Document:

Fourth Amended and Restated 1997 Stock Option Plan

 Exhibit 10.1 
  

			
	

	  	 TRANSGENOMIC, INC.
 FOURTH AMENDED AND RESTATED
 1997 STOCK OPTION PLAN

  
 ARTICLE I

  
 NAME AND PURPOSES 
  
 Section 1.1. Name. The name of the plan shall be the Transgenomic,
Inc. 1997 Stock Option Plan (the “Plan”). The Plan was originally adopted as of the Effective Date set forth in Section 11.3 hereof and is hereby amended and restated as provided herein as of the 20th day of February, 2004. 
  
 Section 1.2. Purpose. The purpose of the Plan is to enable the
Employees, directors and Advisors of Transgenomic, Inc. (the “Company”) to share in the growth and prosperity of the Company by encouraging stock ownership by Employees, directors and Advisors and to assist the Company to obtain and retain
key management personnel. Either Incentive Stock Options or Nonqualified Stock Options may be granted to Employees of the Company under the Plan but only Nonqualified Stock Options may be granted to Non-Employee Directors and Advisors under the
Plan. 
  
 ARTICLE II 
  
 DEFINITIONS 
  
 “Advisor” means a person who is not an employee of the
Company but who has agreed to serve as a source of information and advice regarding scientific, technical or other matters relating to the Company’s business and products. 
  
 “Board” means the Board of Directors of the Company. 
  
 “Cause” means conduct involving fraud, gross negligence,
breach of a fiduciary duty or criminal activity. 
  
 “Change of Control” means the approval by the Company’s shareholders of (a) a merger or consolidation of the Company with or into another corporation (other than a merger or consolidation in which the Company is the
surviving corporation and which does not result in any capital reorganization or reclassification or other change in the Company’s then outstanding shares of common stock); (b) a sale or disposition of all or substantially all of the
Company’s assets; or (c) a plan of liquidation or dissolution of the Company. 
  
 “Code” means the Internal Revenue Code of 1986, as amended. 
  

 “Committee” means the Compensation Committee of the Board. If the Board does not have a
Compensation Committee, the Board shall constitute the Compensation Committee. 
  
 “Company” means Transgenomic, Inc., a Delaware corporation, and its successors. 
  
 “Company Stock” means shares of the common stock, par value $.01 per share, of the Company. 
  
 “Employee” means any person employed by the Company as an
employee and not as an independent contractor. 
  
 “Exchange Act” means the Securities and Exchange Act of 1934, as amended. 
  
 “Fair Market Value” means the fair market value of the Company Stock as of the relevant time under this Agreement. If the Company Stock
is not publicly traded, Fair Market Value shall be reasonably determined by the Committee. If the Company Stock is publicly traded, then the Fair Market Value will be equal to the average of the closing sales price per share for the five trading
days immediately preceding the date of the determination. 
  
 “Incentive Stock Option” means any stock option granted to an Employee under the Plan, which the Committee intends at the time it is granted to be an incentive stock option within the meaning of Section 422 of the Code.

  
 “Non-Employee Director” means any person who
is a member of the Board but is not an Employee of the Company and has not been an Employee of the Company or any subsidiary of the Company at any time during the preceding 12 months. Service as a director does not in itself constitute employment
for purposes of this definition. 
  
 “Nonqualified Stock
Option” means any stock option granted to an Employee, Non-Employee Director or Advisor under the Plan which is not a stock option within the meaning of Section 422 of the Code. 
  
 “Optionee” is any Employee, Non-Employee Director or Advisor who has been granted Options under the Plan.

  
 “Options” mean Nonqualified Stock Options and
Incentive Stock Options. 
  
 “Participant” means
any Employee, Non-Employee Director or Advisor who meets the requirements for participation in the Plan as described in Article III. 
  
 “Permanent and Total Disability” means, as determined by the Committee, an illness or injury of a potentially permanent nature, expected
to last for a continuous period of at least 12 months, certified by a physician selected by or satisfactory to the Committee, which prevents the Participant from engaging in any occupation for wage or profit for which the Participant is reasonably
fitted by training, education or experience. 
  

 2 

 “Qualifying Stock” means Company Stock which has been owned by an Employee for at least
six months prior to the date of exercise of an Option and has not been used in a stock-for-stock swap transaction within the preceding six months. 
  
 ARTICLE III 
  
 ELIGIBILITY AND PARTICIPATION 
  
 Every Employee, Non-Employee Director and Scientific Advisor shall be eligible to become a Participant in the Plan. Only Employees shall be eligible for the Incentive Stock Options. Employees, Non-Employee Directors
and Scientific Advisors shall be eligible for the Nonqualified Stock Options. The Committee shall determine (i) the number and type of Options granted and (ii) the Participants to receive awards under the Plan; provided, however, that any award made
to a member of the Committee must be approved by a majority of the directors who are not members of the Committee. 
  
 ARTICLE IV 
  
 OPTION CONDITIONS 
  
 Section 4.1. No Option
Combinations. Options under the Plan may only be granted as either Incentive Stock Options or as Nonqualified Stock Options dependent upon whether the Participant is an Employee, a Non-Employee Director or an Advisor. Incentive Stock Options may
only be granted to Employees, and Nonqualified Stock Options may be granted to Employees, Non-Employee Directors or Advisors. 
  
 Section 4.2. Option Conditions. Without limiting the Committee’s authority, the Committee may make the grant of Options conditional upon an
election by a Participant to defer payment of a portion of his or her compensation and subject to any condition or conditions consistent with the terms of the Plan that the Committee in its sole discretion may determine. 
  
 Section 4.3. Committee Members. The Committee shall consist solely of
not less than two Non-Employee Directors, each of which will satisfy the independence requirements of the Nasdaq Stock Market corporate governance rules in effect from time to time. Unless the Committee complies with the then current requirements of
Rule 16b-3 under the Exchange Act, the Committee will not be authorized to make awards under the Plan to directors or executive officers of the Company who are subject to the provisions of Section 16 of the Exchange Act. 
  
 Section 4.4. Effective Date of Prior Section. Section 4.3 hereof shall
take effect on the day following the date on which a registration statement filed by the Company with the Securities and Exchange Commission is first declared effective under the Securities Act of 1933, as amended. 
  

 3 

 ARTICLE V 
  

COMPANY STOCK SUBJECT TO PLAN 
  
 The total number of Company Stock for which Options may be granted under the Plan shall not exceed 7,000,000 shares of Company Stock subject always to the
provisions of Article VIII. The Company Stock issued under the Plan may be authorized and unissued shares or treasury shares. 
  
 In the event that any outstanding Option issued pursuant to the Plan shall expire or terminate, additional Options for the number of shares of Company
Stock which were subject to such expired or terminated Options may be granted under the Plan. In addition, if shares of Company Stock are used by an Optionee to pay all or a part of the exercise price of any Option (or applicable withholding taxes),
additional Options for the number of shares of Company Stock so used may be granted under the Plan, including Replacement Options granted under Section 6.3 hereof. 
  
 ARTICLE VI 
  
 OPTIONS 
  
 Section 6.1. Terms of Options. (a) The Committee from time to time may grant Options. Each Option granted shall be embodied in a written agreement
between the Company and the Participant in such form and containing such provisions as the Committee from time to time shall deem appropriate, consistent with the requirements of the Plan and this Amendment. Option agreements need not be identical,
and the Option agreement shall specify whether or not an Option is an Incentive Stock Option. 
  
 (b) The exercise price for each Option granted under the Plan shall be fixed by the Committee in good faith, but in no event shall the exercise price of any Incentive Stock Option be less than 100% of the Fair Market
Value of the Company Stock on the date such Incentive Stock Option is granted. 
  
 (c) The Committee shall fix the term or duration of all Options issued under this Plan, provided that such term shall not exceed ten years after the date on which the Option was granted. 
  
 (d) At all times during the period beginning on the date of the grant of an
Incentive Stock Option and ending on the day three months before the date of the exercise of such Incentive Stock Option, the Optionee must be an Employee of the Company. Options designated as Incentive Stock Options that fail to meet the
requirements of Section 422 of the Code shall be redesignated as Nonqualified Stock Options for federal income tax purposes automatically without further action by the Committee on the date of such failure to continue to meet the requirements of
Section 422 of the Code. 
  
 Section 6.2. Transferability of
Options. Options shall not be transferable otherwise than by will or the laws of descent and distribution or pursuant to a qualified 

  

 4 

 
domestic relations order, as defined in the Code, and during the Participant’s lifetime such Options shall be exercisable only by the Participant.

