures, we also address other, less

significant control matters that we or our auditors identify, and we determine what revision or improvement to make, if any, in accordance with our on-going procedures.

Subsequent to the Evaluation Date, there were no significant changes in our internal controls or in other factors that could significantly affect our internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of, or incorporated by reference into, this Report on Form 10-K:

1. Financial Statements.

Consolidated Statements of Operations for the Three Years Ended December 31, 2002.

Consolidated Balance Sheets as of December 31, 2002 and 2001.

Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2002.

Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 2002.

Notes to Consolidated Financial Statements.

Report of Independent Accountants.

2. Financial Statement Schedules. The following Financial Statement Schedules for the years ended December 31, 2002, 2001 and 2000 should be read in conjunction with the Consolidated Financial Statements, and related notes thereto.


Schedule	Page

Report of Independent Accountants on Financial Statement Schedule		73
Valuation and Qualifying Accounts		74

Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.

3. Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K:

3.1 Certificate of Incorporation of Registrant, as amended to date (which is incorporated herein by reference to Exhibit 2 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).

3.2 Bylaws of Registrant, as amended.

3.3 Certificate of Determination of Rights, Preferences and Privileges of Series A Preferred Stock (which is incorporated herein by reference to Exhibit A of Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).

4.1 Amended and Restated Preferred Shares Rights Agreement dated as of October 18, 1999, between Atmel Corporation and BankBoston, N.A., a national banking association, including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights (which is incorporated herein by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).

10.1+ 1986 Incentive Stock Option Plan, as amended, and forms of stock option agreements thereunder (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 33-38882) declared effective on March 19, 1991).

10.2+ 1991 Employee Stock Purchase Plan, as amended.

10.3+ Form of Indemnification Agreement between Registrant and its officers and directors (which is incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19032).

10.4+ 1996 Stock Plan and forms of agreements thereunder.

10.5 Indenture, dated as of April 21, 1998, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as trustee thereunder (including the form of debenture) (which is incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (File No. 333-59261) filed on July 16, 1998).

10.6 First Supplemental Indenture, dated as of October 15, 1999, to Indenture dated as of April 21, 1998, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as trustee thereunder.

10.7 Registration Rights Agreement dated as of April 21, 1998, by and between the Registrant and Morgan Stanley & Co. Incorporated (which is incorporated herein by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-59261) filed on July 16, 1998).

10.8 Indenture, dated as of May 23, 2001, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as trustee thereunder (including the form of debenture) (which is incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (File No. 333-63996) filed on June 27, 2001).

10.9 Registration Rights Agreement dated as of May 23, 2001, by and among the Registrant and Morgan Stanley & Co. Incorporated, Credit Lyonnais Securities (USA) Inc. and Needham & Company, Inc. (which is incorporated herein by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-63996) filed on June 27, 2001).

21.1 Subsidiaries of Registrant.

23.1 Consent of Independent Accountants.

24.1 Power of Attorney (included on the signature pages hereof).

99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Indicates management compensatory plan, contract or arrangement.

(b) Reports on Form 8-K. The Company filed a report on Form 8-K on August 9, 2002 on the signature by its CEO and CFO of the Certifications required by SEC Order No. 4-460.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

ATMEL CORPORATION

March 24, 2003 By: /s/ George Perlegos

George Perlegos
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George Perlegos and Donald Colvin, and each of them, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on March 24, 2003 on behalf of the Registrant and in the capacities indicated:

Signature Title

/s/ George Perlegos
      (George Perlegos) President, Chief Executive Officer and Director (principal executive officer)

/s/ Robert Avery
      (Robert Avery) Interim Vice President, Finance and Chief Financial Officer (principal financial and accounting officer)

/s/ Norm Hall
      (Norm Hall) Director

/s/ Gust Perlegos
      (Gust Perlegos) Director

/s/ T. Peter Thomas
      (T. Peter Thomas) Director

/s/ Tsung-Ching Wu
      (Tsung-Ching Wu) Director

/s/ Pierre Fougere
      (Pierre Fougere) Director

/s/ Dr. Chaiho Kim
      (Dr. Chaiho Kim) Director

CERTIFICATIONS

I, George Perlegos, certify that:

1. I have reviewed this annual report on Form 10-K of Atmel Corporation;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 24, 2003 /s/ GEORGE PERLEGOS

George Perlegos
President & CEO

I, Robert Avery, certify that:

Date: March 24, 2003 /s/ ROBERT AVERY

Robert Avery
Interim Vice President, Finance & Chief Financial Officer

Atmel Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years Ended December 31,
(In thousands, except per share data)	2002			2001			2000

Net revenues	$	1,193,814		$	1,472,268		$	2,012,672
Expenses
Cost of revenues		962,869			1,057,623			1,134,683
Research and development		253,163			268,056			251,958
Selling, general and administrative		126,682			182,183			210,404
Asset impairment and restructuring charges		383,801			481,296			—

Total expenses		1,726,515			1,989,158			1,597,045

Operating (loss) income		(532,701	)		(516,890	)		415,627
Interest and other income		31,185			42,168			53,787
Interest expense		(50,051	)		(56,671	)		(53,828	)

(Loss) income before taxes		(551,567	)		(531,393	)		415,586
(Provision for) benefit from income taxes		(90,229	)		113,045			(149,610	)

Net (loss) income	$	(641,796	)	$	(418,348	)	$	265,976

Basic net (loss) income per share:	$	(1.37	)	$	(0.90	)	$	0.59

Diluted net (loss) income per share:	$	(1.37	)	$	(0.90	)	$	0.55

Shares used in basic net (loss) income per share calculations		466,949			464,575			451,798

Shares used in diluted net (loss) income per share calculations		466,949			464,575			491,989

The accompanying notes are an integral part of these statements.

Atmel Corporation

CONSOLIDATED BALANCE SHEETS


	December 31,
(In thousands, except per share data)	2002			2001

ASSETS
Current assets
Cash and cash equivalents	$	346,371		$	333,131
Short-term investments		99,431			259,877
Accounts receivable, net of receivable reserves of $22,415 in 2002 and $20,189 in 2001		195,182			186,558
Inventories		276,069			301,591
Other current assets		107,672			107,966

Total current assets		1,024,725			1,189,123
Fixed assets, net		1,049,031			1,651,475
Fixed assets held for sale		174,651			—
Other assets		32,025			183,599
Cash – restricted		22,127			—

Total assets	$	2,302,559		$	3,024,197

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	163,444		$	255,742
Convertible notes		132,485			—
Trade accounts payable		95,002			147,315
Accrued liabilities and other		295,725			307,400
Deferred income on shipments to distributors		20,791			24,296

Total current liabilities		707,447			734,753
Long-term debt less current portion		259,261			347,294
Convertible notes		194,248			345,918
Other long-term liabilities		172,460			109,705

Total liabilities		1,333,416			1,537,670

Commitments and contingencies (Notes 9 and 17)
Stockholders’ equity
Common stock; par value $0.001:
Authorized:1,600,000 shares; Shares issued and outstanding: 465,630 at December 31, 2002 and 466,059 at December 31, 2001		466			466
Additional paid in capital		1,252,273			1,245,399
Accumulated other comprehensive income (loss)		55,100			(62,438	)
(Accumulated deficit) retained earnings		(338,696	)		303,100

Total stockholders’ equity		969,143			1,486,527

Total liabilities and stockholders’ equity	$	2,302,559		$	3,024,197

The accompanying notes are an integral part of these statements.

Atmel Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) Years Ended December 31,

2002 2001 2000

Cash from operating activities

Net (loss) income
$ (641,796 ) $ (418,348 ) $ 265,976

Adjustments to reconcile net (loss) income to net cash provided by operating activities

Depreciation and amortization
253,588 302,016 247,701

Asset impairment charge
365,719 462,768 —

Deferred taxes
142,067 (94,335 ) (5,879 )

Tax benefit of stock option purchases
4,408 3,601 12,728

(Gain) loss on sales of fixed assets
(3,927 ) 7,815 3,553

Provision for doubtful accounts receivable
2,526 5,502 7,721

Accrued interest on zero coupon convertible debt
17,365 13,098 5,814

Gain on repurchase of convertible notes
(14,751 ) — —

Other
2,300 (1,754 ) (5,702 )

Changes in operating assets and liabilities, net of acquisitions

Accounts receivable
87 198,183 (100,183 )

Inventories
36,147 (19,399 ) 2,029

Other assets
11,900 (19,319 ) (70,448 )

Trade accounts payable and other accrued liabilities
(10,788 ) (97,102 ) 268,780

Federal, state, local and foreign taxes
34,698 (36,203 ) 59,545

Deferred income on shipments to distributors
(3,639 ) (9,407 ) 2,203

Net cash provided by operating activities
195,904 297,116 693,838

Cash from investing activities

Acquisition of fixed assets
(104,208 ) (818,181 ) (961,401 )

Sales of fixed assets
22,077 1,533 3,023

Purchase of other businesses
— — (13,781 )

(Increase) decrease in restricted cash
(22,127 ) 51,000 —

Purchase of investments
(59,916 ) (176,586 ) (526,776 )

Sale or maturity of investments
215,913 433,429 178,461

Net cash provided (used) by investing activities
51,739 (508,805 ) (1,320,474 )

Cash from financing activities

Issuance of notes payable
— 10,100 51,570

Proceeds from issuance of convertible bonds
— 200,027 —

Proceeds from capital leases and notes
5,704 104,944 307,000

Principal payments on capital leases and notes
(256,689 ) (225,745 ) (173,745 )

Repurchase of convertible notes
(21,798 ) — —

Repurchase of common stock
(8,468 ) — (42,909 )

Issuance of common stock
10,934 15,390 701,661

Net cash (used) provided by financing activities
(270,317 ) 104,716 843,577

Effect of exchange rate changes on cash and cash equivalents
35,914 (8,177 ) (19,932 )

Net increase (decrease) in cash
13,240 (115,150 ) 197,009

Cash and cash equivalents at beginning of year
333,131 448,281 251,272

Cash and cash equivalents at end of year
$ 346,371 $ 333,131 $ 448,281

Supplemental cash flow disclosures:

Interest paid
$ 28,636 $ 43,573 $ 53,828

Income taxes (refunded) paid, net
(79,847 ) 55,143 66,847

Issuance of stock for other assets
— — 261

Fixed asset purchases in accounts payable
10,829 32,849 356,338

Fixed asset acquired under capital leases
25,849 — —

The accompanying notes are an integral part of these statements.

Atmel Corporation

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Retained Accumulated

Common Stock Additional earnings other

paid in (accumulated comprehensive

(In thousands) Shares Par value capital deficit) income (loss) Total

Balances December 31, 1999
404,178 $ 404 $ 396,763 $ 455,472 $ (51,160 ) $ 801,479

Sales of stock

Exercise of options 4,279 4 9,280 — — 9,284

Employee stock purchase plan
925 1 8,954 — — 8,955

Common stock offering
40,000 40 683,382 — — 683,422

Issuance for business acquisition
— — 261 — — 261

Tax benefit from exercise of options
— — 12,728 — — 12,728

Repurchase of shares
(3,810 ) (4 ) (42,905 ) — — (42,909 )

Convertible Subordinated Guaranteed Step-up Notes
16,901 17 157,949 — — 157,966

Other comprehensive income

Unrealized gain on investments
— 1,757 1,757

Foreign currency translation adjustment
— (4,062 ) (4,062 )

Net income
265,976 — 265,976

Comprehensive income (loss)
265,976 (2,305 ) 263,671

Balances December 31, 2000
462,473 462 1,226,412 721,448 (53,465 ) 1,894,857

Sales of stock

Exercise of options
2,534 3 4,718 — — 4,721

Employee stock purchase plan
1,052 1 10,668 — — 10,669

Tax benefit from exercise of options
— — 3,601 — — 3,601

Other comprehensive income

Unrealized gain on investments
— 4,355 4,355

Foreign currency translation adjustment
— (13,328 ) (13,328 )

Net (loss)
(418,348 ) — (418,348 )

Comprehensive (loss)
(418,348 ) (8,973 ) (427,321 )

Balances December 31, 2001
466,059 466 1,245,399 303,100 (62,438 ) 1,486,527

Sales of stock

Exercise of options
1,331 1 2,830 — — 2,831

Employee stock purchase plan
2,619 3 8,100 — — 8,103

Repurchase of shares
(4,379 ) (4 ) (8,464 ) — — (8,468 )

Tax benefit from exercise of options
— — 4,408 — — 4,408

Other comprehensive income

Unrealized loss on investments
(3,348 ) (3,348 )

Foreign currency translation adjustment
120,886 120,886

Net (loss)
(641,796 ) (641,796 )

Comprehensive income (loss)
(641,796 ) 117,538 (524,258 )

Balances December 31, 2002
465,630 $ 466 $ 1,252,273 $ (338,696 ) $ 55,100 $ 969,143

The accompanying notes are an integral part of these statements.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share and employee data)

Note 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Atmel Corporation designs, develops, manufactures and markets a broad range of high-performance nonvolatile memory and logic integrated circuits using its proprietary complementary metal-oxide semiconductor (CMOS) technologies. Atmel’s products are used in a range of applications in the telecommunications, computing, networking, consumer and automotive electronics and other markets. Atmel’s customers comprise a diverse group of U.S. and non-U.S. original equipment manufacturers (OEMs) and distributors.

The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies and the ability to safeguard patents and intellectual property in a rapidly evolving market. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. As a result, the Company may experience significant period-to-period fluctuations in future operating results due to the factors mentioned above or other factors.

Semiconductor companies that maintain their own fabrication facilities have substantial capital requirements. The Company made capital expenditures aggregating $1,951,000 in 1999, 2000 and 2001, in large part preparing for expected increases in demand, and in light of falling demand has recognized asset impairment charges aggregating $828,000 in 2001 and 2002. The Company intends to continue to make capital investments to support new products and manufacturing processes that achieve manufacturing cost reductions and improved yields. The Company believes that cash, cash equivalents and short term investments will be sufficient to meet its anticipated cash needs for operations and capital investments through December 31, 2003. The Company may seek additional equity or debt financing to fund further expansion of its wafer fabrication capacity or to fund other projects. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for products, product mix, changes in semiconductor industry conditions and competitive factors. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms.

Principles of Consolidation

The consolidated financial statements include the accounts of Atmel and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

For certain of Atmel’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these items. Investments in debt securities are carried at fair value based on quoted market prices. At December 31, 2002, the estimated fair value of the convertible notes was approximately $257,000, as compared to book value of $326,733. The estimated fair value has been determined by the Company using available market information. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that Atmel could realize in

a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.

Cash and Investments

Investments with an original or remaining maturity of 90 days or less, as of the date of purchase, are considered cash equivalents, and consist of highly liquid money market instruments.

Atmel maintains its cash balances at a variety of financial institutions and has not experienced any material losses relating to such instruments. Atmel invests its excess cash in accordance with its investment policy that has been reviewed and approved by the Board of Directors to minimize credit risk.

