UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

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METHODE ELECTRONICS, INC.

(Name of Registrant as Specified in Its Charter)

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

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

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

September 14, 2006

 

 

 

To the Stockholders of Methode Electronics, Inc.:

 

Notice is hereby given that an annual meeting of stockholders of Methode Electronics, Inc. will be held on Thursday, September 14, 2006 at 11:00 a.m., Chicago time, at the Fountain Blue Conference Center, 2300 South Mannheim Road, Des Plaines, Illinois, for the following purposes:

 

 

Our board of directors has fixed the close of business on July 26, 2006 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting and at any adjournment or postponement thereof.

 

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

 

By Order of the Board of Directors

 

Warren L. Batts

Chairman

 

August 11, 2006

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

 

PROXY STATEMENT

 

ANNUAL MEETING OF STOCKHOLDERS

September 14, 2006

 

GENERAL INFORMATION

 

The enclosed proxy is solicited on behalf of Methode Electronics, Inc. (“Methode”) in connection with an annual meeting of our stockholders to be held on Thursday, September 14, 2006 at 11:00 a.m., Chicago time, at the Fountain Blue Conference Center, 2300 South Mannheim Road, Des Plaines, Illinois, and at any adjournment or postponement of the annual meeting.

 

At the annual meeting, we will ask our stockholders to elect our board of directors and to ratify the Audit Committee’s selection of Ernst & Young LLP (“Ernst & Young”) to serve as our independent registered public accounting firm for the fiscal year ending April 30, 2007.

 

This proxy statement and the accompanying proxy card are first being mailed to our stockholders on or about August 11, 2006.

 

Record Date; Shares Outstanding

 

Our board of directors has fixed the close of business on July 26, 2006 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting and at any adjournment or postponement thereof. As of the record date, there were 37,302,276 shares of our common stock outstanding. All shares of our common stock are entitled to vote at the annual meeting.

 

Quorum; Votes Required

 

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of our common stock is necessary to constitute a quorum at the annual meeting. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum at the annual meeting. Generally, broker non-votes occur when shares held by a broker or nominee for a beneficial owner are not voted with respect to a particular proposal because the broker or nominee has not received voting instructions from the beneficial owner and the broker or nominee lacks discretionary power to vote such shares.

 

At the annual meeting, each holder of common stock will be entitled to one vote per share. The election of our board of directors and the ratification of the selection of our independent registered public accounting firm require approval by a majority of the shares of common stock represented at the meeting and entitled to vote, assuming a quorum is present. Both abstentions and broker non-votes will be considered as present but will not be considered as votes in favor of any matter. However, broker non-votes are excluded from the “for,” “against” and “abstain” counts, and instead are reported as simply “broker non-votes.” Consequently, abstentions have the effect of voting against the election of directors and against the ratification of the selection of our independent registered public accounting firm, while broker non-votes have no effect as to voting for or against any matter.

 

Voting Procedures

 

It is important that your shares be represented and voted at the annual meeting. Whether or not you plan to attend the annual meeting, please complete, sign, date and mail the accompanying proxy card in the enclosed self-addressed, stamped envelope, or deliver your proxy by telephone or the Internet. In order to grant a proxy by Internet, go to www.proxyvote.com and enter your individual 12-digit control number found on your proxy card in order to obtain your records and to create an electronic voting instruction form. In order to grant a proxy by telephone, call 1-800-690-6903 and enter your individual 12-digit control number found on your proxy card and then follow the instructions given over the telephone. You may grant your proxy by Internet or by telephone up until

11:59 p.m. Eastern Time the day before the annual meeting date. Please do not submit a proxy card if you delivered your proxy by telephone or the Internet unless you intend to change your voting instructions.

 

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

 

Revoking Your Proxy

 

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

 

Proxy Solicitation Expenses

 

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

 

SECURITY OWNERSHIP

 

Five Percent Stockholders

 

The following table sets forth information regarding all persons known to be the beneficial owners of more than 5% of Methode’s common stock as of July 26, 2006 (except as set forth in the relevant footnotes).

 

 

 

Directors and Executive Officers

 

The following table sets forth information regarding our common stock beneficially owned as of August 7, 2006 by (i) each director, (ii) each of the named executive officers, and (iii) all current directors and executive officers as a group.

