2003 Governance Charter: MCHP CHARTER FOR THE
NOMINATING AND GOVERNANCE COMMITTEE
OF THE BOARD OF DIRECTORS
MICROCHIP TECHNOLOGY INCORPORATED
The purpose of the Nominating and Governance Committee is to help ensure
that the Board of Directors is properly constituted to meet its fiduciary
obligations to stockholders and the Company and that the Company has and follows
appropriate governance standards. To carry out this purpose, the Nominating and
Governance Committee shall:
o assist the board by identifying prospective director nominees and to
recommend to the board the director nominees for the next annual
meeting of stockholders;
o assist the board by identifying prospective director nominees to fill
any vacancies on the board and to recommend to the board the director
nominees to fill such vacancies;
o develop and recommend to the board the governance principles
applicable to the Company; and
o recommend to the board director nominees for each committee.
COMMITTEE MEMBERSHIP AND ORGANIZATION:
o The Nominating and Governance Committee shall be comprised of no fewer
than three (3) members.
o The members of the Nominating and Governance Committee shall meet the
independence requirements of the Nasdaq and any applicable SEC rules.
o The members of the Nominating and Governance Committee shall be
appointed and replaced by the board.
COMMITTEE RESPONSIBILITIES AND AUTHORITY:
o Evaluate the current composition, organization and governance of the
board and its committees, determine future requirements and make
recommendations to the board for approval.
o Determine on an annual basis desired board qualifications, expertise
and characteristics and conduct searches for potential board members
with corresponding attributes. Evaluate and propose nominees for
election to the board.
o Form and delegate authority to subcommittees when appropriate.
o Evaluate and make recommendations to the board concerning the
appointment of directors to board committees, the selection of board
committee chairs, and proposal of the board slate for election.
Consider stockholder nominees for election to the board.
o Evaluate and recommend termination of membership of individual
directors in accordance with the board's governance principles, for
cause or for other appropriate reasons.
o Conduct a periodic review on succession planning, report its findings
and recommendations to the board, and work with the board in
evaluating potential successors to executive management positions.
o Advise and make recommendations to the board concerning the frequency
of board and committee meetings.
o Consider matters of corporate governance.
o Conduct a periodic review of the Company's stockholder rights plan
o Make regular reports to the board.
o Review and re-examine this Charter annually and make recommendations
to the board for any proposed changes.
o Annually review and evaluate its own performance.
In performing its responsibilities, the Nominating and Governance Committee
shall have the authority to obtain advice, reports or opinions from internal or
external counsel and expert advisors.
DESCRIPTION OF OUR 2001 EMPLOYEE STOCK PURCHASE PLAN
The 2001 Employee Stock Purchase Plan, referred to as the ESPP, was adopted
by the Board of Directors in May 2001 and approved by the stockholders at the
2001 annual meeting. 2,450,000 shares of common stock are currently reserved for
issuance under the ESPP. At the 2003 Annual Meeting, the stockholders are being
asked to approve the reservation of 975,000 additional shares under the ESPP
and, commencing January 1, 2005, an automatic annual increase in the number of
shares reserved for issuance under such plan.
The ESPP is administered by a committee made up of members of the Board of
Directors. The committee has full power to interpret the ESPP, and its decisions
will be final and binding upon all participants.
Generally, all employees of the Company or any of the subsidiaries
designated by the committee are eligible to participate in the ESPP. However, no
employee who normally works less than 20 hours per week or five months in a
calendar year is eligible to participate. Also, no employee will be eligible to
participate in the ESPP if, immediately after the grant of an option to purchase
stock under the ESPP, that employee would own 5% of either the voting power or
the value of the common stock. No employee's rights to purchase the common stock
pursuant to the ESPP may accrue at a rate that exceeds $25,000 per calendar
Non-employee Directors are not eligible to participate in the ESPP.
PARTICIPATION AND PURCHASES
Under the ESPP a participant must authorize payroll deductions, which may
not exceed 10% of their eligible compensation. Generally, when an employee
terminates employment with the Company or any designated subsidiary, the
employee's right to participate in the ESPP terminates.
The ESPP provides for offering periods of up to 24 months. Each offering
period will include one or more purchase periods. The duration of each offering
period and purchase period are determined by the committee. Currently, the ESPP
is implemented with overlapping 24 month offering periods beginning on the first
business day of March and the first business day of September of each year, and
each offering period consists of four approximately six-month purchase periods.