Accounts Receivable

An allowance for doubtful accounts is calculated based on the aging of Atmel’s accounts receivable, historical experience, and management judgment. Atmel writes off accounts receivable against the allowance when Atmel determines a balance is uncollectible and no longer actively pursues collection of the receivable.

Inventories

Inventories are stated at the lower of cost (first-in, first-out for materials and purchased parts and average cost for work in progress and finished goods) or market and comprise the following:


December 31,	2002		2001

Materials and purchased parts	$	13,557	$	19,692
Work in progress		193,540		188,026
Finished goods		68,972		93,873

Total	$	276,069	$	301,591

Atmel’s inventories represent high-technology parts that may be subject to rapid technological obsolescence and are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than the Company’s estimate, the Company may be required to take additional inventory write-downs. On the other hand, if the Company sells more inventory or at better prices than the Company’s forecast, future margins may be higher.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:


Buildings and improvements		10 to 20 years
Machinery and equipment		2 to 5 years
Furniture and fixtures		5 years

Revenue Recognition

The Company sells its products to OEM’s and distributors and recognizes revenue when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. Reserves for sales returns and allowances are estimated and provided at the time of shipment.

For sales to certain distributors (primarily based in the United States) with agreements allowing for price protection and product returns, the Company recognizes revenue at the time the distributor sells the product to its end customer. Revenue is not recognized upon shipment since, due to rights to price protection, the sales price is not substantially fixed or determinable at that time. Additionally, these distributors have contractual rights to return products, up to a specified amount for a given period of time. Revenue is recognized when the distributor sells the product to an end-user, at which time the sales price becomes fixed. At the time of shipment to these distributors, the Company records a trade receivable for the selling price since there is a legally enforceable right to payment, relieves inventory for the carrying value of goods shipped since legal title has passed to the distributor, and records the gross margin in “Deferred income on shipments to distributors” on the balance sheet. Deferred income represents

the gross margin on the sale to the distributor; however, the amount of gross margin recognized by the Company in future periods could be less than the deferred margin as a result of price protection granted. The Company does not reduce deferred margin by estimated price protection; instead, such price concessions are recorded when incurred, which is generally at the time the distributor sells the product to an end-user. Sales to certain other primarily non-U.S. based distributors carry either no or very limited rights of return. The Company has historically been able to estimate returns and other credits from these distributors and accordingly has historically recognized revenue from sales to these distributors on shipment, with a related allowance for potential returns established at the time of sale.

Grant Recognition

Atmel receives grants from certain government authorities for expanding operations or performing technical services. Grants are recognized as receivable at the time specified milestones have been met for receiving them. Grants are amortized to expenses over the period the related obligations are fulfilled.

Foreign Currency Translation

Atmel uses the U.S. dollar as its functional currency and its major international subsidiaries use their local currencies as their respective functional currencies. Financial statements of foreign subsidiaries are translated into US dollars at current rates, except that revenues, costs and expenses are translated at average current rates during each reporting period. The effect of translating the accounts of Atmel’s foreign subsidiaries into U.S. dollars has been included in stockholders’ equity as a cumulative foreign currency translation adjustment. Gains and losses from remeasurement of assets and liabilities denominated in currencies other than the respective functional currencies are included in the consolidated statements of operations. Gains or (losses) due to foreign currency remeasurement included in interest and other income for the years ended December 31, 2002, 2001 and 2000 were ($3,135), $5,640 and $4,352.

Stock-based Compensation

Atmel accounts for stock-based compensation, including stock options granted and shares issued under the Employee Stock Purchase Plan, using the intrinsic value method prescribed in APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Compensation cost for stock options, if any, is recognized ratably over the vesting period. Atmel’s policy is to grant options with an exercise price equal to the quoted market price of our stock on the grant date. Atmel provides additional pro forma disclosures as required under SFAS No. 123, “Accounting for Stock-Based Compensation.”

The following table illustrates the effect on net (loss) income and net (loss) income per share if Atmel had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation. The estimated fair value of each Atmel option is calculated using the Black Scholes option pricing model.


	2002			2001			2000

							Basic		Diluted

Net (loss) income – as reported	$	(641,796	)	$	(418,348	)	$	265,976	$	272,769
Compensation expense based on fair value		22,619			17,713			14,718		14,718
Net (loss) income – pro forma	$	(664,415	)	$	(436,061	)	$	251,258	$	258,051
Basic net (loss) income per share– as reported	$	(1.37	)	$	(0.90	)	$	0.59		—
Basic net (loss) income per share – pro forma	$	(1.42	)	$	(0.94	)	$	0.56		—
Diluted net (loss) income per share – as reported	$	(1.37	)	$	(0.90	)		—	$	0.55
Diluted net (loss) income per share – pro forma	$	(1.42	)	$	(0.94	)		—	$	0.52

Certain Risks and Concentrations

Atmel sells its products primarily to OEMs and distributors in North America, Europe and Asia, generally without requiring any collateral. Atmel performs ongoing credit evaluations and maintains adequate allowances for potential credit losses. No customer represented more than ten percent of accounts receivable at December 31, 2002.

Atmel’s products are concentrated in the semiconductor industry, which is highly competitive and rapidly changing. Significant technological changes in the industry could affect operating results adversely. Atmel’s inventories include high-technology parts and components that may be specialized in nature or subject to rapid technological obsolescence. While Atmel has programs to minimize the required inventories on hand and considers

technological obsolescence in estimating required allowances to reduce recorded amounts to market values, such estimates could change in the future.

Income Taxes

Atmel’s provision for (benefit from) income tax is comprised of its current tax liability and change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more likely than not to be recoverable against future taxable income. No US taxes are provided on earnings of non-US subsidiaries, to the extent such earnings are deemed to be permanently invested.

Long-Lived Assets

Atmel periodically evaluates the recoverability of its long-lived assets. Factors which could trigger an impairment review include the following: (i) significant negative industry or economic trends, (ii) exiting an activity in conjunction with a restructuring of operations, (iii) current, historical or projected losses that demonstrated continuing losses associated with an asset, (iv) significant decline in our market capitalization for an extended period of time relative to net book value. When Atmel determines that there is an indicator that the carrying value of long life assets may not be recoverable, the assessment of possible impairment is based on Atmel’s ability to recover the carrying value of the asset from the expected future undiscounted pre-tax cash flows of the related operations. These estimates include assumptions about future conditions such as future revenues, gross margins, operating expenses, within Atmel, the fair values of certain assets based on appraisals and industry trends. If these cash flows are less than the carrying value of such assets, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. The evaluation is performed at the lowest levels for which there are identifiable, independent cash flows.

Comprehensive Income

Comprehensive income is defined as a change in equity of a company during a period, from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive income for Atmel arises from foreign currency translation adjustments and an unrealized gain (loss) on securities. Comprehensive income is shown in the statement of stockholders’ equity. As of December 31, 2002, the accumulated other comprehensive income (loss) consisted of $1,221 of unrealized gain on securities and $53,879 unrealized gain on foreign currency translation adjustments. As of December 31, 2001, the accumulated other comprehensive income (loss) consisted of $4,559 of unrealized gain on securities and ($66,997) unrealized loss on foreign currency translation adjustments.

Net (loss) income per share

Basic net (loss) income per share is computed by dividing (loss) income available to common stockholders by the weighted average number of common shares outstanding for that period. Diluted net (loss) income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options, warrants and convertible securities for all periods.

Product warranties

The Company warrants finished goods against defects in material and workmanship under normal use and service typically for periods of 90 days to one year. A liability for estimated future costs under product warranties is recorded when products are shipped.

Research and Development and Software Development Costs

Costs incurred in the research and development of Atmel’s products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software are expensed prior to establishment of technological feasibility and capitalized thereafter until the product is available for general

release to customers. No software development costs were capitalized during the years ended December 31, 2002, 2001 and 2000 since costs incurred subsequent to establishment of technological feasibility were not material.

Recent Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued FASB Statements Nos. 141 and 142 (SFAS 141 and SFAS 142), “Business Combinations” and “Goodwill and Other Intangible Assets.” SFAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating the goodwill might be impaired. SFAS 141 and SFAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of SFAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceases, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS 141 are reclassified to goodwill. Companies are required to adopt SFAS 142 for fiscal years beginning after December 15, 2001. The Company adopted SFAS 142 on January 1, 2002, the beginning of fiscal 2002. The implementation of these standards did not have a material impact on the Company’s results of operations as amortization of goodwill was approximately $2,000 in 2001.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company expects that the initial application of SFAS No. 143 will not have a material impact on its financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for the Company for all financial statements issued in calendar 2002 and was used as the guidance for the asset impairment charges recorded by the Company in 2002.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates Statement No. 4 (and Statement No. 64, as it amends Statement No. 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB’s goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition, SFAS No. 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is effective for fiscal years beginning after May 2002 for the provisions related to the rescission of Statements No. 4 and No. 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13 although early adoption is permitted. The Company has early adopted SFAS No. 145, and the gain on the repurchase of convertible notes is not shown as an extraordinary item in the Consolidated Statement of Operations.

Costs incurred in a Restructuring).” A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The scope of FAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement or an individual deferred-compensation contract. The Company does not expect the implementation of this standard to have a material impact on the Company’s results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in its annual financial statements for the year ending December 31, 2002 and must also provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ended March 31, 2003. The Company has included additional disclosures in accordance with SFAS No. 148 in Note 1 and Note 11.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about guarantees that an entity has issued, including a rollforward of the entity’s product warranty liabilities. The Company will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 31, 2002. The Company does not expect the implementation of this standard to have a material impact on the Company’s results of operations. The Company has included additional disclosures in accordance with FIN 45 in Note 9.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity, if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of FIN 46 will have on its results of operations and financial condition.

Reclassifications

Certain reclassifications have been made to the 2000 and 2001 amounts to conform to the 2002 presentations. These reclassifications did not change the previously reported net income (loss) or the total assets of Atmel.

Note 2

ACQUISITIONS AND DISPOSITIONS

Acquisition of Thomson-CSF Semiconducteurs Specifique (TCS)

In May 2000 Atmel acquired Thomson-CSF Semiconducteurs Specifique, or TCS, which had been a wholly-owned subsidiary of Thomson-CSF. TCS, which has been renamed Atmel Grenoble S.A., specializes in the development and manufacture of ASICs, including image sensors, as well as analog, digital and radio frequency ASICs, and products manufactured using SiGe processes. The acquisition price and preacquisition revenue and net income of TCS were not material to Atmel.

Acquisition of Wafer Fabrication Facilities

In January 2000 Atmel purchased an 8-inch wafer fabrication facility with an area of approximately 650 thousand square feet, located in Irving, Texas.

In September 2000 Atmel purchased an 8-inch wafer fabrication facility and related leasehold interests and assets located in North Tyneside, UK. The facility is approximately 750 thousand square feet. In connection with this purchase Atmel paid $49,000 to acquire a ten-year lease on the land. During 2001 Atmel paid $51,000 that had been placed in escrow in 2000 and acquired title to the buildings. Additionally, the Company will have the right to acquire title to the land in 2016 for a nominal amount.

Disposition of assets

In September 2002 Atmel completed the sale of certain land located in North Tyneside, UK for $13,900 cash. Atmel recorded a gain of $1,000, after disposal costs, which is included in Atmel’s Consolidated Statements of Operations under the caption “Interest and other income.”

In November 2002 Atmel completed the sale of certain land located in San Jose, California, for $4,430 cash. Atmel recorded a gain of $3,500, after disposal costs, which is included in Atmel’s Consolidated Statements of Operations under the caption “Interest and other income.”

Note 3

BALANCE SHEET DETAIL

Other current assets consist of the following:


December 31,	2002		2001

Income tax receivable	$	61,750	$	28,000
Deferred income taxes		—		21,735
VAT receivable		25,249		39,940
Grants receivable		7,249		13,885
Other		13,424		4,406

Total	$	107,672	$	107,966

Other assets consist of the following:


December 31,	2002		2001

Non-current deferred income taxes	$	—	$	108,289
Income tax receivable		—		35,000
Other		32,025		40,310

Total	$	32,025	$	183,599

Accrued liabilities and other consist of the following:


December 31,	2002		2001

Advance payments from customers	$	10,000	$	45,000
Federal, state, local and foreign taxes		70,650		61,550
Accrued salaries and benefits		86,560		66,951
Deferred grants		20,233		18,693
Warranty reserves and accrued returns, royalties and licenses		34,943		28,663
Restructuring		16,500		17,527
Unvouchered invoices		40,296		52,530
Deferred income tax liability		6,539		—
Other		10,004		16,486

Total	$	295,725	$	307,400

Other long-term liabilities consist of the following:


December 31,	2002		2001

Advance payments from customer	$	104,668	$	71,369
Income tax payable		51,396		27,048
Deferred income tax liability		5,504		—
Other		10,892		11,288

Total	$	172,460	$	109,705

As of December 31, 2002 Atmel has recorded $114,668 in customer advances, of which $10,000 is recorded in accrued liabilities and $104,668 in other long-term liabilities. The customer advances relate to financings and supply agreements into which Atmel entered with a specific customer in 2000. The supply agreements call for the Company to make available to the customers a minimum quantity of products. Minimum payments are required each year on these agreements, with additional payments to be made if the customers exceed certain purchasing levels. Minimum payments required to be made annually are the greater of 15% of value of product shipped to customer or $10,000, until such time that the advances have been fully repaid.

The Company has entered into a number of technology license agreements with unrelated third parties. Generally, the agreements require a one-time or annual license fee. In addition, Atmel may be required to pay a royalty on sales of certain products that are derived under these licensing arrangements. The royalty expense is accrued in the period in which the revenues incorporating the technology are recognized.

Note 4

SHORT-TERM INVESTMENTS

All marketable securities are deemed by management to be available for sale and are reported at fair value with net unrealized gains or losses reported within stockholders’ equity. Realized gains and losses are recorded based on the specific identification method. For fiscal years 2002, 2001 and 2000, gross realized gains and losses on short-term investments were $402, $199 and $17. The carrying amount of Atmel’s investments is shown in the table below:


December 31,	2002				2001

	Book Value		Market Value		Book Value		Market Value

U.S. Government obligations	$	22,075	$	22,349	$	76,872	$	77,938
State and municipal securities		6,000		6,000		9,050		9,215
Corporate securities and other obligations		70,135		71,082		169,396		172,724

		98,210		99,431		255,318		259,877
Unrealized gains		1,221		—		4,559		—

Total	$	99,431	$	99,431	$	259,877	$	259,877

At December 31, 2002, investments with scheduled maturities within one year were $59,951 and for over one year were $38,259. At December 31, 2001, investments with scheduled maturities within one year were $79,365 and for over one year were $175,953. Atmel has classified all investments with maturity dates of 90 days or more as short term since it has the ability to redeem them within the year.

Note 5

FIXED ASSETS


December 31,		2002			2001

Land		$	37,453		$	56,375
Buildings and improvements			501,544			482,302
Machinery and equipment			1,438,048			1,047,505
Furniture and fixtures			91,160			39,981
Construction in progress			29,998			762,683

			2,098,203			2,388,846
	Less accumulated depreciation and amortization		(1,049,172	)		(737,371	)

Fixed assets, net		$	1,049,031		$	1,651,475

Fixed assets include building and improvements, and machinery and equipment acquired under capital leases of $481,009 and $437,822 at December 31, 2002 and 2001. Related accumulated depreciation amounted to $283,620 and $214,493.

Construction in progress in 2001 consists of equipment additions in progress and buildings associated with the January 2000 acquisition of the wafer fabrication facility located in Irving, Texas and the purchase in September 2000 of the wafer fabrication facility in North Tyneside, UK.

Note 6

FIXED ASSETS HELD FOR SALE

The Company has classified $174,180 of fixed assets related to the fabrication facilities at Irving, Taxes as held for sale. These assets are not depreciated. As described in Note 15, the fair value of these assets was determined based on management estimates including the use of an outside appraisal. The Company has also classified $471 of certain assets in Europe as held for sale. As described in Note 15, the fair values were estimated by the Company based on comparative market values for similar equipment. Given that current market conditions for the sale of fabrication facilities and related equipment may fluctuate, there can be no assurance that the Company will realize the current net carrying value for the assets. The Company reassesses the realizability of the carrying value of these assets at the end of each quarter until the assets are sold or otherwise disposed of and additional adjustments may be necessary.

Note 7

BORROWING ARRANGEMENTS

Information with respect to Atmel’s debt obligations is shown in the following table:


December 31,	2002			2001

Various non-interest bearing notes	$	1,514		$	6,568
Various interest-bearing notes		35,804			138,806
Convertible notes		326,733			345,918
Capital lease obligations		385,387			457,662

		749,438			948,954
Less amount due within one year		(295,929	)		(255,742	)

Long-term debt due after one year	$	453,509		$	693,212

Maturities of the debt obligations are as follows:


Year ending December 31,	Convertible Notes			Other			Total

2003	$	134,892		$	184,415		$	319,307
2004		—			136,961			136,961
2005		—			93,092			93,092
2006		228,033			30,364			258,397
2007		—			4,479			4,479
Thereafter		—			23,296			23,296

		362,925			472,607			835,532
Less amount representing interest		(36,192	)		(49,902	)		(86,094	)

Total	$	326,733		$	422,705		$	749,438

The non-interest-bearing notes are due in varying amounts through the year 2003 and have been discounted between 7% and 9%. The interest-bearing notes consist of loans where interest rates are based on the London Interbank Official Rate (LIBOR) plus a spread ranging from 1.75% to 2% and the short-term Euro Interbank Offered Rate (EURIBOR) plus a spread ranging from 0.5% to 1.23%. The six-month LIBOR and EURIBOR rates were approximately 1.4% and 2.8% at December 31, 2002. A Japanese currency loan, which had a balance of $20,382 at December 31, 2001 was repaid during the year ended December 31, 2002, and had been recorded net of unrealized foreign currency gain of $4,890 at December 31, 2001. A French currency loan, which had a balance of

$12,730 at December 31, 2001 was repaid during the year ended December 31, 2002, and had been recorded net of unrealized foreign currency gain of $3,014 at December 31, 2001.

Approximately $51,598 of the debt included in the capital lease obligations require Atmel to meet certain financial ratios and to comply with other covenants on a periodic basis and approximately $33,856 of the debt obligations have cross default provisions. The lenders agreed to amend certain of the covenants associated with the borrowings and have required the Company to maintain restricted cash of $22,127, as of December 31, 2002, with the lenders. The financial ratio covenants include, but are not limited to, the maintenance of minimum cash balances and net worth, and debt to capitalization ratios. The Company was in compliance with the covenants as of December 31, 2002.

In April 1998, Atmel completed a sale of zero coupon subordinated convertible notes, due 2018, which raised $115,004. The 2018 convertible notes are convertible, at the option of the holder, into the Company’s common stock at the rate of 55.932 shares per $1 (one thousand dollars) principal amount at maturity of the debt. The effective interest rate of the notes is 5.5% per annum. The notes are redeemable for cash, at the Company’s option, at any time after April 21, 2003, in whole at any time or in part from time to time at redemption prices equal to the issue price plus accrued interest. In addition, the notes are redeemable at the option of the holder as of April 21, 2003, 2008 and 2013, at prices equal to the issue price plus accrued interest. If the holders exercise their option, the Company may, at its option, elect to redeem the debt for cash or common stock of the Company, or any combination thereof. In light of the decline in the market price of its stock, the Company may determine, at its option, to use cash to redeem any notes that are submitted for redemption by the holders in April 2003. The Company has classified the carrying amount of the 2018 convertible notes, which was included in non-current liabilities at December 31, 2001, as a current liability at December 31, 2002. During the fourth quarter of 2002, the Company paid $14,171 and repurchased in the market 2018 convertible notes with accreted value of $15,497, resulting in a gain of $1,326 that is included in Interest and Other Income.

In May 2001, the Company completed a sale of zero coupon convertible notes, due 2021, which raised $200,027. The notes are convertible, at the option of the holder, into the Company’s common stock at the rate of 22.983 shares per $1 (one thousand dollars) principal amount at maturity of the debentures. The effective interest rate of the debentures is 4.75% per annum. The notes will be redeemable for cash, at the Company’s option, at any time on or after May 23, 2006 in whole or in part at redemption prices equal to the issue price plus accrued original issue discount. At the option of the holders on May 23, 2006, 2011 and 2016, the Company is required to redeem the notes at prices equal to the issue price plus accrued original issue discount through date of repurchase. The Company may elect to pay the redemption price in cash, in shares of common stock or in any combination of the two. During the fourth quarter of 2002, the Company paid $7,627 and repurchased in the market 2021 convertible notes with accreted value of $21,053, resulting in a gain of $13,426 that is included in Interest and Other Income.

Note 8

COMMON STOCK

Stock Offerings

On February 3, 2000 Atmel sold 36,000 shares of common stock at a price of $17.75 per share for net proceeds of $613,000 in a public offering. On September 26, 2000 Atmel sold 4,000 shares of common stock in a global offering. The global offering consisted of a public offering in France on the Premier Marche of the Paris Stock Exchange, an offering to institutional investors in the rest of the world, and a public offering in the United States at a price of 21.84 euros or $18.50 U.S. per share, for net proceeds of $70,000.

Stock Split

On July 14, 2000 Atmel’s Board of Directors approved a two-for-one stock split, to be effected as a stock dividend. Stockholders of record at the close of business August 11, 2000 received one additional share for each share already held. All per share data in this report reflects this stock split.

Stock Repurchase

In January 1998 the Board of Directors of the Company approved a stock repurchase program that allowed the Company to purchase up to 20,000 shares of its common stock. In October 2002 the Board of Directors of the

Company approved a stock purchase program that allowed the Company to purchase up to 100,000 additional shares of its common stock.

The Company purchased 5,600 shares of its common stock at an average price of $3.58 per share before December 31, 1999. The Company purchased 3,800 shares of its common stock at an average purchase price of $11.26 per share in 2000. The Company purchased 4,400 shares of its common stock at an average price of $1.93 in 2002. At December 31, 2002, the Company had the ability to purchase an additional 106,200 shares based on the approved stock purchase programs.

Conversion of Debt to Stock

In June 2000 Atmel redeemed the 3.25% Convertible Subordinated Guaranteed Step-Up Notes due in 2002. The aggregate principal amount outstanding was $150,000. Note holders had the option to convert their Notes into shares of Atmel Corporation common stock or redeem for cash. $149,998 principal amount of notes was converted into shares of common stock, constituting a total of 16,901 shares.

Authorized common stock

In May 2001 the authorized common stock of the Company was increased to 1,600,000 shares from 500,000 shares.

Note 9

COMMITMENTS AND CONTINGENCIES

Atmel leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration dates and renewal options. Atmel also leases certain manufacturing equipment under operating leases. Rental expense for 2002, 2001 and 2000 was $12,617, $10,948 and $17,995.

The Company has entered into capital leases to finance building and improvements, and machinery and equipment. The capital leases are secured by the financed assets. At December 31, 2002, no additional amounts were available under these arrangements.

Aggregate non-cancelable future minimum rental payments under operating and capital leases are as follows:


Year ending December 31		Operating leases, net		Capital Leases

	2003	$	10,919	$	168,918
	2004		6,009		118,602
	2005		4,973		90,662
	2006		3,774		28,634
	2007		1,420		4,201
	Thereafter		666		15,982

		$	27,761		426,999

Less amount representing interest					(41,612	)

Total Capital Lease Obligation					385,387
Less current portion					(148,873	)

Capital Lease obligation due after one year				$	236,514

During the normal course of business the Company is notified of claims that it may be infringing on patents issued to other parties and is currently involved in license negotiations. Should the Company elect to enter into license agreements with other parties or should the other parties resort to litigation, the Company may be obligated in the future to make payments or to otherwise compensate these third parties which could have an adverse effect on the Company’s financial condition or results of operations or cash flows.

The Company currently is a party to various legal proceedings, including those noted below and in Note 17. The amount or range of possible loss, if any, is not reasonably subject to estimation. While management, including internal counsel, currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the

possibility of a material adverse impact on the net income, cash flows and financial position of the Company. The estimate of the potential impact on our financial position or overall results of operations or cash flow for the above legal proceedings could change in the future.

Agere Systems, Inc. (“Agere”) filed suit in the United States District Court, Eastern District of Pennsylvania in February 2002, alleging patent infringement regarding certain semiconductor and related devices manufactured by the Company. The complaint seeks unspecified damages, costs and attorney fees. The parties are currently engaged in discovery. The Court held a Markman claims construction hearing on December 5 and 6, 2002, and the parties submitted final briefs on December 20, 2002. The Court has set a trial date of July 28, 2003. The Company disputes plaintiff’s claims and intends to defend the lawsuit vigorously.

Philips Corporation (“Philips”) filed suit against the Company in the United States District Court, Southern District of New York, on October 30, 2001 for infringement of its patent, seeking injunctive relief against the alleged infringement and damages. The Company answered Philips’ complaint alleging invalidity, unenforceability, and non-infringement of the patent, which the Company continues to maintain with the substantial completion of fact discovery. The Company disputes plaintiff’s claims and intends to defend the lawsuit vigorously.

Seagate Technology (“Seagate”) filed suit against Atmel on July 31, 2002. Seagate contends that certain semiconductor chips sold by Atmel to Seagate between April 1999 and some indefinite date in 2001 were defective. Seagate contends that this defect has caused millions of disk drives manufactured by Seagate to fail. Though the complaint does not describe the nature of the defect, discovery from Seagate suggests that Seagate believes that the plastic casings of the Atmel chips contain red phosphorus, which in certain highly specific and rare situations can result in an electrical short between the pins and the leadframe of the chip. Seagate seeks unspecified damages as well as disgorgement of profits related to these particular chips. The Company disputes plaintiff’s claims and intends to defend the lawsuit vigorously.

The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The majority of products are generally covered by a warranty typically ranging from 90 days to one year. The following table summarizes the activity related to the product warranty liability during the fiscal year 2002:


	Liability Debit/(Credit)

Balance at January 1, 2002	$	(9,612	)
Accrual for warranties during the period		(8,164	)
Accrual relating to preexisting warranties		1,890
(including change in estimates)
Settlements made (in cash or in kind) during the period		5,636

Balance at December 31, 2002	$	(10,250	)

The Company enters into agreements with customers in the normal course of business that contain various guarantees such as indemnification of its or a third party’s intellectual property. At December 31, 2002, the Company had not recorded any liability associated with these guarantees.

Note 10

TAXES ON INCOME

The components of (loss) income from operations before income taxes were as follows:


Years Ended December 31,	2002			2001			2000

US	$	(373,095	)	$	(258,035	)	$	222,234
Foreign		(178,472	)		(273,358	)		193,352

	$	(551,567	)	$	(531,393	)	$	415,586

The provision for (benefit from) income taxes consists of the following:


Years Ended
December 31,		2002			2001			2000

Federal	Current	$	(60,000	)	$	(20,365	)	$	120,817
	Deferred		67,899			(66,024	)		(12,866	)
State	Current		—			—			11,527
	Deferred		37,133			(20,699	)		(1,604	)
Foreign	Current		8,162			1,655			23,145
	Deferred		37,035			(7,612	)		8,591

Total Income Tax		$	90,229		$	(113,045	)	$	149,610

The tax effects of temporary differences that constitute significant portions of the deferred tax assets and deferred tax liabilities are presented below:


December 31,	2002			2001

Deferred income tax assets:
Fixed assets	$	242,030		$	121,184
Other intangibles		16,525			6,324
Deferred income on shipments to distributors		5,729			7,161
Other accruals		23,559			23,299
Net operating loss		81,034			34,866
Research and development and other tax credits		38,463			22,799

Total deferred income tax assets		407,340			215,633
Less valuation allowance		(407,340	)		(65,700	)

Net deferred income tax assets		—			149,933
Deferred income tax liabilities:
State taxes		—			(12,997	)
Deferred grant and undistributed subsidiary income		(11,480	)		(1,783	)
Unrealized foreign exchange loss		—			(5,129	)
Other		(563	)		—

Total deferred tax liabilities		(12,043	)		(19,909	)

Total net deferred income tax assets (liability)	$	(12,043	)	$	130,024

The Company records a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized. The increase in valuation allowance for the year ended December 31, 2002, resulted from the Company’s assessment of its ability to realize the benefits of the deferred tax assets. The ultimate realization of the deferred tax assets depends upon generation of future taxable income during periods in which the temporary differences become deductible. Based on historical losses and projections for making future taxable income over the periods that the deferred tax assets are deductible, the Company believes that it is more likely than not that it will not realize the benefit of the net deferred tax assets, and accordingly, has provided a full valuation allowance. At December 31, 2002 the valuation allowance relates primarily to deferred tax benefits in U.S., U.K, and French jurisdictions and the deferred tax liability primarily relates to U.S. tax provided on foreign subsidiary income that is not considered permanently reinvested.

The Company’s effective tax rate differs from the United States federal statutory income tax rate as follows:


Years Ended December 31,	2002			2001			2000

United States federal statutory income tax rate		(35.00	)%		(35.00	)%		35.00	%
Foreign operations		15.13			5.84			1.44
State taxes, net of federal income tax benefit		4.41			(2.53	)		0.22
Unrecognized benefit of net operating losses and tax credits		31.41			10.49			0.00
Other, net		0.41			(0.10	)		(0.66	)

Effective tax rate (benefit)		16.36	%		(21.30	)%		36.00	%

U.S. income taxes are provided for deferred tax on undistributed earnings of non-US subsidiaries that are not expected to be permanently reinvested. There has been no provision for U.S. income tax for the remaining undistributed earnings of approximately $60,000 at December 31, 2002, because the Company intends to reinvest these earnings indefinitely in operations outside the U.S. If repatriated, these earnings would result in tax of approximately $21,000 at the current federal statutory tax rate of 35%. Subject to limitation, tax on undistributed earnings may be reduced by foreign tax credits that may be generated in connection with the repatriation of earnings.

