OMB APPROVAL
--------------------------
OMB Number: 3235-0059
Expires: January 31, 2008
Estimated average burden
hours per response......14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Littelfuse, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
LITTELFUSE, INC.
800 East Northwest Highway
Des Plaines, Illinois 60016
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 5, 2006
The annual meeting of the stockholders of Littelfuse, Inc. (the "Company")
will be held at the offices of the Company located at 800 East Northwest
Highway, Des Plaines, Illinois, on Friday, May 5, 2006, at 9:00 a.m., local
time, for the following purposes as described in the attached Proxy Statement:
1. To elect six directors to serve a term of one year or until their
successors are elected;
2. To approve and ratify the appointment by the Board of Directors of the
Company of Ernst & Young LLP as the Company's independent auditors for
the fiscal year of the Company ending December 30, 2006;
3. To approve the establishment of the Littelfuse, Inc. Equity Incentive
Compensation Plan (the "Equity Plan"), as set forth herein, effective
as of March 1, 2006, which would supersede and replace the Stock Plan
for Employees and Directors of Littelfuse, Inc., adopted effective
December 16, 1991, and the 1993 Stock Plan for Employees and Directors
of Littelfuse, Inc., adopted effective February 12, 1993 (the "Prior
Plans"), except that the Prior Plans shall remain in effect with
respect to awards granted under such Prior Plans until such awards
have been exercised, forfeited, canceled, expired or otherwise
terminated in accordance with the terms of such awards;
4. To approve the establishment of the Littelfuse, Inc. Outside
Directors' Stock Option Plan (the "Directors Plan"), as set forth
herein, effective as of March 1, 2006, which would supersede and
replace the Stock Plan for New Directors of Littelfuse, Inc., and, to
the extent such plans provided for grants to outside directors, the
Prior Plans, except that the Prior Plans shall remain in effect with
respect to awards granted under such Prior Plans until such awards
have been exercised, forfeited, canceled, expired or otherwise
terminated in accordance with the terms of such awards;
and to transact such other business as may properly come before the annual
meeting or any adjournment thereof.
Stockholders of record of the Company at the close of business on March 17,
2006, will be entitled to vote at the meeting.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
Mary S. Muchoney
Secretary
March 29, 2006
LITTELFUSE, INC.
800 East Northwest Highway
Des Plaines, Illinois 60016
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 5, 2006
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies for use at the Company's annual
meeting of stockholders to be held on May 5, 2006.
Any stockholder giving a proxy will have the right to revoke it at any time
prior to the time it is voted. A proxy may be revoked by written notice to the
Company, execution of a subsequent proxy or attendance at the annual meeting and
voting in person. Attendance at the annual meeting will not automatically revoke
the proxy. All shares represented by effective proxies will be voted at the
annual meeting or at any adjournment thereof.
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, officers and employees of the Company may solicit proxies
by telephone or in person.
This Proxy Statement and form of proxy are first being mailed to
stockholders on or about March 31, 2006. The Company's 2005 annual report,
including audited financial statements, is included in this mailing.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL OF THE
NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1, A VOTE FOR THE APPROVAL AND
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AS
DISCUSSED IN PROPOSAL 2, A VOTE FOR THE APPROVAL OF THE EQUITY PLAN AS DISCUSSED
IN PROPOSAL 3 AND A VOTE FOR THE APPROVAL OF THE DIRECTORS PLAN AS DISCUSSED IN
PROPOSAL 4.
VOTING
Stockholders of record on the books of the Company at the close of business
on March 17, 2006, will be entitled to notice of and to vote at the meeting. A
list of the stockholders entitled to vote at the meeting will be available for
examination by any stockholder for any purpose germane to the meeting during
ordinary business hours for a period of at least 10 days prior to the meeting at
the Company's headquarters located at 800 East Northwest Highway, Des Plaines,
Illinois 60016 and at LaSalle Bank N.A., 135 South LaSalle Street, Chicago,
Illinois 60603, the transfer agent for the Company. The Company had outstanding
on March 17, 2006, 22,888,036 shares of its Common Stock, par value $.01 per
share (the "Common Stock"). Each outstanding share of Common Stock entitles the
holder to one vote on each matter submitted to a vote at the meeting.
The shares represented by proxies will be voted as directed in the proxies.
In the absence of specific direction, the shares represented by proxies will be
voted FOR the election of all of the nominees
2
for directors of the Company, FOR the approval and ratification of the
appointment of Ernst & Young LLP as independent auditors, FOR the approval of
the Equity Plan and FOR the approval of the Directors Plan. In the event any
nominee for director is unable to serve, which is not now contemplated, the
shares represented by proxies may be voted for a substitute nominee. If any
matters are to be presented at the annual meeting other than the matters
referred to in this Proxy Statement, the shares represented by proxies will be
voted at the discretion of the named proxies.
The Company's bylaws provide that a majority of all of the shares of Common
Stock entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting. Votes for
and against, abstentions and "broker non-votes" will each be counted as present
for purposes of determining the presence of a quorum. To determine whether a
specific proposal has received sufficient votes to be passed, for shares deemed
present, an abstention will have the same effect as a vote "against" the
proposal, while a broker non-vote will not be included in vote totals and will
have no effect on the outcome of the vote. The affirmative vote by the holders
of a majority of the shares present (whether in person or by proxy) at the
meeting will be required for the approval of the ratification of Ernst & Young
LLP as independent auditors, the Equity Plan and the Directors Plan. With
respect to the election of directors, the six nominees who receive the most
votes at the meeting will be elected.
OWNERSHIP OF LITTELFUSE, INC. COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 17, 2006, by each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, by each director, by each executive officer named in
the Summary Compensation Table and by all of the directors and executive
officers of the Company as a group. Information concerning persons known to the
Company to be beneficial owners of more than 5% of its Common Stock is based
upon the most recently available reports furnished by such persons on Schedule
13G as filed with the Securities and Exchange Commission (the "Commission").
3
NUMBER OF SHARES OF
COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------
SHARES PERCENT
--------- -------
Ariel Capital Management, Inc. ............................ 2,898,592 12.7%
200 E. Randolph Drive, Suite 2900
Chicago, Illinois 60601
T. Rowe Price Associates, Inc.(2) ......................... 2,244,685 9.8%
100 E. Pratt Street
Baltimore, Maryland 21202
Barrow, Hanley, Mewhinney & Strauss, Inc. ................. 1,431,810 6.3%
2200 Ross Avenue 31st Floor
Dallas, TX 75201
Columbia Wanger Asset Management, L.P. .................... 1,165,000 5.1%
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Capital Research and Management Company (3) ............... 950,000 4.2%
333 South Hope Street
Los Angeles, CA 90071
Reed Conner & Birdwell, LLC ............................... 885,469 3.9%
11111 Santa Monica Boulevard, Suite 1700
Los Angeles, CA 90025
Howard B. Witt ............................................ 110,240 *
John P. Driscoll .......................................... 33,283 *
Anthony Grillo ............................................ 72,160 *
Bruce A. Karsh(4) ......................................... 182,497 *
John E. Major ............................................. 56,544 *
Ronald L. Schubel ......................................... 16,643 *
Gordon Hunter ............................................. 57,296 *
Philip G. Franklin ........................................ 125,500 *
David Samyn ............................................... 19,900 *
David W. Heinzmann ........................................ 42,275 *
Dal Ferbert ............................................... 79,135 *
All current directors and executive officers as a group (16
persons) ............................................... 865,173 3.8%
4
* Indicates ownership of less than 1% of Common Stock.
----------
(1) The number of shares outstanding for purposes of calculating the
percentages shown includes an aggregate of 22,888,036 shares of Common
Stock, which may be acquired through the exercise of stock options within
60 days of March 17, 2006.
(2) These securities are owned by various individual and institutional
investors for which T. Rowe Price Associates, Inc. ("Price Associates")
serves as investment advisor with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting requirements of
the Securities Exchange Act of 1934 ("Exchange Act"), Price Associates is
deemed to be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities.
(3) These securities are owned by various individual and institutional
investors for which Capital Research and Management Company ("Capital")
serves as investment advisor with power to direct investments. For purposes
of the reporting requirements of the Exchange Act, Capital is deemed to be
a beneficial owner of such securities; however, Capital expressly disclaims
that it is, in fact, the beneficial owner of such securities.
(4) Includes 8,000 shares of Common Stock held in trust for Mr. Karsh's wife
and children and 75,000 shares held by the Karsh Family Foundation
("Foundation"). Mr. Karsh disclaims beneficial ownership of all securities
held by the Foundation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"),
requires the Company's executive officers, directors and holders of more than
10% of the Common Stock to file with the Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. The Company believes that during the fiscal year ended December
31, 2005, its executive officers and directors complied with all Section 16(a)
filing requirements. In making these statements, the Company has relied upon the
written representations of its executive officers and directors.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Six directors are to be elected at the annual meeting to serve terms of one
year or until their respective successors have been elected. The nominees for
director, all of whom are now serving as directors of the Company, are listed
below together with certain biographical information as of March 17, 2006.
Except as otherwise indicated, each nominee for director has been engaged in his
present principal occupation for at least the past five years.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE NOMINEES LISTED BELOW AS DIRECTORS.
John P. Driscoll, age 70, has been a director of the Company since February
1998. Mr. Driscoll has been President of Jack Driscoll Enterprises, Inc., a
management consulting firm, since 1998. In June of 1998 Mr. Driscoll retired as
Executive Vice President of Murata Electronics North America, Inc. where he was
responsible for corporate policy and strategy and oversaw government and
industry relations. Mr. Driscoll joined Murata Electronics in 1979 as Vice
President of Marketing and Sales, was appointed
5
Senior Vice President Marketing and Sales in 1985 and assumed the position of
Executive Vice President in 1995. Mr. Driscoll is a former Vice President of the
Components Group of the Electronic Industry Alliance, and a twenty-year member
of its Board of Governors. He was also affiliated with the Electronics Component
and Technology Conference and the Japan American Society. Mr. Driscoll has been
determined by the Board to be "independent" under the listing standards of the
Nasdaq Stock Market ("NASDAQ") on which the Company's Common Stock is listed.
Anthony Grillo, age 50, has been a director of the Company since December
1991. Mr. Grillo is the founder and Chief Executive Officer of American
Securities Advisors, LLC an advisory and investment firm established in 2005.
From 2001 through 2004, Mr. Grillo was a Senior Managing Director of Evercore
Partners, Inc. where he founded the restructuring practice for the firm. From
1999 through 2001 Mr. Grillo was a Senior Managing Director of Joseph Littlejohn
& Levy, Inc., a private equity firm. For eight years previous, Mr. Grillo was a
Senior Managing Director of the Blackstone Group L.P., an investment banking
firm. During those years, he was the co-founder of Blackstone's Restructuring
and Reorganization Group, Chief Operating Officer of the firm's M&A practice and
a member of its Investment Committee. Mr. Grillo has been determined by the
Board to be "independent" under NASDAQ listing standards.
Gordon Hunter, age 54, has been a director of the Company since June 2002
and became the Chairman of the Board, President and Chief Executive Officer of
Littelfuse, Inc. in January 2005. Mr. Hunter became the Chief Operating Officer
of the Company in November 2003. Prior to joining the Company, Mr. Hunter was
Vice President, Intel Communications Group, and General Manager, Optical
Products Group. Mr. Hunter was responsible for managing Intel's access and
optical communications business segments within the Intel Communications Group.
Prior to joining Intel in February 2002, he served as President of Elo
TouchSystems, a subsidiary of Raychem Corporation. He also served in a variety
of positions during a 20-year career at Raychem Corporation, including Vice
President of Commercial Electronics and a variety of sales, marketing,
engineering and management positions.
Bruce A. Karsh, age 50, has been a director of the Company since December
1991. Mr. Karsh is President and co-founder of Oaktree Capital Management, LLC,
an investment advisory firm with over $30 billion of assets under management,
and has been with Oaktree since 1995. From 1987 through 1995 Mr. Karsh was with
The TCW Group, Inc. where he established the TCW Special Credits group of funds
and had primary portfolio management responsibility for their operation. Mr.
Karsh has been determined by the Board to be "independent" under NASDAQ listing
standards.
John E. Major, age 60, has been a director of the Company since December
1991. Mr. Major has been President of MTSG, a strategic consulting and
investments company, since 2003. From 2000 through 2003 he was Chairman and CEO
of Novatel Wireless Inc., which provides wireless data access solutions for PDAs
and notebook PCs. From 1998 through 1999 he was Chief Executive Officer of
Wireless Knowledge, a QUALCOMM and Microsoft joint venture. Before joining
Wireless Knowledge in 1998, Mr. Major served as Corporate Executive Vice
President of QUALCOMM, Inc. and President of its Wireless Infrastructure
Division. Prior to joining QUALCOMM in 1996, Mr. Major served as Senior Vice
President and Staff Chief Technical Officer at Motorola, Inc. Mr. Major serves
on the Board of Directors of Verilink Corporation, Broadcom Corporation and
Lennox International Inc., all reporting companies under the Exchange Act. Mr.
Major has been determined by the Board to be "independent" under NASDAQ listing
standards.
Ronald L. Schubel, age 62, has been a Director of the Company since June
2002. Mr. Schubel is Corporate Executive Vice President and President of the
Americas Region for Molex Incorporated, a global manufacturer of interconnect
systems. He began his career with Molex in 1981, spending four
6
years in Singapore as President of the Far East South Region. Prior to joining
Molex, Mr. Schubel worked for General Motors for 15 years. His last position
with General Motors was Director of Operations for the Packard Electronics
Division. Mr. Schubel has been determined by the Board to be "independent" under
NASDAQ listing standards.
INFORMATION CONCERNING BOARD OF DIRECTORS AND ITS COMMITTEES
COMPENSATION OF DIRECTORS. Directors who are not employees of the Company
are paid an annual Director's fee of $40,000, $1,500 for each of the four
regularly scheduled Board meetings attended and $1,000 for attendance at any
special teleconference Board or Committee meetings, plus reimbursement of
reasonable expenses relating to attendance at meetings. The Lead Director is
paid an additional $7,500 annually, the Chairman of the Audit Committee is paid
an additional $10,000 annually and the Chairman of the Compensation Committee is
paid an additional $5,000 annually. No fees are paid to Directors who are also
full-time employees of the Company.
Under the Littelfuse Deferred Compensation Plan for Non-employee Directors,
a non-employee director, at his election, may defer receipt of his director's
fees. Such deferred fees are used to purchase shares of Littelfuse Common Stock,
and such shares and any distributions thereon are deposited with a third party
trustee for the benefit of the director until the director ceases to be a
director of the Company. All non-employee directors have elected to be
compensated in Common Stock under the Littelfuse Deferred Compensation Plan for
Non-employee Directors (the "Non-employee Directors Plan").
The 1993 Stock Plan for Employees and Directors of Littelfuse, Inc. (the
"1993 Stock Plan") provides for a grant at each annual meeting of the Board of
Directors to each non-employee Director of non-qualified stock options to
purchase 5,000 shares of Common Stock at the fair market value on the date of
grant. Accordingly, on May 6, 2005, Messrs. Driscoll, Grillo, Karsh, Major,
Schubel and Witt were each granted an option to purchase 5,000 shares of Common
Stock.
ATTENDANCE AT MEETINGS. The Board of Directors held eight meetings during
fiscal year 2005. All of the directors attended at least 75% of the meetings of
the Board of Directors and the committees on which they served. It is the policy
of the Company that all of the directors attend the annual meeting of the
stockholders of the Company.
Independent members of the Board of Directors of the Company meet in
executive session without management present at least two times per year.
Stockholders wishing to communicate directly with the Board or individual
directors should communicate in writing to the Corporate Secretary of the
Company, who will in turn promptly forward such communication to the directors.
AUDIT COMMITTEE. It is the responsibility of the Audit Committee to, among
other things, (i) recommend each year to the Board of Directors independent
auditors to audit the financial statements of the Company and its consolidated
subsidiaries, (ii) review the scope of the audit plan, (iii) discuss with the
auditors the results of the Company's annual audit and any related matters, (iv)
pre-approve all audit services; (v) pre-approve all permissible non-audit
services to be performed by the Company's auditors; and (vi) review transactions
posing a potential conflict of interest among the Company and its Directors,
officers and affiliates. A copy of the Audit Committee Charter is available on
the Company's website at www.littelfuse.com. The Audit Committee met ten times
in 2005. Members of the Audit Committee are John E. Major, Ronald L. Schubel and
Anthony Grillo, the Chairman of the Committee, all of whom have been deemed by
the Board to be "independent" under the Sarbanes-Oxley Act of 2002 and NASDAQ
listing standards. The Board of Directors has determined that Anthony Grillo is
an "audit committee
7
financial expert" based on his experience as a certified public accountant,
investment banker and private equity investor.
NOMINATING AND GOVERNANCE COMMITTEE. It is the responsibility of the
Nominating and Governance Committee to identify individuals qualified to serve
on the Board of Directors and to recommend those individuals the Board should
nominate for election at the Company's annual meeting of stockholders. The
Nominating and Governance Committee will consider nominees for the Board of
Directors recommended by stockholders, using the same evaluation process as for
any other candidate. Recommendations should be submitted to the Secretary of the
Company at the Company's principal executive offices. The Board of Directors has
adopted a charter for the Nominating and Governance Committee. A copy of that
charter is available on the Company's website at www.littelfuse.com. The
Nominating and Governance Committee met one time during 2005. The Nominating and
Governance Committee reviewed the performance of all of the current members of
the Board of Directors and determined and recommended to the Board that all of
the current directors should be nominated for re-election. In making this
recommendation, consideration was given to matters such as attendance at
meetings, preparation for meetings, input at meetings, interaction with other
board members, and other tangible or intangible benefits their service as
directors brought to the Company. No other candidates were recommended or
evaluated. Members of the Nominating and Governance Committee are Ronald L.
Schubel, the Chairman of the Committee, John P. Driscoll and Bruce A. Karsh,
each of whom have been deemed by the Board to be independent under NASDAQ
listing standards.
Director Qualification Standards
The Nominating and Governance Committee will take into consideration such
factors as it deems appropriate, including the following:
- Experience as an executive or director of a publicly traded company;
- Familiarity with the business of the Company and its industry;
- Availability to actively participate in meetings of the Board of
Directors and attend the annual meeting of stockholders;
- Knowledge and experience in the preparation or evaluation of financial
statements;
- Diversity;
- Satisfaction of the criteria for independence established by the
Commission and NASDAQ listing standards, as they may be amended from
time to time; and
- Ability to interact in a productive manner with the other members of
the Board of Directors.
COMPENSATION COMMITTEE. It is the responsibility of the Compensation
Committee to make recommendations to the Board of Directors with respect to
compensation and benefit programs, including the stock-based plans, for
Directors and executive officers of the Company and its subsidiaries. The
Compensation Committee met nine times in 2005. Members of the Compensation
Committee are Bruce A. Karsh and John P. Driscoll, the Chairman of the
Committee.
TECHNOLOGY COMMITTEE. It is the responsibility of the Technology Committee
to review the research and development activities of the Company and ensure the
Company maximizes the use of
8
technology throughout the organization. The Technology Committee met three times
in 2005. Members of the Technology Committee are John E. Major, Ronald L.
Schubel and Gordon Hunter, the Chairman of the Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Bruce A. Karsh and John P. Driscoll served on the Compensation Committee during
fiscal 2005. No executive officer of the Company served as a member of the
compensation committee, or a board of directors performing equivalent functions,
of any entity that had one or more of its executive officers serving as a member
of the Company's Compensation Committee.
COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses compensation received by the Chief Executive
Officer and each of the other four most highly compensated executive officers
(the "named executive officers") for the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
AWARDS
------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
----------------------- STOCK AWARDS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS/SARS(#) COMPENSATION($)(3)
--------------------------- ---- --------- ----------- ------------ --------------- ------------------
Gordon Hunter (4)................. 2005 525,000 0 162,900 60,000 6,912
Chairman of the Board, 2004 410,000 362,043 206,700 30,000 2,678
President and 2003 65,000 35,000 0 50,000 31,437
Chief Executive Officer
Philip G. Franklin................ 2005 293,500 0 135,750 22,000 6,385
Vice President, Operations Support 2004 285,000 195,232 172,250 22,000 5,054
and Chief Financial Officer 2003 275,000 157,769 144,100 22,000 1,551
David Samyn (5)................... 2005 247,200 0 135,750 15,000 4,905
Vice President 2004 180,000 176,231 172,250 15,000 2,252
2003 n/a
David W. Heinzmann (6)............ 2005 195,000 39,000 135,750 15,000 4,448
Vice President 2004 175,000 122,328 172,250 15,000 3,593
2003 n/a
Dal Ferbert (7)................... 2005 173,500 89,990 135,750 15,000 3,355
Vice President 2004 165,000 122,280 172,250 15,000 1,519
2003 n/a
(1) The amounts disclosed in this column are awards relating to the fiscal year
performance indicated but paid early in the following fiscal year under the
Company's Annual Incentive Compensation Program.
(2) Under the Performance Shares component of the 1993 Stock Plan, since 2003,
the Compensation Committee has granted restricted share awards based on the
Company attaining certain financial performance goals relating to return on
net tangible assets and earnings before interest, taxes, depreciation and
amortization during the following three-year period. A target amount of
shares is awarded. The shares may be earned based on achievement of the
foregoing financial performance goals on a sliding scale from 0% to 100% of
the target amount of awarded shares at the end of the three-year period. If
any shares are earned, they may be issued as shares or paid in the cash
9
equivalent or a combination thereof. Earned restricted shares are issued in
the name of the executive but held by the Company subject to restrictions
relating to continued employment with the Company that lapse in thirds over
the next three-year period. In 2005, the Compensation Committee granted
restricted share target awards under the 1993 Stock Plan to Mr. Hunter for
6,000 shares of Common Stock and to each of Messrs. Franklin, Samyn,
Heinzmann and Ferbert for 5,000 shares of Common Stock. The restricted
shares subject to such awards had a value of $27.15 per share based upon
the average of the high and low "sales" price of Common Stock as reported
on The NASDAQ Stock Market on December 31, 2005. In 2004, the Compensation
Committee granted restricted shares target awards under the 1993 Stock Plan
to Mr. Hunter for 6,000 shares of Common Stock and to each of Messrs.
Franklin, Samyn, Heinzmann and Ferbert for 5,000 shares of Common Stock. In
2003, the Compensation Committee granted restricted share target awards
under the 1993 Stock Plan to Mr. Franklin for 5,000 shares of Common Stock.
As Messrs. Samyn, Heinzmann and Ferbert were not executive officers of the
Company in 2003, their target awards are not reported in the table. All of
these restricted share target awards must be earned based upon the Company
attaining the financial performance goals discussed above over the
following three-year period. The goal of the restricted share program is to
tie wealth creation for the executives to driving shareholder value.
Pursuant to Performance Shares Agreements awarded in 2003, Messrs.
Franklin, Samyn, Heinzmann and Ferbert each earned the equivalent of 3,000
shares of Common Stock of the Company at the end of 2005. These shares were
earned at 60% of the target amount originally awarded. One-half, or 1,500,
of these restricted shares were issued in the names of the officers in 2006
but are held by the Company subject to the lapse of the restrictions
related to continued employment over the next three years. The cash
equivalent of the other 1,500 shares will be paid in thirds as the
restrictions lapse.
At the end of 2005, an aggregate of 12,000 restricted share target awards
had been granted to Mr. Hunter valued at $325,800, and an aggregate of
15,000 restricted share target awards had been granted to each of Messrs.
Franklin, Samyn, Heinzmann and Ferbert valued at $407,250 each, based upon
a $27.15 per share average of the high and low "sales" price of Common
Stock as reported on The NASDAQ Stock Market on December 31, 2005. No
dividends have been paid by the Company on its Common Stock, but in the
event that a dividend would be paid by the Company on its Common Stock,
dividends also would be paid on restricted shares that have been earned and
issued prior to the lapse of the restrictions.
(3) The amounts disclosed in this column represent the compensation value to
the named executive officers of life insurance premiums paid by the Company
for life insurance policies on the lives of Messrs. Hunter, Franklin,
Samyn, Heinzmann, and Ferbert.
(4) Mr. Hunter joined the Company as Chief Operating Officer effective November
3, 2003. Mr. Hunter became the Chairman of the Board, President and Chief
Executive Officer of Littelfuse, Inc. effective January 1, 2005.
(5) Mr. Samyn was elected to Vice President of the Company on April 30, 2004.
(6) Mr. Heinzmann was elected to Vice President of the Company on April 30,
2004.
(7) Mr. Ferbert was elected to Vice President of the Company on April 30, 2004.
10
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 2005 to the
named executive officers.
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(2) ($/SHARE) DATE(3) 5%($) 10%($)
---- ------------ -------------- --------- ---------- --------- ---------
Gordon Hunter........ 60,000 15.5% 27.21 5/6/2015 1,026,733 2,601,944
Philip G. Franklin... 22,000 5.7% 27.21 5/6/2015 376,469 954,046
David Samyn.......... 15,000 3.9% 27.21 5/6/2015 256,683 650,486
David W. Heinzmann... 15,000 3.9% 27.21 5/6/2015 256,683 650,486
Dal Ferbert.......... 15,000 3.9% 27.21 5/6/2015 256,683 650,486
(1) Potential realizable value is based on an assumption that the price of the
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. These numbers are
calculated based on the requirements of the Commission and do not reflect
the Company's estimate of future stock price performance.
(2) The Company granted options representing 386,750 shares to employees in
fiscal 2005.
(3) The options granted to Messrs. Hunter, Franklin, Samyn, Heinzmann, and
Ferbert become exercisable in 20% increments on each May 6, 2006 through
2010. The options expire 10 years after the grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information on option exercises in fiscal 2005 by
the named executive officers and the value of such officers' unexercised options
at December 31, 2005.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE DECEMBER 31, 2005(2) AT DECEMBER 31, 2005($)(3)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Gordon Hunter........ 8,000 $154,240 23,000 139,000 $ 25,330 $ 39,850
Philip G. Franklin... 0 0 96,000 66,000 $475,128 $112,112
David Samyn.......... 0 0 9,000 36,000 $ 61,200 $ 92,400
David W. Heinzmann... 0 0 30,400 38,200 $168,543 $ 74,746
Dal Ferbert.......... 4,000 $ 85,290 64,200 44,000 $390,588 $ 76,290
(1) Market value of underlying securities at exercise date (closing price as
reported on The NASDAQ Stock Market on exercise date), minus the exercise
price of in-the-money options.
(2) Subject to vesting and the optionee remaining employed by the Company.
(3) Value is calculated by subtracting the exercise price from the assumed fair
market value of the securities underlying the option at fiscal year-end and
multiplying the result by the number of in-the-money options held. There is
no guarantee that if and when these options are
11
exercised they will have this value. Fair market value was calculated based
on the average high and low "sales" price of shares of the Common Stock as
reported on The NASDAQ Stock Market on December 30, 2005 ($27.15).
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL EMPLOYMENT AGREEMENTS ENTERED INTO
WITH EXECUTIVE OFFICERS
As of January 1, 2005, the Company entered into a two-year Consulting
Agreement with Howard B. Witt, a current director and the former Chief Executive
Officer, President, and Chairman of the Board of the Company. The terms of the
Consulting Agreement provide that Mr. Witt will be paid $275,000 per year during
the term of the agreement and will be required to provide certain consulting
services to the Company as reasonably requested by the President or the Board of
Directors of the Company from time to time, but in no event shall Mr. Witt be
required to work more than 40 hours during any calendar month. Mr. Witt will be
provided with working facilities, support staff and reimbursements for
reasonable business expenses incurred by Mr. Witt in performing his duties under
the Consulting Agreement. Mr. Witt notified the Board of Directors of the
Company that he would not stand for re-election at the 2006 Annual Meeting.
The Company entered into change of control employment agreements dated
November 3, 2003, with Gordon Hunter, dated September 1, 2001, with Philip G.
Franklin, dated February 7, 2003, with David Samyn and dated September 1, 2001,
with David W. Heinzmann, and Dal Ferbert. These change of control employment
agreements are designed to provide these individuals with certain employment and
compensation protection in the event that there was a Change of Control (as
defined in these agreements) with respect to the Company at any time prior to
September 1, 2006. If such a Change of Control were to occur and any of these
individual's employment with the Company was terminated at any time during the
two-year period thereafter, other than for Cause (as defined in these
agreements), or if during these time periods any of these individuals were to
terminate his or her employment for Good Reason (as defined in these
agreements), then the Company would be obligated to make the payments described
below for the benefit of these individuals.
Under their change of control employment agreements, these individuals will
be paid their accrued compensation and annualized bonus, and will receive an
amount equal to two times the sum of their annual salary plus bonus, two
additional years of crediting under the SERP, if participating in the SERP, and
two years of continuing medical insurance benefits. They will also receive the
excise tax "gross-up" payment described above. Additionally, if any individual
were to terminate his employment with the Company for Good Reason (as defined in
these agreements) or be terminated by the Company other than for Cause (as
defined in these agreements) during the two-year period following a Change of
Control the individual's account balance under the SERP would not be subject to
forfeiture in the event he were to work for a competitor of the Company.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process and
compliance with the Sarbanes-Oxley Act on behalf of the Board of Directors.
Management has the primary responsibility for the financial statements and the
reporting process including the systems of internal controls. In fulfilling its
oversight responsibilities, the Committee reviewed the audited financial
statements in the Annual Report with management including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
12
The Audit Committee also reviewed and discussed the audited financial
statements with the independent auditors and discussed the matters requiring
discussion pursuant to SAS 61, including the accounting methods used in the
audit. In addition, the Committee has discussed with the independent auditors
the auditors' independence from management and the Company including the matters
in the written disclosures and letter received by the Audit Committee from the
independent auditors as required by the Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, and considered the
compatibility of non-audit services with auditor's independence.
The Audit Committee discussed with the independent auditors the overall
scope and plans for their audits. The Audit Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The Audit Committee held
ten meetings during fiscal 2005.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2005 for filing with the Commission. The
Committee and the Board have also recommended, subject to stockholder approval,
the selection of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ended December 30, 2006.
AUDIT COMMITTEE
Anthony Grillo (Chairman)
John E. Major
Ronald L. Schubel
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Exchange Act
that might incorporate by reference filings, including this Proxy Statement, in
whole or in part, the preceding Report of the Audit Committee shall not be
incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors has adopted
the Littelfuse, Inc. Total Rewards Philosophy regarding compensation and is
charged with administering executive compensation programs and equity based
plans.
The objective of the Company's Total Rewards Philosophy is to drive
performance and to create stockholder value. The intention of the Total Rewards
Philosophy is to help drive our global business growth and success by fully
leveraging our investment in our human capital and our Total Rewards programs.
The Compensation Committee has worked with the Company's management to
design compensation programs that encourage high performance, promote
accountability and assure that associate interests are aligned with the
interests of the Company's stockholders.
13
EXECUTIVE COMPENSATION PHILOSOPHY AND OBJECTIVES
The primary objectives of our executive compensation policies are to:
- Attract, retain, and motivate highly qualified executives;
- Reward executives based upon our financial performance at levels
competitive with peer companies; and
- Align a significant portion of the executive's compensation with
driving Company performance and stockholder value in the form of
performance-based executive bonuses and long-term equity
incentives.
In gauging the competitiveness of our Total Rewards offerings, we benchmark
against comparable revenue sized-manufacturing companies as well as companies in
our specific electronics components sector.
When benchmarking each of the components of the compensation of our most
senior executives, we utilized general industry data reflecting a mix of
companies of comparable size, including manufacturers in our specific
electronics components sector. In 2005, the Company's Board of Directors and the
Compensation Committee engaged an external international compensation consulting
firm for advice with respect to executive compensation matters and assistance in
gathering and evaluating the industry data discussed in the preceding sentence.
As one of the factors in its consideration of compensation matters, the
Compensation Committee also considers the anticipated tax treatment to the
Company and to the executive officers of various payments and benefits. Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), places a
limit of $1,000,000 on the amount of compensation that the Company may deduct in
any one year with respect to its CEO and each of the next four most highly
compensated executive officers. Certain performance-based compensation approved
by stockholders is not subject to the deduction limit. The 1993 Stock Plan has
and, if approved at the 2006 Annual Meeting of stockholders, the Equity Plan
will have, been approved by stockholder vote; as a result, cash payments, stock
options, restricted stock or other benefits awarded under these plans are
qualified so that awards under such plans constitute performance-based
compensation not subject to Section 162(m) of the Code. However, to maintain
flexibility in compensating the Company's executive officers in a manner
designed to promote varying corporate goals, it is not a policy of the
Compensation Committee that all executive compensation must be deductible. The
Compensation Committee will consider various alternatives to preserving the
deductibility of compensation payments and benefits to the extent reasonably
practicable and to the extent consistent with the Company's other compensation
goals.
The compensation of executive officers of the Company primarily consists of
four variable components: salaries, a potential cash bonus under the Company's
Annual Incentive Plan, equity compensation, and other benefits.
SALARIES
The Compensation Committee's determination of each executive officer's base
salary is designed to accomplish two objectives of the Company's executive
compensation philosophy. The first goal is to pay executive officers
competitively to attract, retain, and motivate highly qualified executives. The
second goal is to reward executives based upon our financial performance at
levels competitive with peer
14
companies. The Compensation Committee takes into consideration several factors,
namely the individual scope of responsibility, years of experience, and past and
future contributions to the Company's success. Base compensation is targeted for
the 50th percentile of the benchmark companies, adjusted to compensate for
larger or smaller revenue responsibilities. The Company strives to be market
competitive and externally equitable in an effort to attract and retain talented
executive officers.
In determining the base salary to be paid to each executive officer other
than the Chief Executive Officer (the "Other Executive Officers"), the
Compensation Committee reviews recommendations prepared by the Chief Executive
Officer. After consultation with the Chief Executive Officer, the Compensation
Committee reviews the recommendations and the supporting executive compensation
review. The Compensation Committee then determines the annual base salary of
each of the Other Executive Officers. The determination of the Chief Executive
Officer's annual base salary is specifically discussed below.
ANNUAL INCENTIVE PLAN
The Annual Incentive Plan is designed to reward associates for their
contributions to the achievement of our corporate goals and driving shareholder
value. The Compensation Committee annually approves the Annual Incentive Plan.
The Compensation Committee, after consulting with the Chief Executive Officer,
establishes a minimum, target and a maximum amount that may be awarded to each
of the Other Executive Officers as an annual incentive compensation award. The
target and maximum amounts established for each of the Other Executive Officers
are percentages of such executive officer's base salary. These amounts are
established by the Compensation Committee, after consulting with the Chief
Executive Officer, with input from compensation survey data. In determining each
of the Other Executive Officer's total award, Company performance is determined
based on the achievement by the Company of specified financial objectives, which
include sales, earnings per share and cash flow, while individual performance is
determined based on each of the Other Executive Officer's achievement of
specified performance objectives. At the end of each fiscal year, the amount of
the total award paid to each of the Other Executive Officers is determined based
on Company and individual performance using the mathematical formula weighting
each of the factors described above, as previously established under the program
by the Compensation Committee, after consulting with the Chief Executive
Officer. The determination of whether each of the Other Executive Officers
achieved his or her specified performance objectives is made by the Compensation
Committee after consulting with the Chief Executive Officer. The Compensation
Committee, in administering the Annual Incentive Plan as it relates to the Chief
Executive Officer, makes all of the determinations described above with respect
to the Chief Executive Officer after analyzing the factors described above.
