**Exhibit 10.3**

 

**ARTISAN COMPONENTS, INC.**

 

**1997 DIRECTOR OPTION PLAN**

 

**(As amended March 6, 2003)**

 

1. Purposes of the Plan. The purposes of this 1997 Director Option Plan are to attract and retain the best available personnel for service asOutside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. 

 

All options granted hereunder shall be nonstatutory stock options.

 

2. Definitions. As used herein, the followingdefinitions shall apply: 

 

(a) “Board” meansthe Board of Directors of the Company. 

 

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

 

(c) “Common Stock” means the common stock of the Company. 

 

(d) “Company” means Artisan Components, Inc., a Delaware corporation. 

 

(e) “Director” means a member of the Board. 

 

(f) “Employee” means any person, including officers and Directors, employed by the Company or any Parent orSubsidiary of the Company. The payment of a Director’s fee by the Company shall not be sufficient in and of itself to constitute “employment” by the Company. 

 

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

 

(h) “Fair Market Value” means, as of any date, the value ofCommon Stock determined as follows: 

 

(i) If the Common Stockis 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 forsuch 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 theAdministrator deems reliable; 

 

(ii) If the Common Stock isregularly 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 date of determination,as reported in *The Wall Street Journal* or such other source as the Board deems reliable; or 

(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shallbe determined in good faith by the Board. 

 

(i) “InsideDirector” means a Director who is an Employee. 

 

(j)“Option” means a stock option granted pursuant to the Plan. 

 

(k) “Optioned Stock” means the Common Stock subject to an Option. 

 

(l) “Optionee” means a Director who holds an Option. 

 

(m) “Outside Director” means a Director who is not an Employee. 

 

(n) “Parent” means a “parent corporation,” whethernow or hereafter existing, as defined in Section 424(e) of the Code. 

 

(o) “Plan” means this 1997 Director Option Plan. 

 

(p) “Share” means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. 

 

(q) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of theInternal Revenue Code of 1986. 

 

3. Stock Subject to thePlan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 350,000 Shares (after giving effect to the one-for-two reverse stock split approved by theshareholders of the Company on November 24, 1997) of Common Stock (the “Pool”). The Shares may be authorized, but unissued, or reacquired Common Stock. 

 

If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which weresubject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for futuredistribution under the Plan. 

 

4. Administration and Grantsof Options under the Plan. 

 

(a) Procedure forGrants. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: 

 

(i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine thenumber of Shares to be covered by Options granted to Outside Directors. 

 

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(ii) Each Outside Director as of the effective date of this Plan, as determined in accordance withSection 6 hereof, shall be automatically granted an Option to purchase 25,000 (post-split) Shares (the “First Option”) at the initial public offering price of the Company’s Common Stock. Each person who becomes an Outside Directorafter the effective date of the initial public offering shall be automatically granted an Option to purchase 25,000 Shares (post-split) (such Option shall each be known as a “First Option”) on the date on which such person first becomes anOutside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receivea First Option. 

 

(iii) (A) Each Outside Director shall beautomatically granted an Option to purchase 15,000 Shares (post-split) (a “Subsequent Director Option”) on the date of the next meeting of the Board of Directors following the annual meeting of shareholders of each year (beginning with themeeting for fiscal year 1998) provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. 

 

(B) Certain Outside Directors shall be automatically granted an additional Option on the date of the next meeting of theBoard of Directors following the annual meeting of shareholders of each year (beginning with the meeting in fiscal year 2003) (each such meeting of the Board of Directors, the “Annual Board Meeting”) in accordance with the following: (1)the Chairman of the Board appointed at the Annual Board Meeting will be automatically granted an option to purchase an additional 30,000 shares of Common Stock, (2) the Chairman of the Audit Committee appointed at the Annual Board Meeting will beautomatically granted an option to purchase an additional 20,000 shares of Common Stock, (3) the Chairman of the Compensation Committee appointed at the Annual Board Meeting will be automatically granted an option to purchase an additional 10,000shares of Common Stock, and (4) the Chairman of the Nominating and Governance Committee appointed at the Annual Board Meeting will be automatically granted an option to purchase an additional 10,000 shares of Common Stock (each such grant, a“Subsequent Chairman Option” and, each such Subsequent Chairman Option and each Subsequent Director Option, a “Subsequent Option”); provided in each case that such Chairman is an Outside Director. 

 

(iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof,any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 16 hereof.