The Company has a net operating loss carryforward from foreign operations of approximately $204,863. There is no expiration on the use of the majority of these losses. The Company also has state net operating losses of approximately $212,751. These losses expire in different periods from 2006 through 2022.

The Company’s United States income tax returns for the years 1994 through 1996 are currently under appeal with the Internal revenue Service (IRS). The IRS is also examining income tax returns of the Company for the years 1997 through 2001. The Company believes that adequate amounts of tax and related interest and penalties, if any, have been provided for any adjustments that may result from the resolution of these examinations.

Note 11

EMPLOYEE OPTION AND STOCK PURCHASE PLANS

Atmel has two stock option plans—the 1986 Incentive Stock Option Plan (1986 Plan) and the 1996 Stock Option Plan (1996 Plan). The 1986 Plan expired in April 1996. The 1996 Plan, which has reserved 36,000 shares of Common Stock for issuance thereunder, was approved by the stockholders on April 26, 1996. Under Atmel’s 1996 Plan, Atmel may issue common stock directly or grant options to purchase common stock to employees, consultants and directors of Atmel. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

Activity under Atmel’s 1986 Plan and 1996 Plan is set forth below:


				Outstanding Options

												Weighted
							Exercise		Aggregate			Average
	Available			Number of			Price		Exercise			Ex. Price
	For Grant			Options			Per Share		Price			Per Share

Balances, December 31, 1999		19,696			22,882		$	0.19 - 12.47		69,046		$	3.02
Options Granted		(4,655	)		4,655			12.13 - 24.44		71,766			15.42
Options Cancelled		732			(732	)		1.84 - 24.44		(5,386	)		7.36
Options Expired		(160	)		—
Options Exercised					(4,279	)		0.19 - 17.13		(9,280	)		2.17

Balances, December 31, 2000		15,613			22,526			0.53 - 24.44		126,146			5.60
Options Granted		(1,856	)		1,856			7.12 - 14.94		19,199			10.34
Options Cancelled		844			(844	)		1.84 - 24.44		(10,020	)		11.87
Options Exercised					(2,534	)		0.53 - 12.47		(4,718	)		1.86

Balances, December 31, 2001		14,601			21,004			0.53 - 24.44		130,607			5.60
Options Granted		(7,616	)		7,616			1.00 - 9.75		26,260			3.45
Options Cancelled		793			(793	)		1.69 - 24.44		(8,457	)		10.66
Options Expired		(50	)		—
Options Exercised					(1,331	)		0.53 - 8.39		(2,831	)		2.13

Balances, December 31, 2002		7,728			26,496		$	1.00 - 24.44		145,579		$	5.49

The number of shares exercisable under Atmel’s stock option plans at December 31, 2002, 2001 and 2000 were 15,507, 14,454 and 13,375.

The following table summarizes the stock options outstanding at December 31, 2002:


			Options Outstanding						Options Exercisable

	Range of				Weighted-Average
	Exercise				Remaining		Weighted-Average				Weighted-Average
	Prices		Number Outstanding		Contractual Life		Exercise Price		Number Exercisable		Exercise Price

	$	1.00-1.06		500	0.7years		$	1.06		476	$	1.06
		1.13- 1.98		8,377		4.1		1.98		8,229		1.98
		2.03- 7.83		12,191		7.8		4.17		4,593		5.34
		7.99-11.50		1,305		8.4		9.29		359		9.74
		12.13-13.77		1,547		7.8		12.38		559		12.47
		14.75-18.13		1,877		7.4		16.67		953		16.90
		19.00-24.44		699		7.4		20.32		338		20.36

Total	$	1.00-24.44		26,496		6.5	$	5.49		15,507	$	4.82

Under the 1991 Employee Stock Purchase Plan (ESPP), qualified employees are entitled to purchase shares of Atmel’s common stock at 85 percent of the fair market value at certain specified dates. Purchases under the ESPP were 2,619 shares of common stock in 2002, 1,052 shares of common stock in 2001, and 925 in 2000 at an average price of $3.09, $10.14, and $9.68, respectively. Of the 22,000 shares authorized for issuance under this plan, 2,992 shares were available for issuance at December 31, 2002.

Atmel has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation. Accordingly, no compensation cost has been recognized for the 1986 Plan or 1996 Plan or for grants made under the ESPP. If the compensation cost for the 1986 Plan, the 1996 Plan and the ESPP had been determined based on the fair value at the grant date for options granted in 2002, 2001 and 2000 consistent with the provisions of SFAS 123, Atmel’s net (loss) income and net (loss) income per share for 2002, 2001 and 2000 would have been adjusted to the pro forma amounts indicated below:


	2002			2001			2000

							Basic		Diluted

Net (loss) income – as reported	$	(641,796	)	$	(418,348	)	$	265,976	$	272,769
Compensation expense based on fair value		22,619			17,713			14,718		14,718
Net (loss) income – pro forma	$	(664,415	)	$	(436,061	)	$	251,258	$	258,051
Basic net (loss) income per share– as reported	$	(1.37	)	$	(0.90	)	$	0.59		—
Basic net (loss) income per share – pro forma	$	(1.42	)	$	(0.94	)	$	0.56		—
Diluted net (loss) income per share – as reported	$	(1.37	)	$	(0.90	)		—	$	0.55
Diluted net (loss) income per share – pro forma	$	(1.42	)	$	(0.94	)		—	$	0.52

The fair value of each option grant for both 1986 Plan and 1996 Plan is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


	2002			2001			2000

Risk-free interest		1.60	%		3.58	%		6.3	%
Expected life after vesting (years)	0.97 – 1.34			0.99 – 1.35			0.72 – 1.31
Expected volatility		116	%		80	%		88	%
Expected dividend	$	0		$	0		$	0

The weighted average fair values of options granted during 2002, 2001 and 2000 were $2.60, $6.33 and $10.36 per share. The weighted average expected life was calculated based on the period from the vesting date to the exercise date and the exercise behavior of the employees.

The fair value of each purchase under the ESPP is estimated on the date at the beginning of the offering period using the Black-Scholes option-pricing model with substantially the same assumptions as the option plans but with expected lives of 0.5 year. The weighted average fair values of ESPP purchases during 2002, 2001 and 2000 were $1.54, $4.26 and $5.11 per share.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which 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 fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options.

The effects of applying SFAS 123 on the pro forma disclosures for the years ended December 31, 2002, 2001 and 2000 are not likely to be representative of the effects on pro forma disclosures in future years.

Note 12

RETIREMENT PLAN

Atmel maintains a 401(k) Tax Deferred Savings Plan for the benefit of qualified employees who are primarily U.S. based. Atmel matches each eligible employee’s contribution with up to a maximum of five hundred dollars. The Atmel matching contribution obligation was $811, $1,026 and $1,108 for 2002, 2001 and 2000.

The Company sponsors a defined benefit pension plan in Germany that covers substantially all German employees. The benefits are based on years of service and compensation on a career-average pay basis. The plan is non-funded. Charges to expense are based upon costs computed by independent actuaries. The contributions are intended to provide for benefits earned to date and those expected to be earned in the future.

The assumed discount rate and rate of compensation increases used to determine pension expense in 2002 were 5.75% and 4.5%, respectively. In 2001, the assumptions were 6% and 5%, respectively. In 2000, the assumptions were 6.5% and 5%, respectively.

Net pension cost in Germany in 2002, 2001 and 2000 included the following components:


Year ended December 31,	2002		2001			2000

Service costs-benefits earned during the period	$	925	$	753		$	720
Interest cost on projected benefit obligation		1,211		1,045			1,110
Amortization of prior service cost		—		(47	)		(41	)

Net pension cost	$	2,136	$	1,751		$	1,789

The change in the German projected benefit obligation at December 31, 2002 and 2001 was as follows:


Year ended December 31,	2002			2001

Projected benefit obligation at beginning of the year	$	19,019		$	16,870
Service cost		925			753
Interest cost		1,211			1,045
Amortization of prior service costs		—			(47	)
Actuarial gains (losses)		(1,057	)		1,489
Benefits paid		(255	)		(200	)
Foreign currency exchange rate changes		3,460			(891	)

Projected benefit obligation at end of the year		23,303			19,019
Unrecognized net gain (loss)		1,904			621

Accrued pension liability	$	25,207		$	19,640

Note 13

OPERATING SEGMENTS

Atmel designs, develops, manufactures and sells a wide range of semiconductor integrated circuit products. To better focus its resources, Atmel reorganized its product families into four business units during the fourth quarter 2001, each of which is a reportable segment. The segments represent management’s view of the company’s businesses and how it evaluates the progress of its major components. In addition, each segment comprises product families with similar requirements for design, development and marketing. Atmel has four reportable segments:

ASIC: designs, develops and markets semicustom gate arrays, cell-based integrated circuits, full custom application-specific integrated circuits and smart cards to meet specialized customer requirements for high performance devices

in a broad variety of customer-specific applications. In addition, this segment produces field programmable gate arrays, programmable logic devices, imaging sensors and data acquisition circuits for sale to customers who use them in products for telecommunications, computers, networking, image processing, industrial and military applications, and avionics.

Microcontrollers: designs, develops and markets a variety of standard microcontrollers and microcontrollers containing embedded nonvolatile memory.

Nonvolatile Memory: designs, develops and markets erasable programmable read-only memories, electrically erasable programmable read-only memories, and Flash memories for a marketplace characterized by standardized products and commodity pricing.

RF and Automotive: designs, develops and markets radio frequency and analog circuits for the telecommunications, automotive and industrial markets.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Atmel evaluates performance based on income or loss from operations before interest, nonrecurring gains and losses, foreign exchange gains and losses and income taxes.

Atmel’s wafer manufacturing facilities fabricate integrated circuits for all business units as necessary and their operating costs are reflected in the segments’ cost of revenues on the basis of product costs. Because operating segments are defined by the products they design and sell, they do not make sales to each other. Atmel does not report assets, or track expenditures on long-lived assets by operating segment.

Information about segments:


						Nonvolatile
	ASIC			Micro-controllers		Memories			RF and Automotive		Total

Year ended December 31, 2000:
Net revenue from external customers	$	329,127		$	220,384	$	1,050,869		$	412,292	$	2,012,672
Segment operating income		16,902			61,408		271,848			94,514		444,672
Year ended December 31, 2001:
Net revenue from external customers	$	332,624			260,636		615,056			263,952	$	1,472,268
Segment operating (loss) income		(43,490	)		26,065		25,118			26,171		33,864
Year ended December 31, 2002:
Net revenue from external customers	$	379,758			234,394		359,641			220,021	$	1,193,814
Segment operating (loss) income		(11,494	)		28,272		(102,880	)		8,277		(77,825	)

Reconciliations of segment information to financial statements:


		2002			2001			2000

Total income for reportable segments		$	(77,825	)	$	33,864		$	444,672
Unallocated amounts:
	Start up costs		(71,075	)		(69,458	)		(29,045	)
	Asset impairment and restructuring charges		(383,801	)		(481,296	)		—

	Operating Income (loss)	$	(532,701	)	$	(516,890	)	$	415,627

Start up costs reflect the pre-production cost for the North Tyneside, U.K., and Irving, Texas, wafer fabrication facilities which cannot be allocated to any product segment.

Geographic sources of revenues and locations of long-lived assets:


	2002				2001				2000

	Revenues		Long-lived assets		Revenues		Long-lived assets		Revenues		Long-lived assets

United States	$	255,332	$	350,709	$	358,713	$	842,729	$	652,827	$	1,046,779
Germany		113,667		24,883		132,069		49,956		187,676		46,705
France		112,732		447,590		133,359		445,242		84,059		690,030
UK		64,420		214,835		82,868		307,043		86,359		140,173
Japan		70,223		—		151,471		—		144,857		—
China		206,390		397		101,100		405		163,912		270
Rest of Asia-Pacific		233,427		1,630		299,696		227		367,150		—
Rest of Europe		106,766		8,987		148,579		5,873		204,255		—
Rest of World		30,857		—		64,413		—		121,577		3,860

Total	$	1,193,814	$	1,049,031	$	1,472,268	$	1,651,475	$	2,012,672	$	1,927,817

Revenues are attributed to countries based on delivery locations. Long-lived assets exclude assets held for sale in the U.S. and Europe.

One customer accounted for $43,281, $97,960 and $231,922 of revenues in 2002, 2001, and 2000, respectively.

Note 14

STOCKHOLDER RIGHTS PLAN

In September 1998, the Board of Directors approved a stockholder rights plan, and in October 1999 the Board of Directors approved an amended and restated rights plan, under which stockholders of record on September 16, 1998 received rights to purchase (“Rights”) one-thousandth of a share of Atmel’s Series A preferred stock for each outstanding share of Atmel’s common stock. The Rights are exercisable at an exercise price of $50, subject to adjustment. The Rights will separate from the common stock and Rights certificates will be issued and the Rights will become exercisable upon the earlier of: (1) fifteen (15) days (or such later date as may be determined by a majority of the Board of Directors) following a public announcement that a person or group of affiliated associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20 percent or more of Atmel’s outstanding common stock, or (2) fifteen (15) business days following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 20 percent or more of the outstanding common stock of Atmel. The Rights expire on the earlier of (1) October 15, 2009, (2) redemption or exchange of the Rights, or (3) consummation of a merger, consolidation or assets sale resulting in expiration of the Rights.

Note 15

ASSET IMPAIRMENT AND RESTRUCTURING CHARGES

During the Company’s third quarter 2001 a restructuring plan was announced that included plans for the consolidation of manufacturing operations in both the United States and Europe and workforce reduction. The asset impairment and restructuring charges of $481,296 included a $462,768 asset impairment charge and an $18,528 charge related to reductions of force in Europe. The asset impairment charge related primarily to the manufacturing assets in the fabrication facilities in Colorado Springs, Colorado, Rousset, France and Nantes, France. The Company determined that due to excess capacity, the future undiscounted cash flows related to these facilities would not be sufficient to recover the carrying value of the manufacturing equipment in those facilities. The carrying values of these assets were written down to the Company’s estimate of fair market value and will continue to be depreciated over their remaining useful lives. The estimate of fair market value was made by management using various factors, including an outside appraisal that assumed the assets would continue in use at their current locations. Additionally, charges of $2,824 related to the US reduction in force of approximately 400 employees were expensed as cost of revenues upon finalization of detailed plans and communications to employees, which were generally in the periods in which the employees were terminated. The European reduction in force charges were based on legal requirements. At December 31, 2002, 401 employees have been terminated and approximately $14,113 of the European reduction in force costs had been paid in 2002 while $1,135 were paid in 2001. During

2002, $2,579 of restructuring charges relating to the reductions in force in Europe was reversed based on a revised estimate of anticipated costs. The remaining $835 is included in accrued liabilities and will be paid out over the next 6 months.

As a result of the downturn experienced in 2001, the Company delayed the completion of construction of the facilities at North Tyneside, UK and Irving, Texas to 2002, when it anticipated industry to rebound. The Company failed to meet its revenue projections in the first half of 2002 and concluded that the recovery in the industry would be slower and take longer than previous estimated. In light of these conditions, the Company performed an asset impairment review of its fixed assets. The Company determined that due to excess capacity, the future undiscounted cash flows related to the facilities at Irving, Texas and North Tyneside, U.K. would not be sufficient to recover the historical carrying value of the manufacturing equipment in those facilities. Atmel recorded an asset impairment charge of $341,383 in the second quarter 2002. The asset impairment charge was recorded to write down the carrying value of the equipment in the fabrication facilities in Irving, Texas and North Tyneside, U.K. to their estimated fair values. The estimate of fair values was made by management using various factors, including an outside appraisal that assumed the assets would continue in use at their current locations.

Atmel recorded an additional $39,630 of asset impairment and restructuring charges in the third quarter of 2002. This included $42,209 of charges related to the closure of the Company’s 8-inch wafer fabrication facility at Irving, Texas, offset by a $2,579 reversal of restructuring charges accrued in the third quarter of 2001. The Irving, Texas, facility was acquired in 2000 and the Company originally intended to commence commercial production in the second half of 2002. However, given the market conditions in the semiconductor industry, management reassessed its overall manufacturing capacity against the potential anticipated demand and decided to close the facility. The fabrication facility is available for sale and was placed on the market in August 2002. The Company intends to complete a sale as soon as possible, however the timing of a final sale is uncertain given the current market for semiconductor manufacturing facilities. As a result of the decision to close the facility and make it available for sale, Atmel recorded $42,209 of charges consisting of:

• an asset impairment charge of $23,456 for the write down of the assets held for sale to their estimated net realizable value of $174,427. The estimate of net realizable value was made by management using various factors, including an outside appraisal of the fabrication facility.

• costs for terminating contracts with suppliers of $13,923, $499 of which was paid before December 31, 2002 while the remaining will be paid in future periods.

• employee termination costs of $3,712 for 297 employees. Approximately 272 employees were terminated and $3,601 of the charge was paid before December 31, 2002, while the remaining amounts will be paid before September 2003.

• a $1,118 charge related to the repayment of a property tax abatement. Approximately $606 of the charge was paid before December 31, 2002, while the remaining amount will be paid by January 2003.

Ongoing costs will consist of expenses to maintain, market and secure the facility and property taxes. These costs are not expected to be significant.

Atmel recorded $2,788 of restructuring and asset impairment charges in the fourth quarter of 2002. This charge relates plans for reorganizing certain programs and a 50-person workforce reduction in Europe. The restructuring charges consist of:

• a $880 asset impairment charge for the write down of certain assets held for sale to their estimated realizable value of approximately $471. The fair values were estimated by the Company and prepared based on comparative market values for similar equipment.

• a $1,908 charge related to reductions of force in Europe. Approximately 18 employees were terminated and $290 of the charge was paid before December 31, 2002, while the remaining amounts attributable to 32 employees will be paid through December 2003.

The following table summarizes the activity related to the restructuring reserve liability during fiscal year 2002.


		January 1, 2002										December 31, 2002
		reserve		Charges		Reversals			Payments			reserves

Third quarter of 2001
	Reduction of force in Europe	$	17,527	$	—	$	(2,579	)	$	(14,113	)	$	835
Third quarter of 2002
	Termination of contract with supplier		—		13,923		—			(499	)		13,424
	Employee termination costs		—		3,712		—			(3,601	)		111
	Repayment of property tax abatement		—		1,118		—			(606	)		512
Fourth quarter of 2002
	Reduction of force in Europe		—		1,908					(290	)		1,618

Total		$	17,527	$	20,661	$	(2,579	)	$	(19,109	)	$	16,500

Note 16

NET (LOSS) INCOME PER SHARE

A reconciliation of the numerator and denominator of basic and diluted net (loss) income per share is provided as follows:


Years Ended December 31,		2002			2001			2000

Basic net (loss) income (numerator)		$	(641,796	)	$	(418,348	)	$	265,976
Interest on convertible bond			—			—			6,793

Diluted net (loss) income (numerator)		$	(641,796	)	$	(418,348	)	$	272,769

Shares used in basic net (loss) income per share calculations (denominator)			466,949			464,575			451,798
	Dilutive effect of stock options		—			—			14,118
	Dilutive effect of convertible bond		—			—			7,043
	Dilutive effect of zero coupon bond		—			—			19,030

Shares used in diluted net (loss) income per share calculations (denominator)			466,949			464,575			491,989

Basic net (loss) income per share		$	(1.37	)	$	(0.90	)	$	0.59
Diluted net (loss) income per share		$	(1.37	)	$	(0.90	)	$	0.55

Options to purchase approximately 26,496 and 21,004 shares were outstanding at December 31, 2002 and 2001, respectively and were excluded from the computation of dilutive shares because of their antidilutive effect on net (loss) income per share as the Company incurred a net loss for these years. Options to purchase approximately 658 shares were outstanding at December 31, 2000 but were not included in computation of diluted shares for the year, because they were antidilutive.

Common stock equivalent shares associated with the convertible notes of 60,891 and 26,166 were excluded from the computation of dilutive shares because of their antidilutive effect on net (loss) income per share as the Company incurred a net loss for the years ended December 31, 2002 and 2001.

Note 17

SUBSEQUENT EVENTS

On March 4, 2003 the Company announced its intention to use cash instead of stock to repurchase 2018 convertible notes, if redeemed by the note holders in April 2003.

On February 7, 2003, a class action entitled Pyevich v. Atmel Corporation, et al., was filed in the United States District Court for the Northern District of California, against the Company and certain of its current officers and a former officer. The Complaint alleges that the Company made false and misleading statements concerning its financial results and business during the period from January 20, 2000 to July 31, 2002 as a result of sales of allegedly defective product to a customer and alleges that the Company violated Section 10(b) of the Securities Exchange Act of 1934. Additional, virtually identical complaints were subsequently filed and will be consolidated into this action. The Complaints do not identify the alleged monetary damages. The Company disputes plaintiffs’ claims and intends to defend the lawsuit vigorously.

On February 19, 2003, a derivative class action entitled Cappano v. Perlegos, et al., was filed in the Superior Court for the State of California for the County of Santa Clara. The Complaint names as defendants the certain directors, officers and a former officer of the Company, and the Company is also named as a nominal defendant. The Complaint alleges that between January 2000 and July 31, 2002, defendants breached their fiduciary duties to the Company by permitting it to sell defective products to customers. The Complaint alleges claims for breach of fiduciary duty, mismanagement, abuse of control, waste, and unjust enrichment. The Complaint seeks unspecified damages and equitable relief as against the individual defendants. An additional, virtually identical complaint alleging the same allegations also was filed. The Company disputes plaintiffs’ claims and intends to defend the lawsuit vigorously.

Report of Independent Accountants

To the Board of Directors and
Stockholders of Atmel Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Atmel Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
San Jose, California

January 27, 2003, except for Note 17, which is as of March 4, 2003

Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors
of Atmel Corporation

Our audits of the consolidated financial statements of Atmel Corporation and subsidiaries referred to in our report dated January 27, 2003 except for Note 17, which is as of March 4, 2003, also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
San Jose, California

January 27, 2003, except for Note 17, which is as of March 4, 2003

Schedule II

ATMEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For the fiscal years ended December 31, 2002, 2001, and 2000

(In thousands)


		Balance at		Charged		Deductions -			Balance at End of
Description		Beginning of Period		to Expenses		Writeoffs			Period

Allowance for doubtful accounts receivable:
	Fiscal year ended 2000	$	20,770	$	4,218	$	(5,301	)	$	19,687
	Fiscal year ended 2001		19,687		5,502		(5,000	)		20,189
	Fiscal year ended 2002		20,189		2,526		(300	)		22,415

INDEX TO EXHIBITS


Exhibit
Number		Description

3.1		Certificate of Incorporation of Registrant, as amended to date (which is incorporated herein by reference to Exhibit 2 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).

3.2		Bylaws of Registrant, as amended.

3.3		Certificate of Determination of Rights, Preferences and Privileges of Series A Preferred Stock (which is incorporated herein by reference to Exhibit A of Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).

4.1		Amended and Restated Preferred Shares Rights Agreement dated as of October 18, 1999, between Atmel Corporation and BankBoston, N.A., a national banking association, including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights (which is incorporated herein by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).

10.1+		1986 Incentive Stock Option Plan, as amended, and forms of stock option agreements thereunder (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 33-38882) declared effective on March 19, 1991).

10.2+		1991 Employee Stock Purchase Plan, as amended.

10.3+		Form of Indemnification Agreement between Registrant and its officers and directors (which is incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19032).

10.4+		1996 Stock Plan and forms of agreements thereunder.

10.5		Indenture, dated as of April 21, 1998, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as trustee thereunder (including the form of debenture) (which is incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (File No. 333-59261) filed on July 16, 1998).

10.6		First Supplemental Indenture, dated as of October 15, 1999, to Indenture dated as of April 21, 1998, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as trustee thereunder.

10.7		Registration Rights Agreement dated as of April 21, 1998, by and between the Registrant and Morgan Stanley & Co. Incorporated (which is incorporated herein by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-59261) filed on July 16, 1998).

10.8		Indenture, dated as of May 23, 2001, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as trustee thereunder (including the form of debenture) (which is incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (File No. 333-63996) filed on June 27, 2001).

10.9		Registration Rights Agreement dated as of May 23, 2001, by and among the Registrant and Morgan Stanley & Co. Incorporated, Credit Lyonnais Securities (USA) Inc. and Needham & Company, Inc. (which is incorporated herein by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-63996) filed on June 27, 2001).

21.1		Subsidiaries of Registrant.


Exhibit
Number		Description

23.1		Consent of Independent Accountants.

24.1		Power of Attorney (included on the signature pages hereof).

99.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Indicates management compensatory plan, contract or arrangement.

EX-3.2 3 f88663exv3w2.txt EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF ATMEL CORPORATION (A DELAWARE CORPORATION) (AS AMENDED ON SEPTEMBER 16, 2002) AMENDED AND RESTATED BYLAWS OF ATMEL CORPORATION (A DELAWARE CORPORATION) (AS AMENDED ON SEPTEMBER 16, 2002) TABLE OF CONTENTS
PAGE ARTICLE I CORPORATE OFFICES .................................................... 1 1.1 Registered Office ..................................................... 1 1.2 Other Offices ......................................................... 1 ARTICLE II MEETINGS OF STOCKHOLDERS ............................................ 1 2.1 Place Of Meeting ...................................................... 1 2.2 Annual Meeting ....................................................... 1 2.3 Special Meeting .............................................. 2 2.4 Notice Of Stockholders' Meetings ...................................... 3 2.5 Manner Of Giving Notice; Affidavit Of Notice .......................... 3 2.6 Quorum ................................................................ 3 2.7 Adjourned Meeting; Notice ............................................. 3 2.8 Voting ................................................................ 4 2.9 Validation Of Meetings; Waiver Of Notice; Consent ..................... 4 2.10 No Stockholder Action By Written Consent .............................. 4 2.11 Record Date For Stockholder Notice; Voting ............................ 4 2.12 Proxies ............................................................... 4 2.13 Organization .......................................................... 5 2.14 List Of Stockholders Entitled To Vote ................................. 5 2.15 Inspectors Of Election ................................................ 5 ARTICLE III DIRECTORS .......................................................... 6 3.1 Powers ................................................................ 6 3.2 Number Of Directors ................................................... 6 3.3 Election And Term Of Office Of Directors .............................. 6 3.4 Resignation And Vacancies ............................................. 6 3.5 Removal Of Directors .................................................. 7 3.6 Place Of Meetings; Meetings By Telephone .............................. 7 3.7 First Meetings ........................................................ 7 3.8 Regular Meetings ...................................................... 7 3.9 Special Meetings; Notice .............................................. 8 3.10 Quorum ................................................................ 8 3.11 Waiver Of Notice ...................................................... 8 3.12 Adjournment ........................................................... 8 3.13 Notice Of Adjournment ................................................. 8 3.14 Board Action By Written Consent Without A Meeting ..................... 8 3.15 Fees And Compensation Of Directors .................................... 9 3.16 Approval Of Loans To Officers ......................................... 9 3.17 Sole Director Provided By Certificate Of Incorporation ................ 9 ARTICLE IV COMMITTEES .......................................................... 9 4.1 Committees Of Directors ............................................... 9
-i- 4.2 Meetings And Action Of Committees ..................................... 9 4.3 Committee Minutes...................................................... 10 ARTICLE V OFFICERS..................................................... 10 5.1 Officers............................................................... 10 5.2 Election Of Officers................................................... 10 5.3 Subordinate Officers................................................... 10 5.4 Removal And Resignation Of Officers.................................... 10 5.5 Vacancies In Offices................................................... 10 5.6 Chairman Of The Board.................................................. 11 5.7 President.............................................................. 11 5.8 Vice Presidents........................................................ 11 5.9 Secretary.............................................................. 11 5.10 Chief Financial Officer................................................ 11 5.11 Assistant Secretary.................................................... 12 5.12 Administrative Officers................................................ 12 5.13 Authority And Duties Of Officers....................................... 12 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS... 12 6.1 Indemnification Of Directors And Officers.............................. 12 6.2 Indemnification Of Others.............................................. 13 6.3 Insurance.............................................................. 13 6.4 Expenses............................................................... 13 6.5 Non-Exclusivity Of Rights.............................................. 14 6.6 Survival Of Rights..................................................... 14 6.7 Amendments............................................................. 14 ARTICLE VII RECORDS AND REPORTS................................................. 14 7.1 Maintenance And Inspection Of Records.................................. 14 7.2 Inspection By Directors................................................ 14 7.3 Representation Of Shares Of Other Corporations......................... 15 7.4 Certification And Inspection Of Bylaws................................. 15 ARTICLE VIII GENERAL MATTERS.................................................... 15 8.1 Record Date For Purposes Other Than Notice And Voting.................. 15 8.2 Checks; Drafts; Evidences Of Indebtedness.............................. 15 8.3 Corporate Contracts And Instruments: How Executed...................... 15 8.4 Stock Certificates; Transfer; Partly Paid Shares....................... 15 8.5 Special Designation On Certificates.................................... 16 8.6 Lost Certificates...................................................... 16 8.7 Transfer Agents And Registrars......................................... 17 8.8 Construction; Definitions.............................................. 17 8.9 Provisions Additional to Provisions of Law............................. 17 8.10 Provisions Contrary To Provisions Of Law............................... 17 8.11 Notices................................................................ 17 ARTICLE IX AMENDMENTS .......................................................... 17

-ii- AMENDED AND RESTATED BYLAWS OF ATMEL CORPORATION (A DELAWARE CORPORATION) ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE. The registered office of the corporation shall be fixed in the Certificate of Incorporation of the corporation. 1.2 OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETING. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING. (a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the fourth Wednesday in April in each year at 2:00 p.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the date specified in the corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not later than the close of business on the later of one hundred twenty (120) calendar days in advance of such annual meeting or ten (10) calendar days following the date on which public announcement of the date of the meeting is first made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 2.2. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. 2.3 SPECIAL MEETING. A special meeting of the stockholders may be called at any time by the board of directors, by the chairman of the board, or by the president, but such special meetings may not be called by any other person or persons. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting. -2- 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these Bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of stockholders shall be given either (i) personally, (ii) by private courier, (iii) by first- or third-class United States mail, (iv) by telegraphic communication, (v) by other written communication or (vi) by other electronic or wireless means. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or by courier or deposited in the mail or sent by telegram or other means of written communication or other electronic or wireless means. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6 QUORUM. The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 2.7 of these Bylaws. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum. 2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time and place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. -3- 2.8 VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners, and to voting trusts and other voting agreements). Except as may be otherwise provided in the Certificate of Incorporation or these Bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. The transactions of any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of stockholders. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as dividend or upon liquidation, the stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING. For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Certificate of Incorporation, by these Bylaws, by agreement or by applicable law. If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws. 2.12 PROXIES. Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person -4- and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, telefacsimile or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware (relating to the irrevocability of proxies). 2.13 ORGANIZATION. The president, or in the absence of the president, the chairman of the board, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the president, the chairman of the board, and all of the vice presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.15 INSPECTORS OF ELECTION. Before any meeting of stockholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any stockholder or a stockholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more stockholders or proxies, then the holders of a majority of the voting power of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any stockholder or a stockholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; -5- (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. ARTICLE III DIRECTORS 3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS. The board of directors shall consist of seven (7) members. The number of directors may be changed by an amendment to this bylaw, duly adopted by the board of directors or by the stockholders, or by a duly adopted amendment to the Certificate of Incorporation. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section 3.4 of these Bylaws, at each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the General Corporation Law of Delaware. The term of office of a director shall begin immediately after election. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. 3.4 RESIGNATION AND VACANCIES. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced and until a successor has been elected and qualified. Unless otherwise provided in the Certificate of Incorporation or by these Bylaws, vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the voting power of shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum). Each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced and until a successor has been elected and qualified. Unless otherwise provided in the Certificate of Incorporation or these Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be -6- filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. (iii) If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware (relating to meetings of stockholders). If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10%) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware (relating to meetings of stockholders) as far as applicable. 3.5 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting of the board, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such participating directors shall be deemed to be present in person at the meeting. 3.7 FIRST MEETINGS. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.8 REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice at such time as shall from time to time be determined by the board of directors. If any regular meeting day shall -7- fall on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. 3.9 SPECIAL MEETINGS; NOTICE. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, telecopy or telegram, or other electronic or wireless means, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telecopy or telegram, it shall be delivered personally or by telephone or to the telegraph company at least twenty-four (24) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. Moreover, a notice of special meeting need not state the purpose of such meeting, and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting. 3.10 QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.12 of these Bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the Certificate of Incorporation and applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the quorum for that meeting. 3.11 WAIVER OF NOTICE. Notice of a meeting need not be given to any director (i) who signs a waiver of notice, whether before or after the meeting, or (ii) who attends the meeting other than for the express purposed of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. All such waivers shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.12 ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting of the board to another time and place. 3.13 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting of the board need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.9 of these Bylaws, to the directors who were not present at the time of the adjournment. 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board of directors. -8- 3.15 FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.16 APPROVAL OF LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any of its subsidiaries, including any officer or employee who is a director of the corporation or any of its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION. In the event only one director is required by these Bylaws or the Certificate of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to the board of directors. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of one or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have and may exercise all the powers and authority of the board, but no such committee shall have the power or authority to (i) approve or adopt or recommend to the stockholders any action or matter that requires the approval of the stockholders or (ii) adopt, amend or repeal any Bylaw of the corporation. 4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the following provisions of Article III of these Bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13 (notice of adjournment) and Section 3.14 (board action by written consent without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. -9- 4.3 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE V OFFICERS 5.1 OFFICERS. The Corporate Officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents (however denominated), one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. In addition to the Corporate Officers of the Company described above, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the president of the corporation in accordance with the provisions of Section 5.12 of these Bylaws. 5.2 ELECTION OF OFFICERS. The Corporate Officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment, and shall hold their respective offices for such terms as the board of directors may from time to time determine. 5.3 SUBORDINATE OFFICERS. The board of directors may appoint, or may empower the president to appoint, such other Corporate Officers as the business of the corporation may require, each of whom shall hold office for such period, have such power and authority, and perform such duties as are provided in these Bylaws or as the board of directors may from time to time determine. The president may from time to time designate and appoint Administrative Officers of the corporation in accordance with the provisions of Section 5.12 of these Bylaws. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of a Corporate Officer under any contract of employment, any Corporate Officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of a Corporate Officer chosen by the board of directors, by any Corporate Officer upon whom such power of removal may be conferred by the board of directors. Any Corporate Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the Corporate Officer is a party. Any Administrative Officer designated and appointed by the president may be removed, either with or without cause, at any time by the president. Any Administrative Officer may resign at any time by giving written notice to the president or to the secretary of the corporation. 5.5 VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office. -10- 5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise such other powers and perform such other duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these Bylaws. 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or non-existence of a chairman of the board, at all meetings of the board of directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these Bylaws. 5.8 VICE PRESIDENTS. In the absence or disability of the president, and if there is no chairman of the board, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these Bylaws, the president or the chairman of the board. 5.9 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of the board of directors, committees of directors and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director for a purpose reasonably related to his position as a director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He or she shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his or her transactions as chief financial officer -11- and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these Bylaws. 5.11 ASSISTANT SECRETARY. The assistant secretary, if any, or, if there is more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 5.12 ADMINISTRATIVE OFFICERS. In addition to the Corporate Officers of the corporation as provided in Section 5.1 of these Bylaws and such subordinate Corporate Officers as may be appointed in accordance with Section 5.3 of these Bylaws, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the president of the corporation. Administrative Officers shall perform such duties and have such powers as from time to time may be determined by the president or the board of directors in order to assist the Corporate Officers in the furtherance of their duties. In the performance of such duties and the exercise of such powers, however, such Administrative Officers shall have limited authority to act on behalf of the corporation as the board of directors shall establish, including but not limited to limitations on the dollar amount and on the scope of agreements or commitments that may be made by such Administrative Officers on behalf of the corporation, which limitations may not be exceeded by such individuals or altered by the president without further approval by the board of directors. 5.13 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing powers, authority and duties, all officers of the corporation shall respectively have such authority and powers and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation shall mean any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. The corporation shall be required to indemnify a director or officer in connection with an action, suit, or proceeding (or part thereof) initiated by such director or officer only if the initiation of such action, suit, or proceeding (or part thereof) by the director or officer was authorized by the board of Directors of the corporation. -12- The corporation shall pay the expenses (including attorney's fees) incurred by a director or officer of the corporation entitled to indemnification hereunder in defending any action, suit or proceeding referred to in this Section 6.1 in advance of its final disposition; provided, however, that payment of expenses incurred by a director or officer of the corporation in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Section 6.1 or otherwise. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the corporation's Certificate of Incorporation, these Bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. 6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify any person (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. 6.4 EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise; provided, however, that the corporation shall not be required to advance expenses to any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was authorized in advance by the board of directors of the corporation. -13- Notwithstanding the foregoing, unless otherwise determined pursuant to Section 6.5, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. 6.5 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the General Corporation Law of Delaware. 6.6 SURVIVAL OF RIGHTS. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 6.7 AMENDMENTS. Any repeal or modification of this bylaw shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. ARTICLE VII. RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records of its business and properties. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. -14- 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, if any, the president, any vice president, the chief financial officer, the secretary or any assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of the stock of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 7.4 CERTIFICATION AND INSPECTION OF BYLAWS. The original or a copy of these Bylaws, as amended or otherwise altered to date, certified by the secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the stockholders of the corporation, at all reasonable times during office hours. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted and which shall not be more than sixty (60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided by law. If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the applicable resolution. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: How Executed. The board of directors, except as otherwise provided in these Bylaws, may authorize and empower any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such power and authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES. The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of -15- uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Certificates for shares shall be of such form and device as the board of directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a summary statement or reference to the powers, designations, preferences or other special rights of such stock and the qualifications, limitations or restrictions of such preferences and/or rights, if any; a statement or summary of liens, if any; a conspicuous notice of restrictions upon transfer or registration of transfer, if any; a statement as to any applicable voting trust agreement; and, if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.5 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware (relating to transfers of stock, stock certificates and uncertificated stock), in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.6 LOST CERTIFICATES. Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made -16- against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.7 TRANSFER AGENTS AND REGISTRARS. The board of directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, each of which shall be an incorporated bank or trust company -- either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the board of directors may designate. 8.8 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, as used in these Bylaws, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both an entity and a natural person. 8.9 PROVISIONS ADDITIONAL TO PROVISIONS OF LAW. All restrictions, limitations, requirements and other provisions of these Bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. 8.10 PROVISIONS CONTRARY TO PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence, clause or phrase of these Bylaws which upon being construed in the manner provided in Section 8.9 hereof, shall be contrary to or inconsistent with any applicable provisions of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these Bylaws, it being hereby declared that these Bylaws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal. 8.11 NOTICES. Any reference in these Bylaws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless means, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. ARTICLE IX AMENDMENTS Subject to Section 6.7 hereof, the original or other Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of Bylaws with the original Bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book. -17- EX-10.2 4 f88663exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 ATMEL CORPORATION 1991 EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED AND RESTATED MARCH 14, 2003) The following constitute the provisions of the 1991 Employee Stock Purchase Plan of Atmel Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that Section of the Code. 2. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean Atmel Corporation, a California corporation. (e) "Compensation" shall mean all regular gross earnings, including payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions and other compensation, excluding only one-time, non-recurring payments, such as relocation bonuses, as determined by the Board. (f) "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual who is an employee of the Company for purposes of tax withholding under the Code whose customary employment with the Company or any Designated Subsidiary is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first day of each Offering Period. (i) "Exercise Date" shall mean the last day of each Offering Period. (j) "Fair Market Value" shall mean, as of any date, the value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such exchange (or the exchange with the greatest volume of trading in Common Stock) or system on the last market trading day prior to the day of such determination, as reported in the Wall Street Journal or such other source as the Board deems reliable, or; (2) If the Common Stock is quoted on the NASDAQ system (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and low asked prices for the Common Stock on the last market trading day prior to the day of such determination, as reported in the Wall Street Journal or such other source as the Board deems reliable, or; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (k) "Offering Period" shall mean a period of approximately six (6) months, commencing on the first Trading Day on or after February 15 and terminating on the last Trading Day in the period ending the following August 14, or commencing on the first Trading Day on or after August 15 and terminating on the last Trading Day in the period ending the following February 14, during which an option granted pursuant to the Plan may be exercised. (l) "Plan" shall mean this 1991 Employee Stock Purchase Plan. (m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (n) "Reserves" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (o) "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50 % of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (p) "Trading Day" shall mean a day on which national stock exchanges and the NASDAQ System are open for trading. -2- 3. Eligibility. (a) Any Employee, as defined in paragraph 2, who has been continuously employed by the Company for at least three (3) consecutive months and who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after February 15 and August 15 of each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with paragraph 19 hereof. The Board shall have the power to change the duration of Offering Periods with respect to future offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office at least ten (10) business days prior to the applicable Enrollment Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in paragraph 10. 6. Payroll Deductions. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have deductions made on each payday during the Offering Period in an amount not exceeding ten percent (10%) and not less than two percent (2%) of the Compensation which he or she receives on each payday during the Offering Period, and the aggregate of such payroll deductions during the Offering Period shall not exceed ten percent (10%) or be less than two percent (2%) of the participant's Compensation during said offering Period. -3- (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and will be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in paragraph 10, or may decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board shall be authorized to limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following ten (10) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in paragraph 10. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's payroll deductions may be decreased to 0% at such time during any Offering Period which is scheduled to end during the current calendar year (the "Current Offering Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in a prior Offering Period which ended during that calendar year plus all payroll deductions accumulated with respect to the Current Offering Period equal $21,250. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in paragraph 10. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but will not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefit attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Offering Period more than two hundred percent (200%) of the number of shares determined by dividing $12,500 by the fair market value of a share of the Company's Common Stock on the Enrollment Date, and provided further that such purchase shall be subject to the limitations set forth in Section 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8, unless the participant has withdrawn pursuant to Section 10, and shall expire on the last day of the Offering Period. -4- 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in paragraph 10 below, his or her option for the purchase of shares will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares will be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in paragraph 10. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal; Termination of Employment. (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account will be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) Upon a participant's ceasing to be an Employee for any reason or upon termination of a participant's employment relationship (as described in Section 2(g)), the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option will be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under paragraph 14, and such participant's option will be automatically terminated. (c) In the event an Employee fails to remain an Employee of the Company for at least twenty (20) hours per week during an Offering Period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his or her account will be returned to such participant and such participant's option terminated. (d) A participant's withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. -5- 11. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan. 12. Stock. (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 42,000,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18; provided, however, that beginning January 1, 2004, such number of shares shall be increased annually each January 1 by an amount equal to one half of one percent (0.5%) of the then outstanding shares on such date or such lesser amount as determined by the Board. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant will have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 13. Administration. (a) Administrative Body. The Plan shall be administered by the Board of the Company or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the fall extent permitted by law, be final and binding upon all parties. Members of the Board who are eligible Employees are permitted to participate in the Plan, provided that: (1) Members of the Board who are eligible to participate in the Plan may not vote on any matter affecting the administration of the Plan or the grant of any option pursuant to the Plan. (2) If a Committee is established to administer the Plan, no member of the Board who is eligible to participate in the Plan may be a member of the Committee. (b) Rule 16b-3 Limitations. Notwithstanding the provisions of SubSection (a) of this Section 13, in the event that Rule 16b-3 promulgated under The Securities Exchange Act of 1934, as amended, or any successor provision ("Rule 16b-3") provides specific requirements for the administrators of plans of this type, the Plan shall be only administered by such a body and in such a manner as shall comply with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the Plan shall be afforded to any committee or person that is not "disinterested" as that term is used in Rule l6b-3. -6- 14. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with paragraph 10. 16. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Company, the Reserves as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, 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 increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue 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 -7- by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for his option has been changed to the New Exercise Date and that his option will be exercised automatically on the New Exercise Date, unless prior to such date he has withdrawn from the Offering Period as provided in paragraph 10. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of option stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets or merger was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock and the sale of assets or merger. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. Amendment or Termination. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in paragraph 18, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in paragraph 18, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain shareholder approval in such a manner and to such a degree as required. -8- (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its-committee) determines in its sole discretion advisable which are consistent with the Plan. 20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 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 of the aforementioned applicable provisions of law. 22. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of twenty (20) years unless sooner terminated under paragraph 19. 23. Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. -9- EXHIBIT A ATMEL CORPORATION 1991 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT ________ Original Application Enrollment Date: ____________ ________ Decrease in Payroll Deduction Rate ________ Change of Beneficiary(ies) 1. _________________________________hereby elects to participate in the Atmel Corporation 1991 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (minimum deduction to be 2% and maximum deduction to be 10%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete "Atmel Corporation 1991 Employee Stock Purchase Plan." I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that the grant of the option by the Company under this Subscription Agreement is subject to obtaining shareholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of:_________________________________________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the offering Period during which I purchased such shares), I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the market value of the shares at the time such shares were delivered to me over the price which I paid for the shares. I hereby agree to notify the Company in writing within 30 days after the date of any such disposition and I will make adequate provision for Federal, State or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year holding period, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print) ____________________________________________________ (First) (Middle) (Last) ____________________________________________________ Relationship (Address) NAME: (Please print) ____________________________________________________ (First) (Middle) (Last) ____________________________________________________ Relationship (Address) Employee's Social Security Number: ____________________________________________________ Employee's Atmel Identification Number: ____________________________________________________ Employee's Address: ____________________________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated: ______________ ______________________________________ Signature of Employee IF YOU ARE MARRIED AND YOU HAVE CHOSEN A BENEFICIARY OTHER THAN YOUR SPOUSE, PLEASE COMPLETE THE FOLLOWING: Dated: ______________ ______________________________________ Signature of Spouse -2- EXHIBIT B ATMEL CORPORATION 1991 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Atmel Corporation 1991 Employee Stock Purchase Plan which began on __________________, 20___ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant ______________________________________ ______________________________________ ______________________________________ Signature ______________________________________ Date:_________________________________ EX-10.4 5 f88663exv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 ATMEL CORPORATION 1996 STOCK PLAN (AS AMENDED AND RESTATED MARCH 14, 2003) 1. Purposes of the Plan. The purposes of this Stock Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees and Consultants, and - to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights will be granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a Committee appointed by the Board in accordance with Section 4 of the Plan. (f) "COMMON STOCK" means the Common Stock of the Company. (g) "COMPANY" means Atmel Corporation, a California corporation. (h) "CONSULTANT" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "DIRECTOR" means a member of the Board. (j) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee 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. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. -2- (p) "NOTICE OF GRANT" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "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. (r) "OPTION" means a stock option granted pursuant to the Plan. (s) "OPTION AGREEMENT" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price. (u) "OPTIONED STOCK" means the Common Stock subject to an Option or Stock Purchase Right. (v) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (w) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "PLAN" means this 1996 Stock Plan, as amended. (y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 below. (z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (aa) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (bb) "SECTION 16(B)" means Section 16(b) of the Exchange Act. (cc) "SERVICE PROVIDER" means an Employee, Director or Consultant. (dd) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. (ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. -3- (ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 56,000,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are 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) Procedure. (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; -4- (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. -5- (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 100,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 250,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. Subject to Section 19 of the 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 terminated earlier under Section 15 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or -6- such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined 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 or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; -7- (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) 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; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except for options granted prior to October 11, 1996, or unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent -8- that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) 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 Optionee at the time that such offer is made. 11. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept -9- such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. Non-Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right 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 Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, 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 increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. 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 thereof shall -10- be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. -11- 15. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options granted under the Plan prior to the date of such termination. 16. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right 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. 17. Inability to Obtain Authority. 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. 18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -12- ATMEL CORPORATION 1996 STOCK PLAN (AS AMENDED AND RESTATED MARCH 14, 2003) STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number _________________________ Date of Grant _________________________ Vesting Commencement Date _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: _________________________ Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee continuing to be a Service Provider on such dates. Termination Period: This Option may be exercised for _____ [days/months] after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for such longer period as provided in the Plan. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT 1. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "OPTIONEE") an option (the "OPTION") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "EXERCISE PRICE"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "EXERCISE NOTICE"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "EXERCISED SHARES"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; or -2- (b) check; or (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, AND (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or (e) with the Administrator's consent, delivery of Optionee's promissory note (the "NOTE") in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the "applicable federal rate" prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement. 4. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Tax Consequences. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. (i) Nonstatutory Stock Option. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Incentive Stock Option. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate -3- Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. (b) Disposition of Shares. (i) NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. (ii) ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. 7. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT -4- AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: ATMEL CORPORATION ____________________________________ ____________________________________ Signature By ____________________________________ ____________________________________ Print Name Title ____________________________________ ____________________________________ Residence Address -5- CONSENT OF SPOUSE The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. ____________________________________ Spouse of Optionee EXHIBIT A 1996 STOCK PLAN (AS AMENDED AND RESTATED MARCH 14, 2003) EXERCISE NOTICE Atmel Corporation 2325 Orchard Parkway San Jose, California 95131 Attention: Secretary 1. Exercise of Option. Effective as of today, ________________, 20__, the undersigned ("PURCHASER") hereby elects to purchase ______________ shares (the "SHARES") of the Common Stock of Atmel Corporation (the "COMPANY") under and pursuant to the 1996 Stock Plan, as amended (the "PLAN") and the Stock Option Agreement dated, _______ (the "OPTION AGREEMENT"). The purchase price for the Shares shall be $_______, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. 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 Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after 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 of issuance, except as provided in Section 13 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: ATMEL CORPORATION ____________________________________ ____________________________________ Signature By ____________________________________ ____________________________________ Print Name Its Address: Address: ____________________________________ 2325 Orchard Parkway San Jose, CA 95131 ____________________________________ ____________________________________ Date Received -2- EXHIBIT B SECURITY AGREEMENT This Security Agreement is made as of __________, 20___ between Atmel Corporation, a California corporation ("PLEDGEE"), and _________________________ ("PLEDGOR"). Recitals Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated ________ (the "OPTION"), between Pledgor and Pledgee under Pledgee's 1996 Stock Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "NOTE"), Pledgor has purchased _________ shares of Pledgee's Common Stock (the "SHARES") at a price of $________ per share, for a total purchase price of $__________. The Note and the obligations thereunder are as set forth in Exhibit C to the Option. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "COLLATERAL") represented by certificate number ______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("PLEDGEHOLDER"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledge holder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: (a) Payment of Indebtedness. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. (b) Encumbrances. The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. (c) Margin Regulations. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: (a) Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or (b) Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. -2- 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and governed under the internal substantive laws, but not the choice of law rules, of California. -3- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" ____________________________________ Signature ____________________________________ Print Name Address:____________________________ ____________________________________ "PLEDGEE" ATMEL CORPORATION, a California corporation ____________________________________ Signature ____________________________________ Print Name ____________________________________ Title "PLEDGEHOLDER" ____________________________________ Secretary of Atmel Corporation EXHIBIT C NOTE $_______________ San Jose, California ______________, 20___ FOR VALUE RECEIVED, _______________ promises to pay to Atmel Corporation, a California corporation (the "COMPANY"), or order, the principal sum of _______________________ ($_____________), together with interest on the unpaid principal hereof from the date hereof at the rate of _______________ percent (____%) per annum, compounded semiannually. Principal and interest shall be due and payable on __________, 20___. Payment of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of ________________. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee, director or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. ____________________________________ ____________________________________ 1996 STOCK PLAN (AS AMENDED AND RESTATED MARCH 14, 2003) NOTICE OF GRANT OF STOCK PURCHASE RIGHT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant. [Grantee's Name and Address] You have been granted the right to purchase Common Stock of the Company, subject to the Company's Repurchase Option and your ongoing status as a Service Provider (as described in the Plan and the attached Restricted Stock Purchase Agreement), as follows: Grant Number _________________________ Date of Grant _________________________ Price Per Share $________________________ Total Number of Shares Subject _________________________ to This Stock Purchase Right Expiration Date: _________________________ YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company's representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the 1996 Stock Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a part of this document. You further agree to execute the attached Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right. GRANTEE: ATMEL CORPORATION ____________________________________ ____________________________________ Signature By ____________________________________ ____________________________________ Print Name Title EXHIBIT A-1 1996 STOCK PLAN (AS AMENDED AND RESTATED MARCH 14, 2003) RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Purchase Agreement. WHEREAS the Purchaser named in the Notice of Grant, (the "PURCHASER") is an Service Provider, and the Purchaser's continued participation is considered by the Company to be important for the Company's continued growth; and WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Administrator has granted to the Purchaser a Stock Purchase Right subject to the terms and conditions of the Plan and the Notice of Grant, which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the "AGREEMENT"). NOW THEREFORE, the parties agree as follows: 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to purchase shares of the Company's Common Stock (the "SHARES"), at the per Share purchase price and as otherwise described in the Notice of Grant. 2. Payment of Purchase Price. The purchase price for the Shares may be paid by delivery to the Company at the time of execution of this Agreement of cash, a check, or some combination thereof. 3. Repurchase Option. (a) In the event the Purchaser ceases to be a Service Provider for any or no reason (including death or disability) before all of the Shares are released from the Company's Repurchase Option (see Section 4), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option (the "REPURCHASE OPTION") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unreleased Shares (as defined in Section 4) at the original purchase price per share (the "REPURCHASE PRICE"). The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by cancelling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company. (b) Whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's purchase rights under this Agreement and purchase all or a part of such Shares. If the Fair Market Value of the Shares to be repurchased on the date of such designation or assignment (the "REPURCHASE FMV") exceeds the aggregate Repurchase Price of such Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of such Shares. 4. Release of Shares From Repurchase Option. (a) _______________________ percent (______%) of the Shares shall be released from the Company's Repurchase Option [one year] after the Date of Grant and __________________ percent (______%) of the Shares [at the end of each month thereafter], provided that the Purchaser does not cease to be a Service Provider prior to the date of any such release. (b) Any of the Shares that have not yet been released from the Repurchase Option are referred to herein as "Unreleased Shares." (c) The Shares that have been released from the Repurchase Option shall be delivered to the Purchaser at the Purchaser's request (see Section 6). 5. Restriction on Transfer. Except for the escrow described in Section 6 or the transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until such Shares are released from the Company's Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution. 6. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the Repurchase Option, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "ESCROW HOLDER") the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached hereto as Exhibit A-3, until such time as the Company's Repurchase Option expires. As a further condition to the Company's obligations under this Agreement, the Company may require the spouse of Purchaser, if any, to execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4. -2- (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises the Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Repurchase Option has been exercised or expires unexercised or a portion of the Shares has been released from the Repurchase Option, upon request the Escrow Holder shall promptly cause a new certificate to be issued for the released Shares and shall deliver the certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Repurchase Option. 7. Legends. The share certificate evidencing the Shares, if any, issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 8. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement. 9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser's own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the "CODE"), taxes as ordinary income the difference between the purchase price for the Shares and the Fair Market Value of the -3- Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" includes the right of the Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit A-5 hereto. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 10. General Provisions. (a) This Agreement shall be governed by the internal substantive laws, but not the choice of law rules of California. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of the Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. (b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party hereto. (c) The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (d) Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are cumulative and shall not constitute a waiver of either party's right to assert any other legal remedy available to it. (e) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. -4- (f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant. DATED: _____________________ PURCHASER: ATMEL CORPORATION ____________________________________ ____________________________________ Signature By ____________________________________ ____________________________________ Print Name Title -5- EXHIBIT A-2 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto ___________________ (__________) shares of the Common Stock of Atmel Corporation standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint __________________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement (the "AGREEMENT") between________________________ and the undersigned dated ______________, 20__. Dated: _______________, 19 ____________________________________ Signature INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise the Repurchase Option, as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. EXHIBIT A-3 JOINT ESCROW INSTRUCTIONS __________, 20___ Corporate Secretary Atmel Corporation 2325 Orchard Parkway San Jose, California 95131 Dear ___________: As Escrow Agent for both Atmel Corporation, a California] corporation (the "COMPANY"), and the undersigned purchaser of stock of the Company (the "PURCHASER"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("AGREEMENT") between the Company and the undersigned, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively as the "COMPANY") exercises the Company's Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's Repurchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's Repurchase Option has been exercised, you shall deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's Repurchase Option. Within 90 days after Purchaser ceases to be a Service Provider, you shall deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's Repurchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under the statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. -2- 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. 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 and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto. COMPANY: Atmel Corporation PURCHASER: ____________________________________ ____________________________________ ____________________________________ ESCROW AGENT: Corporate Secretary Atmel Corporation 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. 18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the internal substantive laws, but not the choice of law rules, of California. Very truly yours, Atmel Corporation ____________________________________ By ____________________________________ Title -3- PURCHASER: ____________________________________ Signature ____________________________________ Print Name ESCROW AGENT: ____________________________________ Corporate Secretary -4- EXHIBIT A-4 CONSENT OF SPOUSE I, ____________________, spouse of ___________________, have read and approve the foregoing Restricted Stock Purchase Agreement (the "AGREEMENT"). In consideration of the Company's grant to my spouse of the right to purchase shares of Atmel Corporation, as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: _______________, 19 ___ ____________________________________ Signature of Spouse EXHIBIT A-5 ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: TAXPAYER: SPOUSE: ADDRESS: IDENTIFICATION NO.: TAXPAYER: SPOUSE: TAXABLE YEAR: 2. The property with respect to which the election is made is described as follows: shares (the "SHARES") of the Common Stock of Atmel Corporation(the "COMPANY"). 3. The date on which the property was transferred is: __________, 20__. 4. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, upon certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $_______________. 6. The amount (if any) paid for such property is: $_______________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: ___________________, 20______________________________________ Taxpayer The undersigned spouse of taxpayer joins in this election. Dated: ___________________, 20______________________________________ Spouse of Taxpayer -2- EX-10.6 6 f88663exv10w6.txt EXHIBIT 10.6 EXHIBIT 10.6 ATMEL CORPORATION Zero Coupon Subordinated Debentures Due 2018 FIRST SUPPLEMENTAL INDENTURE Dated as of October 15, 1999 to INDENTURE Dated as of April 21, 1998 STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture") dated as of October 15, 1999 between Atmel Corporation, a Delaware corporation ("Atmel Delaware"), and State Street Bank and Trust Company of California, N. A., organized and existing under the laws of the United States (the "Trustee"). W I T N E S S E T H: WHEREAS, there has previously been executed and delivered to the Trustee an Indenture dated as of April 21, 1998 (the "Indenture"), providing for the issuance of Zero Coupon Convertible Subordinated Debentures due 2018 (the "Debentures") of Atmel Corporation, a California corporation ("Atmel California"); and WHEREAS, Atmel California has merged (or will merge substantially concurrently with the execution and delivery of this First Supplemental Indenture) with and into Atmel Delaware (the "Merger"), with Atmel Delaware as the surviving corporation in the Merger pursuant to an Agreement and Plan of Merger, dated as of September 17, 1999, between Atmel California and Atmel Delaware; and WHEREAS, pursuant to the Merger each outstanding share of common stock of Atmel California is converted into one outstanding share of common stock of Atmel Delaware; and WHEREAS, in the case of a merger of Atmel California with and into any other corporation, Article 5 and Section 11.14 of the Indenture require that the surviving corporation execute and deliver to the Trustee a supplemental indenture providing for certain conversion rights to Holders of the Securities and the assumption by the surviving corporation of the covenants, agreements and obligations of the Company under the Indenture; and WHEREAS, Section 9.01 of the Indenture provides that the Company (as defined in the Indenture) and the Trustee may, without the consent of any Debentureholders, enter into a supplemental indenture to comply with the terms of Article 5 and Section 11.14 of the Indenture; and WHEREAS, in accordance with Sections 9.01(2), 5.01 and 12.05 of the Indenture, the Company (as defined in the Indenture) has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the Merger and the First Supplemental Indenture comply with the applicable provisions of the Indenture; and WHEREAS, all acts and proceedings required by law, under the Indenture and by the Certificate of Incorporation of Atmel Delaware to constitute this First Supplemental Indenture a valid and binding agreement for the uses and purposes set forth herein, in accordance with its terms, have been done and taken, and the execution and delivery of this First Supplemental Indenture have been in all respects duly authorized by Atmel Delaware; and WHEREAS, the foregoing recitals are made as representations of fact by Atmel Delaware and not by the Trustee; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, Atmel Delaware and the Trustee hereby agree as follows: 1. For purposes of this First Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the capitalized terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of similar import used in this First Supplemental Indenture refer to this First Supplemental Indenture as a whole and not to any particular section hereof. 2. Atmel Delaware hereby assumes all the covenants, agreements and obligations of the Company under the Debentures and the Indenture, including the obligation to make due and punctual payment of the principal of and premium, if any, and original issue discount and interest, if any, on all of the Debentures and the due and punctual performance of all of the covenants and conditions to be performed by the Company under the Indenture. From and after the effective time of the Merger, the Debentures shall be convertible into shares of common stock of Atmel Delaware on the same terms and basis (and subject to the same adjustments under the Indenture) as the Debentures were convertible into common stock of Atmel California prior to the effectiveness of the Merger, and on and after the effective time of the Merger references in the Indenture to "Common Stock" shall be deemed to be references to common stock of Atmel Delaware. -2- 3. The Trustee accepts the amendment of the Indenture effected by this First Supplemental Indenture and agrees to execute the trust created by the Indenture, as hereby amended, including the terms and conditions as set forth in the Indenture, as hereby amended, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, which terms and provisions shall in like manner define and limit its liabilities in the performance of the trust created by the Indenture, as hereby amended, and without limiting the generality of the foregoing, the Trustee has no responsibility for the correctness of the recitals of fact herein contained which shall be taken as the statements of Atmel Delaware and makes no representations as to the validity or sufficiency of this First Supplemental Indenture and shall incur no liability or responsibility in respect of the validity thereof. 4. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed, and all the terms, conditions and provisions hereof shall remain in full force and effect. 5. This First Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated shall be bound hereby. 6. This First Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all of such counterparts shall together constitute one and the same instrument. 7. This First Supplemental Indenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by the construed in accordance with such laws. -3- IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective seals to be hereunto affixed and attested, all as of the day and year first above written. ATMEL CORPORATION a Delaware Corporation, By: /s/ George Perlegos ------------------------------------------------- George Perlegos Chairman of the Board, President and Chief Executive Officer of Atmel California and Atmel Delaware By: /s/ Donald Colvin -------------------------------------------------- Donald Colvin, Vice President, Finance and Chief Financial Officer of Atmel California and Atmel Delaware STATE STREET BANK AND TRUST COMPANY, OF CALIFORNIA, N. A., as Trustee By: /s/ Paula Oswald ------------------------------------------------- Name: Paula Oswald Title: Vice President -4- EX-21.1 7 f88663exv21w1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT ATMEL CORPORATION SUBSIDIARIES OF REGISTRANT The following are the subsidiaries of the Registrant: Atmel Acquisition Corporation, a Delaware corporation Atmel Asia Limited, a Hong Kong corporation Atmel B.V., a Netherlands corporation Atmel Duisburg GmbH, a German corporation Atmel ES2 GmbH, a German corporation Atmel Finance Inc., a California corporation Atmel France SARL, A French limited liability company Atmel FSC, Inc., a Barbadian corporation Atmel Germany GmbH, a German corporation Atmel Grenoble S.A., a French Corporation Atmel Helles A.E., a Greek corporation Atmel Holding GmbH, a German corporation Atmel Irving LLC, a California limited liability company Atmel Italia Srl, an Italian corporation Atmel Japan K.K., a Japanese corporation Atmel Korea Co., Ltd., a Korean corporation Atmel Nantes S.A., a French corporation Atmel Nederland B.V., a Dutch corporation Atmel Nordic AB, a Swedish corporation Atmel North Tyneside Limited, a United Kingdom corporation Atmel Norway AS, a Norwegian corporation Atmel OY, a Finnish corporation Atmel Paris SAS, a French corporation Atmel Research, a Cayman Islands corporation Atmel Rousset S.A.S, a French corporation Atmel S.A., a French corporation Atmel San Jose LLC, a California limited liability company Atmel Sarl, a Swiss corporation Atmel Singapore Pte. Limited, a Singaporean corporation Atmel Smartcard ICS Limited, a United Kingdom corporation Atmel Switzerland Sarl, a Swiss corporation Atmel Taiwan Limited, a Taiwanese corporation Atmel Texas LP, a California limited partnership Atmel U.K. Holdings Limited, a United Kingdom corporation Atmel U.K. Limited, a United Kingdom corporation Atmel Vermoegensverwaltungs GmbH & Co KG, a German limited partnership Atmel Versailles SNC, a French partnership Atmel-WM Hong Kong Limited, a Hong Kong corporation Atmel-WM Korea Limited, a Korea corporation Atmel-WM N.A. Corporation, a California corporation Atmel-WM Singapore Pte Ltd, a Singapore corporation Dream S.A., a French corporation ES2 Limited, a United Kingdom corporation Facility Service GmbH, a German corporation IPITEC Srl, an Italian corporation Temic Semiconductor Test Inc., a Philippine corporation Temic UK Limited, a United Kingdom corporation TSPIC Corporation, a Philippine corporation EX-23.1 8 f88663exv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-39925, 33-93662, 333-15823, 333-71881 and 333-88203) and Form S-3 (File No. 333-63996) of our reports dated January 27, 2003, except for Note 17, which is as of March 4, 2003, relating to the consolidated financial statements and financial statement schedule, which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, California March 21, 2003 EX-99.1 9 f88663exv99w1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, George Perlegos, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Atmel Corporation on Form 10-K for the year ended December 31, 2002 (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Atmel Corporation. March 24, 2002 By: /s/ GEORGE PERLEGOS --------------------------------------- Name: George Perlegos Title: Chief Executive Officer EX-99.2 10 f88663exv99w2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert Avery, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Atmel Corporation on Form 10-K for the year ended December 31, 2002 (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Atmel Corporation. March 24, 2003 By: /s/ ROBERT AVERY ---------------------------------------- Name: Robert Avery Title: Interim Vice President, Finance & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

