Molex DEF 14A 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
(Name of Registrant as Specified in Its Charter)
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2222 Wellington Court
Lisle, Illinois 60532
We will hold the annual meeting of Molex Incorporated stockholders on Friday, October 30, 2009 at 10:00 a.m., Central time, at our corporate headquarters at 2222 Wellington Court, Lisle, Illinois 60532.
The purpose of the annual meeting is to consider and take action on the following matters:
1. The election of five Class I directors nominated by Molexs Board of Directors for a term of three years;
2. The ratification of the selection of Ernst & Young LLP as Molexs independent auditors for the fiscal year ending June 30, 2010; and
3. Any other business that properly comes before the meeting or any adjournments or postponements thereof.
The items of business listed above are more fully described in the Proxy Statement accompanying this Notice. Stockholders of record as of the close of business on September 8, 2009 are entitled to vote at the annual meeting or any adjournments or postponements thereof.
Your vote is important. Whether or not you plan to attend the annual meeting in person, it is important that your shares be represented and voted. You may vote via the Internet, telephone or mail before the annual meeting or in person at the annual meeting.
By Order of the Board of Directors
Mark R. Pacioni
September 10, 2009
2222 Wellington Court
Lisle, Illinois 60532
INFORMATION CONCERNING VOTING AND SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Molex Incorporated (Molex or the Company), a Delaware corporation, for use at the annual meeting of stockholders to be held on Friday, October 30, 2009, at 10:00 a.m., Central time, or at any postponements or adjournments thereof, for the purposes discussed in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders and for any business properly brought before the annual meeting. Proxies are solicited to give all stockholders of record an opportunity to vote on matters properly presented at the annual meeting, which will be held at our corporate headquarters at 2222 Wellington Court, Lisle, Illinois 60532.
In accordance with rules adopted by the Securities and Exchange Commission (the SEC), we now furnish to our stockholders proxy materials, including our Annual Report to Stockholders, on the Internet. We will begin distributing a Notice of Internet Availability of Proxy Materials (the Notice of Internet Availability) to our stockholders of record and beneficial owners on or about September 10, 2009. The Notice of Internet Availability contains instructions on how to access this Proxy Statement and our 2009 Annual Report to Stockholders and how to vote. If you receive a Notice of Internet Availability, you will not receive a printed copy of the proxy materials unless you specifically request them, which you may do by following the instructions included in the Notice of Internet Availability.
You are entitled to vote at the annual meeting if you were a stockholder of record of Molex voting stock as of the close of business on September 8, 2009. Your shares may be voted at the annual meeting only if you are present in person or represented by a valid proxy.
Whether you hold shares directly as a stockholder of record or beneficially in street name, you may direct how your shares are voted without attending the meeting. If you are a stockholder of record, you may vote by submitting a proxy. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or nominee. For directions on how to vote, please refer to the instructions below and those on the Notice of Internet Availability, proxy card or voting instruction form provided.
By Internet. Stockholders of record may submit proxies over the Internet by following the instructions on the Notice of Internet Availability or, if printed copies of the proxy materials were received, the instructions on the printed proxy card. Most beneficial stockholders may vote by accessing the website specified on the voting instruction forms provided by their brokers, trustees or nominees. Please check your voting instruction form for Internet voting availability. Voting instructions must be received by 11:59 p.m., Eastern time, October 29, 2009.
By Telephone. Stockholders of record may submit proxies using any touch-tone telephone from within the United States by following the instructions regarding accessing a copy of the proxy statement on the Notice of Internet Availability or, if printed copies of the proxy materials were received, the instructions on the printed proxy card. Most beneficial owners may vote using any touch-tone telephone from within the United States by calling the number specified on the voting instruction
forms provided by their brokers, trustees or nominees. Voting instructions must be received by 11:59 p.m., Eastern time, October 29, 2009.
By Mail. Stockholders of record may submit proxies by mail by requesting printed proxy cards and completing, signing and dating the printed proxy cards and mailing them in the accompanying pre-addressed envelopes. Beneficial owners may vote by completing, signing and dating the voting instruction forms provided and mailing them in the accompanying pre-addressed envelopes.
In Person. Stockholders of record may also vote in person at the annual meeting. We will provide a ballot to anyone who requests one at the meeting. Shares held in your name as the stockholder of record may be voted on that ballot. Shares held beneficially in street name may be voted on a ballot only if you bring a legal proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares. Even if you plan to attend the annual meeting, we recommend that you also submit your proxy or voting instruction form as described below so that your vote will be counted if you later decide not to attend the meeting.
Molex is incorporated under Delaware law, which specifically permits electronically transmitted proxies, provided that each such proxy contains or is submitted with information from which the inspector of election can determine that such proxy was authorized by the stockholder. (Delaware General Corporation Law, Section 212(c).) The electronic voting procedures provided for the annual meeting are designed to authenticate each stockholder by use of a control number to allow stockholders to vote their shares and confirm that their instructions have been properly recorded.
If you submit a proxy and do not specify how you want your shares to be voted, your shares will be voted by the named proxy holders (i) For the election of all of the director nominees and (ii) For the ratification of the selection of Ernst & Young LLP as our independent auditors for the year ending June 30, 2010.
In their discretion, the named proxy holders are authorized to vote on any other matters that may properly come before the annual meeting and at any postponements or adjournments thereof. The Board of Directors knows of no other items of business that will be presented for consideration at the annual meeting other than those described in this Proxy Statement. In addition, no stockholder proposal or nomination was received by the applicable deadlines, so no such matters may be brought to a vote at the annual meeting.
If you vote by proxy, you may revoke that proxy at any time before it is voted at the annual meeting. Stockholders of record may revoke a proxy by sending to our Secretary, at 2222 Wellington Court, Lisle, Illinois 60532, a written notice of revocation or a duly executed proxy bearing a later date or by attending the annual meeting in person and voting in person. If your shares are held in the name of a bank, broker or other holder of record, you may change your vote by submitting new voting instructions to your bank, broker or other holder of record.
You are entitled to attend the annual meeting only if you were a Molex stockholder as of the close of business on September 8, 2009 or hold a valid proxy for the annual meeting. You should be prepared to present photo identification for admittance. In addition, if you are a stockholder of record, your ownership as of the record date will be verified prior to admittance into the meeting. If you are not a stockholder of record but hold shares through a broker, trustee, or nominee, you must provide proof of beneficial ownership as of the record date, such as an account statement or similar evidence of ownership. If you do not provide photo identification and comply with the other procedures outlined above, you will not be admitted. Cameras, recording equipment, electronic devices, large bags, briefcases or packages will not be permitted in the annual meeting. For directions to the annual meeting, please call 630.527.4447.
We have three classes of common stock: Common Stock, par value $.05 per share (Common Stock), Class A Common Stock, par value $.05 per share (Class A Common Stock), and Class B Common Stock, par value $.05 per share (Class B Common Stock).
The holders of Common Stock and Class B Common Stock are entitled to one vote per share upon each matter submitted to the vote of the stockholders and, subject to the conditions summarized below, vote separately as a class as to all matters except the election of directors. With respect to the election of directors, the holders of Common Stock and Class B Common Stock vote together as a class. As of the record date, Frederick A. Krehbiel, John H. Krehbiel, Jr. and Fred L. Krehbiel control the vote of approximately 96% of Class B Common Stock. As a result, regardless of the vote of any other Molex stockholder, they generally have control over the vote relating to all matters other than the election of directors, including Item 2, the ratification of the selection of Molexs independent auditors.
The right of Class B Common Stock holders to vote separately as a class is subject to applicable law and exists for so long as at least 50% of the authorized shares of the Class B Common Stock are outstanding. As of September 8, 2009, more than 50% of the authorized shares of Class B Common Stock were outstanding.
The holders of Class A Common Stock have the same liquidation rights and the same rights and preferences regarding dividends as the holders of Common Stock or Class B Common Stock. However, the holders of Class A Common Stock have no voting rights except as otherwise required by law or under certain circumstances. For example, under Delaware law, any amendments to our Certificate of Incorporation changing the number of authorized shares of any class, changing the par value of the shares of any class, or altering or changing the powers, preferences, or special rights of the shares of any class so as to adversely affect them, including Class A Common Stock, would require the separate approval of the class so affected, as well as the approval of all classes entitled to vote thereon, voting together.
Class A Common Stock would automatically convert into Common Stock on a share-for-share basis any time upon the good faith determination by the Board of Directors that either of the following events has occurred: (i) the aggregate number of outstanding shares of Common Stock and Class B Common Stock together is less than 10% of the aggregate number of outstanding shares of Common Stock, Class B Common Stock and Class A Common Stock together; or (ii) any person or group, other than one or more members of the Krehbiel family, as defined in our Certificate of Incorporation, becomes or is the beneficial owner of a majority of the outstanding shares of Common Stock.
As of the close of business on September 8, 2009 there were outstanding:
95,560,076 shares of Common Stock
77,989,270 shares of Class A Common Stock
94,255 shares of Class B Common Stock
A majority of the outstanding shares of each of Common Stock and Class B Common Stock entitled to vote will constitute a quorum at the meeting.
