SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Section 240.14a-12
LINEAR TECHNOLOGY CORPORATION
------------------------------------------------
(Name of Registrant as Specified in its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies: ___________
(2) Aggregate number of securities to which transaction
applies: ___________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined): __________
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid: __________________
(2) Form Schedule or Registration Statement No.: _____________
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(4) Date Filed: ________________
LINEAR TECHNOLOGY CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 2, 2005
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Linear
Technology Corporation, a Delaware corporation (the "Company"), will be held on
November 2, 2005 at 3:00 p.m., local time, at the Company's principal executive
offices, located at 720 Sycamore Drive, Milpitas, California 95035, for the
following purposes:
1. To elect six (6) directors to serve until the next Annual
Meeting of Stockholders and until their successors are
elected.
2. To approve the adoption of the 2005 Equity Incentive Plan and
the reservation of shares for issuance thereunder.
3. To approve the adoption of the 2005 Employee Stock Purchase
Plan and the reservation of shares for issuance thereunder.
4. To reapprove the 1996 Senior Executive Bonus Plan.
5. To ratify the appointment of Ernst & Young LLP as the
independent registered public accounting firm of the Company
for the fiscal year ending July 2, 2006.
6. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record of the Company's common stock at the close
of business on September 6, 2005, the record date, are entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the Annual Meeting may vote in person even if such stockholder has
returned a proxy card.
FOR THE BOARD OF DIRECTORS
/s/ Arthur F. Schneiderman
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Arthur F. Schneiderman
Secretary
Milpitas, California
September 26, 2005
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
LINEAR TECHNOLOGY CORPORATION
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PROXY STATEMENT
FOR
2005 ANNUAL MEETING OF STOCKHOLDERS
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INFORMATION CONCERNING SOLICITATION
AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Linear Technology Corporation, a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held November 2, 2005, at 3:00 p.m.,
local time, or at any adjournment thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Company's principal executive offices, located at 720
Sycamore Drive, Milpitas, California 95035. The telephone number at that
location is (408) 432-1900.
These proxy solicitation materials and the Company's Annual Report to
Stockholders for the year ended July 3, 2005, including financial statements,
were mailed on or about September 26, 2005 to all stockholders entitled to vote
at the Annual Meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on September 6, 2005
(the "Record Date") are entitled to notice of and to vote at the meeting. As of
the Record Date, 307,034,339 shares of the Company's common stock, par value
$0.001, were issued and outstanding. No shares of preferred stock are
outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company
(Attention: Paul Coghlan, Vice President of Finance and Chief Financial Officer)
a written notice of revocation or a duly executed proxy card bearing a later
date or by attending the Annual Meeting and voting in person.
VOTING RIGHTS AND SOLICITATION OF PROXIES
On all matters other than the election of directors, each share has one
vote. Each stockholder voting for the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (which number is currently set at six) multiplied by
the number of shares held by such stockholder, or may distribute such
stockholder's votes on the same principle among as many candidates as the
stockholder may select. However, no stockholder will be entitled to cumulate
votes unless a stockholder has, prior to the voting, given notice at the meeting
of the stockholder's intention to cumulate votes. If any stockholder gives such
notice, all stockholders may cumulate their votes for the election of directors.
In the event that cumulative voting is invoked, the proxy holders will have the
discretionary authority to vote all proxies received by them in such a manner as
to ensure the election of as many of the Board of Directors' nominees as
possible.
The Company will bear the cost of soliciting proxies. Solicitation of
proxies by mail may be supplemented by one or more of telephone, telegram,
facsimile, e-mail or personal solicitation by directors, officers or regular
employees of the Company. In addition, the Company may reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to beneficial owners. No additional
compensation will be paid to these persons for these services.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated
by the Inspector of Elections. The Inspector will also determine whether or not
a quorum is present. Except in certain specific circumstances or as discussed
below, the affirmative vote of a majority of shares present in person or
represented by proxy at a duly held meeting at which a quorum is present is
required under Delaware law and the Company's Bylaws for approval of proposals
presented to stockholders. A quorum consists of the presence, in person or by
proxy, of a majority of shares of the Company's common stock entitled to vote.
When proxies are properly dated, executed and returned, the shares
represented by those proxies will be voted at the Annual Meeting in accordance
with the instructions of the stockholder. If no instructions are indicated on a
properly executed proxy, the shares represented by that proxy will be voted as
recommended by the Board of Directors. If any other matters are properly
presented for consideration at the Annual Meeting, the persons named in the
enclosed proxy card and acting thereunder will have discretion to vote on those
matters in accordance with their best judgment. The Company does not currently
anticipate that any other matters will be raised at the Annual Meeting.
Pursuant to Delaware law, the Inspector will include shares that are
voted "WITHHELD" or "ABSTAIN" on a particular matter among the shares present
and entitled to vote for purposes of determining the presence or absence of a
quorum for the transaction of business at the Annual Meeting generally, and also
among the shares voting on that particular matter (the "Votes Cast"). Broker
non-votes on a particular matter will be counted for purposes of determining the
presence of a quorum, but will not be counted for purposes of determining the
number of "Votes Cast" with respect to the matter on which the broker has
expressly not voted. Accordingly, broker non-votes will not affect the
determination as to whether the requisite approval has been obtained with
respect to a particular matter.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders are entitled to present proposals for action at a
forthcoming annual meeting of stockholders if they comply with the requirements
of the Company's Bylaws and the proxy rules established by the Securities and
Exchange Commission. Stockholders' proposals that are to be submitted for
inclusion in the Company's proxy statement and form of proxy card for next
year's annual meeting must be received by the Company no later than 120 days
prior to the one year anniversary date of the mailing of this Proxy Statement.
Assuming a mailing date of September 26, 2005 for this proxy statement, the
deadline for stockholder proposals for next year's annual meeting will be May
29, 2006.
In addition, under the Company's Bylaws, a stockholder wishing to make a
proposal at next year's annual meeting, including nominating someone other than
management's slate of nominees for election to the Board of Directors, must
submit that proposal to the Company not less than 90 days prior to the meeting
(or, if the Company gives less than 100 days notice of the meeting, then within
ten days after that notice). The Company may refuse to acknowledge any proposal
not made in compliance with the foregoing procedure.
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The attached proxy card grants the proxy holders discretionary authority
to vote on any matter raised at this year's Annual Meeting. In addition,
assuming a mailing date of September 26, 2005 for this proxy statement, the
proxy holders at next year's annual meeting will have similar discretionary
authority to vote on any matter that is submitted to the Company after
August 12, 2006.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws currently provide for a board of six directors.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's six nominees named below, all of whom are currently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any substitute nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any
nominee listed below will be unable or will decline to serve as a director. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner as
will ensure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees to be voted for will be determined by
the proxy holders. In any event, the proxy holders cannot vote for more than six
persons. The term of office of each person elected as a director will continue
until the next Annual Meeting of Stockholders or until his successor has been
elected and qualified.
The names of the nominees, and certain information about them as of
September 6, 2005, are set forth below.
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- -------------------------- --- -------------------------------------------------------------------- --------
Robert H. Swanson, Jr..... 67 Executive Chairman and Former Chief Executive Officer of the Company 1981
Lothar Maier.............. 50 Chief Executive Officer of the Company 2005
David S. Lee.............. 68 President and Chief Executive Officer, eOn Communication Corp. 1988
Leo T. McCarthy........... 75 President, The Daniel Group 1994
Richard M. Moley.......... 66 Former President and Chief Executive Officer, StrataCom, Inc. 1994
Thomas S. Volpe........... 54 Chief Executive Officer, Volpe Investments LLC 1984
There are no family relationships among the Company's directors and
executive officers.
Mr. Swanson, a founder of the Company, has served as Executive Chairman
of the Board of Directors since January 2005. Prior to that time he served as
Chairman of the Board of Directors and Chief Executive Officer since April 1999,
and prior to that time as President, Chief Executive Officer and a director of
the Company since its incorporation in September 1981. From August 1968 to July
1981, he was employed in various positions at National Semiconductor Corporation
("National"), a manufacturer of integrated circuits, including Vice President
and General Manager of the Linear Integrated Circuit Operation and Managing
Director in Europe. Mr. Swanson has a B.S. degree in Industrial Engineering from
Northeastern University.
Mr. Maier was named Chief Executive Officer of Linear Technology in
January 2005. Prior to that, Mr. Maier served as the Company's Chief Operating
Officer for more than five years. Before joining Linear Technology, Mr. Maier
held various management positions at Cypress Semiconductor Corp. from 1983 to
1999, most recently as Senior Vice President and Executive Vice President of
Worldwide Operations. He holds a B.S. degree in Chemical Engineering from the
University of California at Berkeley.
Mr. Lee is Chairman of the Boards of eOn Communication Corp., Cortelco
and Spark Technology, and a Regent of the University of California. Mr. Lee
co-founded Qume Corporation in 1973 and served as Executive Vice President of
Qume until it was acquired by ITT Corporation in 1978. After the acquisition,
Mr. Lee held the positions of Executive Vice President of ITT Qume until 1981,
and President of ITT Qume
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through 1983. From 1983 to 1985, he served as Vice President of ITT and as Group
Executive and Chairman of its Business Information Systems Group. In 1985, he
became President and Chairman of Data Technology Corp. ("DTC"), and in 1988 DTC
acquired and merged with Qume. Currently, Mr. Lee is a member of the Board of
Directors of ESS Technology Inc., iBasis Inc. and Daily Wellness Co. Mr. Lee
served as a member of the President's Council on the 21st Century Workforce,
appointed by President George W. Bush. Mr. Lee also served as an adviser to
Presidents George Bush and Bill Clinton on the Advisory Committee on Trade
Policy and Negotiation (Office of the U.S. Trade Representative/Executive Office
of the President) and to Governor Pete Wilson on the California Economic
Development Corporation (CalEDC) and the Council on California Competitiveness.
Mr. Lee is a past Commissioner of the California Postsecondary Education
Commission, as well as having founded and served as Chairman of the Chinese
Institute of Engineers, the Asian American Manufacturers' Association and the
Monte Jade Science and Technology Association.
Mr. McCarthy has served since January 1995 as President of The Daniel
Group, a partnership engaged in investment opportunities. Mr. McCarthy retired
from elective office in 1994 after twelve years as Lieutenant Governor of the
State of California. His responsibility as Lieutenant Governor was to help
businesses start and grow through his role as chair of the California Commission
for Economic Development. He dedicated much of his efforts to helping medium and
small California companies compete in overseas markets, especially Asia. Mr.
McCarthy serves as a director on the board of Forward Funds, which is a mutual
fund. He also serves as Vice Chair of the Board of Accela, Inc., a privately
held software company.
Mr. Moley served as Chairman, President and Chief Executive Officer of
StrataCom, Inc., a network systems company, from June 1986 until its acquisition
by Cisco Systems, Inc., a provider of computer internetworking solutions, in
July 1996. Mr. Moley served as Senior Vice President and Board Member of Cisco
Systems until November 1997, when he became a consultant and private investor.
Mr. Moley served in various executive positions at ROLM Corporation, a
telecommunications company, from 1973 to 1986. Prior to joining ROLM, he held
management positions in software development and marketing at Hewlett-Packard
Company. Mr. Moley serves as a director of Echelon Corporation, Calient
Networks, Persona Software (formerly Longboard, Inc.) and Novera Optical.
Mr. Volpe has served as Managing Member of Volpe Investments LLC, a risk
capital firm, since July 2001. From December 1999 to June 2001, Mr. Volpe served
as Chairman of Prudential Volpe Technology Group. Mr. Volpe served as Chief
Executive Officer of Volpe Brown Whelan & Company, LLC (formerly Volpe, Welty &
Company), a private investment banking and risk capital firm, from its founding
in April 1986 until its acquisition by Prudential Securities in December 1999.
Until April 1986, he was President and Chief Executive Officer of Hambrecht &
Quist Incorporated, an investment banking firm with which he had been affiliated
since 1981. Mr. Volpe is a member of the Board of Directors of 7th Inning
Stretch, LLC, Kline Hawkes & Co., LLC, Minor League Baseball and the Dubai
Investment Group, LLC.
BOARD INDEPENDENCE
The Board has determined that all of the nominees, except Messrs.
Swanson and Maier, satisfy the definition of independent director as established
in Nasdaq listing standards. The Board has determined that each of the members
of the Audit Committee, the Compensation Committee and the Nominating and
Corporate Governance Committee satisfies the definition of independent director
as established in Nasdaq listing standards.
5
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings
during the fiscal year ended July 3, 2005. No director attended fewer than 75%
of the meetings of the Board of Directors and the Board committees upon which
such director served. All directors attended the last annual meeting of
stockholders.
AUDIT COMMITTEE
The Audit Committee currently consists of directors Lee, McCarthy, Moley
and Volpe, and held a total of five meetings during the last fiscal year. The
Audit Committee is governed by a written charter that it has adopted. A copy of
the Audit Committee charter was attached as an appendix to the Company's proxy
statement for the Annual Meeting of Stockholders held on November 3, 2004 (the
"2004 Proxy"). The Audit Committee appoints, compensates and oversees the
Company's independent registered public accounting firm. The Audit Committee
also approves the accounting fees paid to the auditors and pre-approves any
audit and non-audit services to be provided by them. In addition, the Audit
Committee also monitors the independence of the auditors.
The Audit Committee meets independently with the independent auditors
and with senior management to review the general scope of the Company's
accounting activities, financial reporting and annual audit, matters relating to
internal control systems, and the results of the annual audit.
The Board of Directors has determined that Mr. Volpe is an "Audit
Committee Financial Expert," as that phrase is defined in the rules of the
Securities and Exchange Commission adopted pursuant to the Sarbanes-Oxley Act of
2002, and that each member of the Audit Committee qualifies as financially
sophisticated under applicable Nasdaq listing standards.
The Audit Committee reviews and approves any proposed transactions
between the Company and officers and directors or their affiliates.
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors currently consists
of directors Lee, McCarthy, Moley and Volpe, and held a total of two meetings
during the last fiscal year. The committee reviews and approves the Company's
executive compensation policy, including the salaries and target bonuses of the
Company's executive officers, and administers the Company's stock plans.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee currently consists of
directors Lee, McCarthy, Moley and Volpe, and held one meeting during the last
fiscal year. The Nominating and Corporate Governance Committee is governed by a
written charter that it has adopted. A copy of the Nominating and Corporate
Governance Committee charter was attached as an appendix to the 2004 Proxy. The
Nominating and Corporate Governance Committee is responsible for proposing
nominees for election by the Company's stockholders at the annual meeting. The
committee reviews the size and composition of the Board and determines the
criteria for membership. The committee also reviews and considers any nominees
for election to the Board, including any nominee submitted by the stockholders.
In addition, the committee reviews the composition of the Board committees and
recommends persons to serve as committee members.
The committee oversees compliance by the Board and its committees with
corporate governance aspects of the Sarbanes-Oxley Act and related SEC and
Nasdaq rules. The committee also monitors the
6
Company's Code of Business Conduct and Ethics and considers questions of
possible conflicts of interest of Board members or corporate officers. In
addition, the committee develops and reviews the company's corporate governance
guidelines, and evaluates director compensation.
DIRECTOR COMPENSATION
The Company currently pays each non-employee director an annual retainer
of $45,000 and a fee of $1,500 for each meeting of the Board of Directors
attended. Directors are generally eligible to receive stock options and other
awards under the Company's equity incentive plans. During the fiscal year ended
July 3, 2005, Messrs. Lee, McCarthy, Moley and Volpe each received an option to
purchase 20,000 shares at an exercise price of $37.05. Each of these options
vests as to 100% of the shares subject to the option one year from the date of
grant. Mr. Volpe also currently receives an annual retainer of $15,000 as
Chairman of the Audit Committee (in addition to his annual retainer of $45,000).
CORPORATE GOVERNANCE MATTER
Policy for Director Recommendations and Nominations
The Nominating and Corporate Governance Committee considers candidates
for Board membership suggested by the Board of Directors, management and the
Company's stockholders. It is the policy of the Nominating and Governance
Committee to consider recommendations for candidates to the Board from
stockholders holding at least 5% of the total outstanding shares of the Company.
Stockholders must have held these shares continuously for at least twelve months
prior to the date of the submission of the recommendation. The Nominating and
Governance Committee will consider a nominee recommended by the Company's
stockholders in the same manner as a nominee recommended by members of the Board
of Directors or management.
A stockholder who desires to recommend a candidate for election to the
Board of Directors should direct the recommendation in writing to the Company,
attention of:
Nominating and Governance Committee
c/o Linear Technology Corporation
1630 McCarthy Blvd.
Milpitas, CA 95035
The notice must include:
o The candidate's name, and home and business contact information;
o Detailed biographical data and relevant qualifications;
o A signed letter from the candidate confirming his or her
willingness to serve;
o Information regarding any relationships between the candidate
and the Company within the last three years; and
o Evidence of the required ownership of common stock by the
recommending stockholder.
In addition, a stockholder may nominate a person for election to the
Board of Directors directly at the annual meeting of stockholders, provided the
stockholder has met the requirements set forth in the Company's
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Bylaws and the rules and regulations of the SEC related to stockholder nominees
and proposals. The process for properly submitting a stockholder proposal,
including a proposal to nominate a person for election to the Board of Directors
at an annual meeting, is described above in the section entitled "Deadline for
Receipt of Stockholder Proposals."
Where the Nominating and Governance Committee either identifies a
prospective nominee or determines that an additional or replacement director is
required, the Nominating and Governance Committee may take such measures that it
considers appropriate in connection with evaluating the director candidate,
including candidate interviews, inquiry of the person or persons making the
recommendation or nomination, engagement of an outside search firm to gather
additional information, or reliance on the knowledge of the members of the
committee, the Board of Directors or management. In its evaluation of director
candidates, including the members of the Board of Directors eligible for
re-election, the committee considers a number of factors, including the
following:
o The current size and composition of the Board of Directors and
the needs of the Board of Directors and the respective
committees of the Board.
o Such factors as judgment, independence, character and integrity,
area of expertise, diversity of experience, length of service
and potential conflicts of interest.
o Such other factors as the committee may consider appropriate.
The Nominating and Governance Committee has also specified the following
minimum qualifications that it believes must be met by a nominee for a position
on the Board:
o The highest personal and professional ethics and integrity.
o Proven achievement and competence in the nominee's field and the
ability to exercise sound business judgment.
o Skills that are complementary to those of the existing Board
members.
o The ability to assist and support management and make
significant contributions to the Company's success.
o An understanding of the fiduciary responsibilities that are
required of a member of the Board and the commitment of time and
energy necessary to diligently carry out those responsibilities.
