UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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Exchange Act of 1934 (Amendment No.  )

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Standard Microsystems Corporation

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STANDARD MICROSYSTEMS CORPORATION

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD JULY 10, 2008

 

 

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Standard Microsystems Corporation (“SMSC” or the “Company”) will be held at 10 a.m. (EDT) on July 10, 2008, at the Company’s headquarters at 80 Arkay Drive, Hauppauge, NY 11788, for the following purposes:

 

1. To elect directors;

 

2. To ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for SMSC for the fiscal year ending February 28, 2009; and

 

3. To transact such other business as may properly come before the meeting and any adjournments or postponements thereof.

 

In accordance with the bylaws of SMSC, the Board of Directors has fixed the close of business on May 15, 2008 as the record date for the determination of Stockholders entitled to notice of and to vote at the meeting.

 

By order of the Board of Directors,

 

 

Walter Siegel
Vice President, General Counsel & Secretary

 

May 23, 2008

 

 

 

 

 

STANDARD MICROSYSTEMS CORPORATION
80 Arkay Drive
Hauppauge, New York 11788

 

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 2008

 

PROXY STATEMENT

 

 

 

 

This proxy statement and the accompanying form of proxy are being furnished in connection with the solicitation of proxies by the board of directors (the “Board of Directors” or the “Board”) of Standard Microsystems Corporation, a Delaware corporation (“SMSC” or the “Company”), for use at its Annual Meeting of Stockholders to be held at 10:00 a.m. (EDT) on July 10, 2008 at the principal executive offices of the Company, located at 80 Arkay Drive, Hauppauge, New York 11788 and at any adjournment thereof. The approximate date on which this statement and the accompanying proxy are first being mailed to stockholders is May 23, 2008.

 

VOTING RIGHTS AND SOLICITATION OF PROXIES

 

Every stockholder of SMSC is entitled to cast, in person or by proxy, one vote for each share of SMSC common stock held at the close of business on May 15, 2008, the record date for the Annual Meeting. At that date, SMSC had 22,469,657 shares of common stock outstanding. The presence, in person or by proxy, of holders of a majority of the votes entitled to be cast at the Annual Meeting will constitute a quorum. Abstentions, withheld votes and broker non-votes are included in determining whether a quorum is present. Abstentions include shares present in person but not voting and shares represented by proxy but with respect to which the holder has abstained. Broker non-votes occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power on that item and has not received instructions from the beneficial owner.

 

Executing and returning your proxy will not affect your right to attend the Annual meeting and vote in person. If you do attend, you may vote by ballot at the Annual Meeting, thereby effectively canceling any proxies previously given. In addition, a shareholder giving a proxy may revoke it at any time before it is voted at the Annual Meeting by filing with the Corporate Secretary of the Company any instrument revoking it, or by filing with the Company a duly executed proxy bearing a later date.

 

The election of Directors of the Company (“Directors”) is decided by a plurality of the votes duly cast at the Annual Meeting. Withheld votes and broker non-votes are not treated as votes cast and, therefore, will have no effect on the proposal to elect Directors. A majority of the votes duly cast at the Annual Meeting is required to approve each other matter to be acted on at the meeting. Abstentions and broker non-votes are not treated as votes cast in the election of Directors or any other matters and, therefore, will have no effect on the approval of any such matter. The proxies named in the enclosed form of proxy or their substitutes will vote the shares represented by the enclosed form of proxy, if the proxy appears to be valid on its face, and, where a choice is specified on the form of proxy, the shares will be voted in accordance with the specification so made.

 

No business other than as set forth in the accompanying Notice of Annual Meeting of Stockholders is expected to come before the Annual Meeting, but should any other matter requiring a vote of Stockholders be properly brought before the Annual Meeting, it is the intention of the persons named in the enclosed form of proxy to vote such proxy in accordance with their best judgment on such matters. Stockholders who execute the enclosed proxy may still attend the Annual Meeting and vote in person.

 

The cost of preparing, assembling and mailing the proxy statement and related material will be borne by SMSC. In addition to soliciting proxies by mail, SMSC may make request for proxies by telephone, facsimile transmission or messenger or by personal solicitation by officers, Directors or employees of SMSC, at nominal cost to SMSC, or by any one or more of the foregoing means.

 

Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed for the Annual Meeting who will also determine whether a quorum is present.

In accordance with rules recently adopted by the Securities and Exchange Commission (the “SEC”), the Company is mailing to its record and beneficial shareholders a Notice of Internet Availability of Proxy Materials at least 40 calendar days prior to the Annual Meeting, which contains instructions on how to access the Company’s proxy materials over the Internet and vote online. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of SMSC’s proxy materials by mail, unless through the process described in the paragraph below. If you wish to receive a printed copy of the Company’s proxy materials for the Annual meeting, please follow the instructions for requesting those materials set forth in the notice of Internet Availability of Proxy Materials.

 

The SEC permits companies to send a single set of annual disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the Company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for stockholders of record; however, certain brokerage firms may have instituted householding for beneficial owners of our common stock held through brokerage firms. If your family has multiple accounts holding our common shares, you may have already received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of the annual disclosure documents. The broker will arrange for delivery of a separate copy of this Proxy Statement or our annual report promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

 

STOCKHOLDER PROPOSALS AND OTHER MATTERS

 

Stockholder proposals intended for inclusion in the proxy statement for the next annual meeting must be received by SMSC by January 24, 2009. All stockholder proposals should be sent to the Vice President, General Counsel and Secretary, SMSC, 80 Arkay Drive, Hauppauge, New York 11788. SMSC retains discretion to vote proxies it receives for any stockholder proposal submitted for consideration at next year’s annual meeting not received by April 7, 2009 (or, under SMSC’s bylaws, May 12, 2009, for nominations for Directors). In addition, for proposals or nominations received by the applicable date in the immediately preceding sentence, SMSC retains discretion to vote proxies it receives provided that (1) SMSC includes in its proxy statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement.

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

Our Board currently has six members. A majority of our Board satisfies the current independence requirements of NASDAQ and the SEC.

 

Our bylaws provide that our Board consists of no fewer than three persons. The exact number of members of our Board is determined from time to time by resolution of a majority of our full Board. The Board resolved at its April 2008 meeting to increase the number of directors to seven if all nominees for directorships are elected at the 2008 Annual Meeting.