The first day of each offering period is referred to as an entry date.
Eligible employees participate in the ESPP through accumulated payroll
deductions. At the end of each approximately six-month purchase period, these
accumulated payroll deductions are used to purchase shares of common stock at a
price per share equal to the lower of 85% of the closing price of a share of
common stock on (1) the relevant entry date or (2) the relevant purchase date,
whichever is less. Currently, purchase dates under the ESPP are the first
business day of March and the first business day of September of each year. The
ESPP also provides that no participant may purchase more than 7,500 shares of
common stock in any one purchase period. This limitation may be changed by the
TERMINATION OF EMPLOYMENT
Termination of a participant's employment other than by reason of death or
disability immediately cancels his or her option and participation in the ESPP.
If this occurs, the payroll deductions credited to the participant's account
will be returned without interest to him or her. If a participant dies, or
terminates employment due to disability, at the election of the participant (or
if applicable the participant's estate), his or her accumulated payroll
deductions will be used to purchase shares on the next purchase date or the
accumulated payroll deductions will be refunded to the participant or his or her
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR SALE OF ASSETS
In the event of any stock split, stock dividend, spin-off,
reclassification, recapitalization or other similar event affecting the common
stock, adjustments may be made in the number of shares of stock subject to the
ESPP, the number and kind of shares of stock to be purchased pursuant to each
option and the price per share of common stock covered by each option. Any such
adjustment will be made by the committee, whose determination shall be final. In
the event of a proposed sale of all or substantially all of the assets of the
Company or the merger or consolidation of the Company with another company each
option will be assumed by, or an equivalent option substituted, by the successor
company or an affiliate. If the successor company or affiliate refuses to assume
or substitute for the option, the next purchase date will be automatically
accelerated to the date immediately before the proposed sale or merger.
AMENDMENT AND TERMINATION
Generally, the Board of Directors may terminate or amend the ESPP at any
time. The ESPP will continue until all of the shares authorized for the ESPP are
sold unless terminated sooner by the Board of Directors.
If a participant chooses to withdraw from a purchase period, the
participant may elect to have all accumulated payroll deductions refunded or
have the accumulated payroll deductions used to purchase common stock on the
next purchase date. The committee may also establish rules limiting the
frequency with which participants may withdraw and may establish a waiting
period for participants wishing to re-authorize payroll deductions.
U.S. FEDERAL INCOME TAX CONSEQUENCES
Since our stockholders have approved the ESPP, the ESPP, and the right of
participants to make purchases thereunder, qualify for treatment under the
provisions of Internal Revenue Code Sections 421 and 423. Under these
provisions, no income will be taxable to a participant until the shares
purchased under the ESPP are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the applicable entry date and more than one year from the applicable
purchase date, then the participant generally will recognize ordinary income
measured as the lesser of
o the excess of the fair market value of the shares at the time of such
sale or disposition over the purchase price, or
o an amount equal to 15% of the fair market value of the shares as of
the applicable entry date. Any additional gain should be treated as
long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of
this holding period, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period.
The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent ordinary income is
recognized by a participant upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above. In all other cases, no
deduction is allowed to the Company.
The foregoing discussion is not intended to cover all tax consequences of
participation in the ESPP. The tax consequences outlined above apply only with
respect to an employee whose income is subject to United States federal income
tax during the period beginning with the grant of an option and ending with the
disposition of the common stock acquired through the exercise of the option.
Different or additional rules may apply to individuals who are subject to income
tax in a foreign jurisdiction and/or are subject to state/local income tax in
the United States.
Participation in the ESPP is voluntary. Because benefits under the ESPP
depend on employees' elections to participate and the fair market value of the
common stock at various future dates, it is not possible to determine the
benefits that will be received by executive officers and other employees. The
following table sets forth, as to the CEO and the four other most highly
compensated executive officers named in this proxy statement, all current
executive officers as a group, all non-executive officer directors as a group,
and all non-executive employees who participated in the ESPP: (a) the number of
shares of common stock purchased under the ESPP during fiscal 2003, and (b) the
dollar value of the benefit, which is calculated as the fair market value per
share of the common stock on the date of purchase, minus the purchase price per
share of common stock under the ESPP: