Document:

Exhibit 10.3

    

      EXHIBIT
        10.3

      

      MICROCHIP
        TECHNOLOGY INCORPORATED

      

      DISCRETIONARY
        EXECUTIVE MANAGEMENT INCENTIVE

      COMPENSATION
        PLAN

      

      1. Purposes
        of the Plan.
        The
        Plan is intended to increase shareholder value and the success of the Company
        by
        motivating key executives to: (1) perform to the best of their abilities,
        and
        (2) achieve the Company’s objectives. The Plan’s goals are to be achieved by
        providing such executives with incentive awards based on the achievement
        of
        Company performance goals, achievement of individual performance goals,
        retention-based bonuses, or nonrecurring awards for performance beyond that
        expected. 

      

      2. Definitions.

       

      (a) “Award”
means,
        with respect to each Participant, the award determined by the Committee pursuant
        to Section 5(a) below for a Performance Period. 

       

      (b)“Board”
means
        the Board of Directors of the Company. 

       

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

       

      (d) “Committee”
means
        the Compensation Committee of the Company’s Board, or a sub-committee of the
        Compensation Committee, which shall consist solely of two or more members
        of the
        Board who are not employees of the Company and who otherwise qualify as “outside
        directors” within the meaning of Section 162(m) of the Code.

       

      (e) “Company”
means
        Microchip Technology Incorporated or any of its subsidiaries (as such term
        is
        defined in Code Section 424(f)). 

       

      (f)“Participant”
means
        an executive officer of the Company participating in the Plan for a Performance
        Period.

       

      (g)“Performance
        Period”
means
        any Company fiscal quarter or fiscal year, or such other longer period but
        not
        in excess of five fiscal years, as determined in the Committee’s
        discretion.

       

      (h)“Plan”
means
        this Discretionary Executive Management Incentive Compensation
        Plan.

      

      3. Plan
        Administration.

       

      (a) The
        Committee shall be responsible for the general administration and interpretation
        of the Plan and for carrying out its provisions. The Committee may delegate
        specific administrative tasks to Company employees or others as appropriate
        for
        proper administration of the Plan. The Committee shall have such powers as
        may
        be necessary to discharge its duties hereunder, including, but not by way
        of
        limitation, the following powers and duties, but subject to the terms of
        the
        Plan:

      

      (i) discretionary
        authority to construe and interpret the terms of the Plan, and to determine
        eligibility, Awards and the amount, manner and time of payment of any Awards
        hereunder;

      

      (ii)
        to
        prescribe forms and procedures for purposes of Plan participation and
        distribution of Awards; and

      

      (iii) to
        adopt
        rules, regulations and bylaws and to take such actions as it deems necessary
        or
        desirable for the proper administration of the Plan.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (b) Any
        rule
        or decision by the Committee that is not inconsistent with the provisions
        of the
        Plan shall be conclusive and binding on all persons, and shall be given the
        maximum deference permitted by law.

      

      4. Eligibility.
        The
        employees eligible to participate in the Plan for a given Performance Period
        shall be executive officers of the Company who are designated by the Committee
        in its sole discretion. No person shall be automatically entitled to participate
        in the Plan.

      

      5. Determination
        of Awards; Award Payment.

       

      (a) Determination
        of Awards.
        The
        Company’s Chief Executive Officer shall provide the Committee with
        recommendations as to the executive officers that should participate in the
        Plan
        for that Performance Period, and the Award to be allocated to each such officer
        other than the Chief Executive Officer. The Committee shall have complete
        authority to accept, modify or reject such recommendations, or to eliminate
        the
        Awards entirely. The Committee may in its sole discretion determine an Awards
        under the Plan for the Company’s Chief Executive Officer. Awards may be a
        specific dollar amount, or a percentage of base salary. 

       

      (b) Right
        to Receive Payment.
        Each
        Award under the Plan shall be paid solely from the general assets of the
        Company. Nothing in this Plan shall be construed to create a trust or to
        establish or evidence any Participant’s claim of any right to payment of an
        Award other than as an unsecured general creditor with respect to any payment
        to
        which he or she may be entitled. Unless otherwise approved by the Committee,
        a
        Participant needs to be employed by the Company from the beginning of the
        applicable Performance Period through the Award payment date to receive an
        Award
        payout hereunder.

       

      (c) Form
        of Distributions.
        All
        Awards shall be distributed to the Participants in cash.

