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.  ___)

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METHODE ELECTRONICS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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METHODE ELECTRONICS, INC.
7401 West Wilson Avenue
Chicago, Illinois 60706
(708) 867-6777

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

September 13, 2007

 

 

 

To the Stockholders of Methode Electronics, Inc.:

 

Notice is hereby given that an annual meeting of stockholders of Methode Electronics, Inc. will be held on Thursday, September 13, 2007 at 11:00 a.m., Chicago time, at the Hyatt Rosemont Hotel, 6350 North River Road, Rosemont, Illinois, for the following purposes:

 

 

Our board of directors has fixed the close of business on July 26, 2007 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting and at any adjournment or postponement thereof.

 

It is important that your shares be represented and voted at the annual meeting. Whether or not you plan to attend the annual meeting, please complete, sign, date and mail the accompanying proxy card in the enclosed self-addressed, stamped envelope, or deliver your proxy by telephone or the Internet in accordance with the instructions provided. We respectfully request your cooperation.

 

By Order of the Board of Directors

 

Warren L. Batts

Chairman

 

August 10, 2007

Proxy Statement for the
Annual Meeting of Stockholders of
METHODE ELECTRONICS, INC
To be held on Thursday, September 13, 2007

 

TABLE OF CONTENTS

 

METHODE ELECTRONICS, INC.
7401 West Wilson Avenue
Chicago, Illinois 60706
(708) 867-6777

 

PROXY STATEMENT

 

ANNUAL MEETING OF STOCKHOLDERS
September 13, 2007

telephone, call 1-800-690-6903 and enter your individual 12-digit control number found on your proxy card and then follow the instructions given over the telephone. You may grant your proxy by Internet or by telephone up until 11:59 p.m. Eastern Time the day before the annual meeting date. Please do not submit a proxy card if you delivered your proxy by telephone or the Internet unless you intend to change your voting instructions.

 

If you return a proxy without direction, the proxy will be voted “FOR” the election of all nine director nominees, “FOR” the ratification of the selection of Ernst & Young, “FOR” the approval of the Cash Plan and “FOR” the approval of the Stock Plan.

 

Revoking Your Proxy

 

If you decide to change your vote, you may revoke your proxy at any time before the annual meeting. You may revoke your proxy by notifying our Corporate Secretary in writing that you wish to revoke your proxy at the following address: Methode Electronics, Inc., 7401 West Wilson Avenue, Chicago, Illinois 60706, attention Corporate Secretary. You may also revoke your proxy by submitting a later-dated and properly executed proxy (including by means of the telephone or Internet) or by voting in person at the annual meeting. Attendance at the annual meeting will not, by itself, revoke a proxy.

 

Proxy Solicitation Expenses

 

We will bear the entire cost of the solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding shares of our common stock beneficially owned by others to be forwarded to such beneficial owners. We will reimburse such persons for their reasonable costs of forwarding solicitation materials to such beneficial owners. Our directors, officers or other regular employees may solicit proxies by telephone, by e-mail, by fax or in person. No additional compensation will be paid to directors, officers and other regular employees for such services.

Board Committees

 

The following chart sets forth the committees of our board:

 

 

During the 2007 fiscal year, our board of directors held 12 meetings and no director attended less than 75% of the aggregate of the total number of meetings of our board and the total number of meetings held by the respective committees on which he or she served. Under our Corporate Governance Guidelines, our directors are expected to attend board and stockholder meetings and meetings of committees on which they serve and to meet as frequently as necessary to properly discharge their responsibilities.

 

Our independent directors hold regularly scheduled executive sessions at which only independent directors are present. Pursuant to our Corporate Governance Guidelines, our Chairman of the Board is the Presiding Director of such sessions.

 

Our Audit, Compensation, Nominating and Governance and Technology Committees operate pursuant to charters adopted by the board, which may be found on our website at www.methode.com.

Nominating Process of the Nominating and Governance Committee

 

Our Nominating and Governance Committee is responsible for identifying and recommending to our board of directors individuals qualified to become directors consistent with criteria approved by our board. In considering potential candidates for our board, including with respect to nominations for re-election of incumbent directors, the Committee considers the potential candidate’s integrity and business ethics; strength of character, judgment and experience, consistent with our needs; specific areas of expertise and leadership roles; and the ability to bring diversity to our board. The Committee also considers the ability of the individual to allocate the time necessary to carry out the tasks of board membership, including membership on appropriate committees. No person may be nominated for election as a director after his or her 75th birthday.

 

The Committee identifies potential nominees by asking current directors and others to notify the Committee if they become aware of persons, meeting the criteria described above, who may be available to serve on our board. The Committee has sole authority to retain and terminate any search firm used to identify director candidates and has sole authority to approve the search firm’s fees and other retention terms. Historically, the Committee has not engaged third parties to assist in identifying and evaluating potential nominees, but would do so in those situations where particular qualifications are required to fill a vacancy and our board’s contacts are not sufficient to identify an appropriate candidate.

 

The Committee will consider suggestions from our stockholders. Any recommendations received from stockholders will be evaluated in the same manner that potential nominees suggested by board members are evaluated. Upon receiving a stockholder recommendation, the Committee will initially determine the need for additional or replacement board members and evaluate the candidate based on the information the Committee receives with the stockholder recommendation or may otherwise acquire, and, may, in its discretion, consult with the other members of our board. If the Committee determines that a more comprehensive evaluation is warranted, the Committee may obtain additional information about the director candidate’s background and experience, including by means of interviews with the candidate.

 

Our stockholders may recommend candidates at any time, but the Committee requires recommendations for election at an annual meeting of stockholders to be submitted to the Committee no later than 120 days before the first anniversary of the date of the proxy statement sent to stockholders in connection with the previous year’s annual meeting. The Committee believes this deadline is appropriate and in the best interests of Methode and our stockholders because it ensures that the Committee has sufficient time to properly evaluate all proposed candidates. Therefore, to submit a candidate for consideration for nomination at the 2008 annual meeting of stockholders, a stockholder must submit the recommendation, in writing, by April 12, 2008. The written notice must include:

 

 

Recommendations must be sent to the Nominating and Governance Committee, Methode Electronics, Inc., 7401 West Wilson Avenue, Chicago, Illinois 60706.

 

Communications with Directors

 

Our annual meeting of stockholders provides an opportunity each year for stockholders to ask questions of, or otherwise communicate directly with, members of our board of directors on appropriate matters. All of our directors attended the 2006 annual meeting. We anticipate that all of our directors will attend the 2007 annual meeting.