	•		Application specific integrated circuit (ASIC) segment includes full custom application specific integrated circuits, semicustom gate arrays and semicustom cell-based integrated circuits (CBICs) designed to meet specialized single-customer requirements for their high performance devices in a broad variety of applications. In addition, this business unit includes field programmable gate arrays (FPGAs), programmable logic devices (PLDs), imaging sensors and processors, audio processors, data communication processors and data acquisition and control circuits for general sale to multiple customers who use them in products for telecommunications, computers, networking, image processing, industrial, automotive, avionics and smart card applications.

	•		Microcontrollers segment includes a variety of microcontrollers including microcontrollers containing embedded nonvolatile memory.

	•		Nonvolatile Memories segment includes Flash memories, electrically erasable programmable read only memories (EEPROMs), and erasable programmable read only memories (EPROMs) for use in a broad variety of customer applications.

	•		Radio Frequency (RF) and Automotive segment includes radio frequency and analog circuits for the telecommunications, automotive and industrial markets.

	•		our success in designing and manufacturing new products that implement new technologies and processes

	•		our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies

	•		the rate at which customers incorporate our products into their systems

	•		product introductions by our competitors

	•		the number and nature of our competitors in a given market, and

	•		general market and economic conditions.

	•		significant negative industry trends

	•		significant underutilization of the assets

	•		significant changes in how we use the assets or our plans for their use.

	•		an asset impairment charge of $23.5 million for the write down of assets held for sale to their estimated net realizable value of $174.4 million. The estimate of net realizable value was made by management, which considered an outside appraisal of the fabrication facility. Although we believe we can sell the facility at our carrying value, there can be no assurance we can do so. If the difficult operating conditions that exist in the semiconductor industry do not improve, we may not be able to realize the current carrying value.

	•		costs for terminating contracts with suppliers of $13.9 million, $0.5 million of which was paid before December 31, 2002, while the remaining will be paid in future periods.

	•		employee termination costs of $3.7 million for 297 employees. Approximately 272 employees were terminated and $3.6 million of the charge was paid before December 31, 2002, while the remaining amounts will be paid through September 2003.

	•		a $1.1 million charge related to the repayment of a property tax abatement to be paid by January 2003. Approximately $0.6 million of the charge was paid before December 31, 2002, while the remaining amount was paid in the first quarter of 2003.

	•		a $0.9 million asset impairment charge for the write down of certain assets held for sale to their estimated realizable value of approximately $0.5 million. The fair values were estimated and prepared based on comparative market values for similar equipment.

	•		a $1.9 million charge related to reductions of force in Europe. Approximately 18 employees were terminated and $0.3 million of the charge was paid before December 31, 2002, while the remaining amounts will be paid through December 2003.

	•		the cyclical nature of both the semiconductor industry and the markets addressed by our products

	•		fluctuations in manufacturing yields

	•		the timing of introduction of new products

	•		the timing of customer orders

	•		price erosion

	•		changes in mix of products sold

	•		the extent of utilization of manufacturing capacity

	•		product obsolescence

	•		availability of supplies and raw materials

	•		price competition and other competitive factors, and

	•		fluctuations in currency exchange rates.

	•		greater difficulty in protecting intellectual property

	•		greater difficulty in staffing and managing foreign operations

	•		reduced flexibility and increased cost of staffing adjustments, particularly in France and Germany

	•		greater risk of uncollectible accounts

	•		longer collection cycles

	•		potential unexpected changes in regulatory practices, including export license requirements, trade barriers, tariffs and tax laws

	•		sales seasonality, and

	•		general economic and political conditions in these foreign markets.

			Consolidated Statements of Operations for the Three Years Ended December 31, 2002.

			Consolidated Balance Sheets as of December 31, 2002 and 2001.

			Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2002.

			Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 2002.

			Notes to Consolidated Financial Statements.

			Report of Independent Accountants.


	ATMEL CORPORATION

March 24, 2003	By:	/s/ George Perlegos

		George Perlegos President and Chief Executive Officer


Signature		Title


/s/ George Perlegos (George Perlegos)		President, Chief Executive Officer and Director (principal executive officer)

/s/ Robert Avery (Robert Avery)		Interim Vice President, Finance and Chief Financial Officer (principal financial and accounting officer)

/s/ Norm Hall (Norm Hall)		Director

/s/ Gust Perlegos (Gust Perlegos)		Director

/s/ T. Peter Thomas (T. Peter Thomas)		Director

/s/ Tsung-Ching Wu (Tsung-Ching Wu)		Director

/s/ Pierre Fougere (Pierre Fougere)		Director

/s/ Dr. Chaiho Kim (Dr. Chaiho Kim)		Director

1.		I have reviewed this annual report on Form 10-K of Atmel Corporation;

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

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

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)		presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


											Retained			Accumulated
		Common Stock						Additional			earnings			other
								paid in			(accumulated			comprehensive
(In thousands)		Shares			Par value			capital			deficit)			income (loss)			Total

Balances December 31, 1999			404,178		$	404		$	396,763		$	455,472		$	(51,160	)	$	801,479
Sales of stock
	Exercise of options		4,279			4			9,280			—			—			9,284
	Employee stock purchase plan		925			1			8,954			—			—			8,955
	Common stock offering		40,000			40			683,382			—			—			683,422
	Issuance for business acquisition		—			—			261			—			—			261
Tax benefit from exercise of options			—			—			12,728			—			—			12,728
Repurchase of shares			(3,810	)		(4	)		(42,905	)		—			—			(42,909	)
Convertible Subordinated Guaranteed Step-up Notes			16,901			17			157,949			—			—			157,966
Other comprehensive income
	Unrealized gain on investments											—			1,757			1,757
	Foreign currency translation adjustment											—			(4,062	)		(4,062	)
Net income												265,976			—			265,976

Comprehensive income (loss)												265,976			(2,305	)		263,671

Balances December 31, 2000			462,473			462			1,226,412			721,448			(53,465	)		1,894,857
Sales of stock
	Exercise of options		2,534			3			4,718			—			—			4,721
	Employee stock purchase plan		1,052			1			10,668			—			—			10,669
Tax benefit from exercise of options			—			—			3,601			—			—			3,601
Other comprehensive income
	Unrealized gain on investments											—			4,355			4,355
	Foreign currency translation adjustment											—			(13,328	)		(13,328	)
Net (loss)												(418,348	)		—			(418,348	)

Comprehensive (loss)												(418,348	)		(8,973	)		(427,321	)

Balances December 31, 2001			466,059			466			1,245,399			303,100			(62,438	)		1,486,527
Sales of stock
	Exercise of options		1,331			1			2,830			—			—			2,831
	Employee stock purchase plan		2,619			3			8,100			—			—			8,103
Repurchase of shares			(4,379	)		(4	)		(8,464	)		—			—			(8,468	)
Tax benefit from exercise of options			—			—			4,408			—			—			4,408
Other comprehensive income
	Unrealized loss on investments														(3,348	)		(3,348	)
	Foreign currency translation adjustment														120,886			120,886
Net (loss)												(641,796	)					(641,796	)

Comprehensive income (loss)												(641,796	)		117,538			(524,258	)

Balances December 31, 2002			465,630		$	466		$	1,252,273		$	(338,696	)	$	55,100		$	969,143

	•		an asset impairment charge of $23,456 for the write down of the assets held for sale to their estimated net realizable value of $174,427. The estimate of net realizable value was made by management using various factors, including an outside appraisal of the fabrication facility.

	•		costs for terminating contracts with suppliers of $13,923, $499 of which was paid before December 31, 2002 while the remaining will be paid in future periods.

	•		employee termination costs of $3,712 for 297 employees. Approximately 272 employees were terminated and $3,601 of the charge was paid before December 31, 2002, while the remaining amounts will be paid before September 2003.

	•		a $1,118 charge related to the repayment of a property tax abatement. Approximately $606 of the charge was paid before December 31, 2002, while the remaining amount will be paid by January 2003.

	•		a $880 asset impairment charge for the write down of certain assets held for sale to their estimated realizable value of approximately $471. The fair values were estimated by the Company and prepared based on comparative market values for similar equipment.

	•		a $1,908 charge related to reductions of force in Europe. Approximately 18 employees were terminated and $290 of the charge was paid before December 31, 2002, while the remaining amounts attributable to 32 employees will be paid through December 2003.