  
 Section 6.3. Replacement Option. The Committee may
grant a replacement option (a “Replacement Option”) to any Employee who exercises all or part of an Option granted under this Plan using Qualifying Stock as payment for the exercise price. A Replacement Option shall grant to the Employee
the right to purchase, at a price not less than the Fair Market Value of the Company Stock as of the date of said grant, the number of shares of stock equal to the sum of the number of whole shares (i) used by the Employee in payment of the exercise
price for the Option which was exercised and (ii) used by the Employee in connection with applicable withholding taxes on such transaction. A Replacement Option may not be exercised for six months following the date of grant, and shall expire on the
same date as the Option which it replaces. 
  
 ARTICLE VII

  
 ADMINISTRATION 
  
 Section 7.1. Authority of the Committee. (a) The Plan shall be
administered by the Committee. A majority vote of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee for the purposes of this
Plan. 
  
 (b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan, to determine the terms of all Options granted under the Plan, including, without limitation, the purchase price, if any, the Participants to whom and the time or times at which Options
shall be granted, when an Option can be exercised and whether in whole or in installments, and the number of shares covered by an Option and to interpret the Plan and to make all other determinations deemed advisable for the administration of the
Plan. All determinations of the Committee shall be made by not less than a majority of its members. The Committee may designate Employees of the Company to assist the Committee in the administration of the Plan and may grant authority to such
persons to execute Option agreements or other documents on behalf of the Committee. 
  
 (c) The Committee may make such rules and regulations and establish such procedures as it deems appropriate for the administration of the Plan. 
  
 (d) In the event of a disagreement as to the interpretation of the Plan or any amendment hereto or any rule, regulation or
procedure thereunder or as to any right or obligation arising from or related to the Plan, the decision of the Committee shall be final and binding. No member of the Committee shall be liable for any action or determination made in good faith with
respect to the Plan or any benefit granted under it. 
  
 Section
7.2. Payment for Options. Payment in full for the number of shares purchased under any Option shall be made to the Company at the time of such exercise. The Committee, in its discretion, may provide that any Option by its terms 

  

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may permit a Participant to elect, subject to Committee approval, to pay for an exercised Option in any combination of cash and Company Stock. Shares of
Company Stock used to pay all or a part of the exercise price of an Option will be valued at their Fair Market Value on the date of the exercise of the Option. 
  

ARTICLE VIII 
  
 ADJUSTMENT UPON CHANGES OF STOCK 
  
 If any change is made with respect to the Company Stock by reason of any stock dividend, stock split or combination of shares, appropriate adjustments shall be made by the Committee to the maximum number of shares
subject to the Plan and the number of shares and price per share of Company Stock subject to each outstanding Option. No fractional shares of Company Stock resulting from any such adjustment shall be issued upon exercise of an Option, but the Fair
Market Value of any such fractional share shall be paid in cash upon such exercise. 
  
 ARTICLE IX 
  
 EFFECT OF
CORPORATE CHANGES 
  
 An Optionee shall not have any
additional right to exercise any outstanding Options, whether or not vested, in whole or in part, solely by reason of any Change of Control, merger, consolidation, reorganization, recapitalization, exchange of shares, or change in corporate
structure (including an initial public offering), than such Optionee had prior to such an event. If a Change of Control, merger, consolidation, reorganization, recapitalization, exchange of shares, or change in corporate structure (including an
initial public offering) shall occur, the Committee may, but shall not be required to, accelerate or adjust the vesting of Options, solely at the discretion of the Committee and subject to the terms of the Plan. 
  
 ARTICLE X 
  
 TERMINATION OF OPTIONS 
  
 Section 10.1. Death of Optionee. (a) If the Optionee shall die at any time after the date an Option is granted and prior to any termination
thereof, the executor or administrator of the estate of the Optionee or the person or persons to whom the Option shall have been validly transferred by the executor or the administrator pursuant to will or the laws of descent and distribution shall
have the right, during the period ending one year after the date of the Optionee’s death, to exercise the Option to the extent that it was exercisable at the date of death and shall not have been exercised. Any Options not exercised within said
time period shall terminate and all rights thereunder shall cease. In the event of the Optionee’s death, any Options not vested as of the date of the Optionee’s death shall become immediately vested; provided, however, that the Optionee
was continuously employed by the Company, or continuously served on the Board or as an Advisor, for at least three years, or such shorter period as the Committee determines in its sole discretion. 
  

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 (b) Notwithstanding the foregoing, no transfer of an Option by will or the laws of descent and
distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of the Option. 
  
 Section 10.2. Permanent and Total Disability. If the Optionee becomes Permanently and Totally Disabled at any time after the date an Option is
granted and prior to any termination thereof, the Optionee (or in the case of the Optionee becoming mentally incapacitated, his guardian or legal representative) shall have the right, during a period ending one year after such Permanent and Total
Disability, to exercise the Option to the extent that it was exercisable at the date of such Permanent and Total Disability and shall not have been exercised. Any Options not exercised within said time period shall terminate and all rights
thereunder shall cease. In the event of the Optionee’s Permanent and Total Disability, any Options not vested as of the date of the Optionee’s Permanent and Total Disability shall become immediately vested; provided, however, that the
Optionee was continuously employed by the Company, or continuously served on the Board or as an Advisor, for at least three years, or such shorter period as the Committee determines in its sole discretion. 
  
 Section 10.3. Other. (a) In the event of an Optionee’s
termination of employment with the Company or from the Board or as an Advisor, or in the event an Optionee’s employment is terminated for any reason other than death or Permanent and Total Disability, any Options not vested as of the date of
the Optionee’s resignation or termination shall immediately terminate and all rights thereunder shall cease unless the Committee determines otherwise in its sole discretion. 
  
 (b) If the Optionee’s employment or directorship with the Company or service as an Advisor is terminated by the Company
for Cause, the Optionee’s right to exercise an Option, whether or not vested, shall immediately terminate and all rights thereunder shall cease unless the Committee determines otherwise in its sole discretion. 
  
 ARTICLE XI 
  
 MISCELLANEOUS 
  
 Section 11.1. Rights of Employees and Non-Employee Directors. Neither
this Plan nor any Option granted hereunder shall confer upon any Employee or Non-Employee Director any right to continue to serve as an employee or director of the Company. 
  
 Section 11.2. Withholding. The Company shall have the right to withhold with respect to any payments made to
Participants under the Plan any taxes required by law to be withheld because of such payments. With respect to any such withholding: 
  
 (a) Each Participant shall take whatever action that the Committee deems appropriate to comply with the law regarding withholding of
federal, state and local taxes. 
  

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 (b) When a Participant is obligated to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with an Option, the Committee may, in its discretion and subject to such rules as it may adopt, permit the Participant to satisfy this obligation, in whole or in part, either (i) by having the
Company withhold from the shares to be issued upon the exercise of an Option or (ii) by delivering to the Company already-owned shares to satisfy the withholding amount. 
  
 Section 11.3. Effective Date. This Plan is effective on June 27, 1997 (“Effective Date”). Options hereunder
may be granted at any time subject to the limitations contained within the Plan. No Company Stock may be issued unless the Plan is approved by a vote of the holders of a majority, or as otherwise provided in the Company’s First Amended and
Restated Articles of Incorporation, of the outstanding shares of the Company’s common stock at a meeting of the stockholders of the Company held within 12 months following the Effective Date. 
  
 ARTICLE XII 
  
 MISCELLANEOUS 
  
 Section 12.1. Amendment. The Board may amend the Plan from time to
time as it deems desirable or as necessitated by any applicable rules and regulations and such amendments shall include the ability of the Board to amend the Plan and, with shareholder approval, to increase the number of shares subject to the Plan;
provided, however, the Plan may not be amended to decrease the price at which Incentive Stock Options may be granted. Any amendment to the Plan shall not apply to (i) Options granted to Non-Employee Directors prior to the effective date of the
amendment or (ii) Options granted to Employees or Advisors that have vested prior to the effective date of the amendment unless, in either case, it has been otherwise agreed to, in writing, by the Committee and the affected Plan Participant.

  
 Section 12.2. Termination of Plan. The Board may, in
its discretion, terminate the Plan at any time, but no such termination shall deprive Participants of their rights under outstanding Options. 
  
 Section 12.3. Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of Delaware. 
  

 8Summary of Named Executive Officer Compensation

 Exhibit 10.1 
  
 Semtech Corporation 
 Summary of Named Executive Officer Compensation 
  
 Set forth below is a
summary of the Company’s compensation arrangements with its Named Executive Officers, as defined by applicable SEC regulations. Although Anthony E. Giraudo is not a Named Executive Officer for fiscal year 2005 under SEC rules, information
regarding his compensation is presented due to his position as Chief Operating Officer. For purposes of this exhibit, the term “Named Executive Officers” includes Mr. Giraudo. 
  
 All of the Named Executive Officers are employed on at-will basis and their compensation and employment status may be changed at any time at
the discretion of the Company. 
  
 Base Salary 
  
 The following table sets forth the base salaries of the Named Executive Officers at the end
of fiscal year 2005. The Compensation Committee (“Committee”) of the Board of Directors considered the base salaries of these individuals in February 2005 and determined not to adjust the base salaries at that time. 
  

				
	 Name

	  	Base Salary

	 Jason L. Carlson
     President and Chief Executive Officer
	  	$	350,000
	 David G. Franz
     Chief Financial Officer
	  	$	215,057
	 Lawrence A. King
     Vice President Engineering, Portable Products
	  	$	200,014
	 Paul D. Peterson
     Vice President, Sales and Marketing
	  	$	215,004
	 Jeffrey T. Pohlman
     Vice President, Protection Products
	  	$	180,198
	 Anthony E. Giraudo
     Chief Operating Officer
	  	$	260,000

  
 Cash Bonus 

 
 Named Executive Officers are eligible to participate in the Company’s Cash Bonus
Incentive Plan (“Bonus Plan”) A brief summary of the material elements of the Bonus Plan is at the end of this Exhibit and the Bonus Plan document is attached to the Form 10-K as Exhibit 10.19. The Bonus Plan is based on annual
performance; the Company does not maintain a long-term performance plan. 
  
 Incentive Compensation Paid in Fiscal Year 2006 for efforts in Fiscal Year 2005 
  
 In February 2005, the Committee approved incentive compensation awards under the Bonus Plan for the Named Executive Officers for efforts during fiscal year 2005 as
follows: 
  

				
	 Name

	  	Bonus

	 Mr. Carlson
	  	$	200,000
	 Mr. Franz
	  	$	110,000
	 Mr. King 1
	  	$	90,000
	 Mr. Peterson
	  	$	110,000
	 Mr. Pohlman
	  	$	100,000
	 Mr. Giraudo
	  	$	100,000

	1	In accordance with the previously existing program described below under Form of Bonuses, Mr. King elected to receive 50% of his fiscal year 2005 bonus in the
form of stock options. Thus, he received $45,000 of his bonus in the form of 9,023 stock options. 

  

 69 

 Incentive Compensation for Efforts in Fiscal Year 2006  
  
 In February 2005, the Committee established a bonus pool for incentive compensation to be
earned in fiscal year 2006 and further established, on a corporate and business unit basis, the percentage of the Company’s business plan that must be achieved for 100% payout of the bonus pool. The Named Executive Officers are eligible to earn
the following minimum, target, and maximum bonus awards under the Bonus Plan during fiscal year 2006. 
  

									
	 Incentive Awards as Percentage of Base Salary
  
	  
 

	 	  	Minimum 1

	  	Target

	 	 	Maximum 2

	 
	 Mr. Carlson
	  	0	  	100	%	 	120	%
	 Mr. Franz
	  	0	  	70	%	 	84	%
	 Mr. King
	  	0	  	70	%	 	84	%
	 Mr. Peterson
	  	0	  	70	%	 	84	%
	 Mr. Pohlman
	  	0	  	70	%	 	84	%
	 Mr. Giraudo
	  	0	  	80	%	 	96	%

	1	The Plan does not provide for a minimum award for any participant. 

	2	The maximum award any participant may receive under the Bonus Plan is 120% of the target award 

  
 As in fiscal year 2005, each of the Named Executive Officers will have as a quarterly
objective the attainment of certain booking and billing goals and Mr. Carlson, Mr. Franz, and Mr. Giraudo will also have an earnings per share goal each quarter. Also as in fiscal year 2005, each of Named Executive Officers will have individual
performance goals established on a quarterly basis related to specific technical, operational, financial, and/or managerial matters. 
  
 Form of Bonuses 
  
 In prior years and in fiscal year 2005, the Company maintained a program under which members of senior management, including Named Executive Officers could elect to defer
up to 50% of any bonus earned for the fiscal year. The deferred portion was converted into stock options instead of being paid in cash. The conversion was made using a multiplier of four and the closing market price of the Company’s stock on
the day when bonus was awarded. The stock options vested immediately and are subject to the terms and conditions of the applicable stock option plan and the award agreement. The Committee has terminated this program effective for bonuses earned
during fiscal year 2006. 
  
 Deferred Compensation 
  
 Late in fiscal year 2004, the Company has established a non-qualified deferred compensation
plan, known as the Executive Compensation Plan (“EC Plan”). Executives selected by the Committee, including Named Executive Officers, may defer up to 100% of their compensation, as defined by the EC Plan, for later distribution on the date
or dates selected by the participant or on other dates specified by the EC Plan. EC Plan documents are attached as Exhibits 10.15, 10.16 and 10.17 of this Form 10K. 
  
 As currently implemented, participants may defer only base salary and the Company matches dollar for dollar up to the first 20% of employee
contributions for the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer positions; up to the first 15% for participants at the Vice President level; and up to the first 10% for other participants. Amounts deferred by the
participants are immediately vested. Company matching contributions vest over four years. 
  
 The Company does not guarantee any rate of return on the compensation deferred by participants or on the matching contributions. Indeed, the participants may lose all or a portion of their deferred compensation or
match. The 

  

 70 

 
deferred compensation and match are credited with earnings and investment gains and losses that mirror investments chosen by the participants from a
selection of investment vehicles offered by the third-party plan provider. Amounts credited to participant accounts are not actually invested in these vehicles. Rather, participants are general creditors of the Company. The Company has purchased
whole life insurance on the lives of certain of the participants that is intended to cover a majority of the payments expected to be made under the EC Plan. These policies are held by a grantor trust that was established in connection with the EC
Plan. See footnote 12 to the Company’s consolidated financial statements. 
  
 Information regarding fiscal year 2005 EC Plan matching contributions for the Named Executive Officers will be included in the Company’s Definitive Proxy Statement in connection with its annual meeting of shareholders to be held on
June 16, 2005. 
  
 Stock Options  
  
 The Company has various stock option plans that provide for granting options to purchase
shares of the Company’s common stock to employees, including the Named Executive Officers. The plans provide for the granting of options that meet the Internal Revenue Code qualifications to be incentive stock options, as well as nonstatutory
options. Under these plans, the option price must be at least equal to the fair market value of the Company’s common stock at the date of the grant. Most options granted by the Company expire within ten years from the date of grant and vest in
equal annual increments over three to four years from the date of grant. Most options granted to employees prior to October 3, 2001 will vest and become exercisable upon a change in control, as defined in the plans. All options granted to employees
after October 3, 2001 will vest and become exercisable following a change in control only if, within one year, the employee is either terminated without cause or subject to a constructive termination. In the past, the Company has also issued some
stock options outside of any plan, including inducement options awarded as recruitment incentives. The terms and conditions of these incentive options generally mirror stock options granted under the Company’s stock option plans. 
  
 Mr. Carlson was awarded inducement options in fiscal year 2003 and Mr. Giraudo was awarded
inducement options in fiscal year 2005. See Exhibits 10.8 and 10.11. Information regarding stock options awarded to the Named Executive Officers, including options awarded in fiscal year 2005, will be included in the Company’s Definitive Proxy
Statement in connection with its annual meeting of shareholders to be held on June 16, 2005. 
  
 Benefit Programs Available to Employees Generally 
  
 The Named Executive Officers are eligible to participate in broad-based benefit programs generally available to the Company’s salaried employees, including health, disability and life insurance programs and a
qualified 401K plan. 
  
 Other 
  
 Semtech does not provide Company cars to the Named Executive Officers. However, each Named
Executive Officer is paid a monthly car allowance of $637.50, which includes an allowance for maintenance and insurance, and is reimbursed for actual gasoline expenses. 
  
 The Company provides cellular telephones to the Named Executive Officers and certain other employees for business use. The Company permits
personal use of these phones without reimbursement. The incremental cost to the Company, if any, is negligible. 
  
 Mr. Franz receives one week of paid vacation in addition to paid vacation based on the schedule that applies to employees generally. 
  
 As an inducement for Mr. Giraudo to join Semtech in fiscal year 2005, the Company made a
contribution in the amount of $30,000 to his account in the EC Plan. This contribution vests in four equal annual installments beginning in May 2005, or earlier upon death or disability. 
  
 As an inducement for Mr. Carlson to join Semtech in fiscal year 2003, the Company agreed that should his services be terminated by the Board
of Directors, he will be granted a severance allowance equal to six months salary and benefits continuation upon signing of a non-compete agreement and a full release of all claims and obligations. Vesting of stock options would cease as of the last
day that services are actively provided to the Company. 
  
  

 71 

 Summary of Material Elements of the Cash Bonus Incentive Plan 
  
 Participants. Participants are salaried employees selected each fiscal year based on
recommendations by their supervisors, with the endorsement of the applicable business unit managers or corporate function heads. 
  
 Bonus Pool. As early as feasible at the beginning of each fiscal year, the Chief Executive Officer recommends to the Committee for its review and approval an
amount to be established as a bonus pool for the fiscal year. The proposed pool amount is calculated as the sum of (a) the target bonus awards for employees recommended to be participants for the Plan Year and (b) an estimate of target awards for
positions that may be filled during the Plan (new hires who may become participants on a pro rata basis). To assist the Committee in making a determination with respect to the recommendation, the proposed bonus pool is also expressed as a percentage
of pre-tax profit, as set forth in the Company’s annual business plan (“Business Plan”). However, for this purpose such pre-tax profit is computed prior to the deduction of incentive compensation payments to be paid under the Plan and
may exclude anticipated extraordinary items. As discussed below, actual awards may exceed target awards under certain circumstances. In no event will the aggregate incentive compensation payments under the Plan for a fiscal year exceed 120% of the
bonus pool established for that fiscal year. 
  
 Award Calculation.
Incentive compensation awards are calculated as follows under the supervision of the Company’s Chief Financial Officer. 
  

	 	1.	A participant’s annual base salary (as of the date of the calculation) is multiplied by a target percentage that is based on the participant’s position. This establishes
the participant’s Target Award. 

  
 Target
levels are based on the level of importance and responsibility of the position in the Company. Where a range has been established, the actual target level is determined by the relevant business unit manager or corporate functional group head and the
Vice President of Human Resources, subject to approval by the Chief Executive Officer. The Committee determines the actual target level for the Chief Executive Officer and each of the other executive officers. 
  

			
	 Position

	  	Target Level

	 President and Chief Executive Officer
	  	70-100%
	 Chief Financial Officer
	  	70-100%
	 Chief Operating Officer
	  	70-100%
	 Vice Presidents
	  	50-70%
	 Other Eligible Positions
	  	10-50%

  

	 	2.	Target Awards are then multiplied by the participant’s Individual Performance Factor. 

  
 At or near the beginning of each fiscal quarter, performance goals for each participant are set by the participant and the
participant’s supervisor. These quarterly individual performance goals are weighted by the participant and supervisor to reflect the importance of each objective and are sometimes referred to as “Most Important Tasks (MITs)”. MITs for
the Chief Executive Officer are set by the Chief Executive Officer and the Committee. From time to time the Chairman of the Board may assist the Committee with respect to the MITs of the Chief Executive Officer. 
  
 Each participant in a business (operating) unit will have as a quarterly
objective the achievement of a level of business unit-wide bookings and billings, each as established by the Chief Executive Officer. The weighting of this business unit-wide objective is based on the participant’s position. Where a range has
been established, the actual weighting is determined by the participant’s supervisor. 
  

			
	 Position

	  	Weight

	 Vice Presidents
	  	40%
	 Other Eligible Positions
	  	20-30%

  

 72 

 Each participant in a corporate functional group rather than a business unit will have as a quarterly
objective the achievement of a level of Company-wide bookings, billings, and earnings per share, all as established by the Chief Executive Officer and approved by the Committee. The weighting of this 
  
 Company-wide objective is dependent on the participant’s position.
Where a range has been established, the actual weighting is determined by the participant’s supervisor. 
  

			
	 Position

	  	Weight

	 President and Chief Executive Officer
	  	50%
	 Chief Operating Officer
	  	50%
	 Chief Financial Officer
	  	50%
	 Vice Presidents
	  	40%
	 Other Eligible Positions
	  	20-30%

  
 Each quarter the
Chief Executive Officer disseminates general strategic objectives to the business unit managers and corporate functional heads. They, in turn, disseminate their tactical plans and objectives to the supervisors to assist in the development of
participants’ MITs. MITs are generally to be established in a manner so as to be specific, measurable, and time specific. MITs are meant to be attainable and realistic but also provide some challenge to achieve results above the norm.

  
 In addition to the business unit-wide or Company-wide
objective referred to and weighted as provided above, each participant’s quarterly MITs will include individual performance goals related to technical, operational, financial, and/or managerial matters such as 
  

			
	 •      research and development
  
 •      product
development cycle time
  
 •      patent activity
  
 •      design wins, in terms of customer programs or reference designs
  
 •      operations performance
  
 •      systems improvements
  
 •      supplier
contracts or issues
  
 •      production contracts or issues
  
 •      customer contracts or issues
  
 •      foundry
management
  
 •      supply chain management
  
 •      inventory control
  
 •      manufacturing efficiencies, including improvement of
variances
  
 •      quality and reliability
  
 •      order fulfillment and delivery performance
  
 •      sales
support
  
 •      marketing to key customers
  
 •      obtaining new customers
  
 •      customer support, including application
matters
  
 •      achievement of cost savings
  
 •      budget achievement
  
 •      free cash flow
  
 •      working
capital
  
 •      return on equity
  
 •      return on sales
  
 •      return on assets
  
 •      margin improvements
  
 •      investor
relations
  
 •      corporate governance
  
 •      filling key positions
  
 •      legal matters
  
 •      strategic
initiatives
  

 The cumulative weighting of such individual performance goals together with the weighting of the
Company-wide objective or the weighting of the business unit-wide objective, as applicable, totals to 100% for each participant. The actual weighting of a participant’s individual performance goals is determined by the participant’s
supervisor. The actual weighting of the Chief Executive Officer’s individual performance goals is determined by the Committee. 
  
 After the end of each fiscal quarter, each participant’s performance against the MITs established for the quarter is assessed by the
participant’s supervisor. Quarterly MITs scoring for the Chief Executive Officer is performed the Committee. From time to time the Chairman of the Board may assist the Committee in review of the Chief Executive Officer’s performance.

  

 73 

 Objectives may be evaluated on a partial credit basis. A participant may receive a quarterly MITs score
in excess of 100% based upon exceptional performance, but only with the review and approval of (a) the participant’s manager and endorsement of either the Chief Operating Officer (with respect to participants in business units) or Chief
Executive Officer (with respect to participants in corporate functional groups and executive officers) or (b) the Committee, with respect to the Chief Executive Officer. 
  
 After the end of the fiscal year, each participant’s quarterly MITs scores are averaged to arrive at the
participant’s Individual Performance Factor. The Individual Performance Factor for any participant, or group of participants, may be adjusted, upward or downward, at the discretion of the Chief Executive Officer or the Committee. 
  

	 	3.	For participants who are members of a business (operating) unit, the resulting award is then multiplied by the sum of 70% of the relevant Business Unit Performance Factor and 30% of
the Corporate Performance Factor. For the Chief Executive Officer and participants who are members of a corporate functional group rather than a business unit, the resulting award is multiplied by the Corporate Performance Factor.

  
 At the time the bonus pool is established by
the Committee, the Committee also determines the percentage of the Business Plan that must be achieved for 100% payout of the bonus pool and for payout at higher or lower levels. In most circumstances, 100% achievement of the Business Plan will
equate to a 100% payout of the bonus pool. However, in some cases the Committee may set a higher requirement. For example, the Committee may require that 105% of the Business Plan be obtained for a payout of 100% of the bonus pool. The Committee
makes a similar determination with respect to the Business Plan of each business unit. 
  
 After the end of each fiscal year, the actual performance of the Company is compared to the Business Plan. The percentage of Plan achieved is equated to the payout criteria previously established by the Committee to
determine the Corporate Performance Factor. A similar comparison of each business unit’s results against the business unit’s Business Plan is made to determine the Business Unit Performance Factor for each business unit. The Corporate
Performance Factor and any Business Unit Performance Factor may be adjusted upward or downward at the discretion of the Chief Executive Officer or the Committee. 
  

	 	4.	Before the calculated awards are presented to the Committee, the award for any participant or group of participants may be adjusted, upward or downward, at the discretion of the
Chief Executive Officer. The recommended award for any participant, or group of participants, may be adjusted, upward or downward, at the discretion of the Committee. Examples of factors that could lead to an adjustment are subjective criteria such
as the participant’s initiative, leadership, teamwork, judgment, and creativity. 

  

	 	5.	In no event will an incentive compensation payment under the Plan to any participant for a fiscal year exceed 120% of the participant’s Target Award for that fiscal year.

  

	 	6.	Awards are paid within two and one-half months after the end of the fiscal year, but only after the Company’s registered independent public accountant has completed its audit
of the Company’s financial statements for that fiscal year. Unpaid awards are subject to cancellation or downward revision if the Committee determines such action is warranted based on audit results. 

  

 74

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