       

      (d) Deferral.
        The
        Committee may defer payment of Awards, or any portion thereof, to Participants
        as the Committee, in its discretion, determines to be necessary or desirable
        to
        preserve the deductibility of such amounts under 162(m). In addition, the
        Committee, in its sole discretion, may permit a Participant to defer receipt
        of
        the payment of cash that would otherwise be delivered to a Participant under
        the
        Plan. Any such deferral elections shall be subject to such rules and procedures
        as shall be determined by the Committee in its sole discretion.

      

      6. Term
        of Plan.
        The
        Plan shall become effective October 1, 2006. The Plan shall continue until
        terminated under Section 7 of the Plan.

      

      7. Amendment
        and Termination of the Plan.
        The
        Committee may amend, modify, suspend or terminate the Plan, in whole or in
        part,
        at any time, including the adoption of amendments deemed necessary or desirable
        to correct any defect or to supply omitted data or to reconcile any
        inconsistency in the Plan or in any Award granted hereunder; provided, however,
        that no amendment, alteration, suspension or discontinuation shall be made
        which
        would impair any payments to Participants made prior to such amendment,
        modification, suspension or termination, unless the Committee has made a
        determination that such amendment or modification is in the best interests
        of
        all persons to whom Awards have theretofore been granted. To the extent
        necessary or advisable under applicable law, Plan amendments shall be subject
        to
        shareholder approval. At no time before the actual distribution of funds
        to
        Participants under the Plan shall any Participant accrue any vested interest
        or
        right whatsoever under the Plan except as otherwise stated in this
        Plan.

      

      8. Withholding.
        Distributions pursuant to this Plan shall be subject to all applicable federal
        and state tax and withholding requirements.

      

      9. At-Will
        Employment.
        No
        statement in this Plan should be construed to grant any employee an employment
        contract of fixed duration or any other contractual rights, nor should this
        Plan
        be interpreted as creating an implied or an expressed contract of employment
        or
        any other contractual rights between the Company and its employees. The
        employment relationship between the Company and its employees is terminable
        at-will. This means that an employee of or the Company may terminate the
        employment relationship at any time and for any reason or no
        reason.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      10. Successors.
        All
        obligations of the Company under the Plan, with respect to awards granted
        hereunder, shall be binding on any successor to the Company, whether the
        existence of such successor is the result of a direct or indirect purchase,
        merger, consolidation, or otherwise, of all or substantially all of the business
        or assets of the Company.

      

      11. Indemnification.
        Each
        person who is or shall have been a member of the Committee, or of the Board,
        shall be indemnified and held harmless by the Company against and from
        (a) any loss, cost, liability, or expense that may be imposed upon or
        reasonably incurred by him or her in connection with or resulting from any
        claim, action, suit, or proceeding to which he or she may be a party or in
        which
        he or she may be involved by reason of any action taken or failure to act
        under
        the Plan or any award, and (b) from any and all amounts paid by him or her
        in settlement thereof, with the Company’s approval, or paid by him or her in
        satisfaction of any judgment in any such claim, action, suit, or proceeding
        against him or her, provided he or she shall give the Company an opportunity,
        at
        its own expense, to handle and defend the same before he or she undertakes
        to
        handle and defend it on his or her own behalf. The foregoing right of
        indemnification shall not be exclusive of any other rights of indemnification
        to
        which such persons may be entitled under the Company’s Certificate of
        Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or
        under
        any power that the Company may have to indemnify them or hold them
        harmless.

      

      12. Nonassignment.
        The
        rights of a Participant under this Plan shall not be assignable or transferable
        by the Participant except by will or the laws of intestacy.

      

      13. Governing
        Law.
        The
        Plan shall be governed by the laws of the State of Arizona, without regard
        to
        conflicts of law provisions thereunder.

      

    

    
      
        
        

      

      
        3Exhibit 10.4

    

      EXHIBIT
        10.4

      

      MICROCHIP
        TECHNOLOGY INCORPORATED

      

      MANAGEMENT
        INCENTIVE COMPENSATION PLAN

      

      1. Purposes
        of the Plan.
        The
        Plan is intended to increase shareholder value and the success of the Company
        by
        motivating our key management and senior technical employees to:
        (1) perform to the best of their abilities, and (2) achieve the
        Company’s objectives. The Plan’s goals are to be achieved by providing such
        personnel with incentive awards based on the achievement of goals relating
        to
        the performance of the Company, on the achievement of individual performance
        goals, retention-based bonuses, or nonrecurring awards for performance beyond
        that expected. 

       

      2. Definitions.

       

      (a) “Award”
means,
        with respect to each Participant, the award determined pursuant to
        Section 7(a) below for a Performance Period. Each Award is determined by a
        Payout Basis for a Performance Period, subject to the Committee’s authority
        under Section 7(a) to increase, eliminate or reduce the Award otherwise payable.
        