 

(v) The terms of a First Option granted hereunder shall be asfollows: 

 

(A)the term of the First Option shall be ten (10)years. 

 

(B)the First Option shall be exercisable only while theOutside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. 

 

(C)the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. In the event that the date ofgrant of the First Option is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant of the First Option. 

 

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(D)subject to Section 10 hereof, the First Option shall become exercisable as to 25% of the sharessubject to the Option on the first anniversary of its date of grant and 1/48th of the Shares each month thereafter so that the First Option shall be fully exercisable four (4) years after its date of grant, provided that the Optionee continues toserve as a Director on such dates. 

 

(vi) The terms of aSubsequent Option granted hereunder shall be as follows: 

 

(A)the term of the Subsequent Option shall be ten (10) years. 

 

(B)the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. 

 

(C)the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the SubsequentOption. In the event that the date of grant of the Subsequent Option is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant of the Subsequent Option.

 

(D)subject to Section 10 hereof, the Subsequent Option shallbecome exercisable as to 1/48th of the Shares subject to the Subsequent Option on each monthly anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates. 

 

(vii) In the event that any Option granted under the Plan would cause thenumber of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a prorata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the Planor through cancellation or expiration of Options previously granted hereunder. 

 

5. Eligibility. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. 

 

The Plan shall not confer upon any Optionee any right with respect tocontinuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director’s relationship with the Company at any time.

 

6. Term of Plan. The Plan shall become effective uponthe effective date of the Company’s initial public offering of its Common Stock that is registered with the Securities and Exchange Commission. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11of the Plan. 

 

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7. Form of Consideration. The consideration to be paid for the Shares to be issued upon exerciseof an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) 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 ofsurrender, and (y) 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, (iv) consideration received by the Company under a cashless exercise programimplemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 

 

8. Exercise of Option. 

 

(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4hereof; provided, however, that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof has been obtained. 

 

An Option may not be exercised for a fraction of a Share. 

 

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option bythe person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or anyother rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exerciseof the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. 

 

Exercise of an Option in any manner shall result in a decrease in the numberof Shares which thereafter may be 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 Continuous Status as a Director. Subject to Section 10 hereof, in the event an Optionee’sstatus as a Director terminates (other than upon the Optionee’s death or total and permanent disability (as defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only within three (3) months following thedate of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled toexercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 

 

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(c) Disability of Optionee. In the event Optionee’s status as a Director terminates as aresult of total and permanent disability (as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optioneewas entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or shedoes not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 

 

(d) Death of Optionee. In the event of an Optionee’s death, the Optionee’s estate or a person who acquired the right to exercise theOption by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than theexpiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee’s estate or a person who acquired the right to exercise such Option does notexercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 

 

9. Non-Transferability of Options. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner otherthan by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 

 

10. 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 ofShares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of anOption, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in thenumber of issued Shares 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 effected without receipt ofconsideration 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.” Except as expressly provided herein, no issuance bythe 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 be made with respect to, the number or price of Shares subject to an Option.

 

(b) Dissolution or Liquidation. In the event of theproposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. 

 

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(c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporationor the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the “Successor Corporation”). If anOption is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. Following suchassumption or substitution, if the Optionee’s status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fullyexercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d) above. 

 

If the Successor Corporation does not assume an outstanding Option orsubstitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fullyexercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. 

 

For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right topurchase or receive, for each Share of Optioned Stock subject to the Option 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 byholders 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). If suchconsideration 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 theexercise of the Option, for each Share of Optioned Stock subject to 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 in themerger or sale of assets. 

 

11. Amendment and Termination ofthe Plan. 

 

(a) Amendment and Termination. The Boardmay at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. Inaddition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. 

 

(b) Effect of Amendment or Termination. Any such amendment ortermination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 

 

12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date determined inaccordance with Section 4 hereof. 

 

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13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of anOption unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, therules and regulations promulgated thereunder, state securities laws, 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 suchcompliance. 

 

As a condition to the exercise of an Option, theCompany 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 theopinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 

 

Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to benecessary 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. 

 

14. 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. 

 

15. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. 

 

16. Shareholder Approval. Continuance of the Plan shall be subject toapproval by the shareholders of the Company at or prior to the first annual meeting of shareholders held subsequent to the granting of an Option hereunder. Such shareholder approval shall be obtained in the degree and manner required underapplicable state and federal law and any stock exchange rules. 

 

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