 

In addition, stockholders may, at any time, communicate in writing with any particular director, or independent directors as a group, by sending such written communication to the Corporate Secretary of Methode Electronics, Inc. at 7401 West Wilson Avenue, Chicago, Illinois 60706. Copies of written communications received at such

address will be provided to the relevant director or the independent directors as a group unless such communications are considered, in the reasonable judgment of the Corporate Secretary, to be improper for submission to the intended recipient(s). Examples of stockholder communications that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to us or our business or communications that relate to other improper or irrelevant topics.

 

Codes of Business Conduct and Ethics

 

Our board of directors has adopted a Code of Business Conduct and Ethics for members of our board of directors, as well as a Code of Business Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, as well as other employees. The codes may be found on our website at www.methode.com.

 

If we make any substantive amendments to the Code of Business Conduct or grant any waiver, including any implicit waiver, from a provision of the Code of Business Conduct to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations.

 

 

Directors and Executive Officers

 

The following table sets forth information regarding our common stock beneficially owned as of July 13, 2007 by (i) each director and nominee, (ii) each of the named executive officers, and (iii) all current directors and executive officers as a group.

 

 

 

 

 

Terms of the Awards.  Our Compensation Committee will determine the amounts and terms of each award, including the performance criteria, performance goals and performance period. Our Compensation Committee currently anticipates awarding annual performance-based bonuses and restricted stock award (“RSA”) tandem cash bonuses pursuant to the Cash Plan. For additional information regarding these awards, please see “Fiscal 2008 Awards” below and the “Compensation Discussion and Analysis” section in this proxy statement.

 

All awards under the Cash Plan will be payable in cash and may be paid following the close of the performance period or receipt of the awards may be deferred by the employee, subject to certain deferral rules. Our Compensation Committee may establish different levels of payment under an award to correspond with different levels of achievement of performance goals specified in the award. No payment will be made unless and until our Compensation Committee has certified in writing that the applicable performance objectives have been attained. For awards other than RSA tandem cash bonuses, the maximum aggregate award that an employee may receive in any one calendar year may not exceed two times the employee’s annual salary (as listed on the Summary Compensation Table in our annual proxy statement). For RSA tandem cash bonuses, the value of the award may not exceed 50% of the aggregate fair market value as of the vesting date of the tandem restricted stock award. Both an RSA tandem cash bonus award and a cash award subject to the dollar limitation listed above may be made in the same calendar year. If an award to an officer fails to meet the requirements under Section 162(m), payment will be delayed until the amount is deductible or upon the officer’s termination of employment, whichever occurs first.

 

Acceleration of Payment.  Generally, if an employee’s employment with us is terminated due to retirement (after the employee’s 65th birthday, or 55th birthday with our consent), death or disability, the payment of outstanding awards under the Cash Plan will accelerate. In addition, in the event of a “change of control” (as defined in the Cash Plan), the payment of outstanding awards will accelerate. In each case, payment will be made on a pro rata basis based on performance to date.

 

Performance Criteria.  Our Compensation Committee will base awards under the Cash Plan upon an employee attaining performance goals related to one or more performance criteria selected by our Compensation Committee from among the following measures, individually or in combination:

 

(a) meeting specific targets for or growth in any of the following: stock price; net sales (dollars or volume); cash flow; operating income; net income; earnings per share; earnings before taxes; earnings before interest and taxes; or earnings before interest, taxes, depreciation and amortization (EBITDA);

 

(b) return on any of the following: net sales; assets or net assets; or invested capital;

 

(c) management of any of the following: working capital; expenses; or cash flow;

 

(d) meeting specific targets for or growth in any of the following: productivity; specified product lines; market share; product development; customer service or satisfaction; employee satisfaction; strategic innovation; or acquisitions;

 

(e) specific personal performance improvement objectives relative to any of the following: formal education; executive training; leadership training; or succession planning.

 

Amendment and Termination.  Our board of directors may amend the Cash Plan at any time, but may not impair the rights of participants with respect to any outstanding awards without the consent of the participants. Our board of directors will seek stockholder approval of an amendment to the Cash Plan if such approval is required under Section 162(m) of the Code. Our board of directors may terminate the Cash Plan at any time. The Cash Plan will automatically terminate in ten years after it is adopted by our board of directors.

 

New Plan Benefits.  Our Compensation Committee will grant awards under the Cash Plan in its discretion. Except as described below under “Fiscal 2008 Awards,” the participants and other terms of the awards have not been determined at this time. Information regarding fiscal 2007 practices with respect to annual performance-based bonuses and the RSA tandem cash bonuses is presented in the “Summary Compensation Table” section in this proxy statement. We may authorize and pay cash and non-cash awards under plans and arrangements other than the Cash Plan.

Federal Income Tax Consequences

 

Amounts paid pursuant to the Cash Plan are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code. Upon receipt of cash awards under the Cash Plan, the recipient will have taxable ordinary income for federal income tax purposes, in the year of receipt, equal to the amount of cash received. Unless limited by Section 162(m), we will be entitled to a tax deduction in the amount and at the time the recipient recognizes compensation income. This discussion of the tax consequences of awards under the Cash Plan does not purport to be complete in that it discusses only federal income tax consequences and it does not discuss tax consequences that may arise in special circumstances, such as death of an award recipient.

 

Fiscal 2008 Awards

 

In July 2007, our Compensation Committee authorized certain incentive awards to executive officers under the Cash Plan, subject to stockholder approval of the Cash Plan. These awards include an annual performance-based bonus award and an RSA tandem cash bonus award. These awards are intended to qualify for full deductibility under Section 162(m) of the Code if they are subsequently earned and paid out.

 

The annual performance-based bonus awards are cash incentive awards for the 2008 fiscal year, which will become payable for performance if certain performance goals are achieved in the 2008 fiscal year. Pursuant to these awards, the key performance measure for all of our executive officers is earnings before interest and taxes based on our overall consolidated financial results. For our executive officers other than Messrs. Duda and Koman, a portion of this bonus is also dependent on achieving certain individual management by objectives (“MBOs”). MBOs include qualitative factors which emphasize strong performance, such as product diversification, technology acquisitions and talent management.

 

The RSA tandem cash bonus awards are cash incentive awards that will become payable for performance over a three-year period if certain performance goals are achieved. Our Compensation Committee granted these awards concurrently with the restricted stock awards described under the “Proposal Four: Approval of the Methode Electronics, Inc. 2007 Stock Plan — Fiscal 2008 Awards” section in this proxy statement. The performance measures for each of the named executive officers include net sales growth and return on invested capital. The maximum amount of the RSA tandem cash bonus will equal the product of the closing price of our common stock as of May 1, 2010, and 50% of the number of shares awarded to such executive officer under the 2008 restricted stock award. For Messrs. Duda and Koman, the measure is based on our overall consolidated financial results. For Messrs. Reynolds and Glandon, the measure is based exclusively on the financial results of the respective divisions they manage.

The table below shows the amounts payable under the fiscal 2008 awards under the Cash Plan upon the named officers achieving specified levels of performance. In calculating the amounts set forth below for the RSA tandem cash bonus awards, we used the closing price of our common stock on July 16, 2007. The actual amounts to be paid, if any, will depend on the closing price of our common stock as of May 1, 2010.

 

 

 

 

Our board of directors recommends a vote “FOR” the approval of the Methode Electronics, Inc. 2007 Cash Incentive Plan.

As of April 28, 2007, awards with respect to 400,900 shares and 171,877 shares of our common stock were subject to issuance under the 2004 Plan and the 2000 Plan, respectively. Upon the adoption of the 2007 Stock Plan, our board of directors elected to terminate the 2004 Plan and the 2000 Plan with respect to the shares reserved under these plans that are not subject to outstanding awards.

 

Summary of the Stock Plan

 

The principal features of the Stock Plan are summarized below. This summary does not contain all information about the Stock Plan. A copy of the complete text of the Stock Plan is included in Appendix B to this proxy statement, and the following description is qualified in its entirety by reference to the text of the Stock Plan.

 

Type of Awards.  The Stock Plan provides for the granting of awards of nonqualified stock options (“NSOs”), incentive stock options (“ISOs”), restricted stock, restricted stock units, stock appreciation rights (“SARs”), and performance share units (“Performance Share Units”), any of which may be performance-based awards.

 

Administration.  Our Compensation Committee will administer the Stock Plan. All determinations of our Compensation Committee are final and binding on all participants. Our Compensation Committee has discretionary authority to interpret the terms of the Stock Plan, to determine eligibility for and grant awards, and to adopt rules, forms and guidelines, among other matters.

 

Participants.  Present and future directors, officers and key employees of Methode or any subsidiary are eligible to participate in the Stock Plan. Our Compensation Committee from time to time will select participants.

 

Number of Shares of Common Stock Available.  The Stock Plan permits a total of 1,250,000 shares of our common stock to be awarded to participants. Shares issued under the Stock Plan may be either authorized but unissued shares or treasury shares. If any award terminates, expires, is cancelled or forfeited as to any number of shares of common stock, new awards may be awarded with respect to such shares. The total number of shares of common stock with respect to which awards may be granted to any participant in any calendar year shall not exceed 200,000 shares.

 

Nonqualified Stock Options.  The Stock Plan provides for the granting of NSOs to any of our directors, officers or key employees. Our Compensation Committee has the authority to determine the terms and conditions of each grant, including the number of shares subject to each NSO, the option period and the option exercise price. The NSO exercise price may not be less than 100% of the fair market value of our common stock on the date of grant.

 

Unless our Compensation Committee otherwise determines, the option period for NSOs granted pursuant to the Stock Plan will expire upon the earliest of: (1) ten years after the date of grant; (2) three months after termination of employment for any reason other than cause, death, or total and permanent disability; (3) three months after a nonemployee director’s termination as a member of the board of directors for any reason other than cause, death, or total and permanent disability; (4) immediately upon termination of employment or service on the board of directors for cause; (5) 12 months after termination of employment on account of death or total and permanent disability; or (6) such other date or event as specified by our Compensation Committee. These periods shall be tolled during any period for which our employees are prohibited from engaging in transactions in our stock.

 

Incentive Stock Options.  The Stock Plan provides for the granting of ISOs to any of our employees. Our Compensation Committee has the authority to determine the terms and conditions of each ISO grant, including without limitation, the number of shares subject to each ISO and the option period. The ISO exercise price is also determined by our Compensation Committee and may not be less than the fair market value of our common stock on the date of grant and not less than 110% of the fair market value if the participant was the holder of more than 10% of our outstanding voting securities on the date of the grant.

 

Unless our Compensation Committee otherwise determines, the option period for ISOs granted under the Stock Plan will expire upon the earliest of: (1) ten years after the date of grant (five years in the case of a holder of more than 10% of our outstanding voting securities); (2) three months after termination of employment for any reason other than cause, death or total and permanent disability; (3) immediately upon termination of employment for cause; (4) 12 months after death or total and permanent disability; or (5) such other date or event as specified by

our Compensation Committee. These periods shall be tolled during any period for which our employees are prohibited from engaging in transactions in our stock.

 

Restricted Stock and Restricted Stock Units.  The Stock Plan permits the granting of awards of shares of restricted stock and restricted stock units to any director, officer or key employee. Awards of shares of restricted stock and restricted stock units may be issued without payment. Upon completion of a vesting period and the fulfillment of any required conditions, restrictions upon the shares of restricted stock or the restricted stock units expire and new certificates representing unrestricted shares of common stock are issued to the participant. Generally, in the case of shares of restricted stock, the participant will have all of the rights of our stockholders, including the right to vote the shares and the right to receive dividends payable with respect to the shares of restricted stock, unless our Compensation Committee specifies otherwise in the award. In the case of an award of restricted stock units, no shares of common stock or other property will be issued at the time the award is granted. Upon the lapse or waiver of restrictions and the restricted period relating to restricted stock units, shares of common stock will be issued to the holder of the restricted stock units.

 

Stock Appreciation Rights.  The Stock Plan provides for the granting of SARs to any director, officer or key employee. A SAR will entitle the participant to surrender any then exercisable portion of the SAR, and in exchange, receive a number of shares of common stock with a fair market value equal to the product of (1) the excess of the fair market value of our common stock on the date of surrender over the fair market value on the grant date, and (2) the number of shares of common stock subject to such SAR. SARs may be exercisable during a period established by our Compensation Committee. The Compensation Committee may allow participants to be paid in cash instead of shares of common stock.

 

Performance Share Units.  The Stock Plan permits the granting of awards of Performance Share Units to any director or employee. No shares of common stock or other property will be issued upon the grant of Performance Share Units. Awards of Performance Share Units shall provide that upon the achievement of specified performance goals, a certain number of shares of common stock shall be issued to the participant. The Compensation Committee may allow participants to be paid in cash instead of shares of common stock.

 

Performance-Based Awards.  Our Compensation Committee may grant awards, including restricted stock or restricted stock units, that are subject to the achievement of performance goals as may be determined by our Compensation Committee. These awards, when they are intended to qualify under Section 162(m) of the Code, are called “Qualified Performance-Based Awards,” and may be granted to certain employees, generally the chief executive officer and three other most highly compensated executive officers, but specifically excluding the chief financial officer. Our Compensation Committee may grant awards to these officers that are performance-based but are not intended to qualify as Qualified Performance-Based Awards.

 

For any award that is granted to our chief executive officer or any of our three highest paid executive officers other than the chief financial officer and is intended to comply with the requirements for performance-based awards under Section 162(m), our Compensation Committee will, in writing, (a) designate the eligible officers, (b) select the performance criteria applicable to the performance period, (c) establish the performance goals, and amounts of such awards, as applicable, which may be earned for such performance period, and (d) specify the relationship between performance criteria and the performance goals and the amounts of such awards, as applicable, to be earned by each eligible officer for the performance period.

 

Following the completion of each performance period, our Compensation Committee will certify in writing whether the applicable performance goals have been achieved for the performance period. No award or portion of an award that is subject to the satisfaction of any condition will be considered to be earned or vested until our Compensation Committee certifies in writing that the conditions to which the distribution, earning or vesting of the award is subject have been achieved. During the performance period, our Compensation Committee may not increase the amount of a Qualified Performance-Based Award that would otherwise be payable upon satisfaction of the conditions, but may reduce or eliminate the payments as provided for in the award agreement.

The payment of Qualified Performance-Based Awards under the Stock Plan will be based upon officers attaining performance goals related to one or more performance criteria selected by our Compensation Committee from among the following measures, individually or in combination:

 

(a) meeting specific targets for or growth in any of the following: stock price; net sales (dollars or volume); cash flow; operating income; net income; earnings per share; earnings before taxes; earnings before interest and taxes; or earnings before interest, taxes, depreciation and amortization (EBITDA);

 

(b) return on any of the following: net sales; assets or net assets; or invested capital;

 

(c) management of any of the following: working capital; expenses; or cash flow;

 

(d) meeting specific targets for or growth in any of the following: productivity; specified product lines; market share; product development; customer service or satisfaction; employee satisfaction; strategic innovation; or acquisitions;

 

(e) specific personal performance improvement objectives relative to any of the following: formal education; executive training; leadership training; or succession planning.

 

Vesting.  Unless our Compensation Committee establishes a different vesting schedule at the time of grant, awards generally vest 33% after one year, 66% after two years and 100% after three years. A participant may not exercise an option or SAR or transfer shares of restricted stock until the award has vested. Generally, if a participant’s employment with us is terminated due to retirement (after the participant’s 65th birthday, or 55th birthday with the consent of the company), death or retirement on account of disability, the participant’s awards will become fully vested. Awards to non-employee directors will become fully vested if the individual ceases to be a director for any reason, other than removal for cause. In addition, in the event of a “change of control”, any award issued to participants will be fully vested, except that awards with vesting subject to performance criteria shall vest on a pro rata basis. If a participant’s employment with us is terminated for any other reason, any awards that are not yet vested are forfeited.

 

Adjustments for Change in Capitalization.  The Stock Plan provides that in the event of a stock dividend, stock split, recapitalization or similar event affecting our capital structure, or a merger, acquisition or similar transaction, our Compensation Committee will make substitutions or adjustments as it deems appropriate and equitable to the share reserve, the share limitations described above, and the purchase price and number of shares subject to outstanding awards.

 

Cashouts.  In the event of certain extraordinary corporate transactions, our Compensation Committee may make provision for a cash payment or for the substitution or exchange of any or all outstanding awards for the cash, securities or property deliverable to the holder of any or all outstanding awards based upon the distribution or consideration payable to holders of common stock upon or in respect of such event. However, in each case, with respect to any ISO, no such adjustment may be made that would cause the Stock Plan to violate Section 422 of the Code (or any successor provision).

 

Federal Tax Consequences.  The following brief description of the tax consequences of awards under the Stock Plan is based on federal income tax laws currently in effect and does not purport to be a complete description of such federal income tax consequences.

 

Incentive Stock Options.  A grantee does not generally recognize taxable income upon the grant or upon the exercise of an ISO. Upon the sale of ISO shares, the grantee recognizes income in an amount equal to the difference, if any, between the exercise price of the ISO shares and the fair market value of those shares on the date of sale. The income is taxed at long-term capital gains rates if the grantee has not disposed of the stock within two years after the date of the grant of the ISO and has held the shares for at least one year after the date of exercise and we are not entitled to a federal income tax deduction. The exercise of an ISO may in some cases trigger liability for the alternative minimum tax. If a grantee sells ISO shares before having held them for at least one year after the date of exercise and two years after the date of grant (a “disqualifying disposition”), the grantee recognizes ordinary income to the extent of the lesser of: (i) the gain realized upon the sale; or (ii) the difference between the exercise price and the fair market value of the shares on the date of exercise. Any additional gain is treated as long-term or short-term capital gain depending upon how long the grantee has held the ISO shares prior to disposition. In the year

of a disqualifying disposition, we receive a federal income tax deduction in an amount equal to the ordinary income that the grantee recognizes as a result of the disposition.

 

Nonqualified Stock Options.  A grantee does not recognize taxable income upon the grant of an NSO. Upon the exercise of such option, the grantee recognizes ordinary income to the extent the fair market value of the shares received upon exercise of the NSO on the date of exercise exceeds the exercise price. We receive an income tax deduction in an amount equal to the ordinary income that the grantee recognizes upon the exercise of the NSO.

 

Restricted Stock.  A participant who receives an award of restricted stock does not generally recognize taxable income at the time of the award. Instead, the participant recognizes ordinary income in the first taxable year in which his or her interest in the shares becomes either: (i) freely transferable; or (ii) no longer subject to substantial risk of forfeiture. The amount of taxable income is equal to the fair market value of the shares less the cash, if any, paid for the shares. A participant may elect to recognize income at the time he or she receives restricted stock in an amount equal to the fair market value of the restricted stock (less any cash paid for the shares) on the date of the award. We receive a compensation expense deduction in an amount equal to the ordinary income recognized by the participant in the taxable year in which restrictions lapse (or in the taxable year of the award if, at that time, the participant had filed a timely election to accelerate recognition of income).

 

Other Awards.  In the case of an exercise of an SAR or an award of restricted stock units or Performance Shares, the participant will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery. In that taxable year, we will receive a federal income tax deduction in an amount equal to the ordinary income which the participant has recognized.

 

Section 162(m).  Section 162(m) of the Code generally disallows a public company’s tax deduction for compensation in excess of $1 million paid in any taxable year to certain employees, generally the chief executive officer and three other most highly compensated executive officers, other than the chief financial officer. Compensation that qualifies as “performance-based compensation,” however, is excluded from the $1 million deductibility cap. We intend that some of the awards granted to these officers at the time a deduction arises in connection with the awards qualify as “performance-based compensation” so that deductions with respect to those awards will not be subject to the $1 million cap under Section 162(m) of the Code. Future changes in Section 162(m) of the Code or the regulations thereunder may adversely affect our ability to ensure that awards under the Stock Plan will qualify as “performance-based compensation” so that deductions are not limited by Section 162(m) of the Code.

 

Amendment; Termination.  Our board of directors may amend the Stock Plan at any time, but may not impair the rights of participants with respect to any outstanding awards without the consent of participants. If our board wishes to increase the limitations on the shares available under the Stock Plan, it will seek approval of our stockholders. Our board may not amend the provision of the Stock Plan that requires stockholder approval before repricing an award. The Stock Plan will terminate ten years after its adoption by our board of directors; provided, however, that our board of directors may terminate the Stock Plan at any time.

 

Fiscal 2008 Awards

 

In July 2007, our Compensation Committee authorized restricted stock awards to executive officers under the Stock Plan, subject to stockholder approval of the Stock Plan. These restricted stock awards are subject to a performance-based vesting condition linked to the net sales growth and return on invested capital achieved during a three-year vesting period, ending on May 1, 2010. For Messrs. Duda and Koman, the measure is based on our overall consolidated financial results. For Messrs. Reynolds and Glandon, the measure is based exclusively on the financial results of the respective divisions they manage. At this time, our Compensation Committee also authorized restricted stock awards to our non-employee directors under the Stock Plan, subject to stockholder approval of the Stock Plan. Each of our non-employee directors received a contingent grant of 3,000 shares of restricted stock.

The table below shows the number of shares of restricted stock deliverable under the fiscal 2008 awards under the Stock Plan upon achievement of specified levels of performance.

 

 

 

 

Equity Compensation Plan Information

 

The following table provides information about shares of our common stock that may be issued upon exercise of stock options or granting of stock awards under all of our existing equity compensation plans as of April 28, 2007.

 

 

Our board of directors recommends a vote “FOR” the approval of the Methode Electronics, Inc. 2007 Stock Plan.

Auditing and Related Fees

 

Our Audit Committee engaged Ernst & Young to examine our consolidated financial statements for the fiscal year ended April 28, 2007. Fees paid to Ernst & Young for services performed during the 2007 and 2006 fiscal years were as follows:

 

 

 

 

The primary metrics we use in structuring our performance-based equity and cash awards include annual sales goals, annual profit goals, return on invested capital (over a three-year period) and revenue growth (over a three-year period). In addition, we use individual management by objectives (“MBOs”) to determine payouts under our annual bonus program. MBOs include qualitative factors which emphasize strong performance, such as product diversification, technology acquisitions and talent management.

 

Our Compensation Process

 

Our Compensation Committee meets as often as necessary to perform its duties. In fiscal 2007, our Compensation Committee met nine (9) times. Although most decisions regarding executive compensation are made in the first quarter of our fiscal year, our management and our Compensation Committee continue to monitor developments during the year. Our Compensation Committee typically meets with Donald Duda, Chief Executive Officer, and, where appropriate, Douglas Koman, Chief Financial Officer. From time to time, our Compensation Committee engages compensation consultants to review the competitiveness and effectiveness of our executive compensation program. In connection with setting fiscal 2007 compensation, both Towers Perrin and The Delves Group were engaged to provide analyses of our executive compensation program as compared to established market benchmarks, as described more fully below.

 

Our Compensation Committee annually reviews tally sheets summarizing our named executive officers’ total compensation, including direct compensation; benefits under equity compensation programs; and perquisites and potential payments on termination of employment, whether on a change in control of Methode or otherwise.

 

Our Chief Executive Officer’s compensation is determined by our Compensation Committee. Management provides relevant survey and other data to the Committee that it may consider for this purpose. Management does not make recommendations to our Compensation Committee regarding compensation elements with respect to Mr. Duda’s compensation. For named executive officers other than Mr. Duda, total compensation packages are developed and recommended by Mr. Duda, in consultation with Mr. Koman, our Chief Financial Officer, and based on guidelines provided by our Compensation Committee. Our Compensation Committee determines whether to approve these recommendations, subject to any further modifications that it may deem appropriate.

 

Market Benchmarking and Positioning

 

We strive to provide compensation opportunities that are competitive with comparable positions at other companies with which we compete for executive talent. As appropriate to further this objective, we review market compensation data and evaluate our executive compensation program as compared to a group of peer companies and various compensation surveys and databases, in each case as provided by our compensation consultants.

 

For compensation decisions affecting fiscal 2007 compensation, our peer group included the following companies: Cobra Electronics Corporation, CTS Corporation, Electro Scientific Industries, Inc. Franklin Electric Co., Inc., Gerber Scientific, Inc., Kemet Corporation, Littelfuse, Inc., Rogers Corporation, Standard Motor Products, Inc., and Stoneridge, Inc. In setting fiscal 2007 compensation, our Compensation Committee also reviewed the following compensation surveys and databases: Watson Wyatt Compensation Calculation (electrical equipment and electronics companies); Watson Wyatt Top Management and Middle Management Databases; Proprietary Cash Compensation Survey (manufacturing companies); and Towers Perrin CDB Executive Compensation and Middle Management and Professional Databases. In identifying appropriate comparisons, our Compensation Committee focuses on revenues, returns on sales, invested capital and growth in sales and profits.

 

As a general policy, we target total direct compensation (that is, base salary, annual and long-term cash incentives and equity-based compensation) for our named executive officers in the 50th to 75th percentile among companies in our peer group and comparable companies within the applicable compensation surveys and databases. In setting compensation for each named executive officer, our Compensation Committee also reviews historical compensation levels, internal equity and consistency, tenure and industry conditions. These and other factors may affect whether total pay for each of our named executive officers falls within the benchmark range. For fiscal 2007 compensation, such other factors included the successful diversification of our products, international expansion and implementation of cost cutting measures. In addition, if we or the relevant business unit performs particularly

well or poorly, total direct compensation for one or more of our named executive officers could be above or below the target levels.

 

Consistent with our pay-for-performance philosophy, our executive compensation program is structured so that a significant amount of each of our named executive officers’ compensation is variable compensation and “at risk” for non-payment if we fail or the executive fails to meet performance targets. The proportion of compensation that is at risk increases with the executive’s level of responsibility. For fiscal 2007, the majority of the named executive officers’ total direct compensation is at risk (on average, 65%). At risk compensation for fiscal 2007 includes the annual bonus and the restricted stock awards, together with the RSA tandem cash awards (described below). As a general policy, we structure the executive compensation program so that approximately 50% to 75% of total direct compensation is in the form of cash.

 

Elements of Compensation

 

Base Salary.  Our Compensation Committee establishes base salaries on an annual basis, taking into account levels of responsibility, prior experience and breadth of knowledge, potential for advancement, recent promotions, past performance, internal equity issues and external pay practices. In general, we target annual base salaries for our named executive officers at the 50th percentile among companies in our peer group and comparable companies within the applicable compensation surveys and databases. For fiscal 2007, our Compensation Committee did not increase the base salary of either Mr. Duda or Mr. Koman. In connection with promotions, Messrs. Reynolds and Glandon were awarded base salary raises of 32% and 45%, respectively.

 

Annual Performance-Based Bonus.  At the beginning of fiscal 2007, our Compensation Committee established individual target awards, expressed as a percentage of base salary, and subject to the achievement of performance goals for all executive officers and management personnel. Bonuses are paid quarterly and are capped at 140% of the established target bonus amount. The awards generally reflect a threshold payment, a target payment and a maximum payment, depending on the level of performance measure achieved. For fiscal 2007, the performance measures for each of the named executive officers include annual net sales and quarterly profit measures compared to budget. For Messrs. Duda, Koman and Kuehnau, the measure is based on our overall consolidated financial results. For Messrs. Reynolds and Glandon, the measure is based exclusively on the financial results of the respective divisions they manage.

 

In addition, the awards use individual MBOs as a performance measure to determine payouts under our annual bonus program. MBOs include qualitative factors which emphasize strong performance, such as product diversification, technology acquisitions and talent management. In general, the most importance is given to quarterly profit measures, followed by the MBOs. Our Compensation Committee believes that using sales and profit measures as a key performance measure focuses the executives on balancing investment and cost control to achieve growth. In setting the measures, our Compensation Committee considered, among other matters, each individual’s and our past performance, the fiscal 2007 operating budget, and general economic conditions. Our Compensation Committee believes that these performance measures are challenging. No amounts are payable unless a specified “threshold” performance level is reached for the applicable period.

 

Discretionary Cash Bonus.  From time to time, our Compensation Committee awards discretionary cash bonuses to the executive officers for exceptional or unusual performance. Historically, such discretionary cash bonuses have been granted in connection with significant involvement in the negotiation, due diligence and integration of an acquired business, the development of a new product line or the recruitment of a significant new customer. In fiscal 2007, Mr. Reynolds received a discretionary bonus of $40,000 and Mr. Glandon received a discretionary bonus of $30,000 in connection with the acquisition of TouchSensor Technologies, L.L.C. (“TST”). None of our other named executive officers received a discretionary bonus in fiscal 2007.

 

Stock Awards.  Our Compensation Committee believes that equity-based compensation is the most effective means of ensuring that our executive officers have a continuing stake in our long-term success. We currently utilize restricted stock awards and restricted stock units as our equity compensation component. Our Compensation Committee believes that these awards serve the following purposes: (i) reward executive officers for long-term stockholder value creation; (ii) provide competitive long-term incentive award opportunities; (iii) retain employees through wealth accumulation opportunities; and (iv) focus executive officers on long-term, sustained performance.

The restricted stock awards and restricted stock unit awards granted to our executive officers in fiscal 2007 are subject to a performance-based vesting condition linked to the revenue growth and return on invested capital achieved during a three-year vesting period. These performance-based awards do not vest unless we achieve a minimum target level of revenue growth and return on invested capital.

 

RSA Tandem Cash Bonus.  In connection with the grant of the fiscal 2007 restricted stock awards, we agreed to pay each executive officer a cash bonus if we exceed our financial targets for revenue growth and return on invested capital, which will be measured as of May 2, 2009. The maximum amount of the tandem cash bonus will equal the product of the closing price of our common stock as of May 2, 2009, and 50% of the number of shares awarded to such executive under the 2007 restricted stock award.

 

Legacy Longevity Bonus Program.  For fiscal 2006 and previous years, our executive officers received long-term incentive awards under the Longevity Contingent Bonus Program (the “Longevity Bonus Program”). The Longevity Bonus Program awards a matching bonus equal to the amount of the current quarterly bonus, which will be considered as earned and payable in three years, provided that the participant is still employed and performance has been satisfactory. If, for any reason other than death, disability, or retirement, the participant terminates his or her employment with us during the three-year period, or his or her performance is not satisfactory, no longevity compensation is payable under this program. Commencing with fiscal 2007, the named executive officers are not eligible to receive future awards under the Longevity Bonus Program. Amounts previously earned by these executives under the Longevity Bonus Program will continue to be paid through fiscal 2009.

 

Other Benefits and Perquisites.  Executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life, disability, and our 401(k) savings plan (with a company contribution), in each case on the same basis as other employees, subject to applicable law. Our executive officers are also provided deferred compensation opportunities through a non-qualified Deferred Compensation Plan. In fiscal 2007, we did not contribute any amounts to the Deferred Compensation Plan on behalf of any of the named executive officers. For a description of the Deferred Compensation Plan, please see the section entitled “Nonqualified Deferred Compensation” below. Dividends are paid with respect to all vested and unvested outstanding restricted stock awards held by our employees. Mr. Duda is also paid an amount equal to the dividend payment with respect to the restricted stock units converted from restricted stock awards (described in more detail below). Mr. Kuehnau participates in our Capital Accumulation Program (which was terminated several years ago), pursuant to which he is entitled to above-market interest accruals on his contributions to such plan. In addition, a few perquisites are provided to the named executive officers. Perquisites include a company car allowance, association dues, limited corporate aircraft usage and provision for an annual physical exam.

 

Change of Control Payments.  We have entered into change of control agreements with our executive officers. These agreements are designed to promote stability and continuity of senior management, both of which are in the best interest of Methode and our stockholders. Our change of control provisions for the named executive officers are summarized below under “Executive Compensation — Potential Payments Upon Termination or Change of Control.”

 

Significant Policies and Procedures

 

Stock Ownership Policy.  Our Compensation Committee considers stock ownership by management to be an important means of linking management’s interests with those of stockholders. We maintain stock ownership guidelines for our executive officers. The amount of stock required to be owned increases with the level of responsibility of each executive. The requirements are subject to a phase-in period in the event of a new hire or a promotion. Our Chief Executive Officer and Chief Financial Officer are expected to own at least 80,000 and 28,000 shares, respectively. All other executive officers are expected to own stock with a value at least equal to their current base salary. Vested restricted stock awards and restricted stock units are included in the calculation of stock ownership for purposes of these guidelines. In valuing restricted stock awards and restricted stock units for this purpose, the policy permits the use of the greater of the grant date fair market value or the current fair market value. Considering the applicable phase-in periods, all of our named executive officers were in compliance with our stock ownership policy for fiscal 2007.

Practices Regarding Grants of Equity Awards.  Our broad-based equity grants are generally made at a scheduled meeting of our Compensation Committee occurring at approximately the same time each year. In addition, our Compensation Committee may choose to make grants of equity awards outside the annual broad-based grant, including in the case of newly hired employees and in connection with promotions.

 

Policy With Respect to Deductibility of Compensation.  Section 162(m) of the Code, as clarified by recent guidance from the Internal Revenue Service, generally denies corporate tax deductions for annual compensation exceeding $1 million paid to certain employees (generally the chief executive officer and the three other most highly compensated executive officers of a public company, but excluding the chief financial officer), unless that compensation qualifies as performance-based compensation under a stockholder approved plan and meets certain other technical requirements. While it is the general intention of our Compensation Committee to maximize the deductibility of executive compensation in structuring our compensation plans and programs, our Compensation Committee has approved, and may continue to approve awards that may not qualify as performance-based compensation under Section 162(m). Our Compensation Committee reserves the flexibility and authority to make decisions that are in the best interest of Methode and our stockholders, even if those decisions do not result in full deductibility under Section 162(m).

 

Resolution of Issues Regarding Section 162(m) and Section 409A of the Internal Revenue Code

 

During fiscal 2007, our Compensation Committee and Donald Duda, our Chief Executive Officer, worked together to address certain issues under Section 162(m) and Section 409A of the Internal Revenue Code related to Mr. Duda’s compensation. The scheduled lapse of the restrictions on Mr. Duda’s 2004, 2005 and 2006 restricted stock awards in April 2007, 2008 and 2009, respectively, would not qualify for an exception under Section 162(m). As such, the value of these awards would be required to be included for purposes of determining whether the $1 million limit has been exceeded in each such fiscal year. Section 409A subjects the recipient of certain forms of non-qualified deferred compensation to an additional 20% tax. Certain payments to be made to Mr. Duda under the 2003 Cash Bonus Agreement described below would be subject to this additional tax.

 

In order to mitigate the Section 162(m) deductibility issue, eliminate the 409A tax consequences to Mr. Duda, and eliminate variable accounting with respect to the 2003 Cash Bonus Agreement, our Compensation Committee approached Mr. Duda regarding the available alternatives. Mr. Duda and our Compensation Committee worked diligently to review and assess the alternatives with the assistance of external legal and compensation advisors. The resolution agreed upon involved multiple steps, including the exercise of stock options and sale of all of the underlying stock by Mr. Duda, the current payment of a portion of the cash bonus to Mr. Duda under the 2003 Cash Bonus Agreement, the amendment of the 2003 Cash Bonus Agreement and Mr. Duda’s 2004, 2005 and 2006 Restricted Stock Award Agreements, and the deferral of certain bonus amounts by Mr. Duda. In fiscal 2007, we were not permitted to deduct $292,507 in compensation paid to Mr. Duda. We currently expect to deduct all compensation payable to Mr. Duda in fiscal 2008.

 

Amended and Restated Restricted Stock Unit Award Agreements.  During fiscal 2007, we entered into Amended and Restated Restricted Stock Unit Award Agreements with Mr. Duda. Pursuant to these agreements, the 2004, 2005 and 2006 restricted stock awards were amended and restated into the form of restricted stock units. Under the terms of the amended restricted stock units, at such time as the value of the award is deductible by us or Mr. Duda’s employment terminates, shares of non-restricted common stock will be delivered to Mr. Duda. The conversion mitigates the Section 162(m) issue because restricted stock units are deductible by us when paid to the executive, in contrast to restricted stock which is deductible upon vesting and, as such, would result in non-deductible compensation. The Amended and Restated Restricted Stock Unit Award Agreements do not amend or modify any other provisions under the 2004, 2005 and 2006 restricted stock awards, including, without limitation, the vesting period or performance criteria.

 

Deferral of 2004, 2005 and 2006 RSA Tandem Cash Bonuses.  In 2004, 2005 and 2006, in connection with the award of restricted stock awards, we agreed to pay Mr. Duda a cash bonus if we met certain financial targets measured as of the end of a three-year period. These cash bonuses do not qualify for an exception under Section 162(m) and will be included for purposes of calculating the $1 million cap in the year paid. Mr. Duda has deferred one hundred percent (100%) of these bonuses pursuant to our Deferred Compensation Plan. The bonuses

are deferred until 2011, 2012 and 2013, respectively. It is currently anticipated that at such time, a substantial portion of Mr. Duda’s annual compensation would qualify for an exception under Section 162(m).

 

Amended Cash Bonus Agreement.  Pursuant to the 2003 Cash Bonus Agreement, Mr. Duda was entitled to two cash bonuses. The amount of the first cash bonus was to be determined by multiplying 100,000 by the value of our common stock in excess of $10.50 (the value of common stock on the date of Mr. Duda’s 2002 stock option grant). The bonus vested in 25% annual increments commencing in June 2003 and ending in June 2006. The amount of the second cash bonus was to be determined by multiplying 150,000 by the value of the common stock in excess of $11.44 (the value of common stock on the date of Mr. Duda’s 2003 stock option grant). The bonus vests in 25% annual increments commencing in July 2004 and ending in July 2007. Under the 2003 Cash Bonus Agreement, Mr. Duda was required to exercise all vested options under the 2002 and the 2003 grants prior to receiving any cash bonuses thereunder. Pursuant to Section 409A, any portion of the cash bonuses which were vested as of January 1, 2005 are grandfathered and not subject to Section 409A. The portions of the cash bonuses that were not vested as of that date are subject to Section 409A and, pursuant to the terms of the Cash Bonus Agreement, would subject Mr. Duda to an additional 20% tax on these bonus amounts.

 

In connection with addressing the issues outlined above, Mr. Duda agreed to elect to receive payment of all cash bonus amounts payable under the 2003 Cash Bonus Agreement that were vested as of January 1, 2005 and not subject to the provisions of Section 409A. In order to make this election, Mr. Duda was required to exercise all vested options under the 2002 and 2003 stock option grants (175,000 shares). The provision of Section 409A prohibited the amendment of the 2003 Cash Bonus Agreement to waive this condition without triggering the 20% additional tax. Mr. Duda exercised these options on April 4 and April 5, 2007, and subsequently sold the underlying 175,000 shares of common stock at a weighted average sale price of $15.32 per share. Also on April 6, 2007, Mr. Duda elected to receive a partial payment under the 2003 Cash Bonus Agreement. We and Mr. Duda agreed that for purposes of this payment and the payments pursuant to the Amended Cash Bonus Agreement described below, the value of our common stock would equal $15.32 per share, the weighted average sales price of the sale of the 175,000 shares. Pursuant to the terms of the Cash Bonus Agreement, these cash bonuses totaled $241,000 [($15.32-$10.50) × 100,000 × 50%] and $145,500 [($15.32-$11.44) × 150,000 × 25%],or $386,500 in the aggregate. These amounts will be included for purposes of determining whether Mr. Duda’s compensation has exceeded the $1 million limit in fiscal-year 2007.

 

We entered into an Amended Cash Bonus Agreement with Mr. Duda. Pursuant to the Amended Cash Bonus Agreement, we will pay Mr. Duda cash bonuses in the amount of $241,000 [($15.32-$10.50) × 100,000 ×50%] and $436,500 [($15.32-$11.44) × 150,000 ×75%], or $677,500 in the aggregate. These cash bonuses are payable on the earliest of the following: (i) May 15, 2009; (ii) the date of Mr. Duda’s termination of employment for any reason; or (iii) Mr. Duda’s death or disability; provided, however, that if, upon the payment date, the payment is not deductible by us under Section 162(m), the payment will be delayed until such time as it is deductible. In such case, the amount may be payable in one or more installments. Mr. Duda is not entitled to any other compensation pursuant to the Amended Cash Bonus Agreement. Amendment of the 2003 Cash Bonus Agreement eliminated variable accounting with respect to the 2003 Cash Bonus Agreement.

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth certain information regarding grants of plan-based awards to the named executive officers during the fiscal year ended April 28, 2007.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth certain information regarding the outstanding equity awards of the named executive officers at April 28, 2007.

 

 

 

 

Option Exercises and Stock Vested

 

The following table sets forth certain information regarding option exercises and the vesting of restricted stock held by the named executive officers during the fiscal year ended April 28, 2007.

 

Nonqualified Deferred Compensation

 

The following table sets forth certain information regarding deferred compensation with respect to the named executive officers for the fiscal year ended April 28, 2007.

 

 

 

 

The Methode Electronics, Inc. Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”) allows a select group of management and highly compensated employees to defer up to 75% of their annual base salary, 100% of their annual bonus, and/or 100% of their RSA tandem cash bonus, with an aggregate minimum deferral of $3,000. The minimum period of deferral is three years. Participants are immediately 100% vested. All of our executive officers participate in the Deferred Compensation Plan.

 

In addition to employee-directed deferrals, we may be required to make contributions to a participant’s account in the Deferred Compensation Plan under a separate agreement, such as an employment agreement. We may also make contributions to the Deferred Compensation Plan to make up for limits applicable under our qualified plans and may make additional discretionary contributions as well. Participants shall vest in company contributions in accordance with the schedule set forth in the applicable agreement or plan governing such contributions. We made no contributions to the Deferred Compensation Plan in fiscal 2007.

 

Participants may elect from a list of certain mutual funds to determine any amounts credited or debited from their accounts, although we are under no obligation to invest the deferred amounts in any specified fund. This list is made available to all participants and account balances are credited or debited based on the current market rates for these funds. Participants may reallocate account balances and/or future deferrals on a daily basis.

 

Participants are entitled to receive a distribution from their account balances at the earlier of the end of the elected deferral period or retirement, disability, termination of employment, or a change in control. Accounts are distributed in a lump sum or, in certain circumstances, in installments over a period of up to fifteen years. Participants can also petition the Compensation Committee to receive a full or partial payout from the Deferred Compensation Plan in the event of an unforeseeable financial emergency.

Payments Made Upon Retirement, Death or Disability

 

In the event of the retirement, death or disability of an executive officer, the executive officer is entitled to the following:

 

 

Payments Made In Connection With a Change of Control

 

In the event of a change of control, each executive officer is entitled to immediate vesting of a pro rata portion of the executive’s outstanding performance-based restricted stock awards and the payment of a pro rata portion of the cash bonus associated with the executive’s outstanding performance-based restricted stock awards. In addition, based on their respective elections, each executive officer is entitled to his account balance in the Deferred Compensation Plan.

 

If within two years of a change of control or during a period pending a change of control, we terminate the executive’s employment without good cause or the executive voluntarily terminates his or her employment for good reason, the executive is entitled to the following:

 

 

In addition to the applicable benefits described above, in the event Mr. Duda’s employment terminates for any reason, he will receive one share of common stock for each outstanding and vested restricted stock unit.

Donald W. Duda

 

The following table shows the potential payments upon termination or a change of control of Methode for Donald W. Duda, our Chief Executive Officer.

 

 

 

 

Douglas A. Koman

 

The following table shows the potential payments upon termination or a change of control of Methode for Douglas A. Koman, our Chief Financial Officer.

 

 

 

 

Robert J. Kuehnau

 

The following table shows the potential payments upon termination or a change of control of Methode for Robert J. Kuehnau, our former Vice President, Treasurer, Controller and Assistant Secretary. Mr. Kuehnau resigned as an executive officer effective April 27, 2007.