       

      (b) “Base
        Salary”
means
        as to any Performance Period, the Participant’s annualized salary rate on the
        last day of the Performance Period. Such Base Salary shall be before both
        (a) deductions for taxes or benefits, and (b) deferrals of
        compensation pursuant to Company-sponsored plans.

       

      (c) “Board”
means
        the Board of Directors of the Company. 

       

      (d) “Cash
        Position”
means
        the Company’s level of cash and cash equivalents.

       

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

       

      (f) “Committee”
means
        the Compensation Committee of the Board, or a sub-committee of the Compensation
        Committee, which shall consist solely of two or more members of the Board
        who
        are not employees of the Company and who otherwise qualify as “outside
        directors” within the meaning of Section 162(m).

       

      (g) “Company”
means
        Microchip Technology Incorporated or any of its subsidiaries (as such term
        is
        defined in Code Section 424(f)). 

       

      (h) “Earnings
        Per Share”
means
        as to any Fiscal Quarter or Fiscal Year, the Company’s or a business unit’s Net
        Income, divided by a weighted average number of common shares outstanding
        and
        dilutive common equivalent shares deemed outstanding, determined in accordance
        with generally accepted accounting principles. 

       

      (i) “Fiscal
        Quarter”
means
        a
        fiscal quarter of the Company.

       

      (j) “Fiscal
        Year”
means
        a
        fiscal year of the Company.

       

      (k) “Gross
        Margin”
means
        the Company’s or a business unit’s net sales for the Fiscal Quarter or Fiscal
        Year less the Company’s or a business unit’s, as applicable, cost of goods sold
        for the Fiscal Quarter or Fiscal Year, determined in accordance with generally
        accepted accounting principles.

       

      (l) “Net
        Income”
means
        as to any Fiscal Quarter or Fiscal Year, the income after taxes of the Company
        for the Fiscal Quarter or Fiscal Year determined in accordance with generally
        accepted accounting principles.

       

      (m) “Operating
        Cash Flow”
means
        the Company’s or a business unit’s sum of Net Income plus depreciation and
        amortization less capital expenditures plus changes in working capital comprised
        of accounts receivable,

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      inventories,
        other current assets, trade accounts payable, accrued expenses, product
        warranty, advance payments from customers and long-term accrued expenses,
        determined in accordance with generally acceptable accounting principles.
        

       

      (n) “Operating
        Expenses”
means
        the sum of the Company’s or a business unit’s research and development expenses
        and selling and general and administrative expenses during a Fiscal Quarter
        or
        Fiscal Year.

       

      (o) “Operating
        Income”
means
        the Company’s or a business unit’s income from operations determined in
        accordance with generally accepted accounting principles. 

       

      (p) “Participant”
means
        an employee of the Company participating in the Plan for a Performance
        Period.

       

      (q) “Payout
        Basis”
means
        as to any Performance Period, the criteria established by the Committee pursuant
        to Section 5 in order to determine the Awards (if any) to be paid to
        Participants. The Payout Basis may contain discretionary elements to reward
        additional performance as recommended by the CEO and approved by the Committee.
        The criteria may differ from Participant to Participant, or between groups
        of
        Participants. 

       

      (r) “Performance
        Goals”
means
        the goal(s) (or combined goal(s)) determined by the Committee (in its
        discretion) to be applicable to a Participant with respect to an Award. As
        determined by the Committee, the Performance Goals applicable to an Award
        may
        provide for a targeted level or levels of achievement based upon one or more
        of
        the following measures, but not limited hereto: Cash Position, Earnings Per
        Share, Gross Margin, Net Income, Operating Cash Flow, Operating Expenses,
        Operating Profit, Return on Assets, Return on Equity, Return on Sales, Revenue
        Growth, and Total Stockholder Return. The Performance Goals may differ from
        Participant to Participant and from Award to Award. The Committee may
        appropriately adjust any evaluation of the performance under a Performance
        Goal
        to exclude (i) any extraordinary non-recurring items as described in Accounting
        Principles Board Opinion No. 30 and/or in management’s discussion and analysis
        of financial conditions and results of operations appearing in the Company’s
        quarterly and annual reporting with Securities and Exchange Commission for
        the
        applicable year, or (ii) the effect of any changes in accounting principles
        affecting the Company’s or a business unit’s reported results.

       

      (s) “Performance
        Period”
means
        any Fiscal Quarter or Fiscal Year , or such other longer period but not in
        excess of five Fiscal Years, as determined by the Committee in its sole
        discretion.