EQUITY PLAN
The Compensation Committee administers all of the Company's equity based
programs. The equity programs are designed to align executive's financial
interests with driving shareholder value. Each equity program creates a direct
linkage between executive wealth generation and shareholder gains.
Under the 1993 Stock Plan, the number of stock options granted to executive
officers is determined by the executive officer's position and responsibilities.
Grants of stock options are intended to recognize different levels of
contribution to the achievement by the Company of its performance goals as well
as different levels of responsibility and experience as indicated by each
executive officer's position. In 2005, all stock options granted to executive
officers were granted with an exercise price equal to the fair market value of
the Common Stock on the date of grant. In 2003, stock options with an exercise
price below fair market value were granted to Mr. Hunter upon commencement of
his
15
employment with the Company. Such options were repriced to a current market
price in 2005. The Equity Plan, if adopted, will not permit grants of stock
options with exercise prices below then-fair market value.
Under the Performance Shares component of the 1993 Stock Plan, the
Compensation Committee grants restricted stock awards based on the Company
attaining certain financial performance goals relating to return on net tangible
assets and earnings before interest, taxes, depreciation and amortization during
the following three-year period. A target amount of shares is awarded. The
shares may be earned based on achievement of the foregoing financial performance
goals on a sliding scale from 0% to 100% of the target amount of awarded shares
at the end of the three-year period. If any shares are earned, they are issued
in the name of the executive but held by the Company subject to restrictions
relating to continued employment with the Company that lapse in thirds over the
next three-year period. This program is designed to align executive officer
compensation with the long term financial performance of the Company.
During 2005, Mr. Hunter was granted a target award of 6,000 shares of
restricted stock and Mr. Franklin, Mr. Samyn, Mr. Heinzmann and Mr. Ferbert were
each granted a target award of 5,000 shares of restricted stock, subject to
meeting the performance measures described above over the three-year period
ending December 30, 2007.
Pursuant to Performance Shares Agreements awarded in 2003 under the 1993
Stock Plan, Philip G. Franklin, David R. Samyn, Dal Ferbert and David W.
Heinzmann each earned the equivalent of 3,000 shares of common stock of the
Company. These shares were earned at 60% of the target amount originally
awarded. On March 15, 2006, 1,500 restricted shares of common stock of the
Company were issued to each such person. The remaining 1,500 shares will be
converted to cash in thirds and paid to such persons as the restrictions lapse
on each of January 2, 2007, January 2, 2008, and January 2, 2009.
OTHER BENEFITS
The Chief Executive Officer and the Other Executive Officers participate in
the same Company medical insurance, 401(k) plan, and pension plan designed for
all of our full time US associates. The Company's SERP (as defined below) is a
legacy plan that is not being offered to any associates that are not currently
participants in the plan. Mr. Franklin is the only named executive officer
currently participating in the SERP. No executive officers of the Company
received perquisites in excess of $50,000 in 2005.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee increased Mr. Hunter's base salary in 2005 in
recognition of his appointment to the position of Chairman, President and Chief
Executive Officer on January 1, 2005. Mr. Hunter's total award under the 2004
Annual Incentive Plan which was paid in 2005 was based on Company and individual
performance using a mathematical formula established by the Compensation
Committee after analyzing the level of attainment of the factors described
above, i.e., the specified financial objectives of sales, earnings per share and
cash flow, as well as individual performance.
In 2005, the Compensation Committee granted Mr. Hunter options to purchase
60,000 shares of Common Stock. The number of stock options granted to Mr. Hunter
reflects the Compensation Committee's recognition of the performance of his
duties as the Chief Executive Officer.
16
The Board of Directors and the Compensation Committee are currently in
negotiations with Mr. Hunter regarding an employment agreement that primarily
would provide for severance benefits in certain situations.
The Compensation Committee has reviewed each of the components of
compensation discussed above and the perquisites paid to Mr. Hunter during
fiscal year 2005 and found these amounts to be reasonable.
COMPENSATION COMMITTEE
John P. Driscoll (Chairman)
Bruce A. Karsh
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Exchange Act
that might incorporate by reference filings, including this Proxy Statement, in
whole or in part, the preceding Report of the Compensation Committee on
Executive Compensation and the Performance Graph included in "Company
Performance" shall not be incorporated by reference into any such filings.
COMPANY PERFORMANCE
The following graph compares the five-year cumulative total return on the
Common Stock to the five-year cumulative total returns on the Russell 2000 Index
and the Dow Jones Electrical Components and Equipment Industry Group Index. The
Company believes that the Russell 2000 Index and the Dow Jones Electrical
Components and Equipment Industry Group Index represent a broad market index and
peer industry group for total return performance comparison.
The Russell 2000(R) Index consists of the 2,000 smallest companies,
including the Company.
The Dow Jones Electrical Components and Equipment Industry Group Index
includes the Common Stock of Actuant Corp. Class A, Acuity Brands, Inc.,
American Power Conversion Corp., American Standard Cos. Inc., American
Superconductor Corp., Ametek, Inc., Amphenol Corp., Anaren Microwave, Inc.,
Artesyn Technologies, Inc., AVX Corp., Benchmark Electronics, Inc., C&D
Technologies, Inc., Checkpoint Systems, Inc., CTS Corp., FuelCell Energy, Inc.,
Hubbell Inc. Class B, Integrated Circuit Systems, Inc., Jabil Circuit, Inc.,
Kemet Corp., Littelfuse, Inc., Methode Electronics, Inc. Class A., Molex, Inc.
and Molex, Inc. Class A, Park Electrochemical Corp., Plexus Corp., Plug Power,
Inc., Power-One, Inc., Sanmina-SCI Corp., Solectron Corp., SPX Corp.,
Technitrol, Inc., Thomas & Betts Corp., Three-Five Systems, Inc., Vicor Corp.,
Vishay Intertechnology, Inc.
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------------------------
(AMOUNTS IN $) 2000 2001 2002 2003 2004 2005
-------------------------------------------------------------------------------------------------------
Littelfuse, Inc. 100 92 60 100 119 95
-------------------------------------------------------------------------------------------------------
Russell 2000 100 101 79 115 135 139
-------------------------------------------------------------------------------------------------------
Dow Jones Electrical
Components and Equipment
Industry Group Index 100 70 42 68 63 64
-------------------------------------------------------------------------------------------------------
In the case of the Russell 2000 Index and the Dow Jones Electrical
Components and Equipment Industry Group Index, a $100 investment made on
December 31, 2000, and reinvestment of all dividends is assumed. In the case of
the Company, a $100 investment made on December 31, 2000 is assumed (the Company
paid no dividends in 2001, 2002, 2003, 2004, or 2005). Returns are at December
31 of each year, with the exception of 2001, 2002, 2003 and 2004 for the
Company, which are at December 29, 2001, December 28, 2002, January 3, 2004 and
January 1, 2005, respectively.
PENSION PLAN TABLE
The Company has a non-contributory, defined benefit retirement plan,
qualified under the applicable provisions of the Internal Revenue Code (the
"Qualified Plan"), in which the named executive officers participate. The total
annual pension benefits payable under the Qualified Plan to the named executive
officers are determined on the basis of a final five-year average annual
compensation formula.
The compensation covered by the retirement plan for each of the named
executive officers is the sum of the amounts reported in the salary and bonus
columns of the Summary Compensation Table. The table shows the annual pension
benefit payable under the Qualified Plan assuming retirement of an employee who
has continued employment to age 62.
The Company also has a defined contribution, non-qualified Supplemental
Executive Retirement Plan ("SERP") that is a legacy plan and is not being
offered to employees who are not currently participants. Mr. Franklin is the
only named executive officer that participates in the SERP. The SERP is intended
to make up the difference between the target retirement income (65% of the
employee's five year Final Average Compensation) and the projected receivable
amounts from the Retirement Plan, the Company's contributions to the 401 (k)
Savings Plan, and 50% of the Social Security benefit. If Mr. Franklin were to
retire today, he would be entitled to a lump sum payment of $656,259 from the
SERP.
YEARS OF SERVICE
FINAL AVERAGE ---------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
------------- -------- -------- -------- -------- -------- --------
$125,000....... $ 58,983 $ 72,525 $ 72,525 $ 72,525 $ 72,525 $ 72,525
150,000....... 72,524 88,775 88,775 88,775 88,775 88,775
175,000....... 86,066 105,025 105,025 105,025 105,025 105,025
200,000....... 99,607 121,275 121,275 121,275 121,275 121,275
225,000....... 113,149 137,525 137,525 137,525 137,525 137,525
250,000....... 126,691 153,775 153,775 153,775 153,775 153,775
300,000....... 153,774 186,275 186,275 186,275 186,275 186,275
400,000....... 207,940 251,275 251,275 251,275 251,275 251,275
500,000....... 262,107 316,275 316,275 316,275 316,275 316,275
Notes to table:
(1) Payable in the normal form of payment which is a single life annuity for a
single person (if a person is married, the form of payment is joint and 50%
to surviving spouse). For 2005, the maximum annual social security payment
at age 62 for a single person is $17,451 The formula under the SERP is
offset for one-half of the $17,451.
(2) Maximum normal retirement benefit is earned after 12 years of service.
Under an alternative form, payments from the SERP can be guaranteed over 10
years.
18
The years of service (to the nearest year) as of December 31, 2005, for the
named executive officers are as follows: Messrs. Hunter 2 years, Franklin 7
years, Samyn 3 years, Heinzmann 20 years and Ferbert 29 years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1995, the Board of Directors of the Company adopted the Littelfuse
Executive Loan Program to provide interest-free loans to management for the
purpose of enabling them to exercise their Company stock options and pay the
resulting income taxes. Pursuant to this Program, Mr. Witt obtained
interest-free loans from the Company in the aggregate amount of $3,521,427.
Imputed interest on such loans for fiscal 2005 was $18,002. These loans were
repaid by Mr. Witt in March 2005. Funds obtained from such loans were used by
Mr. Witt to exercise Company stock options and to pay income taxes arising from
such exercise. Since July 30, 2002, the Company no longer provides loans to
executives of the Company under this or any other program.
PROPOSAL NO. 2
APPROVAL AND RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to approval of the stockholders, the Board of Directors has
appointed Ernst & Young LLP, certified public accountants, as independent
auditors to examine the annual consolidated financial statements of the Company
and its subsidiary companies for the fiscal year ending December 30, 2006. The
stockholders will be asked at the meeting to approve and ratify such
appointment.
AUDIT AND NON-AUDIT FEES
The following table presents the approximate fees for professional audit
services rendered by Ernst & Young LLP for the audit of the Company's financial
statements for the fiscal year ended December 31, 2005, as well as the
approximate fees billed for other services rendered by Ernst & Young LLP:
2005 2004
---------- ----------
Audit fees (1) $2,477,000 $1,963,000
Audit-related fees (2) 115,000 140,000
Tax advisory services (3) 381,000 668,000
Other (4) 0 0
(1) Includes fees related to statutory audits of foreign subsidiaries,
Sarbanes-Oxley compliance and review of financial statements included in
the Company's Forms 10-Q.
(2) Includes fees related to audits of employee benefit plans and acquisition
activity during 2004.
(3) Includes fees related to tax compliance, tax advice and tax planning.
(4) Includes fees related to secretarial support functions for foreign
subsidiaries.
A representative of Ernst & Young LLP will be present at the meeting to
make a statement, if such representative so desires, and to respond to
stockholders' questions.
19
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
All audit and non-audit services are pre-approved by the Audit Committee,
which considers, among other things, the possible effect of the performance of
such services on the registered public accounting firm's independence. The Audit
Committee pre-approves the annual engagement of the principal independent
registered public accounting firm, including the performance of the annual
audit, statutory audits at foreign locations, quarterly reviews and tax
services. The Audit Committee has considered the role of Ernst & Young LLP in
providing services to the Company and has concluded that such services are
compatible with such firm's independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
FOLLOWING RESOLUTION, WHICH WILL BE PRESENTED AT THE MEETING:
RESOLVED: That the appointment by the Board of Directors of the Company of Ernst
& Young LLP as the Company's independent auditors for the fiscal year of the
Company ending December 30, 2006, be approved and ratified.
PROPOSAL NO. 3
APPROVAL OF THE EQUITY INCENTIVE COMPENSATION PLAN
FOR EMPLOYEES AND DIRECTORS OF LITTELFUSE, INC.
The Board of Directors has approved and recommends to the stockholders the
approval of the Littelfuse, Inc. Equity Incentive Compensation Plan (the "Equity
Plan"), which would replace the Stock Plan for Employees and Directors of
Littelfuse, Inc., adopted effective December 16, 1991, and the 1993 Stock Plan
for Employees and Directors of Littelfuse, Inc., adopted effective February 12,
1993 (the "Prior Plans") with respect to grants to employees of the Company. As
described under Proposal No. 4, the Board has also approved and recommended to
the stockholders the Littelfuse, Inc. Outside Directors' Stock Option Plan,
which would replace the Prior Plans with respect to grants to non-employee
directors.
The Equity Plan would provide a pool of 1,250,000 shares of common stock
(plus any unused shares under the Prior Plans) for the grant of equity-based
incentive awards to management. Management believes that the adoption of the
Equity Plan will further promote the Company's goals of enhancing the long-term
profitability and stockholder value of the Company by updating and consolidating
the Company's plans for providing stock-based incentives to those individuals
who are key to the growth and success of the Company.
The full text of the Equity Plan appears as Exhibit A to this Proxy
Statement to which reference is made for a full statement of its terms and
provisions. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Equity Plan. A summary of the major provisions
of the Equity Plan is set forth below:
MAXIMUM NUMBER OF SHARES AND INDIVIDUAL AWARDS. The total number of shares
available for the grant of awards under the Equity Plan is 1,250,000 (subject to
adjustment as described below). In addition, 5,880 shares remain available under
the Prior Plans, and these shares would also be available for grant under the
Equity Plan, increasing the total number of shares to 1,255,880. Generally, any
shares that are subject to an option or stock appreciation right that expires or
is forfeited without exercise, or any forfeited restricted shares or restricted
units, under the Equity Plan or either of the Prior Plans will become available
for subsequent awards under the Equity Plan.
20
No new grants will be made under either of the Prior Plans following
stockholder approval of the Equity Plan, but the Prior Plans will continue to
govern awards previously granted under such plans.
In addition, there are annual limits on awards to the Chief Executive
Officer and the other executive officers whose compensation is disclosed in the
annual proxy statement. No such officer may receive a grant of awards for more
than 100,000 shares, or a cash incentive payment of more than $2,000,000, in any
year.
TYPE OF AWARDS. The Equity Plan provides for grants of the following types
of awards, in the discretion of the Compensation Committee: (i) stock options
(which may be either incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") or
non-qualified options), (ii) stock appreciation rights (which may be granted
either in tandem with a stock option or separately), (iii) restricted stock,
(iv) performance shares which pay to the Participant the increase in value of
shares of stock dependent upon his achievement of performance goals established
by the Compensation Committee, and (v) performance units, which are cash awards
payable to the Participant upon his achievement of performance goals established
by the Compensation Committee if the performance goals are met.
TERMS AND CONDITIONS OF AWARDS. The Compensation Committee generally has
the exclusive authority to determine the terms and conditions of awards under
the Equity Plan, subject to certain restrictions. The exercise price of all
stock options and stock appreciation rights must not be less than the fair
market value of the stock as determined by the closing price on the day the
award is granted. The minimum vesting period for stock options, stock
appreciation rights, performance shares and performance units is one year. The
minimum vesting period for restricted stock is three years if vesting is based
solely on continued employment (except that the Compensation Committee may, in
limited circumstances including but not limited to special recruitment or
retention awards, specify a shorter vesting period) or one year if vesting is
based on the achievement of performance goals. Stock options have a maximum term
of 10 years, and stock appreciation rights have a maximum term of 10 years
except as otherwise determined by the Compensation Committee.
VESTING ON TERMINATION OF EMPLOYMENT. The Compensation Committee has the
authority to determine the extent to which awards will vest and be exercisable
following termination of the Participant's employment. Unless the Compensation
Committee otherwise determines, the following provisions will apply. In general,
when a Participant's employment terminates for any reason, the non-vested
portion of any awards shall be forfeited, and any vested stock options or stock
appreciation rights will expire at the earlier of the end of their original term
or three months after the date of termination, subject to the following. If a
Participant retires after attaining the age of 62 and completing five years of
service, his awards will remain outstanding for the balance of their original
term, and will continue to vest as if he were still employed. Upon termination
of employment due to death or Disability, or following a Change in Control (as
defined in the Equity Plan), all awards will vest in full and any stock options
or stock appreciation rights will expire at the earlier of the end of their
original term or three months after the date of termination (twelve months in
the case of death). Notwithstanding the foregoing, on the occurrence of certain
Forfeiture Events, which are defined in the Equity Plan to include violation of
certain noncompetition and nonsolicitation requirements or the misuse of
confidential information, all nonvested awards are forfeited in full and the
Participant may be required to repay certain previously settled awards.
TERM OF EQUITY PLAN. The Equity Plan became effective, subject to approval
by the stockholders, upon adoption by the Board of Directors on March 1, 2006,
and has no fixed expiration date. However,
21
no incentive stock options, as defined in Section 422 of the Internal Revenue
Code, may be granted more than 10 years after the effective date of the Equity
Plan.
ADMINISTRATION. The Equity Plan is administered by the Compensation
Committee of the Board of Directors, which has the exclusive authority to make
awards under the Equity Plan and all interpretations and determinations
affecting the Equity Plan.
ELIGIBILITY. Participation in the Equity Plan is limited to officers and
key employees of the Company and its subsidiaries who are selected from time to
time by the Compensation Committee. Participants in the Equity Plan who are
employees of the Company or its subsidiaries also are eligible to participate in
any other incentive plan of the Company.
ANTI-DILUTION. The Compensation Committee may, in the event of any stock
dividend, stock split, recapitalization, merger, consolidation or other change
in the capitalization of the Company or similar corporate transaction or event
affecting the Common Stock, in such manner as it deems equitable, adjust, among
other things, (i) the maximum number of shares that may be issued under the
Equity Plan; (ii) the number and class of shares that may be subject to awards
that have not been settled; (iii) the exercise price to be paid for unexercised
stock options or stock appreciation rights; and (iv) the share value used to
determine the amount or value of any award under the Equity Plan. In addition,
in the event of any offer to holders of Common Stock generally relating to the
acquisition of their shares, the Compensation Committee may make such adjustment
as it deems equitable in respect of outstanding awards including in the
Compensation Committee's discretion revision of outstanding awards so that they
may be exercisable for or payable in the consideration payable in the
acquisition transaction.
PROHIBITION ON REPRICING. Any reduction in the exercise price of a stock
option or stock appreciation right after it is granted (except pursuant to an
antidilution adjustment as described above) is specifically prohibited. The
issuance of a new stock option or stock appreciation right with a lower exercise
price in exchange for an outstanding award is treated as a prohibited repricing.
TRANSFER OF AWARDS. In general, awards may be exercisable only by the
Participant during the Participant's lifetime, and awards shall not be
transferable other than by will or the laws of descent and distribution. The
Compensation Committee may permit transfers to or for the benefit of the
Participant's family for estate planning purposes subject to such restrictions
as the Compensation Committee may impose, but transfers for value are
specifically prohibited.
AMENDMENTS. The Board of Directors may suspend, terminate, modify or amend
the Equity Plan at any time, but if any such amendment requires stockholder
approval in order to meet the requirements of any applicable law or regulation,
or the rules of any exchange or automated quotation system on which the
Company's shares are listed, such amendment may not be effected without
obtaining stockholder approval. The Board of Directors may terminate the Equity
Plan, but the terms of the Equity Plan will continue to apply to awards granted
prior to such termination. No suspension, termination, modification or amendment
of the Equity Plan may adversely affect the rights of an Employee or Eligible
Director under previously granted awards.
FEDERAL INCOME TAX CONSEQUENCES. The following is a general summary of
certain of the principal federal income tax consequences applicable to the
Company and to a Participant who is an individual who is a citizen or a resident
of the United States for federal income tax purposes upon the receipt, exercise
and disposition of awards under the Equity Plan. This summary is not intended as
a complete description of all federal income tax consequences, and any
Participant should consult his own
22
tax advisor with respect to the federal, state and local tax consequences of any
transaction involving an award under the Equity Plan.
No tax will be payable by the recipient of a stock option that qualifies as
an incentive stock option as defined by Section 422 of the Internal Revenue Code
(an "ISO") either at the time of grant or the time of vesting. No tax will be
payable by the recipient of an ISO upon exercise of the ISO, provided that the
ISO is exercised not later than three months (or one year in the case of
disability) after the recipient's employment by the Company and its Subsidiaries
is terminated. Any profit or loss realized on the sale or exchange of any share
actually received will be treated as a capital gain or loss, provided that the
share is sold at least two years after the option is granted and one year after
it is exercised. If the recipient sells such shares prior to satisfaction of the
holding period, the sale is considered a "disqualifying disposition" and the
recipient will recognize ordinary income equal to the less or the total gain
realized on the sale or the excess of the fair market value of the shares sold
over the exercise price paid, and any balance of the gain realized will be
capital.
No tax will be payable by the recipient of a stock option that is not an
ISO (a "non-qualified option") at the time of grant or the time of vesting. Upon
exercise of a non-qualified option, the excess, if any, of the fair market value
of the shares with respect to which the option is exercised over the total
exercise price of such shares will be treated for Federal tax purposes as
ordinary income. Any gain or loss realized on the sale or exchange of any share
actually received will be treated as a capital gain or loss, and the recipient's
tax basis for purposes of determining the gain or loss will include the amount
of ordinary income realized upon exercise of the option.
Grants of restricted stock will generally not be taxable to the recipient
at the time of grant. When the grant vests, the recipient will realize taxable
income equal to the fair market value of the stock at the time of vesting.
Within 30 days after receipt of a grant of restricted stock, the recipient may
make an election under Section 83(b) of the Internal Revenue Code to recognize
ordinary income equal to the fair market value of the stock at the time of
grant; however, the recipient will not be permitted an offsetting deduction if
he subsequently forfeits the stock before it vests. When the recipient
subsequently sells restricted stock, he will recognize capital gain or loss, and
his tax basis will be equal to the amount of ordinary income realized either
upon vesting or pursuant to the Section 83(b) election.
The amounts payable to a Participant upon the exercise of a stock
appreciation right, or upon satisfaction of the performance criteria under a
grant of performance shares or performance units, will be taxable as ordinary
income at the time of payment. In the case of payment in shares of common stock,
the amount of ordinary income realized will be equal to the fair market value of
the stock.
In general, the Company will be entitled to deduct any amount of ordinary
income that a Participant recognizes by reason of the grant, exercise, or
settlement of an award, subject to general limitations on the deductibility of
corporate business expenses. Section 162(m) of the Internal Revenue Code
prohibits the deduction of compensation paid in any year to either the chief
executive officer, or one of the executive officers whose compensation is
required to be disclosed on the Company's proxy for such year (a "named
officer"), to the extent that such compensation exceeds $1,000,000, with certain
exceptions. One exception to the limitation of Section 162(m) is for "qualified
performance-based compensation" as defined in the regulations issues pursuant to
Section 162(m). With the exception of amounts realized upon the exercise of a
stock option or stock appreciation right, which automatically constitute
qualified performance-based compensation, amounts received by named officers
pursuant to the Equity Plan will constitute qualified performance-based
compensation only if the payment (or the vesting, in the case of restricted
stock) is contingent upon the achievement by the Participant of objective
performance based goals established in advance by the Compensation Committee.
Such performance
23
based goals may be based upon the attainment of specified levels of or
percentage changes in any one or more of the following measurements: revenue;
primary or fully-diluted earnings per share; earnings before interest, taxes,
depreciation, and/or amortization; pretax income; cash flow from operations;
total cash flow; return on equity; return on capital; return on assets; net
operating profits after taxes; economic value added; total stockholder return or
return on sales; or any individual performance objective which is measured
solely in terms of quantitative targets related to the Company or the Company's
business, or any combination thereof. However, the Compensation Committee also
has the authority to establish performance criteria that do not satisfy the
foregoing requirements, in which event the payment to a named officer would not
satisfy the requirement for qualified performance-based compensation.
In 2004, Congress enacted Section 409A of the Internal Revenue Code, which
establishes certain limitations on the payment of deferred compensation, and
imposes a 20% penalty tax, in addition to regular income tax, on any deferred
compensation that does not meet the requirements of Section 409A. In general,
the Company anticipates that awards under the Equity Plan will not constitute
deferred compensation for purposes of Section 409A. However, the Internal
Revenue Service is still in the process of developing regulations implementing
Section 409A, and further changes to the Equity Plan may be necessary to avoid
imposition of the 20% penalty tax under Section 409A.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
FOLLOWING RESOLUTION, WHICH WILL BE PRESENTED AT THE MEETING:
RESOLVED: That the Littelfuse, Inc. Equity Incentive Compensation Plan, as
adopted by the Board of Directors on March 1, 2006, be approved and ratified.
PROPOSAL NO. 4:
APPROVAL OF THE LITTELFUSE OUTSIDE DIRECTORS' STOCK OPTION PLAN
The Board of Directors has approved and recommends to the stockholders the
approval of the Littelfuse, Inc. Outside Directors' Stock Option Plan (the
"Directors Plan"), which would replace the Stock Plan for New Directors of
Littelfuse, Inc. (the "New Directors Plan") and would also replace the
provisions of the Stock Plan for Employees and Directors of Littelfuse, Inc.,
adopted effective December 16, 1991 (the "1991 Plan") and the 1993 Stock Plan
for Employees and Directors of Littelfuse, Inc., adopted effective February 12,
1993 (the "1993 Plan") that provided for automatic option grants to non-employee
directors. As described under Proposal No. 3, the Board has also approved and
recommended to the stockholders the Littelfuse, Inc. Equity Incentive
Compensation Plan, which would replace the New Directors Plan, the 1991 Plan and
the 1993 Plan with respect to grants to employees of the Company, including
employees who are members of the Board of Directors.
The Directors Plan would provide a pool of 250,000 shares of common stock
(plus any unused shares under the New Directors Plan) for the grant of
equity-based incentive awards to non-employee directors. Management believes
that adoption of the Directors Plan will further promote the Company's goals of
enhancing the long-term profitability and stockholder value of the Company by
attracting and retaining the services of outside directors of outstanding
talent. To accomplish the foregoing, the Directors Plan provides for the
automatic grant of nonqualified stock options to outside directors.
24
The full text of the Directors Plan appears as Exhibit B to this Proxy
Statement to which reference is made for a full statement of its terms and
provisions. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Directors Plan. A summary of the major
provisions of the Directors Plan is set forth below:
MAXIMUM NUMBER OF SHARES. The total number of shares available for the
grant of awards under the Directors Plan is 250,000 (subject to adjustment as
described below). In addition, 10,000 shares remain available under the New
Directors Plan, and these shares would also be available for grant under the
Directors Plan, increasing the total number of shares to 260,000. Generally, any
shares that are subject to an option that expires or is forfeited without
exercise under the Directors Plan or the New Directors Plan will become
available for subsequent awards under the Directors Plan.
No new grants will be made under the New Directors Plan following
stockholder approval of the Directors Plan, but the New Directors Plan will
continue to govern awards previously granted under such plan.
AMOUNT OF AWARDS. Subject to stockholder approval, each member of the Board
of Directors who is not an employee of the Company will receive an option to
purchase 5,000 shares of the Company's common stock at each annual meeting of
the Board of Directors, commencing with the meeting that immediately follows the
annual meeting of the stockholders at which the Directors Plan is approved. No
other awards are authorized under the Directors Plan.
TERMS AND CONDITIONS OF OPTIONS. Each stock option granted under the
Directors Plan will have an exercise price equal to the fair market value of the
Company's common stock on the date of grant, and will have a term of 10 years.
Each option will vest as to 20% of the shares covered by the option on each of
the first five anniversaries of the date of grant. Except as otherwise provided
below, if a Outside Director leaves the Board of Directors for any reason, the
non-vested portion of any options shall be forfeited, and any vested options
will expire at the earlier of the end of their original term or three months
after the date of termination, subject to the following. Upon termination of a
Outside Director's membership on the Board of Directors due to death or
Disability, or following a Change in Control (as defined in the Directors Plan),
all options will vest in full and will expire at the earlier of the end of their
original term or three months after the date of termination (twelve months in
the case of death). A Outside Director who becomes an employee of the Company
will not forfeit his nonvested options upon ceasing to be a member of the Board
of Directors.
TERM OF DIRECTORS PLAN. The Directors Plan became effective, subject to
approval by the stockholders, upon adoption by the Board of Directors on March
1, 2006, and has no fixed expiration date.
ADMINISTRATION. The Directors Plan is administered by the Compensation
Committee of the Board of Directors, and all interpretations and determinations
affecting the Directors Plan.
ELIGIBILITY. Participation in the Directors Plan is limited to members of
the Board of Directors of the Company who are not employees of the Company or
any of its subsidiaries.
ANTI-DILUTION. The Compensation Committee may, in the event of any stock
dividend, stock split, recapitalization, merger, consolidation or other change
in the capitalization of the Company or similar corporate transaction or event
affecting the Common Stock, in such manner as it deems equitable, adjust, among
other things, (i) the maximum number of shares that may be issued under the
Directors Plan; (ii) the number and class of shares that may be subject to
awards that have not been settled; (iii) the exercise price to be paid for
unexercised stock options or stock appreciation rights; and (iv) the share value
used to determine the amount or value of any award under the Directors Plan. In
addition, in the event of any
25
offer to holders of Common Stock generally relating to the acquisition of their
shares, the Compensation Committee may make such adjustment as it deems
equitable in respect of outstanding awards including in the Compensation
Committee's discretion revision of outstanding awards so that they may be
exercisable for or payable in the consideration payable in the acquisition
transaction.
PROHIBITION ON REPRICING. Any reduction in the exercise price of a stock
option after it is granted (except pursuant to an antidilution adjustment as
described above) is specifically prohibited.
TRANSFER OF AWARDS. In general, awards may be exercisable only by the
Outside Director during the Outside Director's lifetime, and awards shall not be
transferable other than by will or the laws of descent and distribution, except
as otherwise permitted by the Compensation Committee.
AMENDMENTS. The Board of Directors may suspend, terminate, modify or amend
the Directors Plan at any time, but if any such amendment requires stockholder
approval in order to meet the requirements of any applicable law or regulation,
or the rules of any exchange or automated quotation system on which the
Company's shares are listed, such amendment may not be effected without
obtaining stockholder approval. The Board of Directors may terminate the
Directors Plan, but the terms of the Directors Plan will continue to apply to
awards granted prior to such termination. No suspension, termination,
modification or amendment of the Directors Plan may adversely affect the rights
of an Employee or Eligible Director under previously granted awards.
FEDERAL INCOME TAX CONSEQUENCES. The following is a general summary of
certain of the principal federal income tax consequences applicable to the
Company and to an Outside Director who is a citizen or a resident of the United
States for federal income tax purposes upon the receipt, exercise and
disposition of awards under the Directors Plan. This summary is not intended as
a complete description of all federal income tax consequences, and any Outside
Director should consult his own tax advisor with respect to the federal, state
and local tax consequences of any transaction involving an award under the
Directors Plan.
No tax will be payable by the recipient of a stock option under the
Directors Plan at the time of grant or the time of vesting. Upon exercise of a
non-qualified option, the excess, if any, of the fair market value of the shares
with respect to which the option is exercised over the total exercise price of
such shares will be treated for Federal tax purposes as ordinary income. Any
gain or loss realized on the sale or exchange of any share actually received
will be treated as a capital gain or loss, and the recipient's tax basis for
purposes of determining the gain or loss will include the amount of ordinary
income realized upon exercise of the option.
The Company will be entitled to deduct the amount of ordinary income that
an Outside Director realizes upon the exercise of a stock option, subject to
general limitations on the deductibility of corporate business expenses.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
FOLLOWING RESOLUTION, WHICH WILL BE PRESENTED AT THE MEETING:
RESOLVED: That the Littelfuse, Inc. Outside Directors' Stock Option Plan, as
adopted by the Board of Directors on March 1, 2006, be approved and ratified.
26
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2007 annual
meeting of the Company's stockholders must be received at the principal
executive offices of the Company by December 2, 2006, in order to be considered
for inclusion in the Company's proxy materials relating to that meeting. The
Company's bylaws require that in order to nominate persons to the Company's
Board of Directors or to present a proposal for action by stockholders at an
annual meeting of stockholders, a stockholder must provide advance written
notice to the secretary of the Company, which notice must be delivered to or
mailed and received at the Company's principal executive offices not later than
the close of business on the 60th day nor earlier than the close of business on
the 90th day prior to the first anniversary of the preceding year's annual
meeting of stockholders; provided that in the event that the date of the annual
meeting to which such stockholder's notice relates is more than 30 days before
or more than 60 days after such anniversary date, for notice by the stockholder
to be timely it must be so delivered not earlier than the close of business on
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such annual
meeting is first made by the Company. In the event that the number of Directors
to be elected to the Board of Directors is increased and there is no public
announcement by the Company naming all of the nominees for Director or
specifying the size of the increased Board of Directors at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice will be considered timely, but only with respect to nominees for any new
positions created by such increase, if it is delivered to or mailed and received
at the Company's principal executive offices not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Company. The stockholder's notice must contain detailed
information specified in the Company's bylaws. As to any proposal that a
stockholder intends to present to stockholders without inclusion in the
Company's proxy statement for the Company's 2007 annual meeting of the Company's
stockholders, the proxies named in management's proxy for that meeting will be
entitled to exercise their discretionary authority on that proposal by advising
stockholders of such proposal and how they intend to exercise their discretion
to vote on such matter, unless the stockholder making the proposal solicits
proxies with respect to the proposal to the extent required by Rule 14a-4(c)(2)
under the Exchange Act.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no matters to
be brought before the meeting other than the matters referred to in this Proxy
Statement.
By order of the Board of Directors,
Mary S. Muchoney
Secretary
March 29, 2006
27
EXHIBIT A
The text of the Equity Plan as amended if approved by the stockholders of the
Company is as set forth below:
LITTELFUSE, INC.
EQUITY INCENTIVE COMPENSATION PLAN
SECTION 1.
ESTABLISHMENT, OBJECTIVES AND DURATION
1.1. ESTABLISHMENT. Subject to the approval of the stockholders of Littelfuse,
Inc. (the "Corporation"), the Corporation has established the Littelfuse, Inc.
Equity Incentive Compensation Plan (the "Plan"), as set forth herein, effective
as of March 1, 2006. The Plan supercedes and replaces (subject to the last
sentence of Section 1.4) the Stock Plan for Employees and Directors of
Littelfuse, Inc., adopted effective December 16, 1991, and the 1993 Stock Plan
for Employees and Directors of Littelfuse, Inc., adopted effective February 12,
1993 (the "Prior Plans"), except that the Prior Plans shall remain in effect
with respect to awards granted under such Prior Plans until such awards have
been exercised, forfeited, canceled, expired or otherwise terminated in
accordance with the terms of such awards.
1.2. PURPOSE. The purpose of the Plan is to enhance stockholder value by linking
long-term incentive compensation to the financial performance of the Corporation
and to further align employees' financial rewards with the financial rewards
realized by the Corporation and its stockholders. The Plan is also a vehicle to
attract and retain key personnel. To accomplish the foregoing, the Plan provides
that the Corporation may grant Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or
Performance Units.
1.3. DURATION. The Plan shall remain in effect, subject to the right of the
Corporation's Board of Directors to amend or terminate the Plan at any time
pursuant to Section 15, until all Shares subject to the Plan shall have been
purchased or granted according to the Plan's provisions.
1.4. APPROVAL BY STOCKHOLDERS. The Plan has been adopted by the Board of
Directors subject to approval by the stockholders of the Corporation at the
first annual meeting of stockholders held following the adoption by the Board,
or any special meeting of the stockholders duly called. Awards may be granted
prior to stockholder approval, but no Award may be exercised or settled until
the Plan is approved by the stockholders, and if the Plan is not so approved by
December 31, 2006, the Plan, and all Awards granted under the Plan, shall be
null and void; provided, however, that to the extent any Award could have been
granted under one of the Prior Plans., it shall not be void, but shall be
treated as having been granted under such Plan.
SECTION 2.
DEFINITIONS
Whenever used in the Plan, the following capitalized terms shall have the
meanings set forth below:
28
2.1. "AWARD" means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares or Performance Units.
2.2. "AWARD AGREEMENT" means a written agreement between the Corporation and
each Participant that sets forth the terms and provisions applicable to an Award
granted to the Participant under the Plan, and is a condition to the grant of an
Award hereunder.
2.3. "BOARD" means the Board of Directors of the Corporation.
2.4. "CHANGE IN CONTROL" means, unless the Committee otherwise determines, the
occurrence of any of the following events:
(a) a business combination, including a merger or consolidation, of the
Corporation and the stockholders of the Corporation prior to the combination do
not continue to own, directly or indirectly, more than fifty-one percent (51%)
of the equity of the combined entity;
(b) a sale, transfer, or other disposition in one or more transactions (other
than in transactions in the ordinary course of business or in the nature of a
financing) of the assets or earning power aggregating more than forty-five
percent (45%) of the assets or operating revenues of the Corporation to any
person or affiliated or associated group of persons (as defined by Rule 12b-2 of
the Exchange Act in effect as of the date hereof);
(c) the liquidation of the Corporation;
(d) one or more transactions which result in the acquisition by any person or
associated group of persons (other than the Corporation, any employee benefit
plan whose beneficiaries are Employees of the Corporation or any of its
Subsidiaries, or TCW Special Credits or any of its affiliates) of the beneficial
ownership (as defined in Rule 13d-3 of the Exchange Act, in effect as of the
date hereof) of forty percent (40%) or more of the Common Stock of the
Corporation, securities representing forty percent (40%) or more of the combined
voting power of the voting securities of the Corporation which affiliated
persons owned less than forty percent (40%) prior to such transaction or
transactions; or
(e) the election or appointment, within a twelve (12) month period, of any
person or affiliated or associated group, or its or their nominees, to the
Board, such that such persons or nominees, when elected or appointed, constitute
a majority of the Board and whose appointment or election was not approved by a
majority of those persons who were directors at the beginning of such period or
whose election or appointment was made at the request of an Acquiring Person.
(f) Any occurrence of any transaction or event, or series of transactions or
events, designated by the Committee in the Award Agreement. For purposes of this
definition, an "Acquiring Person" is any person who, or which, together with all
affiliates or associates of such person, is the beneficial owner of twenty
percent (20%) or more of the Common Stock of the Corporation then outstanding,
except that an Acquiring Person does not include the Corporation or any employee
benefit plan of the Corporation or any of its Subsidiaries or any person holding
Common Stock of the Corporation for or pursuant to such plan. For the purpose of
determining who is an Acquiring Person, the percentage of the outstanding shares
of the Common Stock of which a person is a beneficial owner shall be calculated
in accordance with Rule 13d-e of the Exchange Act.
2.5. "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation thereto.
2.6. "COMMITTEE" means the Committee appointed to administer the Plan, as
provided in Section 3.
2.7. "CORPORATION" means Littelfuse, Inc., a Delaware corporation, and any
successor to such entity as provided in Section 18.
29
2.8. "DIRECTOR". means any individual who is a member of the Board.
2.9. "DISABILITY". means, unless otherwise provided for in the Award Agreement
or an employment, change of control or similar agreement in effect between the
Participant and the Corporation or a Subsidiary, (i) the Employee qualifying for
long-term disability benefits under any long-term disability program sponsored
by the Corporation or Subsidiary in which the Employee participates, and (ii) in
the case of an Employee who does not participate in a long-term disability plan,
the inability of the Employee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death, or which has lasted or can be expected to last for
a continuous period of not less than 12 months, as determined by the Committee,
based upon medical evidence.
2.10. "EFFECTIVE DATE" means March 1, 2006.
2.11. "ELIGIBLE RETIREMENT" the date upon which an Employee, having attained an
age of not less than sixty-two, terminates his employment with the Corporation
and its Subsidiaries, provided that such Employee has been employed by the
Corporation or any of its Subsidiaries or any corporation of which the
Corporation or any of its Subsidiaries is the successor for a period of not less
than five (5) years prior to such termination.
2.12. "EMPLOYEE" means any employee of the Corporation or any Subsidiary.
2.13. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
2.14. "FAIR MARKET VALUE" means if the Shares are duly listed on a national
securities exchange or on The Nasdaq National Stock Market, the closing price of
the Common Stock for the date on which the option is granted, or, if there are
no sales on such date, on the next preceding day on which there were sales, or
if the Shares or not so listed, the fair market value of the Shares for the date
on which the option is granted, as determined by the Committee in good faith.
Such price shall be subject to adjustment as provided in Section 4.3.
2.15. "INCENTIVE STOCK OPTION" OR "ISO" means the right to purchase Shares
pursuant terms and conditions that provide that such right will be treated as an
incentive stock option within the meaning of Code Section 422, as described in
Section 6.
2.16. "NAMED EXECUTIVE OFFICER" means a Participant who is one of the group of
covered employees as defined in the regulations promulgated under Code Section
162(m), or any successor provision or statute.
2.17. "NONQUALIFIED STOCK OPTION" OR "NQSO" means the right to purchase Shares
pursuant to terms and conditions that provide that such right will not be
treated as an Incentive Stock Option, as described in Section 6.
2.18. "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option,
as described in Section 6.
2.19. "OPTION PRICE" means the per share purchase price of a Share purchased
pursuant to an Option.
30
2.20. "PARTICIPANT" means an Employee or prospective Employee who has
outstanding an Award granted under the Plan, and includes those former Employees
who have certain post-termination rights under the terms of an Award granted
under the Plan.
2.21. "PERFORMANCE-BASED EXCEPTION" means the exception for performance-based
compensation from the tax deductibility limitations of Code Section 162(m).
2.22. "PERFORMANCE PERIOD" means the time period during which performance
goals must be achieved with respect to an Award, as determined by the Committee.
2.23. "PERFORMANCE SHARE" means an Award granted to a Participant, as described
in Section 9.
2.24. "PERFORMANCE UNIT" means an Award granted to a Participant, as described
in Section 9.
2.25. "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way, and the Shares are subject to
a substantial risk of forfeiture, as provided in Section 8.
2.26. "PLAN" means the Littelfuse, Inc. Equity Incentive Compensation Plan, as
set forth herein.
2.27. "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Section 8.
2.28. "SHARE" OR "SHARES" means shares of common stock of the Corporation.
2.29. "STOCK APPRECIATION RIGHT" OR "SAR" means an Award, granted alone or in
connection with a related Option, designated as an SAR, pursuant to the terms of
Section 7.
2.30. "SUBSIDIARY" means any corporation, partnership, joint venture, affiliate,
or other entity in which the Corporation is at least a majority-owner of all
issued and outstanding equity interests or has a controlling interest.
2.31. "TANDEM SAR" means an SAR that is granted in connection with a related
Option pursuant to Section 7, the exercise of which shall require forfeiture of
the right to purchase a Share under the related Option (and when a Share is
purchased under the Option, the Tandem SAR shall similarly be forfeited).
2.32. "NON-TANDEM SAR" means an SAR that is granted independently of any
Options, as described in Section 7.
SECTION 3.
ADMINISTRATION
3.1. PLAN ADMINISTRATION. The Compensation Committee, or any other committee
appointed by the Board, shall administer the Plan. The Committee or other
committee appointed to administer the Plan shall consist of not fewer than two
Directors who are both non-Employee Directors of the Corporation, within the
meaning of Rule 16b-3 of the Exchange Act, and "outside directors", as defined
in IRS Regulations Section 1.162-26; provided, however, that if at any time any
member of the Committee is not an outside director, as so defined, the Committee
may establish a subcommittee, consisting of all members who are outside
directors, for all purposes of any Award to a Named Executive Officer, unless
the Committee determines that such an Award is not intended to qualify for the
Performance-Based
31
Exception. The Board may, from time to time, remove members from, or add members
to, the Committee. Any vacancies on the Committee shall be filled by members of
the Board.
If and to the extent that no committee exists that has the authority to
administer the Plan, the Board shall administer the Plan. Acts of a majority of
the Committee (or the Board, if applicable) at which a quorum is present, or
acts reduced to or approved in writing by unanimous consent of the members of
the Committee (or the Board, as the case may be), shall be valid acts of the
Committee (or the Board, as the case may be).
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate
of Incorporation or Bylaws of the Corporation, and subject to the provisions
herein, the Committee shall have full power to select Employees who shall
participate in the Plan; determine the sizes and types of Awards; determine the
terms and conditions of Awards in a manner consistent with the Plan; construe
and interpret the Plan and any agreement or instrument entered into under the
Plan; establish, amend, or waive rules and regulations consistent with the terms
of the Plan for the Plan's administration; and amend the terms and conditions of
any outstanding Award to the extent such terms and conditions are within the
sole discretion of the Committee as provided in the Plan and subject to Section
15; provided that the Committee shall not have the authority to amend any Option
or SAR to reduce its exercise price except pursuant to Section 4.3. Further, the
Committee shall make all other determinations, which may be necessary or
advisable for the administration of the Plan. The Committee's determinations,
interpretations and actions under the Plan need not be uniform and may be made
selectively among Employees and their beneficiaries. As permitted by law, the
Committee may delegate the authority granted to it herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan and all related orders and resolutions of
the Board shall be final, conclusive and binding on all persons, including the
Corporation, its stockholders, Employees, Participants, and their estates and
beneficiaries.
SECTION 4.
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. SHARES AVAILABLE FOR AWARDS.
(a) The Shares available for Awards may be either authorized and unissued
Shares or Shares held in or acquired for the treasury of the Corporation. The
aggregate number of Shares that may be issued or used for reference purposes
under the Plan or with respect to which Awards may be granted shall not exceed
1,250,000 Shares, subject to adjustment as provided in Section 4.3. The number
of Shares reserved for issuance under this Plan as set forth above shall include
all reserved but unissued shares under the Prior Plans, and no additional awards
shall be granted under the Prior Plans.
(b) Upon:
(i) a payout of a SAR or Performance Share award in the form of cash;
or
(ii) a cancellation, termination, expiration without exercise,
forfeiture, or lapse for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Options,
or the termination of a related Option upon exercise of the
corresponding Tandem SAR) of any Award, or any award granted
under either of the Prior Plans;
32
the number of Shares underlying any such Award (or Prior Plan award) that were
not issued as a result of any of the foregoing actions shall again be available
for the purposes of Awards under the Plan. In addition, in the case of any Award
granted in substitution for an award of a company or business acquired by the
Corporation or a Subsidiary, Shares issued or issuable in connection with such
substitute Award shall not be counted against the number of Shares reserved
under the Plan, but shall be available under the Plan by virtue of the
Corporation's assumption of the plan or arrangement of the acquired company or
business.
All Restricted Shares which vest, and all Shares issued in settlement of an
Option, SAR, Performance Share Award or Performance Unit Award, or withheld for
payment of the exercise price or any tax imposed upon the exercise or settlement
of the Award, shall reduce the total number of Shares available under the Plan
and shall not again be available for the grant of any Award hereunder.
When a stock settled SAR is exercised, the number of Shares available for
issuance shall be reduced by the total number of Shares subject to the SAR,
regardless of the number of Shares used the settle the SAR.
4.2. INDIVIDUAL PARTICIPANT LIMITATIONS. Unless and until the Committee
determines that an Award to a Named Executive Officer shall not be designed to
comply with the Performance-Based Exception, the following rules shall apply to
grants of such Awards under the Plan:
(a) Subject to adjustment as provided in Section 4.3, the maximum aggregate
number of Shares (including Options, Non-Tandem SARs, Restricted Stock, and
Performance Shares) that may be granted to a Named Executive Officer in any year
shall be 100,000 Shares.
(b) The maximum aggregate cash payout with respect to Performance Units to
any Named Executive Officer in any year shall be $2,000,000.
4.3. ADJUSTMENTS. Notwithstanding any other provision of the Plan, the Committee
may at any time make or provide for such adjustments to the Plan, to the number
and class of Shares available thereunder or to any outstanding Awards as it
shall deem appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of distributions to holders of Shares other than a
normal cash dividend, changes in the outstanding Shares by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations,
or exchanges of shares, separations, reorganizations, liquidations, and the
like. In the event of any offer to holders of Shares generally relating to the
acquisition of their shares, the Committee may make such adjustment as it deems
equitable in respect of outstanding options, rights, and restricted units
including in the Committee's discretion revision of outstanding options, rights,
and restricted units so that they may be exercisable for or payable in the
consideration payable in the acquisition transaction. Any such determination by
the Committee shall be conclusive. No adjustment shall be made in the minimum
number of shares with respect to which an option may be exercised at any time.
Any fractional shares resulting from such adjustments to options, rights,
limited rights, or restricted units shall be eliminated.
4.4. PROHIBITION ON REPRICING. Anything else contained herein to the contrary
notwithstanding, except as provided in Section 4.3, the Committee shall not
amend any Option or SAR to reduce its exercise price, and shall not issue to any
Employee a new Award in exchange for the surrender and cancellation of any other
Award, if such new Award has an exercise price lower than that of the Award for
which it is exchanged, or take any other action that would have the effect of
reducing the exercise price of an Option or SAR.
33
SECTION 5.
ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in the Plan include current
and future Employees (including officers), persons who have been offered
employment by the Corporation or a Subsidiary (provided that such prospective
Employee may not receive any payment or exercise any right relating to an Award
until such person begins employment with the Corporation or Subsidiary), of the
Corporation and its Subsidiaries, as determined by the Committee, including
Employees who are also Directors and Employees who reside in countries other
than the United States of America.
5.2. PARTICIPATION. Subject to the provisions of the Plan, the Committee shall
determine and designate, from time to time, the Employees, prospective Employees
of the Corporation and any Subsidiary to whom Awards shall be granted, the terms
of such Awards, and the number of Shares subject to such Award.
SECTION 6.
STOCK OPTIONS
6.1. GRANT OF OPTIONS AND AWARD AGREEMENT.
(a) Option Grant. Subject to the terms and provisions of the Plan, Options
may be granted to one or more Participants in such number, upon such terms and
provisions, and at any time and from time to time, as determined by the
Committee, in its sole discretion. The Committee may grant either Nonqualified
Stock Options or Incentive Stock Options, and shall have complete discretion in
determining the number of Options of each granted to each Participant, subject
to the limitations of Section 4. Each Option grant shall be evidenced by a
resolution of the Committee approving the Option grant.
(b) Award Agreement. The Corporation and each Participant to whom an Option
is granted shall execute an Award Agreement, effective as of the grant date,
which shall specify the Option Price, the term of the Option, the number of
Shares subject to the Option, and such other provisions as the Committee shall
determine, and which are not inconsistent with the terms and provisions of the
Plan. The Award Agreement shall also specify whether the Option is to be treated
as an ISO within the meaning of Code Section 422. If such Option is not
designated as an ISO, such Option shall be deemed a NQSO. No ISO may be granted
to any person more than 10 years after the Effective Date of the Plan.
6.2. OPTION PRICE. The Committee shall designate the Option Price for each Share
subject to an Option under the Plan, provided that such Option Price shall not
be less than 100% of the Fair Market Value of Shares subject to an Option on the
date the Option is granted, and which Option Price may not be subsequently
decreased by the Committee except pursuant to Section 4.3. With respect to a
Participant who owns, directly or indirectly, more than 10% of the total
combined voting power of all classes of the stock of the Corporation or any
Subsidiary, the Option Price of Shares subject to an ISO shall be at least 110%
of the Fair Market Value of such Shares on the ISO's grant date.
6.3. TERM OF OPTIONS. Each Option granted to a Participant shall expire at such
time as the Committee shall determine at the time of grant, but in no event
shall be exercisable later than the 10th anniversary of the grant date.
Notwithstanding the foregoing, with respect to ISOs, in the case of a
Participant who owns, directly or indirectly, more than 10% of the total
combined voting power of all classes of the stock of the Corporation or any
Subsidiary, no such ISO shall be exercisable later than the fifth anniversary of
the grant date.
34
6.4. EXERCISE OF OPTIONS. Options granted under this Section 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant, and shall be set forth in the applicable
Award Agreement, subject to Section 11. Notwithstanding the preceding sentence,
the Fair Market Value of Shares to which ISOs are exercisable for the first time
by any Participant during any calendar year may not exceed $100,000. Any ISOs
that become exercisable in excess of such amount shall be deemed NQSOs to the
extent of such excess.
6.5. EXERCISE AND PAYMENT. Options granted under this Section 6 shall be
exercised by the delivery of a written notice of exercise to the Corporation,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares. The Option Price upon
exercise of any Option shall be payable to the Corporation in full either:
(a) in cash or its equivalent,
(b) by tendering previously acquired Shares that have been held for at
least six months (or such longer period to avoid a charge to earnings for
financial reporting purpose) and having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price, or
(c) a combination (i) and (ii).
In addition, payment of the Option Price may be payable by one or more of the
following methods either upon written consent from the Committee or if one or
more of the following methods will not result in a charge to earnings for
financial reporting purposes:
(d) by withholding Shares that otherwise would be acquired on exercise
having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price,
(e) by tendering other Awards payable under the Plan, or
(f) by cashless exercise through delivery of irrevocable instructions to a
broker to promptly deliver to the Corporation the amount of proceeds from a sale
of shares having a Fair Market Value equal to the purchase price.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Corporation shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s). No Outside Director shall have
any rights of shareholder with respect to Shares subject to an Option, including
any right to receive dividends, to vote, or to participate in the equity of the
Company, until such Option has been exercised and payment made in full as
provided herein.
SECTION 7.
STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARS AND AWARD AGREEMENT.
(a) SAR Grant. Subject to the terms and conditions of the Plan, SARs may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee may grant Non-Tandem SARs, Tandem SARs, or any
combination of these forms of SARs. The Committee shall have complete discretion
in determining the number of SARs granted to each Participant (subject to
Section 4) and, consistent with the provisions of the Plan, in determining the
terms and
35
conditions pertaining to such SARs. The Committee shall designate, at the time
of grant, the grant price of a Non-Tandem SAR, which grant price shall be at
least equal to the Fair Market Value of a Share on the grant date of the SAR.
Grant prices of SARs shall not subsequently be decreased by the Committee,
except pursuant to Section 4.3.
(b) Award Agreement. The Corporation and each Participant to whom an SAR is
granted shall execute an Award Agreement that shall specify the grant price, the
term of the SAR, and such other provisions as the Committee shall determine, and
which are not inconsistent with the terms and provisions of the Plan.
7.2. TERM OF SARS. The term of a SAR granted under the Plan shall be determined
by the Committee, in its sole discretion; provided, however, that unless
otherwise designated by the Committee, such term shall not exceed ten years from
the grant date.
7.3. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of
the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. Notwithstanding any other provision of the Plan to the contrary,
with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem
SAR will expire no later than the expiration of the underlying ISO; (ii) the
value of the payout with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the underlying
ISO at the time the Tandem SAR is exercise; and (iii) the Tandem SAR may be
exercised only when the Fair Market Value of the Shares subject to the ISO
exceeds the Option Price of the ISO.
7.4. EXERCISE OF NON-TANDEM SARS. SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon them, subject to
Section 11.
7.5. PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Corporation in an amount determined by
multiplying:
(a) The excess of the Fair Market Value of a Share on the date of exercise
over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised. At the
sole discretion of the Committee, the payment upon SAR exercise may be in cash,
in Shares of equivalent value, or in some combination thereof.
SECTION 8.
RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK AND AWARD AGREEMENT.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
(b) Award Agreement. The Corporation and each Participant to whom an award
of Restricted Stock is granted shall execute an Award Agreement that shall
specify the Period or Periods of Restriction, the number of Shares of Restricted
Stock granted, and such other provisions as the Committee shall
36
determine pursuant to Section 8.3 or otherwise, and which shall not be
inconsistent with the terms and provisions of the Plan.
8.2. TRANSFERABILITY. Except as provided in this Section 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, voluntarily or involuntarily, until the
end of the applicable Period of Restriction established by the Committee
(subject to Section 11) and specified in the Award Agreement, or upon earlier
satisfaction of any other conditions, as specified by the Committee in its sole
discretion (subject to Section 11) and set forth in the Award Agreement. All
rights with respect to the Restricted Stock granted to a Participant under the
Plan shall be available during his or her lifetime only to such Participant.
8.3. TRANSFER RESTRICTIONS. The Corporation shall retain the certificates
representing Shares of Restricted Stock in the Corporation's possession until
such time as all conditions and/or restrictions applicable to such Shares have
been satisfied. Except as otherwise provided in Section 18.8 or in any Award
Agreement, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the Participant after
the last day of the applicable Period of Restriction.
8.4. VOTING RIGHTS. Unless otherwise designated by the Committee at the time of
grant, Participants to whom Shares of Restricted Stock have been granted
hereunder may exercise full voting rights with respect to those Shares during
the Period of Restriction.
8.5. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless otherwise designated by the
Committee at the time of grant, Participants holding Shares of Restricted Stock
granted hereunder shall be credited with regular cash dividends paid with
respect to the underlying Shares while they are so held during the Period of
Restriction. The Committee may apply any restrictions to the dividends that the
Committee deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Shares of Restricted Stock granted to a
Named Executive Officer is designed to comply with the requirements of the
Performance-Based Exception, the Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Shares of
Restricted Stock, such that the dividends and/or the Shares of Restricted Stock
maintain eligibility for the Performance-Based Exception. In the event that any
dividend constitutes a derivative security or an equity security pursuant to the
rules under Section 16 of the Exchange Act, such dividend shall be subject to a
vesting period equal to the remaining vesting period of the Shares of Restricted
Stock with respect to which the dividend is paid.
SECTION 9.
PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS/SHARES AND AWARD AGREEMENT.
(a) Grant of Performance Unit/Shares. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee, which shall not be inconsistent with the
terms and provisions of the Plan and shall be set forth in an Award Agreement.
(b) Award Agreement. The Corporation and each Participant to whom
Performance Units and/or Performance Shares is granted shall execute an Award
Agreement that shall specify the initial value of the Award, the performance
goals and the Performance Period, as the Committee shall determine, and which
are not inconsistent with the terms and provisions of the Plan.
37
9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Share shall represent
the Participant's right to receive a Share (subject to Section 9.4), upon
satisfaction of performance goals established by the Committee. Each Performance
Unit shall represent the Participant's right to receive a cash payment equal to
the value of the Performance Unit (as determined by the Committee on the Grant
Date, and subject to Section 9.4), upon satisfaction of the performance goals
established by the Committee. The Committee shall set performance goals in its
sole discretion which, depending on the extent to which they are met will
determine the number and/or value of Performance Shares and/or Performance Units
that will be paid out to the Participant. For purposes of this Section 9, the
time period during which the performance goals must be met shall be called a
Performance Period.
9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
after the applicable Performance Period has ended, the holder of Performance
Units and/or Performance Shares shall be entitled to receive payout on the
number and value of Performance Units and/or Performance Shares earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance goals have been achieved, as
established by the Committee.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Except as provided
below, payment of earned Performance Units and/or Performance Shares shall be
made in a single lump sum as soon as reasonably practicable following the close
of the applicable Performance Period. Subject to the terms of the Plan, the
Committee, in its sole discretion, may pay earned Performance Units and/or
Performance Shares in the form of cash or in Shares (or in a combination
thereof) which have an aggregate Fair Market Value equal to the value of the
earned Performance Units and/or Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee.
At the sole discretion of the Committee, Participants may be entitled to
receive any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Shares which have been earned, but not yet
distributed to Participants (such dividends shall be subject to the same
accrual, forfeiture, and payout restrictions as apply to dividends earned with
respect to Shares of Restricted Stock, as set forth in Section 8.5 herein).
Participants shall not be entitled to exercise their voting rights with respect
to such Shares.
SECTION 10.
PERFORMANCE MEASURES
Unless and until the Committee proposes for stockholder vote and
stockholders approve a change in the general performance measures set forth in
this Section 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Named Executive Officers that are
designed to qualify for the Performance-Based Exception, the performance goals
to be used for purposes of such grants shall be established by the Committee in
writing and stated in terms of the attainment of specified levels of or
percentage changes in any one or more of the following measurements: revenue;
primary or fully-diluted earnings per Share; earnings before interest, taxes,
depreciation, and/or amortization; pretax income; cash flow from operations;
total cash flow; return on equity; return on capital; return on assets; net
operating profits after taxes; economic value added; total stockholder return or
return on sales; or any individual performance objective which is measured
solely in terms of quantitative targets related to the Corporation or the
Corporation's business; or any combination thereof. In addition, such
performance goals may be based in whole or in part upon the performance of the
Corporation, a Subsidiary, division and/or other operational unit under one or
more of such measures.
38
The degree of payout and/or vesting of such Awards designed to qualify for
the Performance-Based Exception shall be determined based upon the written
certification of the Committee as to the extent to which the performance goals
and any other material terms and conditions precedent to such payment and/or
vesting have been satisfied. The Committee shall have the sole discretion to
adjust the determinations of the degree of attainment of the preestablished
performance goals; provided, however, that the performance goals applicable to
Awards which are designed to qualify for the Performance-Based Exception, and
which are held by Named Executive Officers, may not be adjusted so as to
increase the payment under the Award (the Committee shall retain the sole
discretion to adjust such performance goals upward, or to otherwise reduce the
amount of the payment and/or vesting of the Award relative to the preestablished
performance goals).
In the event that applicable tax and/or securities laws change to permit
Committee sole discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m) and, thus, which use performance measures other than those
specified above.
SECTION 11.
VESTING AND FORFEITURES
11.1. Vesting. As part of making any Award, the Committee may determine the
time and conditions under which the Award will vest. Vesting may, in the
Committee's discretion, be based solely upon continued employment for a
specified period of time, or may be based upon the achievement of specific
performance goals (Corporation-wide, Subsidiary-wide, divisional, and/or
individual) which are established by the Committee in its discretion, subject to
Section 10. For all purposes of this Plan, "vesting" of an Award shall mean:
(a) In the case of an Option or SAR, the time at which the Participant has
the right to exercise the Award. The minimum vesting period for an Option or a
Non-Tandem SAR shall be one year, except as otherwise provided in Section 11.2.
A Tandem SAR shall vest only at the same time, and under the same conditions, as
the underlying Option.
(b) In the case of Restricted Stock, the end of the Restriction Period. The
minimum Restriction Period for Restricted Stock that vests solely on the basis
of continued employment shall be three years, except as otherwise provided in
Section 11.2; provided that the Committee may, in limited circumstances
including but not limited to special recruitment or retention awards, specify a
shorter Restriction Period. The minimum Restriction Period for Restricted Stock
that vests on the basis of the achievement of performance goals during the
Restriction Period shall be one year, except as otherwise provided in Section
11.2.
(c) In the case of Performance Shares or Performance Units, the time at
which the Participant has satisfied the requirements to receive payment of such
Shares of Units, which shall not be less than one year from the grant date,
except as otherwise provided in Section 11.2.
Vesting provisions need not be uniform among Awards granted at the same time or
to persons similarly situated. Vesting requirements shall be set forth in the
applicable Award Agreement. If an Award Agreement does not specify a vesting
period, the vesting period shall be the minimum period set forth above.
39
11.2. VESTING ON TERMINATION OF EMPLOYMENT. The Committee, in its sole
discretion, shall set forth in the applicable Award Agreement the extent to
which an Award shall vest upon termination of employment and, in the case of an
Option or SAR, be exercisable following termination of employment. Such
provisions need not be uniform among all Awards issued pursuant to the Plan, and
may reflect distinctions based on the reasons for such termination. Subject to
Section 11.3, in the event that a Participant's Award Agreement does not set
forth such provisions, the following provisions shall apply:
(a) Death, Disability, or Change in Control. In the event that the
Participant's employment with the Corporation and/or any Subsidiary terminates
by reason of death or Disability or following a Change in Control, all Shares
covered by his or her Awards shall immediately become fully vested and, in the
case of an Option or SAR, shall remain exercisable until the earlier of (i) the
remainder of the term of the Award, or (ii) three months (or twelve months in
the case of death) from the date of such termination. In the case of the
Participant's death, the Participant's beneficiary or estate may exercise the
Option or SAR.
(b) Eligible Retirement. In the event that the Participant's employment
with the Corporation and/or any Subsidiary terminates by reason of Eligible
Retirement, all Options or SARs held by the Participant shall vest on the same
dates, and shall remain exercisable for the same periods, as if the Participant
were still employed.
(c) Other Termination. In the event that each of the Participant's
employment terminates prior to a Change in Control for any reason other than
death, Disability, or Eligible Retirement, the Award shall vest only to the
extent it was vested on the date of the termination. To the extent an Option or
SAR was vested on the date of termination, it shall remain exercisable until the
earlier of (i) the remainder of the term of the Award, or (ii) three months from
the date of such termination. In such circumstance, the Option or SAR shall only
be exercisable to the extent that it was exercisable as of such termination date
and shall not be exercisable with respect to any additional Shares.
11.3. ADDITIONAL FORFEITURE EVENTS. Unless otherwise determined by the
Committee, each Award granted hereunder shall be subject to the following
additional forfeiture conditions, to which the Participant, by accepting an
Award hereunder, agrees. If any of the events specified in Section 11.4 occurs
(a "Forfeiture Event"), all of the following forfeitures will result:
(a) The unexercised portion of any Option, whether or not vested, and any
other Award not then settled will be immediately forfeited and canceled upon the
occurrence of the Forfeiture Event; and
(b) The Participant will be obligated to repay to the Corporation, in cash,
within five business days after demand is made therefor by the Corporation, the
total amount of Award Gain (as defined herein) realized by the Participant upon
each exercise of an Option or settlement of an Award that occurred on or after
(i) the date that is six months before the occurrence of the Forfeiture Event,
if the Forfeiture Event occurred while the Participant was employed by the
Corporation or a Subsidiary, or (ii) the date that is six months before the date
the Participant's employment by, service as a Director with, or consulting
arrangement with the Corporation or a Subsidiary terminated, if the Forfeiture
Event occurred after the Participant ceased to be so employed. In the event the
Employee shall fail to immediately pay the Corporation the amount of Award Gain,
the Employee shall be liable to the Corporation for all cost, expenses and
attorneys' fees incurred by the Employee in connection with collecting the Award
Gain, plus interest at a per annum rate equal to the lower of 12% or the
highest rate permitted by applicable law. For purposes of this Section 11.3, the
term "Award Gain" shall mean (A) with respect to a given Option exercise, the
product of (X) the Fair Market Value per Share at the date of such exercise
(without regard to any subsequent change in the market price of shares) minus
the Option Price times (Y) the number of shares as to which the Option was
exercised at that date, and (B) with respect to any other settlement of an Award
granted to the Participant, the Fair Market Value of the cash or Shares paid or
payable to the Participant less any cash or the Fair Market Value of any Shares
or property (other than an Award or award that would have itself then been
forfeitable hereunder and excluding any payment of tax withholding) paid by the
Participant to the Corporation as a condition of or in connection such
settlement.
40
11.4. EVENTS TRIGGERING FORFEITURE. The forfeitures specified in Section 11.3
will be triggered upon the occurrence of any one of the following Forfeiture
Events at any time during the Participant's employment by or during the one-year
period following termination of such employment:
(a) Noncompetition. The Employee accepts employment with, or retention by,
any person or entity, or any affiliate of any person or entity, which
manufactures or sells circuit protection products in competition with the
Corporation or any of its Subsidiaries, as an officer, employee, consultant,
agent, representative, or otherwise, or obtains any interest in any such person
or entity, other than the ownership (individually or together with a group of
persons acting in concert, as defined in the Exchange Act) or not more than 5%
of the outstanding common stock of a publicly traded entity.
(b) Non-Solicitation. The Participant, for his or her own benefit or for
the benefit of any other person, company or entity, directly or indirectly, (i)
induces or attempts to induce or hires or otherwise counsels, induces or
attempts to induce or hire or otherwise counsel, advise, encourage or solicit
any person to leave the employment of or the service for the Corporation or any
Subsidiary, (ii) hires or in any manner employs or retains the services of any
individual employed by or providing services to the Corporation or any
Subsidiary as of the date of his or her termination of employment, or employed
by or providing services to the Corporation or any Subsidiary subsequent to such
termination, (iii) solicits, pursues, calls upon or takes away, any of the
customers of the Corporation or any Subsidiary, (iv) solicits, pursues, calls
upon or takes away, any potential customer of the Corporation or any Subsidiary
that has been the subject of a bid, offer or proposal by the Corporation or any
Subsidiary, or of substantial preparation with a view to making such a bid,
proposal or offer, within six months before such Participant's termination of
employment with the Corporation or any Subsidiary, or (v) otherwise interferes
with the business or accounts of the Corporation or any Subsidiary.
(c) Confidential Information. The Participant discloses to any person or
entity or makes use of any "confidential or proprietary information" (as defined
below in this subparagraph (b)) for his or her own purpose or for the benefit of
any person or entity, except as may be necessary in the ordinary course of
employment with or other service to the Corporation or any Subsidiary. Such
"confidential or proprietary information" of the Corporation or any Subsidiary,
includes, but is not limited to, the design, development, operation, building or
manufacturing of automotive and truck interior and exterior components,
lighting, bumper systems or other products manufactured and supplied by the
Corporation and its Subsidiaries, the identity of the Corporation's or any
Subsidiary's customers, the identity of representatives of customers with whom
the Corporation or any Subsidiary has dealt, the kinds of services provided by
the Corporation or any Subsidiary to customers and offered to be performed for
potential customers, the manner in which such services are performed or offered
to be performed, the service needs of actual or prospective customers, pricing
information, information concerning the creation, acquisition or disposition of
products and services, customer maintenance listings, computer software and
hardware applications and other programs, personnel information, information
identifying, relating to or concerning investors in the Corporation or any
Subsidiary, joint venture partners of the Corporation or any Subsidiary,
business partners of the Corporation or any Subsidiary or other entities
providing financing to the Corporation or any Subsidiary, real estate and
leasing opportunities, communications and telecommunications operations and
processes, zoning and licensing matters, relationships with, or matters
involving, landlords and/or property owners, and other trade secrets.