 

 

 

 

 

 

PROPOSAL ONE: ELECTION OF DIRECTORS

 

A board of nine directors will be elected at the annual meeting. Each director will hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified. All of the nominees listed below currently serve as Methode directors and were recommended unanimously by our Nominating and Governance Committee and nominated by the board of directors. The shares represented by the proxies given pursuant to this solicitation will be voted for the following nominees unless votes are withheld in accordance with the instructions contained in the proxy. If any of these nominees is not a candidate for election at the annual meeting, an event which the board of directors does not anticipate, the proxies will be voted for a substitute nominee recommended by the Nominating and Governance Committee and nominated by the board of directors.

 

The board of directors recommends a vote “FOR” the election of the board of directors’ nominees.

 

 

 

 

 

 

 

PROPOSAL 2: RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of our board of directors has selected Ernst & Young to serve as our independent registered public accounting firm for the fiscal year ending April 30, 2007, subject to ratification of the selection by our stockholders. Ernst & Young has served as our independent registered public accounting firm for many years and is considered to be well qualified. We entered into an engagement agreement with Ernst & Young for its fiscal year 2006 services, which, among other things, contains contractual provisions that subject us to alternative dispute resolution procedures and exclude punitive damages from any monetary award. It is anticipated that the services performed by Ernst & Young for fiscal year 2007 will be subject to a similar engagement agreement.

 

Representatives of Ernst & Young will be present at the annual meeting, will have the opportunity to make a statement and will be available to respond to appropriate questions.

 

If our stockholders do not ratify the selection of Ernst & Young, the Audit Committee will reconsider the selection. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the selection of a different independent registered public accounting firm at any time during the year if the Audit Committee determines such a change would be in the best interests of Methode and our stockholders.

 

The board of directors recommends a vote “FOR” the ratification of the Audit Committee’s selection of Ernst & Young as our independent registered public accounting firm.

 

CORPORATE GOVERNANCE

 

Methode is committed to maintaining high standards of corporate governance intended to serve the long-term interests of Methode, its stockholders and employees.

 

Director Independence

 

Methode’s board of directors has considered the independence of its members under the applicable standards of the Securities and Exchange Commission and the Nasdaq Stock Market. The board has determined that all of its current directors are independent under those standards, except for Donald Duda, President and Chief Executive Officer of Methode. Mr. Duda’s lack of independence relates solely to his present service as an executive officer of Methode and is not due to any other transactions or relationships.

 

In addition, the board of directors has determined that each current member of the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Technology Committee satisfies the independence requirements of the applicable standards, if any, of the Securities and Exchange Commission and the Nasdaq Stock Market.

 

Board Committees

 

The following chart sets forth the Committees of the Board:

 

 

 

During fiscal year 2006, no director attended less than 75% of the aggregate of the total number of meetings of the board and the total number of meetings held by the respective committees on which he or she served. Under our Corporate Governance Guidelines, our directors are expected to attend board and stockholder meetings and meetings of committees on which they serve and to meet as frequently as necessary to properly discharge their responsibilities.

 

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

 

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

 

Nominating Process of the Nominating and Governance Committee

 

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

 

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

 

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

 

Our stockholders may recommend candidates at any time, but the Committee requires recommendations for election at an annual meeting of stockholders to be submitted to the Committee no later than 120 days before the first anniversary of the date of the proxy statement sent to stockholders in connection with the previous year’s annual meeting. The Committee believes this deadline is appropriate and in the best interests of Methode and our stockholders because it ensures that the Committee has sufficient time to properly evaluate all proposed candidates. Therefore, to submit a candidate for consideration for nomination at the 2007 Annual Meeting of Stockholders, a stockholder must submit the recommendation, in writing, by April 13, 2007. The written notice must include:

 

 

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

 

Communications with Directors

 

Methode’s annual meeting of stockholders provides an opportunity each year for stockholders to ask questions of, or otherwise communicate directly with, members of our board of directors on appropriate matters. All of our directors attended the 2005 annual meeting. We anticipate that all of our directors will attend the 2006 annual meeting.

 

In addition, stockholders may, at any time, communicate in writing with any particular director, or independent directors as a group, by sending such written communication to the Corporate Secretary of Methode Electronics, Inc. at 7401 West Wilson Avenue, Chicago, Illinois 60706. Copies of written communications received at such address will be provided to the relevant director or the independent directors as a group unless such communications are considered, in the reasonable judgment of the Corporate Secretary, to be improper for submission to the intended recipient(s). Examples of stockholder communications that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to Methode or Methode’s business or communications that relate to other improper or irrelevant topics.

 

Codes of Business Conduct and Ethics

 

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

 

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

 

AUDIT COMMITTEE MATTERS

 

Report of the Audit Committee

 

The Audit Committee oversees Methode’s financial reporting process on behalf of the board of directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control. The board has determined that each member of the Audit Committee meets the requirements as to independence, experience and expertise established by the Nasdaq Stock Market. In addition, the board has determined that Mr. Skatoff is an Audit Committee financial expert as defined by the Securities and Exchange Commission. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in the Annual Report on Form 10-K with management, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements.

 

The Audit Committee reviewed and discussed with Methode’s independent registered public accounting firm, Ernst & Young, which is responsible for expressing an opinion on the conformity of the audited financial statements with U.S. generally accepted accounting principles, the firm’s judgments as to the quality, not just the acceptability, of Methode’s accounting principles and such other matters as are required to be discussed under the standards of the Public Company Accounting Oversight Board (United States).

 

Ernst & Young provided to the Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1, as amended (Independence Discussions with Audit Committees). The Audit Committee discussed with Ernst & Young the firm’s independence from management and Methode and considered the compatibility of nonaudit services with the firm’s independence.

 

The Audit Committee discussed with Methode’s internal auditors and Ernst & Young the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and Ernst & Young, with and without management present, to discuss the results of their examinations, their evaluations of Methode’s internal controls, and the overall quality of Methode’s financial reporting. The Committee also discussed with Ernst & Young matters related to the financial reporting process required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees).

 

In reliance on the reviews and discussions referred to above, the Committee recommended to the board of directors (and the board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended April 30, 2006 filed with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

Lawrence B. Skatoff, Chairman

Isabelle C. Goossen

Paul G. Shelton

George S. Spindler

Auditing and Related Fees

 

Our Audit Committee engaged Ernst & Young to examine Methode’s consolidated financial statements for the fiscal year ended April 30, 2006. Fees paid to Ernst & Young for services performed during the 2006 and 2005 fiscal years were as follows:

 

 

 

 

EXECUTIVE COMPENSATION

 

The Summary Compensation Table below includes, for each of the fiscal years ended April 30, 2006, 2005 and 2004, individual compensation paid for services to Methode and its subsidiaries to Methode’s chief executive officer and the four other most highly compensated individuals serving as executive officers of Methode at the end of fiscal 2006 (the “Named Executives”).

 

Summary Compensation Table

 

 

 

 

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

 

Long-Term Incentive Plans — Awards In Last Fiscal Year

 

Methode has a Longevity Contingent Bonus Program that covers certain officers and key management personnel. The longevity compensation amount is equal to the current bonus received by an eligible employee for a given quarter, and is earned and payable three years after the current quarter only if the eligible employee is still an employee of Methode and his or her employment performance is satisfactory. If for any reason other than death, disability or retirement the officer or key employee terminates his or her employment with Methode during the three-year period or his or her employment performance is not satisfactory, no longevity compensation is payable under this program. If employment terminates due to death, disability or retirement, all outstanding longevity compensation awards will continue to be paid pursuant to the established schedule. The following table includes information regarding amounts payable under the Longevity Bonus Program to the Named Executives based on the bonuses earned in fiscal 2006.

 

 

Commencing with fiscal year 2007, the Compensation Committee has determined that the Named Executives will not be eligible to receive future awards under the Longevity Bonus Program. Amounts previously earned by these executives under the Longevity Bonus Program will continue to be paid through fiscal 2009.

 

Employment Agreements

 

Employment Security Agreements

 

On December 21, 2001, Donald Duda, Douglas Koman, Robert Kuehnau and Thomas Reynolds each entered into an Employment Security Agreement with Methode. Each agreement provides that if within three years of a Change in Control (as defined below) or during a Period Pending a Change in Control (as defined below), Methode terminates the executive’s employment without good cause or the executive voluntarily terminates his or her employment for good reason, the executive is entitled to (1) a lump sum cash payment equal to three times (one times in the case of Mr. Reynolds) the executive’s annual salary, (2) a lump sum cash bonus payment equal to 100% of the executive’s annual salary plus a pro-rata portion of the executive’s earned but unpaid bonus, (3) continued participation in Methode’s welfare benefit plans for three years (one year in the case of Mr. Reynolds) or until the executive becomes covered under other welfare benefit plans providing substantially similar benefits, (4) unpaid salary or other compensation earned with respect to periods prior to the executive’s termination, including accumulated but unused vacation and accrued bonuses under the Longevity Contingent Bonus Program, and (5) a lump sum of any amount payable to the executive pursuant to a tax gross-up payment.

 

In general, a “Change in Control” shall have occurred if any of the following occur:

 

 

“Period Pending a Change in Control” is defined in each agreement as the period between the time an agreement is entered into by Methode with respect to a transaction which would constitute a Change in Control, and the closing of such transaction.

 

The Compensation Committee is currently engaged in negotiations with Messrs. Duda, Koman, Kuehnau and Reynolds regarding amending these Employment Security Agreements. Additionally, the Compensation Committee is engaged in negotiations with Mr. Whybrow regarding entering into an Employment Security Agreement. Any such agreements will be subject to approval by the board of directors. The Compensation Committee expects to complete these negotiations and execute the relevant agreements in the near future, possibly before the annual meeting. Methode will file a current report on Form 8-K following the execution of any such agreements. The Form 8-K will disclose the material terms of these agreements and include a copy of the agreements.

 

Director Compensation

 

During the 2006 fiscal year, directors who are not Methode employees were compensated as follows:

 

 

Directors receive dividends on restricted stock subject to forfeiture. The restrictions on the restricted stock awards lapse ratably over three years. Generally, awards become fully vested if a director’s service on the board is terminated due to retirement on or after age 65, retirement on or after age 55 with the consent of Methode, retirement at any age on account of total and permanent disability, or death.

 

Directors who are also Methode employees are not paid for their services as directors or for attendance at meetings.

 

2004 Stock Plan

 

The 2004 Stock Plan provides for awards of certain stock options, non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. All present and future directors, officers and employees are eligible to participate. One million shares have been reserved for issuance. All awards automatically vest if, within 12 months following a change of control, the participant is terminated without cause or resigns for reasons relating to relocation, decreased responsibilities or compensation, and in the case of an incentive stock option, non-qualified stock option or stock appreciation right is exercisable for 90 days after termination. A “change of control” is defined as one of the following occurrences: (1) any person becomes the owner of more than 25% of the total vesting power of Methode’s then outstanding common stock; (2) a tender offer is made for our stock, a change of control shall be deemed to have occurred upon the first to occur of (A) the person making the offer owns or has accepted payment for more than 25% of the voting stock or (B) three business days before the offer is to terminate, if, by the terms of the offer, the offeror could own more than 40% of the voting stock, or (3) individuals who were the board’s nominees for election prior to a stockholders’ meeting do not constitute a majority of the board following the election.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under the securities laws of the United States, Methode’s directors, its executive officers, and any persons holding more than 10% of Methode’s common stock are required to report their initial ownership of common stock and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established and Methode is required to disclose in this proxy statement any failure to file by

the required dates during its fiscal year ended April 30, 2006. On June 15, 2005, an award of restricted stock was granted to each of the members of Methode’s board of directors, namely Messrs. Batts, Colgate, Dawson, Duda, Hornung, Shelton, Skatoff and Spindler and Ms. Goossen, as well as certain officers of Methode, namely Messrs. Koman, Kuehnau, Reynolds and Whybrow. A Form 4 was required to be filed with the Securities and Exchange Commission for each of these awards within two business days of each grant, but each Form 4 was not filed until June 30, 2005. All other filing requirements were satisfied. In making these disclosures, Methode has relied solely on written representations of its directors and executive officers and copies of the reports filed with the Commission.

 

Compensation Committee Interlocks and Insider Participation

 

The current members of the Compensation Committee are Paul Shelton, Chairman, Warren Batts, Isabelle Goossen and Christopher Hornung. No interlocking relationships exist between any member of the Compensation Committee and any member of any other company’s board of directors or compensation committee. No interlocking compensation committee relationships exist between any executive officer of Methode and any executive officer of any other company.

 

BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

 

The Compensation Committee is responsible for the compensation programs affecting the executive officers and key management employees of Methode. The Committee is composed of four independent directors. Methode’s compensation philosophy is comprised of several elements designed to attract, retain, motivate, and reward key management employees for performance, dedication and historical service to Methode. These elements consist of a base salary, bonus compensation and long-term incentive awards.

 

In determining the appropriate type and amount of compensation to award to our executives, the Committee considers the compensation of executives at other companies of similar size and complexity, as well as Methode’s performance within its different industries. The Committee also reviews compensation tally sheets for each of our Named Executives, which include detailed information regarding base salary, cash bonuses, estimated fair value of outstanding stock option and restricted stock awards, the value of perquisites, and retirement plans. In performing these reviews, the Committee engaged independent compensation consultants to supply data and advice.

 

Base Salary

 

The Compensation Committee reviews base salaries annually. Executive officer base salaries are generally set near the median of salaries of executives of other companies of comparable size and complexity. In determining base salaries, the Committee considers each executive’s performance, potential for future advancement and scope of responsibilities. The Committee works with the Chief Executive Officer in establishing the salaries of the other executive officers.

 

Bonus Compensation

 

Bonus targets for all officers and managerial personnel are established at the beginning of the fiscal year pursuant to a bonus plan reviewed at least annually by the Compensation Committee. Pursuant to the bonus plan, the officers’ and managers’ bonus amounts are based on sales and profit performance compared to budget and on achieving individual objectives established at the beginning of the fiscal year for the relevant Methode business unit. Bonuses are paid quarterly and are capped at 140% of the established target bonus amount.

 

Long-Term Incentives

 

The Methode Electronics, Inc. 2000 Stock Plan and the 2004 Stock Plan (the “Stock Plans”) provide long-term incentive to employees. The Stock Plans provide for the granting of awards of restricted stock, incentive stock options, nonqualified stock options and stock appreciation rights. The Compensation Committee administers the Stock Plans and from time to time grants awards under the Stock Plans to selected eligible employees and directors.

 

The Committee believes that an award under the Stock Plans is the component of executive compensation that is most closely aligned with the long-term interests of our stockholders. Starting in fiscal year 2004, the Compensation Committee replaced stock options with restricted stock awards as a means to increase executive stock ownership. The Committee believes that executive officers’ interests should be aligned with those of Methode’s stockholders and has established minimum stock ownership levels for our executives effective at the end of fiscal year 2007.

 

In August 2006, Methode granted restricted stock awards to the following Named Executives: 100,000 for Mr. Duda, 23,000 for Mr. Koman, 13,090 for Mr. Kuehnau, 45,000 for Mr. Reynolds and 7,000 for Mr. Whybrow. For each of these officers, the restricted stock awards vest on April 30, 2009, only if Methode has met certain financial targets based upon revenue growth and return on invested capital. All of the restricted stock awards are entitled to payments of dividends. This is the third annual grant of restricted stock.

 

In connection with these restricted stock awards, Methode agreed to pay each such officer a cash bonus if Methode exceeds the financial targets for revenue growth and return on invested capital, which shall be measured as of April 30, 2009. The amount of the cash bonuses, if any, will be calculated by multiplying the number representing 50% of each officer’s restricted stock awards described in the paragraph above by the closing price of Methode’s common stock as of April 30, 2009.

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

 

Deferred Compensation

 

Methode does not have a defined benefit pension plan and none of the Named Executives have supplemental retirement benefits. Each of the Named Executives is eligible to participate in Methode’s 401(k) defined contribution plan. The extent of their participation is limited by the discrimination tests required by Department of Labor regulations governing such plans. In order to assist the Named Executives with retirement planning, the Committee authorized the establishment of a deferred compensation plan effective for fiscal year 2007.

 

Change of Control Agreements

 

To ensure that our executives are able to focus on the interests of Methode and are not distracted by the possible impact on their personal situation if a change of control at Methode were to occur or be imminent, we continue to use change of control agreements. Under these agreements, an executive is paid certain benefits upon the occurrence of a change of control of Methode, and additional benefits if, during the three years after a change of control, the executive’s employment with Methode ceases for reasons other than “for cause”. The change of control agreements are described more fully in this proxy statement under the heading “Employment Agreements.” The agreements are Methode’s only contractual employment arrangements with the Named Executives. The Compensation Committee is currently engaged in negotiations with Messrs. Duda, Koman, Kuehnau and Reynolds regarding amending these change of control agreements. Additionally, the Compensation Committee is engaged in negotiations with Mr. Whybrow regarding entering into a change of control agreement. Any such agreements will be subject to approval by the board of directors.

 

CEO Compensation

 

During fiscal 2006, Methode continued to outperform its peer group in spite of a difficult period for one of its principal markets, the automotive industry. Mr. Duda plays a vital role in the operation and growth of Methode.

 

Mr. Duda’s base salary was set at $560,168 when he was appointed President and Chief Executive Officer on May 1, 2004. His salary has not been increased since that time. Mr. Duda was paid a bonus of $165,600 for fiscal 2006 and is eligible to receive a $165,600 matching bonus in fiscal 2009 under the Longevity Bonus Program for the fiscal 2006 performance of Methode. In fiscal 2006, Mr. Duda received a matching bonus of $132,124 under the Longevity Bonus Program for fiscal 2003 performance. Mr. Duda received a grant of 100,000 shares of restricted stock, as noted above. This stock award is contingent on the achievement of certain revenue growth and return on invested capital goals. In the event that Methode exceeds the revenue growth and return on invested capital goals, Mr. Duda is eligible for an additional cash bonus up to 50% of the value of the restricted stock when it vests on April 30, 2009, as described above.

 

Mr. Duda has three long-term, performance-based outstanding restricted stock awards totaling 275,000 shares, which vest over the next three years. Mr. Duda also has a 50,000 share restricted stock award that vests April 30, 2007. Each of these awards has the cash bonus feature described above for financial performance in excess of the targets. In addition Mr. Duda has two cash bonus agreements related to Methode’s stock price, the details of which are spelled out elsewhere in this proxy statement.

Deductibility of Certain Executive Compensation

 

Under Section 162(m) of the Internal Revenue Code, Methode may not deduct annual compensation in excess of $1 million paid to certain employees, generally the Chief Executive Officer and four other most highly compensated executive officers, unless that compensation qualifies as performance-based compensation under a stockholder approved plan and meets certain other technical requirements. While it is the general intention of the Compensation Committee to maximize the deductibility of executive compensation in structuring Methode’s compensation plans and programs, the Compensation Committee has approved, and may continue to approve awards which would not qualify as performance-based compensation under Section 162(m). The Compensation Committee reserves the flexibility and authority to make decisions that are in the best interest of Methode and its stockholders, even if those decisions do not result in full deductibility under Section 162(m).

 

COMPENSATION COMMITTEE

Paul G. Shelton, Chairman

Warren L. Batts

Isabelle C. Goossen

Christopher J. Hornung

 

PERFORMANCE GRAPH

 

The following graph sets forth a five year comparison of the cumulative total stockholder returns for the following: (1) Methode’s common stock; (2) the Nasdaq U.S. Index; and (3) a custom peer group of publicly traded companies. All returns were calculated assuming dividend reinvestment on a quarterly basis.

 

The Peer Group includes companies that manufacture, or have business units that manufacture, electrical and electronic connectors, interconnect devices, or controls and components for the automotive, computer, communications systems and other markets. The Peer Group consists of the following companies: Amphenol Corporation, CTS Corporation, Delphi Corporation, Littelfuse, Inc., Molex Incorporated (Class A Common Stock), Thomas & Betts Corporation and TRW Inc. (acquired by Northrop Grumman; included through 2002).

 

 

OTHER INFORMATION

 

Stockholder Proposals

 

The Corporate Secretary must receive stockholder proposals no later than April 13, 2007 to be considered for inclusion in Methode’s proxy materials for its next annual meeting. Additionally, Methode’s advance notice by-law provisions require that any stockholder proposal to be presented from the floor of the next annual meeting must be received by the Corporate Secretary not later than the 60th day nor earlier than the 90th day prior to September 14, 2007 (the first anniversary of the preceding year’s annual meeting). If the date of Methode’s next annual meeting is more than 30 days before or more than 60 days after September 14, 2007, such stockholder proposals must be delivered no earlier than the 90th day prior to such annual meeting date and not later than the later of the 60th day prior to such annual meeting date or the 10th day following Methode’s public announcement of the meeting date for such annual meeting. Also, such proposal must be, under law, an appropriate subject for stockholder action in order to be brought before the meeting and must contain the information required by the advance notice by-law provision. These notices should be directed to the Corporate Secretary of Methode Electronics, Inc. at 7401 West Wilson Avenue, Chicago, Illinois 60706.

 

Additional Information

 

A copy of Methode’s Annual Report on Form 10-K for the fiscal year ended April 30, 2006 filed with the Securities and Exchange Commission will be provided to stockholders without charge upon written request directed to Investor Relations, Methode Electronics, Inc., 7401 West Wilson Avenue, Chicago, Illinois 60706.

 

Other Matters

 

Neither the board of directors nor management knows of any other business that will be presented at the annual meeting. Should any other business properly come before the annual meeting, the persons named in the enclosed proxy will vote on such matters in accordance with their best judgment.

 

By Order of the Board of Directors,

 

Warren L. Batts

Chairman

 

Chicago, Illinois

August 11, 2006

METHODE ELECTRONICS, INC.
COMMON STOCK

P R O X Y

FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF
METHODE ELECTRONICS, INC.

THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS

     The undersigned hereby appoints Warren L. Batts, Donald W. Duda and Douglas A. Koman, and each of them, with full power of substitution, as proxies to vote all shares of Methode Electronics, Inc. common stock which the undersigned is entitled to vote at the Annual Meeting of Methode Electronics, Inc. to be held on Thursday, September 14, 2006 at 11:00 a.m., Chicago time, at the Fountain Blue Conference Center, 2300 South Mannheim Road, Des Plaines, Illinois, and at any adjournment or postponement thereof.

     This proxy when properly signed will be voted in the manner directed herein by the undersigned stockholder. IF NO DIRECTION IS PROVIDED, THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. If other business is presented at the Annual Meeting, this proxy shall be voted in accordance with the best judgment of the persons named as proxies above.

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED

Vote On Directors

1.

The election of the following nominees as directors: 01) Warren L. Batts, 02) J. Edward Colgate, 03) Darren M. Dawson, 04) Donald W. Duda, 05) Isabelle C. Goossen, 06) Christopher J. Hornung, 07) Paul G. Shelton, 08) Lawrence B. Skatoff and 09) George S. Spindler.

FOR ALL		WITHHOLD ALL		FOR ALL EXCEPT		To withhold authority to vote, mark “FOR ALL EXCEPT” and write the nominee’s number on the line below.
o		o		o

Vote on Proposal

2.

The ratification of the Audit Committee’s selection of Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal year ending April 30, 2007.

FOR		AGAINST		ABSTAIN
o		o		o

IMPORTANT — PLEASE VOTE, SIGN AND RETURN PROMPTLY. When there is more than one owner of shares, both should sign. Signatures should correspond with names printed on this proxy card.

When signing as an attorney, executor, administrator, trustee, or guardian, please add your full title as such. If a corporation, please sign in full corporate name, and this proxy should be signed by a duly authorized officer. If a partnership, please sign in partnership name by an authorized person.

Signature						Dated:				, 2006
Signature if held jointly						Dated:				, 2006

METHODE ELECTRONICS, INC.
7401 West Wilson Avenue, Chicago, IL 60706

If you grant a proxy by telephone or the Internet,
DO NOT mail back the proxy card.
THANK YOU FOR VOTING!

YOU CAN GRANT YOUR PROXY BY TELEPHONE OR INTERNET!

Methode Electronics, Inc. encourages you to take advantage of convenient ways to vote these shares. If voting by proxy, you may grant a proxy by mail, or choose one of the two methods described below. Your telephone or Internet proxy authorizes the named proxies to vote your shares in the same manner as if you marked, signed, and returned your proxy card. To grant your proxy by telephone or Internet, read the annual meeting proxy statement and then follow these easy steps:

Grant your proxy by Internet — www.proxyvote.com
Use the Internet to transmit your voting instructions for electronic delivery of information up until 11:59 P.M. Central Time the day before the annual 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.

Grant your proxy by phone — 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Central Time the day before the annual meeting date. Have your proxy card in hand when you call and then follow the simple instructions the vote voice provides you.

Grant your proxy by mail
Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Methode Electronics, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.

ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by Methode Electronics, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.