 

Our Board is divided into three classes, with each Director serving a three-year term and one class being elected at each year’s annual meeting of stockholders. Messrs. Bilodeau and Dicks serve as Directors with a term expiring on the date of the 2008 Annual Meeting. Messrs. Caggia and Donahue serve as Directors with a term expiring on the date of the 2009 Annual Meeting. Messrs. Craig and Frisch serve as Directors with a term expiring on the date of the 2010 Annual Meeting. Our certificate of incorporation requires that such classes be as nearly equal in number of Directors as possible.

 

At the Annual Meeting, three Directors are to be elected to serve three-year terms ending at the Annual Meeting of Stockholders to be held in 2011, or until their respective successors are elected and qualified. The Board has nominated for re-election Steven J. Bilodeau and Peter F. Dicks as Directors, and has also nominated Stephen C. McCluski for election as a Director. Each of the three nominees has consented to serve as a Director if elected at the Annual Meeting and, to the best knowledge of the Board, each of such nominees is and will be able

to serve if so elected. In the event that any of these nominees should be unavailable to stand for election before the Annual Meeting, the persons named in the accompanying proxy intend to vote for such other person, if any, as may be designated by the Board in the place of a nominee unable to serve. The Board has determined that Mr. Dicks and Mr. McCluski are independent directors within the meaning of applicable regulations of NASDAQ and the federal securities laws.

 

The Board recommends that stockholders vote
“FOR” the Company’s nominees for Director.

 

Set forth below is a brief biography of each nominee for election as a Director and of all other members of the Board who will continue in office.

 

Nominees for Election as Directors
Term Expiring 2011

 

Steven J. Bilodeau (49).  Mr. Bilodeau has been a Director of the Company since 1999 and currently serves as Chairman, President and Chief Executive Officer of SMSC, and acting Chief Financial Officer. Mr. Bilodeau is also a director of Conexant, Inc. and Gennum Corporation.

 

Peter F. Dicks (65).  Mr. Dicks has been a Director since 1992 and also served as a Director from 1976 to 1991. His primary occupation is serving as a corporate director; directorships include, among others, Polar Capital Technology Trust, Graphite Enterprise Trust PLC, SportingBet PLC and Gartmore Fledging Index Trust.

 

Stephen C. McCluski (55).  Mr. McCluski has been nominated to be a Director by the Board of Directors and the Governance Committee of the Company. Mr. McCluski served as Senior Vice President and Chief Financial Officer at Bausch & Lomb Inc. until retirement in 2007. He also serves as a director of ImmunoGen, Inc. and Indevus Pharmaceuticals, Inc.

 

Incumbent Directors
Term Expiring 2009

 

Andrew M. Caggia (59).  Mr. Caggia has been a Director since 2001. Mr. Caggia retired from SMSC after serving as Senior Vice President and Chief Financial Officer of SMSC from February 2000 until October 12, 2005 except for a short period in June 2005.

 

James A. Donahue (59).  Mr. Donahue has been a Director since 2003 and for the past five years has been Director, President and Chief Executive Officer of Cohu, Inc.

 

Incumbent Directors
Term Expiring 2010

 

Timothy P. Craig (56).  Mr. Craig has been a Director since 2003. He formerly was President of the Consumer Printer Division of Lexmark International, Inc., from which he retired in 2003. He is currently President of Corevalus Systems, a small privately held company providing computer related music services to religious institutions.

 

Ivan T. Frisch (70).  Mr. Frisch has been a Director since 1992. He previously served as Executive Vice President and Provost of Polytechnic University of New York, from which he retired in 2003.

 

CORPORATE GOVERNANCE

 

Board of Directors and Committee Meetings

 

Our Board held eleven meetings in fiscal year 2008. It is the Company’s policy that Directors are expected to attend all or substantially all Board meetings and meetings of the Board committees on which they serve. Each Director attended at least 75% of the total number of Board meetings and meetings of Board committees on which such Director served.

 

The Board does not have a formal policy on Directors’ attendance at annual stockholder meetings, but it has been common practice for all Directors to attend the annual meeting, and all current Directors except Mr. Dicks attended the most recent annual meeting in July of 2007.

The Board has established the position of Lead Independent Director, and has determined that the Chairman of the Corporate Governance Committee, currently Mr. Frisch, will fulfill that role. The Lead Independent Director is responsible, among other things, for: coordinating the activities of the other independent Directors; presiding at non-management meetings of the independent Directors; relating to management Directors the results of deliberations among non-management Directors; acting as Chairman in the event the Chairman is unavailable; and acting as representative of the non-management Directors for communications with interested parties.

 

Our standing Board committees consist of an audit committee (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a compensation committee (the “Compensation Committee”) and a corporate governance committee (the “Governance Committee”).

 

Audit Committee:  The Audit Committee currently consists of Mr. Donahue (Chairman), Mr. Craig and Mr. Frisch. Each member of our Audit Committee satisfies the independence requirements of NASDAQ and the SEC.

 

The primary function of the Audit Committee is to assist the Board in its oversight responsibilities on matters relating to SMSC’s financial reporting, systems of internal controls, and audit. The Audit Committee provides advice, guidance and direction to management and to SMSC’s independent registered public accounting firm, using information shared through a free and open line of communication among the Audit Committee, management and the independent registered public accounting firm and, as appropriate, initiates inquiries into various aspects of SMSC’s financial affairs. The Audit Committee meets each quarter with management and the independent registered public accounting firm to review SMSC’s financial results before such results are publicly released, and more frequently on other matters if appropriate. The Audit Committee is also responsible for hiring, and determining fee arrangements with SMSC’s independent registered public accounting firm, monitoring the integrity of our financial statements, our independent auditors’ qualifications and independence, the performance of our audit function and independent auditor, and our compliance with legal and regulatory requirements. The Audit Committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of our independent auditors, and our independent auditors report directly to the Audit Committee. Our Audit Committee held nine meetings in fiscal year 2008.

 

Management is responsible for preparing SMSC’s financial statements and internal control over financial reporting, and the independent registered public accounting firm is responsible for performing an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) with respect to both the financial statements and internal controls over financial reporting. Although each member of the Audit Committee is financially literate, as the Board interprets that qualification, none is currently practicing as a professional accountant or auditor. Their responsibilities do not include planning or conducting audits to determine that SMSC’s financial statements are complete and accurate and are presented in accordance with generally accepted accounting principles. The Audit Committee’s role also does not include a professional evaluation of the quality of the audits performed by the independent registered public accounting firm or that those audits were performed using generally accepted auditing standards. The Board has determined that each of Messrs. Donahue, Craig and Frisch qualifies as an “audit committee financial expert” and are independent under applicable rules of the SEC and listing standards of NASDAQ.

 

Compensation Committee:  Our Compensation Committee consists of Messrs. Craig (Chairman), Dicks and Frisch. Each member of the Compensation Committee satisfies the independence requirements of NASDAQ and qualifies as an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and a non-employee director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act. The Compensation Committee held four meetings in fiscal year 2008.

 

The primary duties of the Compensation Committee are approving the compensation of SMSC’s executive officers, including the Chief Executive Officer. The Compensation Committee also administers SMSC’s employee stock option, restricted stock and stock appreciation rights plans, and certain other benefit programs and is responsible for advising the Board on the compensation of the Company’s Directors. The Compensation Committee meets or communicates regularly, both with and without management.

The Compensation Committee also reviews and discusses with management the Compensation Discussion and Analysis prepared for inclusion in our annual report on Form 10-K and proxy statement and, based on such review, determines whether to recommend to the Board of Directors that the Compensation Discussion and Analysis be included in the annual report and the proxy statement. Furthermore, the Compensation Committee prepares the Compensation Committee Report furnished with our proxy statement. The Compensation Committee Report for fiscal year 2008 is included in this proxy statement under “Compensation Committee Report” below. The Compensation Discussion and Analysis describes the Compensation Committee’s procedures for determining executive compensation, including the role of compensation consultants and management.

 

Governance Committee:  Our Governance Committee consists of all SMSC’s independent directors including Messrs. Frisch (Chairman), Dicks, Craig and Donahue. Each member of the Governance Committee satisfies the independence requirements of NASDAQ. Our Governance Committee held two meetings in fiscal year 2008. Our independent directors also meet separately after all regularly scheduled Board of Director meetings.

 

Among other responsibilities, the Governance Committee considers candidates for Director nominees proposed by Directors, the Chief Executive Officer and stockholders. The Governance Committee has and may retain recruiting professionals to identify and evaluate candidates for Director nominees. An executive search firm was hired by the Governance Committee to recruit Stephen C. McCluski who is herein being nominated by the Board for election to the Board by the shareholders. The Governance Committee seeks to identify those individuals most qualified to serve as Board members and will evaluate each candidate against many criteria including strength of character, judgment, business experience, specific areas of expertise, and diversity, taking care to maintain a majority of independent Directors. Potential candidates are screened and interviewed by the Governance Committee, and the Governance Committee is responsible for conducting, subject to applicable law, any and all inquiries into the background and qualifications of any candidate. The Board shall determine the final approval of any candidate. It is the Governance Committee’s policy, as part of its charter, to review any candidate recommended by the shareholders of the Company in light of the Governance Committee’s criteria for selection of new Directors. Any stockholder that would like to communicate directly with the Board or wishing to make a Director nomination should write to any named Director, c/o the Vice President, General Counsel and Secretary of SMSC at 80 Arkay Drive, Hauppauge, New York 11788. All such communications will be forwarded directly to the addressed Director.

 

Board Committee Charters

 

The charters for our Audit Committee, Compensation Committee and Governance Committee are available free of charge in the Corporate Governance section of the Investor Relations portion of our website at www.smsc.com or upon written request to the Secretary of the Company, 80 Arkay Drive, Hauppauge, New York 11788.

 

Corporate Governance Guidelines

 

The Company adopted corporate governance guidelines in July 2006 that are available in the Corporate Governance section of the Investor Relations portion of the Company’s website at www.smsc.com.

 

Code of Ethics and Business Practices

 

The Board has adopted a Code of Business Conduct and Ethics applicable to the Directors, Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer and Controller and all other officers and employees of the Company and is available in the Corporate Governance section of the Investor Relations portion of the Company’s website at www.smsc.com.

 

PROPOSAL 2

TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR SMSC FOR THE
FISCAL YEAR ENDING FEBRUARY 28, 2009.

 

Subject to ratification by the stockholders, the Audit Committee of the Board of Directors has selected PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm for SMSC for the fiscal year ending February 28, 2009. PwC was the independent public accountant for SMSC for its fiscal year ended February 29, 2008. Representatives of PwC are expected to be present at the annual meeting, with the opportunity to make a statement, if they desire to do so, and are expected to be available to respond to appropriate questions.

 

If the selection of PwC is not ratified, or if prior to the next annual meeting of stockholders such firm shall decline to act or otherwise become incapable of acting, or if its engagement shall be otherwise discontinued by the Audit Committee, the Audit Committee will appoint another independent registered public accounting firm whose selection for any period subsequent to the next annual meeting will be subject to stockholder ratification at such meeting.

 

The Board recommends that stockholders vote
“FOR” ratifying the selection of PricewaterhouseCoopers LLP as the independent registered
public accounting firm for SMSC for the fiscal year ending February 28, 2009.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

SMSC has been informed that, as of April 30, 2008, the persons and groups identified in the table below, including all Directors, nominees, executive officers and beneficial owners of more than 5% of its common stock, owned beneficially, within the meaning of SEC Rule 13d-3, the shares of SMSC common stock reflected in such table. As of April 30, 2008, each Director, nominee or executive officer of SMSC disclaims beneficial ownership of securities of any subsidiary of SMSC. Except as otherwise noted, the named beneficial owner claims sole investment and voting power as to the securities reflected in the table, and the address of each of the persons whose name appears in the table below is c/o SMSC, 80 Arkay Drive, Hauppauge, New York 11788.

 

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Based solely on a review of copies of reports and written representations furnished to SMSC by its executive officers, Directors and persons beneficially owning more than 10% of any class of SMSC equity securities, SMSC believes that all reports required, under Section 16(a) of the Securities Exchange Act, to be filed by its executive officers, Directors and persons beneficially owning more than 10% of any class of SMSC equity securities in the 2008 fiscal year were timely filed.

 

MANAGEMENT

 

Executive Officers

 

The Company’s executive officers and their ages as of May 1, 2008, are as follows:

 

 

Steven J. Bilodeau has served as the Company’s President and Chief Executive Officer, and as a member of the Company’s Board of Directors, since March 1999. Mr. Bilodeau began serving as the Company’s acting Chief Financial Officer on April 30, 2008. Mr. Bilodeau is also a director of Conexant, Inc. and Gennum Corporation.

 

Peter S. Byrnes has held various operations and management positions with the Company since 1995. Prior to becoming Vice President of Operations in April 2006 he had served as Vice President and General Manager, Computing Platforms Solutions Group since November 2003. Prior to that he served as Vice President, Operations from June 2000 through November 2003.

 

Joseph S. Durko has served as the Company’s Vice President and Controller since March 27, 2006 and became the Chief Accounting Officer on May 16, 2006. Mr. Durko previously served as a Manager at BBK Ltd. Mr. Durko was the Director of Financial Reporting for TRW Automotive from 2003 to 2004, and was the Vice President, Finance and Corporate Controller for Ventiv Health, Inc. from 2000 to 2002. Mr. Durko is a certified public accountant.

 

Walter Siegel has served as the Company’s Vice President and General Counsel since October 24, 2005 and Secretary since November 15, 2005. Prior to joining the Company, Mr. Siegel was Vice President for Law and Business Development and Deputy General Counsel at Symbol Technologies, Inc. from March 2000 to October 2005.

Aaron L. Fisher has served as the Company’s Senior Vice President, Products and Technology since September 6, 2006. Prior to joining SMSC, he served as Chief Executive Officer of T-Networks, a venture capital-funded company that developed optical components, from 2001 to 2006.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview of Compensation Program

 

The Compensation Committee of the Board is composed entirely of independent Directors within the meaning of applicable NASDAQ, SEC and IRS regulations. The charter of the Compensation Committee was amended in July 2007 to provide that the Compensation Committee may approve the compensation of the Chief Executive Officer, and is available in the Corporate Governance section of the Investor Relations portion of the Company’s website at www.smsc.com. Pursuant to its charter, the Compensation Committee shall, among other duties, perform the following:

 

a) Review periodically the Company’s compensation philosophy and strategies.

 

b) Benchmark the Company’s compensation practices against relevant companies.

 

c) Review annually the goals and objectives relevant for the compensation of the CEO, evaluate the performance of the CEO and approve the compensation of the CEO.

 

d) Review annually, with input from the CEO, the performance, goals and objectives relevant for the compensation of executive officers other than the CEO, and approve their compensation.

 

Compensation Philosophy and Objectives

 

The Compensation Committee of the Company has developed and implemented executive compensation programs that seek to attract and retain the talent required for the continued success of our business. In addition, our executive compensation programs are structured to enhance the profitability of the Company and improve shareholder value by closely aligning the financial interests of the Company’s named executive officers with those of its shareholders.

 

To achieve these objectives we offer an executive compensation program that consists primarily of two key elements: (1) current compensation composed of annual base salary and annual cash bonuses and (2) long-term compensation composed of restricted stock awards, cash-settled stock appreciation rights (“SARs”) and stock options. Though the Compensation Committee has no formal rules for allocating between long-term and current compensation, our executive compensation program is deliberately designed so that long-term compensation, rather than short-term compensation, comprises a significant portion of each named executive officer’s compensation. We believe the increased emphasis on long-term compensation serves to properly align the interests of our named executive officers with those of our shareholders by directly linking management incentives to the Company’s long-term performance, as reflected primarily in stock price appreciation and increased shareholder value. The Compensation Committee also believes that long-term compensation serves as a retention mechanism for executives since each of our long-term equity incentives vest, at a minimum, over several years of continued service to the Company. The current compensation component of our executive compensation program is also designed to attract and retain key talent.

 

Role of Executive Officers in Compensation Decisions

 

Because of his specific knowledge of their performance, the Chief Executive Officer consults closely with the Compensation Committee when the Compensation Committee determines the compensation of the other executive officers of the Company. The Chief Executive Officer discusses directly with the Compensation Committee his own compensation, although the Chief Executive Officer does not participate in the deliberations or vote on any determinations of his own compensation. The other executive officers generally have minimal or no involvement in the compensation process for themselves. The General Counsel of the Company in the past served as Secretary of

the Compensation Committee, and also, with outside counsel, from time to time advises the Compensation Committee on current legal issues relating to compensation matters. The Vice President of Human Resources currently serves as Secretary of the Compensation Committee.

 

Outside Compensation Consultant

 

The Compensation Committee has the authority to retain its own independent consultants or other advisers, and has done so in the past. The Compensation Committee retained no outside compensation consultants in fiscal year 2008, although publicly available data was used from multiple sources.

 

Benchmarking Process

 

In structuring the executive compensation program, the Compensation Committee considers competitive market compensation data. In particular, the Company periodically performs at the request of the Compensation Committee salary surveys based on publicly available data from peer companies. The Company also subscribes to the Radford Associates Executive Compensation Survey, a third party industry source, which it uses to benchmark executive compensation and to advise the Chief Executive Officer and Compensation Committee. Three of the Company’s named executive officers were recruited through retained executive search firms and the Company also relies on the advice of retained search firms as a source of market data. The Compensation Committee has historically considered and reviewed compensation of chief executive officers at other peer companies prior to increasing the Chief Executive Officer’s salary. In determining to increase the Chief Executive Officer’s salary this year the Compensation Committee requested that management (including, among others, the Vice President of Human Resources and the Chief Executive Officer) update and then review with the Compensation Committee the previous salary survey benchmarking chief executive officer compensation. The current survey benchmarked the Chief Executive Officer’s compensation against the following peer semiconductor companies: AMIS Holdings, Cirrus Logic Inc., Conexant Systems, Inc., Integrated Device Technology, Inc., Intersil Corp., Microsemi Corp., PMC-Sierra, Inc., Semtech Corp., Silicon Image, Inc., Silicon Laboratories Inc., and Zoran Corp. This survey was prepared using publicly available information from these companies’ proxy statements.

 

Components of Executive Compensation Program

 

Our named executive officers’ compensation is comprised primarily of two elements: (1) current compensation composed of base salary and annual cash bonuses and (2) long-term compensation tied directly to shareholder value, composed of restricted stock awards, cash-settled SARs and stock options. In addition, as detailed elsewhere in this proxy statement, certain of the named executive officers participate in the Company’s Supplemental Executive Retirement Plan (the “SERP”). Most named executive officers received additional individual life and disability coverage, as detailed in the Summary Compensation Table, in addition to receiving the same health and welfare benefits offered to all other employees.

 

Base Salary

 

Base salary represents the main fixed component of our executive compensation program. This element of compensation is generally designed to be competitive with similar semiconductor companies and is structured to enable the Company to recruit and retain important contributors to the Company’s success. In determining the base salary for each of our named executive officers, the Compensation Committee considers performance of the individual, performance of the Company, length of service, the amount of time that has elapsed since any prior increase, the competitive market for similarly situated positions, and other factors that the Compensation Committee determines are relevant in the particular case. In the case of new hires, the Compensation Committee also considers the salary required to attract the individual, and the individual’s prior compensation history.

 

On April 30, 2008, the Compensation Committee approved salary increases for three named executive officers apart from Mr. Bilodeau. Mr. Siegel’s annual salary was increased by $14,000 to $294,000; Mr. Byrnes’s annual salary was increased by $15,000 to $275,000; and Mr. Fisher’s annual salary was increased by $15,000 to $315,000. This was the first salary increase received by Messrs. Siegel and Fisher since their respective hirings in October 2005 and September 2006. This was the first salary increase received by Mr. Byrnes since June 2006. All increases

were retroactive to March 1, 2008, the beginning of fiscal year 2009. In addition to the factors listed in the paragraph above, the Compensation Committee made these reward decisions based on its view as to the relative performance and value delivered by the respective executives. The Chief Executive Officer participated with the Compensation Committee in these discussions.

 

Annual Bonuses

 

Annual bonus opportunities for our named executive officers are governed by the Company’s Management Incentive Plan (“MIP”) and are typically established at the Compensation Committee’s annual April meeting. Pursuant to the MIP, a named executive officer’s annual bonus opportunity is tied to both Company and individual performance objectives. The Committee retains discretion to reduce bonuses for unsatisfactory individual performance, to award bonuses if objectives are not satisfied in their discretion, or to adjust the MIP for changed circumstances. Under the terms of the fiscal year 2008 MIP, one-third of an employee’s bonus was based on the Company achieving a revenue objective, and one-third was based on the Company achieving a non-GAAP net income objective. In calculating these measures, the Compensation Committee included those items that it believed reflected the operating performance of the Company. Thus, the MIP did not require these measures to be GAAP financial measures. The remaining one-third of the bonus was based on certain strategic goals defined by the Compensation Committee and approved by the Board at its July 2007 meeting. The strategic element of the bonus can be adjusted by the Compensation Committee for individual performance. Participants in the MIP can have their bonus under each of the revenue and non-GAAP net income components increased by an additional 20% of the respective bonus target if a certain upside performance, as measured against the objectives, is achieved.

 

Approximately one half of the MIP is paid in the form of restricted stock that vests over three years, with 25% vesting after each of the first two years and the remaining 50% vesting after the third year. The Committee believes this vesting schedule serves as a retention tool and aligns the long-term interests of management with the shareholders. The restricted stock is earned quarterly based on fiscal year-to-date achievement. The restricted stock portion of this bonus is adjusted for final full year-end results so that if the quarterly bonuses are not earned due to failure to meet quarterly objectives, but the yearly objective is ultimately met, then the full restricted stock award is made at year-end. The cash portion is paid out after the end of the fiscal year based on full-year results. The strategic portion of the bonus and any increase due to exceeding objectives are paid in cash after the end of the fiscal year. All restricted stock awards under the MIP are approved by the Compensation Committee. In April 2008 the Compensation Committee approved the fiscal year 2009 MIP, whose structure is substantially similar to the fiscal year 2008 MIP. The Compensation Committee believes that the revenue, non-GAAP net income and strategic objectives are not material to understanding the MIP as various combinations of performance under these objectives could produce the same payout under the Company’s MIP.

 

Annual bonuses paid under the MIP are not qualified for purposes of Section 162(m) of the Code. The financial and strategic measures established for the MIP are meant to be challenging but achievable goals. For fiscal year 2008 all of the named executive officers received the majority of their target MIP amounts; the exact amounts paid are detailed elsewhere in this proxy statement. No discretion was exercised by the Committee to make awards if targets were not met; nor was any individual’s award adjusted to be different than that dictated by the numerical measures and ratings achieved by the Company and the individual respectively.

 

Long Term Equity Incentives

 

Since we believe aligning the interests of our named executive officers with those of our shareholders is a crucial component of the Company’s success, our named executive officer compensation is heavily weighted in long-term compensation. In addition to the restricted stock portion of our annual bonus payouts (described above), named executive officers are generally eligible to receive additional equity or equity-based awards, either in the form of stock options, restricted stock or cash-settled SARs. In addition, the Compensation Committee believes that the vesting element of long-term incentives also serves as a retention mechanism for employees.

 

Newly hired executive officers generally receive options granted by the Compensation Committee to purchase the Company’s common stock via inducement stock option plans, which do not require shareholder approval. Existing executive officers receive a portion of their annual MIP bonus via shareholder approved restricted stock

awarded by the Compensation Committee. Existing executive officers generally receive additional equity-based awards through the grant of cash-settled SARs awarded by the Compensation Committee and/or a majority of the independent Directors. The Company’s SARs and Inducement Stock Option plans have not been approved by the shareholders of the Company and are not qualified for purposes of Section 162(m) of the Code.

 

Newly hired executive officers generally receive option awards on the date of their hire. Restricted stock awards to executive officers and other employees issued pursuant to the Company’s annual MIP are generally issued on the third business day following the Company’s release of quarterly earnings. All stock options, SARs and restricted stock granted to executive officers are priced at the Company’s closing common stock price on the NASDAQ exchange on the date of grant. The SARs and stock options granted generally vest over 4 or 5 years in equal increments and have ten-year terms.

 

The amount of equity compensation offered to executive officers is based on a number of factors, including performance of the individual, performance of the Company, long-term career potential, the amount of time that has elapsed since any prior grant of equity-based compensation, the competitive market for similarly situated positions, amounts required to attract new employees, and other factors that the Compensation Committee determines are relevant in the particular case.

 

In fiscal 2009, the Compensation Committee amended the Standard Microsystems Corporation 2006 Employee Stock Appreciation Rights Plan to increase the number of cash-settled SARs that could be granted by an additional 2,000,000 SARs, as the Company did not have sufficient equity-based incentives available for current employees under existing plans. The Compensation Committee believes that long-term equity-based incentives are essential to retain key employees, minimize employee turnover, motivate our human resources to achieve business objectives and align the interests of our employees with our shareholders. Another factor motivating the decision to increase the number of SARs available was that a significant percentage of the employee base had not received grants of stock options or SARs since October 2006.

 

In fiscal 2009, the Compensation Committee of the Company also amended the 2005 Inducement Stock Option and Restricted Stock Plan of Standard Microsystems Corporation (the “2005 Inducement Plan”). The Compensation Committee also recommended and approved, and the Board approved, the amendment of the Standard Microsystems Corporation 2006 Directors Stock Appreciation Rights Plan (the “2006 Directors Plan”) in fiscal 2009. The 2005 Inducement Plan was amended to increase the number of shares of Company common stock with respect to which stock options and restricted stock could be granted to new hires by 500,000. None of the named executive officers may receive any grants under this additional authorization. The 2006 Directors Plan was amended to increase the number of cash-settled SARs that could be granted to non-employee Directors by 200,000. The Compensation Committee and the Board approved the foregoing amendments because the capacity under both of the existing plans was in danger of being exhausted, and the Committee and Board believe that equity-based incentives are essential in order for the Company to attract new employees and Directors, retain employees and Directors, and minimize turnover. The Committee and Board also believe that these equity-based incentives align the interests of new employees and Directors with the shareholders.

 

In fiscal 2008, Mr. Bilodeau received 150,000 cash-settled SARs pursuant to his employment agreement with the Company. In addition, on April 30, 2008, the Compensation Committee approved the following cash-settled SAR grants to the following named executive officers to be issued on May 12, 2008: Mr. Fisher: 20,000 SARs, Mr. Byrnes: 16,000 SARs, and Mr. Siegel: 2,500 SARs. In addition, beginning on July 15, 2008, Mr. Siegel will receive quarterly grants of 2,500 cash-settled SARs unless otherwise changed by the Compensation Committee. These SAR grants to Messrs. Byrnes and Siegel were the first stock option or SAR grants to them since October 2006. The SAR grant to Mr. Fisher was the first stock option or SAR grant to him since his hiring in September 2006. The Compensation Committee directed management, with input from the Chief Executive Officer, to make a recommendation to the Committee as to the appropriate number of SARs to be granted to each of the above officers. The Committee’s determination was based on an analysis of the number of SARs available for grant to the entire Company, each officer’s vested and unvested equity positions, and what grants were deemed necessary to motivate and retain these individuals.

 

Though the Company has not adopted a formal policy governing the equity ownership of its named executive officers, we believe that the structure of the executive compensation program and its focus on equity incentives,

both in terms of annual bonus restricted stock payouts under the MIP and the other long-term equity awards described above, fosters ongoing executive stock ownership. As a result, we expect that each of our named executive officers either already have or will develop a meaningful equity ownership interest in the Company as their careers progress.

 

The Company’s insider trading policy prohibits executive officers from buying, selling or exercising any market-traded option (put or call) on Company shares, from trading options for Company shares, from investing in other derivative securities based on Company shares, and from selling short any Company shares.

 

Health and Welfare Benefits

 

Our named executive officers are eligible to receive the same health and welfare benefits that are generally available to other US based employees of the Company and a contribution to their benefit premium that is the same as provided to other employees. These benefits programs include health and dental insurance, health and dependent care flexible spending accounts, short-term and long-term disability, a patent award program, life insurance, accidental death and dismemberment insurance, and certain other benefits. Most named executive officers also received additional individual life and disability coverage in addition to receiving the same health and welfare benefits offered to all other employees. Attributed costs of the personal benefits described above for the named executive officers for the fiscal year ended February 29, 2008, are included in the column labeled “All Other Compensation” in the Summary Compensation Table.

 

Retirement Benefits

 

SMSC maintains a tax-qualified 401(k) plan, which provides for broad-based employee participation. Under the 401(k) plan, all SMSC employees, including the named executive officers, are eligible to defer a portion of their compensation, subject to the IRS limit of $15,500, into the 401(k) plan. In addition, all such employees are eligible to receive Company matching contributions in SMSC common stock for up to sixty-seven percent (67%) of the amount they voluntarily contribute to the 401(k) plan, with a further limit that no matching contribution may be made for employee contributions in excess of six percent (6%) of their compensation, as defined in the 401(k) plan. The matching contributions for the named executive officers for fiscal year 2008 are reflected in the Summary Compensation Table.

 

In addition, under SMSC’s SERP, named executive officers that have been approved to participate in the SERP by the Board and whose employment terminates after full vesting (as provided in the SERP), or after a change in control (as defined in the SERP), will generally receive, beginning at age 65 or such officer’s alternate retirement date (or, upon total and permanent disability, if earlier), an annual benefit equal to 35% of the executive’s Base Annual Salary (as defined in the SERP) payable in equal monthly installments over a ten-year period. All named executive officers have been approved for participation in the SERP. For participants who enter the plan after January 1, 2003, which includes Messrs. Siegel, Fisher and Smith, vesting upon a change in control of the Company is at the discretion of the Board. In March 2007, the SERP was amended, among other changes, to provide for certain alternative distributions for the participants in the SERP, and to change the timing of certain payouts under the SERP to comply with Section 409A of the Code (“Section 409A”). In addition, while the Company has made amendments in an effort to comply with Section 409A, it has amended the SERP to provide “gross up” tax protection in the event the participants incur a tax liability under Section 409A, despite efforts by the Company to make sure that no tax will apply. The change in the net present value of the Company’s liability for the SERP is set forth in the Summary Compensation Table.

 

The Compensation Committee believes that the retirement benefits and other generally available health and welfare benefits programs described above are appropriate and consistent with its overall compensation program to better enable SMSC to attract and retain superior employees. The Compensation Committee periodically reviews the levels of benefits provided to all named executive officers and makes adjustments, as necessary.

 

The Company also maintains a severance plan (the “Severance Plan”) for its United States based employees, and some of the named executive officers are entitled to receive benefits under this plan as detailed elsewhere in this proxy. The purpose of the plan is to allow the Company to recruit and retain employees. Executives (as defined in the Severance Plan) are entitled to receive three months base salary as severance if they are terminated by the

Company without cause (as defined in the Severance Plan). If such termination occurs within one year following a change of control of the Company (as defined in the Severance Plan), the benefit is extended to six months base salary. In addition, all Executives under the Severance Plan are entitled to receive three months paid Consolidated Omnibus Reconciliation Act (“COBRA”) coverage if terminated without cause.

 

Perquisites and Fringe Benefits

 

Each named executive officer receives a car allowance or leased automobile as set forth in the Summary Compensation Table.

 

Change of Control Arrangements

 

In addition, we have change of control arrangements with certain of our named executive officers, which provide for the executives to receive certain payments and benefits upon a change of control of the Company. Information regarding applicable payments under such agreements for the named executive officers is provided under the heading “Change of Control and Severance Agreements.” These arrangements include, in certain cases, gross up protection under sections 280G and 409A of Code, although the Company has structured its arrangements with these executives to try to make sure that no liability under Section 409A will apply. These arrangements are designed to maintain the continuity of the senior management team and to more closely align the financial interests of senior management with the shareholders of the Company.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation

 

Section 162(m) of the Code limits the amount of “applicable employee remuneration” deductible by SMSC for “covered” employees for any taxable year to $1,000,000. Qualifying performance-based compensation is not subject to such limitation if certain requirements are satisfied. Several of SMSC’s stock option plans permit the Compensation Committee to pay compensation that is “performance-based” and thus fully tax deductible by SMSC. However, compensation paid pursuant to the employee SARs plans, the Company’s MIP and the Company’s inducement stock option plans are not qualified. In fiscal year 2008, the Company estimated that as a result of Mr. Bilodeau’s compensation exceeding the section 162(m) limits, it will lose approximately $700,000 in tax benefits.

 

Accounting for Stock-Based Compensation

 

In fiscal year 2007, SMSC began accounting for stock-based compensation, including its stock option grants, restricted stock awards, and stock appreciation rights, in accordance with the requirements of FASB Statement 123(R).

 

Compensation of the Chief Executive Officer

 

After discussion with the Chief Executive Officer, as detailed above, the Compensation Committee approves Mr. Bilodeau’s compensation. On April 30, 2008, the Compensation Committee increased Mr. Bilodeau’s salary from $570,000 to $610,000. As with the other named executive officers, the increase was retroactive to March 1, 2008 which is the beginning of the Company’s 2009 fiscal year. This represented Mr. Bilodeau’s first salary increase since July, 2006. Beginning with the July 2007 fiscal quarter, Mr. Bilodeau is being granted 50,000 cash-settled SARs per quarter pursuant to his March 2007 employment agreement with the Company. Mr. Bilodeau received a bonus pursuant to the fiscal year 2008 MIP of $810,782 consisting of $411,782 in cash and $399,000 in restricted stock vesting over three years. The CEO is compensated on a greater scale than the other named executive officers because of the scope, scale and complexity of his position.

 

Executive Employment Agreements

 

Mr. Bilodeau has and Mr. Smith had, prior to the termination of his employment with the Company on April 30, 2008, an employment agreement with the Company; Messrs. Siegel and Fisher have employment letters that were executed to induce them to join the Company. Mr. Siegel’s and Mr. Fisher’s employment letters were

amended in March 2007, as were Mr. Bilodeau’s and Mr. Smith’s employment agreements. Each of Messrs. Smith’s, Bilodeau’s, Fisher’s and Siegel’s agreements provide certain payments and other benefits upon termination without cause or upon a change of control and for gross ups for any excise taxes or penalties imposed on the executive pursuant to Sections 280G and 409A of the Code, although the Company has attempted to structure each agreement so that it complies with section 409A of the Code.

 

The other named executive officer, Mr. Byrnes, is eligible to receive the standard benefits applicable to Executives under the Company’s Severance Plan.

 

The following table sets forth the compensation paid to or earned during fiscal 2008 by (i) our principal executive officer, (ii) our principal financial officer, and (iii) the Company’s three other most highly compensated executive officers who were serving as executive officers as of the end of fiscal 2008:

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

Employment Agreements

 

Steven J. Bilodeau

 

Mr. Steven J. Bilodeau and SMSC have entered into an employment agreement providing for his employment as President and Chief Executive Officer of SMSC until November 18, 2008. Mr. Bilodeau’s current annual base salary is $610,000. His current total bonus opportunity including overachievement pursuant to the Company’s MIP is approximately One Hundred and Seventy percent (170%) of base salary. Mr. Bilodeau’s employment agreement also provides for:

 

 

 

David S. Smith

 

Mr. David S. Smith and SMSC entered into an employment agreement providing for his employment as Senior Vice President and Chief Financial Officer of SMSC until September 15, 2008. Mr. Smith ceased being an employee of SMSC on April 30, 2008. Mr. Smith’s annual base salary was $325,000. His total bonus opportunity including overachievement pursuant to the Company’s MIP was approximately One Hundred and Two percent (102%) of base salary. Mr. Smith’s employment agreement also provided for:

 

 

Aaron L. Fisher

 

Mr. Aaron L. Fisher and SMSC have entered into an employment letter dated March 19, 2007 providing for his employment as Senior Vice President of Products and Technology. Mr. Fisher’s current base salary is $315,000. His total bonus opportunity including overachievement pursuant to the Company’s MIP is approximately 85% of his base salary. Mr. Fisher’s letter also provides for:

 

 

 

Walter Siegel

 

Mr. Walter Siegel and SMSC have entered into an employment letter dated March 19, 2007 providing for his employment as Vice President and General Counsel of SMSC. Mr. Siegel’s current annual base salary is $294,000. His current total bonus opportunity including overachievement pursuant to the Company’s MIP is approximately 41% of his base salary. Mr. Siegel’s employment agreement also provides for:

 

 

The following table sets forth information regarding the awards granted to our named executive officers pursuant to Company plans during fiscal 2008:

 

GRANTS OF PLAN-BASED AWARDS — FISCAL YEAR 2008

 

 

 

 

The following table sets forth information regarding outstanding equity awards held by the Company’s named executive officers as of the end of Fiscal 2008:

 

OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR-END

 

 

 

 

The following table sets forth information concerning each exercise of stock options, SARs and similar instruments, and each vesting of stock, including restricted stock, restricted stock units and similar instruments, during fiscal year 2008 for each named executive officer on an aggregated basis:

 

OPTION EXERCISES AND STOCK VESTED — FISCAL YEAR 2008

 

 

 

 

PENSION BENEFITS — FISCAL YEAR 2008 (as of February 29, 2008)

 

 

 

 

CHANGE OF CONTROL AND SEVERANCE PAYMENTS

 

The following table provides information concerning the estimated payments and benefits that would be provided in the event of termination upon a change of control, termination without cause, and termination for death or disability for each of the named executive officers. The calculations do not include accrued but unpaid obligations, such as expense or other reimbursements. A narrative description of the estimated payments and benefits to Messrs. Bilodeau, Smith, Siegel and Fisher is contained in the summary of their employment or letter agreements in the Employment Agreement section of this proxy statement. Mr. Byrnes is entitled to receive those benefits applicable to Executives under the Company’s Severance Plan. The Severance Plan provides that Executives, as defined by the Severance Plan, are entitled to receive three months of salary and three months of COBRA benefits for termination without cause; if termination without cause follows a change of control of the

Company (as defined in the Severance Plan) the salary benefit is increased to six months of salary. Mr. Siegel is also entitled to receive under the Severance Plan the same COBRA benefit as Mr. Byrnes.

 

Payments and benefits are estimated assuming that the triggering event took place on the last business day of fiscal 2008 (February 29, 2008), and the price per share of the Company’s Common Stock is the closing price on the NASDAQ Global Market as of that date ($28.35). There can be no assurance that a triggering event would produce the same or similar results as those estimated below if such event occurs on any other date or at any other price, or if any of the assumptions used to estimate potential payments and benefits is not correct. Actual payments or benefits could be materially different than those set forth below. The Company estimates as of February 29, 2008 that no 280G or 409A gross ups would have been due Messrs. Bilodeau, Smith, Fisher or Siegel assuming a triggering event took place on that day. If payments are subject to a six month delay upon a separation of service under 409A Messrs. Siegel, Smith, Fisher and Bilodeau would be entitled to interest on the delayed payments at the rate of prime plus 2%. The amounts calculated for Mr. Smith do not represent the severance he received upon his termination of employment with the Company on April 30, 2008.

 

The Company’s form of stock option grant agreement for the 2005 Inducement Stock Option and Restricted Stock Plan contains non-solicit and confidentiality clauses that entitle the Company in the event of a breach of the foregoing clauses to seek to reclaim any profits made by an individual from the sale of stock options during the one year period prior to such breach. Messrs. Siegel, Fisher and Smith have received stock options subject to this form of agreement. Messrs. Siegel and Fisher have also executed the Company’s standard form employee agreement, which also contains confidentiality and non-solicit clauses; Mr. Byrnes, executed an earlier version of this standard form employee agreement that contains a confidentiality clause, but not a non-solicit clause. The employment agreements of Messrs. Bilodeau and Smith also contain confidentiality, non-compete and non-solicit clauses, and Mr. Fisher’s employment letter contains a non-compete and non-solicit clause.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Byrnes receives the standard severance and continuation of health and welfare benefits applicable to executives under the Severance Plan in the event of termination without cause, a required relocation more than 75 miles from the Company’s current headquarters in Hauppauge, Long Island, or a change of control. The amounts are set forth below:

 

 

The following table sets forth the compensation paid to or earned during fiscal year 2008 by our non-management Directors:

 

DIRECTOR COMPENSATION — FISCAL YEAR 2008(1)

 

 

 

 

 

 

Compensation of Directors.  Directors who are not officers of SMSC receive an annual basic retainer of $35,000, committee chairpersons receive an additional annual retainer of $18,000 per committee and committee members receive an additional annual retainer of $8,000 per committee.

 

SMSC’s Plan for Deferred Compensation in Common Stock for Outside Directors provides for deferred payment in shares of SMSC common stock, at the election of the Director, of 100% or 50% of such Director’s annual retainer and each chairperson or committee retainer to which the Director is entitled. The deferred amount is credited in the form of phantom share units, ultimately payable in shares of stock, when the Director ceases to be a Director for any reason, or in cash only, upon the occurrence of a change in control of SMSC.

 

Under SMSC’s 2001 and 2003 Director Stock Option Plans, options to purchase an aggregate of 350,000 shares of SMSC common stock were authorized for grant to Directors who are not employees of SMSC or any subsidiary of SMSC. Pursuant to the plans, each eligible Director, upon initial election, is automatically granted a vesting

option to purchase 42,000 shares. Such options become exercisable with respect to one-third of the number of shares granted on each of the first three anniversaries of the date of grant. Each eligible Director incumbent for at least three years is automatically granted, on a quarterly basis, an immediately exercisable option to purchase 3,500 shares. The per share exercise price of each option equals the fair market value of a share of the common stock on the date of grant. In general, options are not transferable. Options expire the earlier of ten years after the grant date, or three years after the holder ceases to be a Director. The 1994 Director Stock Option Plan has been terminated, except with respect to outstanding options.

 

On October 7, 2005, the Board adopted SMSC’s 2005 Director Stock Appreciation Rights Plan (the “2005 SAR Plan”) to replace the 2003 Director Stock Option Plan that no longer had sufficient shares available for the grants that are part of the Board’s normal compensation. The 2005 SAR Plan has an initial quantity of 49,000 SAR units, and was established to function in a manner substantially similar to the 2003 Director Stock Option Plan. The 2005 SAR Plan provides that current service grants will be made quarterly in SARs, in lieu of options as provided in the 2003 Director Stock Option Plan; and that each service grant of SARs shall be paid on a fixed date at the end of the fifth fiscal year following the date of grant, and not be exercisable at the option of the Director.

 

On July 11, 2006, the Board of the Company approved the Standard Microsystems Corporation 2006 Directors Stock Appreciation Rights Plan (the “2006 Directors Plan”). The 2006 Directors Plan provides for 200,000 SARs to be made available for issuance to the Directors of the Company. The SARs are intended to function substantially similar to stock options, but shall be cash-settled exclusively. The 2006 Directors Plan provides for 42,000 SARs to be granted to non-employee Directors at fair market value upon initial election to the Board (“Initial SARs”). The Initial SARs vest in equal one third (1/3) annual increments over three years. The 2006 Directors Plan also provides for each serving Director after his third year of service to receive 3,500 SARs at fair market value on each of July 15, October 15, January 15 and April 15 (“Current SARs”). Each grant of Current SARs vests one year after the grant date. The amount and timing of Initial and Current SAR grants under the 2006 Directors Plan are consistent with the 2005 SAR Plan. Directors will not receive duplicative SAR grants under the 2006 Directors Plan and the 2005 SAR Plan. The term of the SARs grants are ten years. On April 9, 2008 the Board of Directors amended the 2006 Directors Plan to add an additional 200,000 SARs for a total of 400,000 SARs as the capacity of the 2006 Directors Plan was being exhausted.

 

Only non-employee Directors are eligible to receive awards under Director compensation plans.

 

Equity Compensation Plan Information

 

The following table sets forth aggregate information regarding our equity compensation plans in effect as of February 29, 2008. The inducement options granted did not require shareholder approval.