11.5. AGREEMENT DOES NOT PROHIBIT COMPETITION OR OTHER PARTICIPANT ACTIVITIES.
Although the conditions set forth in this Section 11 shall be deemed to be
incorporated into an Award, the Plan does not thereby prohibit the Participant
from engaging in any activity, including but not limited to competition with the
Corporation and its Subsidiaries. Rather, the non-occurrence of the Forfeiture
Events set forth in
41
Section 11.2 is a condition to the Participant's right to realize and retain
value from his or her compensatory Awards, and the consequence under the Plan if
the Participant engages in an activity giving rise to any such Forfeiture Event
are the forfeitures specified herein. This provision shall not preclude the
Corporation and the Participant from entering into other written agreements
concerning the subject matter of Sections 11.1 and 11.2 and, to the extent any
terms of this Section 11 are inconsistent with any express terms of such
agreement, this Section 11 shall not be deemed to modify or amend such terms.
11.6. COMMITTEE DISCRETION. The Committee may, in its sole discretion, waive in
whole or in part the Corporation's right to forfeiture under this Section 11,
but no such waiver shall be effective unless evidenced by a writing signed by a
duly authorized officer of the Corporation. In addition, the Committee may
impose additional conditions on Awards, by inclusion of appropriate provisions
in the document evidencing or governing any such Award. The Committee, in its
sole discretion, may require an Employee, as a condition to his or her exercise
of an Award or the settlement of an Award, to acknowledge in writing that he or
she has not engaged, and is not in the process of engaging, in any of the
activities described in Section 11.4.
SECTION 12.
TRANSFERABILITY OF AWARDS;
BENEFICIARY DESIGNATION
12.1. LIMITS ON TRANSFERABILITY OF AWARDS.
(a) Except as otherwise provided below, Awards may be exercisable only by
the Participant during the Participant's lifetime, and Awards shall not be
transferable other than by will or the laws of descent and distribution. Any
purported transfer of any Award or any interest therein that does not comply
with the terms of this Plan shall be null and void and confer no rights of any
kind upon the purported transferee.
(b) The Committee may, in its discretion, permit a Participant to transfer
any Award other than an ISO to any family member of such Participant, subject to
such restrictions and limitations as the Committee may provide; provided,
however, that any such Award shall remain subject to all vesting, forfeiture,
and other restrictions provided herein and in the Award Agreement to the same
extent as if it had not been transferred; and provided further that in no event
shall any transfer for value be permitted. For purposes of this Section 12.1(b),
the terms "family member" and "transfer for value" have the same meaning as in
the General Instructions to SEC Form S-8, or such other form as the SEC may
promulgate in replacement thereof.
(c) To the maximum extent permitted by law, no Award shall be subject, in
whole or in part, to attachment, execution or levy of any kind; provided,
however, that nothing contained herein shall affect the right of setoff set
forth in Section 14.3.
(d) Nothing contained in this Section 12.1 shall preclude a Participant
from transferring Restricted Shares that have vested, or Shares that are issued
in settlement of an Option, SAR, or Award of Performance Shares or Performance
Units, subject to the remaining provisions of this Plan and applicable law.
12.2. DESIGNATION OF BENEFICIARY. Each Participant under the Plan may, from time
to time, name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case of his or
her death before he or she receives any or all of such benefit. Each such
designation shall revoke all prior designations by the same Participant, shall
be in a form prescribed
42
by the Corporation, and will be effective only when filed by the Participant in
writing with the Secretary of the Corporation during the Participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
SECTION 13.
DEFERRALS;COMPLIANCE WITH SECTION 409A
13.1. PROHIBITION ON DEFERRALS OF OPTIONS, SARS AND RESTRICTED STOCK. No
Participant shall have the right to defer the amount of Shares or cash payable
upon the exercise or settlement of any Option or SAR, or the transfer of any
Restricted Stock upon the vesting thereof.
13.2. DEFERRALS OF PERFORMANCE UNITS AND PERFORMANCE SHARES. The Committee may
permit a Participant to defer such Participant's receipt of the payment of cash
or the delivery of Shares that would otherwise be due to such Participant upon
the satisfaction of any requirements or goals with respect to Performance
Units/Shares. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for such
payment deferrals, subject to the following:
(a) A deferral election may be made only at one of the following two times:
(i) In the case of an Award that cannot vest (other than by reason of
death, Disability, Eligible Retirement or a Change in Control)
earlier than the first anniversary of the date of grant, not
later than the earlier of thirty days after the date of grant or
one year prior to the earliest date on which the Award may vest.
(ii) In the case of an Award that is subject to a Performance Period
of not less than one year, and the vesting of which is subject to
the attainment of Performance Criteria that are established
within the first 90 days of the Performance Period and that are
not substantially certain of being achieved at the time of grant,
not later than six months prior to the end of the Performance
Period.
(b) A deferral election shall state the time and manner of payment. Payment
must either be on a specified date, at the time of the Participant's separation
from service with the Corporation and its Subsidiaries as defined in IRS
Proposed Regulations Section 1.409A-1(h), death, or Disability, or upon the
occurrence of a Change in Control that also meets the requirements of IRS
Proposed Regulations Section 1.409A-3(g)(5) (a "409A Change in Control.")
Notwithstanding the foregoing:
(i) An amount payable by reason of a separation from service to an
Employee who is a "key employee" of the Corporation, as defined
in IRS Proposed Regulations Section 1.409A-1(i), shall not be
paid until six months after the separation from service, and any
portion of such amount that would otherwise be payable during
such six month period shall be paid instead at the end of such
period.
(ii) Payment of any amount that the Corporation reasonably determines
would not be deductible by reason of Code Section 162(m) shall be
deferred until the earlier of the earliest date on which the
Corporation reasonably determines that the deductibility of the
payment will not be so limited, or the year following the
termination of employment.
(iii) Any payment that the Corporation reasonably determines will
violate a term of a loan agreement to which the Corporation is a
party, or other similar contract to
43
which the Corporation is a party, and such violation will cause
material harm to the Corporation shall be deferred until the
earliest date at which the Corporation reasonably anticipates
that the making of the payment will not cause such violation, or
such violation will not cause material harm to the Corporation.
(iv) Any payment that the Corporation reasonably anticipates that will
violate Federal securities laws or other applicable law will be
deferred until the earliest date at which the Corporation
reasonably anticipates that the making of the payment will not
cause such violation.
(v) The Committee may permit Participants to elect to further defer
payments, provided that any such election is made not less than
one year prior to the date on which the payment would otherwise
be made, and that the deferral is for a period of at least five
years.
(c) No payment that a Participant has elected to defer pursuant to this
Section 13.2 may be paid at any earlier date, except in accordance with
procedures adopted by the Committee in compliance with Code Section 409A.
13.3. COMPLIANCE WITH SECTION 409A. The provisions of this Plan, including but
not limited to this Section 13, are intended to comply with the restrictions of
Code Section 409A, including any final regulations issued pursuant thereto, and
the Committee reserves the right to amend any provision of this Plan, or any
outstanding Award, to the extent necessary to comply with Section 409A.
SECTION 14.
RIGHTS AND OBLIGATIONS OF PARTIES
14.1. NO GUARANTEE OF EMPLOYMENT OR SERVICE RIGHTS. Nothing in the Plan shall
interfere with or limit in any way the right of the Corporation to terminate any
Participant's employment or consulting arrangement at any time, nor confer upon
any Participant any right to continue in the employ of or consulting arrangement
with the Corporation or any Subsidiary.
For purposes of the Plan, temporary absence from employment because of
illness, vacation, approved leaves of absence, and transfers of employment among
the Corporation and its Subsidiaries, shall not be considered to terminate
employment or to interrupt continuous employment. Temporary cessation of the
provision of consulting services because of illness, vacation or any other
reason approved in advance by the Corporation shall not be considered a
termination of the consulting arrangement or an interruption of the continuity
thereof. Conversion of a Participant's employment relationship to a consulting
arrangement shall not result in termination of previously granted Awards.
14.2. PARTICIPATION. No Employee shall have the right to be selected to receive
an Award under the Plan, or, having been so selected, to be selected to receive
a future Award.
14.3. RIGHT OF SETOFF. The Corporation or any Subsidiary may, to the extent
permitted by applicable law, deduct from and set off against any amounts the
Corporation or Subsidiary may owe to the Participant from time to time,
including amounts payable in connection with any Award, owed as wages, fringe
benefits, or other compensation owed to the Participant, such amounts as may be
owed by the Participant to the Corporation, although the Participant shall
remain liable for any part of the Participant's payment obligation not satisfied
through such deduction and setoff. By accepting any Award granted hereunder, the
Participant agrees to any deduction or setoff under this Section 14.
44
14.4. SECTION 83(B) ELECTION. No election under Section 83(b) of the Code (to
include in gross income in the year of transfer the amounts specified in Code
Section 83(b)) or under a similar provision of the laws of a jurisdiction
outside the United States may be made, unless expressly permitted by the terms
of the Award Agreement or by action of the Committee in writing before the
making of such election. In any case in which a Participant is permitted to make
such an election in connection with an Award, the Participant shall notify the
Corporation of such election within ten days of filing notice of the election
with the Internal Revenue Service or other governmental authority, in addition
to any filing and notification required pursuant to regulations issued under
Code Section 83(b) or other applicable provision.
14.5. DISQUALIFYING DISPOSITION NOTIFICATION. If any Participant shall make any
disposition of Shares delivered pursuant to the exercise of an Incentive Stock
Option under the circumstances described in Code Section 421(b) (relating to
certain disqualifying dispositions), such Participant shall notify the
Corporation of such disposition within ten days thereof.
SECTION 15.
AMENDMENT, MODIFICATION, AND TERMINATION
15.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may amend, suspend or
terminate the Plan or the Committee's authority to grant Awards under the Plan
without the consent of stockholders or Participants; provided, however, that any
amendment to the Plan shall be submitted to the Corporation's stockholders for
approval not later than the earliest annual meeting for which the record date is
after the date of such Board action if such stockholder approval is required by
any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Shares may then be listed or quoted and
the Board may otherwise, in its sole discretion, determine to submit other
amendments to the Plan to stockholders for approval; and provided further, that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
outstanding Award. The Committee shall have no authority to waive or modify any
other Award term after the Award has been granted to the extent that the waived
or modified term was mandatory under the Plan.
15.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Participant holding such
Award.
SECTION 16. WITHHOLDING
16.1. TAX WITHHOLDING. The Corporation shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Corporation, an
amount sufficient to satisfy Federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan.
16.2. SHARE WITHHOLDING. With respect to withholding required upon the exercise
of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Corporation withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which would be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by
45
the Participant, and shall be subject to any restrictions or limitations that
the Committee, in its sole discretion, deems appropriate.
SECTION 17.
SUCCESSORS
All obligations of the Corporation under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Corporation, whether
the existence of such successor is the result of a direct or indirect merger,
consolidation, purchase of all or substantially all of the business and/or
assets of the Corporation or otherwise.
SECTION 18.
MISCELLANEOUS
18.1. UNFUNDED PLAN. The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made
to a Participant or obligation to deliver Shares pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Corporation; provided
that the Committee may authorize the creation of trusts and deposit therein
cash, Shares, other Awards or other property, or make other arrangements to meet
the Corporation's obligations under the Plan. Such trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
18.2. FORFEITURES; FRACTIONAL SHARES. Unless otherwise determined by the
Committee, in the event of a forfeiture of an Award with respect to which a
Participant paid cash consideration, the Participant shall be repaid the amount
of such cash consideration. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards or other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
18.3. COMPLIANCE WITH CODE SECTION 162(M). The Corporation intends that Options
and SARs granted to Named Executive Officers and other Awards designated as
Awards to Named Executive Officers shall constitute qualified "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder, unless otherwise determined by the Committee at the time of
allocation of an Award. Accordingly, the terms of Sections 4.2, 6, 7, 8.5, 8.6,
9 and 10, including the definitions of Named Executive Officer and other terms
used therein, shall be interpreted in a manner consistent with Code Section
162(m) and regulations thereunder. The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Participant will be a
Named Executive Officer with respect to a fiscal year that has not yet been
completed, the term Named Executive Officer as used herein shall mean only a
person designated by the Committee as likely to be a Named Executive Officer
with respect to a specified fiscal year. If any provision of the Plan or any
Award Agreement relating to a Performance Award that is designated as intended
to comply with Code Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person sole discretion to increase the amount of compensation
otherwise payable in connection with any such Award upon attainment of the
applicable performance objectives.
18.4. AWARDS TO PARTICIPANTS OUTSIDE THE UNITED STATES. The Committee may modify
the terms of any Award under the Plan made to or held by a Participant who is
then resident or primarily employed
46
outside of the United States in any manner deemed by the Committee to be
necessary or appropriate in order that such Award shall conform to laws,
regulations, and customs of the country in which the Participant is then
resident or primarily employed, or so that the value and other benefits of the
Award to the Participant, as affected by foreign tax laws and other
restrictions, applicable as a result of the Participant's residence or
employment abroad shall be comparable to the value of such an Award to a
Participant who is resident or primarily employed in the United States. An Award
may be modified under this Section 19.4 in a manner that is inconsistent with
the express terms of the Plan, so long as such modifications will not contravene
any applicable law or regulation or result in actual liability under Section
16(b) of the Exchange Act for the Participant whose Award is modified.
18.5. GENDER AND NUMBER; HEADINGS. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
Headings are included for the convenience of reference only and shall not be
used in the interpretation or construction of any such provision contained in
the Plan.
18.6. SEVERABILITY. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
18.7. REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
18.8. ADDITIONAL RESTRICTIONS ON TRANSFERS. The Committee may impose such
restrictions on any Shares acquired pursuant to an Award, including Restricted
Shares, Performance Shares, or Shares received upon exercise of an Option or
SAR, as it may deem advisable. Such restrictions may include, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares. As a condition of any issuance of Shares deliverable under the
Plan, the Corporation may place legends on the shares, issue stop-transfer
orders and require such agreements or undertakings from the Participant as the
Committee may deem necessary or advisable to assure compliance with any such
restriction.
18.9. GOVERNING LAW. To the extent not preempted by Federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with and governed by
the laws of the State of Delaware.
47
EXHIBIT B
The text of the Directors Plan as amended if approved by the Stockholders of the
company is as set forth below:
LITTELFUSE, INC. OUTSIDE DIRECTORS' STOCK OPTION PLAN
SECTION 1.
ESTABLISHMENT, OBJECTIVES AND DURATION
1.1. ESTABLISHMENT. Subject to the approval of the stockholders of Littelfuse,
Inc. (the "Corporation"), the Corporation has established the Littelfuse, Inc.
Outside Directors' Stock Option Plan (the "Plan"), as set forth herein,
effective as of March 1, 2006. The Plan supercedes and replaces (subject to the
last sentence of Section 1.4) the Stock Plan for New Directors of Littelfuse,
Inc., and, to the extent such plans provided for grants to outside Directors,
the Stock Plan for Employees and Directors of Littelfuse, Inc., adopted
effective December 16, 1991, and the 1993 Stock Plan for Employees and Directors
of Littelfuse, Inc., adopted effective February 12, 1993 (the "Prior Plans"),
except that the Prior Plans shall remain in effect with respect to awards
granted under such Prior Plans until such awards have been exercised, forfeited,
canceled, expired or otherwise terminated in accordance with the terms of such
awards.
1.2. PURPOSE. The purpose of the Plan is to enhance stockholder value by
attracting and retaining the services of outside directors of outstanding
talent. To accomplish the foregoing, the Plan provides for the automatic grant
of nonqualified stock options to outside directors.
1.3. DURATION. The Plan shall remain in effect, subject to the right of the
Corporation's Board of Directors to amend or terminate the Plan at any time
pursuant to Section 6, until all Shares subject to the Plan shall have been
purchased or granted according to the Plan's provisions.
1.4. APPROVAL BY STOCKHOLDERS. The Plan has been adopted by the Board of
Directors subject to approval by the stockholders of the Corporation at the
first annual meeting of stockholders held following the adoption by the Board,
or any special meeting of the stockholders duly called, and if the Plan is not
so approved by December 31, 2006, the Plan shall be null and void. Options may
be granted under this Plan prior to stockholder approval only to the extent that
there are shares remaining outstanding for grant pursuant to the Stock Plan for
New Directors of Littelfuse, Inc., and if the Plan is not approved by the
Shareholders any Options so granted shall be treated as having been granted
under such Plan.
SECTION 2.
DEFINITIONS
Whenever used in the Plan, the following capitalized terms shall have the
meanings set forth below:
48
2.1. "BOARD" means the Board of Directors of the Corporation.
2.2. "CHANGE IN CONTROL" means, unless the Committee otherwise determines, the
occurrence of any of the following events:
(a) a business combination, including a merger or consolidation, of the
Corporation and the stockholders of the Corporation prior to the combination do
not continue to own, directly or indirectly, more than fifty-one percent (51%)
of the equity of the combined entity;
(b) a sale, transfer, or other disposition in one or more transactions
(other than in transactions in the ordinary course of business or in the nature
of a financing) of the assets or earning power aggregating more than forty-five
percent (45%) of the assets or operating revenues of the Corporation to any
person or affiliated or associated group of persons (as defined by Rule 12b-2 of
the Exchange Act in effect as of the date hereof);
(c) the liquidation of the Corporation;
(d) one or more transactions which result in the acquisition by any person
or associated group of persons (other than the Corporation, any employee benefit
plan whose beneficiaries are Employees of the Corporation or any of its
Subsidiaries, or TCW Special Credits or any of its affiliates) of the beneficial
ownership (as defined in Rule 13d-3 of the Exchange Act, in effect as of the
date hereof) of forty percent (40%) or more of the Common Stock of the
Corporation, securities representing forty percent (40%) or more of the combined
voting power of the voting securities of the Corporation which affiliated
persons owned less than forty percent (40%) prior to such transaction or
transactions; or
(e) the election or appointment, within a twelve (12) month period, of any
person or affiliated or associated group, or its or their nominees, to the Board
, such that such persons or nominees, when elected or appointed, constitute a
majority of the Board and whose appointment or election was not approved by a
majority of those persons who were directors at the beginning of such period or
whose election or appointment was made at the request of an Acquiring Person.
(f) Any occurrence of any transaction or event, or series of transactions
or events, designated by the Committee in the Option Agreement.
For purposes of this definition, an "Acquiring Person" is any person who,
or which, together with all affiliates or associates of such person, is the
beneficial owner of twenty percent (20%) or more of the Common Stock of the
Corporation then outstanding, except that an Acquiring Person does not include
the Corporation or any employee benefit plan of the Corporation or any of its
Subsidiaries or any person holding Common Stock of the Corporation for or
pursuant to such plan. For the purpose of determining who is an Acquiring
Person, the percentage of the outstanding shares of the Common Stock of which a
person is a beneficial owner shall be calculated in accordance with Rule 13d-e
of the Exchange Act.
2.3. "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation thereto.
2.4. "COMMITTEE" means the Committee appointed to administer the Plan, as
provided in Section 3.
49
2.5. "CORPORATION" means Littelfuse, Inc., a Delaware corporation, and any
successor to such entity as provided in Section 8.
2.6. "DISABILITY" means the inability of the Outside Director to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death, or which has lasted
or can be expected to last for a continuous period of not less than 12 months,
as determined by the Committee, based upon medical evidence.
2.7. "EFFECTIVE DATE" means March 1, 2006.
2.8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
2.9. "FAIR MARKET VALUE" means if the Shares are duly listed on a national
securities exchange or on The Nasdaq National Stock Market, the closing price of
the Common Stock for the date on which the option is granted, or, if there are
no sales on such date, on the next preceding day on which there were sales, or
if the Shares or not so listed, the fair market value of the Shares for the date
on which the option is granted, as determined by the Committee in good faith.
Such price shall be subject to adjustment as provided in Section 4.2.
2.10. "OPTION" means a nonqualified option to purchase Shares granted to an
Outside Director, as described in Section 5.
2.11. "OPTION AGREEMENT" means a written agreement between the Corporation and
each Outside Director that sets forth the terms and provisions applicable to an
Option granted to the Outside Director under the Plan, and is a condition to the
grant of an Option hereunder.
2.12. "OPTION PRICE" means the per share purchase price of a Share purchased
pursuant to an Option.
2.13. "OUTSIDE DIRECTOR" means any member of the Board who is not an employee of
the Corporation or any Subsidiary.
2.14. "PLAN" means the Littelfuse, Inc. Outside Directors' Stock Option Plan, as
set forth herein.
2.15. "SHARE" OR "SHARES" means shares of common stock of the Corporation.
2.16. "SUBSIDIARY" means any corporation, partnership, joint venture, affiliate,
or other entity in which the Corporation is at least a majority-owner of all
issued and outstanding equity interests or has a controlling interest.
SECTION 3.
ADMINISTRATION
3.1. PLAN ADMINISTRATION. The Compensation Committee, or any other
committee appointed by the Board, shall administer the Plan. The Committee or
other committee appointed to administer the
50
Plan shall consist of not fewer than two Directors who are non-Employee
Directors of the Corporation, within the meaning of Rule 16b-3 of the Exchange
Act. The Board may, from time to time, remove members from, or add members to,
the Committee. Any vacancies on the Committee shall be filled by members of the
Board.
If and to the extent that no committee exists that has the authority to
administer the Plan, the Board shall administer the Plan. Acts of a majority of
the Committee (or the Board, if applicable) at which a quorum is present, or
acts reduced to or approved in writing by unanimous consent of the members of
the Committee (or the Board, as the case may be), shall be valid acts of the
Committee (or the Board, as the case may be).
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate
of Incorporation or Bylaws of the Corporation, and subject to the provisions
herein, the Committee shall have full power to construe and interpret the Plan
and any agreement or instrument entered into under the Plan; establish, amend,
or waive rules and regulations consistent with the terms of the Plan for the
Plan's administration; provided that the Committee shall not have the authority
to amend any Option to reduce its exercise price except pursuant to Section 4.2.
Further, the Committee shall make all other determinations, which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate the authority granted to it herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan and all related orders and resolutions of
the Board shall be final, conclusive and binding on all persons, including the
Corporation, its stockholders, Outside Directors, and their estates and
beneficiaries.
SECTION 4.
SHARES SUBJECT TO THE PLAN
4.1. SHARES AVAILABLE FOR OPTIONS.
(a) The Shares available for Options may be either authorized and unissued
Shares or Shares held in or acquired for the treasury of the Corporation. The
aggregate number of Shares that may be issued or used for reference purposes
under the Plan or with respect to which Options may be granted shall not exceed
250,000 Shares, subject to adjustment as provided in Section 4.2. The number of
Shares reserved for issuance under this Plan as set forth above shall include
all reserved but unissued shares under the Stock Plan for New Directors of
Littelfuse, Inc. and no additional awards shall be granted to Outside Directors
under the Stock Plan for New Directors of Littelfuse, Inc (unless this Plan is
not approved by the stockholders as provided in Section 1.4).
(b) Upon a cancellation, termination, expiration without exercise,
forfeiture, or lapse for any reason of any Option, or any option issued under
the Stock Plan for New Directors of Littelfuse, Inc., the number of Shares
underlying any such option that were not issued as a result of any of the
foregoing actions shall again be available for the purposes of Options under the
Plan. All Shares issued in settlement of an Option, or withheld for payment of
the Exercise Price or any tax imposed upon the exercise or settlement of the
Option, shall reduce the total number of Shares available under the Plan and
shall not again be available for the grant of any Award hereunder.
51
4.2. ADJUSTMENTS. Notwithstanding any other provision of the Plan, the Committee
may at any time make or provide for such adjustments to the Plan, to the number
and class of Shares available thereunder or to any outstanding Options as it
shall deem appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of distributions to holders of Shares other than a
normal cash dividend, changes in the outstanding Shares by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations,
or exchanges of shares, separations, reorganizations, liquidations, and the
like. In the event of any offer to holders of Shares generally relating to the
acquisition of their shares, the Committee may make such adjustment as it deems
equitable in respect of outstanding options, rights, and restricted units
including in the Committee's discretion revision of outstanding Options so that
they may be exercisable for or payable in the consideration payable in the
acquisition transaction. Any such determination by the Committee shall be
conclusive. No adjustment shall be made in the minimum number of shares with
respect to which an Option may be exercised at any time. Any fractional shares
resulting from such adjustments to Options shall be eliminated.
SECTION 5.
STOCK OPTIONS
5.1. GRANT OF OPTIONS AND OPTION AGREEMENT.
(a) Provided that this Plan is approved by the stockholders as provided in
Section 1.4, each Outside Director shall be automatically granted an Option to
purchase 5,000 Shares on the date of each annual meeting of the Board,
commencing with 2006, without further action by the Board or Committee: Any
Outside Director may waive his or her right to be granted any of such Options.
In the event that any grant of Options pursuant to this Section 5.1 would exceed
the number of Shares available for Option grants under the Plan, the number of
Shares covered by the Option granted to each Outside Director eligible to
receive such grant shall be proportionately prorated.
(b) Option Agreement. The Corporation and each Outside Director to whom an
Option is granted shall execute an Option Agreement, effective as of the grant
date, which shall specify the Option Price, the term of the Option, the number
of Shares subject to the Option, and such other provisions as the Committee
shall determine, and which are not inconsistent with the terms and provisions of
the Plan.
5.2. OPTION PRICE. The Option Price for each Option shall be equal to the Fair
Market Value of Shares subject to an Option on the date the Option is granted,
and which Option Price may not be subsequently reduced by the Committee except
pursuant to Section 4.2.
5.3. TERM AND VESTING OF OPTIONS.
(a) The term of each Option granted to an Outside Director pursuant to this
Plan shall be ten (10) years, subject to earlier termination in the event of a
termination of the Outside Director's service as provided below, and in no event
shall any Option be exercisable more than ten (10) years after the date of
grant. exercisable as follows.
(b) Each Option granted to an Outside Director shall vest and become
exercisable with respect to a percentage of the number of Shares subject to such
Option on anniversaries of the date of grant, in accordance with the following
table:
52
Number of years elapsed since the Percent of Shares for which
date of grant of the Option the Option is exercisable
--------------------------------- ---------------------------
Less than one 0%
One but less than two 20%
Two but less than three 40%
Three but less than four 60%
Four but less than five 80%
Five or more 100%
5.4. TERMINATION OF MEMBERSHIP ON BOARD.
(a) Death, Disability, or Change in Control. In the event that an Outside
Director's membership on the Board terminates by reason of death or Disability,
or following a Change in Control, all Shares covered by his or her Options shall
immediately become fully vested and shall remain exercisable until the earlier
of (i) the remainder of the term of the Option, or (ii) three months (or twelve
months in the case of death) from the date of such termination. In the case of
the Outside Director's death, the Outside Director's beneficiary or estate may
exercise the Option.
(b) Other Termination. In the event that each of the Outside Director's
membership on the Board terminates prior to a Change in Control for any reason
other than death or Disability, his or her Options, to the extent vested on the
date of the termination, shall remain exercisable until the earlier of (i) the
remainder of the term of the Option, or (ii) three months from the date of such
termination. In such circumstance, the Option shall only be exercisable to the
extent that it was exercisable as of such termination date and shall not be
exercisable with respect to any additional Shares.
(c) Employment of Outside Director. An Outside Director who becomes an
employee of the Company or any Subsidiary shall not forfeit any Options granted
hereunder by reason of such employment regardless of whether he continues to be
a member of the Board. Such person's Options shall continue to vest under the
schedule provided in Section 5.3 and, if such person's employment with the
Company and all Subsidiaries is terminated while any portion of his Options
remains unexercised, the provisions of paragraphs (a) and (b) shall be applied
by reference to his termination of employment.
5.5. EXERCISE AND PAYMENT. Options granted under this Plan shall be exercised by
the delivery of a written notice of exercise to the Corporation, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares. The Option Price upon exercise of
any Option shall be payable to the Corporation in full either:
(a) in cash or its equivalent,
(b) by tendering previously acquired Shares that have been held for at
least six months (or such longer period to avoid a charge to earnings for
financial reporting purpose) and having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price, or
53
(c) a combination (i) and (ii).
In addition, payment of the Option Price may be payable by one or more of
the following methods either upon written consent from the Committee or if one
or more of the following methods will not result in a charge to earnings for
financial reporting purposes:
(d) by withholding Shares that otherwise would be acquired on exercise
having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price,
(e) by cashless exercise through delivery of irrevocable instructions to a
broker to promptly deliver to the Corporation the amount of proceeds from a sale
of Shares having a Fair Market Value equal to the purchase price.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Corporation shall deliver to the Outside Director, in the
Outside Director's name, Share certificates in an appropriate amount based upon
the number of Shares purchased under the Option(s). No Outside Director shall
have any rights of shareholder with respect to Shares subject to an Option,
including any right to receive dividends, to vote, or to participate in the
equity of the Company, until such Option has been exercised and payment made in
full as provided herein.
5.6. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in a Outside
Director's Option Agreement, or as permitted by the Committee, no Option granted
under this Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution, and all Options granted to a Outside Director shall be exercisable
during his or her lifetime only by such Outside Director
5.7. PROHIBITION ON DEFERRALS. No Outside Director shall have the right to defer
the receipt of Shares upon the exercise of any Option.
SECTION 6.
AMENDMENT, MODIFICATION, AND TERMINATION
6.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may amend, suspend or
terminate the Plan without the consent of stockholders; provided, however, that
any amendment to the Plan shall be submitted to the Corporation's stockholders
for approval not later than the earliest annual meeting for which the record
date is after the date of such Board action if such stockholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Shares may then be listed or
quoted and the Board may otherwise, in its sole discretion, determine to submit
other amendments to the Plan to stockholders for approval. The Committee shall
have no authority to waive or modify any other Option after the Option has been
granted to the extent that the waived or modified term was mandatory under the
Plan.
6.2. OPTIONS PREVIOUSLY GRANTED. No termination, amendment, or modification of
the Plan shall adversely affect in any material way any Option previously
granted under the Plan, without the written consent of the Outside Director
holding such Option.
54
SECTION 7.
WITHHOLDING
7.1. TAX WITHHOLDING. The Corporation shall have the power and the right to
deduct or withhold, or require a Outside Director to remit to the Corporation,
an amount sufficient to satisfy Federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan.
7.2. SHARE WITHHOLDING. With respect to withholding required upon the exercise
of Options, Outside Directors may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Corporation withhold Shares having a Fair Market Value on the date
the tax is to be determined equal to the minimum statutory total tax which would
be imposed on the transaction. All such elections shall be irrevocable, made in
writing, signed by the Outside Director, and shall be subject to any
restrictions or limitations that the Committee, in its sole discretion, deems
appropriate.
SECTION 8.
SUCCESSORS
All obligations of the Corporation under the Plan with respect to Options
granted hereunder shall be binding on any successor to the Corporation, whether
the existence of such successor is the result of a direct or indirect merger,
consolidation, purchase of all or substantially all of the business and/or
assets of the Corporation or otherwise.
SECTION 9.
MISCELLANEOUS
9.1. FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Option. The Committee shall determine whether cash,
other Options or other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
9.2. DIRECTORS OUTSIDE THE UNITED STATES. The Committee may modify the terms of
any Option under the Plan made to or held by a Outside Director who is then
resident or primarily employed outside of the United States in any manner deemed
by the Committee to be necessary or appropriate in order that such Option shall
conform to laws, regulations, and customs of the country in which the Outside
Director is then resident or primarily employed, or so that the value and other
benefits of the Option to the Outside Director, as affected by foreign tax laws
and other restrictions, applicable as a result of the Outside Director's
residence or employment abroad shall be comparable to the value of such an
Option to a Outside Director who is resident or primarily employed in the United
States. An Option may be modified under this Section 9.2 in a manner that is
inconsistent with the express terms of the Plan, so long as such modifications
will not contravene any applicable law or regulation or result in actual
liability under Section 16(b) of the Exchange Act for the Outside Director whose
Option is modified.
55
9.3. GENDER AND NUMBER; HEADINGS. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
Headings are included for the convenience of reference only and shall not be
used in the interpretation or construction of any such provision contained in
the Plan.
9.4. SEVERABILITY. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
9.5. REQUIREMENTS OF LAW. The granting of Options and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
9.6. ADDITIONAL RESTRICTIONS ON TRANSFERS. The Committee may impose such
restrictions on any Shares acquired pursuant to exercise of an Option as it may
deem advisable. Such restrictions may include, without limitation, restrictions
under applicable Federal securities laws, under the requirements of any stock
exchange or market upon which such Shares are then listed and/or traded, and
under any blue sky or state securities laws applicable to such Shares. As a
condition of any issuance of Shares deliverable under the Plan, the Corporation
may place legends on the shares, issue stop-transfer orders and require such
agreements or undertakings from the Outside Director as the Committee may deem
necessary or advisable to assure compliance with any such restriction.
9.7. GOVERNING LAW. To the extent not preempted by Federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with and governed by
the laws of the State of Delaware.
56
Proxy Card
PROXY LITTELFUSE, INC.
PROXY CARD FOR ANNUAL MEETING ON MAY 5, 2006
The undersigned hereby appoints Philip G. Franklin and Mary S. Muchoney,
jointly and severally, with full power of substitution, to vote all shares of
Common Stock which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held at the offices of the Company located at 800 East
Northwest Highway, Des Plaines, Illinois, on Friday May 5, 2006, at 9:00 a.m.
local time, and at any adjournment thereof, with all powers the undersigned
would possess if personally present, as follows:
(1) Election of six nominees to the Board of Directors to serve terms of
one year or until their successors are elected.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(Except as marked to the to vote for all nominees
contrary below) listed below
John P. Driscoll, Anthony Grillo, Gordon Hunter, Bruce A. Karsh,
John E. Major and Ronald L. Schubel
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through that nominee's name)
(2) Approval and ratification of the Directors' appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year
ending December 30, 2006.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Approval of the Littelfuse, Inc. Equity Incentive Compensation Plan
(the "Equity Plan") which would supersede and replace the Stock Plan
for Employees and Directors of Littelfuse, Inc., adopted effective
December 16, 1991, and the 1993 Stock Plan for Employees and Directors
of Littelfuse, Inc., adopted effective February 12, 1993.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be signed on the other side)
57
(4) Approval of the Littelfuse, Inc. Outside Directors' Stock Option Plan
(the "Directors Plan") which would supersede and replace the Stock
Plan for New Directors of Littelfuse, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" these proposals set
forth in (1) through (4) above.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Account ______________ No. of Shares ______________ Proxy No. ______________
This proxy will be voted as directed, or if no instructions are given, it will
be voted "FOR" election of all nominees as Directors of the Company, "FOR"
approval and ratification of the appointment of independent auditors, "FOR"
approval of the Equity Plan, "FOR" approval of the Directors Plan, and in the
discretion of the named proxies upon such other matters as may properly come
before the Annual Meeting or an adjournment thereof.
Dated: , 2006
-------------
----------------------------------------
(Signature)
----------------------------------------
(Signature)
Please sign exactly as name appears on stock certificate(s). Executors,
administrators, trustees, guardians, attorneys-in-fact, etc., should give their
full titles. If signer is a corporation, please give full corporate name and
have a duly authorized officer sign, stating title. If a partnership, please
sign in partnership name by authorized person. If a limited liability company,
please sign in limited liability company name by authorized person. If stock is
registered in two names, both should sign.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.