       

      (t) “Plan”
means
        this Performance Bonus Plan.

       

      (u) “Plan
        Year”
means
        the Company’s fiscal year.

       

      (v) “Return
        on Assets”
means
        the percentage equal to the Company’s or a business unit’s Operating Income
        before incentive compensation, divided by average net Company or business
        unit,
        as applicable, assets, determined in accordance with generally accepted
        accounting principles. 

       

      (w) “Return
        on Equity”
means
        the percentage equal to the Company’s Net Income divided by average
        shareholder’s equity, determined in accordance with generally accepted
        accounting principles.

       

      (x) “Return
        on Sales”
means
        the percentage equal to the Company’s or a business unit’s Operating Income
        before incentive compensation, divided by the Company’s or the business unit’s,
        as applicable, revenue, determined in accordance with generally accepted
        accounting principles.

       

      (y) “Revenue
        Growth”
means
        the Company’s or a business unit’s net sales for the Fiscal Quarter or Fiscal
        Year, determined in accordance with generally accepted accounting principles,
        compared to the net sales of the immediately preceding quarter.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (z) “Section
        162(m)”
means
        Section 162(m) of the Code, or any successor to Section 162(m), as that Section
        may be interpreted from time to time by the Internal Revenue Service, whether
        by
        regulation, notice or otherwise. 

       

      (aa) “Total
        Stockholder Return”
means
        the total return (change in share price plus reinvestment of any dividends)
        of a
        share of the Company’s common stock.

      

      3. Plan
        Administration.

       

      (a) The
        Plan
        may be administered by different administrators with respect to different
        groups
        of Participants. The Committee shall be responsible for the general
        administration and interpretation of the Plan and for carrying out its
        provisions. The Committee may delegate its general administration and
        interpretation authority to a committee of employees as the Plan relates
        to
        Participants other than executive officers. The Committee may delegate specific
        administrative tasks to Company employees or others as appropriate for proper
        administration of the Plan. The Committee and its delegates shall have such
        powers as may be necessary to discharge their duties hereunder, including,
        but
        not by way of limitation, the following powers and duties, but subject to
        the
        terms of the Plan: 

      

      (i) discretionary
        authority to construe and interpret the terms of the Plan, and to determine
        eligibility, Awards and the amount, manner and time of payment of any Awards
        hereunder;

      

      (ii) to
        prescribe forms and procedures for purposes of Plan participation and
        distribution of Awards; and

      

      (iii) to
        adopt
        rules, regulations and bylaws and to take such actions as it deems necessary
        or
        desirable for the proper administration of the Plan.

      

      (b) Any
        rule
        or decision by the Committee or its delegates that is not inconsistent with
        the
        provisions of the Plan shall be conclusive and binding on all persons, and
        shall
        be given the maximum deference permitted by law.

      

      4. Eligibility.
        The
        employees eligible to participate in the Plan for a given Performance Period
        shall be those employees of the Company who based on their individual position
        and Company criteria have a significant impact on the Company’s performance as
        determined by the Committee. No person shall be automatically entitled to
        participate in the Plan.

      

      5. Performance
        Goal Determination.
        The
        Company’s Chief Executive Officer shall provide the Committee with
        recommendations as to the criteria underlying the Performance Goals. The
        CEO may
        make recommendations as to discretionary elements to reward additional
        performance. The Committee shall have complete authority to accept, modify
        or
        reject such recommendations, or to eliminate the Awards entirely.

       

      6. Determination
        of Payout Basis.
        The
        Committee, in its sole discretion, shall establish a Payout Basis for purposes
        of determining the Award (if any) payable to each Participant. Each Payout
        Basis
        shall (a) be based on a comparison performance to the Performance Goals,
        (b) provide for the payment of Awards if the Performance Goals for the
        Performance Period are achieved. Discretionary elements may be identified
        at the
        same time as the criteria underlying the Performance Goals are set, or they
        may
        be later determined at the Committee’s discretion. Awards may be a specific
        dollar amount, or a percentage of base salary. 

      

      7. Determination
        of Awards; Award Payment.

       

      (a) Determination
        and Certification.
        After
        the end of each Performance Period, the Committee shall determine the extent
        to
        which the Performance Goals applicable to each Participant for the Performance
        Period were

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      achieved
        or exceeded. The Award for each Participant shall be determined by applying
        the
        Payout Basis to the level of actual performance that has been determined
        by the
        Committee, and adding any discretionary element that has been determined
        by the
        Committee. Notwithstanding any contrary provision of the Plan, the Committee,
        in
        its sole discretion, may increase, eliminate or reduce the Award payable
        to any
        Participant below that which otherwise would be payable under the Payout
        Basis.

       

      (b) Right
        to Receive Payment.
        Each
        Award under the Plan shall be paid solely from the general assets of the
        Company. Nothing in this Plan shall be construed to create a trust or to
        establish or evidence any Participant’s claim of any right to payment of an
        Award other than as an unsecured general creditor with respect to any payment
        to
        which he or she may be entitled. Unless otherwise approved by the Committee,
        a
        Participant needs to be employed by the Company from the beginning of the
        applicable Performance Period through the Award payment date to receive an
        Award
        payout hereunder.

       

      (c) Form
        of Distributions.
        The
        Company shall distribute all Awards to the Participant in cash.

       

      (d) Deferral.
        The
        Committee may defer payment of Awards, or any portion thereof, to Participants
        as the Committee, in its discretion, determines to be necessary or desirable
        to
        preserve the deductibility of such amounts under Section 162(m). In
        addition, the Committee, in its sole discretion, may permit a Participant
        to
        defer receipt of the payment of cash that would otherwise be delivered to
        a
        Participant under the Plan. Any such deferral elections shall be subject
        to such
        rules and procedures as shall be determined by the Committee in its sole
        discretion.

      

      8. Term
        of Plan.
        The
        Plan shall become effective October 1, 2006. The Plan shall continue until
        terminated under Section 9 of the Plan.

      

      9. Amendment
        and Termination of the Plan.
        The
        Committee may amend, modify, suspend or terminate the Plan, in whole or in
        part,
        at any time, including the adoption of amendments deemed necessary or desirable
        to correct any defect or to supply omitted data or to reconcile any
        inconsistency in the Plan or in any Award granted hereunder; provided, however,
        that no amendment, alteration, suspension or discontinuation shall be made
        which
        would impair any payments to Participants made prior to such amendment,
        modification, suspension or termination, unless the Committee has made a
        determination that such amendment or modification is in the best interests
        of
        all persons to whom Awards have theretofore been granted. To the extent
        necessary or advisable under applicable law, Plan amendments shall be subject
        to
        shareholder approval. At no time before the actual distribution of funds
        to
        Participants under the Plan shall any Participant accrue any vested interest
        or
        right whatsoever under the Plan except as otherwise stated in this
        Plan.

      

      10. Withholding.
        Distributions pursuant to this Plan shall be subject to all applicable federal
        and state tax and withholding requirements.

      

      11. At-Will
        Employment.
        No
        statement in this Plan should be construed to grant any employee an employment
        contract of fixed duration or any other contractual rights, nor should this
        Plan
        be interpreted as creating an implied or an expressed contract of employment
        or
        any other contractual rights between the Company and its employees. The
        employment relationship between the Company and its employees is terminable
        at-will. This means that an employee or the Company may terminate the employment
        relationship at any time and for any reason or no reason.

      

      12. Successors.
        All
        obligations of the Company under the Plan, with respect to awards granted
        hereunder, shall be binding on any successor to the Company, whether the
        existence of such successor is the result of a direct or indirect purchase,
        merger, consolidation, or otherwise, of all or substantially all of the business
        or assets of the Company.

      

      13. Indemnification.
        Each
        person who is or shall have been a member of the Committee, of the Board,
        or
        their delegates shall be indemnified and held harmless by the Company against
        and from (a) any loss, cost, liability, or expense that may be imposed upon
        or reasonably incurred by him or her in connection with or resulting from
        any
        claim, action, suit, or proceeding to which he or she may be a party or in
        which
        he or she may be involved by reason of any

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      action
        taken or failure to act under the Plan or any award, and (b) from any and
        all amounts paid by him or her in settlement thereof, with the Company’s
        approval, or paid by him or her in satisfaction of any judgment in any such
        claim, action, suit, or proceeding against him or her, provided he or she
        shall
        give the Company an opportunity, at its own expense, to handle and defend
        the
        same before he or she undertakes to handle and defend it on his or her own
        behalf. The foregoing right of indemnification shall not be exclusive of
        any
        other rights of indemnification to which such persons may be entitled under
        the
        Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of
        law, or otherwise, or under any power that the Company may have to indemnify
        them or hold them harmless.

      

      14. Nonassignment.
        The
        rights of a Participant under this Plan shall not be assignable or transferable
        by the Participant except by will or the laws of intestacy.

      

      15. Governing
        Law.
        The
        Plan shall be governed by the laws of the State of Arizona, without regard
        to
        conflicts of law provisions thereunder.

      

      
        
          
          

        

        
          5

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