All votes will be tabulated by the inspector of election appointed for the annual meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Shares held by persons attending the annual meeting but not voting, shares represented by proxies that reflect abstentions as to a particular proposal and broker non-votes will be counted as present for purposes of determining a quorum.
Our directors are elected by a plurality of the votes cast by the holders of Common Stock and Class B Common Stock voting together as a class. This means the director nominees who receive the largest number of properly cast for votes will be elected as directors. Abstentions and withheld votes will have no effect on the result of the votes on the election of directors.
All other proposals must be approved separately by a majority of the shares of Common Stock voting as a class and the majority of the shares of Class B Common Stock voting as a class. Abstentions will have the same effect as votes against the proposal.
If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. The NASDAQ Global Select Market (NASDAQ) rules permit brokers to vote their clients shares in their own discretion on the election of directors and on Item 2 if they have not received instructions from their clients. When a broker votes a clients shares on some but not all of the proposals at a meeting, the missing votes are referred to as broker non-votes. Those shares will be included in determining the presence of a quorum at the meeting, but are not considered present for purposes of voting on non-discretionary matters.
All expenses for soliciting proxies will be paid by Molex, which has retained Georgeson Inc. (Georgeson), 199 Water Street, 26th Floor, New York, New York 10038, to aid in the solicitation of proxies, for fees of approximately $8,500, plus additional expenses of approximately $1,000. Proxies may be solicited by personal interview, mail and telephone. Georgeson has contacted brokerage houses, other custodians and nominees to ask whether other persons are the beneficial owners of the shares they hold in street name and, if that is the case, will supply additional copies of the proxy materials for distribution to such beneficial owners. Molex will reimburse such parties for their reasonable expenses for sending proxy materials to the beneficial owners of the shares. In addition, solicitation of proxies may be supplemented by telephone, facsimile, electronic mail or personal solicitation by our directors, officers or employees. No additional compensation will be paid to directors, officers or employees for such services.
We will announce preliminary voting results at the annual meeting and report final results in our quarterly report on Form 10-Q for the quarter ended December 31, 2009 (available at www.sec.gov and www.molex.com).
A list of stockholders entitled to vote at the annual meeting will be available for examination by any stockholder for any purpose relevant to the annual meeting during ordinary business hours at our offices at 2222 Wellington Court, Lisle, Illinois 60532, for ten days prior to the annual meeting, and also at the annual meeting.
Our Board of Directors is divided into three classes, each class consisting, as nearly as possible, of one-third of the total number of directors, with members of each class serving for a three-year term. Vacancies on the Board may be filled only by persons elected by the Board to fill a vacancy (including a vacancy created by an increase in the size of the Board). A director elected by the Board to fill a vacancy (including a vacancy created by an increase in the size of the Board) will serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such directors successor is elected and qualified, or until such directors earlier death, resignation or removal.
Each share of Common Stock and Class B Common Stock is entitled to one vote for each of the five director nominees. It is the intention of the named proxy holders to vote the proxies received by them for the election of the five nominees named below unless authorization to do so is withheld. If any nominee should become unavailable for election prior to the annual meeting, an event that currently is not anticipated by the Board of Directors, the proxies will be voted for the election of a substitute nominee proposed by the Board unless the Board chooses to reduce the number of directors serving on the Board. Each person nominated for election has agreed to serve if elected, and the Board has no reason to believe that any nominee will be unable to serve.
Based upon the recommendation of the Corporate Governance and Nominating Committee, Michelle L. Collins, Fred L. Krehbiel, David L. Landsittel, Joe W. Laymon and James S. Metcalf are all nominees for reelection to the Board. If elected, each nominee would serve until the 2012 annual meeting of stockholders. Our newest director, Dr. Anirudh Dhebar, was initially suggested as a candidate by the Chief Executive Officer and Co-Chairmen. Dr. Dhebar met the Corporate Governance and Nominating Committees candidate criteria, was interviewed, selected and recommended by the Corporate Governance and Nominating Committee and approved by the Board. Dr. Dhebar was named a director by the Board effective August 7, 2009 and will stand for election at the 2010 annual meeting.
Set forth below is biographical information for each nominee and for all other directors. Frederick A. Krehbiel and John H. Krehbiel, Jr., are brothers and Fred L. Krehbiel is the son of John H. Krehbiel, Jr., (collectively, the Krehbiel Family). The Krehbiel Family may be considered control persons of Molex. Other than the Krehbiel Family, no director or executive officer has any family relationship with any other director or executive officer.
Michelle L. Collins, age 49, has served as a director of Molex since 2003. Ms. Collins has been President of Cambium LLC, a business and financial advisory firm, and Advisory Board Member of Svoboda Capital Partners LLC since 2007. Ms. Collins was a co-founder of Svoboda Collins LLC, a private equity firm, where she served as Managing Director from 1998 to 2007. From 1992 to 1997, Ms. Collins was a principal at William Blair & Company, LLC. Ms. Collins is a director of Columbia Acorn Fund, Wanger Advisors Trusts and Bucyrus International, Inc.
Fred L. Krehbiel, age 44, has served as a director of Molex since 1993. Since 1988, he has served in various engineering, marketing and managerial positions with Molex. Mr. Krehbiel is Senior Vice President, Technology Innovation; from July 2007 through August 2009 he was Vice President, Product Development and Commercialization for Molexs Global Commercial Products Division; from 2003 to 2007, he was President, Connector Products Division (Americas), and from 2002 to 2003, he served as President, Automotive Division (Americas).
David L. Landsittel, age 69, has served as a director of Molex since 2005. Mr. Landsittel is Chairman of COSO, a private sector organization that provides guidance to business enterprises and others on internal controls, enterprise risk management and fraud deterrence. He previously served as Chairman of the Auditing Standards Board of the American Institute of Certified Public Accountants. From 1963 to 1997, Mr. Landsittel served as an auditor in various positions with Arthur Andersen LLP. Mr. Landsittel is a Trustee of Burnham Investors Trust.
Joe W. Laymon, age 56, has served as a director of Molex since 2002. He resigned from the Board in 2006 and was re-elected in January 2008. Mr. Laymon has been Corporate Vice President of Human Resources at Chevron Corporation since March 2008. Prior to that, Mr. Laymon was Group Vice President of Corporate Human Resources and Labor Affairs of Ford Motor Company from 2004 to 2008. From 2000 to 2004 he was Executive Director of Human Resources of Ford.
James S. Metcalf, age 51, has served as a director of Molex since September 2007. Since 2006, he has been the President and Chief Operating Officer of USG Corporation, a leading manufacturer and distributor of building materials and products used in certain industrial processes. Mr. Metcalf joined USG in 1980 and has held numerous executive positions including Executive Vice President and President, Building Systems from 2002 to 2006; President and Chief Executive Officer, L&W Supply from 2000 to 2002; and Executive Vice President and Chief Operating Officer, L&W Supply from 1999 to 2000. Mr. Metcalf is a director of USG.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NAMED NOMINEE
Michael J. Birck, age 71, has served as a director of Molex since 1995. He is the co-founder of Tellabs, Inc., a telecommunications equipment company. He has been Chairman of Tellabs since 2000. He was the Chief Executive Officer of Tellabs from 2002 to 2004, and Chief Executive Officer and President from 1975 to 2000.
Anirudh Dhebar, age 58, has served as a director of Molex since August 2009. Dr. Dhebar has been a professor of marketing at Babson College since 1997, and prior to joining the faculty at Babson College, he was on the faculty at the Harvard Business School (1983-1995) and the Sloan School of Management at the Massachusetts Institute of Technology (1995-1997).
Frederick A. Krehbiel, age 68, has served as a director of Molex since 1972. Mr. Krehbiel has been Co-Chairman of the Board since 1999. From 1988 to 1999 he served as Vice Chairman and Chief Executive Officer, and as Chairman from 1993 to 1999. From 1999 to 2001 he served as Co-Chief Executive Officer and as Chief Executive Officer from 2004 to 2005. Mr. Krehbiel is a director of Tellabs, Inc.
Martin P. Slark, age 54, has served as a director of Molex since 2000. Mr. Slark has been Vice Chairman and Chief Executive Officer since 2005. From 2001 to 2005, he served as President and Chief Operating Officer. From 1999 to 2001, he served as Executive Vice President. Mr. Slark is a director of Hub Group, Inc. and Liberty Mutual.
Edgar D. Jannotta, age 78, has served as a director of Molex since 1986. Mr. Jannotta has been Chairman of William Blair & Company LLC, an international investment banking firm, since 2001. He has served in numerous capacities at William Blair since 1965, including Senior Director, Senior Partner and Managing Partner. Mr. Jannotta is a director of Aon Corporation.
John H. Krehbiel, Jr., age 72, has served as a director of Molex since 1966. Mr. Krehbiel has been Co-Chairman of the Board since 1999. From 1999 to 2001, he served as Co-Chief Executive Officer. From 1996 to 1999, he served as Chief Operating Officer, and from 1975 to 1999, he served as President.
Donald G. Lubin, age 75, has served as a director of Molex since 1994. Mr. Lubin is a partner of the law firm Sonnenschein Nath & Rosenthal LLP. He has been a partner since 1964 and was Chairman from 1990 to 1996.
Robert J. Potter, age 76, has served as a director of Molex since 1981. Dr. Potter has been President and Chief Executive Officer of R.J. Potter Company, a business consulting firm, since 1990. From 1987 to 1990, Dr. Potter was President and Chief Executive Officer of Datapoint Corporation, a leader in network-based data processing. Dr. Potter is a director of Zebra Technologies Corporation.
The Board of Directors has assessed the independence of the directors in light of the published listing standards of NASDAQ and the more stringent Independence Standards established by the Board, which are described below and can also be found on our website, www.molex.com, on the Investors page under Corporate Governance. Under these standards, the Board has determined that the following directors are independent: Michael J. Birck, Michelle L. Collins, Anirudh Dhebar, Edgar D. Jannotta, David L. Landsittel, Joe W. Laymon, James S. Metcalf and Robert J. Potter. Donald G. Lubin has determined that he is not independent in light of his longstanding role as a legal advisor to Molex and the Krehbiel Family, and the Board agrees with Mr. Lubins determination.
The NASDAQ rules have objective tests and a subjective test for determining who is an independent director. Under the objective tests, a director cannot be considered independent if the director (i) is an employee of the Company or (ii) is a partner in, or an executive officer of, an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipients consolidated gross revenue for that year.
The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In addition to the Board-level standards for director independence, the directors who serve on the Audit Committee each must satisfy standards established by the SEC providing that to qualify as independent for the purposes of membership on that committee, members of audit committees may not accept directly or indirectly any consulting, advisory, or other compensatory fee from the company other than their director compensation and must not be an affiliated person.
Under the additional Independence Standards established by the Board, a director cannot be affiliated with a business organization that either paid or received payments to or from us during any one of the past three fiscal years that exceed the greater of 2% of the recipients gross revenues for that year or $200,000.
In assessing independence, the Board reviewed transactions and relationships of the directors based on information provided by each director, our records and publicly available information. The relationships and transactions reviewed by the Board included the following:
The Board of Directors held eight meetings during FY09, and all of the directors attended at least 75% of the total number of meetings of the Board and committees on which they served, except for Mr. Birck, who attended 70% of such meetings. The Board expects all directors to attend the annual meeting of stockholders, barring unforeseen circumstances. All then-members of the Board were present at the 2008 annual meeting of stockholders. The non-employee directors meet in executive session without management present following each regularly scheduled Board meeting. The Chairman of the Corporate Governance and Nominating Committee presides at these executive sessions.
The Board has a standing Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, Technology Committee, and Executive Committee. The charters of these committees are posted on our website, www.molex.com, on the Investors page under Corporate Governance. In addition, the Board has established a Stock Option Plan Committee comprised of Frederick A. Krehbiel, John H. Krehbiel, Jr., and Martin P. Slark.
The Audit Committee consists of Mr. Landsittel (Chair), Ms. Collins and Dr. Potter. The Board has determined that each of the members of the Audit Committee is independent under the listing
standards of NASDAQ, and that Mr. Landsittel is an audit committee financial expert as defined by SEC regulations. All members of the Audit Committee meet the NASDAQ composition requirements, including the requirements regarding financial literacy and financial sophistication. The functions of the Audit Committee are described under Audit Committee Report. During FY09, the Audit Committee met eight times.
The Compensation Committee consists of Mr. Laymon (Chair) and Messrs. Landsittel and Metcalf. The Board has determined that each of the members of the Compensation Committee is independent under the listing standards of NASDAQ. The Compensation Committee is responsible for establishing executive compensation policies and overseeing executive compensation practices. The roles and responsibilities of the Compensation Committee, management and the compensation consultants are described in greater detail under Compensation Discussion and Analysis. The Compensation Committee is authorized to delegate responsibilities to subcommittees when appropriate but has not done so. During FY09, the Compensation Committee met six times.
The Corporate Governance and Nominating Committee consists of Mr. Jannotta (Chair), Mr. Birck and Ms. Collins. The Board has determined that each of the members of the Corporate Governance Committee is independent under the listing standards of NASDAQ. The Corporate Governance Committee oversees the corporate governance and Board membership matters and monitors the independence of the Board. The Corporate Governance Committee also determines Board membership qualifications, selects, evaluates and recommends to the Board nominees for election to the Board, and reviews the performance of the Board. During FY09, the Corporate Governance Committee met twice.
The Technology Committee consists of Dr. Potter (Chair), Mr. Birck and Fred L. Krehbiel. The Technology Committee reviews and monitors the execution of the Companys technology strategies and its technology competitiveness. In addition, the Technology Committee reviews and discusses significant emerging technology issues, trends and opportunities that may affect the Company, its business and strategy. The Technology Committee was formed on April 24, 2009 and held no meetings in FY09.
The Executive Committee consists of Frederick A. Krehbiel (Co-Chair), John H. Krehbiel, Jr. (Co-Chair), and Messrs. Birck, Jannotta and Slark. The Executive Committee has all the powers and authority of the Board in the management of the business and affairs, except with respect to certain enumerated matters including Board composition and compensation, changes to our charter documents, or any other matter expressly prohibited by law or our charter documents. Pursuant to its charter, the Executive Committee has appointed a subcommittee consisting of Frederick A. Krehbiel, John H. Krehbiel, Jr., and Martin P. Slark to act in certain prescribed and specific areas. During FY09 the Executive Committee did not meet, but its subcommittee acted several times by unanimous written consent.
The Board of Directors, at the recommendation of the Corporate Governance and Nominating Committee, has adopted certain principles relating to corporate governance matters.
The Corporate Governance and Nominating Committee maintains, with the approval of the Board, certain criteria and procedures relating to the identification, evaluation and selection of candidates to serve on the Board. The minimum criteria sought by the Board for candidates as directors are described in the Boards Criteria for Membership on the Board of Directors. In addition, the Corporate Governance and Nominating Committee has established Procedures for Identifying and Evaluating Candidates for Director. These documents are included in this Proxy Statement as Appendix I and Appendix II, respectively, and posted on our website, www.molex.com, on the Investors
page under Corporate Governance. The Corporate Governance and Nominating Committee will consider candidates recommended by stockholders provided that appropriate notice is given.
In recognition of the increasing demands of board service, the Board has limited the number of public company boards on which our directors and executive officers may serve as follows: (i) non-employee directors are limited to service on three other public company boards; (ii) the Chief Executive Officer and Chief Operating Officer are limited to service on two other public company boards; and (iii) all other executive officers (other than the Co-Chairmen) are limited to service on one other public company board.
When a directors principal occupation or business association changes substantially during his or her tenure as a director, that director is required to tender his or her resignation for consideration by the Board. The Board will determine whether any action should be taken with respect to the resignation.
Our annual meetings provide an opportunity each year for stockholders to ask questions of, or otherwise communicate directly with, members of the Board on appropriate matters. In addition, stockholders may communicate in writing with any particular director, any committee of the Board, or the directors as a group by following the Procedures for Stockholder Communications with Directors included in this Proxy Statement as Appendix III and posted on our website, www.molex.com, on the Investors page under Corporate Governance.
We use a combination of cash and stock-based incentives to attract and retain qualified candidates to serve on the Board. In setting director compensation, we consider the significant amount of time that directors expend to fulfill their duties, the skill level required of the members of the Board and competitive practices among peer companies. Employee directors do not receive additional compensation for their service on the Board.
Each non-employee director receives (i) an annual retainer of $60,000; (ii) $3,000 for each board meeting attended; and (iii) $2,000 for each committee meeting attended. The non-employee director chairs of the committees receive higher meeting fees in view of their increased responsibilities: the chair of each of the Compensation, Corporate Governance and Nominating, and Technology Committees is paid $3,000 for each committee meeting attended, and the chair of the Audit Committee is paid $4,000 for each committee meeting attended. In addition, non-employee directors are reimbursed for all reasonable travel and out-of-pocket expenses associated with attending Board and committee meetings and continuing education seminars. In connection with our restructuring and other compensation program reductions, the directors reduced their annual retainer by 20% to $48,000, effective April 1, 2009. We plan to reinstate the $60,000 annual retainer effective October 1, 2009.
Each non-employee director receives an annual automatic non-discretionary stock option grant under the 2008 Molex Stock Incentive Plan. The options are granted on the date of the annual meeting of stockholders with an exercise price equal to the closing price of the Class A Common Stock on the grant date. Each option vests ratably over four years commencing on the first anniversary of the grant date and expires five years from the grant date. Beginning with the 2009 annual meeting,
options will expire ten years from the grant date. The number of shares underlying the option is 500 multiplied by the number of years of service or fraction thereof. The number of shares underlying a stock option grant cannot exceed 5,000 shares or $150,000 in value, whichever is less.
The stock ownership guidelines for non-employee directors require them to own 500 shares (and/or stock units) of Molex stock within three years of commencement of service and 1,000 shares (and/or stock units) of Molex stock within six years of commencement of service. As of September 8, 2009, each non-employee director had met, or was on track to meet, the stock ownership guidelines.
Our non-employee directors are eligible to participate in the Molex 2005 Outside Directors Deferred Compensation Plan, under which they may elect on a yearly basis to defer all or a portion of the following years directors fees. A non-employee director may elect to have the deferred fees (i) accrue interest during each calendar quarter at a rate equal to the average six-month Treasury Bill rate in effect at the beginning of each calendar quarter (an interest account), or (ii) converted to stock units at the closing price of Common Stock on the date the fees would otherwise be paid (a stock account). Upon a directors termination of service as a director (or age 591/2 if later) or the directors death or disability, the accumulated amount in the directors interest account is distributed in cash, and the stock units in the directors stock account are distributed in an equal number of shares of Common Stock. We impute dividends on each stock unit that is credited to a directors stock account, and the imputed dividends are converted into additional stock units on the basis of the market value of the Common Stock on the dividend payment date. The number of outstanding stock units (including dividend units) is included in the Security Ownership of Directors and Executive Officers table. All distributions will be made in a single lump sum payment, except that a participant may elect to receive amounts distributed in annual installments over a period of up to ten years on account of his or her separation from service after attaining age 591/2.
The following table sets forth summary information concerning compensation for each of our non-employee directors for FY09. Information about compensation for employee directors who are not Named Executive Officers (NEOs) can be found under Transactions with Related Persons.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Molex stock beneficially owned by each director, the NEOs, and all directors and executive officers as a group as of September 1, 2009. The Class A Common Stock is reported for informational purposes.
We have stock ownership guidelines for executive officers to ensure that our officers (including the NEOs) have a meaningful stake in the equity of the Company and to further align the interest of the officers with the long-term interest of our stockholders. The guidelines require the Chief Executive Officer to own Molex stock equal in value to at least three times his annual base salary, and each other executive officer to own Molex stock equal in value to at least two times his or her annual base salary. A new executive officer is given five years to meet these guidelines. We make exceptions to these guidelines for an executive officer expected to retire within three years or for economic hardship. As of September 8, 2009, each executive officer had met, or was on track to meet, the stock ownership guidelines.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Molexs directors and certain of its officers to file reports of their ownership of Molex stock and of changes in such ownership with the SEC. SEC regulations also require us to identify in this Proxy Statement any person subject to this requirement who failed to file any such report on a timely basis. Based on our review of the reports we have received or assisted in preparing, we believe that all of our directors and officers complied with all of the reporting requirements applicable to them with respect to transactions during FY09.
The following table sets forth information regarding beneficial ownership of the stockholders of more than 5% (other than directors and executive officers) of the outstanding Molex stock as of December 31, 2008, unless otherwise indicated in the Schedule 13G. Class A Common Stock is included in the table for informational purposes.
The Audit Committee has selected Ernst & Young LLP (E&Y) as Molexs independent auditors for the fiscal year ending June 30, 2010, and has further directed that the Board submit the selection of independent auditors for ratification by the stockholders at the annual meeting. A representative of E&Y is expected to be present at the annual meeting, will have an opportunity to make a statement if he or she so desires, and will be available to respond to questions.
Stockholder ratification of the selection of E&Y as Molexs independent auditors is not required by the Bylaws or otherwise, but the Board believes that as a matter of corporate practice the selection of E&Y should be submitted to Molexs stockholders for ratification. If the stockholders do not ratify the selection, the Audit Committee will consider whether or not to retain E&Y. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time during the year if the Audit Committee determines that such a change would be in the best interests of Molex and its stockholders.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 2
The Audit Committee assists the Board of Directors by providing oversight on the following matters relating to Molexs financial reporting:
Molexs management is responsible for preparing the financial statements, establishing and maintaining the system of internal controls, and assessing the effectiveness of Molexs internal control over financial reporting. E&Y is responsible for auditing the annual financial statements and expressing opinions on the conformity of the financial statements with U.S. generally accepted accounting principles and on the effectiveness of Molexs internal control over financial reporting based on its audit.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management and E&Y the audited financial statements for the fiscal year ended June 30, 2009 and the reasonableness of significant estimates and judgments made in preparing the financial statements, as well as the clarity of the disclosures in the financial statements. The Audit Committee also discussed, with management and separately with E&Y, in executive sessions their evaluations of Molexs internal control over financial reporting and the overall quality of Molexs financial reporting.
The Audit Committee discussed with E&Y those matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, E&Y has provided the Audit Committee with the written disclosures and the letter required by applicable
requirements of the Public Company Accounting Oversight Board regarding the independent auditors communications with the Audit Committee concerning independence, and the Audit Committee and E&Y have discussed the auditors independence from Molex and its management, including the matters in those written disclosures. The Audit Committee also considered the non-audit services provided by E&Y and the fees and costs billed and expected to be billed by E&Y for those services. All of the non-audit services provided by E&Y have been approved by the Audit Committee in accordance with its pre-approval policy. When approving the retention of E&Y for these non-audit services, the Audit Committee has considered whether the retention of E&Y for these non-audit services is compatible with maintaining auditor independence.
In reliance on the reviews and discussions with management and E&Y referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, the inclusion of the audited financial statements in Molexs Annual Report on Form 10-K for the fiscal year ended June 30, 2009 for filing with the SEC. The Audit Committee also approved the selection of E&Y as Molexs independent auditors for the fiscal year ending June 30, 2010.
The Audit Committee
David L. Landsittel, Chairman
Michelle L. Collins
Robert J. Potter
The following table presents fees for professional audit services rendered by Molexs independent auditors, Ernst & Young, for the audit of Molexs annual financial statements for FY09 and FY08, and fees billed for other services rendered by the independent auditors during those periods.
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation for and overseeing the work of the independent auditors. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditors.
Management submits to the Audit Committee a list of services and related fees expected to be rendered during that year within each of four categories of services: audit services, audit-related services, tax services and all other services. Prior to engagement, the Audit Committee pre-approves services within each category and the fees for each category are budgeted. The Audit Committee requires the independent auditors and management to report actual fees versus the budget
periodically throughout the year by category of service. Pursuant to the policy, all services provided by the independent auditors were pre-approved by the Audit Committee.
During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditors. The Audit Committee may delegate pre-approval authority to the Chairman of the Audit Committee. The Chairman reports any pre-approval decisions to the Audit Committee at its next scheduled meeting.
We believe that the performance and contributions of our executive officers are critical to the overall success of Molex. To attract, retain and motivate our executives to accomplish our business strategies, we have implemented executive compensation programs providing executives with the opportunity to earn compensation comparable to that paid by companies with which we compete for top talent and that reward strong performance and creation of stockholder value.
The overall objectives of our executive compensation program are to attract world-class executive talent, retain key leaders, reward short- and long-term performance, and align executives long-term interests with those of our stockholders. We focus on the following core principles in structuring an effective compensation program that meets our stated objectives:
The Compensation Committee (the Committee) is responsible for establishing executive compensation policies and overseeing executive compensation practices. The Committee is composed entirely of outside, non-employee directors within the meanings of Section 162(m) of the Internal Revenue Code and SEC regulations, and each member is independent under the NASDAQ rules. The Committee has the authority to retain a compensation consultant to assist in the evaluation of executive officer compensation and benefits and approve the consultants fees and other retention terms. The Committee has engaged The Delves Group to provide advice regarding best practices in executive compensation and compensation trends, and to assist the Committee in its decision-making. The Delves Groups sole engagement for Molex is as compensation consultant to the Committee. Each year the Committee reviews and considers competitive market data along with the individual responsibilities and performance of each executive and internal pay comparisons when setting annual pay opportunities. Annually, the Committee uses tally sheets for each executive officer showing all
elements of total direct compensation (base salary, target bonus, and long-term stock incentives), as well as outstanding equity awards and projected payments upon termination.
Recommendations on the CEOs compensation arrangements are made by the Co-Chairmen of the Board, and the CEOs pay is set by the Committee during an executive session based on the Committees assessment of the CEOs individual performance, the financial and operating performance of Molex, the recommendations of the Co-Chairmen, competitive market data, and the advice of The Delves Group. The CEO presents his assessment of the performance of the other executive officers, Messrs. McCarthy, Johnson, Brock, Fleischhacker, Hirokawa and Nauman, and makes general recommendations to the Committee concerning the compensation of such officers. Management presents specific recommendations to the Committee on the annual incentive plan structure, long-term incentive compensation strategy, target competitive position of executive compensation and target total direct compensation for each executive officer, including base salary adjustments, target incentive bonus and equity grants. These recommendations are developed in consultation with the CEO and accompanied by competitive market data. The Committee considers managements recommendations based on each executives individual responsibility, performance, and overall contribution, competitive market data and the advice of The Delves Group, and then determines the compensation arrangements for these individuals.
In determining the design and the level of each element of compensation, we undertake a thorough review of competitive market information. Management has retained the compensation consulting firm Watson Wyatt to develop competitive market information and assist it in making recommendations to the Committee with respect to the composition of the peer group of companies. The Delves Group reviews the composition of the peer group with the Committee. Watson Wyatt also assists management in making recommendations to the Committee with respect to total compensation levels for our executive officers, and the mix and design of incentive compensation. The companies in the peer group are representative of the types of companies with which we compete for executive talent and are broadly comparable to us in terms of industry, global operations, revenue, size and market capitalization. The peer group is reviewed regularly and adjustments are made as necessary to ensure that the peer group continues to be relevant. Each element of an executive officers total direct compensation (base salary, target bonus, total cash, and long-term stock incentives) and the executives total direct compensation is compared and benchmarked to similar positions at peer companies.
The peer group used to establish compensation at the beginning of FY09 in August 2008, which was the same as for FY08, was comprised of the following companies:
In connection with equity grants awarded in April 2009, management worked with Watson Wyatt (with review by the Delves Group) to reassess the peer group. Because of the volatility in revenue and the market in general in the last quarter of 2008 and first quarter of 2009, the peer group was broadened to include two additional companies, Agilent Technologies and Itron, Inc.
The peer group company compensation data that is presented to the Committee is supplemented with compensation data from broader, general industry surveys provided by Watson Wyatt. In addition, Watson Wyatt prepares long term incentive survey information from three survey sources. With respect to the executive compensation market data for the August 2008 compensation decisions, the following surveys were used: 2007/2008 Watson Wyatt Top Management Survey, 2007 Mercer Executive Compensation Survey and 2007 Radford Executive Compensation Survey. In connection
with the equity grants awarded in April 2009, Watson Wyatt provided general industry trend analysis data from 48 Fortune 500 companies in a broad spectrum of industries, as well as the following surveys: Watson Wyatt Long Term Incentive Survey, Towers Perrin Long Term Incentive Data and Mercer Long Term Incentive Multiples. The general industry data and survey information are intended to help the Committee gain an understanding of a broad industry perspective on executive pay norms and trends and avoid over reliance on a smaller sampling of companies.
Our executive compensation program is composed primarily of three elements: base salary, annual cash incentives and long-term equity incentives. Each of these elements plays an important role in balancing executive rewards over short- and long-term periods, based on our program objectives.
Although we have no formal policy for a specific allocation between current and long-term compensation or between cash and non-cash compensation, the Committee has established a pay mix for executive officers that balances performance-based pay with retention-based equity awards. Executive compensation is divided between current and long-term compensation, and cash and non-cash compensation, to generally reflect market practice and to provide executive officers with attractive levels of pay while encouraging officers to remain with us for the long term.
The base salary of an executive takes into account the executives performance, responsibilities, experience and internal equity. We target base salaries between the 50th and 75th percentiles of our peer group with the expectation that successful performance over time will position pay at or above the 75th percentile. In any given year, actual individual salaries may range above or below the 75th percentile based on a variety of factors, including position level, executive experience relative to industry peers, tenure, individual performance, future potential and leadership qualities.
Annual cash incentives are provided under the Molex Annual Incentive Plan (the AIP) to reward executives both for Molexs performance toward meeting corporate growth objectives and the executives performance toward meeting their individual objectives. This is a short-term annual incentive paid in cash pursuant to arrangements that cover all executive officers and provide that an incentive will be paid upon the achievement of two performance metrics: a quantitative performance measure, which makes up 80%, and performance against previously defined individual goals, which makes up the remaining 20%. The quantitative performance measure must be met in order for any payout to be earned. In other words, no matter how well an executive performed against individual goals, if the quantitative performance goal is not met then no cash incentive will be paid out. The Committee selects the performance measure at the beginning of each fiscal year. The annual cash incentive is targeted at the median of the peer group, and depending on Molex and individual performance, actual bonuses can vary widely.
Individual performance goals are established by the Committee and the CEO at the beginning of each fiscal year. These individual performance goals may be based on a variety of factors, including internal budget goals, investor expectations, peer company results, prior year Molex performance, upcoming fiscal year business plans and strategic initiatives, and may exclude specified items that are not reflective of the performance of the ongoing business. Each officers performance against individual goals is assessed at the end of the fiscal year.
For FY09, the Committee determined that incentives would be paid out upon the achievement of any incremental improvement in operating income (before restructuring charges) as compared to FY08, with target incentives set at 15% growth in operating income and maximum incentives set at 30% growth in operating income. Operating income is equal to gross profit less selling, general and
administrative expense. The target and maximum award opportunities as a percent of base salary for our NEOs are as follows:
The Committee has approved a redesign of the annual cash incentive program for FY10 to strengthen the program and better support a pay-for-performance culture by incorporating divisional and business unit components into the plan, and developing an improved methodology to set performance goals that are reasonably achievable and allow for target payout when expectations are met. Payouts under the plan will be determined by considering a mix of corporate, divisional and/or business unit performance and performance against individual goals.
The short-term incentive program for FY10 will measure performance and payout incentives on a six-month basis beginning January 2010, rather than the previous 12-month basis, set goals twice each year effective July 1 and January 1 and make payouts after the close of each six-month period. Period-over-period growth in operating income will continue to be the performance metric. Threshold, target and maximum goals for operating income growth will be set for each performance period and such goals will be used to determine payouts. Positive operating income for the company as a whole will be a basic requirement for the payment of any incentive at any level (i.e., division and/or business unit).
The Committee awards a combination of stock option awards and restricted stock awards to focus executive officers on long-term value creation through positive business and financial performance. Equity awards help to align the interests of our executive officers with those of our stockholders. Executive officers receive stock options that provide them with the right to buy a fixed number of shares of Class A Common Stock at the closing price of the stock on the grant date. Generally, options vest ratably over four years beginning on the first anniversary of the grant date. Restricted stock awards of Class A Common Stock are granted at no cost to the executive officer. Generally, restricted stock awards vest ratably over four years beginning on the first anniversary of the grant date. The vesting of stock options and restricted stock awards is accelerated upon the death, total disability or qualified retirement of an executive officer. While options only have value to the recipients if the price of the Class A Common Stock appreciates after the options are granted and carry more risk and upside potential, restricted stock provides greater certainty of executive stock ownership.
The Committee determines the aggregate and relative number of stock options and shares of restricted stock granted by an assessment of the overall value of the long-term incentive opportunity and its value relative to peer company comparisons. We believe that equity awards, more than any other element of compensation, provide our executive officers with incentives to improve the performance of Molex over the long term. This performance incentive, combined with the fact that equity awards allow us to retain valuable executive talent and align the interests of our executives with those of stockholders, is why the Committee has historically provided equity awards that are at the 75th percentile or higher of our peer group.
Long-Term Incentive Grant Practices. Under equity grant procedures approved by the Committee and the Board as of May 11, 2007, all long-term incentive grants for executive officers are approved by the Committee, and routine annual grants occur on August 15 (or the next trading day if
markets are closed on August 15). All long-term equity grants to non-executive employees are approved by a Stock Option Plan Committee comprised of Frederick A. Krehbiel, John H. Krehbiel, Jr., and Martin P. Slark, and routine annual grants for these employees occur on February 1 (or the next trading day if markets are closed on February 1).
The Committee and the Board approved an exception to the equity grant procedures in FY09 and annual equity grants were made to all employees, including executive officers other than the CEO, COO and CFO, in April 2009. This was done for two reasons: (1) our stockholders approved in October 2008 a new omnibus stock plan pursuant to which grants can be made to directors, executive officers and employees, and this plan replaced the separate plans we previously maintained and made it unnecessary for us to use different grant dates for executive officers and employees; and (2) in January 2009, management decided to consolidate five product divisions into three product divisions and these consolidations with the reductions in force that we implemented in response to the downturn in our business required us to defer our February 1 grant. In consultation with the CEO, the Committee deferred consideration of grants to the CEO, COO and CFO until its August 2009 meeting. At the Committees August 2009 meeting, the Committee reviewed an analysis of long-term incentives prepared by Watson Wyatt and approved equity grants to the CEO, COO and CFO. Going forward, all grants to employees, including executive officers, will be made as of October 1 to align the grants with our performance management program, and the equity grant procedures have been amended by the Committee and the Board accordingly.
At the beginning of FY09, the Committee selected year-over-year growth in incremental operating income as the performance measure for the FY09 annual cash incentive. At the same time, the Committee approved individual performance goals for the CEO, and the Committee and the CEO approved performance goals for the other executive officers. The CEOs individual performance goal areas for FY09 included year-over-year improvement in operating results focusing on cost savings and gross margins, meeting project milestones, increased interaction with all stakeholder groups, including employees, customers and stockholders, talent development and effective succession planning, and revenue growth through acquisitions, strategic alliances and new initiatives. The individual performance goal areas for the other executives related to financial, operational and business achievements. Also in August 2008, the Committee approved salary increases for the NEOs for FY09 ranging from 2.5% to 5.8% effective September 1, 2008, based on an evaluation of the performance of the CEO by the Committee and the Co-Chairmen, and an evaluation of the other executive officers by the Committee and the CEO. In response to the business downturn caused by the global economic recession, we reduced salaries and benefits globally in February 2009. Our CEO and COO each took a 20% pay reduction and all other executive officers took a 10% pay reduction. We plan to reinstate salaries effective October 1, 2009, but will not consider merit increases until October 2010. See the Summary Compensation Table.
In August 2009, the Committee and the Co-Chairman, Frederick A. Krehbiel, conducted an evaluation of the performance of the CEO, and the Committee and the CEO conducted an evaluation of the performance of the other executive officers during FY09 against pre-established Company and individual goals. Because the operating income goals were not met, annual cash incentives were not earned by our executive officers.
In order to provide competitive total compensation, we offer qualified profit sharing and 401(k) defined contribution plans. U.S. executive officers participate in these plans on the same terms as other salaried employees. The ability of executive officers to participate fully in these plans is limited under IRS and ERISA requirements. As is commonly the case among our peer group, we offer to executive officers a nonqualified counterpart to the profit sharing plan that is not subject to these limitations. Additionally, we offer a nonqualified deferred compensation plan, supplemental life
insurance, supplemental travel/accident insurance and the opportunity to purchase supplemental life insurance coverage.
We do not currently offer special employment agreements, severance agreements, or change in control agreements to any executive officer. Our only such arrangement, which applies to all employees with equity compensation awards, is accelerated vesting of equity. As the Committee annually reassesses the effectiveness of the executive compensation program, it also assesses the merits of offering these types of arrangements for executives. The Committee may decide to offer these types of benefits in the future.
We do not offer pension benefits to our executive officers. On a case-by-case basis, the Committee has approved individual retirement packages, in addition to the retirement benefits generally available under other employee benefit plans, to retiring executive officers based on years of service and contributions to Molex.
The Molex Incorporated Profit Sharing and Retirement Plan (the Profit Sharing Plan) is a defined contribution plan under which we make discretionary annual contributions of a fixed percentage of eligible compensation to a participants account. We make contributions to the Profit Sharing Plan for executive officers on the same terms as applicable to all participating employees. During FY09, we made a contribution equal to 3% of eligible compensation to all eligible employees, including the U.S. executive officers.
U.S. executive officers may also participate in the Molex Incorporated Employees 401(k) Plan, a defined contribution plan. Under this plan, each executive officer may contribute a maximum of 25% of eligible pay on a pre-tax basis up to the IRS limit. We match the contributions of executive officers on the same terms as are applicable to all participating employees up to 1% of an employees contributions.
Mr. Brock participates in the Molex Group Personal Pension Plan, a defined contribution retirement savings plan under which employee and company contributions are based upon the participants age, service and salary. Participating employees contribute between 2% and 5% of their salary and if the employee participates at these minimum levels, the Company makes a contribution between 4.5% and 11.5% of salary. Mr. Hirokawa participates in the Japanese national retirement plan and the Molex-Japan Directors Retirement Trust, a defined contribution plan under which the Company makes discretionary annual contributions to eligible executive directors of Molex Japan. See Company Contributions.
The Molex Supplemental Executive Retirement Plan (the SERP) is a nonqualified defined contribution plan available to all participants in the Profit Sharing Plan who are affected by the IRS contribution limits. Additional information about the Profit-Sharing Plan and the SERP can be found under Nonqualified Deferred Compensation.
The Molex Executive Deferred Compensation Plan permits participants to defer all or a portion of their base salary and bonus during the plan year. Additional information about this plan can be found under Nonqualified Deferred Compensation.
We provide certain perquisites to our executive officers. We are selective in our use of perquisites, utilizing perquisites that are generally modest in value; these perquisites may include car allowances or leased cars, financial planning and counseling, executive physical medical examinations
and other customary executive perquisites. The Committee has adopted a perquisite pre-approval policy under which certain perquisites and maximum amounts for such perquisites have been pre-approved by the Committee. The Committee has delegated authority to the CEO to approve such perquisites for other executive officers. The Committee must separately approve perquisites not specified as included in the policy or amounts that exceed the specified amounts.
Under the Companys Annual Incentive Plan, the Board may require reimbursement of bonuses paid to a named executive officer where (i) the payment was predicated in whole or in part upon the achievement of certain financial results that were subsequently the subject of a material restatement; (ii) in the Boards view the named executive officer engaged in fraud or misconduct that caused the need for the restatement; and (iii) a lower bonus would have been made to the named executive officer based upon the restated financial results. The Board may also seek reimbursement of bonuses paid to any named executive officer in other circumstances involving fraud or misconduct if such fraud or misconduct caused substantial harm to Molex even in the absence of a restatement of Molexs financial statements.
Under the Companys equity plans, awards will be forfeited if (i) the participant engages in competitive activities during employment or within one year after termination of employment; (ii) the participant solicits employees to work for another organization during employment or within two years after termination of employment; or (iii) the participants employment is terminated for cause, as defined for purposes of the equity plans. Participants must also reimburse the Company for amounts paid in settlement of awards earned or accrued within 24 months of a restatement of Molexs financial statements in certain circumstances.
Section 162(m) of the Internal Revenue Code generally limits the tax deductibility of compensation paid by a public company to its CEO and certain other highly compensated executive officers who are in office at the end of the fiscal year to $1 million per officer in the year the compensation becomes taxable to the executive. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements.
It is the Committees intention to provide annual incentive awards and stock options that are qualified and fully deductible by the Company under Section 162(m). However, when warranted due to competitive or other factors, the Committee may decide in certain circumstances to provide incentive and other compensation that exceeds the $1 million limitation set forth in Section 162(m). The time-vested restricted stock units granted by the Committee in FY09 and prior years will not be treated as performance-based compensation under Section 162(m).
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee has recommended to the full Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.
Joe W. Laymon, Chairman
David L. Landsittel
James S. Metcalf
The following table sets forth information regarding the compensation for each of our NEOs for FY09. In accordance with the SECs rules, FY08 and FY07 compensation is not presented for Messrs. Hirokawa and Brock because they were not NEOs in those years.
The following table sets forth amounts for other compensation provided to the NEOs in FY09 included in the All Other Compensation column of the Summary Compensation Table.
The following table sets forth amounts for perquisites provided to the NEOs in FY09 included in the Perquisites column of the All Other Compensation table. The amounts included in the table reflect the actual cost to Molex for providing these perquisites.
The following table sets forth amounts included in the Company Contributions to Defined Contribution Plans column of the All Other Compensation table for FY09 as follows: (i) Molex matching contributions to the Molex Incorporated 401(k) Savings Plan; (ii) Molex contributions to the Profit Sharing Plan; (iii) Molex contributions to the SERP; and (iv) Molex contributions to non-U.S. retirement plans. This table does not include contributions made by each of the NEOs to these plans.
Fiscal Year 2009 Grants of Plan-Based Awards
The following table provides information on the estimated possible payouts under the Annual Incentive Plan for FY09, based on certain assumptions about the achievement of performance objectives for Molex and the individual NEOs at various levels. Since Molexs operating performance incentive thresholds were not met in FY09, the NEOs did not receive a payout. The table also provides information on stock awards and stock options to acquire shares of Class A Common Stock granted in FY09 to each of the NEOs. There can be no assurance that the amounts in the Grant Date Fair Value of Stock and Option Award column will ever be realized.
Annual Incentive Awards. The annual incentive awards are further described under Compensation Discussion and Analysis. The awards are granted under the Molex Incorporated Annual Incentive Plan, which was approved by stockholders at the 2008 annual meeting. The purpose of the AIP is to enhance stockholder value and promote the attainment of our significant business objectives by basing a portion of an employees annual cash compensation on the achievement of specific performance goals. All of our executive officers and other key employees are eligible to participate in the AIP. The AIP is administered by the Compensation Committee with respect to executive officers and by the CEO with respect to other key employees. The CEO determines the other key employees who are eligible to participate in the AIP. The Compensation Committee determines which participants will be treated as covered employees for purposes of Section 162(m) of the Internal Revenue Code.
As it relates to awards for executive officers, each year the Compensation Committee (i) establishes one or more performance measures; (ii) sets the annual performance goal with respect to such performance measure for the Company, a business unit or an individual; (iii) establishes the weighting to be given to the performance measure and performance goal; and (iv) designates whether an award will be a Section 162(m) Award. As it relates to awards for other key employees, each year the CEO makes the same determinations as described above except he will not be designating Section 162(m) Awards.
The Compensation Committee and/or the CEO determine the amount available for payment of annual incentives in any year or any other measurement period. The aggregate maximum amount that may be paid to any one participant during any fiscal year with respect to all awards under the AIP is $10,000,000.
Restricted Stock and Stock Options. The restricted stock and stock option programs are further described under Compensation Discussion and Analysis. The restricted stock and stock option awards are granted under the 2008 Molex Stock Incentive Plan (the SIP), which was approved by stockholders at the 2008 annual meeting. The purpose of the SIP is to optimize our profitability and growth through stock incentives that are consistent with our goals and that link and align the personal interests of directors, officers and employees to those of our stockholders. The SIP also enables us to attract, motivate, and retain directors, officers and employees who make significant contributions to our success and to allow such individuals to share in our success. The plan is intended to meet the requirements of Section 162(m) of the Internal Revenue Code by qualifying certain awards as performance-based compensation. The SIP is administered by the Compensation Committee and the Stock Option Plan Committee. The Compensation Committee is responsible for administering awards to executive officers.
Outstanding Equity Awards at 2009 Fiscal Year-End
The following table sets forth summary information regarding the outstanding stock options and restricted stock awards at June 30, 2009 held by each of our NEOs. Unless otherwise noted, option awards and stock awards are for the acquisition of shares of Class A Common Stock and vest ratably over four years commencing on the first anniversary of the grant date.
This table summarizes the vesting of stock awards for each of the NEOs for FY09. No stock options were exercised by the NEOs in FY09.
Profit Sharing and Retirement Plan. The Profit Sharing Plan is a defined contribution plan under which we make discretionary annual contributions equal to the percentage of each eligible participants compensation that we determine for the year. The NEOs participate in the Profit Sharing Plan on the same terms as are applicable to other employees. During FY09, we made a contribution equal to 3% of eligible compensation to U.S. eligible employees, including the NEOs. Eligible compensation includes base salary and bonuses subject to a dollar limit set by the IRS. For calendar years 2008 and 2009 the IRS limit was $230,000 and $245,000, respectively. In addition, several other IRS limits apply to contributions to the Profit Sharing Plan. Amounts that we could not contribute to the Profit Sharing Plan because of these limits were contributed to the SERP to restore the intended benefit of the Profit Sharing Plan.
Participants may elect to invest the amounts that we contribute in a variety of mutual funds, including managed income, bond, fixed income, large-, mid-, and small-cap equity funds, international equity funds and lifestyle funds. Earnings/(Loss) on such investments were in the range of (40.61)% to 2.93% during calendar year 2008 and (5.55)% to 18.24% for the first six months of calendar year 2009. Molex stock is not an investment option, and above market crediting rates are not offered. A participant may transfer investments among the various investment alternatives on a daily basis. Amounts that we contribute commence vesting on a participants second anniversary of employment. At that time, amounts vest in 20% annual increments and become fully vested on the participants sixth anniversary of employment. In addition, a participant will become fully vested upon attaining age 65 or becoming disabled while in our employ, regardless of his or her years of employment or if they retire at age 591/2 with 15 years of service. Vested amounts are distributed to a participant upon separation from service.
2005 Molex Supplemental Executive Retirement Plan. The SERP is a nonqualified defined contribution plan available to participants in the Profit Sharing Plan who are affected by the IRS contribution limits. As noted above, we contribute to the SERP on behalf of each participant an amount equal to the contributions we could not make to the Profit Sharing Plan on such participants behalf due to IRS contribution limits. Each participant may elect to invest the amounts that we contribute on his or her behalf in a variety of mutual funds, including money market, bond, fixed income, large-, mid-, and small-cap equity funds, international equity funds and lifestyle funds. Earnings/(Loss) on such investments were generally in the same ranges as for the Profit Sharing Plan, (40.61)% to 3.76% during calendar year 2008 and (5.55)% to 18.24% for the first six months of calendar year 2009. Molex stock is not an investment option, and above market crediting rates are
not offered. A participant may transfer investments among the various investment alternatives on a daily basis.
Amounts that we contribute under the SERP vest in accordance with the same vesting schedule used by the Profit Sharing Plan. Vested amounts are distributed to a participant (or, in the event of the participants death, the participants beneficiary) upon the earlier of separation from service, death or disability. Participants may elect to receive their distributions in either a single lump sum payment or five annual installments. However, if distribution is due to separation from service prior to attaining age 591/2 or death, payment will be made in a single sum payment, regardless of the participants election. To the extent permitted under Section 409A of the Internal Revenue Code, distributions may be accelerated in the event of an unforeseeable emergency. Distributions to an NEO on account of separation from service cannot begin earlier than six months after separation from service.
The table below provides information for each NEO for FY09: (i) the dollar amount of aggregate contributions made by us on behalf of a NEO to the SERP; (ii) the dollar amount of aggregate interest or other earnings accrued on the NEOs account in the SERP; (iii) the aggregate dollar amount of all withdrawals by and distributions to the NEO, and (iv) the dollar amount of total balance of the NEOs SERP account as of June 30, 2009. Participants do not make contributions to the SERP.
Molex Executive Deferred Compensation Plan. The Molex Executive Deferred Compensation Plan permits participants to defer all or a portion of their base salary and incentive during the calendar year (fiscal year, in the case of incentives). Each participant may elect to invest his or her deferrals in a variety of mutual funds, including money market, bond, fixed income, large-, mid-, and small-cap equity funds, international equity funds and lifestyle funds. Molex stock is not an investment option, and above market crediting rates are not offered. The investment performance is reported under Profit Sharing and Retirement Plan. Participants may transfer investments among the various investment alternatives on a daily basis.
Participants make separate elections each year regarding the amount to defer, the deferral period, and the method of distribution at the end of the deferral period. Generally, a participants deferrals (adjusted for investment gain or loss) will be distributed to the participant (or, in the case of the participants death, the participants beneficiary) upon the earlier of the participants separation from service, death or disability. However, a participant can elect to have his our her deferrals (adjusted for investment gain or loss) for a particular year distributed after a specified period of time, which must be at least two years after the beginning of the year to which they relate. An election for such in-service distribution will be effective only if the participant remains employed until the specified distribution date. Participants who separate from service prior to the specified distribution date must begin receiving payments after separation from service even if the specified deferral period has not expired.
All distributions will be made in a single sum payment, except that a participant may elect to receive amounts distributed on account of his or her separation from service after attaining age 591/2 or disability in five annual installments. To the extent permitted under Section 409A of the Internal Revenue Code, distributions may be accelerated in the event of an unforeseeable emergency. Distributions to executive officers cannot begin earlier than six months after separation from service.
Currently, none of the NEOs participate in the deferred compensation plan.
As nonqualified defined contribution plans, benefits under the SERP and the deferred compensation plan are considered to be our obligations, payable from our general assets. To assist us in accumulating the funds necessary to pay these benefits, we have established a grantor trust to which we contribute participant deferrals. Benefits will be paid from this trust, to the extent it has sufficient assets, and from us, to the extent the trust does not have sufficient assets.
We do not currently provide executive officers with pension benefits or employment, severance or change in control agreements. On a case-by-case basis, the Compensation Committee has approved individual retirement packages to retiring executive officers based on years of service and contribution to Molex.
Under our equity compensation plans, outstanding and unvested stock options will become fully vested and exercisable, and outstanding and unvested restricted stock will become fully vested and be distributed upon a participants death, disability, retirement, or involuntary termination. In addition, the awards will vest upon a change in control irrespective of a termination of employment. In the event of a change in control where the Company ceases to have publicly traded equity securities, after the consummation of the change in control, if no replacement awards are issued in lieu of outstanding awards under the equity plans, then the plans and all outstanding awards granted under the plans will terminate, and the Company (or successor) will pay the participants an amount for their outstanding awards determined using the change-in-control price. These provisions apply to all employees who participate in the Companys equity plans. The outstanding equity awards held by the NEOs as of June 30, 2009 are described above under Outstanding Equity Awards at 2009 Fiscal Year-End.
We have estimated the amount of incremental compensation for each of Messrs. Slark, Johnson, McCarthy, Hirokawa and Brock would receive due to accelerated vesting of outstanding restricted stock awards upon termination of the officers employment in the event of the officers death, disability, retirement or involuntary termination, or upon a change of control irrespective of a termination of employment, as follows: Mr. Slark, $2,561,437; Mr. Johnson, $952,675; Mr. McCarthy, $1,060,525; Mr. Hirokawa, $1,595,274; and Mr. Brock, $1,420,025. These amounts assume that the termination of employment or change in control was effective as of June 30, 2009 and that the price of Class A Common Stock on which the calculations are made was the closing price of $14.38 on that date. There is no value reflected for acceleration of stock options as of June 30, 2009 for Messrs. Slark, Johnson and McCarthy because the exercise prices of all unvested stock options held by these officers are greater than the closing price of our Class A Common Stock on June 30, 2009. We have estimated the value for the acceleration of stock options as of June 30, 2009 for Messrs. Hirokawa and Brock at $116,000 and $40,840, respectively. The amounts shown above are estimates of the incremental compensation these officers would receive upon such terminations or a change of control. The actual amounts to be received can only be determined at the time of the officers termination of employment or at the time of a change in control.
An involuntary termination is defined for purposes of the Companys equity plans to mean the Companys or a subsidiarys termination of a participants employment pursuant to a planned employee reduction plan if:
A change in control is defined for purposes of the Companys equity plans to mean:
In addition, as described in greater detail below under Transactions with Related Persons, we have agreements with each of Frederick A. Krehbiel and John H. Krehbiel, Jr., pursuant to which we have agreed that if either of them dies while employed, we will pay his wife, if she survives him, $125,000 per year for the remainder of her life.
The Audit Committee adopted a written policy governing the review and approval of related person transactions. The policy requires that certain transactions with related persons be approved and/or ratified by the Audit Committee. The transactions covered by this policy include any transaction in which we are a participant, the amount involved exceeds $120,000, and any related person has a direct or indirect material interest. In accordance with SEC regulations, the term related person refers to stockholders of more than 5%, directors (and nominees for director), executive officers and their family members.
The policy provides standing pre-approval for certain types of transactions that the Audit Committee has determined do not pose a significant risk of a conflict of interest, either because a related person would not have a material interest in a transaction of that type or other characteristics of the transaction eliminate the risk of a conflict of interest. Standing pre-approval applies to the following:
Also, our employment of an immediate family member of one of our directors or executive officers is not subject to the policy unless the family members total compensation (salary, bonus,
perquisites and value of equity awards) exceeds $120,000 and/or the family member is appointed an officer.
We engage in transactions, arrangements and relationships with many other entities, including financial institutions and professional organizations, in the course of ordinary business activities.
Some of our directors, executive officers, greater than 5% stockholders and their immediate family members may be directors, officers, partners, employees or stockholders of these entities. We carry out transactions with these firms on customary terms, and, in many instances, our directors and executive officers may not have knowledge of them. For example, please see the discussion on page 10 regarding payments made to or received from companies that employ certain of our non-employee directors. Except to the extent set forth below, to our knowledge, since July 1, 2008 no director, executive officer, greater than 5% stockholder or any of their immediate family members has had a material interest in any of our ongoing business transactions or relationships.
On February 1, 1991, each of Frederick A. Krehbiel and John H. Krehbiel, Jr., entered into an agreement pursuant to which we agreed that if either of them dies while employed, we will pay his wife, if she survives him, $125,000 per year for the remainder of her life. Starting with January 1, 1992 the annual amount is automatically adjusted every January 1 to reflect an increase (or decrease) in the Consumer Price Index for the preceding calendar year at the rate of said increase or decrease. Each agreement terminates in the event that employment terminates for any reason other than death. As of March 31, 2009, we had accrued $73,000 for Frederick A. Krehbiels arrangement and $158,000 for John H. Krehbiel, Jr.s arrangement. These amounts are included in the table below under All Other Compensation.
Frederick A. Krehbiel, Fred L. Krehbiel, and John H. Krehbiel, Jr. are members of the Board and are also employees. During FY09, they were paid and/or earned the following amounts:
On September 2, 2008 and April 24, 2009, Fred L. Krehbiel was granted 1,000 and 6,000 shares of restricted stock, respectively. On August 15, 2008 and April 24, 2009, he received stock options to purchase 15,000 and 18,000 shares of Class A Common Stock, respectively. The stock options vest ratably over four years commencing on the first anniversary of the grant date; the August 15, 2008 grant expires five years following the grant date and the April 24, 2009 grant expires ten years following the grant date. There were no equity grants to Frederick A. Krehbiel or John H. Krehbiel, Jr., during FY09. Frederick A. Krehbiel, Fred L. Krehbiel and John H. Krehbiel, Jr., are all eligible to participate in our compensation, benefit and health and welfare plans generally to the same extent as all other Molex employees.
On October 31, 2008, Molex purchased 2,000,000 shares of Common Stock from Frederick A. Krehbiel at a price per share of $13.33, a discount from the closing price on the date of purchase. Molex made this purchase from Mr. Krehbiel pursuant to its stock repurchase program.
There are two different procedures by which stockholders may present proper proposals for action at our annual meetings of stockholders. The first procedure is provided by the rules of the SEC and the second by our Bylaws.
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, to be eligible for inclusion in the proxy statement for our 2010 annual meeting, your proposal must be received by us no later than May 14, 2010, and must otherwise comply with Rule 14a-8. While the Board will consider stockholder proposals, it reserves the right to omit from our proxy statement stockholder proposals that it is not required to include.
Our Bylaws permit stockholders of record to propose business to be considered at an annual meeting without being included in our proxy statement. Such business must be a proper matter for stockholder action, and the stockholder proposing it must comply with the applicable notice provisions of our Bylaws. Consistent with our Bylaws, the Corporate Governance and Nominating Committee has adopted Procedures for Stockholders Submitting Nominating Recommendations, a copy of which is included in this Proxy Statement as Appendix IV and on our website, www.molex.com, on the Investors page under Corporate Governance. Stockholders who desire to nominate a candidate for election to the Board must follow these procedures. As to any other business that a stockholder proposes to bring before an annual meeting, other than nominations, the Bylaws provide that a stockholders notice must include a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of the stockholder making the proposal.
In order to propose a nomination or some other item of business for the 2010 annual meeting under our Bylaws that is not submitted for inclusion in our proxy statement under Rule 14a-8, you must notify us in writing and such notice must be delivered to the Secretary no earlier than August 1, 2010, and no later than August 31, 2010. If, however, the date of the 2010 annual meeting is more than 30 days before or more than 60 days after the first anniversary of the 2009 annual meeting, then notice must be delivered not earlier than 90 days before the 2010 annual meeting and not later than 60 days before the 2010 annual meeting or the tenth day following the day on which public announcement of the date of the 2010 annual meeting is first made. You may write to our Secretary at 2222 Wellington Court, Lisle, Illinois 60532, to deliver the notices discussed above and to request a copy of the relevant Bylaw provisions regarding the requirements for making stockholder proposals.
We have adopted a Code of Business Conduct and Ethics for directors, officers and employees, and a Code of Ethics for Senior Financial Management. The full text of these codes can be found on our website at www.molex.com. We intend to post any amendments to or waivers from these codes on our website.
The 2009 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our Form 10-K, is available by accessing the Companys website at www.molex.com or the SECs website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting
Investor Relations at (630) 527-4447. We will furnish any exhibit to our Form 10-K if specifically requested to do so.
The SEC allows us to send a single proxy statement and annual report to two or more stockholders who share the same address, subject to certain conditions. This practice is known as householding. If your household receives multiple copies of our proxy statements and annual reports and you wish to receive only one copy, please call your bank or broker or contact Investor Relations by telephone at (630) 527-4447 or by mail at 2222 Wellington Court, Lisle, Illinois 60532. Conversely, if your household receives only one copy of our proxy statements and annual reports and you would prefer to receive separate copies for each account, please call your bank or broker or contact Investor Relations by telephone or mail as described above and ask to have your accounts removed from the householding program.
Personal characteristics to be sought in candidates for the Board:
The Company is of the view that the continuing service of qualified incumbents promotes stability and continuity in the boardroom, contributing to the Boards ability to work as a collective body, while giving the Company the benefit of the familiarity and insight into the Companys affairs that its directors have accumulated during their tenure. Accordingly, the process of the Committee for identifying nominees shall reflect the Companys practice of re-nominating incumbent directors who continue to satisfy the Committees criteria for membership on the Board, whom the Committee believes continue to make important contributions to the Board and who consent to continue their service on the Board.
In view of the foregoing, the Committee will observe the following procedures in identifying and evaluating candidates for election to the Companys Board of Directors
It is Molexs policy to facilitate communications of stockholders with the Board of Directors and its Committees subject to the following conditions:
PROCEDURES FOR STOCKHOLDERS SUBMITTING NOMINATING RECOMMENDATIONS
The Nominating and Corporate Governance Committee (Committee) will accept for consideration submissions from stockholders of recommendations for the nomination of directors subject to the following terms and conditions:
All stockholders nominating recommendations must be in writing, addressed to the Secretary at 2222 Wellington Court, Lisle, IL 60532. Submissions must be made by mail, courier or personal delivery. E-mailed submissions will not be considered.
A nominating recommendation must be accompanied by the following information concerning each recommending stockholder:
A nominating recommendation must be accompanied by the following information concerning the proposed nominee:
The nominating recommendation must describe all relationships between the proposed nominee and the recommending stockholder and any agreements or understandings between the recommending stockholder and the nominee regarding the nomination.
The nominating recommendation shall describe all relationships between the proposed nominee and any of Molexs competitors, customers, suppliers or other persons with special interests regarding Molex.
The recommending stockholder must furnish a statement supporting its view that the proposed nominee possesses the minimum qualifications prescribed by the Committee for nominees, and briefly describing the contributions that the nominee would be expected to make to the Board.
The recommending stockholder must state whether, in the view of the stockholder, the nominee, if elected, would represent all stockholders and not serve for the purpose of advancing or favoring any particular stockholder or other Molex constituency.
A stockholder (or group of stockholders) wishing to submit a nominating recommendation for an annual meeting of stockholders must ensure that it is received by Molex, as provided above, not less than 60 days nor more than 90 days prior to the first anniversary of the preceding years annual meeting of stockholders. In the event that the date of the annual meeting of stockholders for the current year is more than 30 days following the first anniversary date of the annual meeting of stockholders for the prior year, the submission of a recommendation will be considered timely if it is submitted a reasonable time in advance of the mailing of Molexs proxy statement for the annual meeting of stockholders for the current year.
If a recommendation is submitted by a group of two or more stockholders, the information regarding recommending stockholders must be submitted with respect to each stockholder in the group.
Acceptance of a recommendation for consideration does not imply that the Committee will interview or nominate the recommended candidate.
2222 WELLINGTON COURT
LISLE, IL 60532-1682
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report/Form 10-K are available at www.proxyvote.com.