In connection with its evaluation, the Nominating and Governance
Committee determines whether it will interview potential nominees. After
completing the evaluation and interview, the Nominating and Governance Committee
makes a recommendation to the full Board of Directors as to the persons who
should be nominated for election to the Board, and the Board of Directors
determines the actual nominees after considering the recommendation and report
of the Nominating and Governance Committee.
Stockholder Communications to Directors
Stockholders may communicate directly with the members of the Company's
Board of Directors by sending a written communication to the Board of Directors
(or any individual director) at the following address: c/o Chief Financial
Officer, Linear Technology Corporation, 720 Sycamore Drive, Milpitas,
8
California 95035. All communications will be compiled by the Company's Chief
Financial Officer and submitted to the Board or an individual director, as
appropriate, on a periodic basis.
The Company encourages all incumbent directors and nominees for election
to attend the Annual Meeting.
Director Independence
In July 2005, the Board of Directors undertook a review of the
independence of its directors and director nominees and considered whether any
such person had a material relationship with the Company or its management that
could compromise his ability to exercise independent judgment in carrying out
his responsibilities. As a result of this review, the Board of Directors
affirmatively determined that all of the directors and director nominees of the
Company, with the exception of Mr. Swanson, the Company's Executive Chairman and
former Chief Executive Officer, and Mr. Maier, the Company's current Chief
Executive Officer, are independent of the Company and its management under the
corporate governance standards of Nasdaq.
Code of Business Conduct and Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics
that is applicable to all employees, officers and directors of the Company,
including the Company's senior financial and executive officers. This Code is
intended to deter wrongdoing and promote ethical conduct among the Company's
directors, executive officers and employees. The Code of Business Conduct and
Ethics is available on the Company's website. The Company also intends to post
amendments to or waivers from the Code of Business Conduct and Ethics on its
website.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The six nominees receiving the highest number of affirmative votes of
the shares entitled to be voted will be elected as directors. Votes "withheld"
will be counted for purposes of determining the presence or absence of a quorum
for the transaction of business at the meeting, but have no other legal effect
upon the election of directors under Delaware law.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH ABOVE.
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PROPOSAL TWO
APPROVAL OF THE 2005 EQUITY INCENTIVE PLAN
The stockholders are being asked to approve a new employee equity
incentive plan, the 2005 Equity Incentive Plan (the "Incentive Plan"), to
replace the Company's existing 1996 Incentive Stock Option Plan, which will
expire in July 2006.
The Board of Directors believes that long-term incentive compensation
programs align the interests of management, employees and the stockholders to
create long-term stockholder value. Plans such as the Incentive Plan and the
1996 Incentive Stock Option Plan are designed to increase the Company's ability
to achieve this objective, especially, in the case of the Incentive Plan, by
allowing for several different forms of long-term incentive awards, which the
Board believes will help the Company to recruit, reward, motivate and retain
talented personnel. To a great extent the Company's most valuable asset is its
employees. The competition to attract, hire and retain highly skilled analog
circuit designers and the other development, engineering, sales and
administrative personnel upon which the Company depends is very high, and the
Company competes against both other large, profitable semiconductor companies
and with small startup companies that are able to offer employees the potential
of substantial increases in the value of their equity compensation if the
startup is successful. The Board believes that the Company must be able to offer
compensation packages sufficiently attractive to overcome this competition, and
that equity awards are an important part of such packages.
In addition, the recent changes in the equity compensation accounting
rules, which became effective for the Company on July 4, 2005, make it important
for the Company to have greater flexibility under its employee equity incentive
plans than in the past. As the new equity compensation accounting rules come
into effect for all companies, competitive equity compensation practices may
change materially, especially as they pertain to the use of equity compensation
vehicles other than stock options. The new Incentive Plan is designed to allow
the Company to respond to any such changes in practices.
The Company currently has in place its 1996 Incentive Stock Option Plan,
which expires in July 2006. Once it expires, the Company will no longer be able
to grant options, except under its 2001 Non-Statutory Stock Option Plan in which
executive officers and directors may not participate, unless the Incentive Plan
has been approved by the stockholders. If the Incentive Plan is approved at the
Annual Meeting, the Company intends that it will immediately replace the 1996
Incentive Stock Option Plan and that the Company will not grant any more options
under the older plan. Accordingly, all shares remaining available for future
grant under the 1996 Incentive Stock Option Plan will be transferred to the
Incentive Plan at that time.
In addition to the shares that may be transferred to the Incentive Plan
from the 1996 Incentive Stock Option Plan, 2,500,000 new shares will be
authorized under the Incentive Plan. This 2,500,000 share increase in the number
of shares that the Company's stockholders are being asked to approve for
issuance under the Incentive Plan represents less than 1.0% of the Company's
total outstanding stock. The Company believes it has been prudent in its use of
stock options. In the past five fiscal years, the number of options granted to
directors, officers and other employees during a particular year has ranged from
0.5% to 2.6% of shares outstanding, with the average for these years being 1.8%.
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The Board has approved the Incentive Plan, subject to approval from the
stockholders at the Annual Meeting. Approval of the Incentive Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
common stock that are present in person or by proxy and entitled to vote at the
Annual Meeting. As of September 6, no awards have been granted under the
Incentive Plan.
The Board of Directors believes strongly that the approval of the
Incentive Plan is essential to the Company's continued success. In particular,
the Company believes that its employees are its most valuable assets and that
the awards permitted under the Incentive Plan are vital to the Company's ability
to attract and retain outstanding and highly skilled individuals in the
extremely competitive labor markets in which it competes. Such awards also are
crucial to the Company's ability to motivate employees to achieve the Company's
goals.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The approval of the Incentive Plan requires the affirmative vote of a
majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE ADOPTION
OF THE 2005 EQUITY INCENTIVE PLAN AND THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER.
SUMMARY OF THE 2005 EQUITY INCENTIVE PLAN
The following is a summary of the principal features of the Incentive
Plan and its operation. The summary is qualified in its entirety by reference to
the Incentive Plan itself set forth in Appendix A.
The Incentive Plan provides for the grant of the following types of
incentive awards: (i) stock options, (ii) stock appreciation rights, (iii)
restricted stock, (iv) restricted stock units, and (v) performance shares and
performance units. Each of these is referred to individually as an "Award."
Those who will be eligible for Awards under the Incentive Plan include
employees, executive officers, directors and consultants who provide services to
the Company and its subsidiary companies. As of September 6, 2005, approximately
3,248 employees, executive officers, directors and consultants would be eligible
to participate in the Incentive Plan.
Number of Shares of Common Stock Available Under the Incentive Plan
There will be 2,500,000 new shares of the Company's common stock
reserved for issuance under the Incentive Plan. In addition, the number of
shares of common stock that remain available for future grant under the
Company's 1996 Incentive Stock Option Plan at the time of stockholder approval
of the Incentive Plan, plus any shares that would otherwise be returned to the
1996 Incentive Stock Option Plan after that date as a result of future
terminations of options will be transferred to and available for issuance under
the Incentive Plan. The exact number of shares that will be transferred to the
Incentive Plan will depend upon the actual number of shares available for grant
on the date of stockholder approval, as well as the actual number of future
termination of outstanding options, which is difficult to predict. By way of
example, as of September 6, 2005, there were 3,954,087 shares available for
future grant under the 1996 Incentive Stock Option Plan, which would have been
transferred to the Incentive Plan if the new plan became effective on that date.
Also at that date, there were 18,921,585 shares subject to outstanding options
under the 1996 Incentive Stock Option Plan, although the Company expects, based
upon historical data, that the vast majority of these outstanding options will
eventually be exercised. Thus the number of shares actually transferred to the
Incentive Plan upon termination of options under the older plan is expected to
be only a small portion of the number currently outstanding. To date, no Awards
have been granted under the Incentive Plan.
11
If the Company declares a stock dividend or engages in a reorganization
or other change in its capital structure, including a merger, the Administrator
will have the discretion to adjust the number of shares (i) available for
issuance under the Incentive Plan, (ii) subject to outstanding Awards, and (iii)
specified as per-person limits on Awards, as appropriate to reflect the change.
Administration of the Incentive Plan
The Board of Directors, or a committee of the directors or of other
individuals satisfying applicable laws, will administer the Incentive Plan. To
make grants to certain of the Company's officers and key employees, the members
of the committee must qualify as "non-employee directors" under Rule 16b-3 of
the Securities Exchange Act of 1934, and as "outside directors" under Section
162(m) of the Internal Revenue Code (so that the Company can receive a federal
tax deduction for certain compensation paid under the Incentive Plan). Subject
to the terms of the Incentive Plan, the Board or its committee has the sole
discretion to select the employees, executive officers, consultants, and
directors who will receive Awards, determine the terms and conditions of Awards,
and interpret the provisions of the Incentive Plan and outstanding Awards. The
Board or its committee may delegate to one or more individuals the day-to-day
administration of the Incentive Plan and any of the functions assigned to it in
the Incentive Plan. The Board or other committee administering the Incentive
Plan is referred to in this proxy statement as the "Administrator."
Options
The Administrator is able to grant nonqualified stock options and
incentive stock options under the Incentive Plan. The Administrator determines
the number of shares subject to each option, although the Incentive Plan
provides that a participant may not receive options for more than 5,000,000
shares in one fiscal year, except in connection with his or her initial service
as an employee, in which case he or she may be granted options for an additional
5,000,000 shares.
The Administrator determines the exercise price of options granted under
the Incentive Plan, provided the exercise price must at least be equal to the
fair market value of the Company's common stock on the date of grant. In
addition, the exercise price of an incentive stock option granted to any
participant who owns more than 10% of the total voting power of all classes of
the Company's outstanding stock must be at least 110% of the fair market value
of the common stock on the grant date. Notwithstanding the foregoing, the Board
or its committee may not modify or amend an option or stock appreciation right
to reduce the exercise price of that award after it has been granted or cancel
any outstanding option or stock appreciation right and replace it with a new
option or stock appreciation right with a lower exercise price, unless that
action is approved by the Company's stockholders.
The Administrator determines the terms of options granted, and generally
options granted in the future will terminate seven years after the date of
grant, unless otherwise specified in the Award agreement. In any event, the term
of an option may not exceed ten years, except that, with respect to any
participant who owns 10% of the voting power of all classes of the Company's
outstanding capital stock, the term of an incentive stock option may not exceed
five years.
After termination of service with the Company, a participant will be
able to exercise the vested portion of his or her option for the period of time
stated in the Award agreement. If no such period of time is stated in the
participant's Award agreement, the participant will generally be able to
exercise his or her option for (i) three months following his or her termination
for reasons other than death or disability, and (ii) six months following his or
her termination due to death or disability, although the Incentive Plan permits
the Administrator to increase this period to twelve months if specified in the
Award agreement. In no event may an option be exercised later than the
expiration of its term.
12
Stock Appreciation Rights
The Administrator is able to grant stock appreciation rights under the
Incentive Plan. Stock appreciation rights are rights to receive the appreciation
in the fair market value of the Company's common stock between the exercise date
and the date of grant. The Company can pay the appreciation in either cash or
shares of common stock. Stock appreciation rights become exercisable at the
times and on the terms established by the Administrator, subject to the terms of
the Incentive Plan. No participant may be granted stock appreciation rights
covering more than 5,000,000 shares during any fiscal year, except that a
participant may be granted stock appreciation rights covering up to an
additional 5,000,000 shares in connection with his or her initial employment.
After termination of service with the Company, a participant will be
able to exercise the vested portion of his or her stock appreciation right for
the period of time stated in the Award agreement. If no such period of time is
stated in a participant's Award agreement, the participant will generally be
able to exercise his or her stock appreciation right for (i) three months
following his or her termination for reasons other than death or disability, and
(ii) six months following his or her termination due to death or disability. In
no event may a stock appreciation right be exercised later than the expiration
of its term.
Restricted Stock
The Administrator is able to award restricted stock under the Incentive
Plan. Awards of restricted stock are rights to acquire or purchase shares of the
Company's common stock that are subject to repurchase or reacquisition by the
Company upon the termination of the participant's service with the Company for
any reason (including death or disability). The Company's right to reacquire the
shares lapses in accordance with terms and conditions established by the
Administrator in its sole discretion, including, for example, based on the
achievement of specific performance goals. The Administrator determines the
number of shares granted pursuant to an Award of restricted stock, but no
participant may be granted a right to purchase or acquire more than 1,500,000
shares of common stock during any fiscal year, except that a participant may be
granted up to an additional 1,500,000 shares of restricted stock in connection
with his or her initial employment.
Restricted Stock Units
The Administrator is able to grant restricted stock units under the
Incentive Plan. Restricted stock units are the dollar value equivalent of shares
that vest in accordance with terms and conditions established by the
Administrator in its sole discretion, including, for example, based on the
achievement of specific performance goals. Upon satisfying the applicable
vesting criteria, a participant is entitled to the payout specified in the Award
agreement, although the Administrator may, at any time after the grant, reduce
or waive any vesting criteria that must be met to receive a payout of restricted
stock units. The Administrator, in its sole discretion, may pay earned
restricted stock units in cash, shares or a combination of cash and shares.
Shares represented by restricted stock units that are fully paid in cash will
again be available for grant under the Incentive Plan. If all restricted stock
units have not vested by the date set forth in the Award agreement, the unearned
restricted stock units are forfeited to the Company. The Administrator
determines the number of restricted stock units granted to any participant, but
no participant may be granted more than 1,500,000 restricted stock units during
any fiscal year, except that a participant may be granted up to an additional
1,500,000 restricted stock units in connection with his or her initial
employment.
Performance Units and Performance Shares
The Administrator is able to grant performance units and performance
shares under the Incentive Plan. Performance units and performance shares are
Awards that result in a payment to a participant only if
13
the performance goals or other vesting criteria established by the Administrator
are achieved. The Administrator establishes performance or other vesting
criteria in its discretion, which, depending on the extent to which they are
met, determine the number and/or the value of performance units and performance
shares to be paid out to the participant. Performance units and performance
shares have initial values equal to the fair market value of one share of the
Company's common stock on the grant date, and are payable in cash, shares or a
combination of cash and shares. No participant may receive more than 1,500,000
performance shares or performance units during any fiscal year, except that a
participant may be granted performance shares or performance units covering up
to an additional 1,500,000 shares in connection with his or her initial
employment.
Performance Goals
Awards of restricted stock, restricted stock units, performance shares
and performance units may be made subject to the attainment of performance goals
relating to one or more business criteria within the meaning of Section 162(m)
of the Code and may provide for a targeted level or levels of achievement. These
business criteria include: cash position; earnings per share; net income;
operating cash flow; operating income; return on assets; return on equity;
return on sales; revenue; and total stockholder return. Performance goals may
differ from participant to participant and from Award to Award and may be
measured in absolute terms, in relative terms (including, but not limited to,
the passage of time and/or against another company or companies), on a per-share
basis, in terms of the performance of the Company as a whole or a segment of the
Company, and on a pre-tax or after-tax basis.
Transferability of Awards
Awards granted under the Incentive Plan are generally not transferable,
and all rights with respect to an Award granted to a participant generally will
be available during a participant's lifetime only to the participant.
Change of Control
In the event of a change of control of the Company, each outstanding
Award will be treated as the Administrator determines in its sole discretion,
including, without limitation, that the successor assume the Awards or provide
substitute awards. In the absence of other action by the Administrator, all
options and stock appreciation rights will become fully vested and exercisable
as to all of the shares subject to such Awards, all restrictions on restricted
stock and restricted stock units will lapse, and all performance goals or other
vesting criteria for performance shares and performance units will be deemed to
have been achieved at target levels and all other terms and conditions to have
been met. In such event, the Administrator will notify all participants as to
the changes in their Awards, and, to the extent applicable, such Awards may be
exercised for such period of time as the Administrator may determine from the
date of the notice. All unexercised Awards will terminate upon expiration of
that period.
With respect to Awards granted to non-employee directors that are
assumed or substituted for, if the director is subsequently terminated as a
director (other than voluntary resignation), then all his or her options and
stock appreciation rights will become fully vested and exercisable as to all of
the shares subject to such Awards, all restrictions on restricted stock and
restricted stock units will lapse, and all performance goals or other vesting
criteria for performance shares and performance units will be deemed achieved at
target levels and all other terms and conditions to have been met.
14
Amendment and Termination of the Incentive Plan
The Administrator has the authority to amend, suspend or terminate the
Incentive Plan, except that stockholder approval is required for any amendment
to the Incentive Plan to the extent required by any applicable law, regulation
or stock exchange rule. No amendment, alteration, suspension or termination of
the Incentive Plan will impair the rights of any participant, unless mutually
agreed otherwise between the participant and the Administrator, which agreement
must be in writing and signed by the participant and the Company. The Incentive
Plan will terminate in July 2015, unless the Administrator terminates it
earlier.
NUMBER OF AWARDS GRANTED TO EMPLOYEES, CONSULTANTS, AND DIRECTORS
The number of Awards that an employee, director or consultant may
receive under the Incentive Plan is at the discretion of the Administrator and
therefore cannot be determined in advance. The following table sets forth (a)
the number of shares subject to options granted and the number of shares of
restricted stock awarded under the 1996 Incentive Stock Option Plan and, in the
case of persons other than officers and directors, the 2001 Non-Statutory Stock
Option Plan during the fiscal year ended July 3, 2005 to the persons indicated
and (b) the average per share exercise price of such options and fair market
value of such shares of restricted stock at the date of award.
NUMBER OF DOLLAR VALUE OF
NUMBER OF AVERAGE PER SHARES OF RESTRICTED
OPTIONS SHARE EXERCISE RESTRICTED STOCK
NAME OF INDIVIDUAL OR GROUP GRANTED PRICE STOCK GRANTED GRANTED(1)
- ------------------------------------------------ ------------ -------------- -------------- ---------------
Robert H. Swanson, Jr .......................... -- -- 275,000 $ 10,188,750
Lothar Maier ................................... 150,000 $ 35.61 33,000 $ 1,222,650
David B. Bell .................................. 75,000 $ 36.12 34,750 $ 1,287,488
Paul Coghlan ................................... 70,000 $ 37.03 61,250 $ 2,269,313
Donald E. Paulus ............................... 35,000 $ 36.12 26,250 $ 972,563
All executive officers, as a group ............ 455,000 $ 36.18 594,750 $ 22,035,488
All directors who are not executive officers,
as a group .................................... 80,000 $ 37.05 -- --
All employees who are not executive officers,
as a group .................................... 3,677,250 $ 36.66 983,690 $ 36,445,715
- ----------
(1) Based upon a fair market value of the Company's common stock of $37.05 per
share on the date of grant.
FEDERAL TAX ASPECTS
The following paragraphs are a brief summary of the general federal
income tax consequences to U.S. taxpayers and the Company of Awards granted
under the Incentive Plan. Tax consequences for any particular individual may be
different.
Nonqualified Stock Options. No taxable income is reportable when a
nonqualified stock option with an exercise price equal to the fair market value
of the underlying stock on the date of grant is granted to a participant. Upon
exercise, the participant will recognize ordinary income in an amount equal to
the excess of the fair market value (on the exercise date) of the shares
purchased over the exercise price of the option. Any additional gain or loss
recognized upon any later disposition of the shares would be capital gain or
loss.
Incentive Stock Options. No taxable income is reportable when an
incentive stock option is granted or exercised (except for purposes of the
alternative minimum tax, in which case taxation is the same as for nonqualified
stock options). If the participant exercises the option and then later sells or
otherwise disposes of the shares more than two years after the grant date and
more than one year after the exercise date, the
15
difference between the sale price and the exercise price will be taxed as
capital gain or loss. If the participant exercises the option and then later
sells or otherwise disposes of the shares before the end of the two- or one-year
holding periods described above, he or she generally will have ordinary income
at the time of the sale equal to the fair market value of the shares on the
exercise date (or the sale price, if less) minus the exercise price of the
option.
Stock Appreciation Rights. No taxable income is reportable when a stock
appreciation right with an exercise price equal to the fair market value of the
underlying stock on the date of grant is granted to a participant. Upon
exercise, the participant will recognize ordinary income in an amount equal to
the amount of cash received and the fair market value of any shares received.
Any additional gain or loss recognized upon any later disposition of the shares
would be capital gain or loss.
Restricted Stock, Restricted Stock Units, Performance Units and
Performance Shares. A participant generally will not have taxable income at the
time an Award of restricted stock, restricted stock units, performance shares or
performance units is granted. Instead, he or she will recognize ordinary income
in the first taxable year in which his or her interest in the shares underlying
the Award becomes either (i) freely transferable, or (ii) no longer subject to
substantial risk of forfeiture. However, the recipient of a restricted stock
award may elect to recognize income at the time he or she receives the Award in
an amount equal to the fair market value of the shares underlying the Award
(less any cash paid for the shares) on the date the Award is granted.
Tax Effect for the Company. The Company generally will be entitled to a
tax deduction in connection with an Award under the Incentive Plan in an amount
equal to the ordinary income realized by a participant and at the time the
participant recognizes such income (for example, upon the exercise of a
nonqualified stock option). Special rules limit the deductibility of
compensation paid to the Company's Chief Executive Officer and to each of its
four most highly compensated other executive officers. In general under Section
162(m) of the Internal Revenue Code, the annual compensation paid to any of
these executives is deductible only to the extent that it does not exceed
$1,000,000. The Company can, however, preserve the deductibility of certain
compensation in excess of $1,000,000 under the Incentive Plan if the conditions
of Section 162(m) are met. These conditions include stockholder approval of the
Incentive Plan, setting limits on the number of Awards that any individual may
receive, and, for Awards other than certain types of stock options, establishing
performance criteria that must be met before the Award actually vests or is
paid. The Incentive Plan has been designed to permit the Administrator to grant
Awards that qualify as performance-based for purposes of satisfying the
conditions of Section 162(m), thereby permitting the Company to continue to
receive a federal income tax deduction in connection with those Awards.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF
AWARDS UNDER THE INCENTIVE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES
NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE PROVISIONS OF
THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH A
PARTICIPANT MAY RESIDE.
16
PROPOSAL THREE
APPROVAL OF THE 2005 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve a new employee stock
purchase plan, the 2005 Employee Stock Purchase Plan (the "Purchase Plan"). The
Company's current 1986 Employee Stock Purchase Plan expires in 2006, after which
shares may not be issued under it.
The Board of Directors has determined that it remains in the best
interest of the Company and its stockholders to have an employee stock purchase
plan. Such a plan allows broader participation by employees of the Company and
its subsidiaries at all levels in equity compensation than might otherwise be
possible under the Company's equity plans, especially in light of possible
changes that are expected to occur in equity compensation practices in the
Company's industry as a result of the new rules requiring expensing of equity
compensation. An employee stock purchase plan also provides participants with an
alternate way to acquire equity in the Company through payroll deductions. As of
September 6, 2005, there were 987 employees participating in the offering period
then in progress under the predecessor 1986 Employee Stock Purchase Plan. In the
most recently completed offering period, 966 employees participated, purchasing
114,612 shares of common stock (with a value of $3,483,059 on the date of
purchase) at a purchase price of $30.39 per share. No executive officers or
directors currently participate in the 1986 Employee Stock Purchase Plan.
The total number of shares to be available for issuance under the plan
is 1,000,000. To date, the Purchase Plan has not commenced operation, and no
shares have been issued under it. The maximum number of shares that may be
issued to any one participant in any six-month offering period under the
Purchase Plan is currently 300, and in some cases may be even less.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the Purchase Plan requires the affirmative vote of a
majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE ADOPTION
OF THE 2005 EMPLOYEE STOCK PURCHASE PLAN AND THE NUMBER OF SHARES RESERVED FOR
ISSUANCE THEREUNDER.
SUMMARY OF THE 2005 EMPLOYEE STOCK PURCHASE PLAN
The following is a summary of the principal features of the Purchase
Plan and its operation. The summary is qualified in its entirety by reference to
the Purchase Plan as set forth in Appendix B.
General
The Purchase Plan was adopted by the Board of Directors in July 2005.
The purpose of the Purchase Plan is to provide employees with an opportunity to
purchase the Company's common stock through payroll deductions.
Administration
The Purchase Plan may be administered by the Board or a committee
appointed by the Board (referred to in either case below as the
"Administrator"). All questions of interpretation or application of the Purchase
Plan are determined by the Administrator, and its decisions are final,
conclusive and binding upon all participants.
17
Eligibility
Each of the Company's employees and the employees of the Company's
designated subsidiaries who is a common law employee and whose customary
employment with the Company or subsidiary is at least twenty hours per week and
more than five months in a calendar year is eligible to participate in the
Purchase Plan. No employee, however, may participate in the Purchase Plan (i) to
the extent that, at the commencement of an offering period, the employee would
own 5% or more of the total combined voting power of all classes of the
Company's capital stock, or (ii) to the extent that his or her rights to
purchase stock under all of the Company's employee stock purchase plans accrues
at a rate which exceeds $25,000 worth of stock (determined at the fair market
value of the shares at the beginning of the applicable offering period) in any
calendar year. Under the Purchase Plan, as the Board intends to implement it,
directors and officers of the Company may not participate, although the
Administrator has the power to change this for future offering periods.
Offering Period
The Purchase Plan operates in successive offering periods with the
length of each period determined by the Administrator up to twenty-seven months.
As currently operated, offering periods last approximately six months, running
from approximately May 1 to October 31 and November 1 to April 30; provided,
however, that the first offering period under the Purchase Plan will commence
with the first trading day on or after the date stockholders approve the
Purchase Plan, but in no event earlier than the effective date of the filing of
a registration statement with the Securities and Exchange Commission covering
the shares of common stock issuable under the Purchase Plan. The Administrator
has the power at any time to change the length of the offering periods, to
subdivide each offering period into multiple purchase periods, and to have
multiple offering periods running at one time.
To participate in the Purchase Plan, an eligible employee must authorize
payroll deductions under the Purchase Plan. The Purchase Plan provides that
payroll deductions may not be less than 5% and may not exceed 10% of a
participant's compensation during the offering period, subject to further
limitation determined by the Administrator. Currently, the Administrator has
specified that employees can choose one of only two levels of payroll deductions
- - either 5% or 10% of compensation during the offering period. Once an employee
becomes a participant in the Purchase Plan, the employee automatically will
participate in each successive offering period until the employee withdraws from
the Purchase Plan or the employee's employment with the Company (or the
designated subsidiary) terminates. Technically, at the beginning of each
offering period, each participant is granted an option to purchase shares of
common stock. The option is automatically exercised at the end of each purchase
period to the extent of the payroll deductions accumulated during such purchase
period, unless the participant's employment with the Company (or the designated
subsidiary) terminates earlier.
Purchase Price
The Purchase Price permits shares of the Company's common stock to be
purchased at a purchase price of 85% of the lesser of the fair market value of
the common stock on (i) the first day of the offering period, or (ii) the last
day of a purchase period, if an offering period consists of more than one
purchase period, or the last day of the offering period itself, if it consists
of only one purchase period. Given the effects of the recent changes in the
accounting for employee equity compensation, however, the Board of Directors
currently intends to implement the Purchase Plan such that shares are purchased
at a purchase price of 85% of the fair market value of the common stock only on
the last day of the offering period. The administrator may change this
implementation, or reduce the amount of the discount for fair market value, at
any time for future offering periods. The fair market value of the Company's
common stock on any relevant date will be the closing price per share as
reported on the Nasdaq National Market, or the mean of the closing bid and ask
prices if no sales were reported, as quoted on such exchange or reported in The
Wall Street Journal.
18
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions
throughout each offering period. The number of shares of the Company's common
stock a participant may purchase in each purchase period during an offering
period is determined by dividing the total amount of payroll deductions withheld
from the participant's compensation during that purchase period by the purchase
price; provided, however, that a participant may not purchase more than 300
shares during any offering period, although the Administrator has the ability to
change that limit. During an offering period, a participant may discontinue his
or her participation in the Purchase Plan, and may decrease the rate of payroll
deductions within limits set by the Administrator.
All payroll deductions made for a participant are credited to the
participant's account under the Purchase Plan, are withheld in whole percentages
only and are included with the Company's general funds, which are used for
general corporate purposes. A participant may not make any additional payments
into his or her account.
Withdrawal
Generally, a participant may withdraw from an offering period at any
time by written or electronic notice without affecting his or her eligibility to
participate in future offering periods. However, once a participant withdraws
from a particular offering period, that participant may not participate again in
the same offering period. To participate in a subsequent offering period, the
participant must deliver to the Company a new enrollment agreement.
Termination of Employment
Upon termination of a participant's employment for any reason, including
disability or death, he or she will be deemed to have elected to withdraw from
the Purchase Plan, the payroll deductions credited to the participant's account
at that time will be returned to him or her or, in the case of death, to the
person or persons entitled thereto, and such participant's participation in the
Purchase Plan will automatically be terminated.
Adjustments upon Changes in Capitalization, Dissolution, Liquidation, Merger
or Change of Control
Changes in Capitalization. Subject to any required action by the
Company's stockholders, the number of shares reserved under the Purchase Plan,
as well as the price per share at which shares may be purchased in a pending
purchase period may be appropriately adjusted by the Administrator for any
change in the Company's common stock (whether by stock split, reverse stock
split, any dividend or other distribution, combination, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, repurchase or
exchange).
Dissolution or Liquidation. In the event of the Company's proposed
dissolution or liquidation, the Administrator will shorten all purchase and
offering periods then in progress by setting a new ending date and all pending
purchase and offering periods will end on that date. The new ending date must be
prior to the dissolution or liquidation. If the Administrator shortens any
purchase or offering period then in progress, the Administrator will notify each
participant to the new ending date that the ending date has been changed to the
new date and that purchases under the Purchase Plan will occur automatically on
that new date, unless the participant has withdrawn from the offering period.
Merger or Change of Control. In the event of any merger or "change of
control," as defined in the Purchase Plan, the successor corporation, or a
parent or subsidiary of the successor corporation, may assume or substitute for
each pending offering period under the Purchase Plan. In the event the successor
corporation refuses to assume or substitute for such offering periods, the
Administrator will shorten all purchase and offering periods then in progress by
setting a new ending date and all purchase and offering periods will end
19
on the new ending date. The new exercise date must be prior to the effective
date of the merger or change of control. If the Administrator shortens any
purchase or offering period then in progress, the Administrator will notify each
participant prior to the new ending date that the ending date has been changed
to the new date and that purchase under the Purchase Plan will occur
automatically on that new date, unless the participant has withdrawn from the
offering period.
Amendment and Termination of the Plan
The Administrator may at any time terminate or amend the Purchase Plan,
including the term of any offering period then outstanding. Generally, no such
termination can adversely affect offering periods then in progress, other than
as discussed above.
FEDERAL TAX ASPECTS
The following paragraphs are a brief summary of the general federal
income tax consequences to U.S. taxpayers and the Company with respect to the
shares purchased under the Purchase Plan.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code. Under these provisions, no income will be taxable
to a participant until he or she sells or otherwise disposes the shares
purchased under the Purchase Plan. Upon sale or other disposition of the shares,
the participant will generally be subject to tax in an amount that depends upon
the length of time the participant has held those shares. If the shares are sold
or otherwise disposed of more than both (i) two years from the first day of the
applicable offering period and (ii) one year from the applicable date of
purchase, the participant will recognize ordinary income measured as the lesser
of (a) the excess of the fair market value of the shares at the time of such
sale or disposition over the purchase price, or (b) an amount equal to 15% of
the fair market value of the shares as of the first day of the applicable
offering period. Any additional gain or loss will be treated as long-term
capital gain or loss.
If the shares are sold or otherwise disposed of before the expiration of
the holding periods above, the participant will recognize ordinary income
measured generally as the excess of the fair market value of the shares on the
date the shares were purchased over the purchase price. Any additional gain or
loss on such sale or disposition will be long-term or short-term capital gain or
loss, depending on how long the shares have been held from the date of purchase.
The Company generally is not entitled to a deduction for amounts taxed
as ordinary income or capital gain to a participant except to the extent of
ordinary income recognized by participants upon a sale or disposition of shares
prior to the expiration of the holding periods described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON PARTICIPANTS AND THE COMPANY UNDER THE PURCHASE PLAN. IT DOES NOT
PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
PARTICIPANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
20
PROPOSAL FOUR
REAPPROVAL OF THE 1996 SENIOR EXECUTIVE BONUS PLAN
The Board of Directors has previously adopted, and the stockholders have
previously approved, the 1996 Senior Executive Bonus Plan (the "Bonus Plan").
The stockholders are being asked to approve the Bonus Plan again, so that the
Company may use the Bonus Plan to achieve its goals and continue to receive a
tax deduction for certain compensation paid under the Bonus Plan. The Bonus Plan
is subject to the reapproval of a majority of the shares of common stock that
are present in person or by proxy at the Annual Meeting.
The following paragraphs provide a summary of the principal features of
the Bonus Plan and its operation. The summary is qualified in its entirety by
reference to the Bonus Plan as set forth in Appendix C.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The reapproval of the 1996 Senior Executive Bonus Plan requires the
affirmative vote of a majority of the Votes Cast on the proposal at the Annual
Meeting.
THE BOARD OF DIRECTOR UNANIMOUSLY RECOMMENDS VOTING "FOR" THE REAPPROVAL
OF THE 1996 SENIOR EXECUTIVE BONUS PLAN.
SUMMARY OF THE 1996 SENIOR EXECUTIVE BONUS PLAN
Purpose
The purpose of the Bonus Plan is to motivate key executives to perform
to the best of their abilities and to achieve the Company's objectives. The
Bonus Plan accomplishes this by paying awards under the Bonus Plan only after
the achievement of the specified goals.
The Bonus Plan also is designed to qualify as "performance-based"
compensation under Section 162(m) of the Internal Revenue Code. Under Section
162(m), the Company may not receive a federal income tax deduction for
compensation paid to its Chief Executive Officer or any of the four other most
highly compensated executive officers to the extent that any of these persons
receives more than $1 million in any one year, unless it is "performance-based"
under Section 162(m), in which case the Company can still receive a federal
income deduction for the compensation even if it is more than $1 million. The
Bonus Plan allows the Company to pay incentive compensation that is
performance-based and therefore fully tax deductible on the Company's federal
income tax return.
Eligibility to Participate
The Compensation Committee of the Board selects which of the Company's
officers will be eligible to receive awards under the Bonus Plan. The actual
number of employees who will be eligible to receive an award during any
particular year cannot be determined in advance because the Compensation
Committee has discretion to select the participants. However, it is expected
that approximately five executives will participate in the Bonus Plan in any
year.
Target Awards and Performance Goals
Each performance period, the Compensation Committee assigns each
participant a target award and performance goal or goals that must be achieved
before an award actually will be paid to the participant. The participant's
target award is expressed as a percentage of his or her base salary, which for
these purposes is defined as the lesser of (i) 125% of the participant's annual
base salary on the first day of the fiscal year, or
21
(ii) the participant's annual base salary on the last day of the fiscal year.
The performance goals require the Company's achievement of objectives for one or
both of:
o Annual revenue, and
o Operating income expressed as a percent of sales.
Actual Awards
After the performance period ends, the Compensation Committee certifies
the extent to which the pre-established performance goals actually were achieved
or exceeded. The actual award that is payable to a participant is determined
using a formula that increases or decreases the participant's target award based
on the level of actual performance attained. However, the Bonus Plan limits
actual awards to a maximum of $5 million per person for any fiscal year, even if
the formula otherwise indicates a larger award.
Generally, if a participant terminates employment before the end of the
performance period in which the bonus is to be earned, he or she will not be
entitled to payment of a bonus for the performance period. However, if such
termination is due to an employee's retirement, disability or death, the
Compensation Committee has discretion to pay out part or all of the award
otherwise earned.
Administration, Amendment and Termination
The Compensation Committee administers the Bonus Plan. Members of the
Compensation Committee must qualify as outside directors under section 162(m).
Subject to the terms of the plan, the Compensation Committee has sole discretion
to:
o select the officers who will receive awards;
o determine the target award for each participant;
o determine the performance goals that must be achieved before any
actual awards are paid;
o determine a formula to increase or decrease an award to reflect
actual performance versus the predetermined performance goals;
and
o interpret the provisions of the Bonus Plan.
The Board may amend or terminate the plan at any time and for any
reason. An amendment also may be submitted for stockholder approval if necessary
to maintain the Bonus Plan's compliance with Section 162(m).
During fiscal 2005, the participants in the Bonus Plan were Messrs.
Swanson, Maier, Bell, Coghlan and Paulus. The amounts paid to these executive
officers under the Bonus Plan for fiscal 2005 are set forth in the Summary
Compensation Table in the Executive Officer Compensation section of this proxy
statement.
22
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has selected Ernst & Young LLP, independent
registered public accounting firm, to audit the financial statements of the
Company for the year ending July 2, 2006, and recommends that the stockholders
vote for ratification of such appointment. Although action by the stockholders
is not required by law, the Board of Directors believes that it is desirable to
request approval of this selection by the stockholders. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection. Ernst & Young LLP has audited the Company's financial statements
since the fiscal year ended June 30, 1982. Representatives of Ernst & Young LLP
are expected to be present at the Annual Meeting, will have the opportunity to
make a statement, and are expected to be available to respond to appropriate
questions from stockholders.
FEES BILLED TO THE COMPANY BY ERNST & YOUNG LLP DURING THE FISCAL YEAR ENDED
JULY 3, 2005
FEES PAID TO ERNST & YOUNG
--------------------------
2004 2005
---------- ----------
Audit Fees(1) ............................... $ 259,000 $ 643,000
Audit-Related Fees(2) ....................... $ 6,500 $ 5,000
Tax Fees(3) ................................. $ 174,000 $ 126,000
All Other Fees(4) ........................... $ -- $ --
- ----------
(1) Audit Fees consist of fees billed for professional services rendered for
the audit of the Company's annual consolidated financial statements and
review of the interim consolidated financial statements included in the
Company's public reports and any other services that Ernst & Young
normally provides to clients in connection with statutory and regulatory
filings and accounting consultations in connection with the annual audit
of the consolidated financial statements.
(2) Audit-Related Fees consist of assurance and related services provided by
Ernst & Young that are reasonably related to the performance of the audit
or review of the Company's consolidated financial statements but that are
not reported under "Audit Fees." The services for the fees disclosed under
this category are for procedures performed related to the Company's filing
to comply with California environmental regulations.
(3) Tax Fees consist of fees billed for professional services rendered for tax
compliance, advice and planning.
(4) All Other Fees consist of fees for products and services other than those
reported above.
PRE-APPROVAL PROCESS FOR AUDITOR SERVICES
All services that have been rendered by Ernst & Young LLP are
permissible under applicable laws and regulations. The Audit Committee
pre-approves all audit and non-audit services. The Audit Committee pre-approved
all audit and non-audit services for which the fees identified in the above
tables were incurred.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The ratification of the appointment of Ernst & Young LLP as the
Company's independent registered public accounting firm requires the affirmative
vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JULY 2,
2006.
23
BENEFICIAL SECURITY OWNERSHIP OF
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN OTHER BENEFICIAL OWNERS
SECURITY OWNERSHIP
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's common stock, as of the
Record Date, by (a) each beneficial owner of more than 5% of the Company's
common stock, (b) the Company's Executive Chairman and former Chief Executive
Officer, the Company's current Chief Executive Officer and the Company's three
other most highly compensated executive officers during fiscal 2005
(collectively, the "Named Executive Officers"), (c) each director of the
Company, and (d) all directors and executive officers of the Company as a group.
Except as otherwise indicated, each person has sole voting and investment power
with respect to all shares shown as beneficially owned, subject to community
property laws where applicable.
COMMON STOCK
--------------------------------------
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP BENEFICIALLY OWNED
- ----------------------------------------------------------------- ----------------- ------------------
Capital Research and Management Company (1) ..................... 35,894,000 11.69%
333 South Hope Street
Los Angeles, CA 90071
Robert H. Swanson, Jr. (2) ...................................... 2,443,066 *
Lothar Maier (3) ................................................ 575,128 *
David Bell (4) .................................................. 350,838 *
Paul Coghlan (5) ................................................ 974,090 *
Donald E. Paulus (6) ............................................ 118,041 *
David S. Lee (7) ................................................ 132,000 *
Leo T. McCarthy (8) ............................................. 169,800 *
Richard M. Moley (9) ............................................ 132,000 *
Thomas S. Volpe (10) ............................................ 196,000 *
All directors and executive officers as a group (16 persons) (11) 8,341,749 2.66%
- ----------
* Less than one percent of the outstanding common stock.
(1) Based on information reported on Schedule 13F filed with the Securities
and Exchange Commission as of June 30, 2005.
(2) Includes (i) 147,334 shares issued in the name of Robert H. Swanson, Jr.
and Sheila L. Swanson, Trustees of the Robert H. Swanson, Jr. and Sheila
L. Swanson Trust U/T/A dated May 27, 1976, (ii) 56,333 shares issued in
the name of Robert H. Swanson, Jr. Trustee, Robert H. Swanson, Jr.
Annuity, Trust 1, U/A June 17, 2002, (iii) 56,333 shares issued in the
name of Robert H. Swanson, Jr. Trustee, Sheila L. Swanson Annuity, Trust
1, U/A June 17, 2002, (iv) 2,091,400 shares issuable pursuant to options
exercisable within 60 days of September 6, 2005 and (v) 91,666 shares
subject to a restricted stock purchase agreement dated July 20, 2004.
(3) Includes 536,060 shares issuable pursuant to options exercisable within 60
days of September 6, 2005 and 22,000 shares subject to a restricted stock
purchase agreement dated July 20, 2004.
(4) Includes (i) 339 shares issued in the name of David Bundy Bell and Bonnie
Jean Bell, Trustees of the Bell Revocable Trust dated September 30, 1997,
(ii) 319,890 shares issuable pursuant to options exercisable within 60
days of September 6, 2005 and (iii) 23,166 shares subject to a restricted
stock purchase agreement dated July 20, 2004.
(5) Includes 848,690 shares issuable pursuant to options exercisable within 60
days of September 6, 2005 and 40,833 shares subject to a restricted stock
purchase agreement dated July 20, 2004.
(6) Includes 100,280 shares issuable pursuant to options exercisable within 60
days of September 6, 2005 and 17,500 shares subject to a restricted stock
purchase agreement dated July 20, 2004.
(7) Consists of 132,000 shares issuable pursuant to options exercisable within
60 days of September 6, 2005.
(8) Includes 18,000 shares issued in the name of Leo and Jacqueline McCarthy
LLC and 15,000 shares issued in the name of the McCarthy Grandchildren's
Trust. Also includes 100,000 shares issuable pursuant to options
exercisable within 60 days of September 6, 2005.
(9) Consists of 132,000 shares issuable pursuant to options exercisable within
60 days of September 6, 2005.
(10) Consists of 196,000 shares issuable pursuant to options exercisable within
60 days of September 6, 2005.
24
(11) Includes 6,895,540 shares issuable pursuant to options exercisable within
60 days of September 6, 2005 and 318,170 shares subject to restricted
stock purchase agreements dated July 20, 2004.
SECURITIES AUTHORIZED FOR
ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of July 3, 2005 about shares
of the Company's common stock that may be issued upon exercise of outstanding
options, warrants and rights under all of the Company's existing equity
compensation plans, including the 1986 Employee Stock Purchase Plan, the 1988
Stock Option Plan, 1996 Incentive Stock Option Plan and the 2001 Non-Statutory
Stock Option Plan, and the number of shares of common stock that remain
available for future issuance under these plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION
PLANS (EXCLUDING
NUMBER OF SECURITIES WEIGHTED-AVERAGE SECURITIES ISSUABLE UPON
ISSUABLE UPON EXERCISE EXERCISE PRICE OF EXERCISE OF OUTSTANDING
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, OPTIONS, WARRANTS
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS AND RIGHTS)
- --------------------------------------- ----------------------- -------------------- ------------------------
Equity compensation plans approved by
security holders.................... 24,116,955 $ 26.55 4,175,542(1)
Equity compensation plans not approved
by security holders................. 15,602,673(2) $ 33.80 13,749,409(2)
------------- -------------
Total............................... 39,719,628 $ 29.40 17,924,951
============= =============
- ----------
(1) The stockholders are being asked at the Annual Meeting to approve the
adoption of a new 2005 Equity Incentive Plan and adoption of a new 2005
Employee Stock Purchase Plan, superseding the Company's 1996 Incentive
Stock Option Plan and 1986 Employee Stock Purchase Plan, respectively. If
the new 2005 Equity Incentive Plan is approved by the stockholders, the
shares remaining available for future grant under the 1996 Incentive Stock
Option Plan (and not subject to outstanding options or other rights) at
that time will be transferred to the new plan. In addition, an aggregate
of 3,500,000 additional shares will be made available for issuance under
the new plans. See "Proposal Two - Approval of the 2005 Equity Incentive
Plan" and "Proposal Three - Approval of the 2005 Employee Stock Purchase
Plan."
(2) The numbers of shares indicated consist of shares issued or available for
future issuance, as appropriate, pursuant to the Company's 2001
Non-Statutory Stock Option Plan, which does not require the approval of
and has not been approved by stockholders. Executive officers and
directors of the Company are not eligible to participate under the 2001
Non-Statutory Stock Plan. See the description of the 2001 Non-Statutory
Stock Option Plan below.
1996 INCENTIVE STOCK OPTION PLAN
The Company's 1996 Incentive Stock Option Plan (the "1996 Plan") was
adopted by the Board of Directors in July 1996 and was approved by the Company's
stockholders in November 1996. The 1996 Plan provides for the granting to
employees, including officers, of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
for the granting to employees, directors and consultants of nonqualified stock
options. Incentive stock options may be granted only to employees, including
employee directors and officers.
Section 162(m) of the Code places limits on the deductibility for
federal income tax purposes of compensation paid to certain executive officers
of the Company. In order to preserve the Company's ability to deduct the
compensation income associated with options granted to such persons, the 1996
Plan provides that no employee, director or consultant may be granted, in any
fiscal year of the Company, options to purchase more than 500,000 shares of
common stock. Notwithstanding this limit, however, in connection
25
with an individual's initial employment with the Company, he or she may be
granted options to purchase up to an additional 500,000 shares of common stock.
The exercise price of an option is determined at the time the option is
granted. Generally, in the case of an incentive stock option, the exercise price
may not be less than 100% of the fair market value of the common stock on the
date the option is granted. Nonqualified stock options, however, may be granted
with a per share exercise price of less than 100% of the fair market value of
the Company's common stock on the date the option is granted; provided that if a
nonqualified stock option is intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the exercise price may not be less than 100% of fair market value. Options
granted under the 1996 Plan generally vest at a rate of 1/10th of the shares
subject to the option after each six month period of continued service to the
Company; however, the vesting schedule can change on a grant-by-grant basis. The
1996 Plan provides that vested options may be exercised for 3 months after any
termination of employment and for up to 12 months after termination of
employment as a result of death or disability. The Company may select
alternative periods of time for exercise upon termination of service. The 1996
Plan permits options to be exercised with cash, check, other shares of the
Company's stock, consideration received by the Company under a "cashless
exercise" program or certain other forms of consideration.
In the event that the Company merges with or into another corporation,
or sells substantially all of its assets, the 1996 Plan provides that each
outstanding option must be assumed or substituted for by the successor
corporation. If such substitution or assumption does not occur, each option will
fully vest and become exercisable. Unless terminated sooner, the 1996 Plan will
terminate automatically in July 2006, although any options then outstanding
under the plan will remain outstanding and exercisable for their term. It is the
Company's intention, if the stockholders approve the adoption of the 2005 Equity
Incentive Plan at the Annual Meeting, to transfer all shares remaining available
for future grant at that time to the 2005 Equity Incentive Plan and not to grant
additional options or rights under the 1996 Plan. As of September 6, 2005, there
were 32,000,000 shares of common stock reserved for issuance under the 1996
Plan, of which 18,921,585 shares were subject to outstanding options and
3,954,087 shares remained available for future grant.
1988 STOCK OPTION PLAN
The 1988 Stock Option Plan (the "1988 Plan") has terms substantially the
same as the terms of the 1996 Plan. The Company no longer grants options under
this plan. As of September 6, 2005, there were 4,821,920 shares of common stock
subject to outstanding options under the 1988 Plan.
1986 EMPLOYEE STOCK PURCHASE PLAN
The 1986 Employee Stock Purchase Plan (the "1986 Purchase Plan") was
adopted by the Board of Directors in April 1986 and approved by the stockholders
in May 1986. A total of 8,400,000 shares of the Company's common stock have been
reserved for issuance under the 1986 Purchase Plan, of which 480,664 remained
available for future issuance as of September 6, 2005. The 1986 Purchase Plan,
which is intended to qualify under Section 423 of the Code, permits eligible
employees to purchase common stock through payroll deductions at the end of each
offering period. The 1986 Purchase Plan is implemented by consecutive offering
periods of approximately six months each, ending on the last trading day of
fiscal months April and October of each year. For offering periods through the
offering period commenced in April 2005, the purchase price per share of the
shares offered is the lower of 85% of the fair market value of the common stock
on the first day of an offering period or 85% of the fair market value of the
common stock on the last day of that offering period. For offering periods
starting with the offering period commencing in November 2005, the purchase
price per share will be 85% of the fair market value of the common stock on the
last day of each offering period. The purchase price for the shares is
accumulated during the offering period by payroll deductions. As the 1986
Purchase Plan is currently administered, deductions must be either 5% or 10% of
a participant's eligible compensation for any given offering period.
26
All persons who are employed by the Company on a given enrollment date
and who are customarily employed by the Company for at least twenty hours per
week and more than five months per calendar year are eligible to participate in
the 1986 Purchase Plan. A participant may discontinue his or her participation
in the 1986 Purchase Plan at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
The maximum number of shares a participant may purchase under the 1986 Purchase
Plan is 300 shares per offering period, and the maximum dollar value of the
shares purchasable cannot exceed $25,000 in any calendar year. Notwithstanding
the foregoing, no employee is permitted to participate in the 1986 Purchase Plan
if, taking into account such participation, the employee would own or have the
right to acquire 5% or more of the voting power or value of all classes of stock
of the Company or any of its subsidiaries. Unless terminated sooner, the 1986
Purchase Plan will terminate in May 2006. It is the Company's intention, if the
stockholders approve the adoption of the 2005 Employee Stock Purchase Plan at
the Annual Meeting, to terminate the 1986 Purchase Plan at the end of the
offering period commencing in November 2005.
2001 NON-STATUTORY STOCK OPTION PLAN
In fiscal 2001, the Board of Directors approved the 2001 Non-Statutory
Stock Option Plan (the "2001 Plan"). The 2001 Plan provides for the granting of
non-qualified stock options to employees and consultants. The Company cannot
grant options under the 2001 Plan to directors or executive officers of the
Company. Options granted under the 2001 Plan generally vest at a rate of 1/10th
of the shares subject to the option after each six month period of continued
service to the Company; however, the vesting schedule can change on a
grant-by-grant basis. The 2001 Plan provides that vested options may be
exercised for 3 months after any termination of employment and for up to 12
months after termination of employment as a result of death or disability. The
Company may select alternative periods of time for exercise upon termination of
service. The 2001 Plan permits options to be exercised with cash, check, other
shares of the Company's stock, consideration received by the Company under a
"cashless exercise" program or certain other forms of consideration. In the
event that the Company merges with or into another corporation, or sells
substantially all of the Company's assets, the 2001 Plan provides that each
outstanding option will be assumed or substituted for by the successor
corporation. If such substitution or assumption does not occur, each option will
fully vest and become exercisable. As of September 6, 2005, there were a total
of 30,000,000 shares of common stock reserved for issuance under the 2001 Plan,
of which 15,960,014 were subject to outstanding options and 13,266,182 shares
remain reserved for future issuance.
27
EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation received by the Named
Executive Officers for services rendered to the Company in all capacities, for
the three fiscal years ended July 3, 2005:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- -------------------------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING COMPENSATION
POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) AWARDS($)(2) OPTIONS (#) ($)(3)
- ---------------------- ------ ----------- ------------ ---------------- -------------- ----------- ------------
Robert H. Swanson, Jr. 2005 $ 343,787 $ 2,256,700 $ 334,308(4) $ 10,188,750 -- $ 27,398
Executive Chairman 2004 337,625 2,054,894 372,548(4) -- 200,000 21,668
2003 334,751 1,352,127 239,556(4) -- 381,400 17,112
Lothar Maier.......... 2005 $ 339,991 $ 1,607,970 -- $ 1,222,650 150,000 $ 24,240
Chief Executive 2004 289,365 939,680 -- -- 200,000 18,776
Officer 2003 263,846 485,992 -- -- 100,060 15,139
--
David B. Bell......... 2005 $ 284,324 $ 1,548,422 -- $ 1,287,488 75,000 $ 24,295
President 2004 247,906 909,433 -- -- 100,000 19,078
2003 200,129 471,155 -- -- 78,890 15,448
Paul Coghlan.......... 2005 $ 331,781 $ 1,718,575 -- $ 2,269,313 70,000 $ 25,249
Vice President, 2004 304,673 1,170,569 -- -- 70,000 19,519
Finance and Chief 2003 287,886 803,447 -- -- 146,690 15,859
Financial Officer
Donald E. Paulus (5).. 2005 $ 232,654 $ 630,948 -- $ 972,563 35,000 $ 24,545
Vice President and 2004 204,545 402,390 -- -- 35,000 19,409
General Manager of 2003 -- -- -- -- -- --
Power Products
- ----------
(1) Includes cash profit sharing and cash bonuses earned for the fiscal year,
whether accrued or paid.
(2) Dollar value of shares of restricted stock awarded. The fair market value
of the common stock on the day of the awards was $37.05 per share. Shares
of restricted stock vest annually over a three-year period (subject, in
the case of Mr. Swanson, to the terms of his employment agreement, as
described under "Employment Agreements"), provided that the recipient
continues to be an employee of the Company on each vesting date.
Recipients receive dividends on the shares during the vesting period. The
original number of shares of restricted stock originally awarded to each
of the Named Executive Officers and the fair market value of those shares
as of the last trading day in fiscal 2005 are as follows: Mr. Swanson -
275,000 shares (fair market value - $10,054,000), Mr. Maier - 33,000
shares (fair market value - $1,206,480), Mr. Bell - 34,750 shares (fair
market value - $1,270,460), Mr. Coghlan - 61,250 shares (fair market value
- $2,239,300), and Mr. Paulus - 26,250 shares (fair market value -
$959,700). As of July 3, 2005, all shares originally awarded to the Named
Executive Officers continue to be held by them, except for Mr. Swanson,
who held 183,333 shares of his restricted stock award at such date.
(3) Includes insurance premiums paid by the Company under its life insurance
program. Also includes 401(k) profit sharing distributions earned during
the fiscal year.
(4) Represents the imputed value of personal use of the Company's airplane by
Mr. Swanson during the applicable fiscal year.
(5) Mr. Paulus became an executive officer of the Company at the start of
fiscal 2004.
28
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to the Named Executive Officers,
information concerning stock options granted during the year ended July 3, 2005.
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES IN PRICE PER FOR OPTION TERM (3)
OPTIONS FISCAL SHARE EXPIRATION -----------------------------
NAME GRANTED(#) YEAR(1) ($/SH) DATE(2) 5%($) 10%($)
- ----------------------------- ---------- ------------- --------- ---------- ----------- ------------
Robert H. Swanson, Jr........ -- -- -- -- -- --
Lothar Maier................. 150,000 2.59% $ 35.61 04/20/12 $ 7,516,500 $ 10,408,500
David B. Bell................ 75,000 1.30% $ 36.12 10/14/14 $ 4,413,000 $ 7,026,750
Paul Coghlan................. 70,000 1.21% $ 37.03 01/18/12 $ 3,647,000 $ 5,051,200
Donald E. Paulus............. 35,000 0.60% $ 36.12 10/14/14 $ 2,059,400 $ 3,279,150
- ----------
(1) The Company granted to employees in fiscal 2005 options to purchase
5,790,690 shares of common stock.
(2) Options may terminate before their expiration upon the termination of
optionee' s status as an employee, director or consultant, the optionee' s
death or disability or an acquisition of the Company.
(3) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term at the annual rate
specified (5% and 10%). In the case of Messrs. Bell's and Paulus's
options, the option term is ten years. Options granted to the other
executive officers have terms of seven years. Annual compounding results
in total appreciation of approximately 63%% (at 5% per year) and 159% (at
10% per year) for the ten-year options and approximately 41% and 95% for
the seven-year options. If the price per share of the Company's common
stock were to increase from the prices at the date of the above grants
($36.12 per share) over the next 10 years, the resulting stock prices at
5% and 10% appreciation would be approximately $58.84 per share at 5% and
approximately $93.69 per share at 10%, respectively. If the price per
share of the Company's common stock were to increase from the prices at
the date of the above grants ($35.61 and $37.03 per share) over the next
seven years, the resulting stock prices at 5% and 10% appreciation would
be approximately $52.10 and $50.11 per share at 5% and approximately
$72.16 and $69.39 per share at 10%, respectively. The 5% and 10% assumed
annual rates of compounded stock price appreciation are mandated by rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future stock price growth.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to option
exercises in fiscal 2005 by the Named Executive Officers and the value of such
officers' unexercised options at July 3, 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($) (2)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE (#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------ -------------- ----------- ------------- ------------- -------------
Robert H. Swanson, Jr.......... 38,000 $ 1,284,047 1,134,969 96,431 $ 21,312,208 $ 1,109,921
Lothar Maier................... -- -- 276,825 213,235 $ 2,111,309 $ 515,085
David B. Bell.................. -- -- 211,648 162,242 $ 2,592,353 $ 409,680
Paul Coghlan................... -- -- 607,361 49,329 $ 13,852,150 $ 567,777
Donald E. Paulus............... -- -- 82,336 89,444 $ 174,272 $ 135,165
- ----------
(1) Market value of underlying securities on the exercise date, minus the
exercise price.
(2) Value is based on the last reported sale price of the common stock on the
Nasdaq National Market of $36.56 per share on July 1, 2005 (the last
trading day for fiscal 2005), minus the exercise price.
29
EMPLOYMENT AGREEMENTS
In January 2002, the Company entered into employment agreements with Mr.
Swanson, its Executive Chairman and then Chief Executive Officer, Mr. Coghlan,
its Chief Financial Officer and certain other officers at the time.
Employment Agreement with the Executive Chairman and Former Chief
Executive Officer
Mr. Swanson's employment agreement provided for an annual base salary of
$345,000 at the time the agreement was entered into. Mr. Swanson's annual base
salary was subject to annual adjustment by the Compensation Committee, and was
subsequently increased to $405,000 from the original amount. Mr. Swanson's
employment agreement also entitled him to bonuses pursuant to his participation
in the Company's 1996 Senior Executive Bonus Plan and Key Employee Incentive
Bonus Plan.
In January 2005, Mr. Swanson voluntarily resigned as Chief Executive
Officer, but agreed, at the request of the Board of Directors, to remain as
Executive Chairman of the Board with duties requiring one to two days per week
of Mr. Swanson's time. Pursuant to his employment agreement Mr. Swanson
continues to receive his existing salary and bonus pro rated based on the number
of full days Mr. Swanson performs services as Executive Chairman throughout each
fiscal year, but his bonus may not exceed 50% of the target bonus for the
relevant period. In addition, Mr. Swanson's benefits continue, and his stock
options and restricted stock now vest at twice the rate, as if he had continued
as Chief Executive Officer.
If, in the future, Mr. Swanson is involuntarily terminated as Executive
Chairman of the Board for any reason other than cause (as defined in his
employment agreement) or if he voluntarily resigns as an employee and as
Executive Chairman, then 100% of his stock options and restricted stock will
immediately vest, and he will receive continued payment of one year's base
salary and annual target bonus payments. In addition, the Company will pay Mr.
Swanson's group health and dental plan continuation coverage premiums until the
earlier of 18 months from his termination and such time as Mr. Swanson and his
dependents are covered by similar plans of a new employer.
If there is a change of control of the Company (as defined in his
employment agreement), Mr. Swanson will receive similar benefits to those he is
entitled to receive if he is involuntarily terminated by the Company other than
for cause or if he voluntarily resigns as an employee and Executive Chairman of
the Board, including immediate vesting in full of his options and restricted
stock and payment of one year's salary and annual target bonus in a lump sum
within five days of the change of control, whether or not he is terminated
without cause or he resigns for good reason.
If Mr. Swanson should die while employed by the Company, 50% of his then
unvested restricted stock and options will vest immediately.
The Company has a fractional ownership in two different aircraft
operated by NetJets, Inc. So long as Mr. Swanson is Executive Chairman of the
Board, he is entitled to use the Company's airplane for personal use for up to
35% of the available flight time in any year. To the extent use of the airplane
results in imputed taxable income to Mr. Swanson, the Company will make
additional payments to him, so that the net effect is the same as if no income
were imputed to him.
If payments to Mr. Swanson under his employment agreement (together with
any other payments or benefits Mr. Swanson receives) would trigger the excise
tax provisions of Sections 280G and 4999 of the Code, Mr. Swanson will be paid
an additional amount so that he receives, net of the excise taxes, the amount he
would otherwise have been entitled to receive in their absence.
30
Employment Agreement with Chief Financial Officer
The employment agreement with Mr. Coghlan, the Company's Chief Financial
Officer, provided for an annual base salary of $285,000 at the time the
agreement was entered into. Mr. Coghlan's annual base salary is subject to
annual adjustment by the Board of Directors, and has been subsequently increased
to $330,000 from the original amount. He is also entitled to bonuses pursuant to
the Company's 1996 Senior Executive Bonus Plan and Key Employee Incentive Bonus
Plan.
If Mr. Coghlan is involuntarily terminated by the Company for any reason
other than cause (as defined in his employment agreements) or if he voluntarily
resigns with good reason (as defined in the employment agreements), then he will
receive continued payments of his base salary and bonus for six months, and his
stock options and restricted stock will immediately vest to the extent they
would have vested had he remained employed by the Company for an additional six
months. In addition, the Company will pay Mr. Coghlan's group health and dental
plan continuation coverage premiums until the earlier of six months from his
termination and such time as he and his dependents are covered by similar plans
of a new employer.
If, after a change of control (as defined in the employment agreements),
Mr. Coghlan is involuntarily terminated for any reason other than cause, or if
he voluntarily resigns with good reason, then 50% of his then unvested stock
options and restricted stock will immediately vest, and he will receive
continued payments of one year's base salary and 50% of his bonus. In addition,
the Company will pay Mr. Coghlan's group health and dental plan continuation
coverage premiums until the earlier of twelve months from his termination and
such time as he and his dependents are covered by similar plans of a new
employer.
If Mr. Coghlan should die while employed by the Company, 50% of his then
unvested restricted stock and options will vest immediately.
If payments to Mr. Coghlan under his employment agreement (together with
any other payments or benefits he receives) would trigger the excise tax
provisions of Sections 280G and 4999 of the Code, and such payments are less
than 3.59 multiplied by his "base amount" (as defined in Section 280G), then the
payments will be reduced so that no portion of the payments will be subject to
excise tax under Section 4999. If payments under Mr. Coghlan's employment
agreement (together with any other payments or benefits he receives) would
exceed 3.59 multiplied by his "base amount," then Mr. Coghlan will be paid an
additional amount so that he receives, net of the excise taxes, the amount he
would otherwise have been entitled to receive in their absence.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company served on the compensation committee
of another entity or on any other committee of the board of directors of another
entity performing similar functions during the last fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than ten percent of the Company's common stock, to file reports of
ownership on Form 3 and of changes in ownership on Forms 4 or 5 with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. Executive officers, directors and ten percent stockholders are
also required by Commission rules to furnish the Company with copies of all
Section 16(a) forms they file.
The Company reviews copies of any such forms and amendments it receives,
as well as written representations from certain reporting persons that no Forms
5 were required for such persons. Based solely
31
upon this review, the Company believes that its executive officers, directors
and ten percent stockholders complied with all applicable Section 16(a) filing
requirements during the fiscal year ended July 3, 2005, except that Mr. Nickson,
the Company's Vice President, North America Sales, inadvertently omitted to
report 223 shares of common stock held by him on his original Form 3 filing in
2001. The Form 3 was corrected in October 2004.
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
stockholder return, calculated on a dividend-reinvested basis, for Linear
Technology Corporation, the Nasdaq National Market, the Nasdaq Electronic
Components Stocks (the "NECS") and the S&P 500. The graph assumes that $100 was
invested in the Company's common stock, in the Nasdaq National Market, in the
NECS and in the S&P 500 on the last trading day of the Company's 2000 fiscal
year. Note that historic stock price performance is not necessarily indicative
of future stock price performance.
[CHART APPEARS HERE]
June 2000 June 2001 June 2002 June 2003 June 2004 June 2005
--------- --------- --------- --------- --------- ---------
LLTC ............... 100 69 49 51 62 57
Nasdaq ............. 100 54 37 41 52 52
NECS ............... 100 37 22 25 34 29
S&P 500 ............ 100 85 70 70 83 89
32
AUDIT COMMITTEE REPORT
The following is the Audit Committee's report submitted to the Board of
Directors for the fiscal year ended July 3, 2005.
The Audit Committee of the Board of Directors has:
o reviewed and discussed the Company's audited financial
statements for the fiscal year ended July 3, 2005 with the
Company's management;
o discussed with Ernst & Young LLP, the Company's independent
registered public accounting firm, the materials required to be
discussed by Statement of Auditing Standard 61; and
o reviewed the written disclosures and the letter from Ernst &
Young LLP required by Independent Standards Board No. 1 and
discussed with Ernst & Young LLP its independence.
Based on the Audit Committee's review of the matters noted above and its
discussions with the Company's independent registered public accounting firm and
the Company's management, the Audit Committee has recommended to the Board of
Directors that the Company's financial statements for the fiscal year ended July
3, 2005 be included in the Company's 2005 Annual Report on Form 10-K.
Respectfully submitted by:
THE AUDIT COMMITTEE
Thomas S. Volpe, Chairman
David S. Lee
Leo T. McCarthy
Richard M. Moley
33
COMPENSATION COMMITTEE REPORT
INTRODUCTION
The Compensation Committee of the Board of Directors is composed only of
non-employee directors. It is responsible for reviewing and recommending for
approval by the Board of Directors the Company's compensation practices,
executive salary levels and variable compensation programs, both cash-based and
equity-based. The Committee generally determines base salary levels for
executive officers of the Company at or about the start of each fiscal year and
determines actual bonuses at the end of each six-month fiscal period based upon
Company and individual performance.
COMPENSATION PHILOSOPHY
The Committee has adopted an executive pay-for-performance philosophy
covering all executive officers, including the Executive Chairman and the Chief
Executive Officer. This philosophy emphasizes variable compensation in order to
align executive compensation with the Company's business objectives and
performance and to attract, retain and reward executives who contribute both to
the short-term and long-term success of the Company. Pay is sufficiently
variable that above-average performance results in above-average total
compensation, and below-average performance for the Company or the individual
results in below-average total compensation. The focus is on corporate
performance and individual contributions toward that performance.
COMPENSATION PROGRAM
The Company has a comprehensive compensation program which consists of
cash compensation, both fixed and variable, and equity-based compensation. The
program has four principal components, which are intended to attract, retain,
motivate and reward executives who are expected to manage both the short-term
and long-term success of the Company. These components are:
Cash-Based Compensation
Base Salary--Base salary is predicated on industry and peer group
comparisons and on performance judgments as to the past and expected future
contribution of the individual executive officer. In general, salary increases
are made based on median increases in salaries for similar executives of
similar-size companies in the high technology industry.
Profit Sharing--Profit sharing payments are distributed semi-annually to
all employees, including executives, from a profit sharing pool. The amount of
the pool is largely determined by the magnitude of sales and operating income
for the six-month period. This pool is distributed to all eligible employees
based on the ratio of their individual salary to total salaries for all
employees. A portion of this profit sharing is paid directly into a 401(k)
retirement plan for all United States employees.
Bonuses--The Company has a discretionary key employee incentive pool
pursuant to which executive officers and a limited number of key employees may
receive semi-annual cash bonuses. Targets for sales growth and operating income
as a percentage of sales influence the size of the pool. Individual payments are
made based on the Company's achievement of these targets and upon the
individual's personal and departmental performance.
In 1996, the Company adopted the 1996 Senior Executive Bonus Plan to
facilitate, under Section 162(m) of the Internal Revenue Code, the federal
income tax deductibility of compensation paid to the Company's most highly
compensated executive officers. In fiscal 2005, the participants included
34
Messrs. Swanson, Maier, Bell, Coghlan and Paulus. In fiscal 2006, the plan will
include the Chief Executive Officer and each of the Company's four other most
highly compensated executive officers. The maximum amount payable to any
individual in any one year under the plan is $5 million.
Equity-Based Compensation
Stock Options--Stock options are granted periodically to provide
additional incentive to executives and other key employees to work to maximize
long-term total return to stockholders. The options generally vest over a
five-year period to encourage option holders to continue in the employ of the
Company. Over 40% of worldwide employees have received stock options. In
granting options, the Compensation Committee takes into account the number of
shares and outstanding options already held by the individual.
Restricted Stock-- During fiscal 2005, the Company implemented a
restricted stock program. Under the terms of the program, the Company grants
certain employees, including its executive officers, discount options with an
exercise price equal to the par value of its common stock, which is $0.001 per
share. Upon exercise, participants receive shares of restricted stock that are
subject to a right of repurchase in favor of the Company that lapses annually
over a three year period from the date of grant. Participants are entitled to
receive dividends on the shares of restricted stock during the vesting period.
The restricted stock program was implemented to encourage employee retention.
Commencing on July 4, 2005, the beginning of fiscal 2006, the Company is
subject to the requirements set forth in FASB 123R Stock-based Compensation and,
accordingly, will record a charge to its income statement in future periods for
the estimated value of stock-based compensation and awards. The Company views
stock-based compensation as essential in hiring and retaining professional
talent and in directing the efforts of these key employees to maximize long-term
total return to stockholders. In granting stock-based compensation going
forward, the Company will attempt to attract and retain key employees while
being cognizant of the effects such grants will have on charges to its income
statement. Depending on both the performance of the Company's common stock and
the hiring environment in the Company's industry, the Company may grant stock
options, restricted stock, restricted stock units, stock appreciation rights or
other awards as deemed appropriate to meet its employment and financial
performance objectives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee uses the same factors and criteria described above for
compensation decisions regarding Mr. Swanson, who served as the Company's Chief
Executive Officer until January 2005 when he became Executive Chairman, and Mr.
Maier, who became Chief Executive Officer at that time.
COMPENSATION LIMITATIONS FOR TAX PURPOSES
The Committee has considered the potential impact of Section 162(m) of
the Internal Revenue Code adopted under the federal Revenue Reconciliation Act
of 1993. Section 162(m) generally disallows a tax deduction for any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year for any of the Named Executive Officers, unless compensation is
performance-based. The Company's policy is to qualify, to the extent reasonable,
its executive officers' compensation for deductibility under applicable tax
laws. In 1996, the Company implemented the 1996 Senior Executive Bonus Plan in
order to qualify certain bonus payments to the Named Executive Officers as
performance-based compensation under Section 162(m). The Committee believes that
the implementation of the 1996 Senior Executive Bonus Plan enables the Company
to compensate its executive officers in accordance with its pay-for-performance
philosophy while maximizing the deductibility of such compensation. However, the
Committee recognizes that the loss of a tax deduction may be necessary in some
circumstances.
35
SUMMARY
The Committee believes that a fair and motivating compensation program
has played a critical role in the success of the Company. The Committee reviews
this program on an ongoing basis to evaluate its continued effectiveness.
Respectfully submitted by:
THE COMPENSATION COMMITTEE
David S. Lee
Leo T. McCarthy
Richard M. Moley
Thomas S. Volpe
36
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting or any adjournment or
postponement thereof, it is the intention of the persons named in the enclosed
form of proxy to vote the shares they represent as the Board of Directors may
recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Dated: September 26, 2005
Appendix A -- 2005 Equity Incentive Plan
Appendix B -- 2005 Employee Stock Purchase Plan
Appendix C -- 1996 Senior Executive Bonus Plan
APPENDIX A
LINEAR TECHNOLOGY CORPORATION
2005 EQUITY INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide incentives to individuals who perform
services to the Company, and
o to promote the success of the Company's business.
Awards granted under the Plan may be Incentive Stock Options,
Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Shares, or Performance Units, as the
Administrator may determine.
2. Definitions. As used herein, the following definitions will
apply:
(a) "Administrator" means the Board or any of its Committees
as will be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Affiliate" means any corporation or any other entity
(including, but not limited to, partnerships and joint ventures) controlling,
controlled by, or under common control with the Company.
(c) "Applicable Laws" means the requirements relating to the
administration of equity-based awards or equity compensation programs under U.S.
state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any foreign country or jurisdiction where Awards are,
or will be, granted under the Plan.
(d) "Award" means, individually or collectively, a grant
under the Plan of Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Shares, or Performance Units.
(e) "Award Agreement" means the written or electronic
agreement setting forth the terms and provisions applicable to each Award
granted under the Plan. The Award Agreement is subject to the terms and
conditions of the Plan.
(f) "Award Transfer Program" means any program instituted by
the Administrator which would permit Participants the opportunity to transfer
any outstanding Awards to a financial institution or other person or entity
selected by the Administrator.
(g) "Board" means the Board of Directors of the Company.
(h) "Cash Position" means the Company's level of cash and
cash equivalents.
A-1
(i) "Change of Control" means the occurrence of any of the
following events:
(i) The acquisition by any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities;
(ii) A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" will mean
Directors who either (A) are Directors as of the date hereof, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include an individual not otherwise an Incumbent
Director whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
(iii) A merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) The sale of all or substantially all of the
assets of the Company determined on a consolidated basis.
(j) "Code" means the Internal Revenue Code of 1986, as
amended. Any reference to a section of the Code herein will be a reference to
any successor or amended section of the Code.
(k) "Committee" means a committee of Directors or of other
individuals satisfying Applicable Laws appointed by the Board in accordance with
Section 4 hereof.
(l) "Common Stock" means the Common Stock of the Company.
(m) "Company" means Linear Technology Corporation, a
Delaware corporation, or any successor thereto.
(n) "Consultant" means any person, including an advisor,
engaged by the Company or its Affiliate to render services to such entity.
(o) "Determination Date" means the latest possible date that
will not jeopardize the qualification of an Award granted under the Plan as
"performance-based compensation" under Section 162(m) of the Code.
(p) "Director" means a member of the Board.
(q) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code, provided that in the case of Awards
other than Incentive Stock Options, the Administrator in its
A-2
discretion may determine whether a permanent and total disability exists in
accordance with uniform and non-discriminatory standards adopted by the
Administrator from time to time.
(r) "Earnings Per Share" means as to any Performance Period,
the Company's or a business unit's Net Income, divided by a weighted average
number of common shares outstanding and dilutive common equivalent shares deemed
outstanding, determined in accordance with generally accepted accounting
principles.
(s) "Employee" means any person, including Officers and
Directors, employed by the Company or its Affiliates. Neither service as a
Director nor payment of a director's fee by the Company will be sufficient to
constitute "employment" by the Company.
(t) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(u) "Fair Market Value" means, as of any date, the value of
Common Stock as the Administrator may determine in good faith by reference to
the price of such stock on any established stock exchange or a national market
system on the day of determination if the Common Stock is so listed on any
established stock exchange or a national market system. If the Common Stock is
not listed on any established stock exchange or a national market system, the
value of the Common Stock as the Administrator may determine in good faith.
(v) "Fiscal Year" means a fiscal year of the Company.
(w) "Incentive Stock Option" means an Option that by its
terms qualifies and is otherwise intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
(x) "Net Income" means as to any Performance Period, the
income after taxes of the Company for the Performance Period determined in
accordance with generally accepted accounting principles, provided that prior to
the Performance Period, the Administrator will determine whether any significant
item(s) will be included or excluded from the calculation of Net Income with
respect to one or more Participants.
(y) "Non-Employee Director" means a Director who is not
employed by the Company or its Parent or a Subsidiary.
(z) "Nonstatutory Stock Option" means an Option that by its
terms does not qualify or is not intended to qualify as an Incentive Stock
Option.
(aa) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(bb)"Old Plan" means the Company's 1996 Incentive Stock Option
Plan, as amended.
(cc) "Operating Cash Flow" means the Company's or a business
unit's sum of Net Income plus depreciation, amortization and other non-cash
debits or credits to Net Income (such as expenses relating to equity
compensation) less capital expenditures plus changes in working capital.
A-3
(dd) "Operating Income" means the Company's or a business
unit's income from operations but excluding any unusual items, determined in
accordance with generally accepted accounting principles.
(ee) "Option" means a stock option granted pursuant to the
Plan.
(ff) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(gg) "Participant" means the holder of an outstanding Award
granted under the Plan.
(hh) "Performance Period" means any Fiscal Year of the
Company or such other period as determined by the Administrator in its sole
discretion.
(ii) "Performance Goals" means the goal(s) (or combined
goal(s)) determined by the Administrator (in its discretion) to be applicable to
a Participant with respect to an Award. As determined by the Administrator, the
Performance Goals applicable to an Award may provide for a targeted level or
levels of achievement using one or more of the following measures: (a) Cash
Position, (b) Earnings Per Share, (c) Net Income, (d) Operating Cash Flow, (e)
Operating Income, (f) Return on Assets, (g) Return on Equity, (h) Return on
Sales, (i) Revenue and (j) Total Stockholder Return. The Performance Goals may
differ from Participant to Participant and from Award to Award. Any criteria
used may be measured, as applicable, (i) in absolute terms, (ii) in relative
terms (including, but not limited to, passage of time and/or against another
company or companies), (iii) on a per-share basis, (iv) against the performance
of the Company as a whole or a segment of the Company, and (v) on a pre-tax or
after-tax basis.
(jj) "Performance Share" means an Award denominated in Shares
which may be earned in whole or in part upon attainment of Performance Goals or
other vesting criteria as the Administrator may determine pursuant to Section
10.
(kk) "Performance Unit" means an Award which may be earned in
whole or in part upon attainment of Performance Goals or other vesting criteria
as the Administrator may determine and which may be settled for cash, Shares or
other securities or a combination of the foregoing pursuant to Section 10.
(ll) "Period of Restriction" means the period during which
the transfer of Shares of Restricted Stock are subject to restrictions and
therefore, the Shares are subject to a substantial risk of forfeiture. Such
restrictions may be based on the passage of time, the achievement of target
levels of performance, or the occurrence of other events as determined by the
Administrator.
(mm) "Plan" means this 2005 Equity Incentive Plan.
(nn) "Restricted Stock" means Shares issued pursuant to a
Restricted Stock award under Section 8 of the Plan, or issued pursuant to the
early exercise of an Option.
(oo) "Restricted Stock Unit" means a bookkeeping entry
representing an amount equal to the Fair Market Value of one Share, granted
pursuant to Section 9. Each Restricted Stock Unit represents an unfunded and
unsecured obligation of the Company.
(pp) "Return on Assets" means the percentage equal to the
Company's or a business unit's Operating Income before incentive compensation,
divided by average net Company or business unit, as applicable, assets,
determined in accordance with generally accepted accounting principles.
A-4
(qq) "Return on Equity" means the percentage equal to the
Company's Net Income divided by average shareholder's equity, determined in
accordance with generally accepted accounting principles.
(rr) "Return on Sales" means the percentage equal to the
Company's or a business unit's Operating Income before incentive compensation,
divided by the Company's or the business unit's revenue, determined in
accordance with generally accepted accounting principles.
(ss) "Revenue" means the Company's or a business unit's net
sales for a Performance Period, determined in accordance with generally accepted
accounting principles; provided, however, that prior to the Performance Period,
the Administrator will determine whether any significant item(s) will be
excluded or included from the calculation of Annual Revenue with respect to one
or more Participants.
(tt) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(uu) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(vv) "Service Provider" means an Employee, Director or
Consultant.
(ww) "Share" means a share of the Common Stock, as adjusted
in accordance with Section 13 of the Plan.
(xx) "Stock Appreciation Right" means an Award granted
pursuant to Section 7 hereof.
(yy) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
(zz) "Total Stockholder Return" means the total return
(change in share price plus reinvestment of any dividends) of a Share.
3. Stock Subject to the Plan.
(a) Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares which may be
issued under the Plan is 2,500,000 Shares plus any Shares remaining available
for issuance pursuant to the Company's Old Plan as of the date upon which this
Plan is approved by stockholders together with any Shares that would otherwise
return to the Old Plan as a result of termination of options or repurchase of
Shares issued under the Old Plan. The Shares may be authorized, but unissued, or
reacquired Common Stock.
(b) Lapsed Awards. If an Award expires or becomes
unexercisable without having been exercised in full, or, with respect to
Restricted Stock, Restricted Stock Units, Performance Shares or Performance
Units, is forfeited to or repurchased by the Company, the unpurchased Shares (or
for Awards other than Options and Stock Appreciation Rights, the forfeited or
repurchased shares) which were subject thereto will become available for future
grant or sale under the Plan (unless the Plan has terminated). With respect to
Stock Appreciation Rights, only Shares actually issued pursuant to a Stock
Appreciation Right will cease to be available under the Plan; all remaining
Shares under Stock Appreciation Rights will remain available for future grant or
sale under the Plan (unless the Plan has terminated). Shares that have actually
been issued under the Plan under any Award will not be returned to the Plan and
will not become available for
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future distribution under the Plan; provided, however, that if Shares of
Restricted Stock, Restricted Stock Units, Performance Shares or Performance
Units are repurchased by the Company or are forfeited to the Company, such
Shares will become available for future grant under the Plan. Shares used to pay
the withholding tax and exercise price associated with an Award will become
available for future grant or sale under the Plan. To the extent an Award under
the Plan is paid out in cash rather than Shares, such cash payment will not
reduce the number of Shares available for issuance under the Plan.
Notwithstanding the foregoing and, subject to adjustment provided in Section 13,
the maximum number of Shares that may be issued upon the exercise of Incentive
Stock Options will equal the aggregate Share number stated in Section 3(a),
plus, to the extent allowable under Section 422 of the Code, any Shares that
become available for issuance under the Plan under this Section 3(b).
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan will be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder will be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan will be administered by (A) the Board or (B) a Committee, which
committee will be constituted to satisfy Applicable Laws.
(v) Delegation of Authority for Day-to-Day
Administration. Except to the extent prohibited by Applicable Law, the
Administrator may delegate to one or more individuals the day-to-day
administration of the Plan and any of the functions assigned to it in this Plan.
Such delegation may be revoked at any time.
(b) Powers of the Administrator. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator will have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock;
(ii) to select the Service Providers to whom Awards
may be granted hereunder;
(iii) to determine whether and to what extent Awards
or any combination thereof, are granted hereunder;
(iv) to determine the number of Shares to be covered
by each Award granted hereunder;
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(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Appreciation Rights may be exercised or
other Awards vest (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture or repurchase restrictions, and any
restriction or limitation regarding any Award or the Shares relating thereto,
based in each case on such factors as the Administrator, in its sole discretion,
will determine;
(vii) to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(ix) to modify or amend each Award (subject to
Section 18(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Awards longer than is otherwise
provided for in the Plan. Notwithstanding the previous sentence, the
Administrator may not modify or amend an Option or Stock Appreciation Right to
reduce the exercise price of such Option or Stock Appreciation Right after it
has been granted (except for adjustments made pursuant to Section 13) nor may
the Administrator cancel any outstanding Option or Stock Appreciation Right and
replace it with a new Option or Stock Appreciation Right with a lower exercise
price, unless, in either case, such action is approved by the Company's
stockholders;
(x) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Award previously
granted by the Administrator;
(xi) to allow a Participant to defer the receipt of
the payment of cash or the delivery of Shares that would otherwise be due to
such Participant under an Award pursuant to such procedures as the Administrator
may determine;
(xii) to determine whether Awards will be settled in
Shares, cash or in any combination thereof;
(xiii) to establish a program whereby Service Providers
designated by the Administrator can reduce compensation otherwise payable in
cash in exchange for Awards under the Plan;
(xiv) to implement an Award Transfer Program;
(xv) to impose such restrictions, conditions or
limitations as it determines appropriate as to the timing and manner of any
resales by a Participant or other subsequent transfers by the Participant of any
Shares issued as a result of or under an Award, including without limitation,
(A) restrictions under an insider trading policy, and (B) restrictions as to the
use of a specified brokerage firm for such resales or other transfers; and
(xvi) to make all other determinations deemed
necessary or advisable for administering the Plan.
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(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations will be final and binding on all
Participants and any other holders of Awards.
5. Eligibility. Nonstatutory Stock Options, Restricted Stock,
Restricted Stock Units, Stock Appreciation Rights, Performance Units and
Performance Shares may be granted to Service Providers. Incentive Stock Options
may be granted only to Employees of the Company or any Parent or Subsidiary of
the Company. A Service Provider who has been granted an Award may, if otherwise
eligible, be granted additional Awards.
6. Stock Options.
(a) Limitations.
(i) Each Option will be designated in the Award
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds $100,000,
such Options will be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options will be taken into account in the order in
which they were granted. The Fair Market Value of the Shares will be determined
as of the time the Option with respect to such Shares is granted.
(ii) The following limitations will apply to grants
of Options:
(1) No Service Provider will be granted, in
any Fiscal Year, Options to purchase more than 5,000,000 Shares.
(2) In connection with his or her initial
service as an Employee, a Service Provider may be granted Options to purchase up
to an additional 5,000,000 Shares, which will not count against the limit set
forth in Section 6(a)(ii)(A) above.
(3) The foregoing limitations will be
adjusted proportionately in connection with any change in the Company's
capitalization as described in Section 13.
(4) If an Option is cancelled in the same
Fiscal Year in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (A) and (B) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
(b) Term of Option. The Administrator will determine the
term of each Option in its sole discretion; provided, however, that the term
will be ten (10) years from the date of grant or such shorter term as may be
provided in the Award Agreement. Moreover, in the case of an Incentive Stock
Option granted to a Participant who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option will be five (5) years from
the date of grant or such shorter term as may be provided in the Award
Agreement.
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(c) Option Exercise Price and Consideration.
(i) Exercise Price. The per share exercise price for
the Shares to be issued pursuant to exercise of an Option will be determined by
the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option
a) granted to an Employee who, at
the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price will be no
less than 110% of the Fair Market Value per Share on the date of grant.
b) granted to any Employee other
than an Employee described in paragraph (A) immediately above, the per Share
exercise price will be no less than 100% of the Fair Market Value per Share on
the date of grant.
(2) In the case of a Nonstatutory Stock
Option, the per Share exercise price will be determined by the Administrator,
but will be no less than 100% of the Fair Market Value per Share on the date of
grant.
(3) Notwithstanding the foregoing,
Options may be granted with a per Share exercise price of less than 100% of the
Fair Market Value per Share on the date of grant pursuant to a transaction
described in, and in a manner consistent with, Section 424(a) of the Code.
(ii) Waiting Period and Exercise Dates. At the time
an Option is granted, the Administrator will fix the period within which the
Option may be exercised and will determine any conditions that must be satisfied
before the Option may be exercised.
(iii) Form of Consideration. The Administrator
will determine the acceptable form(s) of consideration for exercising an Option,
including the method of payment, to the extent permitted by Applicable Laws.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder.
Any Option granted hereunder will be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Award Agreement. An Option may not be
exercised for a fraction of a Share.
An Option will be deemed exercised when the Company
receives: (i) notice of exercise (in such form as the Administrator specify from
time to time) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised (together
with an applicable withholding taxes). No adjustment will be made for a dividend
or other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 13 of the Plan.
(ii) Termination of Relationship as a Service
Provider. If a Participant ceases to be a Service Provider, other than upon the
Participant's death, Disability or Retirement, the Participant may exercise his
or her Option within such period of time as is specified in the Award Agreement
to the extent that the Option is vested on the date of termination (but in no
event later than the expiration of the term of such Option as set forth in the
Award Agreement). In the absence of a specified time in the Award Agreement, the
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Option will remain exercisable for three (3) months following the Participant's
termination. Unless otherwise provided by the Administrator, if on the date of
termination the Participant is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option will revert to the Plan. If
after termination the Participant does not exercise his or her Option within the
time specified by the Administrator, the Option will terminate, and the Shares
covered by such Option will revert to the Plan.
(iii) Disability of Participant. If a Participant
ceases to be a Service Provider as a result of the Participant's Disability, the
Participant may exercise his or her Option within such period of time as is
specified in the Award Agreement to the extent the Option is vested on the date
of termination (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement). In the absence of a specified time
in the Award Agreement, the Option will remain exercisable for six (6) months
following the Participant's termination. Unless otherwise provided by the
Administrator, if on the date of termination the Participant is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option will revert to the Plan. If after termination the Participant does not
exercise his or her Option within the time specified herein, the Option will
terminate, and the Shares covered by such Option will revert to the Plan.
(iv) Death of Participant. If a Participant dies
while a Service Provider, the Option may be exercised following the
Participant's death within such period of time as is specified in the Award
Agreement to the extent that the Option is vested on the date of death (but in
no event may the option be exercised later than the expiration of the term of
such Option as set forth in the Award Agreement), by the Participant's
designated beneficiary, provided such beneficiary has been designated prior to
Participant's death in a form acceptable to the Administrator. If no such
beneficiary has been designated by the Participant, then such Option may be
exercised by the personal representative of the Participant's estate or by the
person(s) to whom the Option is transferred pursuant to the Participant's will
or in accordance with the laws of descent and distribution. In the absence of a
specified time in the Award Agreement, the Option will remain exercisable for
six (6) months following Participant's death. Unless otherwise provided by the
Administrator, if at the time of death Participant is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option will
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option will terminate, and the Shares covered by such
Option will revert to the Plan.
7. Stock Appreciation Rights.
(a) Grant of Stock Appreciation Rights. Subject to the
terms and conditions of the Plan, a Stock Appreciation Right may be granted to
Service Providers at any time and from time to time as will be determined by the
Administrator, in its sole discretion.
(b) Number of Shares. The Administrator will have complete
discretion to determine the number of Stock Appreciation Rights granted to any
Participant, provided that during any Fiscal Year, no Participant will be
granted Stock Appreciation Rights covering more than 5,000,000 Shares.
Notwithstanding the foregoing limitation, in connection with a Participant's
initial service as an Employee, an Employee may be granted Stock Appreciation
Rights covering up to an additional 5,000,000 Shares.
(c) Exercise Price and Other Terms. The Administrator,
subject to the provisions of the Plan, will have complete discretion to
determine the terms and conditions of Stock Appreciation Rights granted under
the Plan, provided, however, that the exercise price will be not less than one
hundred percent (100%) of the Fair Market Value of a Share on the date of grant.
A-10
(d) Stock Appreciation Right Agreement. Each Stock
Appreciation Right grant will be evidenced by an Award Agreement that will
specify the exercise price, the term of the Stock Appreciation Right, the
conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.
(e) Expiration of Stock Appreciation Rights. A Stock
Appreciation Right granted under the Plan will expire upon the date determined
by the Administrator, in its sole discretion, and set forth in the Award
Agreement. Notwithstanding the foregoing, the rules of Section 6(d) also will
apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount. Upon
exercise of a Stock Appreciation Right, a Participant will be entitled to
receive payment from the Company in an amount determined by multiplying:
(i) The difference between the Fair Market Value
of a Share on the date of exercise over the exercise price; times
(ii) The number of Shares with respect to which
the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation
Right exercise may be in cash, in Shares of equivalent value, or in some
combination thereof.
8. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and
provisions of the Plan, the Administrator, at any time and from time to time,
may grant Shares of Restricted Stock to Service Providers in such amounts as the
Administrator, in its sole discretion, will determine.
(b) Restricted Stock Agreement. Each Award of Restricted
Stock will be evidenced by an Award Agreement that will specify the Period of
Restriction, the number of Shares granted, and such other terms and conditions
as the Administrator, in its sole discretion, will determine. Notwithstanding
the foregoing, during any Fiscal Year no Participant will receive more than an
aggregate of 1,500,000 Shares of Restricted Stock; provided, however, that in
connection with a Participant's initial service as an Employee, an Employee may
be granted an aggregate of up to an additional 1,500,000 Shares of Restricted
Stock. Unless the Administrator determines otherwise, Shares of Restricted Stock
will be held by the Company as escrow agent until the restrictions on such
Shares have lapsed.
(c) Transferability. Except as provided in this Section 8,
Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable Period of
Restriction.
(d) Other Restrictions. The Administrator, in its sole
discretion, may impose such other restrictions on Shares of Restricted Stock as
it may deem advisable or appropriate.
(e) Removal of Restrictions.
(i) General. Except as otherwise provided in this
Section 8, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan will be released from escrow as soon as practicable after
the last day of the Period of Restriction. The restrictions will lapse at a rate
determined by
A-11
the Administrator. After the grant of Restricted Stock, the Administrator, in
its sole discretion, may reduce or waive any restrictions for such Restricted
Stock.
(ii) Section 162(m) Performance Restrictions. For
purposes of qualifying Awards of Restricted Stock as "performance-based
compensation" under Section 162(m) of the Code, the Administrator, in its
discretion, may set restrictions based upon the achievement of Performance
Goals, which shall be set by the Administrator on or before the Determination
Date. In this connection, the Administrator shall follow any procedures
determined by it from time to time to be necessary or appropriate to ensure
qualification of the Stock Purchase Right under Section 162(m) of the Code
(e.g., in determining the Performance Goals).
(f) Voting Rights. During the Period of Restriction, Service
Providers holding Shares of Restricted Stock granted hereunder may exercise full
voting rights with respect to those Shares, unless the Administrator determines
otherwise.
(g) Dividends and Other Distributions. During the Period of
Restriction, Service Providers holding Shares of Restricted Stock will be
entitled to receive all dividends and other distributions paid with respect to
such Shares unless otherwise provided in the Award Agreement. If any such
dividends or distributions are paid in Shares, the Shares will be subject to the
same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
(h) Return of Restricted Stock to Company. On the date set
forth in the Award Agreement, the Restricted Stock for which restrictions have
not lapsed will revert to the Company and again will become available for grant
under the Plan.
9. Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time
and from time to time as determined by the Administrator. Each Restricted Stock
Unit grant will be evidenced by an Award Agreement that will specify such other
terms and conditions as the Administrator, in its sole discretion, will
determine, including all terms, conditions, and restrictions related to the
grant, the number of Restricted Stock Units and the form of payout, which,
subject to Section 9(d), may be left to the discretion of the Administrator.
Notwithstanding the anything to the contrary in this subsection (a), during any
fiscal year of the Company, no Participant will receive more than an aggregate
of 1,500,000 Restricted Stock Units; provided, however, that in connection with
a Participant's initial service as an Employee, an Employee may be granted an
aggregate of up to an additional 1,500,000 Restricted Stock Units.
(b) Vesting Criteria and Other Terms.
(i) General. The Administrator will set vesting
criteria in its discretion, which, depending on the extent to which the criteria
are met, will determine the number of Restricted Stock Units that will be paid
out to the Participant. After the grant of Restricted Stock Units, the
Administrator, in its sole discretion, may reduce or waive any restrictions for
such Restricted Stock Units upon or in connection with a Change in Control or
upon or in connection with a Participant's termination of service, including,
without limitation, due to death or Disability.
(ii) Section 162(m) Performance Restrictions. For
purposes of qualifying Restricted Stock Units as "performance-based
compensation" under Section 162(m) of the Code, the Administrator, in its
discretion, may set restrictions based upon the achievement of Performance
Goals, which shall be set by the Administrator on or before the Determination
Date. In this connection, the Administrator
A-12
shall follow any procedures determined by it from time to time to be necessary
or appropriate to ensure qualification of the Stock Purchase Right under
Section 162(m) of the Code (e.g., in determining the Performance Goals).
(c) Earning Restricted Stock Units. Upon meeting the
applicable vesting criteria, the Participant will be entitled to receive a
payout as specified in the Award Agreement. Notwithstanding the foregoing, at
any time after the grant of Restricted Stock Units, the Administrator, in its
sole discretion, may reduce or waive any vesting criteria that must be met to
receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted
Stock Units will be made as soon as practicable after the date(s) set forth in
the Award Agreement. The Administrator, in its sole discretion, may pay earned
Restricted Stock Units in cash, Shares, or a combination thereof. Shares
represented by Restricted Stock Units that are fully paid in cash again will be
available for grant under the Plan.
(e) Cancellation. On the date set forth in the Award
Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
10. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Performance Units and
Performance Shares may be granted to Service Providers at any time and from time
to time, as will be determined by the Administrator, in its sole discretion. The
Administrator will have complete discretion in determining the number of
Performance Units/Shares granted to each Participant provided that during any
Fiscal Year no Participant will receive more than 1,500,000 Performance Shares
or Performance Units. Notwithstanding the foregoing limitation, in connection
with a Participant's initial service as an Employee, an Employee may be granted
up to an additional 1,500,000 Performance Shares or Performance Units.
(b) Value of Performance Units/Shares. Each Performance Unit
will be a bookkeeping entry representing an amount equal to the Fair Market
Value of one Share and will represent an unfunded and unsecured obligation of
the Company. Each Performance Share will have an initial value equal to the Fair
Market Value of a Share on the date of grant.
(c) Performance Objectives and Other Terms.
(i) General. The Administrator will set performance
objectives or other vesting provisions (including, without limitation, continued
status as a Service Provider) in its discretion which, depending on the extent
to which they are met, will determine the number or value of Performance
Units/Shares that will be paid out to the Participant. Each Award of Performance
Units/Shares will be evidenced by an Award Agreement that will specify the
Performance Period, and such other terms and conditions as the Administrator, in
its sole discretion, will determine.
(ii) Section 162(m) Performance Objectives. For
purposes of qualifying grants of Performance Units/Shares as "performance-based
compensation" under Section 162(m) of the Code, the Administrator, in its
discretion, may determine that the performance objectives applicable to
Performance Units/Shares will be based on the achievement of Performance Goals.
The Administrator will set the Performance Goals on or before the Determination
Date. In granting Performance Units/Shares which are intended to qualify under
Section 162(m) of the Code, the Administrator will follow any procedures
determined by it from time to time to be necessary or appropriate to ensure
qualification of the Performance Units/Shares under Section 162(m) of the Code
(e.g., in determining the Performance Goals).
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(d) Earning of Performance Units/Shares. After the
applicable Performance Period has ended, the holder of Performance Units/Shares
will be entitled to receive a payout of the number of Performance Units/Shares
earned by the Participant over the Performance Period, to be determined as a
function of the extent to which the corresponding performance objectives or
other vesting provisions have been achieved. After the grant of a Performance
Unit/Share, the Administrator, in its sole discretion, may reduce or waive any
performance objectives or other vesting provisions for such Performance
Unit/Share.
(e) Form and Timing of Payment of Performance Units/Shares.
Payment of earned Performance Units/Shares will be made as soon as practicable
after the expiration of the applicable Performance Period. The Administrator, in
its sole discretion, may pay earned Performance Units/Shares in the form of
cash, in Shares (which have an aggregate Fair Market Value equal to the value of
the earned Performance Units/Shares at the close of the applicable Performance
Period) or in a combination thereof.
(f) Cancellation of Performance Units/Shares. On the date
set forth in the Award Agreement, all unearned or unvested Performance
Units/Shares will be forfeited to the Company, and again will be available for
grant under the Plan.
11. Leaves of Absence. Unless the Administrator provides otherwise,
vesting of Awards granted hereunder will be suspended during any unpaid leave of
absence. A Service Provider will not cease to be an Employee in the case of (i)
any leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, or any Subsidiary. For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Participant will cease to be
treated as an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option.
12. Non-Transferability of Awards. Unless determined otherwise by
the Administrator, an Award may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
recipient, only by the recipient. If the Administrator makes an Award
transferable, such Award will contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments; Dissolution or Liquidation; Merger or Change in
Control.
(a) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares occurs, the Administrator, in
order to prevent diminution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, may (in its sole discretion)
adjust the number and class of Shares that may be delivered under the Plan
and/or the number, class, and price of Shares covered by each outstanding Award,
and the numerical Share limits set forth in Sections 3, 6, 7, 8, 9 and 10.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator will notify each
Participant as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for a Participant
to have the right to exercise his or her Award, to the extent applicable, until
ten (10) days prior to such transaction as to all of the Awarded Stock covered
thereby, including Shares as to which the Award would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option or forfeiture
A-14
rights applicable to any Award will lapse 100%, and that any Award vesting will
accelerate 100%, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated. To the extent it has not been
previously exercised or vested, an Award will terminate immediately prior to the
consummation of such proposed action.
(c) Change in Control. In the event of a Change in Control,
each outstanding Award will be treated as the Administrator determines,
including, without limitation, that each Award be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. The Administrator will not be required
to treat all Awards similarly in the transaction.
In the event that the successor corporation does not
assume or substitute for the Award, unless the Administrator provides otherwise,
the Participant will fully vest in and have the right to exercise all of his or
her outstanding Options and Stock Appreciation Rights, including Shares as to
which such Awards would not otherwise be vested or exercisable, all restrictions
on Restricted Stock will lapse, and, with respect to Restricted Stock Units,
Performance Shares and Performance Units, all Performance Goals or other vesting
criteria will be deemed achieved at target levels and all other terms and
conditions met. In addition, if an Option or Stock Appreciation Right is not
assumed or substituted in the event of a Change in Control, the Administrator
will notify the Participant in writing or electronically that the Option or
Stock Appreciation Right will be exercisable for a period of time determined by
the Administrator in its sole discretion, and the Option or Stock Appreciation
Right will terminate upon the expiration of such period.
With respect to Awards granted to non-employee
Directors that are assumed or substituted for, if on the date of or following
such assumption or substitution the Participant's status as a Director or a
director of the successor corporation, as applicable, is terminated other than
upon a voluntary resignation by the Participant, then the Participant will fully
vest in and have the right to exercise Options and/or Stock Appreciation Rights
as to all of the Shares subject thereto, including Shares as to which such
Awards would not otherwise be vested or exercisable, all restrictions on
Restricted Stock will lapse, and, with respect to Restricted Stock Units,
Performance Shares and Performance Units, all Performance Goals or other vesting
criteria will be deemed achieved at target levels and all other terms and
conditions met.
For the purposes of this subsection (c), an Award
will be considered assumed if, following the Change in Control, the Award
confers the right to purchase or receive, for each Share subject to the Award
immediately prior to the Change in Control, the consideration (whether stock,
cash, or other securities or property) or, in the case of a Stock Appreciation
Right upon the exercise of which the Administrator determines to pay cash or a
Restricted Stock Unit, Performance Share or Performance Unit which the
Administrator can determine to pay in cash, the fair market value of the
consideration received in the merger or Change in Control by holders of Common
Stock for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided, however, that
if such consideration received in the Change in Control is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of an Option or Stock Appreciation Right or upon the
payout of a Restricted Stock Unit, Performance Share or Performance Unit, for
each Share subject to such Award (or in the case of Restricted Stock Units and
Performance Units, the number of implied Shares determined by dividing the value
of the Restricted Stock Units or Performance Units, as applicable, by the per
share consideration received by holders of Common Stock in the Change in
Control), to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the Change in Control.
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Notwithstanding anything in this Section 13(c) to the
contrary, an Award that vests, is earned or paid-out upon the satisfaction of
one or more Performance Goals will not be considered assumed if the Company or
its successor modifies any of such Performance Goals without the Participant' s
consent; provided, however, a modification to such Performance Goals only to
reflect the successor corporation's post-Change in Control corporate structure
will not be deemed to invalidate an otherwise valid Award assumption.
14. Tax Withholding
(a) Withholding Requirements. Prior to the delivery of any
Shares or cash pursuant to an Award (or exercise thereof), the Company will have
the power and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy federal, state, local, foreign
or other taxes (including the Participant's FICA obligation) required to be
withheld with respect to such Award (or exercise thereof).
(b) Withholding Arrangements. The Administrator, in its sole
discretion and pursuant to such procedures as it may specify from time to time,
may permit a Participant to satisfy such tax withholding obligation, in whole or
in part (without limitation) by (i) paying cash, (ii) electing to have the
Company withhold otherwise deliverable cash or Shares having a Fair Market Value
equal to the amount required to be withheld, (iii) delivering to the Company
already-owned Shares having a Fair Market Value equal to the amount required to
be withheld, or (iv) selling a sufficient number of Shares otherwise deliverable
to the Participant through such means as the Administrator may determine in its
sole discretion (whether through a broker or otherwise) equal to the amount
required to be withheld. The amount of the withholding requirement will be
deemed to include any amount which the Administrator agrees may be withheld at
the time the election is made, not to exceed the amount determined by using the
maximum federal, state or local marginal income tax rates applicable to the
Participant with respect to the Award on the date that the amount of tax to be
withheld is to be determined. The Fair Market Value of the Shares to be withheld
or delivered will be determined as of the date that the taxes are required to be
withheld.
15. No Effect on Employment or Service. Neither the Plan nor any
Award will confer upon a Participant any right with respect to continuing the
Participant's relationship as a Service Provider with the Company, nor will they
interfere in any way with the Participant's right or the Company's right to
terminate such relationship at any time, with or without cause, to the extent
permitted by Applicable Laws.
16. Date of an Award. The date of grant of an Award will be, for all
purposes, the date on which the Administrator makes the determination to grant
such Award, or such other date as is determined by the Administrator. Notice of
the grant determination will be given to each Service Provider to whom an Award
is so granted within a reasonable time after the date of such grant.
17. Term of Plan. Subject to Section 23 of the Plan, the Plan will
become effective upon its adoption by the Board. It will continue in effect for
a term of ten (10) years unless terminated earlier under Section 18 of the Plan.
18. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Administrator may at any
time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company will obtain
stockholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.
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(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan will impair the rights of any
Participant, unless mutually agreed otherwise between the Participant and the
Administrator, which agreement must be in writing and signed by the Participant
and the Company. Termination of the Plan will not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Awards
granted under the Plan prior to the date of such termination.
19. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to
the exercise of an Award unless the exercise of the Award or the issuance and
delivery of such Shares (or with respect to Performance Units, the cash
equivalent thereof) will comply with Applicable Laws and will be further subject
to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the
exercise or receipt of an Award, the Company may require the person exercising
or receiving such Award to represent and warrant at the time of any such
exercise or receipt that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
20. Severability. Notwithstanding any contrary provision of the Plan
or an Award to the contrary, if any one or more of the provisions (or any part
thereof) of this Plan or the Awards will be held invalid, illegal or
unenforceable in any respect, such provision will be modified so as to make it
valid, legal and enforceable, and the validity, legality and enforceability of
the remaining provisions (or any part thereof) of the Plan or Award, as
applicable, will not in any way be affected or impaired thereby.
21. Liability of Company.
(a) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, will relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority will not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Shares covered
by an Award exceed, as of the date of grant, the number of Shares which may be
issued under the Plan without additional stockholder approval, such Award will
be void with respect to such excess Shares, unless stockholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan is
timely obtained in accordance with Section 18(b) of the Plan.
22. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as will
be sufficient to satisfy the requirements of the Plan.
23. Stockholder Approval. The Plan will be subject to approval by
the stockholders of the Company within twelve (12) months after the date the
Plan is adopted. Such stockholder approval will be obtained in the manner and to
the degree required under Applicable Laws.
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APPENDIX B
LINEAR TECHNOLOGY CORPORATION
2005 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, will be
construed so as to extend and limit participation in a uniform and
nondiscriminatory basis consistent with the requirements of Section 423 of the
Code.
2. Definitions.
(a) "Administrator" will mean the Board or any Committee
designated by the Board to administer the Plan pursuant to Section 14.
(b) "Board" will mean the Board of Directors of the Company.
(c) "Change in Control" will mean the occurrence of any of
the following events:
(i) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner"
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the total
voting power represented by the Company's then outstanding voting securities; or
(ii) The consummation of the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(iii) The consummation of a merger or consolidation of
the Company, with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or its parent) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company, or such surviving entity or
its parent outstanding immediately after such merger or consolidation; or
(iv) A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the Directors are Incumbent Directors. "Incumbent Directors" means Directors
who either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of Directors of the Company).
(d) "Code" will mean the Internal Revenue Code of 1986, as
amended. Any reference to a section of the Code herein will be a reference to
any successor or amended section of the Code.
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(e) "Committee" means a committee of the Board appointed by
the Board in accordance with Section 14 hereof.
(f) "Common Stock" will mean the common stock of the
Company.
(g) "Company" will mean Linear Technology Corporation, a
Delaware corporation.
(h) "Compensation" will mean all base straight time gross
earnings, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(i) "Designated Subsidiary" will mean any Subsidiary
selected by the Administrator as eligible to participate in the Plan.
(j) "Director" will mean a member of the Board.
(k) "Eligible Employee" will mean any individual who is a
common law employee of the Company or any Designated Subsidiary and whose
customary employment with the Company or Designated Subsidiary is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship will be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave. The Administrator, in its discretion,
from time to time may, prior to an Offering Date for all options to be granted
on such Offering Date, determine (on a uniform and nondiscriminatory basis) that
the definition of Eligible Employee will or will not include an individual if he
or she: (1) has not completed at least two years of service since his or her
last hire date (or such lesser period of time as may be determined by the
Administrator in its discretion), (2) customarily works not more than 20 hours
per week (or such lesser period of time as may be determined by the
Administrator in its discretion), (3) customarily works not more than five (5)
months per calendar year (or such lesser period of time as may be determined by
the Administrator in its discretion), (4) is an officer or other manager, or (5)
is a highly compensated employee under Section 414(q) of the Code.
(l) "Exchange Act" will mean the Securities Exchange Act of
1934, as amended.
(m) "Exercise Date" means such dates as may be determined by
the Administrator (in its discretion and on a uniform and nondiscriminatory
basis) from time to time prior to an Offering Date for all options to be granted
on such Offering Date. Until the Administrator provides otherwise, the Exercise
Date will be the last Trading Day of each Offering Period.
(n) "Fair Market Value" will mean, as of any date and unless
the Administrator determines otherwise, the value of Common Stock determined as
follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value will be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
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(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value will be the mean of the closing bid and asked prices for the Common
Stock on the date of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof will be determined in good faith by
the Board.
(o) "Offering Date" will mean the first Trading Day of each
Offering Period.
(p) "Offering Periods" will mean the periods during which an
option granted pursuant to the Plan may be exercised. The duration and timing of
Offering Periods will be determined by the Administrator in its sole discretion
pursuant to Section 4.
(q) "Plan" will mean this Employee Stock Purchase Plan.
(r) "Purchase Price" will mean the price per share of Common
Stock of the shares purchased under any option granted under the Plan as the
Administrator may determine from time to time, in its discretion and on a
uniform and nondiscriminatory basis. However, in no event will the price be less
than eighty-five percent (85%) of the lower of:
(i) the Fair Market Value per share of Common Stock
on the Offering Date; or
(ii) the Fair Market Value per share of Common Stock
on the Exercise Date.
(s) "Subsidiary" will mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
(t) "Trading Day" will mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) General. Any individual who is an Eligible Employee as
of the Offering Date of any Offering Period will be eligible to participate in
such Offering Period, subject to the requirements of Section 5.
(b) Limitations. Any provisions of the Plan to the contrary
notwithstanding, no Eligible Employee will be granted an option under the Plan
(i) to the extent that, immediately after the grant, such Eligible Employee (or
any other person whose stock would be attributed to such Eligible Employee
pursuant to Section 424(d) of the Code) would own capital stock of the Company
and/or hold outstanding options to purchase such stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of the
capital stock of the Company or of any Subsidiary, or (ii) to the extent that
his or her rights to purchase stock under all employee stock purchase plans of
the Company and its Subsidiaries accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the Fair Market Value
of the shares of Common Stock at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
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4. Offering Periods. Each Offering Period under the Plan will
expire on the earliest to occur of (a) the completion of the purchase of shares
on the last Exercise Date occurring within twenty-seven (27) months of the
Offering Date of such option, (b) such shorter option period as may be
established by the Administrator from time to time, in its discretion and on a
uniform and nondiscriminatory basis, prior to an Offering Date for all options
to be granted on such Offering Date, or (c) the date on which the Eligible
Employee ceases to be a participant under the Plan; provided, however, that the
first Offering Period under the Plan will not commence until the effective date
of the filing of the Company's Registration Statement on Form S-8 with respect
to the shares of Common Stock issuable under the Plan.
5. Participation. An Eligible Employee may become a participant in
the Plan by completing an enrollment agreement authorizing payroll deductions in
the form determined by the Administrator (or through such other electronic or
other enrollment procedure prescribed by the Administrator) and filing it with
the Company's payroll office (or its designee) on or before a date prescribed by
the Administrator prior to the applicable Offering Date.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she will elect to have payroll deductions made on each pay day
during the Offering Period in an amount not less than 5% and not exceeding 10%
of the Compensation which he or she receives on each pay day during the Offering
Period or in such other amount as the Administrator may determine (on a uniform
and nondiscriminatory basis). A participant's subscription agreement will remain
in effect for successive Offering Periods unless terminated as provided in
Section 10 hereof.
(b) Payroll deductions for a participant will commence on
the first payday following the Offering Date and will end on the last payday in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
(c) All payroll deductions made for a participant will be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(d) A participant may discontinue his or her participation
in the Plan as provided in Section 10, or may decrease the rate of his or her
payroll deductions during the Offering Period by (i) properly completing and
submitting to the Company' s payroll office (or its designee), on or before a
date prescribed by the Administrator prior to an applicable Exercise Date, a new
subscription agreement authorizing the change in payroll deduction rate in the
form provided by the Administrator for such purpose, or (ii) following an
electronic or other procedure prescribed by the Administrator. If a participant
has not followed such procedures to change the rate of payroll deductions, the
rate of his or her payroll deductions will continue at the originally elected
rate throughout the Offering Period and future Offering Periods (unless
terminated as provided in Section 10). The Administrator may, in its sole
discretion, change the nature and/or number of payroll deduction rate changes
that may be made by participants during any Offering Period. Any change in
payroll deduction rate made pursuant to this Section 6(d) will be effective as
soon as practicable after the Administrator processes a given change in payroll
deduction rate.
(e) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(c) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions will recommence at the rate
provided in such
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participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(f) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Eligible Employee.
7. Grant of Option. On the Offering Date of each Offering Period,
each Eligible Employee participating in such Offering Period will be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Eligible Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event will an Eligible Employee be permitted to purchase during each
Offering Period more than 300 shares of the Company's Common Stock, and provided
further that such purchase will be subject to the limitations set forth in
Sections 3(c) and 12 hereof. The Employee may accept the grant of such option
with respect to any Offering Period under the Plan, by electing to participate
in the Plan in accordance with the requirements of Section 5. The Administrator
may, for future Offering Periods, increase or decrease, in its absolute
discretion, the maximum number of shares of the Company's Common Stock an
Eligible Employee may purchase during each Offering Period. Exercise of the
option will occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option will expire on the last day
of the Offering Period or such earlier time as the Administrator may determine
pursuant to Section 20.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option will be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share will be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other funds left over in a participant's account after
the Exercise Date will be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
(b) If the Administrator determines that, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised may exceed (i) the number of shares of Common Stock that were
available for sale under the Plan on the Offering Date of the applicable
Offering Period, or (ii) the number of shares available for sale under the Plan
on such Exercise Date, the Administrator may in its sole discretion provide that
the Company will make a pro rata allocation of the shares of Common Stock
available for purchase on such Exercise Date in as uniform a manner as will be
practicable and as it will determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date. The Company may make a pro rata allocation of the shares
available on the Offering Date of any applicable Offering Period pursuant to the
preceding sentence, notwithstanding any authorization of
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additional shares for issuance under the Plan by the Company's stockholders
subsequent to such Offering Date.
9. Delivery. As soon as reasonably practicable after each Exercise
Date on which a purchase of shares occurs, the Company will arrange the delivery
to each participant the shares purchased upon exercise of his or her option in a
form determined by the Administrator. No participant will have any voting,
dividend, or other stockholder rights with respect to shares of Common Stock
subject to any option granted under the Plan until such shares have been
purchased and delivered to the participant as provided in this Section 9.
10. Withdrawal.
(a) Under procedures established by the Administrator, a
participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the Plan at any time by (i) submitting to the Company's payroll office (or
its designee) a written notice of withdrawal in the form prescribed by the
Administrator for such purpose, or (ii) following an electronic or other
withdrawal procedure prescribed by the Administrator. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant as promptly as practicable after the effective date of his or her
withdrawal and such participant's option for the Offering Period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made for such Offering Period. If a participant withdraws from an
Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant re-enrolls in the Plan in
accordance with the provisions of Section 5.
(b) A participant's withdrawal from an Offering Period will
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Eligible Employee, for any reason, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to purchase shares of Common
Stock under the Plan will be returned to such participant or, in the case of his
or her death, to the person or persons entitled thereto under Section 15, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment will be treated as continuing to be an Eligible
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu of
notice.
12. Interest. No interest will accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19, the maximum number of shares of Common
Stock which will be made available for sale under the Plan will be 1,000,000
shares of Common Stock.
(b) Until the shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), a participant will only have the rights of an
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unsecured creditor with respect to such shares, and no right to vote or receive
dividends or any other rights as a stockholder will exist with respect to such
shares.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Board or a committee of members of the Board
who will be appointed from time to time by, and will serve at the pleasure of,
the Board, will administer the Plan. The Administrator will have full and
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility, to adjudicate all disputed claims filed
under the Plan and to establish such procedures that it deems necessary for
administration of the Plan (including, without limitation, to adopt such
procedures and sub-plans as are necessary or appropriate to permit the
participation in the Plan by employees who are foreign nationals or employed
outside the United States). The Administrator, in its sole discretion and on
such terms and conditions as it may provide, may delegate to one or more
individuals all or any part of its authority and powers under the Plan. Every
finding, decision and determination made by the Administrator (or its designee)
will, to the full extent permitted by law, be final and binding upon all
parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent will be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company will
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
(c) All beneficiary designations will be in such form and
manner as the Administrator may designate from time to time.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition will be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
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17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company will not be obligated to segregate such payroll deductions. Until
shares are issued, participants will only have the rights of an unsecured
creditor.
18. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Eligible Employees at least annually, which statements will set forth the
amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments, Dissolution, Liquidation, Merger or Change in
Control.
(a) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company, or
other change in the corporate structure of the Company affecting the Common
Stock such that an adjustment is determined by the Administrator (in its sole
discretion) to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Administrator will, in such manner as it may deem equitable, adjust the
number and class of Common Stock which may be delivered under the Plan and the
Purchase Price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
will be shortened by setting a new Exercise Date (the "New Exercise Date"), and
will terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Administrator. The
New Exercise Date will be before the date of the Company's proposed dissolution
or liquidation. The Administrator will notify each participant in writing that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option will be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
(c) Merger or Change in Control. In the event of a merger or
Change of Control, each outstanding option will be assumed or an equivalent
option substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the option, any Offering Periods then in progress will
be shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress will end on the New Exercise Date. The New
Exercise Date will be before the date of the Company's proposed merger or Change
of Control. The Administrator will notify each participant in writing prior to
the New Exercise Date, that the Exercise Date for the participant's option has
been changed to the New Exercise Date and that the participant's option will be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10.
20. Amendment or Termination.
(a) The Administrator may at any time and for any reason
terminate or amend the Plan, including the termination of any Offering Period
then outstanding. Except as provided in Section 19, no such termination can
affect options previously granted under the Plan, provided that an Offering
Period may be terminated by the Administrator on or prior to any Exercise Date
if the Administrator determines that the
B-8
termination, suspension or amendment of the Plan is in the best interests of the
Company and its stockholders. Except as provided in Section 19 and this Section
20, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company will
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Administrator will be entitled to change or terminate outstanding
or prospective Offering Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars, permit
payroll withholding in excess of the amount designated by a participant in order
to adjust for delays or mistakes in the Company' s processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Administrator determines
in its sole discretion advisable which are consistent with the Plan.
(c) In the event the Administrator determines that the
ongoing operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify, amend or terminate the Plan to reduce or eliminate such
accounting consequence including, but not limited to:
(i) altering the Purchase Price for any Offering
Period including an Offering Period underway at the time of the change in
Purchase Price;
(ii) shortening any outstanding or prospective
Offering Period so that Offering Period ends on a new Exercise Date or
terminating any outstanding Offering Period and returning contributions made
through such date to participants; and
(iii) allocating shares.
Such modifications or amendments will not require stockholder approval or the
consent of any Plan participants.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan will be deemed to have been
duly given when received in the form and manner specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares will not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto will comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and will be further subject to the approval of
counsel for the Company with respect to such compliance.
B-9
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan will become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It will continue in effect until terminated under
Section 20 hereof.
B-10
APPENDIX C
LINEAR TECHNOLOGY CORPORATION
1996 SENIOR EXECUTIVE BONUS PLAN
AS OF JULY 2005
The Compensation Committee (the "Committee") of the Board of Directors
has approved the 1996 Senior Executive Bonus Plan (the "Plan") for fiscal 2005.
The Plan provides the Company's senior key executives with the opportunity to
earn incentive awards based on the achievement of goals relating to the
performance of the Company.
Background and Reasons for Adoption
The Company has a performance-based bonus plan similar to the Plan,
pursuant to which the Company rewards management for achieving certain
performance objectives. However, under section 162(m) of the Internal Revenue
Code, the federal income tax deductibility of compensation paid to the Company's
Chief Executive Officer and to each of its four other most highly compensated
executive officers may be limited to the extent that such compensation exceeds
$1 million in any one year. Under section 162(m), the Company may deduct
compensation in excess of that amount if it qualifies as "performance-based
compensation," as defined in section 162(m). The Plan is designed to qualify
payments thereunder as performance-based compensation, so that the Company may
continue to receive a federal income tax deduction for the payment of incentive
bonuses to its executives. The Company will continue to operate its current
bonus plan, as well, for the compensation of senior executives and other key
employees for whom section 162(m) is not an issue.
Description of the Plan
The following paragraphs provide a summary of the principal features of
the Plan and its operation.
Purpose of the Plan
The Plan is intended to increase stockholder value and the success of
the Company by aligning senior executive compensation with the Company's
business objectives and performance.
Administration of the Plan
The Plan will be administered by the Committee in accordance with (1)
the express provisions of the Plan and (2) the requirements of section 162(m).
Eligibility to Receive Awards
Participation in the Plan is determined annually in the discretion of
the Committee. In selecting participants for the Plan, the Committee will choose
officers of the Company who are likely to have a significant impact on Company
performance and be highly compensated. For fiscal 2005, the participants in the
Plan are Messrs. Swanson, Maier, Bell, Coghlan and Paulus. In fiscal future
fiscal years, the Plan will include the Chief Executive Officer and each of the
Company's four other most highly compensated executive officers.
C-1
Target Awards and Performance Goals
For each fiscal year, the Committee will establish: (1) a target award
for each participant, (2) the performance goals which must be achieved in order
for the participant to be paid the target award, and (3) a formula for
increasing or decreasing a participant's actual award depending upon how actual
performance compares to the pre-established performance goals.
Each participant's target award will be expressed as a percentage of his
or her base salary. Base salary under the Plan means the lesser of: (1) 125% of
the participant's annual salary rate on the first day of the fiscal year, or (2)
the participant's annual salary rate on the last day of the fiscal year.
There are several performance measures which the Committee may use in
setting the performance goals for any fiscal year. Specifically, the performance
goals applicable to any participant will provide for a targeted level of
achievement using one or more of the following measures: (1) annual revenue, and
(2) operating income expressed as a percent of sales.
For fiscal 2005, the Committee has established for the Plan participants
a combined performance goal with respect to: (1) operating profit return on
sales (i.e. fiscal 2005 operating profit as a percentage of revenue), and (2)
revenue growth from fiscal 2004 to fiscal 2005. The Committee has also
established a formula, with such measurements as variables, which will determine
actual awards.
Determination of Actual Awards
After the end of each fiscal year, the Committee must certify in writing
the extent to which the performance goals applicable to each participant were
achieved or exceeded. The actual award (if any) for each participant will be
determined by applying the formula to the level of actual performance which has
been certified by the Committee. However, the Committee retains discretion to
eliminate or reduce the actual award payable to any participant below that which
otherwise would be payable under the applicable formula. Also, no participant's
actual award under the Plan may exceed $5 million for any fiscal year.
The Plan contains a continuous employment requirement. If a participant
terminates employment with the Company prior the end of a fiscal year, he or she
generally will not be entitled to the payment of an award for the fiscal year.
However, if the participant's termination is due to retirement, disability or
death, the Committee will proportionately reduce (or eliminate) his or her
actual award based on the date of termination and such other considerations as
the Committee deems appropriate.
Awards under the Plan generally will be payable in cash after the end of
the fiscal year during which the award was earned.
C-2
LINEAR TECHNOLOGY CORPORATION VOTE BY INTERNET - www.proxyvote.com
720 SYCAMORE DRIVE Use the Internet to transmit your voting
MILPITAS, CA 95035-7487 instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site and follow the
instructions to obtain your records and to
create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in hand
when you call and then follow the
instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return
it in the postage-paid envelope we have
provided or return it to Linear Technology
Corporation, c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
LINER1 KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
LINEAR TECHNOLOGY CORPORATION
VOTE ON DIRECTORS
1. To elect six (6) directors to serve FOR WITHHOLD FOR ALL To withhold authority to vote, mark
until the next Annual Meeting of ALL ALL EXCEPT "For All Except" All and write the
Stockholders and until their nominee's number on the line below.
successors are elected.
NOMINEES: [ ] [ ] [ ] ------------------------------------
1) Robert H. Swanson, Jr. 4) Leo T. McCarthy
2) David S. Lee 5) Richard M. Moley
3) Lothar Maier 6) Thomas S. Volpe
VOTE ON PROPOSALS FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. To approve the adoption of the [ ] [ ] [ ] 4. To reapprove the 1996 Senior [ ] [ ] [ ]
2005 Equity Incentive Plan and Executive Bonus Plan.
the reservation of shares for
issuance thereunder.
5. To ratify the appointment of [ ] [ ] [ ]
Ernst & Young LLP as the
Company's independent
3. To approve the adoption of the 2005 registered public accounting
Employee Stock Purchase Plan and [ ] [ ] [ ] firm for the fiscal year
the reservation of shares for ending July 2, 2006.
issuance thereunder.
And, in their discretion, upon such other matter or matters
which may properly come before the meeting and any postponement
or adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON YOU ARE
URGED TO SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE
SO THAT ALL STOCK MAY BE REPRESENTED AT THE MEETING.
This proxy should be marked, dated, signed by the stockholder(s)
exactly as his or her name appears hereon, and returned promptly
in the enclosed envelope. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint tenants or as
community property, both should sign.
- ---------------------------------- -------- ------------------------ --------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------
PROXY
LINEAR TECHNOLOGY CORPORATION
2005 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Linear Technology Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated September 26, 2005 and hereby
appoints Robert H. Swanson, Jr. and Paul Coghlan, or either of them, as
attorneys-in-fact, each with full power of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2005 Annual Meeting
of Stockholders of Linear Technology Corporation to be held on November 2, 2005,
at 3:00 p.m. local time, at the Company's principal executive offices, located
at 720 Sycamore Drive, Milpitas, California 95035, and at any postponement or
adjournment thereof, and to vote all shares of common stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side and, in their discretion, upon such
other matter or matters which may properly come before the meeting and any
adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE SPECIFIED NOMINEES AS DIRECTORS, FOR THE
ADOPTION OF THE 2005 EQUITY INCENTIVE PLAN, FOR THE ADOPTION OF THE 2005
EMPLOYEE STOCK PURCHASE PLAN, FOR THE REAPPROVAL OF THE 1996 SENIOR EXECUTIVE
BONUS PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THIS MEETING.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE