Notes to Consolidated Financial Statements
     
NOTE 6 - STOCK BASED COMPENSATION

   The Company has two stock option plans, the 1997 Stock Option Plan, as amended and restated (1997 Plan) and the 2000 Stock Option Plan (2000 Plan), under which key employees and non-employee directors may be granted options to purchase shares of the Company's authorized but unissued common stock. The executive officers of the Company are also eligible for awards under the 1997 Plan. The Company also has a stock option plan (the 2000 Executive Stock Option Plan), under which key executives, including officers, may be granted stock options.

   Under the 1997 Plan and the 2000 Plan, the Company may grant options for up to 8,507,666 and 3,873,664 shares of Class A common stock, respectively. Options granted under the Plans may be either (a) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code or (b) non-qualified stock options.

   The exercise price of each option granted under the 1997 Plan and the 2000 Plan is determined by a Committee of the Company's Board of Directors (the "Committee"). The maximum term of any option is ten years from the date of grant for incentive stock options and ten years and one day from the date of grant for non-qualified stock options. Options granted under the Plans are exercisable at the determination of the Committee, currently vesting ratably over approximately five years. Individuals receiving options under the Plans may not receive in any one-year period options to purchase more than 200,000 shares of common stock.

   Under the 2000 Executive Stock Option Plan, the Company may grant options for up to 3,500,000 shares of common stock. Options granted under the Plan are intended to be non-qualified options. The exercise price and term of each option granted under the 2000 Executive Plan is determined by the Committee. Options granted under the 2000 Executive Plan are exercisable at the determination of the Committee. Individuals receiving options under the Plan may not receive in any one year options to purchase more than 1,500,000 shares.

   A summary of the status of the Company's stock option plans as of December 31, 2000, December 26, 1999, May 30, 1999 and May 31, 1998, and changes during the periods then ended are presented in the table below:

 
Calendar 2000
Stub Year 1999
Fiscal 1999
Fiscal 1998
 
Shares
(000's)
Weighted
Average
Exercise
Price
Shares
(000's)
Weighted
Average
Exercise
Price
Shares
(000's)
Weighted
Average
Exercise
Price
Shares
(000's)
Weighted
Average
Exercise
Price
Outstanding at beginning of year
6,964
$ 9.60
4,283
$ 3.82
3,584
$ 2.20
2,029
$ 0.13
Granted
7,723
37.55
3,549
14.8.3
972
10.00
1,777
4.29
Exercised
(783)
5.22
(805)
2.06
(93)
0.13
(142)
0.13
Canceled
(542)
17.97
(63)
7.12
(180)
6.83
(80)
0.13
Outstanding at end of year
13,362
$ 26.07
6,964
$ 9.60
4,283
$ 3.82
3,584
$ 2.20
Exercisable at end of year
2,358
$ 7.96
1,331
$ 5.56
1,612
$ 1.82
798
$ 0.13
Weighted average fair value of options granted
$24.23
$ 9.68
$ 0.09
$ 0.22
  
 Information with respect to stock options outstanding and stock options exercisable at December 31, 2000, is as follows:

 
Options Outstanding
Options Exercisable
Range of Exercise Prices
(000)
Number
Outstanding
Weighted-Average
Remaining
Contractual
Life
Weighted-Average
Exercise
Price
(000)
Number
Exercisable
Weighted-Average
Exercise
Price
$  0.13-  0.13
1,598
6.5
$ 0.13
1,049
$ 0.13
$10.00-15.00
2,304
8.1
10.17
737
10.00
$15.01-22.00
1,757
8.6
18.61
525
18,50
$22.01-33.00
232
9.3
28.69
22
28.25
$33.01-49.00
7,471
9.5
38.20
25
37.32
 
13,362
8.8
$ 26.07
2,358
$ 7.96

  
 The Company maintains the Fairchild Semiconductor International, Inc. Employee Stock Purchase Plan which started on April 1, 2000. The stock purchase plan authorizes the issuance of up to 4,000,000 shares of common stock in quarterly offerings to eligible employees at a price that is equal to 85 percent of the lower of the common stock's fair value at the beginning or the end of a quarterly period. During Calendar 2000, 70,202 shares were issued under the stock purchase plan at a weighted average price of $27.02 per share.

   The Company accounts for its stock-based compensation plans in accordance with the provisions of APB No. 25. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. During Calendar 2000, Stub Year 1999 and Fiscal 1999, the Company granted 5,000, 1,358,700 and 25,600 stock options, respectively, with exercise prices less than the market price of the underlying stock on the date of the grant, and recorded total deferred compensation of $0.2 million, $13.6 million and $0.3 million, respectively.

   Had compensation cost for the Company's stock Plans been determined consistent with FAS Statement No. 123, the Company would have reported the following pro forma information:


(In millions, except per share data)
Calendar
2000
Stub
Year
1999
Fiscal
1999
Fiscal
1998
Pro forma net income (loss)
$ 239.6
$ 13.6
$ (114.3)
$ 20.6
Pro forma basic earnings (loss) per share
$ 2.46
$ 0.17
$ (1.82)
$ 0.33
Pro forma diluted earnings (loss) per share
$ 2.36
$ 0.16
$ (1.82)
$ 0.32

   
   The Company estimates the fair value of each option as of the date of grant using a Black-Scholes pricing model with the following weighted average assumptions:


 
Calendar
2000
Stub
Year
1999
Fiscal
1999
Fiscal
1998
Expected volatility
60%
49%
49%
-
Dividend yield
-
-
-
-
Risk-free interest rate
6.32%
4.89%
4.43%
5.88%
Expected life, in years
5.0
4.0
3.4
2.9